<PAGE> 1
AIM ADVISOR FLEX FUND
------------------------------------------------------------------------
AIM Advisor Flex Fund seeks to achieve a high total return on investment
through growth of capital and current income, without regard to federal
income tax considerations.
PROSPECTUS
MAY 3, 1999,
AS REVISED
JULY 1, 1999
This prospectus contains important
information about the Class A, B and
C shares of the fund. Please read it
before investing and keep it for
future reference.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE
--Registered Trademark--
<PAGE> 2
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AIM ADVISOR FLEX FUND
---------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE FUND 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 2
- - - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 2
Performance Table 2
FEE TABLE AND EXPENSE EXAMPLE 3
- - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 3
Expense Example 3
FUND MANAGEMENT 4
- - - - - - - - - - - - - - - - - - - - - - - - -
The Advisors 4
Advisor Compensation 4
Portfolio Managers 4
OTHER INFORMATION 4
- - - - - - - - - - - - - - - - - - - - - - - - -
Sales Charges 4
Dividends and Distributions 4
FINANCIAL HIGHLIGHTS 5
- - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - -
Choosing a Share Class A-1
Purchasing Shares A-3
Redeeming Shares A-4
Exchanging Shares A-6
Pricing of Shares A-7
Taxes A-8
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
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, La Familia AIM de Fondos and Design and Invest with
Discipline are registered service marks and AIM Bank Connection, AIM Funds,
AIM Funds and Design and AIM Investor are service marks of A I M Management
Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 3
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AIM ADVISOR FLEX FUND
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INVESTMENT OBJECTIVE AND STRATEGIES
- --------------------------------------------------------------------------------
The fund's investment objective is to achieve a high total return on investment
through growth of capital and current income, without regard to federal income
tax considerations.
The fund seeks to meet this objective by investing in a combination of equity
securities and fixed- and variable-income securities. The fund normally invests
at least 20% of its total assets in equity securities and at least 20% of its
total assets in fixed- and variable-income securities. The fund's equity
investments will consist primarily of common stocks, and to a lesser extent
convertible securities, of selected companies from a list of companies with
market capitalizations among the largest 800 publicly traded U.S. corporations.
The fund's fixed-income investments will consist primarily of U.S. government
obligations and corporate obligations that have been rated investment-grade, or
securities deemed by the portfolio managers to be of comparable quality.
The fund may invest in mortgage-backed securities, including mortgage
pass-through securities and collateralized mortgage obligations, that are
guaranteed as to timely payment of principal and interest by an agency of the
U.S. government or a private issuer. The fund may invest up to 10% of its total
assets in non-Canadian foreign securities and unsponsored American Depositary
Receipts (ADRs). The fund may also invest up to 25% of its total assets in
securities of Canadian issuers and sponsored ADRs.
The portion of the fund's assets that can be invested in either equity
securities or income securities will be allocated according to the portfolio
managers' assessment of current business, economic and market conditions. The
fund seeks reasonably consistent returns over a variety of market cycles. In
order to identify the equity securities having the best relative values, the
portfolio managers start with a list of the 800 largest publicly traded U.S.
corporations, which they reduce to a list of 100 eligible stocks by utilizing a
proprietary database system and fundamental analysis. The portfolio managers
usually sell a particular equity security when it no longer qualifies for the
list of eligible securities. The portfolio managers will purchase fixed- and
variable-income obligations that they believe are undervalued and may offer
superior yields. The portfolio managers consider whether to sell a particular
income security when any of those factors materially changes.
In anticipation of or in response to adverse market conditions, for cash
management purposes, or for defensive purposes, the fund may temporarily hold
all or a portion of its assets in cash, money market instruments, bonds or other
debt securities. As a result, the fund may not achieve its investment objective.
PRINCIPAL RISKS OF INVESTING IN THE FUND
- --------------------------------------------------------------------------------
There is a risk that you could lose all or a portion of your investment in the
fund and that the income you may receive from the fund may vary. The value of
your investment in the fund will go up and down with the prices of the
securities in which the fund invests. The prices of equity securities change in
response to many factors, including the historical and prospective earnings of
the issuer, the value of its assets, general economic conditions, interest
rates, investor perceptions and market liquidity.
Interest rate increases can cause the price of a debt security to decrease;
the longer a debt security's duration, the more sensitive it is to this risk.
The issuer of a security may default or otherwise be unable to honor a financial
obligation. A faster than expected principal prepayment rate on U.S. Government
agency mortgage-backed securities will reduce both the market value of, and
income from, such securities.
Foreign securities have additional risks, including exchange rate changes,
political and economic upheaval, the relative lack of information about these
companies, relatively low market liquidity and the potential lack of strict
financial and accounting controls and standards.
The value of your shares could be adversely affected if the computer systems
used by the fund's investment advisor and the fund's other service providers are
unable to distinguish the year 2000 from the year 1900.
The fund's investment advisor and independent technology consultants are
working to avoid year 2000-related problems in its systems and to obtain
assurances that other service providers are taking similar steps. Year 2000
problems may also affect issuers in whose securities the fund invests.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
1
<PAGE> 4
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AIM ADVISOR FLEX FUND
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PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
The following bar chart shows changes in the performance of the fund's Class C
shares from year to year. The bar chart does not reflect sales loads. If it did,
the annual total returns shown would be lower.
[GRAPH]
<TABLE>
<CAPTION>
Annual
Year Ended Total
December 31 Return
- ----------- ------
<S> <C>
1989 ....................................... 17.26%
1990 ....................................... -1.68%
1991 ....................................... 24.80%
1992 ....................................... 7.72%
1993 ....................................... 10.48%
1994 ....................................... 0.64%
1995 ....................................... 27.30%
1996 ....................................... 13.61%
1997 ....................................... 23.64%
1998 ....................................... 12.41%
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
12.12% (quarter ended March 31, 1991) and the lowest quarterly return was -8.25%
(quarter ended September 30, 1990).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index. The fund's performance reflects payment of
sales loads.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(for the periods ended SINCE INCEPTION
December 31, 1998) 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A 7.03% -- -- 15.48% 12/31/96
Class B -- -- -- -- 03/03/98
Class C 11.41% 15.13% 13.23% 12.49% 02/24/88
S&P 500(1) 28.60% 24.05% 19.19% 18.32%(2) 02/29/88(2)
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) The Standard & Poor's 500 Index is an unmanaged index of common stocks
frequently used as a general measure of U.S. stock market performance.
(2) The average annual total return given is since the date closest to the
inception date of the class with the longest performance history.
2
<PAGE> 5
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AIM ADVISOR FLEX FUND
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FEE TABLE AND EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from
your investment) CLASS A CLASS B CLASS C
- -------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales
Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) 5.50% None None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase
price or redemption
proceeds, whichever
is less) None(1) 5.00% 1.00%
- -------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets) CLASS A CLASS B CLASS C
- -------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.75% 0.75% 0.75%
Distribution and/or
Service (12b-1) Fees 0.35 1.00 1.00
Other 0.08 0.08 0.08
Total Annual Fund
Operating Expenses 1.18 1.83 1.83
Fee Waiver(2) 0.10
Net Expenses 1.08% 1.83% 1.83%
- -------------------------------------------------------
</TABLE>
(1) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1% contingent
deferred sales charge (CDSC) at the time of redemption.
(2) The distributor has contractually agreed to limit the Class A shares' Rule
12b-1 distribution plan payments to 0.25%.
As a result of 12b-1 fees, long-term shareholders in the fund may pay more than
the maximum permitted initial sales charge.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in different
classes of the fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's gross operating expenses remain the same. To the extent fees are waived,
the expenses will be lower. Although your actual returns and costs may be higher
or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------
<S> <C> <C> <C> <C>
Class A $664 904 1,163 1,903
Class B 686 876 1,190 1,978
Class C 286 576 990 2,148
- ----------------------------------------------
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------
<S> <C> <C> <C> <C>
Class A $664 904 1,163 1,903
Class B 186 576 990 1,978
Class C 186 576 990 2,148
- ----------------------------------------------
</TABLE>
3
<PAGE> 6
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AIM ADVISOR FLEX FUND
---------------------
FUND MANAGEMENT
- --------------------------------------------------------------------------------
THE ADVISORS
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor and
manages the investment operations of the fund and has agreed to perform or
arrange for the performance of the fund's day-to-day management. The advisor is
located at 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. INVESCO
Capital Management, Inc. (the subadvisor), the fund's subadvisor, is located at
1315 Peachtree Street, N.E., Atlanta, GA 30309. The subadvisor is responsible
for the fund's day-to-day management, including the fund's investment decisions
and the execution of securities transactions with respect to the fund.
The advisor has acted as an investment advisor since its organization in 1976,
and the subadvisor has acted as an investment advisor since 1979. Today, the
advisor, together with its subsidiaries, advises or manages over 110 investment
portfolios, including the fund, encompassing a broad range of investment
objectives.
ADVISOR COMPENSATION
During the fiscal year ended December 31, 1998, the advisor received
compensation of 1.00% of average daily net assets consisting of a management fee
of 0.75% and an operating services fee of 0.25%.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual
members of the team who are primarily responsible for the day-to-day management
of the fund's portfolio are
- - James O. Baker, C.F.A., Senior Portfolio Manager, who has been responsible
for the fund and has been associated with the subadvisor and/or its affiliates
since 1992.
- - David S. Griffin, C.F.A., Assistant Portfolio Manager, who has been
responsible for the fund since 1993 and has been associated with the
subadvisor and/or its affiliates since 1991.
- - Margaret (Peg) Durkes Hoogs , C.F.A., Assistant Portfolio Manager, who has
been responsible for the fund since 1997 and has been associated with the
subadvisor and/or its affiliates since 1993.
- - Edward C. Mitchell, Jr., C.F.A., Senior Portfolio Manager, who has been
responsible for the fund since 1988 and has been associated with the
subadvisor and/or its affiliates since 1979.
OTHER INFORMATION
- --------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM Advisor Flex Fund are subject to the maximum
5.50% initial sales charge as listed under the heading "CATEGORY I Initial Sales
Charges" in the "Shareholder Information--Choosing a Share Class" section of
this prospectus. Purchases of Class B and Class C shares are subject to the
contingent deferred sales charges listed in that section.
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS
The fund generally declares and pays dividends, if any, quarterly.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term gains, if any, annually and short-term
capital gains (including any net gains from foreign currency transactions), if
any, quarterly.
4
<PAGE> 7
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AIM ADVISOR FLEX FUND
---------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
The information for the fiscal year or period ended December 31, 1998, has
been audited by KPMG LLP, whose report, along with the fund's financial
statements, is included in the fund's annual report, which is available upon
request. Information for prior years was audited by other public accountants.
<TABLE>
<CAPTION>
CLASS A(a)
--------------------
YEAR ENDED
DECEMBER 31,
--------------------
1998 1997(b)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 19.74 $ 16.63
Income from investment operations:
Net investment income 0.39 0.41(c)
Net gains on securities (both realized and unrealized) 2.16 3.63
Total from investment operations 2.55 4.04
Less distributions:
Dividends from net investment income (0.39) (0.43)
Distributions from net realized gains (1.84) (0.50)
Total distributions (2.23) (0.93)
Net asset value, end of period $ 20.06 $ 19.74
Total return(d) 13.26% 24.60%
- -------------------------------------------------------------------------------------
Ratios/supplemental data:
- -------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) $46,286 $25,151
Ratio of expenses to average net assets(e) 1.23%(f) 1.45%
Ratio of net investment income to average net assets(g) 1.99%(f) 2.34%
Portfolio turnover rate 34% 17%
- -------------------------------------------------------------------------------------
</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 and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.52% and 1.55% for 1998-1997.
(f) Ratios are based on average net asset of $36,085,767.
(g) After fee waivers and/or expense reimbursements. Ratio of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 1.70% and 2.24% for 1998-1997.
5
<PAGE> 8
---------------------
AIM ADVISOR FLEX FUND
---------------------
FINANCIAL HIGHLIGHTS (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B
- --------------------------------------------------------------------------------
MARCH 3,
THROUGH
DECEMBER 31, 1998
<S> <C>
- --------------------------------------------------------------------------------
Net asset value, beginning of period $ 20.69
Income from investment operations:
Net investment income 0.22
Net gains on securities (both realized and unrealized) 1.22
Total from investment operations 1.44
Less distributions:
Dividends from net investment income (0.23)
Distributions from net realized gains (1.84)
Total distributions (2.07)
Net asset value, end of period $ 20.06
Total return(a) 7.25%
- --------------------------------------------------------------------------------
Ratios/supplemental data:
- --------------------------------------------------------------------------------
Net assets, end of period (000s omitted) $ 3,592
Ratio of expenses to average net assets(b) 2.00%(c)(d)
Ratio of net investment income to average net assets(e) 1.22%(c)(d)
Portfolio turnover rate 34%
- --------------------------------------------------------------------------------
</TABLE>
(a) Does not deduct contingent deferred sales charges and for periods less than
one year is not annualized.
(b) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
2.19% (annualized).
(c) Ratios are based on average net assets of $1,313,596.
(d) Annualized.
(e) After fee waivers and/or expense reimbursements. Ratio of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 1.03% (annualized).
<TABLE>
<CAPTION>
CLASS C(a)
--------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1998 1997(b) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 19.74 $ 16.63 $ 15.66 $ 12.63 $ 13.54
Income from investment operations:
Net investment income 0.25 0.30(c) 0.30 0.32 0.32
Net gains (losses) on securities (both
realized and unrealized) 2.14 3.60 1.81 3.09 (0.23)
Total from investment operations 2.39 3.90 2.11 3.41 0.09
Less distributions:
Dividends from net investment income (0.23) (0.29) (0.29) (0.32) (0.31)
Distributions from net realized gains (1.84) (0.50) (0.85) (0.06) (0.69)
Total distributions (2.07) (0.79) (1.14) (0.38) (1.00)
Net asset value, end of period $ 20.06 $ 19.74 $ 16.63 $ 15.66 $ 12.63
Total return(d) 12.41% 23.64% 13.61% 27.30% 0.64%
- -----------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
- -----------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) $ 670,256 $ 603,179 $ 489,918 $ 399,162 $ 243,848
Ratio of expenses to average net assets 2.00%(e)(f) 2.20% 2.26% 2.28% 2.25%
Ratio of net investment income to average
net assets 1.22%(f)(g) 1.59% 1.81% 2.28% 2.32%
Portfolio turnover rate 34% 17% 26% 5% 36%
- -----------------------------------------------------------------------------------------------------------------------
</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 to
average net assets prior to fee waivers and/or expense reimbursements were
2.19%.
(f) Ratios are based on average net assets of $636,501,142.
(g) After fee waivers and/or expense reimbursements. Ratios of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 1.03%.
6
<PAGE> 9
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THE AIM FUNDS
-------------
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
In addition to the fund, A I M Advisors, Inc. serves as investment advisor to
many other mutual funds (the AIM Funds). The following information is about all
the AIM Funds.
CHOOSING A SHARE CLASS
Many of the AIM Funds have multiple classes of shares, each class representing
an interest in the same portfolio of investments. When choosing a share class,
you should consider the factors below:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
- - Initial sales charge - No initial sales charge - No initial sales charge
- - Reduced or waived initial sales - Contingent deferred sales - Contingent deferred sales
charge for certain purchases charge on redemptions within six charge on redemptions within
years one year
- - Lower distribution and service - 12b-1 fee of 1.00% - 12b-1 fee of 1.00%
(12b-1) fee than Class B or
Class C shares (See "Fee Table
and Expense Example")
- Converts to Class A shares - Does not convert to Class A
after eight years along with a shares
pro rata portion of its
reinvested dividends and
distributions(1)
- - Generally more appropriate for - Purchase orders limited to - Generally more appropriate
long-term investors amounts less than $250,000 for short-term investors
</TABLE>
(1) AIM Money Market Fund: Class B shares convert to AIM Cash Reserve
Shares.
AIM Global Trends Fund: If you held Class B shares on May 29,
1998 and continue to hold them, those shares will convert to
Class A shares of that fund seven years after your date of
purchase. If you exchange those shares for Class B shares of
another AIM Fund, the shares into which you exchanged will
not convert to Class A shares until eight years after your
date of purchase of the original shares.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12b-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund) has adopted 12b-1 plans
that allow the AIM Fund to pay distribution fees to A I M Distributors, Inc.
(the distributor) for the sale and distribution of its shares and fees for
services provided to shareholders, all or a substantial portion of which are
paid to the dealer of record. Because the AIM Fund pays these fees out of its
assets on an ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
A- 1 MCF--06/99
<PAGE> 10
-------------
THE AIM FUNDS
-------------
SALES CHARGES
Generally, you will not pay a sales charge on purchases or redemptions of Class
A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money
Market Fund. You may be charged a contingent deferred sales charge if you redeem
AIM Cash Reserve Shares of AIM Money Market Fund acquired through certain
exchanges. Sales charges on all other AIM Funds and classes of those Funds are
detailed below. As used below, the term "offering price" with respect to all
categories of Class A shares includes the initial sales charge.
INITIAL SALES CHARGES
The AIM Funds are grouped into three categories with respect to initial sales
charges. The "Other Information" section of your prospectus will tell you in
what category your particular AIM Fund is classified.
<TABLE>
<CAPTION>
CATEGORY I INITIAL SALES CHARGES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
INVESTOR'S
SALES CHARGE
-----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ---------------------------------------------------------------
<S> <C> <C>
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY II INITIAL SALES CHARGES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
INVESTOR'S
SALES CHARGE
-----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ---------------------------------------------------------------
<S> <C> <C>
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY III INITIAL SALES CHARGES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
INVESTOR'S
SALES CHARGE
-----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ---------------------------------------------------------------
<S> <C> <C>
Less than $ 100,000 1.00% 1.01%
$100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
- ---------------------------------------------------------------
</TABLE>
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES
You can purchase $1,000,000 or more of Class A shares at net asset value.
However, if you purchase shares of that amount in Categories I or II, they will
be subject to a contingent deferred sales charge (CDSC) of 1% if you redeem them
prior to 18 months after the date of purchase. The distributor may pay a dealer
concession and/or a service fee for purchases of $1,000,000 or more.
CONTINGENT DEFERRED SALES CHARGES FOR
CLASS B AND CLASS C SHARES
You can purchase Class B and Class C shares at their net asset value per share.
However, when you redeem them, they are subject to a CDSC in the following
percentages:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
- ----------------------------------------------------------
<S> <C> <C>
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
- ----------------------------------------------------------
</TABLE>
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you have redeemed shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify
for these reductions or exceptions, you or your financial consultant must
provide sufficient information at the time of purchase to verify that your
purchase qualifies for such treatment.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Rights of Accumulation
You may combine your new purchases of Class A shares with Class A shares
currently owned for the purpose of qualifying for the lower initial sales charge
rates that apply to larger purchases. The applicable initial sales charge for
the new purchase is based on the total of your current purchase and the current
value of all Class A shares you own.
Letters of Intent
Under a Letter of Intent (LOI), you commit to purchase a specified dollar amount
of Class A shares of AIM Funds during a
MCF--06/99 A- 2
<PAGE> 11
-------------
THE AIM FUNDS
-------------
13-month period. The amount you agree to purchase determines the initial sales
charge you pay. If the full face amount of the LOI is not invested by the end of
the 13-month period, your account will be adjusted to the higher initial sales
charge level for the amount actually invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- - on shares purchased by reinvesting dividends and distributions;
- - when exchanging shares among certain AIM Funds;
- - when using the reinstatement privilege; and
- - when a merger, consolidation, or acquisition of assets of an AIM Fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- - if you redeem Class B shares you held for more than six years;
- - if you redeem Class C shares you held for more than one year;
- - if you redeem shares acquired through reinvestment of dividends and
distributions; and
- - on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares
at reduced or without sales charges. Consult the fund's Statement of Additional
Information for details.
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
The minimum investments for AIM Fund accounts (except for investments in AIM
Small Cap Opportunities Fund) are as follows:
<TABLE>
<CAPTION>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing $ 0 ($25 per AIM Fund investment for $ 25
plans, 401(k) plans, Simplified Employee Pension salary deferrals from Savings Plans)
(SEP) accounts, Salary Reduction (SARSEP)
accounts, Savings Incentive Match Plans for
Employee IRA (Simple IRA) accounts, 403(b) or
457 plans)
Automatic Investment Plans 50 50
IRA, Education IRA or Roth IRA 250 50
All other accounts 500 50
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below.
<TABLE>
<CAPTION>
PURCHASE OPTIONS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Through a Financial Consultant Contact your financial consultant. Same
By Mail Mail completed Account Application Mail your check and the remittance
and purchase payment to the slip from your confirmation
transfer agent, statement to the transfer agent.
A I M Fund Services, Inc.,
P.O. Box 4739,
Houston, TX 77210-4739.
By Wire Mail completed Account Application Call the transfer agent to receive
to the transfer agent. Call the a reference number. Then, use the
transfer agent at (800) 959-4246 to wire instructions at left.
receive a reference number. Then,
use the following wire
instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number:
00100366807
Beneficiary Account Name: A I M
Fund Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank
methods described above. Connection(SM) form to the transfer
agent. Once the transfer agent has
received the form, call the
transfer agent to place your
purchase order.
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
A- 3 MCF--06/99
<PAGE> 12
-------------
THE AIM FUNDS
-------------
SPECIAL PLANS
AUTOMATIC INVESTMENT PLAN
You can arrange for periodic investments in any of the AIM Funds by authorizing
the AIM Fund to withdraw the amount of your investment from your bank account on
a day or dates you specify and in an amount of at least $50. You may stop the
Automatic Investment Plan at any time by giving the transfer agent notice ten
days prior to your next scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one AIM Fund account to one or more other AIM Fund
accounts with the identical registration. The account from which exchanges are
to be made must have a minimum balance of $5,000 before you can use this option.
Exchanges will occur on (or about) the 10th or 25th day of the month, whichever
you specify, in the amount you specify. The minimum amount you can exchange to
another AIM Fund is $50.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
AIM Fund at net asset value. Unless you specify otherwise, your dividends and
distributions will automatically be reinvested in the same AIM Fund. You may
invest your dividends and distributions (1) into another AIM Fund in the same
class of shares; or (2) from Class A shares into AIM Cash Reserve Shares of AIM
Money Market Fund, or vice versa.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend must be at
least $5,000; or (b) in the AIM Fund receiving the dividend must be at least
$500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends into
another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this Program, you can designate how the
total value of your AIM Fund holdings should be rebalanced, on a percentage
basis, between two and ten of your AIM Funds on a quarterly, semiannual or
annual basis. Your portfolio will be rebalanced through the exchange of shares
in one or more of your AIM Funds for shares of the same class of one or more
other AIM Funds in your portfolio. If you wish to participate in the Program,
make changes or cancel the Program, the transfer agent must receive your request
to participate, changes, or cancellation in good order at least five business
days prior to the next rebalancing date, which is normally the 28th day of the
last month of the period you choose. You may realize taxable gains from these
exchanges. We may modify, suspend or terminate the Program at any time on 60
days' prior written notice.
RETIREMENT PLANS
Shares of most of the AIM Funds can be purchased through tax-sheltered
retirement plans made available to corporations, individuals and employees of
non-profit organizations and public schools. A plan document must be adopted to
establish a retirement plan. You may use AIM Funds-sponsored retirement plans,
which include IRAs, Education IRAs, Roth IRAs, 403(b) plans, 401(k) plans,
SIMPLE IRA plans, SEP/SARSEP plans and Money Purchase/Profit Sharing plans, or
another sponsor's retirement plan. The plan custodian of the AIM Funds-sponsored
retirement plan assesses an annual maintenance fee of $10. Contact your
financial consultant for details.
REDEEMING SHARES
REDEMPTION FEES
We will not charge you any fees to redeem your shares; however, your broker or
financial consultant may charge service fees for handling these transactions.
Your shares may be subject to a contingent deferred sales charge (CDSC).
REDEMPTION OF AIM CASH RESERVE SHARES OF
AIM MONEY MARKET FUND ACQUIRED BY EXCHANGE
If you redeem AIM Cash Reserve Shares acquired by exchange from Class A shares
subject to a CDSC within 18 months of the purchase of the Class A shares, you
will be charged a CDSC.
REDEMPTION OF CLASS B SHARES ACQUIRED BY
EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM
Floating Rate Fund, the early withdrawal charge applicable to shares of AIM
Floating Rate Fund will be applied instead of the CDSC normally applicable to
Class B shares.
MCF--06/99 A- 4
<PAGE> 13
-------------
THE AIM FUNDS
-------------
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Consultant Contact your financial consultant.
By Mail Send a written request to the transfer agent. Requests must
include (1) original signatures of all registered owners;
(2) the name of the AIM Fund and your account number; (3) if
the transfer agent does not hold your shares, endorsed share
certificates or share certificates accompanied by an
executed stock power; and (4) signature guarantees, if
necessary (see below). The transfer agent may require that
you provide additional information, such as corporate
resolutions or powers of attorney, if applicable. If you are
redeeming from an IRA account, you must include a statement
of whether or not you are at least 59 1/2 years old and
whether you wish to have federal income tax withheld from
your proceeds. The transfer agent may require certain other
information before you can redeem from an employer-sponsored
retirement plan. Contact your employer for details.
By Telephone Call the transfer agent. You will be allowed to redeem by
telephone if (1) the proceeds are to be mailed to the
address on record with us or transferred electronically to a
pre-authorized checking account; (2) the address on record
with us has not been changed within the last 30 days; (3)
you do not hold physical share certificates; (4) you can
provide proper identification information; (5) the proceeds
of the redemption do not exceed $50,000; and (6) you have
not previously declined the telephone redemption privilege.
Certain accounts, including retirement accounts and 403(b)
plans, may not redeem by telephone. The transfer agent must
receive your call during the hours the New York Stock
Exchange (NYSE) is open for business in order to effect the
redemption at that day's closing price.
</TABLE>
- --------------------------------------------------------------------------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds to the address on record with us.
If your request is not in good order, you may have to provide us with additional
documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
PAYMENT FOR SYSTEMATIC WITHDRAWALS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. You also may make annual withdrawals if you own Class A shares.
We will redeem enough shares from your account to cover the amount withdrawn.
You must have an account balance of at least $5,000 to establish a Systematic
Withdrawal Plan. You can stop this plan at any time by giving ten days prior
notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM Cash Reserve Shares of AIM Money Market Fund only)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of trading
on the NYSE, we generally will transmit payment on the next business day.
REDEMPTIONS BY CHECK
(Class A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM
Money Market Fund only)
You may redeem shares of these AIM Funds by writing checks in amounts of $250 or
more if you have completed an authorization form. Redemption by check is not
available for retirement accounts.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
(1) the amount is greater than $50,000;
(2) you request that payment be made to someone other than the name registered
on the account;
(3) you request that payment be sent somewhere other than the bank of record on
the account; or
(4) you request that payment be sent to a new address or an address that changed
in the last 30 days.
The transfer agent will accept a guarantee of your signature by a number of
financial institutions. Call the transfer agent for additional information. Some
institutions have transaction amount maximums for these guarantees. Please check
with the guarantor institution.
A- 5 MCF--06/99
<PAGE> 14
-------------
THE AIM FUNDS
-------------
REINSTATEMENT PRIVILEGE (Class A shares only)
You may, within 90 days after you sell Class A shares (except Class A shares of
AIM Tax-Exempt Cash Fund), reinvest all or part of your redemption proceeds in
Class A shares of any AIM Fund at net asset value in an identically registered
account. If you sold Class A shares of AIM Limited Maturity Treasury Fund or AIM
Tax-Free Intermediate Fund, you will incur an initial sales charge reflecting
the difference between the initial sales charges on those Funds and the ones in
which you will be investing. In addition, if you paid a contingent deferred
sales charge (CDSC) on any reinstated amount, you will not be subject to a CDSC
if you later redeem that amount. You must notify the transfer agent in writing
at the time you reinstate that you are exercising your reinstatement privilege.
You may exercise this privilege only once per year.
REDEMPTIONS BY THE AIM FUNDS
If your account has been open at least one year, you have not made an additional
purchase in the account during the past six calendar months, and the value of
your account falls below $500 for three consecutive months due to redemptions or
exchanges (excluding retirement accounts), the AIM Funds have the right to
redeem the account after giving you 60 days' prior written notice. You may avoid
having your account redeemed during the notice period by bringing the account
value up to $500 or by utilizing the Automatic Investment Plan.
If an AIM Fund determines that you have provided incorrect information in
opening an account or in the course of conducting subsequent transactions, the
AIM Fund may, at its discretion, redeem the account and distribute the proceeds
to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one AIM Fund for those
of another AIM Fund. Before requesting an exchange, review the prospectus of the
AIM Fund you wish to acquire. Exchange privileges also apply to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992.
PERMITTED EXCHANGES
Except as otherwise stated below, you may exchange your shares for shares of the
same class of another AIM Fund. You also may exchange AIM Cash Reserve Shares of
AIM Money Market Fund for Class A shares of another AIM Fund, or vice versa. You
may be required to pay an initial sales charge when exchanging from a Fund with
a lower initial sales charge than the one into which you are exchanging. If you
exchange from Class A shares not subject to a CDSC into Class A shares subject
to those charges, you will be charged a CDSC when you redeem the exchanged
shares. The CDSC charged on redemption of those shares will be calculated
starting on the date you acquired those shares through exchange.
You also may exchange AIM Cash Reserve Shares of AIM Money Market Fund for
Advisor Class shares, but only if you acquired the AIM Cash Reserve Shares
through an exchange from Advisor Class shares.
YOU WILL NOT PAY A SALES CHARGE WHEN EXCHANGING:
(1) Class A shares with an initial sales charge (except for Class A shares of
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
Class A shares of another AIM Fund or AIM Cash Reserve Shares of AIM Money
Market Fund;
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund for
(a) one another;
(b) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of
AIM Tax-Exempt Cash Fund; or
(c) Class A shares of another AIM Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way of
an exchange from shares with higher sales charges;
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) one another;
(b) Class A shares of an AIM Fund subject to an initial sales charge (except
for Class A shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund), but only if you acquired the original
shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to an
initial sales charge;
(ii) on or after May 1, 1994 by exchange from Class A shares subject to
an initial sales charge (except for Class A shares of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund); or
(c) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund, but only if you acquired the original shares by
exchange from Class A shares subject to an initial sales charge; or
(4) Class B shares for other Class B shares, and Class C shares for other Class
C shares.
EXCHANGES NOT PERMITTED
You may not exchange Class A shares subject to contingent deferred sales charges
for Class A shares of AIM Limited Maturity Treasury Fund, AIM Tax-Free
Intermediate Fund or AIM Tax-Exempt Cash Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be available for sale in your
state of residence;
MCF--06/99 A- 6
<PAGE> 15
-------------
THE AIM FUNDS
-------------
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - Shares must have been held for at least one day prior to the exchange; and
- - If you have physical share certificates, you must return them to the transfer
agent prior to the exchange.
Beginning September 15, 1999, the following exchange condition will apply:
- - Because excessive short-term trading or market-timing activity can hurt fund
performance, you are limited to a maximum of 10 exchanges per calendar year.
If you exceed that limit, or if an AIM Fund or the distributor determines, in
its sole discretion, that your short-term trading is excessive or that you are
engaging in market-timing activity, it may reject any additional exchange
orders. An exchange is the movement out of (redemption) one AIM Fund and into
(purchase) another AIM Fund.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the purchase of shares
being acquired in an exchange for up to five business days if it determines that
it would be materially disadvantaged by the immediate transfer of exchange
proceeds. There is no fee for exchanges. The exchange privilege is not an option
or right to purchase shares. Any of the participating AIM Funds or the
distributor may modify or discontinue this privilege at any time.
BY MAIL
If you wish to make an exchange by mail, you must include original signatures of
each registered owner exactly as the shares are registered, the account
registration and account number, the dollar amount or number of shares to be
exchanged and the names of the AIM Funds from which and into which the exchange
is to be made.
BY TELEPHONE
Conditions that apply to exchanges by telephone are the same as redemptions by
telephone, including that the transfer agent must receive exchange requests
during the hours the NYSE is open for business; however, you still will be
allowed to exchange by telephone even if you have changed your address of record
within the preceding 30 days.
EXCHANGING CLASS B AND CLASS C SHARES
If you make an exchange involving Class B or Class C shares, the amount of time
you held the original shares will be added to the holding period of the Class B
or Class C shares, respectively, into which you exchanged for the purpose of
calculating contingent deferred sales charges (CDSC) if you later redeem the
exchanged shares. If you redeem Class B shares acquired by exchange via a tender
offer by AIM Floating Rate Fund, you will be credited with the time period you
held the shares of AIM Floating Rate Fund for the purpose of computing the early
withdrawal charge applicable to those shares.
EACH AIM FUND AND THE DISTRIBUTOR RESERVE THE RIGHT AT ANY TIME TO:
- - REJECT OR CANCEL ANY PART OF ANY PURCHASE OR EXCHANGE ORDER;
- - MODIFY ANY TERMS OR CONDITIONS OF PURCHASE OF SHARES OF ANY AIM FUND;
- - REJECT OR CANCEL ANY REQUEST TO ESTABLISH THE AUTOMATIC INVESTMENT PLAN AND
SYSTEMATIC WITHDRAWAL PLAN OPTIONS ON THE SAME ACCOUNT; OR
- - WITHDRAW ALL OR ANY PART OF THE OFFERING MADE BY THIS PROSPECTUS.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. AIM Money
Market Fund and AIM Tax-Exempt Cash Fund value all of their securities at
amortized cost. 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.
The AIM Funds value all other securities and assets at their fair value.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day. In addition, if,
between the time trading ends on a particular security and the close of the
NYSE, events occur that materially affect the value of the security, the AIM
Funds may value the security at its fair value as determined in good faith by or
under the supervision of the Board of Directors or Trustees of the AIM Fund. The
effect of using fair value pricing is that an AIM Fund's net asset value will be
subject to the judgment of the Board of Directors or Trustees or its designee
instead of being determined by the market. Because some of the AIM Funds may
invest in securities that are primarily listed on foreign exchanges, the value
of those funds' shares may change on days when you will not be able to purchase
or redeem shares.
Each AIM Fund determines the net asset value of its shares as of the close of
the NYSE on each day the NYSE is open for business. AIM Money Market Fund also
determines its net asset value as of 12:00 noon Eastern Time on each day the
NYSE is open for business.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours the NYSE is open
for business. The AIM Funds price purchase,
A- 7 MCF--06/99
<PAGE> 16
-------------
THE AIM FUNDS
-------------
exchange and redemption orders at the net asset value calculated after the
transfer agent receives an order in good form. An AIM Fund may postpone the
right of redemption only under unusual circumstances, as allowed by the
Securities and Exchange Commission, such as when the NYSE restricts or suspends
trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund holds
its assets. Different tax rates apply to ordinary income and long-term capital
gain distributions, regardless of how long you have held your shares. Every
year, you will be sent information showing the amount of dividends and
distributions you received from each AIM Fund during the prior year.
Any long-term or short-term capital gains realized from redemptions of AIM
Fund shares will be subject to federal income tax. Exchanges of shares for
shares of another AIM Fund are treated as a sale, and any gain realized on the
transaction will generally be subject to federal income tax.
The foreign, state and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
MCF--06/99 A- 8
<PAGE> 17
---------------------
AIM ADVISOR FLEX FUND
---------------------
OBTAINING ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us
- ---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Distributors, Inc.
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
- ---------------------------------------------------------
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, DC, on the SEC's website
(http://www.sec.gov), or by sending a letter, including a duplicating fee, to
the SEC's Public Reference Section, Washington, DC 20549-6009. Please call the
SEC at 1-800-SEC-0330 for information about the Public Reference Room.
- -----------------------------------
AIM Advisor Flex Fund
SEC 1940 Act file number: 811-3886
- -----------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com FLX-PRO-1 INVEST WITH DISCIPLINE
--Registered Trademark--
<PAGE> 18
AIM ADVISOR INTERNATIONAL VALUE FUND
------------------------------------------------------------------------
AIM Advisor International Value Fund seeks to achieve a high total
return on investment through growth of capital and current income,
without regard to U.S. or foreign tax considerations.
PROSPECTUS
MAY 3, 1999,
AS REVISED
JULY 1, 1999
This prospectus contains important
information about the Class A, B and
C shares of the fund. Please read it
before investing and keep it for
future reference.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE
--Registered Trademark--
<PAGE> 19
------------------------------------
AIM ADVISOR INTERNATIONAL VALUE FUND
------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE
FUND 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 2
- - - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 2
Performance Table 2
FEE TABLE AND EXPENSE EXAMPLE 3
- - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 3
Expense Example 3
FUND MANAGEMENT 4
- - - - - - - - - - - - - - - - - - - - - - - - -
The Advisors 4
Advisor Compensation 4
Portfolio Managers 4
OTHER INFORMATION 4
- - - - - - - - - - - - - - - - - - - - - - - - -
Sales Charges 4
Dividends and Distributions 4
FINANCIAL HIGHLIGHTS 5
- - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - -
Choosing a Share Class A-1
Purchasing Shares A-3
Redeeming Shares A-4
Exchanging Shares A-6
Pricing of Shares A-7
Taxes A-8
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
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, La Familia AIM de Fondos and Design and Invest with
Discipline are registered service marks and AIM Bank Connection, AIM Funds, AIM
Funds and Design and AIM Investor are service marks of A I M Management Group
Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 20
------------------------------------
AIM ADVISOR INTERNATIONAL VALUE FUND
------------------------------------
INVESTMENT OBJECTIVE AND STRATEGIES
- --------------------------------------------------------------------------------
The fund's investment objective is to achieve a high total return on investment
through growth of capital and current income, without regard to U.S. or foreign
tax considerations.
The fund seeks to meet this objective by investing at least 65% of its total
assets in a diversified portfolio of foreign equity securities. The fund will
normally invest in the securities of companies located in at least four
different countries. The fund may invest up to 20% of its total assets in equity
securities of companies located in developing countries, i.e., those that are in
the initial stages of their industrial cycle. The fund may also invest up to 35%
of its total assets in investment-grade debt securities, or securities deemed by
the portfolio managers to be of comparable quality.
The portfolio managers compare the price of a stock to various factors
including 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. They focus on securities that they believe have the best
relative value and favorable prospects for continued growth. The fund's
portfolio managers consider whether to sell a particular security when any of
those factors materially changes.
In anticipation of or in response to adverse market conditions, for cash
management purposes, or for defensive purposes, the fund may temporarily hold
all or a portion of its assets in cash, money market instruments, bonds or other
debt securities. In anticipation of or in response to adverse market conditions,
the fund may temporarily also invest all or a portion of its assets in the
securities of U.S. issuers. As a result, the fund may not achieve its investment
objective.
PRINCIPAL RISKS OF INVESTING IN THE FUND
- --------------------------------------------------------------------------------
There is a risk that you could lose all or a portion of your investment in the
fund and that the income you may receive from the fund may vary. The value of
your investment in the fund will go up and down with the prices of the
securities in which the fund invests. The prices of equity securities change in
response to many factors, including the historical and prospective earnings of
the issuer, the value of its assets, general economic conditions, interest
rates, investor perceptions, and market liquidity. Interest rate increases can
cause the price of a debt security to decrease; the longer a debt security's
duration, the more sensitive it is to this risk. The issuer of a debt security
may default or otherwise be unable to honor a financial obligation.
The prices of foreign securities may be further affected by other factors,
including
- - Currency exchange rates--The dollar value of the fund's foreign investments
will be affected by changes in the exchange rates between the dollar and the
currencies in which those investments are traded.
- - Political and economic conditions--The value of the fund's foreign investments
may be adversely affected by political and social instability in their home
countries and by changes in economic or taxation policies in those countries.
- - Regulations--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available information
about foreign companies than about U.S. companies.
- - Markets--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and more volatile than U.S. securities.
The value of your shares could be adversely affected if the computer systems
used by the fund's investment advisor and the fund's other service providers are
unable to distinguish the year 2000 from the year 1900.
The fund's investment advisor and independent technology consultants are
working to avoid year 2000-related problems in its systems and to obtain
assurances that other service providers are taking similar steps. Year 2000
problems may also affect issuers in whose securities the fund invests.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
1
<PAGE> 21
------------------------------------
AIM ADVISOR INTERNATIONAL VALUE FUND
------------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
The following bar chart shows changes in the performance of the fund's Class C
shares from year to year. The bar chart does not reflect sales loads. If it did,
the annual total returns shown would be lower.
[GRAPH]
<TABLE>
<CAPTION>
Annual
Year Ended Total
December 31 Return
- ----------- ------
<S> <C>
1996 ....................................... 20.99%
1997 ....................................... 12.98%
1998 ....................................... 10.38%
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
15.89% (quarter ended December 31, 1998) and the lowest quarterly return was
- -16.70% (quarter ended September 30, 1998).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index. The fund's performance reflects payment of
sales loads.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(for the periods ended SINCE INCEPTION
December 31, 1998) 1 YEAR INCEPTION DATE
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A 5.10% 9.37% 12/31/96
Class B -- -- 03/03/98
Class C 9.38% 15.17% 05/01/95
EAFE(1) 20.00% 8.81%(2) 04/30/95(2)
- -------------------------------------------------------------------------------
</TABLE>
(1) The Morgan Stanley Capital International Europe, Australasia and Far East
Index measures performance of global stock markets in 20 developed
countries.
(2) The average annual total return given is since the date closest to the
inception date of the class with the longest performance history.
2
<PAGE> 22
------------------------------------
AIM ADVISOR INTERNATIONAL VALUE FUND
------------------------------------
FEE TABLE AND EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from
your investment) CLASS A CLASS B CLASS C
- -------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) 5.50% None None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase
price or redemption
proceeds, whichever
is less) None(1) 5.00% 1.00%
- -------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets) CLASS A CLASS B CLASS C
- -------------------------------------------------------
<S> <C> <C> <C>
Management Fees 1.00% 1.00% 1.00%
Distribution and/or
Service (12b-1) Fees 0.35 1.00 1.00
Other 0.25 0.25 0.25
Total Annual Fund
Operating Expenses 1.60 2.25 2.25
Fee Waiver(2) 0.10
Net Expenses 1.50% 2.25% 2.25%
- -------------------------------------------------------
</TABLE>
(1) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1% contingent
deferred sales charge (CDSC) at the time of redemption.
(2) The distributor has contractually agreed to limit the Class A shares' Rule
12b-1 distribution plan payments to 0.25%.
As a result of 12b-1 fees, long-term shareholders in the fund may pay more than
the maximum permitted initial sales charge.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in different
classes of the fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's gross operating expenses remain the same. To the extent fees are waived,
the expenses will be lower. Although your actual returns and costs may be higher
or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------
<S> <C> <C> <C> <C>
Class A $704 $1,027 $1,373 $2,346
Class B 728 1,003 1,405 2,422
Class C 328 703 1,205 2,585
- ----------------------------------------------
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------
<S> <C> <C> <C> <C>
Class A $704 $1,027 $1,373 $2,346
Class B 228 703 1,205 2,422
Class C 228 703 1,205 2,585
- ----------------------------------------------
</TABLE>
3
<PAGE> 23
------------------------------------
AIM ADVISOR INTERNATIONAL VALUE FUND
------------------------------------
FUND MANAGEMENT
- --------------------------------------------------------------------------------
THE ADVISORS
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor and
manages the investment operations of the fund and has agreed to perform or
arrange for the performance of the fund's day-to-day management. The advisor is
located at 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. INVESCO
Global Asset Management Limited (the subadvisor), the fund's subadvisor, is
located at Cedar House, 12 Bermudian Rd., 3rd Floor, Hamilton, HM AX Bermuda.
The subadvisor is responsible for the fund's day-to-day management, including
the fund's investment decisions and the execution of securities transactions
with respect to the fund.
The advisor has acted as an investment advisor since its organization in 1976
and the subadvisor has acted as an investment advisor since 1995. Today, the
advisor, together with its subsidiaries, advises or manages over 110 investment
portfolios, including the fund, encompassing a broad range of investment
objectives.
ADVISOR COMPENSATION
During the fiscal year ended December 31, 1998, the advisor received
compensation of 1.31% of average daily net assets consisting of a management fee
of 1.00% and an operating services fee of 0.31%.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual
members of the team who are primarily responsible for the day-to-day management
of the fund's portfolio are
- - W. Lindsay Davidson, Senior Portfolio Manager, who has been responsible for
the fund since 1995 and has been associated with the subadvisor and/or its
affiliates since 1984.
- - Michele T. Garren, C.F.A., Portfolio Manager, who has been responsible for the
fund and has been associated with the subadvisor and/or its affiliates since
1997. From 1993 to 1996 she was a Portfolio Manager with AIG Global Investment
Corp.
- - Erik B. Granade, C.F.A., Portfolio Manager, who has been responsible for the
fund since 1997 and has been associated with the subadvisor and/or its
affiliates since 1996. From 1994 to 1996 he was a portfolio manager at Cashman
Farrell & Associates.
OTHER INFORMATION
- --------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM Advisor International Value Fund are subject
to the maximum 5.50% initial sales charge as listed under the heading "CATEGORY
I Initial Sales Charges" in the "Shareholder Information--Choosing a Share
Class" section of this prospectus. Purchases of Class B and Class C shares are
subject to the contingent deferred sales charges listed in that section.
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS
The fund generally declares and pays dividends, if any, annually.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains (including
any net gains from foreign currency transactions), if any, annually.
4
<PAGE> 24
------------------------------------
AIM ADVISOR INTERNATIONAL VALUE FUND
------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
The information for the fiscal year or period ended December 31, 1998, has
been audited by KPMG LLP, whose report, along with the fund's financial
statements, is included in the fund's annual report, which is available upon
request. Information for prior years was audited by other public accountants.
<TABLE>
<CAPTION>
CLASS A(a)
--------------------------
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997(b)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $ 14.99 $13.42
Income from investment operations:
Net investment income 0.09 0.17(c)
Net gains on securities (both realized and unrealized) 1.59 1.69
Total from investment operations 1.68 1.86
Less distributions:
Dividends from net investment income (0.10) (0.07)
Distributions from net realized gains -- (0.22)
Total distributions (0.10) (0.29)
Net asset value, end of period $ 16.57 $14.99
Total return(d) 11.20% 13.84%
- ----------------------------------------------------------------------------------------
Ratios/supplemental data:
- ----------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) $28,281 $8,444
Ratio of expenses to average net assets(e) 1.57%(f) 1.71%
Ratio of net investment income to average net assets(g) 0.84%(f) 0.83%
Portfolio turnover rate 9% 9%
- ----------------------------------------------------------------------------------------
</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 and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.81% and 1.81% for 1998-1997.
(f) Ratios are based on average net asset of $16,630,080.
(g) After fee waivers and/or expense reimbursements. Ratios of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 0.60% and 0.73% for 1998-1997.
5
<PAGE> 25
------------------------------------
AIM ADVISOR INTERNATIONAL VALUE FUND
------------------------------------
FINANCIAL HIGHLIGHTS (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B
--------------------
MARCH 3,
THROUGH DECEMBER 31,
1998
- ----------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period $16.21
Income from investment operations:
Net investment income --
Net gains on securities (both realized and unrealized) 0.27
Total from investment operations 0.27
Less distributions:
Dividends from net investment income --
Distributions from net realized gains --
Total distributions --
Net asset value, end of period $16.48
Total return(a) 1.67%
- ----------------------------------------------------------------------------------
Ratios/supplemental data:
- ----------------------------------------------------------------------------------
Net assets, end of period (000s omitted) $4,289
Ratio of expenses to average net assets(b) 2.32%(c)(d)
Ratio of net investment income to average net assets(e) 0.09%(c)(d)
Portfolio turnover rate 9%
- ----------------------------------------------------------------------------------
</TABLE>
(a) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(b) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
2.46% (annualized).
(c) Ratios are based on average net assets of $2,367,422.
(d) Annualized.
(e) After fee waivers and/or expense reimbursements. Ratios of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursements was (0.05%) (annualized).
<TABLE>
<CAPTION>
CLASS C(a)
-------------------------------------------------------
MAY 1,
YEAR ENDED DECEMBER 31, THROUGH
------------------------------------ DECEMBER 31,
1998 1997(b) 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 14.93 $13.42 $ 11.13 $10.00
Income from investment operations:
Net investment income (loss) --(c) 0.01(c) (0.01) --
Net gains on securities (both realized and
unrealized) 1.55 1.73 2.34 1.13
Total from investment operations 1.55 1.74 2.33 1.13
Less distributions:
Dividends from net investment income -- (0.01) -- --
Distributions from net realized gains -- (0.22) (0.04) --
Total distributions -- (0.23) (0.04) --
Net asset value, end of period $ 16.48 $14.93 $ 13.42 $11.13
Total return(d) 10.38% 12.98% 20.99% 11.28%
- ----------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
- ----------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) $105,083 $93,162 $51,916 $9,467
Ratio of expenses to average net assets(e) 2.32%(f) 2.46% 2.50% 2.50%(g)
Ratio of net investment income (loss) to average
net assets(h) 0.09%(f) 0.08% (0.16)% 0.03%(g)
Portfolio turnover rate 9% 9% 5% 2%
- ----------------------------------------------------------------------------------------------------------
</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 is not annualized for
periods less than one year.
(e) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
2.46% for 1998.
(f) Ratios are based on average net assets of $105,254,958.
(g) Annualized.
(h) After fee waivers and/or expense reimbursements. Ratios of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursements were (0.05)% for 1998.
6
<PAGE> 26
-------------
THE AIM FUNDS
-------------
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
In addition to the fund, A I M Advisors, Inc. serves as investment advisor to
many other mutual funds (the AIM Funds). The following information is about all
the AIM Funds.
CHOOSING A SHARE CLASS
Many of the AIM Funds have multiple classes of shares, each class representing
an interest in the same portfolio of investments. When choosing a share class,
you should consider the factors below:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
- - Initial sales charge - No initial sales charge - No initial sales charge
- - Reduced or waived initial sales - Contingent deferred sales - Contingent deferred sales
charge for certain purchases charge on redemptions within six charge on redemptions within
years one year
- - Lower distribution and service - 12b-1 fee of 1.00% - 12b-1 fee of 1.00%
(12b-1) fee than Class B or
Class C shares (See "Fee Table
and Expense Example")
- Converts to Class A shares - Does not convert to Class A
after eight years along with a shares
pro rata portion of its
reinvested dividends and
distributions(1)
- - Generally more appropriate for - Purchase orders limited to - Generally more appropriate
long-term investors amounts less than $250,000 for short-term investors
</TABLE>
(1) AIM Money Market Fund: Class B shares convert to AIM Cash Reserve
Shares.
AIM Global Trends Fund: If you held Class B shares on May 29,
1998 and continue to hold them, those shares will convert to
Class A shares of that fund seven years after your date of
purchase. If you exchange those shares for Class B shares of
another AIM Fund, the shares into which you exchanged will
not convert to Class A shares until eight years after your
date of purchase of the original shares.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12b-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund) has adopted 12b-1 plans
that allow the AIM Fund to pay distribution fees to A I M Distributors, Inc.
(the distributor) for the sale and distribution of its shares and fees for
services provided to shareholders, all or a substantial portion of which are
paid to the dealer of record. Because the AIM Fund pays these fees out of its
assets on an ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
A- 1 MCF--06/99
<PAGE> 27
-------------
THE AIM FUNDS
-------------
SALES CHARGES
Generally, you will not pay a sales charge on purchases or redemptions of Class
A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money
Market Fund. You may be charged a contingent deferred sales charge if you redeem
AIM Cash Reserve Shares of AIM Money Market Fund acquired through certain
exchanges. Sales charges on all other AIM Funds and classes of those Funds are
detailed below. As used below, the term "offering price" with respect to all
categories of Class A shares includes the initial sales charge.
INITIAL SALES CHARGES
The AIM Funds are grouped into three categories with respect to initial sales
charges. The "Other Information" section of your prospectus will tell you in
what category your particular AIM Fund is classified.
<TABLE>
<CAPTION>
CATEGORY I INITIAL SALES CHARGES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
INVESTOR'S
SALES CHARGE
-----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ---------------------------------------------------------------
<S> <C> <C>
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY II INITIAL SALES CHARGES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
INVESTOR'S
SALES CHARGE
-----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ---------------------------------------------------------------
<S> <C> <C>
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY III INITIAL SALES CHARGES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
INVESTOR'S
SALES CHARGE
-----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ---------------------------------------------------------------
<S> <C> <C>
Less than $ 100,000 1.00% 1.01%
$100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
- ---------------------------------------------------------------
</TABLE>
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES
You can purchase $1,000,000 or more of Class A shares at net asset value.
However, if you purchase shares of that amount in Categories I or II, they will
be subject to a contingent deferred sales charge (CDSC) of 1% if you redeem them
prior to 18 months after the date of purchase. The distributor may pay a dealer
concession and/or a service fee for purchases of $1,000,000 or more.
CONTINGENT DEFERRED SALES CHARGES FOR
CLASS B AND CLASS C SHARES
You can purchase Class B and Class C shares at their net asset value per share.
However, when you redeem them, they are subject to a CDSC in the following
percentages:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
- ----------------------------------------------------------
<S> <C> <C>
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
- ----------------------------------------------------------
</TABLE>
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you have redeemed shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify
for these reductions or exceptions, you or your financial consultant must
provide sufficient information at the time of purchase to verify that your
purchase qualifies for such treatment.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Rights of Accumulation
You may combine your new purchases of Class A shares with Class A shares
currently owned for the purpose of qualifying for the lower initial sales charge
rates that apply to larger purchases. The applicable initial sales charge for
the new purchase is based on the total of your current purchase and the current
value of all Class A shares you own.
Letters of Intent
Under a Letter of Intent (LOI), you commit to purchase a specified dollar amount
of Class A shares of AIM Funds during a
MCF--06/99 A- 2
<PAGE> 28
-------------
THE AIM FUNDS
-------------
13-month period. The amount you agree to purchase determines the initial sales
charge you pay. If the full face amount of the LOI is not invested by the end of
the 13-month period, your account will be adjusted to the higher initial sales
charge level for the amount actually invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- - on shares purchased by reinvesting dividends and distributions;
- - when exchanging shares among certain AIM Funds;
- - when using the reinstatement privilege; and
- - when a merger, consolidation, or acquisition of assets of an AIM Fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- - if you redeem Class B shares you held for more than six years;
- - if you redeem Class C shares you held for more than one year;
- - if you redeem shares acquired through reinvestment of dividends and
distributions; and
- - on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares
at reduced or without sales charges. Consult the fund's Statement of Additional
Information for details.
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
The minimum investments for AIM Fund accounts (except for investments in AIM
Small Cap Opportunities Fund) are as follows:
<TABLE>
<CAPTION>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing $ 0 ($25 per AIM Fund investment for $ 25
plans, 401(k) plans, Simplified Employee Pension salary deferrals from Savings Plans)
(SEP) accounts, Salary Reduction (SARSEP)
accounts, Savings Incentive Match Plans for
Employee IRA (Simple IRA) accounts, 403(b) or
457 plans)
Automatic Investment Plans 50 50
IRA, Education IRA or Roth IRA 250 50
All other accounts 500 50
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below.
<TABLE>
<CAPTION>
PURCHASE OPTIONS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Through a Financial Consultant Contact your financial consultant. Same
By Mail Mail completed Account Application Mail your check and the remittance
and purchase payment to the slip from your confirmation
transfer agent, statement to the transfer agent.
A I M Fund Services, Inc.,
P.O. Box 4739,
Houston, TX 77210-4739.
By Wire Mail completed Account Application Call the transfer agent to receive
to the transfer agent. Call the a reference number. Then, use the
transfer agent at (800) 959-4246 to wire instructions at left.
receive a reference number. Then,
use the following wire
instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number:
00100366807
Beneficiary Account Name: A I M
Fund Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank
methods described above. Connection(SM) form to the transfer
agent. Once the transfer agent has
received the form, call the
transfer agent to place your
purchase order.
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
A- 3 MCF--06/99
<PAGE> 29
-------------
THE AIM FUNDS
-------------
SPECIAL PLANS
AUTOMATIC INVESTMENT PLAN
You can arrange for periodic investments in any of the AIM Funds by authorizing
the AIM Fund to withdraw the amount of your investment from your bank account on
a day or dates you specify and in an amount of at least $50. You may stop the
Automatic Investment Plan at any time by giving the transfer agent notice ten
days prior to your next scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one AIM Fund account to one or more other AIM Fund
accounts with the identical registration. The account from which exchanges are
to be made must have a minimum balance of $5,000 before you can use this option.
Exchanges will occur on (or about) the 10th or 25th day of the month, whichever
you specify, in the amount you specify. The minimum amount you can exchange to
another AIM Fund is $50.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
AIM Fund at net asset value. Unless you specify otherwise, your dividends and
distributions will automatically be reinvested in the same AIM Fund. You may
invest your dividends and distributions (1) into another AIM Fund in the same
class of shares; or (2) from Class A shares into AIM Cash Reserve Shares of AIM
Money Market Fund, or vice versa.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend must be at
least $5,000; or (b) in the AIM Fund receiving the dividend must be at least
$500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends into
another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this Program, you can designate how the
total value of your AIM Fund holdings should be rebalanced, on a percentage
basis, between two and ten of your AIM Funds on a quarterly, semiannual or
annual basis. Your portfolio will be rebalanced through the exchange of shares
in one or more of your AIM Funds for shares of the same class of one or more
other AIM Funds in your portfolio. If you wish to participate in the Program,
make changes or cancel the Program, the transfer agent must receive your request
to participate, changes, or cancellation in good order at least five business
days prior to the next rebalancing date, which is normally the 28th day of the
last month of the period you choose. You may realize taxable gains from these
exchanges. We may modify, suspend or terminate the Program at any time on 60
days' prior written notice.
RETIREMENT PLANS
Shares of most of the AIM Funds can be purchased through tax-sheltered
retirement plans made available to corporations, individuals and employees of
non-profit organizations and public schools. A plan document must be adopted to
establish a retirement plan. You may use AIM Funds-sponsored retirement plans,
which include IRAs, Education IRAs, Roth IRAs, 403(b) plans, 401(k) plans,
SIMPLE IRA plans, SEP/SARSEP plans and Money Purchase/Profit Sharing plans, or
another sponsor's retirement plan. The plan custodian of the AIM Funds-sponsored
retirement plan assesses an annual maintenance fee of $10. Contact your
financial consultant for details.
REDEEMING SHARES
REDEMPTION FEES
We will not charge you any fees to redeem your shares; however, your broker or
financial consultant may charge service fees for handling these transactions.
Your shares may be subject to a contingent deferred sales charge (CDSC).
REDEMPTION OF AIM CASH RESERVE SHARES OF
AIM MONEY MARKET FUND ACQUIRED BY EXCHANGE
If you redeem AIM Cash Reserve Shares acquired by exchange from Class A shares
subject to a CDSC within 18 months of the purchase of the Class A shares, you
will be charged a CDSC.
REDEMPTION OF CLASS B SHARES ACQUIRED BY
EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM
Floating Rate Fund, the early withdrawal charge applicable to shares of AIM
Floating Rate Fund will be applied instead of the CDSC normally applicable to
Class B shares.
MCF--06/99 A- 4
<PAGE> 30
-------------
THE AIM FUNDS
-------------
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Consultant Contact your financial consultant.
By Mail Send a written request to the transfer agent. Requests must
include (1) original signatures of all registered owners;
(2) the name of the AIM Fund and your account number; (3) if
the transfer agent does not hold your shares, endorsed share
certificates or share certificates accompanied by an
executed stock power; and (4) signature guarantees, if
necessary (see below). The transfer agent may require that
you provide additional information, such as corporate
resolutions or powers of attorney, if applicable. If you are
redeeming from an IRA account, you must include a statement
of whether or not you are at least 59 1/2 years old and
whether you wish to have federal income tax withheld from
your proceeds. The transfer agent may require certain other
information before you can redeem from an employer-sponsored
retirement plan. Contact your employer for details.
By Telephone Call the transfer agent. You will be allowed to redeem by
telephone if (1) the proceeds are to be mailed to the
address on record with us or transferred electronically to a
pre-authorized checking account; (2) the address on record
with us has not been changed within the last 30 days; (3)
you do not hold physical share certificates; (4) you can
provide proper identification information; (5) the proceeds
of the redemption do not exceed $50,000; and (6) you have
not previously declined the telephone redemption privilege.
Certain accounts, including retirement accounts and 403(b)
plans, may not redeem by telephone. The transfer agent must
receive your call during the hours the New York Stock
Exchange (NYSE) is open for business in order to effect the
redemption at that day's closing price.
</TABLE>
- --------------------------------------------------------------------------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds to the address on record with us.
If your request is not in good order, you may have to provide us with additional
documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
PAYMENT FOR SYSTEMATIC WITHDRAWALS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. You also may make annual withdrawals if you own Class A shares.
We will redeem enough shares from your account to cover the amount withdrawn.
You must have an account balance of at least $5,000 to establish a Systematic
Withdrawal Plan. You can stop this plan at any time by giving ten days prior
notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM Cash Reserve Shares of AIM Money Market Fund only)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of trading
on the NYSE, we generally will transmit payment on the next business day.
REDEMPTIONS BY CHECK
(Class A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM
Money Market Fund only)
You may redeem shares of these AIM Funds by writing checks in amounts of $250 or
more if you have completed an authorization form. Redemption by check is not
available for retirement accounts.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
(1) the amount is greater than $50,000;
(2) you request that payment be made to someone other than the name registered
on the account;
(3) you request that payment be sent somewhere other than the bank of record on
the account; or
(4) you request that payment be sent to a new address or an address that changed
in the last 30 days.
The transfer agent will accept a guarantee of your signature by a number of
financial institutions. Call the transfer agent for additional information. Some
institutions have transaction amount maximums for these guarantees. Please check
with the guarantor institution.
A- 5 MCF--06/99
<PAGE> 31
-------------
THE AIM FUNDS
-------------
REINSTATEMENT PRIVILEGE (Class A shares only)
You may, within 90 days after you sell Class A shares (except Class A shares of
AIM Tax-Exempt Cash Fund), reinvest all or part of your redemption proceeds in
Class A shares of any AIM Fund at net asset value in an identically registered
account. If you sold Class A shares of AIM Limited Maturity Treasury Fund or AIM
Tax-Free Intermediate Fund, you will incur an initial sales charge reflecting
the difference between the initial sales charges on those Funds and the ones in
which you will be investing. In addition, if you paid a contingent deferred
sales charge (CDSC) on any reinstated amount, you will not be subject to a CDSC
if you later redeem that amount. You must notify the transfer agent in writing
at the time you reinstate that you are exercising your reinstatement privilege.
You may exercise this privilege only once per year.
REDEMPTIONS BY THE AIM FUNDS
If your account has been open at least one year, you have not made an additional
purchase in the account during the past six calendar months, and the value of
your account falls below $500 for three consecutive months due to redemptions or
exchanges (excluding retirement accounts), the AIM Funds have the right to
redeem the account after giving you 60 days' prior written notice. You may avoid
having your account redeemed during the notice period by bringing the account
value up to $500 or by utilizing the Automatic Investment Plan.
If an AIM Fund determines that you have provided incorrect information in
opening an account or in the course of conducting subsequent transactions, the
AIM Fund may, at its discretion, redeem the account and distribute the proceeds
to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one AIM Fund for those
of another AIM Fund. Before requesting an exchange, review the prospectus of the
AIM Fund you wish to acquire. Exchange privileges also apply to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992.
PERMITTED EXCHANGES
Except as otherwise stated below, you may exchange your shares for shares of the
same class of another AIM Fund. You also may exchange AIM Cash Reserve Shares of
AIM Money Market Fund for Class A shares of another AIM Fund, or vice versa. You
may be required to pay an initial sales charge when exchanging from a Fund with
a lower initial sales charge than the one into which you are exchanging. If you
exchange from Class A shares not subject to a CDSC into Class A shares subject
to those charges, you will be charged a CDSC when you redeem the exchanged
shares. The CDSC charged on redemption of those shares will be calculated
starting on the date you acquired those shares through exchange.
You also may exchange AIM Cash Reserve Shares of AIM Money Market Fund for
Advisor Class shares, but only if you acquired the AIM Cash Reserve Shares
through an exchange from Advisor Class shares.
YOU WILL NOT PAY A SALES CHARGE WHEN EXCHANGING:
(1) Class A shares with an initial sales charge (except for Class A shares of
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
Class A shares of another AIM Fund or AIM Cash Reserve Shares of AIM Money
Market Fund;
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund for
(a) one another;
(b) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of
AIM Tax-Exempt Cash Fund; or
(c) Class A shares of another AIM Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way of
an exchange from shares with higher sales charges;
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) one another;
(b) Class A shares of an AIM Fund subject to an initial sales charge (except
for Class A shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund), but only if you acquired the original
shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to an
initial sales charge;
(ii) on or after May 1, 1994 by exchange from Class A shares subject to
an initial sales charge (except for Class A shares of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund); or
(c) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund, but only if you acquired the original shares by
exchange from Class A shares subject to an initial sales charge; or
(4) Class B shares for other Class B shares, and Class C shares for other Class
C shares.
EXCHANGES NOT PERMITTED
You may not exchange Class A shares subject to contingent deferred sales charges
for Class A shares of AIM Limited Maturity Treasury Fund, AIM Tax-Free
Intermediate Fund or AIM Tax-Exempt Cash Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be available for sale in your
state of residence;
MCF--06/99 A- 6
<PAGE> 32
-------------
THE AIM FUNDS
-------------
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - Shares must have been held for at least one day prior to the exchange; and
- - If you have physical share certificates, you must return them to the transfer
agent prior to the exchange.
Beginning September 15, 1999, the following exchange condition will apply:
- - Because excessive short-term trading or market-timing activity can hurt fund
performance, you are limited to a maximum of 10 exchanges per calendar year.
If you exceed that limit, or if an AIM Fund or the distributor determines, in
its sole discretion, that your short-term trading is excessive or that you are
engaging in market-timing activity, it may reject any additional exchange
orders. An exchange is the movement out of (redemption) one AIM Fund and into
(purchase) another AIM Fund.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the purchase of shares
being acquired in an exchange for up to five business days if it determines that
it would be materially disadvantaged by the immediate transfer of exchange
proceeds. There is no fee for exchanges. The exchange privilege is not an option
or right to purchase shares. Any of the participating AIM Funds or the
distributor may modify or discontinue this privilege at any time.
BY MAIL
If you wish to make an exchange by mail, you must include original signatures of
each registered owner exactly as the shares are registered, the account
registration and account number, the dollar amount or number of shares to be
exchanged and the names of the AIM Funds from which and into which the exchange
is to be made.
BY TELEPHONE
Conditions that apply to exchanges by telephone are the same as redemptions by
telephone, including that the transfer agent must receive exchange requests
during the hours the NYSE is open for business; however, you still will be
allowed to exchange by telephone even if you have changed your address of record
within the preceding 30 days.
EXCHANGING CLASS B AND CLASS C SHARES
If you make an exchange involving Class B or Class C shares, the amount of time
you held the original shares will be added to the holding period of the Class B
or Class C shares, respectively, into which you exchanged for the purpose of
calculating contingent deferred sales charges (CDSC) if you later redeem the
exchanged shares. If you redeem Class B shares acquired by exchange via a tender
offer by AIM Floating Rate Fund, you will be credited with the time period you
held the shares of AIM Floating Rate Fund for the purpose of computing the early
withdrawal charge applicable to those shares.
EACH AIM FUND AND THE DISTRIBUTOR RESERVE THE RIGHT AT ANY TIME TO:
- - REJECT OR CANCEL ANY PART OF ANY PURCHASE OR EXCHANGE ORDER;
- - MODIFY ANY TERMS OR CONDITIONS OF PURCHASE OF SHARES OF ANY AIM FUND;
- - REJECT OR CANCEL ANY REQUEST TO ESTABLISH THE AUTOMATIC INVESTMENT PLAN AND
SYSTEMATIC WITHDRAWAL PLAN OPTIONS ON THE SAME ACCOUNT; OR
- - WITHDRAW ALL OR ANY PART OF THE OFFERING MADE BY THIS PROSPECTUS.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. AIM Money
Market Fund and AIM Tax-Exempt Cash Fund value all of their securities at
amortized cost. 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.
The AIM Funds value all other securities and assets at their fair value.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day. In addition, if,
between the time trading ends on a particular security and the close of the
NYSE, events occur that materially affect the value of the security, the AIM
Funds may value the security at its fair value as determined in good faith by or
under the supervision of the Board of Directors or Trustees of the AIM Fund. The
effect of using fair value pricing is that an AIM Fund's net asset value will be
subject to the judgment of the Board of Directors or Trustees or its designee
instead of being determined by the market. Because some of the AIM Funds may
invest in securities that are primarily listed on foreign exchanges, the value
of those funds' shares may change on days when you will not be able to purchase
or redeem shares.
Each AIM Fund determines the net asset value of its shares as of the close of
the NYSE on each day the NYSE is open for business. AIM Money Market Fund also
determines its net asset value as of 12:00 noon Eastern Time on each day the
NYSE is open for business.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours the NYSE is open
for business. The AIM Funds price purchase,
A- 7 MCF--06/99
<PAGE> 33
-------------
THE AIM FUNDS
-------------
exchange and redemption orders at the net asset value calculated after the
transfer agent receives an order in good form. An AIM Fund may postpone the
right of redemption only under unusual circumstances, as allowed by the
Securities and Exchange Commission, such as when the NYSE restricts or suspends
trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund holds
its assets. Different tax rates apply to ordinary income and long-term capital
gain distributions, regardless of how long you have held your shares. Every
year, you will be sent information showing the amount of dividends and
distributions you received from each AIM Fund during the prior year.
Any long-term or short-term capital gains realized from redemptions of AIM
Fund shares will be subject to federal income tax. Exchanges of shares for
shares of another AIM Fund are treated as a sale, and any gain realized on the
transaction will generally be subject to federal income tax.
The foreign, state and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
MCF--06/99 A- 8
<PAGE> 34
------------------------------------
AIM ADVISOR INTERNATIONAL VALUE FUND
------------------------------------
OBTAINING ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us
- ----------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Distributors, Inc.
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
- ---------------------------------------------------------
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, DC, on the SEC's website
(http://www.sec.gov) or by sending a letter, including a duplicating fee, to the
SEC's Public Reference Section, Washington, DC 20549-6009. Please call the SEC
at 1-800-SEC-0330 for information about the Public Reference Room.
- -------------------------------------
AIM Advisor International Value Fund
SEC 1940 Act file number: 811-3886
- -------------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com IVAL-PRO-1 INVEST WITH DISCIPLINE
--Registered Trademark--
<PAGE> 35
AIM ADVISOR LARGE CAP VALUE FUND
------------------------------------------------------------------------
AIM Advisor Large Cap Value Fund seeks to achieve a high total return on
investment through growth of capital and current income, without regard
to federal income tax considerations.
PROSPECTUS
MAY 3, 1999,
AS REVISED
JULY 1, 1999
This prospectus contains important
information about the Class A, B and
C shares of the fund. Please read it
before investing and keep it for
future reference.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE
--Registered Trademark--
<PAGE> 36
--------------------------------
AIM ADVISOR LARGE CAP VALUE FUND
--------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE
FUND 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 2
- - - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 2
Performance Table 2
FEE TABLE AND EXPENSE EXAMPLE 3
- - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 3
Expense Example 3
FUND MANAGEMENT 4
- - - - - - - - - - - - - - - - - - - - - - - - -
The Advisors 4
Advisor Compensation 4
Portfolio Managers 4
OTHER INFORMATION 4
- - - - - - - - - - - - - - - - - - - - - - - - -
Sales Charges 4
Dividends and Distributions 4
FINANCIAL HIGHLIGHTS 5
- - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - -
Choosing a Share Class A-1
Purchasing Shares A-3
Redeeming Shares A-4
Exchanging Shares A-6
Pricing of Shares A-7
Taxes A-8
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
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, La Familia AIM de Fondos and Design and Invest with
Discipline are registered service marks and AIM Bank Connection, AIM Funds,
AIM Funds and Design and AIM Investor are service marks of A I M Management
Group Inc.
No dealer, salesperson or any person has been authorized to give any information
or to make any representations other than those contained in this prospectus,
and you should not rely on such other information or representations.
<PAGE> 37
--------------------------------
AIM ADVISOR LARGE CAP VALUE FUND
--------------------------------
INVESTMENT OBJECTIVE AND STRATEGIES
- --------------------------------------------------------------------------------
The fund's investment objective is to achieve a high total return on investment
through growth of capital and current income, without regard to federal income
tax considerations.
The fund seeks to meet this objective by investing, normally, at least 65% of
its investments in equity securities. These securities will consist principally
of common stocks, and to a lesser extent convertible securities, of selected
companies from a list of companies with market capitalizations among the largest
800 publicly traded U.S. corporations.
The fund may invest up to 10% of its total assets in non-Canadian foreign
securities and unsponsored American Depositary Receipts (ADRs). Up to 25% of the
fund's total assets may be invested in Canadian securities and sponsored ADRs.
In order to identify the securities having the best relative values, the
portfolio managers start with a list of securities of the 800 largest publicly
traded U.S. corporations, which they reduce to a list of 100 eligible securities
by utilizing a proprietary database system and fundamental analysis. The fund's
portfolio managers consider whether to sell a particular security when it no
longer qualifies for the list of eligible securities.
In anticipation of or in response to adverse market conditions, for cash
management purposes, or for defensive purposes, the fund may temporarily hold
all or a portion of its assets in cash, money market instruments, bonds or other
debt securities. As a result, the fund may not achieve its investment objective.
PRINCIPAL RISKS OF INVESTING IN THE FUND
- --------------------------------------------------------------------------------
There is a risk that you could lose all or a portion of your investment in the
fund and that the income you may receive from the fund may vary. The value of
your investment in the fund will go up and down with the prices of the
securities in which the fund invests. The prices of equity securities change in
response to many factors, including the historical and prospective earnings of
the issuer, the value of its assets, general economic conditions, interest
rates, investor perceptions and market liquidity.
Foreign securities have additional risks, including exchange rate changes,
political and economic upheaval, the relative lack of information about these
companies, relatively low market liquidity and the potential lack of strict
financial and accounting controls and standards.
The value of your shares could be adversely affected if the computer systems
used by the fund's investment advisor and the fund's other service providers are
unable to distinguish the year 2000 from the year 1900.
The fund's investment advisor and independent technology consultants are
working to avoid year 2000-related problems in its systems and to obtain
assurances that other service providers are taking similar steps. Year 2000
problems may also affect issuers in whose securities the fund invests.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
1
<PAGE> 38
--------------------------------
AIM ADVISOR LARGE CAP VALUE FUND
--------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
The following bar chart shows changes in the performance of the fund's Class C
shares from year to year. The bar chart does not reflect sales loads. If it did,
the annual total returns shown would be lower.
[GRAPH]
<TABLE>
<CAPTION>
Annual
Year Ended Total
December 31 Return
- ----------- ------
<S> <C>
1989 ....................................... 21.81%
1990 ....................................... -3.75%
1991 ....................................... 33.59%
1992 ....................................... 4.84%
1993 ....................................... 9.16%
1994 ....................................... 2.70%
1995 ....................................... 30.27%
1996 ....................................... 17.17%
1997 ....................................... 30.67%
1998 ....................................... 13.15%
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
17.83% (quarter ended December 31, 1998) and the lowest quarterly return was
- -15.27% (quarter ended September 30, 1990).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index. The fund's performance reflects payment of
sales loads.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- ---------------------------------------------------------------------------
(for the periods ended SINCE INCEPTION
December 31, 1998) 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A 7.81% -- -- 19.14% 12/31/96
Class B -- -- -- -- 03/03/98
Class C 12.15% 18.31% 15.30% 14.62% 02/15/84
S&P 500(1) 28.60% 24.05% 19.19% 18.03%(2) 01/31/84(2)
- ---------------------------------------------------------------------------
</TABLE>
(1) The Standard & Poor's 500 Index is an unmanaged index of common stocks
frequently used as a general measure of U.S. stock market performance.
(2) The average annual total return given is since the date closest to the
inception date of the class with the longest performance history.
2
<PAGE> 39
--------------------------------
AIM ADVISOR LARGE CAP VALUE FUND
--------------------------------
FEE TABLE AND EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- -------------------------------------------------------
(fees paid directly from
your investment) CLASS A CLASS B CLASS C
- -------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) 5.50% None None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase
price or redemption
proceeds, whichever
is less) None(1) 5.00% 1.00%
- -------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- -------------------------------------------------------
(expenses that are deducted
from fund assets) CLASS A CLASS B CLASS C
- -------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.75% 0.75% 0.75%
Distribution and/or
Service (12b-1) Fee 0.35 1.00 1.00
Other 0.14 0.14 0.14
Total Annual Fund
Operating Expenses 1.24 1.89 1.89
Fee Waiver(2) 0.10
Net Expenses 1.14% 1.89% 1.89%
- -------------------------------------------------------
</TABLE>
(1) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1% contingent
deferred sales charge (CDSC) at the time of redemption.
(2) The distributor has contractually agreed to limit the Class A shares' Rule
12b-1 distribution plan payments to 0.25%.
As a result of 12b-1 fees, long-term shareholders in the fund may pay more than
the maximum permitted initial sales charge.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in different
classes of the fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's gross operating expenses remain the same. To the extent fees are waived,
the expenses will be lower. Although your actual returns and costs may be higher
or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------
<S> <C> <C> <C> <C>
Class A $699 $922 $1,194 $1,967
Class B 692 894 1,221 2,042
Class C 292 594 1,021 2,212
- ----------------------------------------------
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------
<S> <C> <C> <C> <C>
Class A $669 $922 $1,194 $1,967
Class B 192 594 1,021 2,042
Class C 192 594 1,021 2,212
- ----------------------------------------------
</TABLE>
3
<PAGE> 40
--------------------------------
AIM ADVISOR LARGE CAP VALUE FUND
--------------------------------
FUND MANAGEMENT
- --------------------------------------------------------------------------------
THE ADVISORS
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor and
manages the investment operations of the fund and has agreed to perform or
arrange for the performance of the fund's day-to-day management. The advisor is
located at 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. INVESCO
Capital Management, Inc. (the subadvisor), the fund's subadvisor, is located at
1315 Peachtree Street, N. E., Atlanta, GA 30309. The subadvisor is responsible
for the fund's day-to-day management, including the fund's investment decisions
and the execution of securities transactions with respect to the fund.
The advisor has acted as an investment advisor since its organization in 1976
and the subadvisor has acted as an investment advisor since 1979. Today, the
advisor, together with its subsidiaries, advises or manages over 110 investment
portfolios, including the fund, encompassing a broad range of investment
objectives.
ADVISOR COMPENSATION
During the fiscal year ended December 31, 1998, the advisor received
compensation of 1.05% of average daily net assets consisting of a management fee
of 0.75% and an operating services fee of 0.30%.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual
members of the team who are primarily responsible for the day-to-day management
of the fund's portfolio are
- - Michael C. Harhai, C.F.A., Senior Portfolio Manager, who has been responsible
for the fund and has been associated with the subadvisor and/or its affiliates
since 1993.
- - R. Terrence Irrgang, C.F.A., Assistant Portfolio Manager, who has been
responsible for the fund since 1993 and has been associated with the
subadvisor and/or its affiliates since 1992.
OTHER INFORMATION
- --------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM Advisor Large Cap Value Fund are subject to
the maximum 5.50% initial sales charge as listed under the heading "CATEGORY I
Initial Sales Charges" in the "Shareholder Information--Choosing a Share Class"
section of this prospectus. Purchases of Class B and Class C shares are subject
to the contingent deferred sales charges listed in that section.
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS
The fund generally declares and pays dividends, if any, quarterly.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term gains, if any, annually and short-term
capital gains (including any net gains from foreign currency transactions), if
any, quarterly.
4
<PAGE> 41
--------------------------------
AIM ADVISOR LARGE CAP VALUE FUND
--------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
The information for the fiscal year or period ended December 31, 1998, has
been audited by KPMG LLP, whose report, along with the fund's financial
statements, is included in the fund's annual report, which is available upon
request. Information for prior years was audited by other public accountants.
<TABLE>
<CAPTION>
CLASS A(a)
-----------------------------
YEAR ENDED
DECEMBER 31,
-----------------------------
1998 1997(b)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $ 24.11 $20.57
Income from investment operations:
Net investment income 0.20(c) 0.23(c)
Net gains on securities (both realized and unrealized) 3.11 6.17
Total from investment operations 3.31 6.40
Less distributions:
Dividends from net investment income (0.12) (0.15)
Distributions from net realized gains (2.10) (2.71)
Total distributions (2.22) (2.86)
Net asset value, end of period $ 25.20 $24.11
Total return(d) 14.07% 31.66%
- -------------------------------------------------------------------------------------------
Ratios/supplemental data:
- -------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) $15,684 $5,000
Ratio of expenses to average net assets(e) 1.30%(f) 1.46%
Ratio of net investment income to average net assets(g) 0.91%(f) 0.77%
Portfolio turnover rate 52% 34%
- -------------------------------------------------------------------------------------------
</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 and/or reimbursements. Ratios of expenses to average net
assets prior to fee waivers and/or reimbursement were 1.55% and 1.56% for
1998-1997.
(f) Ratios are based on average net asset of $10,915,560.
(g) After fee waivers and/or reimbursements. Ratios of net investment income to
average net assets prior to fee waivers and/or reimbursement were 0.66% and
0.67% for 1998-1997.
5
<PAGE> 42
--------------------------------
AIM ADVISOR LARGE CAP VALUE FUND
--------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B
-------------------------
MARCH 3,
THROUGH
DECEMBER 31, 1998
- -----------------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period $25.59
Income from investment operations:
Net investment income 0.02
Net gains on securities (both realized and unrealized) 1.57
Total from investment operations 1.59
Less distributions:
Dividends from net investment income (0.02)
Distributions from net realized gains (2.10)
Total distributions (2.12)
Net asset value, end of period $25.06
Total return(a) 6.51%
- -----------------------------------------------------------------------------------------
Ratios/supplemental data:
- -----------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) $7,325
Ratio of expenses to average net assets(b) 2.05%(c)(d)
Ratio of net investment income to average net assets(e) 0.16%(c)(d)
Portfolio turnover rate 52%
- -----------------------------------------------------------------------------------------
</TABLE>
(a) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(b) After fee waivers and/or reimbursements. Ratio of expenses to average net
assets prior to fee waivers and/or reimbursements was 2.20% (annualized).
(c) Ratios are based on average net assets of $4,236,305.
(d) Annualized.
(e) After fee waivers and/or reimbursements. Ratio of net investment income to
average net assets prior to fee waivers and/or reimbursement was 0.01%
(annualized).
<TABLE>
<CAPTION>
CLASS C(a)
-----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1998 1997(b) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 24.08 $ 20.57 $ 17.60 $ 13.96 $ 14.90
Income from investment operations:
Net investment income 0.04 0.01(c) 0.05 0.10 0.09
Net gains on securities (both realized and
unrealized) 3.05 6.21 2.97 4.11 0.32
Total from investment operations 3.09 6.22 3.02 4.21 0.41
Less distributions:
Dividends from net investment income (0.02) -- (0.05) (0.10) (0.09)
Distributions from net realized gains (2.10) (2.71) -- (0.47) (1.26)
Total distributions (2.12) (2.71) (0.05) (0.57) (1.35)
Net asset value, end of period $ 25.05 $ 24.08 $ 20.57 $ 17.60 $ 13.96
Total return(d) 13.15% 30.66% 17.17% 30.28% 2.69%
- ----------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) $182,679 $172,228 $137,416 $113,573 $ 77,929
Ratio of expenses to average net assets 2.05%(e)(f) 2.21% 2.26% 2.28% 2.25%
Ratio of net investment income to average net
assets 0.16%(f)(g) 0.02% 0.24% 0.64% 0.61%
Portfolio turnover rate 52% 34% 19% 17% 21%
- ----------------------------------------------------------------------------------------------------------------------
</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 reimbursements. Ratio of expenses to average net
assets prior to fee waivers and/or reimbursement were 2.20%.
(f) Ratios are based on average net assets of $176,305,963.
(g) After fee waivers and/or reimbursements. Ratio of net investment income to
average net assets prior to fee waivers and/or reimbursement were 0.01%.
6
<PAGE> 43
-------------
THE AIM FUNDS
-------------
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
In addition to the fund, A I M Advisors, Inc. serves as investment advisor to
many other mutual funds (the AIM Funds). The following information is about all
the AIM Funds.
CHOOSING A SHARE CLASS
Many of the AIM Funds have multiple classes of shares, each class representing
an interest in the same portfolio of investments. When choosing a share class,
you should consider the factors below:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
- - Initial sales charge - No initial sales charge - No initial sales charge
- - Reduced or waived initial sales - Contingent deferred sales - Contingent deferred sales
charge for certain purchases charge on redemptions within six charge on redemptions within
years one year
- - Lower distribution and service - 12b-1 fee of 1.00% - 12b-1 fee of 1.00%
(12b-1) fee than Class B or
Class C shares (See "Fee Table
and Expense Example")
- Converts to Class A shares - Does not convert to Class A
after eight years along with a shares
pro rata portion of its
reinvested dividends and
distributions(1)
- - Generally more appropriate for - Purchase orders limited to - Generally more appropriate
long-term investors amounts less than $250,000 for short-term investors
</TABLE>
(1) AIM Money Market Fund: Class B shares convert to AIM Cash Reserve
Shares.
AIM Global Trends Fund: If you held Class B shares on May 29,
1998 and continue to hold them, those shares will convert to
Class A shares of that fund seven years after your date of
purchase. If you exchange those shares for Class B shares of
another AIM Fund, the shares into which you exchanged will
not convert to Class A shares until eight years after your
date of purchase of the original shares.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12b-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund) has adopted 12b-1 plans
that allow the AIM Fund to pay distribution fees to A I M Distributors, Inc.
(the distributor) for the sale and distribution of its shares and fees for
services provided to shareholders, all or a substantial portion of which are
paid to the dealer of record. Because the AIM Fund pays these fees out of its
assets on an ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
A- 1 MCF--06/99
<PAGE> 44
-------------
THE AIM FUNDS
-------------
SALES CHARGES
Generally, you will not pay a sales charge on purchases or redemptions of Class
A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money
Market Fund. You may be charged a contingent deferred sales charge if you redeem
AIM Cash Reserve Shares of AIM Money Market Fund acquired through certain
exchanges. Sales charges on all other AIM Funds and classes of those Funds are
detailed below. As used below, the term "offering price" with respect to all
categories of Class A shares includes the initial sales charge.
INITIAL SALES CHARGES
The AIM Funds are grouped into three categories with respect to initial sales
charges. The "Other Information" section of your prospectus will tell you in
what category your particular AIM Fund is classified.
<TABLE>
<CAPTION>
CATEGORY I INITIAL SALES CHARGES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
INVESTOR'S
SALES CHARGE
-----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ---------------------------------------------------------------
<S> <C> <C>
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY II INITIAL SALES CHARGES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
INVESTOR'S
SALES CHARGE
-----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ---------------------------------------------------------------
<S> <C> <C>
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY III INITIAL SALES CHARGES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
INVESTOR'S
SALES CHARGE
-----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ---------------------------------------------------------------
<S> <C> <C>
Less than $ 100,000 1.00% 1.01%
$100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
- ---------------------------------------------------------------
</TABLE>
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES
You can purchase $1,000,000 or more of Class A shares at net asset value.
However, if you purchase shares of that amount in Categories I or II, they will
be subject to a contingent deferred sales charge (CDSC) of 1% if you redeem them
prior to 18 months after the date of purchase. The distributor may pay a dealer
concession and/or a service fee for purchases of $1,000,000 or more.
CONTINGENT DEFERRED SALES CHARGES FOR
CLASS B AND CLASS C SHARES
You can purchase Class B and Class C shares at their net asset value per share.
However, when you redeem them, they are subject to a CDSC in the following
percentages:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
- ----------------------------------------------------------
<S> <C> <C>
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
- ----------------------------------------------------------
</TABLE>
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you have redeemed shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify
for these reductions or exceptions, you or your financial consultant must
provide sufficient information at the time of purchase to verify that your
purchase qualifies for such treatment.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Rights of Accumulation
You may combine your new purchases of Class A shares with Class A shares
currently owned for the purpose of qualifying for the lower initial sales charge
rates that apply to larger purchases. The applicable initial sales charge for
the new purchase is based on the total of your current purchase and the current
value of all Class A shares you own.
Letters of Intent
Under a Letter of Intent (LOI), you commit to purchase a specified dollar amount
of Class A shares of AIM Funds during a
MCF--06/99 A- 2
<PAGE> 45
-------------
THE AIM FUNDS
-------------
13-month period. The amount you agree to purchase determines the initial sales
charge you pay. If the full face amount of the LOI is not invested by the end of
the 13-month period, your account will be adjusted to the higher initial sales
charge level for the amount actually invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- - on shares purchased by reinvesting dividends and distributions;
- - when exchanging shares among certain AIM Funds;
- - when using the reinstatement privilege; and
- - when a merger, consolidation, or acquisition of assets of an AIM Fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- - if you redeem Class B shares you held for more than six years;
- - if you redeem Class C shares you held for more than one year;
- - if you redeem shares acquired through reinvestment of dividends and
distributions; and
- - on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares
at reduced or without sales charges. Consult the fund's Statement of Additional
Information for details.
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
The minimum investments for AIM Fund accounts (except for investments in AIM
Small Cap Opportunities Fund) are as follows:
<TABLE>
<CAPTION>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing $ 0 ($25 per AIM Fund investment for $ 25
plans, 401(k) plans, Simplified Employee Pension salary deferrals from Savings Plans)
(SEP) accounts, Salary Reduction (SARSEP)
accounts, Savings Incentive Match Plans for
Employee IRA (Simple IRA) accounts, 403(b) or
457 plans)
Automatic Investment Plans 50 50
IRA, Education IRA or Roth IRA 250 50
All other accounts 500 50
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below.
<TABLE>
<CAPTION>
PURCHASE OPTIONS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Through a Financial Consultant Contact your financial consultant. Same
By Mail Mail completed Account Application Mail your check and the remittance
and purchase payment to the slip from your confirmation
transfer agent, statement to the transfer agent.
A I M Fund Services, Inc.,
P.O. Box 4739,
Houston, TX 77210-4739.
By Wire Mail completed Account Application Call the transfer agent to receive
to the transfer agent. Call the a reference number. Then, use the
transfer agent at (800) 959-4246 to wire instructions at left.
receive a reference number. Then,
use the following wire
instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number:
00100366807
Beneficiary Account Name: A I M
Fund Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank
methods described above. Connection(SM) form to the transfer
agent. Once the transfer agent has
received the form, call the
transfer agent to place your
purchase order.
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
A- 3 MCF--06/99
<PAGE> 46
-------------
THE AIM FUNDS
-------------
SPECIAL PLANS
AUTOMATIC INVESTMENT PLAN
You can arrange for periodic investments in any of the AIM Funds by authorizing
the AIM Fund to withdraw the amount of your investment from your bank account on
a day or dates you specify and in an amount of at least $50. You may stop the
Automatic Investment Plan at any time by giving the transfer agent notice ten
days prior to your next scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one AIM Fund account to one or more other AIM Fund
accounts with the identical registration. The account from which exchanges are
to be made must have a minimum balance of $5,000 before you can use this option.
Exchanges will occur on (or about) the 10th or 25th day of the month, whichever
you specify, in the amount you specify. The minimum amount you can exchange to
another AIM Fund is $50.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
AIM Fund at net asset value. Unless you specify otherwise, your dividends and
distributions will automatically be reinvested in the same AIM Fund. You may
invest your dividends and distributions (1) into another AIM Fund in the same
class of shares; or (2) from Class A shares into AIM Cash Reserve Shares of AIM
Money Market Fund, or vice versa.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend must be at
least $5,000; or (b) in the AIM Fund receiving the dividend must be at least
$500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends into
another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this Program, you can designate how the
total value of your AIM Fund holdings should be rebalanced, on a percentage
basis, between two and ten of your AIM Funds on a quarterly, semiannual or
annual basis. Your portfolio will be rebalanced through the exchange of shares
in one or more of your AIM Funds for shares of the same class of one or more
other AIM Funds in your portfolio. If you wish to participate in the Program,
make changes or cancel the Program, the transfer agent must receive your request
to participate, changes, or cancellation in good order at least five business
days prior to the next rebalancing date, which is normally the 28th day of the
last month of the period you choose. You may realize taxable gains from these
exchanges. We may modify, suspend or terminate the Program at any time on 60
days' prior written notice.
RETIREMENT PLANS
Shares of most of the AIM Funds can be purchased through tax-sheltered
retirement plans made available to corporations, individuals and employees of
non-profit organizations and public schools. A plan document must be adopted to
establish a retirement plan. You may use AIM Funds-sponsored retirement plans,
which include IRAs, Education IRAs, Roth IRAs, 403(b) plans, 401(k) plans,
SIMPLE IRA plans, SEP/SARSEP plans and Money Purchase/Profit Sharing plans, or
another sponsor's retirement plan. The plan custodian of the AIM Funds-sponsored
retirement plan assesses an annual maintenance fee of $10. Contact your
financial consultant for details.
REDEEMING SHARES
REDEMPTION FEES
We will not charge you any fees to redeem your shares; however, your broker or
financial consultant may charge service fees for handling these transactions.
Your shares may be subject to a contingent deferred sales charge (CDSC).
REDEMPTION OF AIM CASH RESERVE SHARES OF
AIM MONEY MARKET FUND ACQUIRED BY EXCHANGE
If you redeem AIM Cash Reserve Shares acquired by exchange from Class A shares
subject to a CDSC within 18 months of the purchase of the Class A shares, you
will be charged a CDSC.
REDEMPTION OF CLASS B SHARES ACQUIRED BY
EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM
Floating Rate Fund, the early withdrawal charge applicable to shares of AIM
Floating Rate Fund will be applied instead of the CDSC normally applicable to
Class B shares.
MCF--06/99 A- 4
<PAGE> 47
-------------
THE AIM FUNDS
-------------
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Consultant Contact your financial consultant.
By Mail Send a written request to the transfer agent. Requests must
include (1) original signatures of all registered owners;
(2) the name of the AIM Fund and your account number; (3) if
the transfer agent does not hold your shares, endorsed share
certificates or share certificates accompanied by an
executed stock power; and (4) signature guarantees, if
necessary (see below). The transfer agent may require that
you provide additional information, such as corporate
resolutions or powers of attorney, if applicable. If you are
redeeming from an IRA account, you must include a statement
of whether or not you are at least 59 1/2 years old and
whether you wish to have federal income tax withheld from
your proceeds. The transfer agent may require certain other
information before you can redeem from an employer-sponsored
retirement plan. Contact your employer for details.
By Telephone Call the transfer agent. You will be allowed to redeem by
telephone if (1) the proceeds are to be mailed to the
address on record with us or transferred electronically to a
pre-authorized checking account; (2) the address on record
with us has not been changed within the last 30 days; (3)
you do not hold physical share certificates; (4) you can
provide proper identification information; (5) the proceeds
of the redemption do not exceed $50,000; and (6) you have
not previously declined the telephone redemption privilege.
Certain accounts, including retirement accounts and 403(b)
plans, may not redeem by telephone. The transfer agent must
receive your call during the hours the New York Stock
Exchange (NYSE) is open for business in order to effect the
redemption at that day's closing price.
</TABLE>
- --------------------------------------------------------------------------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds to the address on record with us.
If your request is not in good order, you may have to provide us with additional
documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
PAYMENT FOR SYSTEMATIC WITHDRAWALS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. You also may make annual withdrawals if you own Class A shares.
We will redeem enough shares from your account to cover the amount withdrawn.
You must have an account balance of at least $5,000 to establish a Systematic
Withdrawal Plan. You can stop this plan at any time by giving ten days prior
notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM Cash Reserve Shares of AIM Money Market Fund only)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of trading
on the NYSE, we generally will transmit payment on the next business day.
REDEMPTIONS BY CHECK
(Class A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM
Money Market Fund only)
You may redeem shares of these AIM Funds by writing checks in amounts of $250 or
more if you have completed an authorization form. Redemption by check is not
available for retirement accounts.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
(1) the amount is greater than $50,000;
(2) you request that payment be made to someone other than the name registered
on the account;
(3) you request that payment be sent somewhere other than the bank of record on
the account; or
(4) you request that payment be sent to a new address or an address that changed
in the last 30 days.
The transfer agent will accept a guarantee of your signature by a number of
financial institutions. Call the transfer agent for additional information. Some
institutions have transaction amount maximums for these guarantees. Please check
with the guarantor institution.
A- 5 MCF--06/99
<PAGE> 48
-------------
THE AIM FUNDS
-------------
REINSTATEMENT PRIVILEGE (Class A shares only)
You may, within 90 days after you sell Class A shares (except Class A shares of
AIM Tax-Exempt Cash Fund), reinvest all or part of your redemption proceeds in
Class A shares of any AIM Fund at net asset value in an identically registered
account. If you sold Class A shares of AIM Limited Maturity Treasury Fund or AIM
Tax-Free Intermediate Fund, you will incur an initial sales charge reflecting
the difference between the initial sales charges on those Funds and the ones in
which you will be investing. In addition, if you paid a contingent deferred
sales charge (CDSC) on any reinstated amount, you will not be subject to a CDSC
if you later redeem that amount. You must notify the transfer agent in writing
at the time you reinstate that you are exercising your reinstatement privilege.
You may exercise this privilege only once per year.
REDEMPTIONS BY THE AIM FUNDS
If your account has been open at least one year, you have not made an additional
purchase in the account during the past six calendar months, and the value of
your account falls below $500 for three consecutive months due to redemptions or
exchanges (excluding retirement accounts), the AIM Funds have the right to
redeem the account after giving you 60 days' prior written notice. You may avoid
having your account redeemed during the notice period by bringing the account
value up to $500 or by utilizing the Automatic Investment Plan.
If an AIM Fund determines that you have provided incorrect information in
opening an account or in the course of conducting subsequent transactions, the
AIM Fund may, at its discretion, redeem the account and distribute the proceeds
to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one AIM Fund for those
of another AIM Fund. Before requesting an exchange, review the prospectus of the
AIM Fund you wish to acquire. Exchange privileges also apply to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992.
PERMITTED EXCHANGES
Except as otherwise stated below, you may exchange your shares for shares of the
same class of another AIM Fund. You also may exchange AIM Cash Reserve Shares of
AIM Money Market Fund for Class A shares of another AIM Fund, or vice versa. You
may be required to pay an initial sales charge when exchanging from a Fund with
a lower initial sales charge than the one into which you are exchanging. If you
exchange from Class A shares not subject to a CDSC into Class A shares subject
to those charges, you will be charged a CDSC when you redeem the exchanged
shares. The CDSC charged on redemption of those shares will be calculated
starting on the date you acquired those shares through exchange.
You also may exchange AIM Cash Reserve Shares of AIM Money Market Fund for
Advisor Class shares, but only if you acquired the AIM Cash Reserve Shares
through an exchange from Advisor Class shares.
YOU WILL NOT PAY A SALES CHARGE WHEN EXCHANGING:
(1) Class A shares with an initial sales charge (except for Class A shares of
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
Class A shares of another AIM Fund or AIM Cash Reserve Shares of AIM Money
Market Fund;
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund for
(a) one another;
(b) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of
AIM Tax-Exempt Cash Fund; or
(c) Class A shares of another AIM Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way of
an exchange from shares with higher sales charges;
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) one another;
(b) Class A shares of an AIM Fund subject to an initial sales charge (except
for Class A shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund), but only if you acquired the original
shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to an
initial sales charge;
(ii) on or after May 1, 1994 by exchange from Class A shares subject to
an initial sales charge (except for Class A shares of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund); or
(c) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund, but only if you acquired the original shares by
exchange from Class A shares subject to an initial sales charge; or
(4) Class B shares for other Class B shares, and Class C shares for other Class
C shares.
EXCHANGES NOT PERMITTED
You may not exchange Class A shares subject to contingent deferred sales charges
for Class A shares of AIM Limited Maturity Treasury Fund, AIM Tax-Free
Intermediate Fund or AIM Tax-Exempt Cash Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be available for sale in your
state of residence;
MCF--06/99 A- 6
<PAGE> 49
-------------
THE AIM FUNDS
-------------
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - Shares must have been held for at least one day prior to the exchange; and
- - If you have physical share certificates, you must return them to the transfer
agent prior to the exchange.
Beginning September 15, 1999, the following exchange condition will apply:
- - Because excessive short-term trading or market-timing activity can hurt fund
performance, you are limited to a maximum of 10 exchanges per calendar year.
If you exceed that limit, or if an AIM Fund or the distributor determines, in
its sole discretion, that your short-term trading is excessive or that you are
engaging in market-timing activity, it may reject any additional exchange
orders. An exchange is the movement out of (redemption) one AIM Fund and into
(purchase) another AIM Fund.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the purchase of shares
being acquired in an exchange for up to five business days if it determines that
it would be materially disadvantaged by the immediate transfer of exchange
proceeds. There is no fee for exchanges. The exchange privilege is not an option
or right to purchase shares. Any of the participating AIM Funds or the
distributor may modify or discontinue this privilege at any time.
BY MAIL
If you wish to make an exchange by mail, you must include original signatures of
each registered owner exactly as the shares are registered, the account
registration and account number, the dollar amount or number of shares to be
exchanged and the names of the AIM Funds from which and into which the exchange
is to be made.
BY TELEPHONE
Conditions that apply to exchanges by telephone are the same as redemptions by
telephone, including that the transfer agent must receive exchange requests
during the hours the NYSE is open for business; however, you still will be
allowed to exchange by telephone even if you have changed your address of record
within the preceding 30 days.
EXCHANGING CLASS B AND CLASS C SHARES
If you make an exchange involving Class B or Class C shares, the amount of time
you held the original shares will be added to the holding period of the Class B
or Class C shares, respectively, into which you exchanged for the purpose of
calculating contingent deferred sales charges (CDSC) if you later redeem the
exchanged shares. If you redeem Class B shares acquired by exchange via a tender
offer by AIM Floating Rate Fund, you will be credited with the time period you
held the shares of AIM Floating Rate Fund for the purpose of computing the early
withdrawal charge applicable to those shares.
EACH AIM FUND AND THE DISTRIBUTOR RESERVE THE RIGHT AT ANY TIME TO:
- - REJECT OR CANCEL ANY PART OF ANY PURCHASE OR EXCHANGE ORDER;
- - MODIFY ANY TERMS OR CONDITIONS OF PURCHASE OF SHARES OF ANY AIM FUND;
- - REJECT OR CANCEL ANY REQUEST TO ESTABLISH THE AUTOMATIC INVESTMENT PLAN AND
SYSTEMATIC WITHDRAWAL PLAN OPTIONS ON THE SAME ACCOUNT; OR
- - WITHDRAW ALL OR ANY PART OF THE OFFERING MADE BY THIS PROSPECTUS.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. AIM Money
Market Fund and AIM Tax-Exempt Cash Fund value all of their securities at
amortized cost. 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.
The AIM Funds value all other securities and assets at their fair value.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day. In addition, if,
between the time trading ends on a particular security and the close of the
NYSE, events occur that materially affect the value of the security, the AIM
Funds may value the security at its fair value as determined in good faith by or
under the supervision of the Board of Directors or Trustees of the AIM Fund. The
effect of using fair value pricing is that an AIM Fund's net asset value will be
subject to the judgment of the Board of Directors or Trustees or its designee
instead of being determined by the market. Because some of the AIM Funds may
invest in securities that are primarily listed on foreign exchanges, the value
of those funds' shares may change on days when you will not be able to purchase
or redeem shares.
Each AIM Fund determines the net asset value of its shares as of the close of
the NYSE on each day the NYSE is open for business. AIM Money Market Fund also
determines its net asset value as of 12:00 noon Eastern Time on each day the
NYSE is open for business.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours the NYSE is open
for business. The AIM Funds price purchase,
A- 7 MCF--06/99
<PAGE> 50
-------------
THE AIM FUNDS
-------------
exchange and redemption orders at the net asset value calculated after the
transfer agent receives an order in good form. An AIM Fund may postpone the
right of redemption only under unusual circumstances, as allowed by the
Securities and Exchange Commission, such as when the NYSE restricts or suspends
trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund holds
its assets. Different tax rates apply to ordinary income and long-term capital
gain distributions, regardless of how long you have held your shares. Every
year, you will be sent information showing the amount of dividends and
distributions you received from each AIM Fund during the prior year.
Any long-term or short-term capital gains realized from redemptions of AIM
Fund shares will be subject to federal income tax. Exchanges of shares for
shares of another AIM Fund are treated as a sale, and any gain realized on the
transaction will generally be subject to federal income tax.
The foreign, state and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
MCF--06/99 A- 8
<PAGE> 51
--------------------------------
AIM ADVISOR LARGE CAP VALUE FUND
--------------------------------
OBTAINING ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us
- ---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Distributors, Inc.
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
- ---------------------------------------------------------
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, DC, on the SEC's website
(http://www.sec.gov), or by sending a letter, including a duplicating fee, to
the SEC's Public Reference Section, Washington, DC 20549-6009. Please call the
SEC at 1-800-SEC-0330 for information about the Public Reference Room.
- -----------------------------------
AIM Advisor Large Cap Value Fund
SEC 1940 Act file number: 811-3886
- -----------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com LCV-PRO-1 INVEST WITH DISCIPLINE
--Registered Trademark--
<PAGE> 52
AIM ADVISOR REAL ESTATE FUND
------------------------------------------------------------------------
AIM Advisor Real Estate Fund seeks to achieve a high total return on
investment through growth of capital and current income, without
regard to federal income tax considerations.
PROSPECTUS
MAY 3, 1999,
AS REVISED
JULY 1, 1999
This prospectus contains important
information about the Class A, B and
C shares of the funds. Please read
it before investing and keep it for
future reference.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE
--Registered Trademark--
<PAGE> 53
----------------------------
AIM ADVISOR REAL ESTATE FUND
----------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE
FUND 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 2
- - - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 2
Performance Table 2
FEE TABLE AND EXPENSE EXAMPLE 3
- - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 3
Expense Example 3
FUND MANAGEMENT 4
- - - - - - - - - - - - - - - - - - - - - - - - -
The Advisors 4
Advisor Compensation 4
Portfolio Managers 4
OTHER INFORMATION 4
- - - - - - - - - - - - - - - - - - - - - - - - -
Sales Charges 4
Dividends and Distributions 4
FINANCIAL HIGHLIGHTS 5
- - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - -
Choosing a Share Class A-1
Purchasing Shares A-3
Redeeming Shares A-4
Exchanging Shares A-6
Pricing of Shares A-7
Taxes A-8
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
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, La Familia AIM de Fondos and Design and Invest with
Discipline are registered service marks and AIM Bank Connection, AIM Funds,
AIM Funds and Design and AIM Investor are service marks of A I M Management
Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 54
----------------------------
AIM ADVISOR REAL ESTATE FUND
----------------------------
INVESTMENT OBJECTIVE AND STRATEGIES
- --------------------------------------------------------------------------------
The fund's investment objective is to achieve a high total return on investment
through growth of capital and current income, without regard to federal income
tax considerations.
The fund seeks to meet this objective by investing, normally, at least 65% of
its total assets in equity securities of companies that are principally engaged
in the real estate industry and are listed on a U.S. exchange or the National
Association of Securities Dealers Automated Quotation System (NASDAQ). The fund
considers a company to be "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 real estate investment trusts (REITs). The
fund will not invest directly in private real estate assets.
The fund may 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 or in securities of companies unrelated to the real
estate industry that the portfolio managers believe are undervalued and have
potential for growth of capital. The fund may invest up to 100% of its assets in
debt securities of companies related to the real estate industry. The fund will
limit its investment in debt securities to those that are investment-grade or
deemed by the fund's portfolio manager to be of comparable quality. The fund may
invest (1) up to 25% of its total assets in foreign securities and unsponsored
ADRs; and (2) in sponsored ADRs.
The portfolio managers utilize fundamental real estate analysis and numerical
securities analysis to select investments for the fund, including analyzing a
company's management and strategic focus, evaluating the location, physical
attributes and cash flow generating capacity of a company's properties and
calculating expected returns, among other things. The portfolio managers
consider whether to sell a particular security when any of those factors
materially changes.
In anticipation of or in response to adverse market conditions, for cash
management purposes, or for defensive purposes, the fund may temporarily hold
all or a portion of its assets in cash, money market instruments, bonds or other
debt securities. As a result, the fund may not achieve its investment objective.
PRINCIPAL RISKS OF INVESTING IN THE FUND
- --------------------------------------------------------------------------------
There is a risk that you could lose all or a portion of your investment in the
fund and that the income you may receive from your investment may vary. The
value of your investment in the fund will go up and down with the prices of the
securities in which the fund invests. The prices of equity securities change in
response to many factors, including the historical and prospective earnings of
the issuer, the value of its assets, general economic conditions, interest
rates, investor perceptions and market liquidity. Interest rates cause the price
of a debt security to decrease; the longer a debt security's duration, the more
sensitive it is to this risk. The issuer of a debt security may default or
otherwise be unable to honor a financial obligation.
Foreign securities have additional risks, including exchange rate changes,
political and economic upheaval, the relative lack of information about these
companies, relatively low market liquidity and the potential lack of strict
financial and accounting controls and standards.
Because the fund focuses its investments in companies related to the real
estate industry, the value of your shares may rise and fall more than the value
of shares of a fund that invests in a broader range of companies.
The fund could conceivably hold real estate directly if a company defaults on
debt securities the fund owns. In that event, an investment in the fund may have
additional risks relating to direct ownership in real estate, including
difficulties in valuing and trading real estate, declines in value of the
properties, risks relating to general and local economic conditions, changes in
the climate for real estate, increases in taxes, expenses and costs, changes in
laws, casualty and condemnation losses, rent control limitations and increases
in interest rates.
The value of the fund's investment in REITs is affected by the factors listed
above, as well as the management skill of the persons managing the REIT. REITs
also are not diversified and, therefore, their value may fluctuate more widely,
and they may be subject to greater risks, than if they invested more broadly.
Since REITs have expenses of their own, you will bear a proportionate share of
those expenses in addition to those of the fund.
Foreign securities have additional risks, including exchange rate changes,
political and economic upheaval, the relative lack of information about these
companies, relatively low market liquidity and the potential lack of strict
financial and accounting controls and standards.
The value of your shares could be adversely affected if the computer systems
used by the fund's investment advisor and the fund's other service providers are
unable to distinguish the year 2000 from the year 1900.
The fund's investment advisor and independent technology consultants are
working to avoid year 2000-related problems in its systems and to obtain
assurances that other service providers are taking similar steps. Year 2000
problems may also affect issuers in whose securities the fund invests.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
1
<PAGE> 55
----------------------------
AIM ADVISOR REAL ESTATE FUND
----------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
The following bar chart shows changes in the performance of the fund's Class C
shares from year to year. The bar chart does not reflect sales loads. If it did,
the annual total returns shown would be lower.
[GRAPH]
<TABLE>
<CAPTION>
Annual
Year Ended Total
December 31 Return
- ----------- ------
<S> <C>
1996 ....................................... 36.43%
1997 ....................................... 18.88%
1998 ....................................... -23.16%
</TABLE>
During the period shown in the bar chart, the highest quarterly return was
19.39% (quarter ended December 31, 1996) and the lowest quarterly return was
- -15.54% (quarter ended September 30, 1998).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index. The fund's performance reflects payment of
sales loads.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
(for the periods ended SINCE INCEPTION
December 31, 1998) 1 YEAR INCEPTION DATE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A (26.20)% (5.98)% 12/31/96
Class B -- -- 03/03/98
Class C (23.89)% 8.74% 05/01/95
S&P 500(1) 28.60% 29.32%(2) 04/30/95(2)
- --------------------------------------------------------------------------------
</TABLE>
(1) The Standard & Poor's 500 Index is an unmanaged index of common stocks
frequently used as a general measure of U.S. stock market performance.
(2) The average annual total return given is since the date closest to the
inception date of the class with the longest performance history.
2
<PAGE> 56
----------------------------
AIM ADVISOR REAL ESTATE FUND
----------------------------
FEE TABLE AND EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- -------------------------------------------------------
(fees paid directly from
your investment) CLASS A CLASS B CLASS C
- -------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) 4.75% None None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase
price or redemption
proceeds, whichever
is less) None(1) 5.00% 1.00%
- ---------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- ---------------------------------------------------
(expenses that are deducted
from fund assets) CLASS A CLASS B CLASS C
- ---------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.90% 0.90% 0.90%
Distribution and/or
Service (12b-1) Fees 0.35 1.00 1.00
Other 0.41 0.41 0.41
Total Annual Fund
Operating Expenses 1.66 2.31 2.31
Fee Waiver(2) 0.10
Net Expenses 1.56% 2.31% 2.31%
- ---------------------------------------------------
</TABLE>
(1) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1% contingent
deferred sales charge (CDSC) at the time of redemption.
(2) The distributor has contractually agreed to limit the Class A shares' Rule
12b-1 distribution plan payments to 0.25%.
As a result of 12b-1 fees, long-term shareholders in the fund may pay more than
the maximum permitted initial sales charge.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in different
classes of the fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's gross operating expenses remain the same. To the extent fees are waived,
the expenses will be lower. Although your actual returns and costs may be higher
or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------
<S> <C> <C> <C> <C>
Class A $636 $ 974 $1,334 $2,347
Class B 734 1,021 1,435 2,483
Class C 334 721 1,235 2,646
- ----------------------------------------------
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------
<S> <C> <C> <C> <C>
Class A $636 $974 $1,334 $2,347
Class B 234 721 1,235 2,483
Class C 234 721 1,235 2,646
- ----------------------------------------------
</TABLE>
3
<PAGE> 57
----------------------------
AIM ADVISOR REAL ESTATE FUND
----------------------------
FUND MANAGEMENT
- --------------------------------------------------------------------------------
THE ADVISORS
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor and
manages the investment operations of the fund and has agreed to perform or
arrange for the performance of the fund's day-to-day management. The advisor is
located at 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. INVESCO
Realty Advisors, Inc. (the subadvisor), the fund's subadvisor, is located at One
Lincoln Centre, Suite 700, 5400 LBJ Freeway/LB-2, Dallas, TX 75240. The
subadvisor is responsible for the fund's day-to-day management, including the
fund's investment decisions and the execution of securities transactions with
respect to the fund.
The advisor has acted as an investment advisor since its organization in 1976
and the subadvisor has acted as an investment advisor and qualified professional
asset manager since 1983. Today, the advisor, together with its subsidiaries,
advises or manages over 110 investment portfolios, including the fund,
encompassing a broad range of investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended December 31, 1998, the advisor received
compensation of 1.28% of average daily net assets consisting of a management fee
of 0.89% and an operating services fee of 0.39%.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual
members of the team who are primarily responsible for the day-to-day management
of the fund's portfolio are
- - Joe V. Rodriguez, Jr., Senior Portfolio Manager, who has been responsible for
the fund since 1995 and has been associated with the subadvisor and/or its
affiliates since 1990.
- - James W. Trowbridge, Senior Portfolio Manager, who has been responsible for
the fund since 1995 and has been associated with the subadvisor and/or its
affiliates since 1989.
OTHER INFORMATION
- --------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM Advisor Real Estate Fund are subject to the
maximum 4.75% initial sales charge as listed under the heading "CATEGORY II
Initial Sales Charges" in the "Shareholder Information--Choosing a Share Class"
section of this prospectus. Purchases of Class B and Class C shares are subject
to the contingent deferred sales charges listed in that section.
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS
The fund generally declares and pays dividends, if any, quarterly.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term gains, if any, annually and short-term
capital gains (including any net gains from foreign currency transactions), if
any, quarterly.
4
<PAGE> 58
----------------------------
AIM ADVISOR REAL ESTATE FUND
----------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
The information for the fiscal year or period ended December 31, 1998, has
been audited by KPMG LLP, whose report, along with the fund's financial
statements, is included in the fund's annual report, which is available upon
request. Information for prior years was audited by other public accountants.
<TABLE>
<CAPTION>
CLASS A(a)
-----------------------
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997(b)
- -------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $ 15.74 $ 14.19
Income from investment operations:
Net investment income (loss) 0.58(c) 0.34(c)
Net gains (losses) on securities (both
realized and unrealized) (4.11) 2.39
Total from investment operations (3.53) 2.73
Less distributions:
Dividends from net investment income (0.50) (0.44)
Distributions from capital gains (0.25) (0.74)
Total distributions (0.75) (1.18)
Net asset value, end of period $ 11.46 $ 15.74
Total return(d) (22.54)% 19.78%
- -------------------------------------------------------------------------
Ratios/supplemental data:
- -------------------------------------------------------------------------
Net assets, end of period (000s omitted) $20,087 $16,507
Ratio of expenses to average net assets(e) 1.55%(f) 1.60%
Ratio of net investment income to average net
assets(g) 4.37%(f) 3.26%
Portfolio turnover rate 69% 57%
- -------------------------------------------------------------------------
</TABLE>
(a) Per share information and shares have been restated to reflect a 4 for 1
stock split, effective 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 and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.71% and 1.70% for 1998-1997.
(f) Ratios are based on average net assets of $23,133,391.
(g) After fee waivers and/or expense reimbursements. Ratios of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 4.21% and 3.16% for 1998-1997.
5
<PAGE> 59
----------------------------
AIM ADVISOR REAL ESTATE FUND
----------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B
-----------------------------
MARCH 3,
THROUGH
DECEMBER 31, 1998
- -------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period $ 15.34
Income from investment operations:
Net investment income 0.37(a)
Net gains (losses) on securities (both
realized and unrealized) (3.58)
Total from investment operations (3.21)
Less distributions:
Dividends from net investment income (0.40)
Distributions from capital gains (0.25)
Total distributions (0.65)
Net asset value, end of period $ 11.48
Total return(b) (21.02)%
- -------------------------------------------------------------------------------
Ratios/supplemental data:
- -------------------------------------------------------------------------------
Net assets, end of period (000s omitted) $ 6,901
Ratio of expenses to average net assets(c) 2.31%(d)(e)
Ratio of net investment income to average net
assets(f) 3.62%(d)(e)
Portfolio turnover rate 69%
- -------------------------------------------------------------------------------
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not deduct contingent deferred sales charges and are not annualized
for periods less than one year.
(c) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
2.37% (annualized).
(d) Ratios are based on average net assets of $6,107,990.
(e) Annualized.
(f) After fee waivers and/or expense reimbursements. Ratios of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 3.56% (annualized).
<TABLE>
<CAPTION>
CLASS C(a)
-------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997(b) 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 15.74 $ 14.19 $ 10.76 $ 10.00
Income from investment operations:
Net investment income 0.50(c) 0.36(c) 0.33 0.16
Net gains (losses) on securities (both
realized and unrealized) (4.13) 2.26 3.51 0.75
Total from investment operations (3.63) 2.62 3.84 0.91
Less distributions:
Dividends from net investment income (0.40) (0.33) (0.31) (0.15)
Distributions from capital gains (0.25) (0.74) (0.10) --
Total distributions (0.65) (1.07) (0.41) (0.15)
Net asset value, end of period $ 11.46 $ 15.74 $ 14.19 $ 10.76
Total return(d) (23.16)% 18.88% 36.43% 9.12%
- -----------------------------------------------------------------------------------------
Ratios/supplemental data:
- -----------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) $32,921 $43,934 $20,566 $ 5,565
Ratio of expenses to average net assets(e) 2.31%(f) 2.35% 2.40% 2.40%(g)
Ratio of net investment income (loss) to average
net assets(h) 3.62%(f) 2.54% 3.21% 4.68%(g)
Portfolio turnover rate 69% 57% 25% 7%
- -----------------------------------------------------------------------------------------
</TABLE>
(a) Per share information and shares have been restated to reflect a 4 for 1
stock split, effective 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 is not annualized for
periods less than one year.
(e) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
2.37% for 1998.
(f) Ratios are based on average net asset of $41,238,200.
(g) Annualized.
(h) After fee waivers and/or expense reimbursements. Ratio of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements was 3.56% for 1998.
6
<PAGE> 60
-------------
THE AIM FUNDS
-------------
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
In addition to the fund, A I M Advisors, Inc. serves as investment advisor to
many other mutual funds (the AIM Funds). The following information is about all
the AIM Funds.
CHOOSING A SHARE CLASS
Many of the AIM Funds have multiple classes of shares, each class representing
an interest in the same portfolio of investments. When choosing a share class,
you should consider the factors below:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
- - Initial sales charge - No initial sales charge - No initial sales charge
- - Reduced or waived initial sales - Contingent deferred sales - Contingent deferred sales
charge for certain purchases charge on redemptions within six charge on redemptions within
years one year
- - Lower distribution and service - 12b-1 fee of 1.00% - 12b-1 fee of 1.00%
(12b-1) fee than Class B or
Class C shares (See "Fee Table
and Expense Example")
- Converts to Class A shares - Does not convert to Class A
after eight years along with a shares
pro rata portion of its
reinvested dividends and
distributions(1)
- - Generally more appropriate for - Purchase orders limited to - Generally more appropriate
long-term investors amounts less than $250,000 for short-term investors
</TABLE>
(1) AIM Money Market Fund: Class B shares convert to AIM Cash Reserve
Shares.
AIM Global Trends Fund: If you held Class B shares on May 29,
1998 and continue to hold them, those shares will convert to
Class A shares of that fund seven years after your date of
purchase. If you exchange those shares for Class B shares of
another AIM Fund, the shares into which you exchanged will
not convert to Class A shares until eight years after your
date of purchase of the original shares.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12b-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund) has adopted 12b-1 plans
that allow the AIM Fund to pay distribution fees to A I M Distributors, Inc.
(the distributor) for the sale and distribution of its shares and fees for
services provided to shareholders, all or a substantial portion of which are
paid to the dealer of record. Because the AIM Fund pays these fees out of its
assets on an ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
A- 1 MCF--06/99
<PAGE> 61
-------------
THE AIM FUNDS
-------------
SALES CHARGES
Generally, you will not pay a sales charge on purchases or redemptions of Class
A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money
Market Fund. You may be charged a contingent deferred sales charge if you redeem
AIM Cash Reserve Shares of AIM Money Market Fund acquired through certain
exchanges. Sales charges on all other AIM Funds and classes of those Funds are
detailed below. As used below, the term "offering price" with respect to all
categories of Class A shares includes the initial sales charge.
INITIAL SALES CHARGES
The AIM Funds are grouped into three categories with respect to initial sales
charges. The "Other Information" section of your prospectus will tell you in
what category your particular AIM Fund is classified.
<TABLE>
<CAPTION>
CATEGORY I INITIAL SALES CHARGES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
INVESTOR'S
SALES CHARGE
-----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ---------------------------------------------------------------
<S> <C> <C>
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY II INITIAL SALES CHARGES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
INVESTOR'S
SALES CHARGE
-----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ---------------------------------------------------------------
<S> <C> <C>
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY III INITIAL SALES CHARGES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
INVESTOR'S
SALES CHARGE
-----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ---------------------------------------------------------------
<S> <C> <C>
Less than $ 100,000 1.00% 1.01%
$100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
- ---------------------------------------------------------------
</TABLE>
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES
You can purchase $1,000,000 or more of Class A shares at net asset value.
However, if you purchase shares of that amount in Categories I or II, they will
be subject to a contingent deferred sales charge (CDSC) of 1% if you redeem them
prior to 18 months after the date of purchase. The distributor may pay a dealer
concession and/or a service fee for purchases of $1,000,000 or more.
CONTINGENT DEFERRED SALES CHARGES FOR
CLASS B AND CLASS C SHARES
You can purchase Class B and Class C shares at their net asset value per share.
However, when you redeem them, they are subject to a CDSC in the following
percentages:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
- ----------------------------------------------------------
<S> <C> <C>
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
- ----------------------------------------------------------
</TABLE>
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you have redeemed shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify
for these reductions or exceptions, you or your financial consultant must
provide sufficient information at the time of purchase to verify that your
purchase qualifies for such treatment.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Rights of Accumulation
You may combine your new purchases of Class A shares with Class A shares
currently owned for the purpose of qualifying for the lower initial sales charge
rates that apply to larger purchases. The applicable initial sales charge for
the new purchase is based on the total of your current purchase and the current
value of all Class A shares you own.
Letters of Intent
Under a Letter of Intent (LOI), you commit to purchase a specified dollar amount
of Class A shares of AIM Funds during a
MCF--06/99 A- 2
<PAGE> 62
-------------
THE AIM FUNDS
-------------
13-month period. The amount you agree to purchase determines the initial sales
charge you pay. If the full face amount of the LOI is not invested by the end of
the 13-month period, your account will be adjusted to the higher initial sales
charge level for the amount actually invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- - on shares purchased by reinvesting dividends and distributions;
- - when exchanging shares among certain AIM Funds;
- - when using the reinstatement privilege; and
- - when a merger, consolidation, or acquisition of assets of an AIM Fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- - if you redeem Class B shares you held for more than six years;
- - if you redeem Class C shares you held for more than one year;
- - if you redeem shares acquired through reinvestment of dividends and
distributions; and
- - on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares
at reduced or without sales charges. Consult the fund's Statement of Additional
Information for details.
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
The minimum investments for AIM Fund accounts (except for investments in AIM
Small Cap Opportunities Fund) are as follows:
<TABLE>
<CAPTION>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing $ 0 ($25 per AIM Fund investment for $ 25
plans, 401(k) plans, Simplified Employee Pension salary deferrals from Savings Plans)
(SEP) accounts, Salary Reduction (SARSEP)
accounts, Savings Incentive Match Plans for
Employee IRA (Simple IRA) accounts, 403(b) or
457 plans)
Automatic Investment Plans 50 50
IRA, Education IRA or Roth IRA 250 50
All other accounts 500 50
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below.
<TABLE>
<CAPTION>
PURCHASE OPTIONS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Through a Financial Consultant Contact your financial consultant. Same
By Mail Mail completed Account Application Mail your check and the remittance
and purchase payment to the slip from your confirmation
transfer agent, statement to the transfer agent.
A I M Fund Services, Inc.,
P.O. Box 4739,
Houston, TX 77210-4739.
By Wire Mail completed Account Application Call the transfer agent to receive
to the transfer agent. Call the a reference number. Then, use the
transfer agent at (800) 959-4246 to wire instructions at left.
receive a reference number. Then,
use the following wire
instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number:
00100366807
Beneficiary Account Name: A I M
Fund Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank
methods described above. Connection(SM) form to the transfer
agent. Once the transfer agent has
received the form, call the
transfer agent to place your
purchase order.
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
A- 3 MCF--06/99
<PAGE> 63
-------------
THE AIM FUNDS
-------------
SPECIAL PLANS
AUTOMATIC INVESTMENT PLAN
You can arrange for periodic investments in any of the AIM Funds by authorizing
the AIM Fund to withdraw the amount of your investment from your bank account on
a day or dates you specify and in an amount of at least $50. You may stop the
Automatic Investment Plan at any time by giving the transfer agent notice ten
days prior to your next scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one AIM Fund account to one or more other AIM Fund
accounts with the identical registration. The account from which exchanges are
to be made must have a minimum balance of $5,000 before you can use this option.
Exchanges will occur on (or about) the 10th or 25th day of the month, whichever
you specify, in the amount you specify. The minimum amount you can exchange to
another AIM Fund is $50.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
AIM Fund at net asset value. Unless you specify otherwise, your dividends and
distributions will automatically be reinvested in the same AIM Fund. You may
invest your dividends and distributions (1) into another AIM Fund in the same
class of shares; or (2) from Class A shares into AIM Cash Reserve Shares of AIM
Money Market Fund, or vice versa.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend must be at
least $5,000; or (b) in the AIM Fund receiving the dividend must be at least
$500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends into
another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this Program, you can designate how the
total value of your AIM Fund holdings should be rebalanced, on a percentage
basis, between two and ten of your AIM Funds on a quarterly, semiannual or
annual basis. Your portfolio will be rebalanced through the exchange of shares
in one or more of your AIM Funds for shares of the same class of one or more
other AIM Funds in your portfolio. If you wish to participate in the Program,
make changes or cancel the Program, the transfer agent must receive your request
to participate, changes, or cancellation in good order at least five business
days prior to the next rebalancing date, which is normally the 28th day of the
last month of the period you choose. You may realize taxable gains from these
exchanges. We may modify, suspend or terminate the Program at any time on 60
days' prior written notice.
RETIREMENT PLANS
Shares of most of the AIM Funds can be purchased through tax-sheltered
retirement plans made available to corporations, individuals and employees of
non-profit organizations and public schools. A plan document must be adopted to
establish a retirement plan. You may use AIM Funds-sponsored retirement plans,
which include IRAs, Education IRAs, Roth IRAs, 403(b) plans, 401(k) plans,
SIMPLE IRA plans, SEP/SARSEP plans and Money Purchase/Profit Sharing plans, or
another sponsor's retirement plan. The plan custodian of the AIM Funds-sponsored
retirement plan assesses an annual maintenance fee of $10. Contact your
financial consultant for details.
REDEEMING SHARES
REDEMPTION FEES
We will not charge you any fees to redeem your shares; however, your broker or
financial consultant may charge service fees for handling these transactions.
Your shares may be subject to a contingent deferred sales charge (CDSC).
REDEMPTION OF AIM CASH RESERVE SHARES OF
AIM MONEY MARKET FUND ACQUIRED BY EXCHANGE
If you redeem AIM Cash Reserve Shares acquired by exchange from Class A shares
subject to a CDSC within 18 months of the purchase of the Class A shares, you
will be charged a CDSC.
REDEMPTION OF CLASS B SHARES ACQUIRED BY
EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM
Floating Rate Fund, the early withdrawal charge applicable to shares of AIM
Floating Rate Fund will be applied instead of the CDSC normally applicable to
Class B shares.
MCF--06/99 A- 4
<PAGE> 64
-------------
THE AIM FUNDS
-------------
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Consultant Contact your financial consultant.
By Mail Send a written request to the transfer agent. Requests must
include (1) original signatures of all registered owners;
(2) the name of the AIM Fund and your account number; (3) if
the transfer agent does not hold your shares, endorsed share
certificates or share certificates accompanied by an
executed stock power; and (4) signature guarantees, if
necessary (see below). The transfer agent may require that
you provide additional information, such as corporate
resolutions or powers of attorney, if applicable. If you are
redeeming from an IRA account, you must include a statement
of whether or not you are at least 59 1/2 years old and
whether you wish to have federal income tax withheld from
your proceeds. The transfer agent may require certain other
information before you can redeem from an employer-sponsored
retirement plan. Contact your employer for details.
By Telephone Call the transfer agent. You will be allowed to redeem by
telephone if (1) the proceeds are to be mailed to the
address on record with us or transferred electronically to a
pre-authorized checking account; (2) the address on record
with us has not been changed within the last 30 days; (3)
you do not hold physical share certificates; (4) you can
provide proper identification information; (5) the proceeds
of the redemption do not exceed $50,000; and (6) you have
not previously declined the telephone redemption privilege.
Certain accounts, including retirement accounts and 403(b)
plans, may not redeem by telephone. The transfer agent must
receive your call during the hours the New York Stock
Exchange (NYSE) is open for business in order to effect the
redemption at that day's closing price.
</TABLE>
- --------------------------------------------------------------------------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds to the address on record with us.
If your request is not in good order, you may have to provide us with additional
documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
PAYMENT FOR SYSTEMATIC WITHDRAWALS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. You also may make annual withdrawals if you own Class A shares.
We will redeem enough shares from your account to cover the amount withdrawn.
You must have an account balance of at least $5,000 to establish a Systematic
Withdrawal Plan. You can stop this plan at any time by giving ten days prior
notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM Cash Reserve Shares of AIM Money Market Fund only)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of trading
on the NYSE, we generally will transmit payment on the next business day.
REDEMPTIONS BY CHECK
(Class A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM
Money Market Fund only)
You may redeem shares of these AIM Funds by writing checks in amounts of $250 or
more if you have completed an authorization form. Redemption by check is not
available for retirement accounts.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
(1) the amount is greater than $50,000;
(2) you request that payment be made to someone other than the name registered
on the account;
(3) you request that payment be sent somewhere other than the bank of record on
the account; or
(4) you request that payment be sent to a new address or an address that changed
in the last 30 days.
The transfer agent will accept a guarantee of your signature by a number of
financial institutions. Call the transfer agent for additional information. Some
institutions have transaction amount maximums for these guarantees. Please check
with the guarantor institution.
A- 5 MCF--06/99
<PAGE> 65
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THE AIM FUNDS
-------------
REINSTATEMENT PRIVILEGE (Class A shares only)
You may, within 90 days after you sell Class A shares (except Class A shares of
AIM Tax-Exempt Cash Fund), reinvest all or part of your redemption proceeds in
Class A shares of any AIM Fund at net asset value in an identically registered
account. If you sold Class A shares of AIM Limited Maturity Treasury Fund or AIM
Tax-Free Intermediate Fund, you will incur an initial sales charge reflecting
the difference between the initial sales charges on those Funds and the ones in
which you will be investing. In addition, if you paid a contingent deferred
sales charge (CDSC) on any reinstated amount, you will not be subject to a CDSC
if you later redeem that amount. You must notify the transfer agent in writing
at the time you reinstate that you are exercising your reinstatement privilege.
You may exercise this privilege only once per year.
REDEMPTIONS BY THE AIM FUNDS
If your account has been open at least one year, you have not made an additional
purchase in the account during the past six calendar months, and the value of
your account falls below $500 for three consecutive months due to redemptions or
exchanges (excluding retirement accounts), the AIM Funds have the right to
redeem the account after giving you 60 days' prior written notice. You may avoid
having your account redeemed during the notice period by bringing the account
value up to $500 or by utilizing the Automatic Investment Plan.
If an AIM Fund determines that you have provided incorrect information in
opening an account or in the course of conducting subsequent transactions, the
AIM Fund may, at its discretion, redeem the account and distribute the proceeds
to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one AIM Fund for those
of another AIM Fund. Before requesting an exchange, review the prospectus of the
AIM Fund you wish to acquire. Exchange privileges also apply to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992.
PERMITTED EXCHANGES
Except as otherwise stated below, you may exchange your shares for shares of the
same class of another AIM Fund. You also may exchange AIM Cash Reserve Shares of
AIM Money Market Fund for Class A shares of another AIM Fund, or vice versa. You
may be required to pay an initial sales charge when exchanging from a Fund with
a lower initial sales charge than the one into which you are exchanging. If you
exchange from Class A shares not subject to a CDSC into Class A shares subject
to those charges, you will be charged a CDSC when you redeem the exchanged
shares. The CDSC charged on redemption of those shares will be calculated
starting on the date you acquired those shares through exchange.
You also may exchange AIM Cash Reserve Shares of AIM Money Market Fund for
Advisor Class shares, but only if you acquired the AIM Cash Reserve Shares
through an exchange from Advisor Class shares.
YOU WILL NOT PAY A SALES CHARGE WHEN EXCHANGING:
(1) Class A shares with an initial sales charge (except for Class A shares of
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
Class A shares of another AIM Fund or AIM Cash Reserve Shares of AIM Money
Market Fund;
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund for
(a) one another;
(b) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of
AIM Tax-Exempt Cash Fund; or
(c) Class A shares of another AIM Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way of
an exchange from shares with higher sales charges;
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) one another;
(b) Class A shares of an AIM Fund subject to an initial sales charge (except
for Class A shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund), but only if you acquired the original
shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to an
initial sales charge;
(ii) on or after May 1, 1994 by exchange from Class A shares subject to
an initial sales charge (except for Class A shares of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund); or
(c) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund, but only if you acquired the original shares by
exchange from Class A shares subject to an initial sales charge; or
(4) Class B shares for other Class B shares, and Class C shares for other Class
C shares.
EXCHANGES NOT PERMITTED
You may not exchange Class A shares subject to contingent deferred sales charges
for Class A shares of AIM Limited Maturity Treasury Fund, AIM Tax-Free
Intermediate Fund or AIM Tax-Exempt Cash Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be available for sale in your
state of residence;
MCF--06/99 A- 6
<PAGE> 66
-------------
THE AIM FUNDS
-------------
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - Shares must have been held for at least one day prior to the exchange; and
- - If you have physical share certificates, you must return them to the transfer
agent prior to the exchange.
Beginning September 15, 1999, the following exchange condition will apply:
- - Because excessive short-term trading or market-timing activity can hurt fund
performance, you are limited to a maximum of 10 exchanges per calendar year.
If you exceed that limit, or if an AIM Fund or the distributor determines, in
its sole discretion, that your short-term trading is excessive or that you are
engaging in market-timing activity, it may reject any additional exchange
orders. An exchange is the movement out of (redemption) one AIM Fund and into
(purchase) another AIM Fund.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the purchase of shares
being acquired in an exchange for up to five business days if it determines that
it would be materially disadvantaged by the immediate transfer of exchange
proceeds. There is no fee for exchanges. The exchange privilege is not an option
or right to purchase shares. Any of the participating AIM Funds or the
distributor may modify or discontinue this privilege at any time.
BY MAIL
If you wish to make an exchange by mail, you must include original signatures of
each registered owner exactly as the shares are registered, the account
registration and account number, the dollar amount or number of shares to be
exchanged and the names of the AIM Funds from which and into which the exchange
is to be made.
BY TELEPHONE
Conditions that apply to exchanges by telephone are the same as redemptions by
telephone, including that the transfer agent must receive exchange requests
during the hours the NYSE is open for business; however, you still will be
allowed to exchange by telephone even if you have changed your address of record
within the preceding 30 days.
EXCHANGING CLASS B AND CLASS C SHARES
If you make an exchange involving Class B or Class C shares, the amount of time
you held the original shares will be added to the holding period of the Class B
or Class C shares, respectively, into which you exchanged for the purpose of
calculating contingent deferred sales charges (CDSC) if you later redeem the
exchanged shares. If you redeem Class B shares acquired by exchange via a tender
offer by AIM Floating Rate Fund, you will be credited with the time period you
held the shares of AIM Floating Rate Fund for the purpose of computing the early
withdrawal charge applicable to those shares.
EACH AIM FUND AND THE DISTRIBUTOR RESERVE THE RIGHT AT ANY TIME TO:
- - REJECT OR CANCEL ANY PART OF ANY PURCHASE OR EXCHANGE ORDER;
- - MODIFY ANY TERMS OR CONDITIONS OF PURCHASE OF SHARES OF ANY AIM FUND;
- - REJECT OR CANCEL ANY REQUEST TO ESTABLISH THE AUTOMATIC INVESTMENT PLAN AND
SYSTEMATIC WITHDRAWAL PLAN OPTIONS ON THE SAME ACCOUNT; OR
- - WITHDRAW ALL OR ANY PART OF THE OFFERING MADE BY THIS PROSPECTUS.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. AIM Money
Market Fund and AIM Tax-Exempt Cash Fund value all of their securities at
amortized cost. 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.
The AIM Funds value all other securities and assets at their fair value.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day. In addition, if,
between the time trading ends on a particular security and the close of the
NYSE, events occur that materially affect the value of the security, the AIM
Funds may value the security at its fair value as determined in good faith by or
under the supervision of the Board of Directors or Trustees of the AIM Fund. The
effect of using fair value pricing is that an AIM Fund's net asset value will be
subject to the judgment of the Board of Directors or Trustees or its designee
instead of being determined by the market. Because some of the AIM Funds may
invest in securities that are primarily listed on foreign exchanges, the value
of those funds' shares may change on days when you will not be able to purchase
or redeem shares.
Each AIM Fund determines the net asset value of its shares as of the close of
the NYSE on each day the NYSE is open for business. AIM Money Market Fund also
determines its net asset value as of 12:00 noon Eastern Time on each day the
NYSE is open for business.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours the NYSE is open
for business. The AIM Funds price purchase,
A- 7 MCF--06/99
<PAGE> 67
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THE AIM FUNDS
-------------
exchange and redemption orders at the net asset value calculated after the
transfer agent receives an order in good form. An AIM Fund may postpone the
right of redemption only under unusual circumstances, as allowed by the
Securities and Exchange Commission, such as when the NYSE restricts or suspends
trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund holds
its assets. Different tax rates apply to ordinary income and long-term capital
gain distributions, regardless of how long you have held your shares. Every
year, you will be sent information showing the amount of dividends and
distributions you received from each AIM Fund during the prior year.
Any long-term or short-term capital gains realized from redemptions of AIM
Fund shares will be subject to federal income tax. Exchanges of shares for
shares of another AIM Fund are treated as a sale, and any gain realized on the
transaction will generally be subject to federal income tax.
The foreign, state and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
MCF--06/99 A- 8
<PAGE> 68
----------------------------
AIM ADVISOR REAL ESTATE FUND
----------------------------
OBTAINING ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us
- ---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Distributors, Inc.
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
- ---------------------------------------------------------
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, DC, on the SEC's website
(http://www.sec.gov), or by sending a letter, including a duplicating fee, to
the SEC's Public Reference Section, Washington, DC 20549-6009. Please call the
SEC at 1-800-SEC-0330 for information about the Public Reference Room.
- -----------------------------------
AIM Advisor Real Estate Fund
SEC 1940 Act file number: 811-3886
- -----------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com REA-PRO-1 INVEST WITH DISCIPLINE
--Registered Trademark--
<PAGE> 69
STATEMENT OF
ADDITIONAL INFORMATION
AIM ADVISOR FLEX FUND
AIM ADVISOR INTERNATIONAL VALUE FUND
AIM ADVISOR LARGE CAP VALUE 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 MAY 3, 1999, AS REVISED JULY 1, 1999,
RELATING TO THE AIM ADVISOR FLEX FUND PROSPECTUS DATED MAY 3, 1999, AS
REVISED JULY 1, 1999, THE AIM ADVISOR INTERNATIONAL VALUE FUND
PROSPECTUS DATED MAY 3, 1999, AS REVISED JULY 1, 1999, THE AIM
ADVISOR LARGE CAP VALUE FUND PROSPECTUS DATED MAY 3, 1999,
AS REVISED JULY 1, 1999, AND THE AIM ADVISOR REAL ESTATE
FUND DATED MAY 3, 1999, AS REVISED JULY 1, 1999
<PAGE> 70
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION......................................................................1
GENERAL INFORMATION ABOUT THE COMPANY.............................................1
The Company and its Shares...............................................1
ADDITIONAL INFORMATION ABOUT THE FUNDS............................................2
Large Cap Value Fund.....................................................2
Flex Fund................................................................2
Real Estate Fund.........................................................4
International Value Fund.................................................5
INVESTMENT STRATEGIES AND RISKS...................................................5
Convertible Securities...................................................5
Foreign Securities.......................................................6
Developing Countries.....................................................7
Options ................................................................7
Combined Option Positions................................................8
Futures Contracts........................................................8
Options on Futures Contracts.............................................9
Risks as to Futures Contracts and Related Options.......................10
Forward Foreign Currency Exchange Contracts.............................10
Securities Issued on a When-Issued or Delayed Delivery Basis............10
Swap Agreements.........................................................11
Mortgage-Related Securities.............................................12
Risks of Mortgage-Related Securities....................................14
Zero Coupon Obligations.................................................15
Real-Estate Industry Securities.........................................15
High Yield/High Risk Securities.........................................15
Repurchase Agreements...................................................16
Portfolio Turnover......................................................17
INVESTMENT RESTRICTIONS..........................................................17
PORTFOLIO SECURITIES LOANS.......................................................19
MANAGEMENT OF THE COMPANY........................................................19
Directors and Officers..................................................19
Remuneration of Directors...............................................23
AIM Funds Retirement Plan for Eligible Directors/Trustees...............24
THE ADVISORY AND SUB-ADVISORY AGREEMENTS.........................................25
OPERATING SERVICES AGREEMENT.....................................................27
ADMINISTRATIVE SERVICES AGREEMENT................................................28
DISTRIBUTION OF SHARES...........................................................28
THE DISTRIBUTOR..................................................................34
Sales Charges and Dealer Concessions....................................35
REDUCTIONS IN INITIAL SALES CHARGES..............................................38
</TABLE>
ii
<PAGE> 71
<TABLE>
<S> <C>
CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS........................................41
HOW TO PURCHASE AND REDEEM SHARES..................................................43
Backup Withholding........................................................44
NET ASSET VALUE DETERMINATION......................................................45
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS...........................................46
Reinvestment of Dividends and Distributions...............................46
Tax Matters...............................................................47
Special Tax Information...................................................47
Qualification as a Regulated Investment Company...........................47
Determination of Taxable Income of a Regulated Investment Company.........48
Excise Tax on Regulated Investment Companies..............................49
Swap Agreements...........................................................49
Investment in Passive Foreign Investment Companies........................49
Debt Securities Acquired at a Discount....................................50
Distributions.............................................................51
Disposition of Shares.....................................................51
Other Taxation............................................................51
PORTFOLIO TRANSACTIONS AND BROKERAGE...............................................52
General Brokerage Policy..................................................52
Allocation of Portfolio Transactions......................................52
Section 28(e) Standards...................................................53
Brokerage Commissions Paid................................................54
REDEMPTIONS........................................................................54
PERFORMANCE INFORMATION............................................................55
SHAREHOLDER INFORMATION............................................................58
MISCELLANEOUS INFORMATION..........................................................60
Charges for Certain Account Information...................................60
Audit Reports.............................................................60
Legal Matters.............................................................61
Custodian and Transfer Agent..............................................61
Principal Holders of Securities...........................................61
APPENDIX ..........................................................................65
FINANCIAL STATEMENTS...............................................................FS
</TABLE>
iii
<PAGE> 72
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. The information for the
AIM ADVISOR FLEX FUND (formerly, INVESCO Advisor Flex Portfolio) (the "Flex
Fund") is included in a Prospectus dated May 3, 1999, as revised July 1, 1999.
The information for the AIM ADVISOR INTERNATIONAL VALUE FUND (formerly, INVESCO
Advisor International Value Portfolio) (the "International Value Fund") is
included in a Prospectus dated May 3, 1999, as revised July 1, 1999. The
information for the AIM ADVISOR LARGE CAP VALUE FUND (formerly, INVESCO Advisor
Equity Portfolio) (the "Large Cap Value Fund") is included in a Prospectus dated
May 3, 1999, as revised July 1, 1999. The information for the AIM ADVISOR REAL
ESTATE FUND (formerly, INVESCO Advisor Real Estate Portfolio) (the "Real Estate
Fund") is included in a Prospectus dated May 3, 1999, as revised July 1, 1999.
Additional copies of the Prospectuses and 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 Prospectus, and in order to avoid repetition, reference
will be made 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 four separate portfolios: AIM ADVISOR FLEX
FUND, AIM ADVISOR INTERNATIONAL VALUE FUND, AIM ADVISOR LARGE CAP VALUE FUND
and AIM ADVISOR REAL ESTATE FUND (individually, a "Fund" and collectively, the
"Funds"). Each portfolio of the Company offers Class A, Class B and Class C
shares. This Statement of Additional Information and the associated Prospectuses
relate solely to each Fund. Prior to August 4, 1997 and January 16, 1996, the
Company was known as INVESCO Advisor Funds, Inc. and the EBI Funds, Inc.,
respectively.
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 this Statement of Additional Information, the term "majority
of the outstanding shares" of the Company, of a particular Fund or of a class of
a Fund means, respectively, the vote of the lesser of (i) 67% or more of the
shares of the Company, such Fund or such class present at a meeting of
shareholders, if the holders of more than 50% of the outstanding shares of the
Company, such Fund or such class are present or represented by proxy or (ii)
more than 50% of the outstanding shares of the Company, such Fund or such class.
Each share of a Fund is entitled to one vote, to participate equally in
dividends and distributions declared by the Board of Directors with respect to
the class of such Fund and, upon liquidation of the Fund, to participate
proportionately in the net assets of the Fund allocable to such class remaining
after satisfaction
<PAGE> 73
of the outstanding liabilities of the Fund allocable to such class. Fund shares
are fully paid, non-assessable and fully transferable when issued and have no
preemptive rights and have such conversion and exchange rights as set forth in
the Prospectuses and Statement of Additional Information. Fractional shares have
proportionately the same rights, including voting rights, as are provided for
full shares.
Except as specifically noted above, shareholders of each Fund are
entitled to one vote per share (with proportionate voting for fractional
shares), irrespective of the relative net asset value of the different classes
of shares, where applicable, of a Fund. However, on matters affecting one
portfolio of the Company or one class of shares, a separate vote of shareholders
of that portfolio or class is required. Shareholders of a portfolio or class are
not entitled to vote on any matter which does not affect that portfolio or class
but which requires a separate vote of another portfolio or class. An example of
a matter which would be voted on separately by shareholders of a portfolio is
the approval of an advisory agreement, and an example of a matter which would be
voted on separately by shareholders of a class of shares is approval of a
distribution plan.
Shareholders of the Funds do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all Funds
voting together for election of directors may elect all of the members of the
Board of Directors of the Company. In such event, the remaining holders cannot
elect any directors of the Company.
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 Investment
Company Act of 1940, as amended (the "1940 Act"), if such a request for a
meeting is received.
ADDITIONAL INFORMATION ABOUT THE FUNDS
LARGE CAP VALUE FUND
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 investment in common stocks which are identical to those established by
INVESCO Capital Management, Inc. ("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.
FLEX FUND
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
2
<PAGE> 74
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 requirement, strength of management, responsiveness to business
conditions, credit standing and historic and current results of operations.
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 Investors Service, Inc.
("Moody's") in rating corporate obligations within its four highest ratings of
Aaa, Aa, A and Baa and by Standard & Poor's, a division of McGraw-Hill Companies
Inc. ("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. 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
"Investment Strategies and Risk."
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 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 judgement and experience
than would be the case if the FLEX FUND invested solely in rated obligations.
Obligations rated Baa 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 changes in the level of interest
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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.
REAL ESTATE FUND
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 real estate investment trusts ("REIT") 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.
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 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.
INVESCO Realty Advisors, Inc. ("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.
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INTERNATIONAL VALUE FUND
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-advisors to be of
comparable quality.
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.
INVESCO Global Asset Management Limited ("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 of the Company." 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.
INVESTMENT STRATEGIES AND RISKS
The following discussion of investment policies supplement the
discussion of the investment objectives and policies set forth in the applicable
Prospectus under the heading "Investment Objective and Strategies" and
"Principal Risks of Investing in the Fund."
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.
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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.
FOREIGN SECURITIES
All of the Funds may invest directly in foreign securities and ADRs.
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 favorable or unfavorable
the economy of the United States. Foreign securities often trade with less
frequency and volume than domestic securities and therefore may exhibit greater
price volatility. Additional costs associated with an investment in foreign
securities may include higher custodial fees than apply to domestic custodial
arrangements, and transaction costs of foreign currency conversions.
ADRs provide a method whereby the 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 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.
On January 1, 1999, certain members of the European Economic and
Monetary Union ("EMU"), namely Austria, Belgium, Finland, France, Germany,
Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain established a
common European currency known as the "euro" and each member's local currency
became a denomination of the euro. It is anticipated that each participating
country will replace its local currency with the euro on July 1, 2002. Any other
European country that is a member of the European Union and satisfies the
criteria for participation in the EMU may elect to participate in the EMU and
may supplement its existing currency with the euro. The anticipated replacement
of existing currencies with the euro on July 1, 2002 could cause market
disruptions before or after July 1, 2002 and could adversely affect the value of
securities held by a Fund.
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DEVELOPING COUNTRIES
The INTERNATIONAL VALUE FUND may invest in securities of companies
domiciled in developing countries. Investment in developing countries presents
risks greater in degree than, and in addition to, those presented by investment
in foreign issuers in general. A number of developing 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 developing 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 developing 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 developing
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
The purpose of engaging in put and call transactions is to hedge
against changes in the market value of the Funds' 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 and will engage in such transaction only
for hedging purposes and only when the benefits to be gained outweigh the cost
of entering into such transaction. 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. 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. 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, a Fund would seek to
mitigate the effects of a price decline. By writing covered call options,
however, a 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. 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. In addition, a 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 a 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.
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.
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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.
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, a Fund may purchase a put option and write
a covered call option on the same underlying instrument, in order to construct a
combined position whose risk and return characteristics are similar to selling a
futures contract. This technique, called a "straddle," enables the Fund to
offset the cost of purchasing a put option with the premium received from
writing the call option. However, by selling the call option, the Fund gives up
the ability for potentially unlimited profit from the put option. Another
possible combined position would involve writing a covered call option at one
strike price and buying a call option at a lower price, in order to reduce the
risk of the written covered call option in the event of a substantial price
increase. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
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
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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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. 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 contract 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.
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.
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 its 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
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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 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, a 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.
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.
SECURITIES ISSUED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS
The 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. Investment
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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, a 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 liquid 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.
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.
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 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 Fund will not enter into a swap
agreement with any single party if the net amount owed or to be received under
existing contracts with
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that party would exceed 5% of the Fund's total assets. For a discussion of the
tax considerations relating to swap agreements, see "Dividends, Distributions
and Tax Matters-Swap Agreements."
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 ("CMO")"), and in other types of
mortgage-related securities.
MORTGAGE PASS-THROUGH SECURITIES. The FLEX FUND may invest in 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 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
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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"). The FLEX FUND and the
REAL ESTATE FUND may invest in CMOs. The REAL ESTATE FUND can also invest in
mortgage-backed bonds and asset-backed securities. A CMO is a hybrid between a
mortgage-backed bond and a mortgage pass-through security. Similar to a bond,
interest and prepaid principal is paid, in most cases, semiannually. CMOs may be
collateralized by whole mortgage loans, but are more typically collateralized by
portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or
FNMA, and their income streams.
CMOs are structured into multiple classes, each bearing a different
stated maturity. Actual maturity and average life will depend upon the
prepayment experience of the collateral. CMOs provide for a modified form of
call protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner than desired return
of principal because of the sequential payments.
In a typical CMO transaction, a corporation ("issuer") issues multiple
series (e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering
are used to purchase mortgages or mortgage pass-through certificates
("Collateral"). The Collateral is pledged to a third party trustee as security
for the Bonds. Principal and interest payments from the Collateral are used to
pay principal on the Bonds in the order A, B, C, Z. The Series A, B, and C Bonds
all bear current interest. Interest on the Series Z Bond is accrued and added to
principal and a like amount is paid as principal on the Series A, B, or C Bond
currently being paid off. When the Series A, B, and C Bonds are paid in full,
interest and principal on the Series Z Bond begins to be paid currently. With
some CMOs, the issuer serves as a conduit to allow loan originators (primarily
builders or savings and loan associations) to borrow against their loan
portfolios.
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 Funds, while other CMOs, even if
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collateralized by U.S. government securities, will have the same status as other
privately issued securities for purposes of applying a Fund's diversification
tests.
Mortgage-backed bonds --- are general obligations of the issuer fully
collateralized directly or indirectly by a pool of mortgages. The mortgages
serve as collateral for the issuer's payment obligations on the bonds but
interest and principal payments on the mortgages are not passed through either
directly (as with GNMA certificates and Fannie Mae and FHLMC pass-through
securities) or on a modified basis (as with CMOs). Accordingly, a change in the
rate of prepayments on the pool of mortgages could change the effective maturity
of a CMO but not that of a mortgage-backed bond (although, like many bonds,
mortgage-backed bonds can provide that they are callable by the issuer prior to
maturity).
Asset-backed securities --- are securities representing interests in
other types of financial assets, such as automobile-finance receivables or
credit-card receivables. Such securities are subject to many of the same risks
as are mortgage-backed securities, including prepayment risks and risks of
foreclosure. They may or may not be secured by the receivables themselves or may
be unsecured obligations of their issuers.
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.
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 Fund 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.
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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.
ZERO COUPON OBLIGATIONS
Zero coupon obligations are fixed-income securities that do not make
regular interest payments. Instead, zero coupon obligations are sold at
substantial discounts from their face value. A 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 a fund will forego the purchase of additional
income-producing assets with these funds. The difference between a zero coupon
obligations'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 funds can invest in securities of companies engaged
in the real-estate industry, they could conceivably own real estate directly as
a result of a default on debt securities it owns. A 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, environmental liability risks, 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 a fund. By
investing in REITs indirectly through a fund, a shareholder will bear not only
his proportionate share of the expenses of a fund, but also, indirectly, similar
expenses of the REITs.
HIGH YIELD/HIGH RISK SECURITIES
Securities rated lower than Baa by Moody's or lower than BBB by S&P,
are sometimes referred to as "high yield," "high risk," or "junk" bonds. In
addition, securities rated Baa are considered by Moody's to have some
speculative characteristics.
Investing in high yield securities involves special risks in addition
to the risks associated with investments in higher rated debt securities. High
yield securities may be regarded as predominately speculative with respect to
the issuer's continuing ability to meet principal and interest payments.
Analysis of the creditworthiness of issuers of high yield securities may be more
complex than for issuers of higher quality debt securities, and the ability of a
fund to achieve its investment objective may, to the extent of its investments
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in high yield securities, be more dependent upon such creditworthiness analysis
than would be the case if a 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 thinly traded
markets.
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 a fund, and develops its own independent analysis of issuer
credit quality. If a credit rating agency changes the rating of a portfolio
security held by a fund, a fund may retain the security if the subadvisor deems
it in the best interest of the shareholders.
REPURCHASE AGREEMENTS
Each of the Funds may engage in repurchase agreements. A repurchase
agreement, which may be considered a "loan" under the 1940 Act, is a transaction
in which a Fund purchases a security and simultaneously commits to sell the
security to the seller at an agreed-upon price and date (usually not more than
seven days) after the date of purchase. The resale price reflects the purchase
price plus an agreed-upon market rate of interest which is unrelated to the
coupon rate or maturity of the purchased security. A Fund's risk is limited to
the ability of the seller to pay the agreed-upon amount on the delivery date. In
the opinion of management this risk is not material; if the seller 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.
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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.
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.
(2) For the 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.
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(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 Fund 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 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 and FLEX 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 REAL ESTATE FUND may invest up to 25% of total
assets in foreign securities including unsponsored ADRs. The INTERNATIONAL VALUE
FUND may invest up to 100% of its total assets in securities of foreign issuers.
All restrictions are measured at the time of purchase.
(2) Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof, except as set forth in the Prospectuses 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.
(3) Engage in arbitrage transactions.
Except for the Funds' investment objectives and those investment
policies of a Fund specifically identified as fundamental, all investment
policies and practices described in the Prospectuses 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.
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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 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
The overall management of the business and affairs of the Fund is
vested in the Company's Board of Directors. The Board of Directors approves all
significant agreements between the Company 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.
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. All of the Company's executive officers hold similar
offices with some or all of the other investment companies managed or advised by
AIM or its subsidiaries (the "AIM Funds").
19
<PAGE> 91
<TABLE>
<CAPTION>
POSITIONS HELD PRINCIPAL OCCUPATION DURING, AT LEAST,
NAME, ADDRESS AND AGE WITH REGISTRANT THE PAST 5 YEARS
- --------------------- --------------- --------------------------------------
<S> <C> <C>
*CHARLES T. BAUER (80) 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 (55) 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 (74) 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.
EDWARD K. DUNN, JR. (64) Director Chairman of the Board of Directors,
2 Hopkins Plaza, 20th Floor Mercantile Mortgage Corp. Formerly, Vice
Baltimore, MD 21201 Chairman of the Board of Directors and
President, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile Bankshares.
JACK FIELDS (47) Director Chief Executive Officer, Texana Global, Inc.
Jetero Plaza, Suite E (foreign trading company) and Twenty-First
8810 Will Clayton Parkway Century Group, Inc. (governmental affairs
Humble, TX 77338 company). Formerly, Member of the U. S.
House of Representatives.
**CARL FRISCHLING (62) Director Partner, Kramer, Levin, Naftalis & Frankel
919 Third Avenue LLP (law firm). Formerly, Partner, Reid &
New York, NY 10022 Priest (law firm).
</TABLE>
- --------
* A director who is an "interested person" of A I M Advisors, Inc. and
the Company as defined in the 1940 Act.
** A director who is an "interested person" of the Company as defined in
the 1940 Act.
20
<PAGE> 92
<TABLE>
<CAPTION>
POSITIONS HELD PRINCIPAL OCCUPATION DURING, AT LEAST,
NAME, ADDRESS AND AGE WITH REGISTRANT THE PAST 5 YEARS
- --------------------- --------------- --------------------------------------
<S> <C> <C>
*ROBERT H. GRAHAM (52) 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.
PREMA MATHAI-DAVIS (48) Director Chief Executive Officer, YWCA of the U.S.A.;
350 Fifth Avenue, Suite 301 Commissioner, New York City Department
New York, NY 10118 for the Aging; and Member of the Board of
Directors, Metropolitan Transportation
Authority of New York State.
LEWIS F. PENNOCK (56) Director Attorney in private practice in Houston,
6363 Woodway, Suite 825 Texas.
Houston, TX 77057
LOUIS S. SKLAR (59) 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
GARY T. CRUM (51) 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 (44) Senior Vice Director, Senior Vice President, General
President and Counsel and Secretary, A I M Advisors, Inc.;
Secretary Senior 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.
</TABLE>
- --------
* A director who is an "interested person" of A I M Advisors, Inc. and the
Company as defined in the 1940 Act.
21
<PAGE> 93
<TABLE>
<CAPTION>
POSITIONS HELD PRINCIPAL OCCUPATION DURING, AT LEAST,
NAME, ADDRESS AND AGE WITH REGISTRANT THE PAST 5 YEARS
- --------------------- --------------- --------------------------------------
<S> <C> <C>
DANA R. SUTTON (40) Vice President Vice President and Fund Controller,
and Treasurer A I M Advisors, Inc.; and Assistant Vice
President and Assistant Treasurer, Fund
Management Company.
ROBERT G. ALLEY (50) Vice President Senior Vice President, A I M Capital
Management, Inc.; and Vice President,
A I M Advisors, Inc.
STUART W. COCO (44) Vice President Senior Vice President, A I M Capital
Management, Inc.; and Vice President,
A I M Advisors, Inc.
MELVILLE B. COX (55) 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 (39) Vice President Senior Vice President, A I M Capital
Management, Inc.; and Vice President,
A I M Advisors, Inc.
EDGAR M. LARSEN (59) Vice President Vice President, A I M Capital Management,
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, Dunn
(Chairman), Fields, Frischling, Pennock, Sklar and Ms. Mathai-Davis. 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, Dunn, Fields, Frischling, Pennock, Sklar (Chairman) and Ms. Mathai-Davis.
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 (Chairman), Daly, Dunn, Fields, Pennock, Sklar and Ms. Mathai-Davis.
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
22
<PAGE> 94
matters as may from time to time be set forth in a charter adopted by the Board
of Directors and such committee.
REMUNERATION OF DIRECTORS
Each director is reimbursed for expenses incurred in attending each
meeting of the Board of Directors or any committee thereof. Each director who is
not also an officer of the Company is compensated for his or her services
according to a fee schedule which recognizes the fact that such director also
serves as a director or trustee of other AIM Funds as well as a director of the
Funds. Each such director receives a fee, allocated among the AIM Funds for
which he or she 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 during the year ended December 31, 1998:
<TABLE>
<CAPTION>
RETIREMENT TOTAL
ESTIMATED BENEFITS COMPENSATION
COMPENSATION ACCRUED BY ALL FROM ALL
DIRECTOR FROM COMPANY(1) AIM FUNDS(2) AIM FUNDS(3)
-------- --------------- -------------- ------------
<S> <C> <C> <C>
Charles T. Bauer $ 0 $ 0 $ 0
Bruce L. Crockett 5,543 37,485 96,000
Owen Daly II 5,543 122,898 96,000
Edward K. Dunn, Jr. 4,466 0 78,889
Jack Fields 5,514 15,826 95,500
Carl Frischling(4) 5,515 97,791 95,500
Robert H. Graham 0 0 0
John F. Kroeger(5) 3,912 107,896 91,654
Prema Mathai-Davis 1,800 0 32,636
Lewis F. Pennock 5,515 45,766 95,500
Ian W. Robinson(6) 5,455 94,442 94,500
Louis S. Sklar 5,486 90,232 95,500
</TABLE>
- ----------
(1) The total amount of compensation deferred by all Directors of the Company
during the fiscal year ended December 31, 1998, including interest earned
thereon, was $22,522.
(2) During the fiscal year ended December 31, 1998, the total amount of expenses
allocated to the Company in respect of such retirement benefits was $10,063.
Data reflects compensation for the calendar year ended December 31, 1998.
(3) Each Director serves as director or trustee of a total of 12 registered
investments companies advised by AIM (comprised of over 50 portfolios). Data
reflect total compensation earned during the calendar year ended December 31,
1998. Does not include accrued retirement benefits or earnings on deferred
compensation.
23
<PAGE> 95
(4) During the fiscal year ended December 31, 1998, the Company paid $20,036 in
legal fees for services rendered by Kramer, Levin, Naftalis & Frankel LLP. Mr.
Frischling is a partner in such firm.
(5) Mr. Kroeger was a Director until June 11, 1998, when he resigned. On that
date he became a consultant to the Fund. Of the amount listed above, $2,242 was
compensation for services as a director and the remainder as a consultant. Mr.
Kroeger passed away on November 26, 1998. Mr. Kroeger's widow will receive his
pension as described below under "AIM Fund Retirement Plan for Eligible
Directors/Trustees."
(6) Mr. Robinson was a director until March 12, 1999, when he retired.
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 or her date of retirement equal to a
maximum of 75% of the annual 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) and based on 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, Sklar and Ms. Mathai-Davis are 11, 11, 0, 1, 21, 20, 17, 11, 9 and
0 years, respectively.
ESTIMATED ANNUAL BENEFITS UPON RETIREMENT
<TABLE>
<CAPTION>
Number of Annual Retirement
Years of Compensation
Service with Paid by all
the Applicable Applicable AIM Funds
AIM Funds
-------------- --------------------
<S> <C>
10 $67,500
9 $60,750
8 $54,000
7 $47,250
6 $40,500
5 $33,750
</TABLE>
24
<PAGE> 96
Deferred Compensation Agreements
Messrs. Daly, Dunn, Fields, 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 Company has entered into an Investment Advisory Agreement, with
AIM. AIM is a wholly owned subsidiary of A I M Management Group Inc. ("AIM
Management"), 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. AIM was
organized in 1976, and, together with its subsidiaries, advises or manages over
110 investment portfolios encompassing a broad range of investment objectives.
AIM Management is a holding company engaged in the Financial services business
and is an indirect wholly owned subsidiary of AMVESCAP PLC, 11 Devonshire
Square, London EC2M 4YR, United Kingdom. AMVESCAP PLC and its subsidiaries are
an independent investment management group engaged in institutional investment
management and retail mutual fund businesses in the United States, Europe and
the Pacific Region. Certain of the directors and officers of AIM are also
executive officers of the Company and their affiliations are shown under
"Directors and Officers."
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. ICM is registered as an investment advisor
under the Investment Advisers Act of 1940, as amended (the "Advisers Act"). 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 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 700, 5400 LBJ Freeway/LB2, Dallas, Texas
75240. IRAI is registered as an investment advisor under the Advisers Act. 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,
1998, IRAI's portfolio contained 199 properties totaling over 47 million square
feet of commercial real estate and 25,694 apartment units. Clients include
corporate plans and public pension funds as well as endowment and foundation
accounts. 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 ("IGAM"), which has its principal
office at Cedar House, 12 Bermudian Rd., 3rd Floor, Hamilton, HM AX, Bermuda.
IGAM is registered as an investment advisor under the Advisers Act. IGAM's
25
<PAGE> 97
responsibilities include analyzing global economic trends and establishing
AMVESCAP PLC's global investment asset allocation 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 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, IMR, IRAI and IGAM are indirect wholly owned subsidiaries
of AMVESCAP (formerly, AMVESCO PLC and INVESCO PLC). AMVESCAP 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 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 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. 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. 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.
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. In
order to increase the return to investors, AIM may from time to time waive or
reduce its fee. Voluntary fee waivers or reductions may be
26
<PAGE> 98
rescinded at any time without further notice to investors. During periods of
voluntary fee waivers or reductions, AIM will retain its ability to be
reimbursed for such fee prior to the end of each fiscal year. Contractual fee
waivers or reductions set forth in the Fee Tables in the Prospectuses may not be
terminated or amended to the Fund's detriment during the period stated in the
agreement between AIM and the Fund. On an annual basis, the advisory fee is
equal to 0.75% of the average net asset value 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 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 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; and the following for the INTERNATIONAL VALUE
FUND: 0.35% on net assets up to $50 million, 0.30% on net assets over $50
million and up to $100 million, and 0.25% on net assets over $100 million.
The Agreements will each continue from year to year, provided that they
are 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, 1998, 1997 and 1996, 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 1998 1997* 1997 1996
---- ---- ---------- ---------- -----------
<S> <C> <C> <C> <C>
LARGE CAP VALUE FUND $1,430,336 $ 698,693 $ 486,185 $ 946,203
FLEX FUND $5,051,593 2,511,884 1,732,896 3,351,899
REAL ESTATE FUND $ 625,129 229,632 90,122 102,386
INTERNATIONAL VALUE FUND $1,238,568 536,578 272,940 314,843
</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, the Company retains AIM to provide or arrange to provide accounting,
legal (except litigation), dividend disbursing, registrar, custodial,
shareholder reporting, sub-accounting and recordkeeping services and functions
for each fund. These agreements provide that AIM shall reduce its fees or
reimburse expenses for any Fund to the extent necessary to ensure that the
aggregate fees and expense reimbursements paid to all persons who provide
services to such Fund do not exceed, on are annual basis, for such fund, 0.45%
of the average daily net assets of the Fund.
27
<PAGE> 99
The combined effect of the Advisory Agreements, 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 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 funds(s). To the extent that a Fund's
expenses exceed the amounts listed below, AIM will waive its fees or reimburse
the Fund to assure that each Fund's expenses do not exceed the designated
maximum amounts except for those items specifically identified above. The
expense ceilings include reductions at larger asset sizes to reflect anticipated
economies of scale as the Funds grow in size.
If, in any calendar quarter, the average net assets of each of the
LARGE CAP VALUE FUND or FLEX FUND are less than $500 million, each Fund's
expenses shall not exceed 1.55% for Class A and 2.20% for Class C; on the next
$500 million of net assets, expenses shall not exceed 1.50% for Class A and
2.15% for Class C; on the next $1 billion of net assets, expenses shall not
exceed 1.45% for Class A and 2.10% for Class C; and on all assets over $2
billion, expenses shall not exceed 1.40% for Class A and 2.05% for Class C. If,
in any calendar quarter, the average net assets of the 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.
ADMINISTRATIVE SERVICES AGREEMENT
The Funds have entered into a Master Administrative Services Agreement
(the "Administrative Services Agreement") with AIM. Pursuant to the
Administrative Services Agreement, AIM has agreed to provide or arrange for the
provision of certain accounting, shareholder services and other administrative
services to the Funds, including the services of a principal financial officer
of the Funds and related staff. As compensation to AIM for its services under
the Administrative Services Agreement, the Funds reimburse AIM for expenses
incurred by AIM or its subsidiaries in connection with such services, as may be
approved by the Company's Board of Directors. The Administrative Services
Agreement will continue in effect until June 30, 2001, and from year to year
thereafter only if such continuance is specifically approved at least annually
by (i) the Company's Board of Directors or the vote of a "majority of the
outstanding voting securities" of the Funds (as defined in the 1940 Act), and
(ii) the affirmative vote of a majority of the Non-Interested Directors by votes
cast in person at a meeting called for such purpose.
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
28
<PAGE> 100
the LARGE CAP VALUE FUND and FLEX 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 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 Fund shares may be
paid fees for selling shares and maintaining Fund 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.
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,
29
<PAGE> 101
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 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 may from time to time waive or reduce any portion of
its 12b-1 fee for Class A shares and Class C shares. Voluntary fee waivers or
reductions may be rescinded at any time without further notice to investors.
During periods of voluntary fee waivers or reductions, AIM Distributors will
retain its ability to be reimbursed for such fee prior to the end of each fiscal
year. Contractual fee waivers or reductions set forth in the Fee Table in the
Prospectuses may not be terminated or amended to the Fund's detriment during the
period stated in the agreement between AIM Distributors and the Fund.
30
<PAGE> 102
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.
An estimate by category of the allocation of actual fees paid by each
of the Funds under the Plan for Class A shares for the year ended December 31,
1998, was as follows:
31
<PAGE> 103
<TABLE>
<CAPTION>
LARGE CAP REAL INTERNATIONAL
VALUE FUND FLEX FUND ESTATE FUND VALUE FUND
---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
CLASS A
Advertising ....................... $ 1,538 $ 4,095 $ 1,432 $ 1,400
Printing and mailing
prospectuses, semi-
annual reports and
annual reports
(other than to current
shareholders)...................... 134 389 136 138
Seminars .......................... 371 830 290 343
Compensation to
Underwriters to partially
offset other marketing
expenses............................ 0 0 0 0
Compensation to
Dealers including
finder's fees....................... 25,246 84,900 55,976 39,695
Compensation to
Sales Personnel..................... 0 0 0 0
Annual Report Total................. 27,289 90,214 57,834 41,576
</TABLE>
An estimate by category of the allocation of actual fees paid by each of the
Funds under the Plan for Class B shares for the period March 3, 1998 through
December 31, 1998, was as follows:
<TABLE>
<CAPTION>
LARGE CAP REAL INTERNATIONAL
VALUE FUND FLEX FUND ESTATE FUND VALUE FUND
---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
CLASS B
Advertising ....................... $ 3,923 $ 2,411 $ 6,485 $ 2,975
Printing and mailing
prospectuses, semi-
annual reports and
annual reports
(other than to current
shareholders)....................... 0 0 744 0
Seminars ........................... 0 0 1,033 0
Compensation to
Underwriters to partially
offset other marketing
expenses........................... 26,462 8,206 38,154 14,789
Compensation to
Dealers including
finder's fees...................... 4,898 324 4,456 1,954
Compensation to
Sales Personnel.................... 0 0 0 0
Annual Report Total................ 35,283 10,941 50,872 19,718
</TABLE>
An estimate by category of the allocation of actual fees paid by each of the
Funds under the Plan for Class C shares for the year ended December 31, 1998,
was as follows:
32
<PAGE> 104
<TABLE>
<CAPTION>
LARGE CAP REAL INTERNATIONAL
VALUE FUND FLEX FUND ESTATE FUND VALUE FUND
---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
CLASS C
Advertising ....................... $ 49,140 $ 204,426 $ 25,491 $ 60,806
Printing and mailing
prospectuses, semi-
annual reports and
annual reports
(other than to current
shareholders)...................... 4,766 19,942 2,521 6,139
Seminars ........................... 12,294 47,480 6,366 13,894
Compensation to
Underwriters to partially
offset other marketing
expenses............................ 153,212 700,869 107,453 233,975
Compensation to
Dealers including
finder's fees....................... 1,543,648 5,392,294 270,551 737,736
Compensation to
Sales Personnel..................... 0 0 0 0
Annual Report Total................. 1,763,060 6,365,011 412,382 1,052,550
</TABLE>
For the fiscal year ended December 31, 1998, each Fund paid AIM
Distributors the following amounts with respect to the Class A shares under the
Distribution Plans:
<TABLE>
<CAPTION>
CLASS A SHARES
1998
--------------
<S> <C>
LARGE CAP VALUE FUND $27,288
FLEX FUND 90,214
REAL ESTATE FUND 57,833
INTERNATIONAL VALUE FUND 41,575
</TABLE>
For the period March 3, 1998 through December 31, 1998, each Fund paid
AIM Distributors the following amount with respect to the Class B shares under
the Distribution Plans:
<TABLE>
<CAPTION>
CLASS B SHARES
1998
--------------
<S> <C>
LARGE CAP VALUE FUND $35,283
FLEX FUND 10,941
REAL ESTATE FUND 50,872
INTERNATIONAL VALUE FUND 19,718
</TABLE>
For the fiscal year ended December 31, 1998, each Fund paid AIM
Distributors the following amount with respect to the Class C shares under the
Distribution Plans:
33
<PAGE> 105
<TABLE>
<CAPTION>
CLASS C SHARES
1998
--------------
<S> <C>
LARGE CAP VALUE FUND $1,763,060
FLEX FUND 6,365,011
REAL ESTATE FUND 412,382
INTERNATIONAL VALUE FUND 1,052,550
</TABLE>
THE DISTRIBUTOR
AIM Distributors, the Company's distributor, is the principal
underwriter of the Company under separate Distribution Agreements (the
"Distribution Agreements"). 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 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 Distribution Agreements provide that AIM Distributors will bear the
expenses of printing from the final proof and distributing the Funds'
prospectuses and statements of additional information relating to public
offerings made by AIM Distributors pursuant to the Distribution Agreements
(other than those prospectuses and statements of additional information
distributed to existing shareholders of the Funds), and any promotional or sales
literature used by AIM Distributors or furnished by AIM Distributors to dealers
in connection with the public offering of the Funds' shares, including expenses
of advertising in connection with such public offerings. AIM Distributors has
not undertaken to sell any specified number of shares of any classes of the
Funds.
AIM Distributors expects to pay sales commissions from its own
resources to dealers and institutions who sell Class B and Class C shares of the
Funds at the time of such sales.
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.
From time to time, AIM Distributors may transfer and sell its rights to
payments under the Class B Plan in order to finance distribution expenditures in
respect of Class B shares.
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 year ended December 31, 1998 and for period August 4, 1997
to December 31, 1997, and the amount retained by the Prior Distributor for the
period December 31, 1996 to August 3, 1997:
34
<PAGE> 106
<TABLE>
<CAPTION>
AUGUST 4, 1997 JANUARY 1, 1997
TO TO
1998 DECEMBER 31, 1997 AUGUST 3, 1997
--------------------------- -------------------------- --------------
SALES AMOUNT SALES AMOUNT AMOUNT
CHARGES RETAINED CHARGES RETAINED RETAINED
---------- ---------- -------- -------- --------------
<S> <C> <C> <C> <C> <C>
LARGE CAP VALUE FUND $ 205,367 $ 32,564 $ 50,144 $ 7,461 $ 999
FLEX FUND 209,334 33,479 80,657 11,729 6,860
REAL ESTATE FUND 495,211 85,554 356,286 54,138 1,424
INTERNATIONAL VALUE FUND 159,987 24,723 113,771 16,464 8,333
</TABLE>
The following chart reflects the contingent deferred sales charges paid
by Class A shareholders for the year ended December 31, 1998 and for the period
August 4, 1997 to December 31, 1997, and by Class B shareholder for the period
March 3, 1998 (inception date for Class B shares) to December 31, 1998, and by
Class C shareholders for the year ended December 1998 and for the period August
4, 1997 to December 1997, and the amount paid by Class A and Class C
shareholders to the Prior Distributor for the period January 1, 1997 to August
3, 1997:
<TABLE>
<CAPTION>
AUGUST 4, 1997 JANUARY 1, 1997
TO TO
1998 DECEMBER 31, 1997 AUGUST 3, 1997
---------- ----------------- --------------
<S> <C> <C> <C>
LARGE CAP VALUE FUND $ 34,868 $ 570 $ 8,692
FLEX FUND 100,172 18,422 18,877
REAL ESTATE FUND 25,274 2,643 1,935
INTERNATIONAL VALUE FUND 67,046 13,392 8,692
</TABLE>
SALES CHARGES AND DEALER CONCESSIONS
CATEGORY 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 Aggressive Growth Fund, AIM Asian Growth Fund, AIM Basic Value Fund, AIM
Blue Chip Fund, AIM Capital Development Fund, AIM Charter Fund, AIM
Constellation Fund, AIM Dent Demographic Trends Fund, AIM European Development
Fund, AIM Europe Growth Fund, AIM Global Utilities Fund, AIM Global Growth &
Income Fund, AIM International Equity Fund, AIM Japan Growth Fund, AIM Large Cap
Growth Fund, AIM Mid Cap Equity Fund, AIM New Pacific Growth Fund, AIM Select
Growth Fund, AIM Small Cap Growth Fund, AIM Small Cap Opportunities 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>
35
<PAGE> 107
CATEGORY 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 Developing Markets Fund, AIM Emerging
Markets Debt Fund, AIM Global Aggressive Growth Fund, AIM Global Consumer
Products and Services Fund, AIM Global Financial Services Fund, AIM Global
Government Income Fund, AIM Global Growth Fund, AIM Global Health Care Fund, AIM
Global Income Fund, AIM Global Infrastructure Fund, AIM Global Resources Fund,
AIM Global Telecommunications and Technology Fund, AIM Global Trends Fund, AIM
High Income Municipal Fund, AIM High Yield Fund, AIM High Yield Fund II, AIM
Large Cap Growth Fund, AIM Income Fund, AIM Intermediate Government Fund, AIM
Latin American Fund, AIM Municipal Bond Fund, AIM Strategic Income 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>
CATEGORY 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 of Category
I, II or III funds; however, AIM Distributors may pay a dealer concession and/or
advance a service fee on such transactions as set forth below.
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. At the
36
<PAGE> 108
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. 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 of AIM Advisor Funds, Inc. 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.
AIM Distributors may pay investment dealers or other financial service
firms for share purchases (measured on an annual basis) of Class A Shares of all
AIM Funds except AIM Limited Maturity Treasury Fund, AIM Tax-Free Intermediate
Fund and AIM Tax-Exempt Cash Fund sold at net asset value to an employee benefit
plan 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.
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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 AIM Funds will not be taken into account in
determining whether a purchase qualifies for a reduction in initial sales
charges.
The term "purchaser" means:
o 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);
o a 403(b) plan, the employer/sponsor of which is an organization
described under Section 501(c)(3) of the Internal Revenue Code of
1986, as amended (the "Code"), if:
a. the employer/sponsor must submit contributions for all
participating employees in a single contribution transmittal
(i.e., the Funds will not accept contributions submitted with
respect to individual participants);
b. each transmittal must be accompanied by a single check or wire
transfer; and
c. all new participants must be added to the 403(b) plan by
submitting an application on behalf of each new participant
with the contribution transmittal;
o a trustee or fiduciary purchasing for a single trust, estate or
single fiduciary account (including a pension, profit-sharing or
other employee benefit trust created pursuant to a plan qualified
under Section 401 of the Code) and 457 plans, although more than
one beneficiary or participant is involved;
o a Simplified Employee Pension (SEP), Salary Reduction and other
Elective Simplified Employee Pension account (SAR-SEP) or a
Savings Incentive Match Plans for Employees IRA (SIMPLE IRA),
where the employer has notified the distributor in writing that
all of its related employee SEP, SAR-SEP or SIMPLE IRA accounts
should be linked; or
o any other organized group of persons, whether incorporated or not,
provided the organization has been in existence for at least six
months and has some purpose other than the purchase at a discount
of redeemable securities of a registered investment company.
Investors or dealers seeking to qualify orders for a reduced initial
sales charge must identify such orders and, if necessary, support their
qualification for the reduced charge. AIM Distributors reserves the right to
determine whether any purchaser is entitled, by virtue of the foregoing
definition, to the reduced sales charge. No person or entity may distribute
shares of the AIM Funds without payment of the applicable sales charge other
than to persons or entities who qualify for a reduction in the sales charge as
provided herein.
1. LETTERS OF INTENT. A purchaser, as previously defined, may pay
reduced initial sales charges by completing the appropriate section of the
account application and by fulfilling a Letter of Intent ("LOI"). The LOI
privilege is also available to holders of the Connecticut General Guaranteed
Account, established for tax qualified group annuities, for contracts purchased
on or before June 30, 1992. The LOI confirms such purchaser's intention as to
the total investment to be made in shares of the AIM Funds (except for (i) Class
A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money
Market Fund, (ii) Class B and Class C shares of the AIM Funds and (iii) shares
of AIM Floating Rate Fund) within the
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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 AIM 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, (ii) Class B and Class C shares of the AIM
Funds and (iii) AIM Floating Rate Fund) 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%,
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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; (b) exchanges of shares of certain funds; (c) use of the
reinstatement privilege; or (d) a merger, consolidation or acquisition of assets
of a fund.
The following purchasers will not pay initial sales charges on
purchases of Class A shares because there is a reduced sales effort involved in
sales to these purchasers:
o AIM Management and its affiliates, or their clients;
o Any current or retired officer, director or employee (and
members of their immediate family) of AIM Management, its
affiliates or The AIM Family of Funds,(R) and any foundation,
trust or employee benefit plan established exclusively for the
benefit of, or by, such persons;
o Any current or retired officer, director, or employee (and
members of their immediate family), of CIGNA Corporation or its
affiliates, or of First Data Investor Services Group; and any
deferred compensation plan for directors of investment
companies sponsored by CIGNA Investments, Inc. or its
affiliates;
o Sales representatives and employees (and members of their
immediate family) of selling group members or financial
institutions that have arrangements with such selling group
members;
o Purchases through approved fee-based programs;
o Employee benefit plans designated as purchasers as defined
above, and non-qualified plans offered in conjunction
therewith, provided the initial investment in the plan(s) is
at least $1 million; the sponsor signs a $1 million LOI; the
employer-sponsored plan(s) has at least 100 eligible
employees; or all plan transactions are executed through a
single omnibus account per Fund and the financial
institution or service organization has entered into the
appropriate agreements with the distributor. Section 403(b)
plans sponsored by public educational institutions are not
eligible for a sales charge exception based on the aggregate
investment made by the plan or the number of eligible
employees. Purchases of AIM Small Cap Opportunities Fund by
such plans are subject to initial sales charges;
o Shareholders of record or discretionary advised clients of any
investment advisor holding shares of AIM Weingarten Fund or AIM
Constellation Fund on September 8, 1986, or of AIM Charter Fund
on November 17, 1986, who have continuously owned shares having
a market value of at least $500 and who purchase additional
shares of the same Fund;
o Shareholders of record of Advisor Class shares of AIM
International Growth Fund or AIM Worldwide Growth Fund on
February 12, 1999 who have continuously owned shares of the AIM
Funds.
o Unitholders of G/SET series unit investment trusts investing
proceeds from such trusts in shares of AIM Weingarten Fund or
AIM Constellation Fund; provided, however, prior to the
termination date of the trusts, a unitholder may invest
proceeds from the redemption or repurchase of his units only
when the investment in shares of AIM Weingarten Fund and AIM
Constellation Fund is effected within 30 days of the redemption
or repurchase;
o A shareholder of a fund that merges or consolidates with an AIM
Fund or that sells its assets to an AIM Fund in exchange for
shares of an AIM Fund;
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o Shareholders of the GT Global funds as of April 30, 1987 who
since that date continually have owned shares of one or more of
these funds; and
o Certain former AMA Investment Advisers' shareholders who became
shareholders of the AIM Global Health Care Fund in October
1989, and who have continuously held shares in the GT Global
funds since that time.
As used above, immediate family includes an individual and his or her
spouse, children, parents and parents of spouse.
CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS
Former GT Global funds Class A shares that are subject to a contingent
deferred sales charge and that were purchased before June 1, 1998 are entitled
to the following waivers from the contingent deferred sales charge otherwise due
upon redemption: (1) minimum required distributions made in connection with an
IRA, Keogh Plan or custodial account under Section 403(b) of the Code or other
retirement plan following attainment of age 70 1/2; (2) total or partial
redemptions resulting from a distribution following retirement in the case of a
tax-qualified employer-sponsored retirement plan; (3) when a redemption results
from a tax-free return of an excess contribution pursuant to Section 408(d)(4)
or (5) of the Code or from the death or disability of the employee; (4)
redemptions pursuant to a Fund's right to liquidate a shareholder's account
involuntarily; (5) redemptions pursuant to distributions from a tax-qualified
employer-sponsored retirement plan, which is invested in the former GT Global
funds, which are permitted to be made without penalty pursuant to the Code,
other than tax-free rollovers or transfers of assets, and the proceeds of which
are reinvested in the former GT Global funds; (6) redemptions made in connection
with participant-directed exchanges between options in an employer-sponsored
benefit plan; (7) redemptions made for the purpose of providing cash to fund a
loan to a participant in a tax-qualified retirement plan; (8) redemptions made
in connection with a distribution from any retirement plan or account that is
permitted in accordance with the provisions of Section 72(t)(2) of the Code, and
the regulations promulgated thereunder; (9) redemptions made in connection with
a distribution from any retirement plan or account that involves the return of
an excess deferral amount pursuant to Section 401(k)(8) or Section 402(g)(2) of
the Code; (10) redemptions made in connection with a distribution from a
qualified profit-sharing or stock bonus plan described in Section 401(k) of the
Code to a participant or beneficiary under Section 401(k)(2)(B)(IV) of the Code
upon hardship of the covered employee (determined pursuant to Treasury
Regulation Section 1.401(k)-1(d)(2)); and (11) redemptions made by or for the
benefit of certain states, counties or cities, or any instrumentalities,
departments or authorities thereof where such entities are prohibited or limited
by applicable law from paying a sales charge or commission.
Former GT Global funds Class B shares purchased before June 1, 1998 are
subject to the following waivers from the contingent deferred sales charge
otherwise due upon redemption in addition to the waivers provided for
redemptions of currently issued Class B shares as described in a Prospectus: (1)
total or partial redemptions resulting from a distribution following retirement
in the case of a tax-qualified employer-sponsored retirement; (2) minimum
required distributions made in connection with an IRA, Keogh Plan or custodial
account under Section 403(b) of the Code or other retirement plan following
attainment of age 70 1/2; (3) a one-time reinvestment in Class B shares of a
Fund within 180 days of a prior redemption; (4) redemptions pursuant to
distributions from a tax-qualified employer-sponsored retirement plan, which is
invested in the former GT Global funds, which are permitted to be made without
penalty pursuant to the Code, other than tax-free rollovers or transfers of
assets, and the proceeds of which are reinvested in the former GT Global funds;
(5) redemptions made in connection with participant-directed exchanges between
options in an employer-sponsored benefit plan; (6) redemptions made for the
purpose of providing cash to fund a loan to a participant in a tax-qualified
retirement plan; (7) redemptions made in connection with a distribution from any
retirement plan or account that is permitted in accordance with the provisions
of Section 72(t)(2) of the Code, and the regulations promulgated thereunder; (8)
redemptions made in connection with a distribution from a qualified
profit-sharing or stock bonus plan described in Section 401(k) of the Code to a
participant or beneficiary under Section 401(k)(2)(B)(IV) of the Code upon
hardship of the covered employee (determined pursuant to Treasury Regulation
Section 1.401(k)-1(d)(2)); and (9) redemptions made by or for the benefit of
certain states, counties
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or cities, or any instrumentalities, departments or authorities thereof where
such entities are prohibited or limited by applicable law from paying a sales
charge or commission.
CDSCs will not apply to the following:
o Additional purchases of Class C shares of AIM Advisor Flex
Fund, AIM Advisor International Value Fund, AIM Advisor
Large Cap Value Fund and AIM Advisor Real Estate Fund by
shareholders of record on April 30, 1995, of these Funds,
except that shareholders whose broker-dealers maintain a
single omnibus account with AFS 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;
o Redemptions following the death or post-purchase disability of
(1) any registered shareholders on an account or (2) a settlor
of a living trust, of shares held in the account at the time of
death or initial determination of post-purchase disability;
o Certain distributions from individual retirement accounts,
Section 403(b) retirement plans, Section 457 deferred
compensation plans and Section 401 qualified plans, where
redemptions result 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 that 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 the distributor of the
transfer no later than the time the transfer occurs; (iii)
tax-free rollovers or transfers of assets to another plan of
the type described above invested in Class B or Class C
shares of one or more of the AIM Funds; (iv) tax-free
returns of excess contributions or returns of excess
deferral amounts; and (v) distributions on the death or
disability (as defined in the Internal Revenue Code of 1986,
as amended) of the participant or beneficiary;
o Amounts from a Systematic Withdrawal Plan of up to an annual
amount of 12% of the account value on a per fund basis, at the
time the withdrawal plan is established, provided the investor
reinvests his dividends;
o Liquidation by the Fund when the account value falls below
the minimum required account size of $500;
o Investment account(s) of AIM; and
o Class C shares where the investor's dealer or record notifies
the distributor prior to the time of investment that the dealer
waives the payment otherwise payable to him.
Upon the redemption of shares of funds in sales charge Categories I and
II (See "Sales Charges and Dealer Concessions") purchased in amounts of $1
million or more, no CDSC will be applied in the following situations:
o Shares held more than 18 months;
o Redemptions from employee benefit plans designated as qualified
purchasers, as defined above, where the redemptions are in
connection with employee terminations or withdrawals,
provided the total amount invested in the plan is at least
$1,000,000; the sponsor signs a $1 million LOI; or the
employer-sponsored plan has at least 100 eligible employees;
provided, however, that 403(b) plans sponsored by public
educational institutions shall qualify for the CDSC waiver
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;
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o Private foundations or endowment funds;
o Redemption of shares by the investor where the investor's
dealer waives the amounts otherwise payable to it by the
distributor and notifies the distributor prior to the time of
investment; and
o Shares acquired by exchange from Class A shares of funds in
sales charges Categories I and II unless the shares acquired by
exchange are redeemed within 18 months of the original purchase
of the Class A shares.
HOW TO PURCHASE AND REDEEM SHARES
A complete description of the manner by which shares of the Funds may
be purchased appears in the Prospectuses under the caption "Purchasing Shares -
How to Purchase Shares."
The sales charge normally deducted on purchases of Class A shares of
the Funds is used to compensate AIM Distributors and participating dealers for
their expenses incurred in connection with the distribution of such shares.
Since there is little expense associated with unsolicited orders placed directly
with AIM Distributors by persons, who because of their relationship with the
Funds or with AIM and its affiliates, are familiar with the Funds, or whose
programs for purchase involve little expense (e.g., because of the size of the
transaction and shareholder records required), AIM Distributors believes that it
is appropriate and in the Funds' best interests that such persons be permitted
to purchase Class A shares of the Funds through AIM Distributors without payment
of a sales charge. The persons who may purchase Class A shares of the Funds
without a sales charge are described in "REDUCTIONS IN INITIAL SALES
CHARGES-Purchases At Net Asset Value".
Complete information concerning the method of exchanging shares of the
Funds for shares of the other mutual funds managed or advised by AIM is set
forth in the Prospectuses under the caption "Exchanging Shares."
Information concerning redemption of the Funds' shares is set forth in
the Prospectuses under the caption "Redeeming Shares - 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 Funds' obligation to redeem shares, AIM Distributors may also
repurchase shares as an accommodation to shareholders. To effect a repurchase,
those dealers who have executed Selected Dealer Agreements with AIM Distributors
must phone orders to the order desk of the Fund telephone: (713) 626-1919,
Extension 5001 (in Houston) or (800) 347-4246 (elsewhere) and guarantee delivery
of all required documents in good order. A repurchase is effected at the net
asset value of a Fund next determined after such order is received. Such
arrangement is subject to timely receipt by AFS of all required documents in
good order. If such documents are not received within a reasonable time after
the order is placed, the order is subject to cancellation. While there is no
charge imposed by the Funds or by AIM Distributors (other than any applicable
CDSC) when shares are redeemed or repurchased, dealers may charge a fair service
fee for handling the transaction. AIM intends to redeem all shares of the Funds
in cash.
The right of redemption may be suspended or the date of payment
postponed when (a) trading on the New York Stock Exchange ("NYSE") is
restricted, as determined by applicable rules and regulations of the SEC, (b)
the NYSE is closed for other than customary weekend and holiday closings, (c)
the SEC has by order permitted such suspension, or (d) an emergency as
determined by the SEC exists making disposition of portfolio securities or the
valuation of the net assets of a Fund not reasonably practicable.
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BACKUP WITHHOLDING
Accounts submitted without a correct, certified taxpayer identification
number or, alternatively, a completed Internal Revenue Service ("IRS") Form W-8
(for non-resident aliens) or Form W-9 (certifying exempt status) accompanying
the registration information will generally be subject to 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
taxpayer identification number ("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. 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:
o a corporation
o an organization exempt from tax under Section 501(a), an individual
retirement plan (IRA), or a custodial account under Section 403(b)(7)
o the United States or any of its agencies or instrumentalities
o a state, the District of Columbia, a possession of the United States,
or any of their political subdivisions or instrumentalities
o a foreign government or any of its political subdivisions, agencies or
instrumentalities
o an international organization or any of its agencies or
instrumentalities
o a foreign central bank of issue
o a dealer in securities or commodities required to register in the
U.S. or a possession of the U.S.
o a futures commission merchant registered with the Commodity Futures
Trading Commission
o a real estate investment trust
o an entity registered at all times during the tax year under the 1940
Act
o a common trust fund operated by a bank under Section 584(a)
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o a financial institution
o a middleman known in the investment community as a nominee or listed
in the most recent publication of the American Society of Corporate
Secretaries, Inc., Nominee List
o a trust exempt from tax under Section 664 or described in Section 4947
Investors should contact the IRS if they have any questions concerning
entitlement to an exemption from backup withholding.
NOTE: Section references are to sections of the Code.
IRS PENALTIES -- Investors who do not supply the AIM Funds with a
correct TIN will be subject to a $50 penalty imposed by the IRS unless such
failure is due to reasonable cause and not willful neglect. If an investor
falsifies information on this form or makes any other false statement resulting
in no backup withholding on an account which should be subject to backup
withholding, such investor may be subject to a $500 penalty imposed by the IRS
and to certain criminal penalties including fines and/or imprisonment.
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 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.
NET ASSET VALUE DETERMINATION
In accordance with the current rules and regulations of the SEC, the
net asset value of a share of each Fund is determined once daily as of 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 share is determined as
of the close of the NYSE on such day. For purposes of determining net asset
value per share, futures and options contract closing prices which are available
fifteen (15) minutes after the close of trading on the NYSE will generally be
used. The income or loss and the expenses (except those listed below) of a Fund
are allocated to each class on the basis of the net assets of the Fund allocable
to each such class, calculated as of the close of business on the previous
business day, as adjusted for the current day's shareholder activity of each
class. Distribution and service fees and transfer agency fees (to the extent
different rates are charged to different classes) are allocated only to the
class to which such expenses relate. The net asset value per share of a class is
determined by subtracting the liabilities (e.g., the expenses) of the Fund
allocated to the class from the assets of the Fund allocated to the class and
dividing the result by the total number of shares outstanding of such class.
Determination of each Fund's net asset value per share is made in accordance
with generally accepted accounting principles.
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 closing bid price 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 on the basis of prices provided by independent
pricing services. Each security reported on the NASDAQ National Market System is
valued at the last sales price on the valuation date, or lacking a last sale, at
the closing bid price on that day; option contracts are valued at the mean
between the closing bid and asked prices on the exchange where the contracts are
principally traded; futures contracts are valued at final settlement price
quotations from the primary exchange on which they are traded. Debt obligations
(including convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices provided by an independent pricing service
may be determined without exclusive reliance on quoted prices and may reflect
appropriate factors such as dividend rate, yield, type of issue, coupon rate and
maturity date. Securities for which market quotations are not readily
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available or for which market quotations are not reflective of fair value are
valued at fair value as determined in good faith by or under the supervision of
the Company's officers in a manner specifically authorized by the Board of
Directors of the Company. Short-term obligations having sixty (60) days or less
to maturity are valued at amortized cost, which approximates market value. (See
also "Purchasing Shares - How to Purchase Shares," and "Redeeming Shares - How
to Redeem Shares" and "Pricing of Shares" in the Prospectuses.)
Generally, trading in foreign securities, as well as corporate bonds,
U.S. Government securities and money market instruments, is substantially
completed each day at various times prior to the close of the NYSE. The values
of such securities used in computing the net asset value of a Fund's shares are
determined as of such times. Foreign currency exchange rates are also generally
determined prior to the close of the NYSE. 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 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.
Fund securities primarily traded in foreign markets may be traded in
such markets on days which are not business days of the Fund. Because the net
asset value per share of each Fund is determined only on business days of the
Fund, the net asset value per share of a Fund may be significantly affected on
days when an investor can not exchange or redeem shares of the Fund.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
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 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, 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 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 Prospectuses.)
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.
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TAX MATTERS
The following is only a summary of certain additional tax
considerations generally affecting the Funds and their shareholders that are not
described in the Prospectuses. No attempt is made to present a detailed
explanation of the tax treatment of each Fund or its shareholders, and the
discussion here and in the Prospectuses is not intended as a substitute for
careful tax planning.
SPECIAL TAX INFORMATION
For taxable years in which it is eligible to do so, the 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.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
Each Fund has elected to be taxed as a regulated investment company
under Subchapter M of the Code. As a regulated investment company, each Fund is
not subject to federal income tax on the portion of its net investment income
(i.e., taxable interest, dividends and other taxable ordinary income, net of
expenses) and capital gain net income (i.e., the excess of capital gains over
capital losses) that it distributes to shareholders, provided that it
distributes at least 90% of its investment company taxable income (i.e., net
investment income and the excess of net short-term capital gain over net
long-term capital loss) for the taxable year (the "Distribution Requirement"),
and satisfies certain other requirements of the Code that are described below.
Distributions by a Fund made during the taxable year or, under specified
circumstances, within twelve months after the close of the taxable year, will be
considered distributions of income and gains of the taxable year and can
therefore satisfy the Distribution Requirement.
Each Fund may use "equalization accounting" in determining the portion
of its net investment income and capital gain net income that has been
distributed. A Fund that elects to use equalization accounting will allocate a
portion of its realized investment income and capital gains to redemptions of
Fund shares and will reduce the amount that it distributes in cash. However,
each Fund intends to make cash distributions for each taxable year in an
aggregate amount that is sufficient to satisfy the Distribution Requirement
without taking into account its use of equalization accounting. The Internal
Revenue Service has not published any guidance concerning the methods to be used
in allocating investment income and capital gains to redemptions of shares. In
the event that the Internal Revenue Service determines that a Fund is using an
improper method of allocation and has underdistributed its net investment income
and capital gain net income for any taxable year, such Fund may be liable for
additional federal income tax.
In addition to satisfying the Distribution Requirement, a regulated
investment company must derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans, gains from the sale
or other disposition of stock or securities or foreign currencies (to the extent
such currency gains are directly related to the regulated investment company's
principal business of investing in stock or securities) and other income
(including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "Income Requirement").
In addition to satisfying the requirements described above, each Fund
must satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of each Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to which the
companies, and securities of other issuers, the Fund has not invested more than
5% of the value of the Fund's total assets in securities of such issuer and as
to which the Fund does not hold
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more than 10% of the outstanding voting securities of such issuer), and no more
than 25% of the value of its total assets may be invested in the securities of
any one issuer (other than U.S. Government securities and securities of other
regulated investment companies), or in two or more issuers which the Fund
controls and which are engaged in the same or similar trades or businesses.
If for any taxable year a Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital gain)
will be subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable as
ordinary dividends to the extent of such Fund's current and accumulated earnings
and profits. Such distributions generally will be eligible for the dividends
received deduction in the case of corporate shareholders.
DETERMINATION OF TAXABLE INCOME OF A REGULATED INVESTMENT COMPANY
In general, gain or loss recognized by a Fund on the disposition of an
asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation purchased by a Fund at a market discount
(generally, at a price less than its principal amount) will be treated as
ordinary income to the extent of the portion of the market discount which
accrued during the period of time the Fund held the debt obligation unless the
Fund made an election to accrue market discount into income. In addition, under
the rules of Code Section 988, gain or loss recognized on the disposition of a
debt obligation denominated in a foreign currency or an option with respect
thereto (but only to the extent attributable to changes in foreign currency
exchange rates), and gain or loss recognized on the disposition of a foreign
currency forward contract or of foreign currency itself, will generally be
treated as ordinary income or loss.
In general, for purposes of determining whether capital gain or loss
recognized by a Fund on the disposition of an asset is long-term or short-term,
the holding period of the asset may be affected if (a) the asset is used to
close a "short sale" (which includes for certain purposes the acquisition of a
put option) or is substantially identical to another asset so used, (b) the
asset is otherwise held by the Fund as part of a "straddle", or (c) the asset is
stock and the Fund grants certain call options with respect thereto. In
addition, a Fund may be required to defer the recognition of a loss on the
disposition of an asset held as part of a straddle to the extent of any
unrecognized gain on the offsetting position. Any gain recognized by a Fund on
the lapse of, or any gain or loss recognized by a Fund from a closing
transaction with respect to, an option written by the Fund will generally be
treated as a short-term capital gain or loss. In the case of covered options,
gain or loss may be long-term.
Other hedging transactions that may be engaged in by certain of the
Funds (such as short sales "against the box") may be subject to special tax
treatment as "constructive sales" under section 1259 of the Code if a Fund holds
certain "appreciated financial positions" (defined generally as any interest
(including a futures or forward contract, short sale or option) with respect to
stock, certain debt instruments, or partnership interests if there would be a
gain were such interest sold, assigned, or otherwise terminated at its fair
market value). Upon entering into a constructive sales transaction with respect
to an appreciated financial position, a Fund will be deemed to have
constructively sold such appreciated financial position and will recognize gain
as if such position were sold, assigned, or otherwise terminated at its fair
market value on the date of such constructive sale (and will take into account
any gain for the taxable year which includes such date) unless the closed
transaction exception applies.
Some of the forward foreign currency exchange contracts, options and
futures contracts that certain of the Funds may enter into will be subject to
special tax treatment as "Section 1256 contracts." Section 1256 contracts are
treated as if they are sold for their fair market value on the last business day
of the taxable year, regardless of whether a taxpayer's obligations (or rights)
under such contracts have terminated (by delivery, exercise, entering into a
closing transaction or otherwise) as of such date. Any gain or loss recognized
as a consequence of the year-end deemed disposition of Section 1256 contracts is
combined with any other gain or loss that was previously recognized upon the
termination of Section 1256 contracts during that taxable year. The net amount
of such gain or loss for the entire taxable year (including gain or loss arising
as a consequence of the year-end deemed sale of such contracts) is deemed to be
60% long-term (taxable at a maximum rate of 20% for non-corporate shareholders)
and 40% short-term gain or loss. However, in the case of Section 1256
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contracts that are forward foreign currency exchange contracts, the net gain or
loss is separately determined and (as discussed above) generally treated as
ordinary income or loss.
Because application of the rules governing Section 1256 contracts and
constructive sales may affect the character of gains or losses and/or accelerate
the recognition of gains or losses from the affected investment positions, the
amount which must be distributed to shareholders and which will be taxed to
shareholders as ordinary income or long-term capital gain may be increased as
compared to a fund that did not engage in transactions involving Section 1256
contracts or constructive sales.
EXCISE TAX ON REGULATED INVESTMENT COMPANIES
A 4% non-deductible excise tax is imposed on a regulated investment
company that fails to distribute in each calendar year an amount equal to 98% of
ordinary taxable income for the calendar year and 98% of capital gain net income
for the one-year period ended on October 31 of such calendar year (or, at the
election of a regulated investment company having a taxable year ending November
30 or December 31, for its taxable year (a "taxable year election")). The
balance of such income must be distributed during the next calendar year. For
the foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall
(a) reduce its capital gain net income (but not below its net capital gain) by
the amount of any net ordinary loss for the calendar year, and (b) exclude
foreign currency gains and losses incurred after October 31 of any year (or
after the end of its taxable year if it has made a taxable year election) in
determining the amount of ordinary taxable income for the current calendar year
(and, instead, include such gains and losses in determining ordinary taxable
income for the succeeding calendar year).
Each Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income prior
to the end of each calendar year to avoid liability for the excise tax. However,
in the event that the Internal Revenue Service determines that a Fund is using
an improper method of allocation for purposes of equalization accounting (as
discussed above), such Fund may be liable for excise tax. Moreover, investors
should note that a Fund may in certain circumstances be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability.
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.
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
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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.
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.
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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.
DISPOSITION OF SHARES
With respect to tax-exempt shareholders, a redemption, sale or
exchange of shares of a Fund 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%. 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.
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.
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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 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.
Under the 1940 Act, certain persons affiliated with the Company are
prohibited from dealing with the funds as principal in any purchase or sale of
securities unless an exemptive order allowing such transactions is obtained from
the SEC. The 1940 Act also prohibits the funds from purchasing a security being
publicly underwritten by a syndicate of which certain persons affiliated with
the Company are members except in accordance with certain conditions.
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
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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.
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 in
written form or on computer software. 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.
53
<PAGE> 125
BROKERAGE COMMISSIONS PAID
For the fiscal years ended December 31, 1998, 1997 and 1996, the LARGE
CAP VALUE FUND paid total brokerage commissions of $269,546, $139,516 and
$75,469, respectively. For the fiscal year ended December 31, 1998, 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 $17,842,057, and the related
commissions were $35,562. For the fiscal years ended December 31, 1998, 1997 and
1996, the FLEX FUND paid total brokerage commissions of $291,570, $166,653 and
$193,286, respectively. For the fiscal year ended December 31, 1998, 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 $24,369,239, and the related
commissions were $36,157. For the fiscal year ended December 31, 1998, 1997, and
1996, the REAL ESTATE FUND paid total brokerage commissions of $256,164,
$115,951 and $40,353, respectively. For the fiscal year ended December 31, 1998,
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 $10,232,121 and the related
commissions were $26,820. For the fiscal year ended December 31, 1998, 1997 and
1996, the INTERNATIONAL VALUE FUND paid total brokerage commissions of $42,855,
$44,731 and $21,872, respectively. For the fiscal year ended December 31, 1998,
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 $974,636, and the related
commissions were $935. There were no brokerage commissions paid to affiliated
broker-dealers during the fiscal years ended December 31, 1998,1997 and 1996, by
any of the Funds.
At December 31, 1998, 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, 1998
- ---- ---------------- --------------------
<S> <C> <C>
INTERNATIONAL VALUE FUND Warburg Dillon Read, LLC $5,913,111
Societe Generale Securities Corp. 3,564,264
Deutsche Morgan Greenfell, Inc. 2,825,784
LARGE CAP VALUE FUND Warburg Dillon Read, LLC 4,238,817
FLEX FUND Warburg Dillon Read, LLC 7,293,570
REAL ESTATE FUND Warburg Dillon Read, LLC 1,028,091
</TABLE>
During the fiscal years ended December 31, 1998, 1997 and 1996, the
LARGE CAP VALUE FUND'S portfolio turnover rates were 52%, 34% and 19%,
respectively; the FLEX FUND'S portfolio turnover rates were 34%, 17%, and 26%,
respectively; the REAL ESTATE FUND'S portfolio turnover rates were 69%, 57% and
25%, respectively; the INTERNATIONAL VALUE FUND'S portfolio turnover rates were
9%, 9% and 5%, respectively.
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.
54
<PAGE> 126
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. From time to time, AIM or its affiliates may waive all or a portion
of their fees and/or assume certain expenses of any Fund. Voluntary fee waivers
or reductions or commitments to assume expenses may be rescinded at any time
without further notice to investors. During periods of voluntary fee waivers or
reductions or commitments to assume expenses, AIM will retain its ability to be
reimbursed for such fee prior to the end of each fiscal year. Contractual fee
waivers or reductions or reimbursement of expenses set forth in the Fee Table in
the Prospectus may not be terminated or amended to the Fund's detriment during
the period stated in the agreement between AIM and the Fund. Fee waivers or
reductions or commitments to reduce expenses will have the effect of increasing
that Fund's yield and total return.
The performance of each Fund will vary from time to time and past
results are not necessarily indicative of future results. A Fund's performance
is a function of its portfolio management in selecting the type and quality of
portfolio securities and is affected by operating expenses of the Fund and
market conditions. A shareholder's investment in a Fund is not insured or
guaranteed. These factors should be carefully considered by the investor before
making an investment in any Fund.
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:
(6)
Yield = 2[(a-b + 1) -1]
---
cd
where a = dividends and interest earned during the period
b = expenses accrued for the period (net of
reimbursements or waivers),
c = the average daily number of shares outstanding
during period that were entitled to receive
dividends, and
d = the maximum offering price per share on the last day
of the period.
For the 30-day period ended December 31, 1998, the yield for Class A
shares, Class B shares and Class C shares of REAL ESTATE FUND were 4.50%, 3.98%
and 3.98%, 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 yields for the 30-day period ended December 31, 1998, for
Class A shares, Class B shares and Class C shares of REAL ESTATE FUND were
4.38%, 3.47% and 3.47%, respectively.
55
<PAGE> 127
The distribution yields (including income and short-term capital gains
distributions) for the 365-day period ended December 31, 1998, for Class A
shares and Class C shares of REAL ESTATE FUND were 5.12% and 4.21%,
respectively.
Class B shares commenced operation on March 3, 1998; therefore, no
distribution yield information for the 365-day period ended December 31, 1998 is
available, 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.
Average annual total return may be calculated without assuming payment
of the full sales load according to the following formula:
(n)
P(1+U) =ERV
Where P = a hypothetical initial payment of $1,000.
U = average annual total return assuming payment of
only a stated portion of, or none of, the applicable
maximum sales load at the beginning of the stated
period.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000
payment at the end of the stated period.
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, 1998, for Class A
shares of each of the following Funds for the periods listed below are as
follows:
<TABLE>
<CAPTION>
Fund 1 Year Since Inception*
---- ------ ----------------
<S> <C> <C>
LARGE CAP VALUE FUND 7.81% 19.14%
FLEX FUND 7.03% 15.48%
REAL ESTATE FUND -26.20% -5.98%
INTERNATIONAL VALUE FUND 5.10% 9.37%
</TABLE>
- ------------
* From December 31, 1996 (commencement of operations) (2 years).
The average annual total return as of December 31, 1998, for Class B
shares of each of the following Funds for the period listed below is as follows:
<TABLE>
<CAPTION>
Fund Since Inception*
---- ----------------
<S> <C>
LARGE CAP VALUE FUND 1.61%
FLEX FUND 2.40%
REAL ESTATE FUND -24.76%
INTERNATIONAL VALUE FUND -3.33%
</TABLE>
* From March 3, 1998 (commencement of operations) (9 months)
56
<PAGE> 128
The average annual total return as of December 31, 1998, 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 12.15% 18.31% 15.30% 14.62%*
FLEX FUND 11.41% 15.13% 13.23% 12.49%**
REAL ESTATE FUND -23.89% N/A N/A 8.74%***
INTERNATIONAL VALUE FUND 9.38% N/A N/A 15.17%***
</TABLE>
- --------------------
* From February 15, 1984 (commencement of operations) (14 years, 10 months).
** From February 24, 1988 (commencement of operations) (10 years, 10 months).
*** From May 1, 1995 (commencement of operations) (3 years, 7 months).
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
A shares of the indicated Funds for the fiscal years ended December 31, 1998 and
1997.
<TABLE>
<CAPTION>
LARGE REAL INTERNATIONAL
CAP VALUE FLEX ESTATE VALUE
FUND FUND FUND FUND
-------- ---- ------ -------------
<S> <C> <C> <C> <C>
1998 14.07% 13.26% 0.51% -22.54% 11.20%
1997* 31.66% 24.60% 19.40% 19.78% 13.84%
</TABLE>
* Period December 31, 1996 (commencement of operation) through December 31,
1997.
The following table provides the actual total rates of return for Class
B shares of the indicated Funds for the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
LARGE REAL INTERNATIONAL
CAP VALUE FLEX ESTATE VALUE
FUND FUND FUND FUND
-------- ---- ------ -------------
<S> <C> <C> <C> <C>
1998* 6.51% 7.25% -21.02% 1.67%
</TABLE>
* Period March 3, 1998 (commencement of operation) through December 31, 1998.
57
<PAGE> 129
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, 1998,
1997, 1996, 1995, 1994, 1993 and 1992.
<TABLE>
<CAPTION>
LARGE REAL INTERNATIONAL
CAP VALUE FLEX ESTATE VALUE
FUND FUND FUND FUND
--------- ---- ------ -------------
<S> <C> <C> <C> <C>
1998 13.15% 12.41% -23.16% 10.38%
1997 30.67% 23.64% 18.88% 12.98%
1996 17.17% 13.61% 36.43% 20.99%
1995 30.27% 27.30% 9.12%* 11.28%*
1994 2.70% 0.64% N/A N/A
1993 9.16% 10.48% N/A N/A
1992 4.84% 7.72% N/A N/A
</TABLE>
* Period May 1, 1995 (commencement of operations) through December 31, 1995.
Performance information for a Fund or class reflects only the
performance of a hypothetical investment in that Fund or class during the
particular time period on which the calculations are based. Performance
information should be considered in light of the Fund's investment objectives
and policies, the types of quality of the Fund's portfolio investments, market
conditions during the particular time period and operating expenses. Such
information should not be considered as a representation of the future
performance of a Fund or class.
SHAREHOLDER INFORMATION
This information supplements the discussion in each Fund's Prospectus
under the title "Shareholder Information."
TIMING OF PURCHASE ORDERS. It is the responsibility of the dealer to
ensure that all orders are transmitted on a timely basis to the Transfer Agent,
as hereinafter defined. Any loss resulting from the dealer's failure to submit
an order within the prescribed time frame will be borne by that dealer. If a
check used to purchase shares does not clear, or if any investment order must be
canceled due to nonpayment, the investor will be responsible for any resulting
loss to an AIM Fund or to AIM Distributors.
SHARE CERTIFICATES. The AIM Funds will issue share certificates upon
written request to AFS. Otherwise, shares are held on the shareholder's behalf
and recorded on the Fund books. The AIM Funds will not issue certificates for
shares held in prototype retirement plans.
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 AIM 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.
Each AIM Fund bears its share of the cost of operating the Systematic
Withdrawal Plan.
TERMS AND CONDITIONS OF EXCHANGES. 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
58
<PAGE> 130
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, 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.
EXCHANGES BY TELEPHONE. 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 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.
By signing an 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. The Transfer Agent
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.
REDEMPTIONS BY TELEPHONE. By signing an 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. If the investor so
elects, any redemptions must be effected in writing.
SIGNATURE GUARANTEES. In addition to those circumstances listed in the
"Shareholder Information" section of each Fund's prospectus, signature
guarantees are required in the following situations: (1) requests
59
<PAGE> 131
to transfer the registration of shares to another owner; (2) telephone exchange
and telephone redemption authorization forms; (3) changes in previously
designated wiring or electronic funds transfer instructions; and (4) 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. AIM Funds may waive or modify any signature guarantee
requirements at any time.
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 SEC, and
further provided that such guarantor institution is listed in one of the
reference guides contained in the Transfer Agent's current Signature Guarantee
Standards and Procedures, such as certain domestic banks, credit unions,
securities dealers, or securities exchanges. The Transfer Agent will also accept
signatures with either: (1) a signature guaranteed with a medallion stamp of the
STAMP Program, or (2) a signature guaranteed with a medallion stamp of the NYSE
Medallion Signature Program, provided that in either event, the amount of the
transaction involved does not exceed the surety coverage amount indicated on the
medallion. For information regarding whether a particular institution or
organization qualifies as an "eligible guarantor institution," an investor
should contact the Client Services Department of AFS.
DIVIDENDS AND DISTRIBUTIONS. 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.
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.
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 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.
MISCELLANEOUS INFORMATION
CHARGES FOR CERTAIN ACCOUNT INFORMATION
The Transfer Agent may impose certain copying charges for requests for
copies of shareholder account statements and other historical account
information older than the current year and the immediately preceding year.
AUDIT REPORTS
The Board of Directors will issue semi-annual reports of the
transactions of the Funds to the shareholders. Financial statements, audited by
independent auditors, will be issued annually. The firm of KPMG LLP, 700
Louisiana, NationsBank Building, Houston, Texas 77002, currently serves as the
auditors of each Fund.
60
<PAGE> 132
LEGAL MATTERS
Legal matters for the Company have been passed upon by Ballard Spahr
Andrews & Ingersoll, LLP, 1735 Market Street, Philadelphia, Pennsylvania.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company (the "Custodian"), 225 Franklin
Street, Boston, Massachusetts 02110, is custodian of all securities and cash of
the Funds. The custodian attends to the collection of principal and income, pays
and collects all monies for securities bought and sold by the Funds and performs
certain other ministerial duties. A I M Fund Services, Inc. (the "Transfer
Agent"), a wholly owned subsidiary of AIM, P.O. Box 4739, Houston, Texas
77210-4739, acts as transfer and dividend disbursing agent for the Funds. These
services do not include any supervisory function over management or provide any
protection against any possible depreciation of assets. The Funds pay the
Custodian and the Transfer Agent such compensation as may be agreed upon from
time to time.
Chase Bank of Texas, N.A., 712 Main, Houston, Texas 77002, serves as
Sub-Custodian for retail purchase of the AIM Funds.
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") has
entered into an agreement with the Company (and certain other AIM Funds), First
Data Investor Service Group and Financial Data Services, Inc., pursuant to which
MLPF&S has agreed to perform certain shareholder sub-accounting services for its
customers who beneficially own shares of the Fund(s).
PRINCIPAL HOLDERS OF SECURITIES
As of March 15, 1999, 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- 5.39%
5703 155th Ave. NE
Redmond, WA 98052
FLEX FUND
Merrill Lynch Pierce Fenner & Smith 42.77% -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.
61
<PAGE> 133
<TABLE>
<CAPTION>
Percent
Owned of
Percent Record
Name and Address of Owned of and
Beneficial Owner Record* Beneficially
- ---------------- -------- ------------
<S> <C> <C>
Cypress Enterprises -0- 5.28%
A Partnership
730 S. Tonti Street
New Orleans, LA 70119
INTERNATIONAL VALUE FUND
Merrill Lynch Pierce Fenner & Smith 12.91%** -0-
FBO the Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. E.
Jacksonville, FL 32246
Commerce Bank FBO 8.48% -0-
Baker University Endowment
8th and Grove
Baldwin City, KS 66006
Mulvihill Family Trust -0- 7.75%
DTD 10/1/73, Willard Thompson Trust
c/o Bessemer Trust Company
100 Woodbridge Center Drive
Woodbridge, NJ 07095
Salomon Smith Barney Inc. 6.33% -0-
00165249542
388 Greenwich Street
New York, NY 10013
CLASS B
FLEX FUND
Merrill Lynch Pierce Fenner & Smith 9.76% -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.
** A shareholder who holds 25% or more of the outstanding shares of a Fund may
be presumed to be in "control" of such Fund as defined in the 1940 Act.
62
<PAGE> 134
<TABLE>
<CAPTION>
Percent
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 6.67% -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 32.74%** -0-
FBO the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Dr. E.
Jacksonville, FL 32246
CLASS C
LARGE CAP VALUE FUND
Merrill Lynch Pierce Fenner & Smith 15.77% -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 10.94% -0-
FBO the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Dr. E.
Jacksonville, FL 32246
REAL ESTATE FUND
Merrill Lynch Pierce Fenner & Smith 6.49% -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.
** A shareholder who holds 25% or more of the outstanding shares of a Fund may
be presumed to be in "control" of such Fund as defined in the 1940 Act.
63
<PAGE> 135
<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 53.71%** -0-
FBO the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Dr. E.
Jacksonville, FL 32246
</TABLE>
As of March 15, 1999, the officers and Directors of the Company, as a
group, owned less than 1% of the outstanding shares of the Funds.
- ----------------
* The Company has no knowledge as to whether all or any portion of the shares
owned of record only are also owned beneficially.
** A shareholder who holds 25% or more of the outstanding shares of a Fund may
be presumed to be in "control" of such Fund as defined in the 1940 Act.
64
<PAGE> 136
APPENDIX
Some of the terms used in the Funds' Prospectuses 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, bankers' acceptances and master
notes, 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
65
<PAGE> 137
FNMA. CMOs are structured into multiple classes, with each class bearing a
different stated maturity. Monthly payments of principal, including prepayments,
are first returned to investors holding the shortest maturity class; investors
holding the longer maturity classes receive principal only after the first class
has been retired.
MUNICIPAL BONDS are debt obligations which generally have a maturity at
the time of issue in excess of one year and are issued to obtain funds for
various public purposes. The two principal classifications of municipal bonds
are "general obligation" and "revenue" bonds. General obligation bonds are
secured by the issuer's pledge of its full faith, credit and taxing power for
the payment of principal and interest. Revenue bonds are payable only from the
revenues derived from a particular facility or class of facilities, or, in some
cases, from the proceeds of a special excise or specific revenue source.
Industrial development bonds or private activity bonds are issued by or on
behalf of public authorities to obtain funds for privately operated facilities
and are, in most cases, revenue bonds which do not generally carry the pledge of
the full faith and credit of the issuer of such bonds, but depend for payment on
the ability of the industrial user to meet its obligations (or any property
pledged as security).
ZERO COUPON BONDS are debt obligations issued without any requirement
for the periodic payment of interest. Zero coupon bonds are issued at a
significant discount from face value. The discount approximates the total amount
of interest the bonds would accrue and compound over the period until maturity
at a rate of interest reflecting the market rate at the time of issuance. A
Fund, if it holds zero coupon bonds in its Fund, however, would recognize income
currently for Federal tax purposes in the amount of the unpaid, accrued interest
(determined under tax rules) and generally would be required to distribute
dividends representing such income to shareholders currently, even though funds
representing such income would not have been received by the Fund. Cash to pay
dividends representing unpaid, accrued interest may be obtained from sales
proceeds of Fund securities and Fund shares and from loan proceeds. Because
interest on zero coupon obligations is not paid to the Fund on a current basis
but is in effect compounded, the value of the securities of this type is subject
to greater fluctuations in response to changing interest rates than the value of
debt obligations which distribute income regularly.
RATINGS OF CORPORATE DEBT OBLIGATIONS 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
66
<PAGE> 138
but certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements.
The future of such bonds cannot be considered as well assured.
B -- Bonds which are rated B generally lack characteristics of a
desirable investment.
Caa -- Bonds rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds rated Ca are speculative to a high degree.
C -- Bonds rated C are the lowest rated class of bonds and are regarded
as having extremely poor prospects.
The characteristics of corporate debt obligations rated by S&P are
generally as follows:
AAA -- This is the highest rating assigned by S&P to a debt obligation
and indicates an extremely strong capacity to pay principal and interest.
AA -- Bonds rated AA also qualify as high quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB -- Debt rated BB is predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with terms of the
obligation. BB indicates the lowest degree of speculation; CC indicates the
highest degree of speculation.
BB,B,CCC,CC -- Debt in these ratings is predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with terms
of the obligation. BB indicates the lowest degree of speculation and CC the
highest.
A bond rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by the rating services from other sources which they consider reliable.
The ratings may be changed, suspended or withdrawn as a result of changes in or
unavailability of, such information, or for other reasons.
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.
67
<PAGE> 139
Commercial paper rated Prime 1 by Moody's is the highest commercial
paper assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and consumer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by the management
of obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Relative strength or
weakness of the above factors determine how the issuer's commercial paper is
rated within various categories.
DETERMINATION OF CREDIT QUALITY OF UNRATED SECURITIES. In determining
whether an unrated debt security is of comparable quality to a rated security,
the sub-adviser may consider the following factors, among others:
(1) other securities of the issuer that are rated;
(2) the issuer's liquidity, debt structure, repayment schedules, and
external credit support facilities;
(3) the reliability and quality of the issuer's management;
(4) the length to maturity of the security and the percentage of
the Fund represented by securities of that issuer;
(5) the issuer's earnings and cash flow trends;
(6) the issuer's industry, the issuer's position in its industry,
and an appraisal of speculative risks which may be inherent in
the industry;
(7) the financial strength of the issuer's parent and its
relationship with the issuer;
(8) the extent and reliability of credit support, including a
letter of credit or third party guarantee applicable to
payment of principal and interest;
(9) the issuer's ability to repay its debt from cash sources or
asset liquidation in the event that the issuer's backup credit
facilities are unavailable;
(10) other factors deemed relevant by the subadvisor.
68
<PAGE> 140
FINANCIAL STATEMENTS
FS
<PAGE> 141
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders of
AIM Advisor Flex Fund:
We have audited the accompanying statement of assets and
liabilities of AIM Advisor Flex Fund (a portfolio of AIM
Advisor Funds, Inc.), including the schedule of
investments, as of December 31, 1998, and the related
statement of operations, the statement of changes in net
assets, and the financial highlights for the year then
ended. These financial statements and financial
highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion
on these financial statements and financial highlights
based on our audit. The accompanying statement of changes
in net assets for the year ended December 31, 1997 and
the financial highlights for each of the years in the
four-year period ended December 31, 1997, were audited by
other auditors whose report thereon dated February 5,
1998, expressed an unqualified opinion on such statement
and financial highlights.
We conducted our audit in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and
financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of
securities owned as of December 31, 1998, by
correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the 1998 financial statements and
financial highlights referred to above present fairly, in
all material respects, the financial position of AIM
Advisor Flex Fund as of December 31, 1998, the results of
its operations, the changes in its net assets and the
financial highlights for the year then ended, in
conformity with generally accepted accounting principles.
KPMG LLP
Houston, Texas
February 5, 1999
FS-1
<PAGE> 142
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS-78.75%
AEROSPACE/DEFENSE-2.03%
Boeing Co. (The) 110,000 $ 3,588,751
- --------------------------------------------------------------
Lockheed Martin Corp. 60,000 5,085,000
- --------------------------------------------------------------
Precision Castparts Corp. 135,000 5,973,750
- --------------------------------------------------------------
14,647,501
- --------------------------------------------------------------
AGRICULTURAL PRODUCTS-0.81%
Archer-Daniels-Midland Co. 341,250 5,865,235
- --------------------------------------------------------------
AIRLINES-0.50%
Southwest Airlines Co. 160,000 3,590,001
- --------------------------------------------------------------
AUTO PARTS & EQUIPMENT-2.03%
Cooper Tire & Rubber Co. 160,000 3,270,001
- --------------------------------------------------------------
Genuine Parts Co. 210,000 7,021,875
- --------------------------------------------------------------
Snap-on Inc. 125,000 4,351,562
- --------------------------------------------------------------
14,643,438
- --------------------------------------------------------------
AUTOMOBILES-1.02%
Ford Motor Co. 125,000 7,335,938
- --------------------------------------------------------------
BANKS (MAJOR REGIONAL)-2.96%
Bank One Corp. 121,500 6,204,094
- --------------------------------------------------------------
National City Corp. 100,000 7,250,000
- --------------------------------------------------------------
Wachovia Corp. 90,000 7,869,375
- --------------------------------------------------------------
21,323,469
- --------------------------------------------------------------
BANKS (MONEY CENTER)-0.92%
BankAmerica Corp. 110,000 6,613,751
- --------------------------------------------------------------
BEVERAGES (ALCOHOLIC)-1.37%
Anheuser-Busch Companies, Inc. 150,000 9,843,751
- --------------------------------------------------------------
CHEMICALS-0.95%
Dow Chemical Co. (The) 75,000 6,820,312
- --------------------------------------------------------------
CHEMICALS (SPECIALTY)-1.24%
Great Lakes Chemical Corp. 100,000 4,000,000
- --------------------------------------------------------------
Morton International, Inc. 200,000 4,900,000
- --------------------------------------------------------------
8,900,000
- --------------------------------------------------------------
COMPUTERS (HARDWARE)-4.99%
Compaq Computer Corp. 300,000 12,581,250
- --------------------------------------------------------------
Hewlett-Packard Co. 125,000 8,539,062
- --------------------------------------------------------------
International Business Machines
Corp. 80,000 14,780,000
- --------------------------------------------------------------
35,900,312
- --------------------------------------------------------------
COMPUTERS (SOFTWARE &
SERVICES)-2.14%
Computer Associates International,
Inc. 125,000 5,328,125
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (SOFTWARE & SERVICES)-(CONTINUED)
Electronic Data Systems Corp. 200,000 $ 10,050,000
- --------------------------------------------------------------
15,378,125
- --------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH)-1.17%
SUPERVALU, Inc. 300,000 8,400,000
- --------------------------------------------------------------
ELECTRIC COMPANIES-3.30%
Edison International 200,000 5,575,000
- --------------------------------------------------------------
Entergy Corp. 300,000 9,337,500
- --------------------------------------------------------------
GPU, Inc. 200,000 8,837,500
- --------------------------------------------------------------
23,750,000
- --------------------------------------------------------------
ELECTRICAL EQUIPMENT-1.80%
General Electric Co. 75,000 7,654,687
- --------------------------------------------------------------
Rockwell International Corp. 110,000 5,341,875
- --------------------------------------------------------------
12,996,562
- --------------------------------------------------------------
ELECTRONICS (COMPONENT DISTRIBUTORS)-0.38%
W.W. Grainger, Inc. 65,500 2,726,437
- --------------------------------------------------------------
ELECTRONICS (DEFENSE)-0.72%
Raytheon Co.-Class A 100,000 5,168,750
- --------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-3.01%
American General Corp. 110,000 8,580,000
- --------------------------------------------------------------
MGIC Investment Corp. 150,000 5,971,875
- --------------------------------------------------------------
Morgan Stanley, Dean Witter,
Discover & Co. 100,000 7,100,000
- --------------------------------------------------------------
21,651,875
- --------------------------------------------------------------
FOODS-1.43%
H.J. Heinz Co. 50,000 2,831,250
- --------------------------------------------------------------
Unilever N.V.-ADR-New York Shares
(Netherlands) 90,000 7,464,375
- --------------------------------------------------------------
10,295,625
- --------------------------------------------------------------
FOOTWEAR-0.41%
Reebok International Ltd.(a) 200,000 2,975,000
- --------------------------------------------------------------
HEALTH CARE (DIVERSIFIED)-2.77%
Abbott Laboratories 200,000 9,800,000
- --------------------------------------------------------------
American Home Products Corp. 180,000 10,136,250
- --------------------------------------------------------------
19,936,250
- --------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER)-1.42%
Mylan Laboratories, Inc. 325,000 10,237,500
- --------------------------------------------------------------
HEALTH CARE (DRUGS-MAJOR
PHARMACEUTICALS)-3.31%
Lilly (Eli) & Co. 50,000 4,443,750
- --------------------------------------------------------------
</TABLE>
FS-2
<PAGE> 143
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS)-(CONTINUED)
Merck & Co., Inc. 75,000 $ 11,076,562
- --------------------------------------------------------------
Schering-Plough Corp. 150,000 8,287,500
- --------------------------------------------------------------
23,807,812
- --------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT)-1.03%
Columbia/HCA Healthcare Corp. 300,000 7,425,000
- --------------------------------------------------------------
HOUSEHOLD FURNITURE &
APPLIANCES-0.77%
Whirlpool Corp. 100,000 5,537,500
- --------------------------------------------------------------
HOUSEWARES-0.31%
Fortune Brands, Inc. 70,000 2,213,750
- --------------------------------------------------------------
INSURANCE (MULTI-LINE)-1.09%
Loews Corp. 80,000 7,860,000
- --------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY)-2.38%
Ohio Casualty Corp. 150,000 6,168,750
- --------------------------------------------------------------
Old Republic International Corp. 200,000 4,500,000
- --------------------------------------------------------------
SAFECO Corp. 150,000 6,440,625
- --------------------------------------------------------------
17,109,375
- --------------------------------------------------------------
INSURANCE BROKERS-0.97%
Marsh & McLennan Co. 120,000 7,012,500
- --------------------------------------------------------------
IRON & STEEL-1.50%
Nucor Corp. 250,000 10,812,500
- --------------------------------------------------------------
MACHINERY (DIVERSIFIED)-2.96%
Caterpillar, Inc. 100,000 4,600,000
- --------------------------------------------------------------
Deere & Co. 100,000 3,312,500
- --------------------------------------------------------------
Dover Corp. 100,000 3,662,500
- --------------------------------------------------------------
Hanson PLC-ADR (United Kingdom) 250,000 9,750,000
- --------------------------------------------------------------
21,325,000
- --------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-2.73%
Illinois Tool Works, Inc. 75,000 4,350,000
- --------------------------------------------------------------
Minnesota Mining and Manufacturing
Co. 75,000 5,334,375
- --------------------------------------------------------------
Norsk Hydro A.S.A.-ADR (Norway) 125,000 4,273,437
- --------------------------------------------------------------
Textron, Inc. 75,000 5,695,312
- --------------------------------------------------------------
19,653,124
- --------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-1.17%
Federal Signal Corp. 160,000 4,380,000
- --------------------------------------------------------------
York International Corp. 100,000 4,081,250
- --------------------------------------------------------------
8,461,250
- --------------------------------------------------------------
METALS MINING-0.74%
Phelps Dodge Corp. 105,000 5,341,875
- --------------------------------------------------------------
OIL (INTERNATIONAL INTEGRATED)-3.76%
Exxon Corp. 100,000 7,312,500
- --------------------------------------------------------------
Repsol S.A.-ADR (Spain) 150,000 8,193,750
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
OIL (INTERNATIONAL INTEGRATED)-(CONTINUED)
Royal Dutch Petroleum Co.-ADR-New
York Shares (Netherlands) 125,000 $ 5,984,375
- --------------------------------------------------------------
YPF Sociedad Anonima-ADR
(Argentina) 200,000 5,587,500
- --------------------------------------------------------------
27,078,125
- --------------------------------------------------------------
PAPER & FOREST PRODUCTS-0.56%
Westvaco Corp. 150,000 4,021,875
- --------------------------------------------------------------
PHOTOGRAPHY/IMAGING-0.47%
IKON Office Solutions, Inc. 400,000 3,425,000
- --------------------------------------------------------------
PUBLISHING-0.08%
R.H. Donnelley Corp. 40,000 582,500
- --------------------------------------------------------------
PUBLISHING (NEWSPAPERS)-0.73%
Gannett Co., Inc. 80,000 5,295,000
- --------------------------------------------------------------
RAILROADS-0.72%
CSX Corp. 125,000 5,187,500
- --------------------------------------------------------------
RESTAURANTS-1.06%
McDonald's Corp. 100,000 7,662,500
- --------------------------------------------------------------
RETAIL (BUILDING SUPPLIES)-1.63%
Lowe's Companies, Inc. 100,000 5,118,750
- --------------------------------------------------------------
Sherwin-Williams Co. 225,000 6,609,375
- --------------------------------------------------------------
11,728,125
- --------------------------------------------------------------
RETAIL (DEPARTMENT STORES)-1.24%
Dillards, Inc. 150,000 4,256,250
- --------------------------------------------------------------
J.C. Penney Co., Inc. 100,000 4,687,500
- --------------------------------------------------------------
8,943,750
- --------------------------------------------------------------
RETAIL (DRUG STORES)-0.69%
Rite Aid Corp. 100,000 4,956,250
- --------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE)-0.53%
Kmart Corp.(a) 250,000 3,828,125
- --------------------------------------------------------------
RETAIL (SPECIALTY)-0.29%
Toys "R" Us, Inc.(a) 125,000 2,109,375
- --------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-0.88%
Dun & Bradstreet Corp. 200,000 6,312,500
- --------------------------------------------------------------
SPECIALTY PRINTING-0.89%
Deluxe Corp. 175,000 6,398,437
- --------------------------------------------------------------
TELEPHONE-3.62%
Ameritech Corp. 65,000 4,119,375
- --------------------------------------------------------------
Bell Atlantic Corp. 140,000 7,953,750
- --------------------------------------------------------------
British Telecommunications PLC-ADR
(United Kingdom) 60,000 9,101,250
- --------------------------------------------------------------
Telefonos de Mexico S.A.-ADR
(Mexico) 100,000 4,868,750
- --------------------------------------------------------------
26,043,125
- --------------------------------------------------------------
</TABLE>
FS-3
<PAGE> 144
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TEXTILES (APPAREL)-1.74%
Liz Claiborne, Inc. 175,000 $ 5,523,437
- --------------------------------------------------------------
VF Corp. 150,000 7,031,250
- --------------------------------------------------------------
12,554,687
- --------------------------------------------------------------
TEXTILES (SPECIALTY)-0.48%
Unifi, Inc.(a) 175,000 3,423,437
- --------------------------------------------------------------
TOBACCO-1.75%
Gallaher Group PLC-ADR (United
Kingdom) 110,000 2,990,625
- --------------------------------------------------------------
Philip Morris Companies, Inc. 180,000 9,630,000
- --------------------------------------------------------------
12,620,625
- --------------------------------------------------------------
WASTE MANAGEMENT-1.30%
Browning-Ferris Industries, Inc. 150,000 4,265,625
- --------------------------------------------------------------
Waste Management, Inc. 108,750 5,070,468
- --------------------------------------------------------------
9,336,093
- --------------------------------------------------------------
Total Common Stocks (Cost
$367,668,273) 567,066,547
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
CORPORATE NOTES-6.17%
AUTOMOBILES-0.57%
Ford Motor Co., Notes,
7.50%, 11/15/99 $ 750,000 $ 763,778
- --------------------------------------------------------------
6.50%, 08/01/18 3,250,000 3,341,747
- --------------------------------------------------------------
4,105,525
- --------------------------------------------------------------
BANKS (MAJOR REGIONAL)-0.94%
National City Corp., Sub Notes,
7.20%, 05/15/05 1,000,000 1,070,191
- --------------------------------------------------------------
Nationsbank Corp., Sr. Notes,
5.375%, 04/15/00 1,550,000 1,549,442
- --------------------------------------------------------------
Wachovia Corp., Unsec. Sub. Notes,
6.25%, 08/04/08 4,000,000 4,164,400
- --------------------------------------------------------------
6,784,033
- --------------------------------------------------------------
BANKS (MONEY CENTER)-0.44%
First Union Corp., Unsec. Sub.
Notes, 6.40%, 04/01/08 3,000,000 3,145,320
- --------------------------------------------------------------
BEVERAGES (ALCOHOLIC)-0.51%
Anheuser Busch Co., Unsec. Notes,
5.375%, 09/15/08 3,700,000 3,710,323
- --------------------------------------------------------------
CHEMICALS-0.14%
Eastman Chemical, Notes, 6.375%,
01/15/04 1,000,000 997,400
- --------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-0.44%
Motorola Inc., Notes, 6.50%,
03/01/08 3,000,000 3,174,600
- --------------------------------------------------------------
CONSUMER FINANCE-0.85%
Beneficial Corp., Medium Term
Notes, 6.625%, 09/27/04 3,000,000 3,092,760
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
CONSUMER FINANCE-(CONTINUED)
Commercial Credit Co., Unsec.
Notes, 5.55%, 02/15/01 $3,000,000 $ 3,007,020
- --------------------------------------------------------------
6,099,780
- --------------------------------------------------------------
ELECTRIC COMPANIES-0.45%
Penn Power & Lighting, First
Mortgage Notes,
6.875%, 02/01/03 1,000,000 1,063,350
- --------------------------------------------------------------
6.55%, 03/01/06 1,900,000 2,002,619
- --------------------------------------------------------------
Union Electric, First Mortgage
Notes, 6.75%, 10/15/99 150,000 151,999
- --------------------------------------------------------------
3,217,968
- --------------------------------------------------------------
ELECTRICAL EQUIPMENT-0.22%
Boeing Co., Notes, 6.625%, 06/01/05 1,500,000 1,572,660
- --------------------------------------------------------------
FOODS-0.35%
Campbell Soup Co., Unsec. Notes,
4.75%, 10/01/03 2,600,000 2,555,332
- --------------------------------------------------------------
INSURANCE (MULTI-LINE)-0.41%
CNA Financial Corp., Unsec. Notes,
6.50%, 04/15/05 3,000,000 2,990,760
- --------------------------------------------------------------
RETAIL (BUILDING SUPPLIES)-0.43%
Sherwin-Williams Co., Notes, 6.50%,
02/01/02 3,000,000 3,099,360
- --------------------------------------------------------------
RETAIL (DEPARTMENT STORES)-0.42%
Dillard Dept. Stores, Inc., Unsec.
Notes, 6.30%, 02/15/08 3,000,000 3,015,120
- --------------------------------------------------------------
Total Corporate Notes (Cost
$43,397,815) 44,468,181
- --------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES-2.61%
FEDERAL HOME LOAN MORTGAGE CORP. ("FHLMC")-0.52%
Pass through certificates
6.50%, 07/01/01 2,141,748 2,164,493
- --------------------------------------------------------------
8.00%, 10/01/10 1,530,209 1,577,064
- --------------------------------------------------------------
3,741,557
- --------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION ("FNMA")-1.34%
Pass through certificates
8.50%, 03/01/10 1,449,332 1,509,567
- --------------------------------------------------------------
6.50%, 06/01/11 to 05/01/26 6,152,443 6,238,374
- --------------------------------------------------------------
7.50%, 11/01/26 1,839,198 1,894,943
- --------------------------------------------------------------
9,642,884
- --------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION ("GNMA")-0.75%
Pass through certificates
6.50%, 10/15/08 905,700 927,492
- --------------------------------------------------------------
7.00%, 10/15/08 952,794 984,055
- --------------------------------------------------------------
</TABLE>
FS-4
<PAGE> 145
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
("GNMA")-(CONTINUED)
6.00%, 11/15/08 $1,074,971 $ 1,088,407
- --------------------------------------------------------------
7.50%, 03/15/26 2,331,182 2,414,218
- --------------------------------------------------------------
5,414,172
- --------------------------------------------------------------
Total U.S. Government Agency
Securities (Cost $18,294,842) 18,798,613
- --------------------------------------------------------------
U.S. TREASURY SECURITIES-10.20%
U.S. TREASURY BONDS-0.73%
7.625%, 02/15/25 4,000,000 5,261,561
- --------------------------------------------------------------
U.S. TREASURY NOTES-9.47%
8.75%, 08/15/00 4,000,000 4,255,521
- --------------------------------------------------------------
7.875%, 08/15/01 5,000,000 5,397,601
- --------------------------------------------------------------
7.50%, 05/15/02 3,000,000 3,261,660
- --------------------------------------------------------------
6.25%, 02/15/03 4,000,000 4,232,800
- --------------------------------------------------------------
7.25%, 05/15/04 6,000,000 6,724,980
- --------------------------------------------------------------
7.25%, 08/15/04 2,000,000 2,249,240
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. TREASURY NOTES-(CONTINUED)
6.50%, 08/15/05 $7,000,000 $ 7,694,050
- --------------------------------------------------------------
9.375%, 02/15/06 4,000,000 5,101,240
- --------------------------------------------------------------
6.125%, 08/15/07 6,000,000 6,553,800
- --------------------------------------------------------------
5.50%, 02/15/08 8,000,000 8,474,320
- --------------------------------------------------------------
9.25%, 02/15/16 6,000,000 8,609,940
- --------------------------------------------------------------
7.25%, 08/15/22 4,500,000 5,603,715
- --------------------------------------------------------------
68,158,867
- --------------------------------------------------------------
Total U.S. Treasury Securities
(Cost $68,661,389) 73,420,428
- --------------------------------------------------------------
REPURCHASE AGREEMENT-1.01%(b)
SBC Warburg Dillon Read, Inc.,
4.75%, 01/04/99 (Cost
$7,293,570)(c) 7,293,570 7,293,570
- --------------------------------------------------------------
TOTAL INVESTMENTS-98.74% 711,047,339
- --------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-1.26% 9,086,204
- --------------------------------------------------------------
NET ASSETS-100.00% $720,133,543
==============================================================
</TABLE>
Notes to Schedule of Investments:
(a) Non-income producing securities.
(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 ensure its market value is at least 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 12/31/98 with a maturing value of
$1,000,527,778. Collateralized by $2,207,068,000 U.S. Government
obligations, 0% to 6.75% due 06/30/99 to 11/15/21 with an aggregate market
value at 12/31/98 of $1,020,001,079.
Abbreviations:
ADR - American Depositary Receipt
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
See Notes to Financial Statements.
FS-5
<PAGE> 146
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$505,315,889) $711,047,339
- ---------------------------------------------------------
Receivables for:
Investments sold 5,865,395
- ---------------------------------------------------------
Capital stock sold 2,597,804
- ---------------------------------------------------------
Interest and dividends 3,321,795
- ---------------------------------------------------------
Investment for deferred compensation plan 7,757
- ---------------------------------------------------------
Other assets 15,418
- ---------------------------------------------------------
Total assets 722,855,508
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Capital stock reacquired 616,563
- ---------------------------------------------------------
Deferred compensation plan 7,757
- ---------------------------------------------------------
Accrued advisory fees 453,322
- ---------------------------------------------------------
Accrued operating services fees 75,761
- ---------------------------------------------------------
Accrued distribution fees 1,529,511
- ---------------------------------------------------------
Accrued directors' fees and expenses 39,051
- ---------------------------------------------------------
Total liabilities 2,721,965
- ---------------------------------------------------------
Net assets applicable to shares outstanding $720,133,543
- ---------------------------------------------------------
NET ASSETS:
Class A $ 46,286,433
=========================================================
Class B $ 3,591,573
=========================================================
Class C $670,255,537
=========================================================
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Class A:
Authorized 100,000,000
- ---------------------------------------------------------
Outstanding 2,307,756
=========================================================
Class B:
Authorized 100,000,000
- ---------------------------------------------------------
Outstanding 179,008
=========================================================
Class C:
Authorized 100,000,000
- ---------------------------------------------------------
Outstanding 33,407,634
=========================================================
Class A:
Net asset value and redemption price per
share $ 20.06
- ---------------------------------------------------------
Offering price per share:
(Net asset value of $20.06 divided by
94.50%) $ 21.23
=========================================================
Class B:
Net asset value and offering price per
share $ 20.06
=========================================================
Class C:
Net asset value and offering price per
share $ 20.06
=========================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 11,514,476
- ---------------------------------------------------------
Dividends (net of $247,098 foreign
withholding tax) 10,195,106
- ---------------------------------------------------------
Total investment income 21,709,582
- ---------------------------------------------------------
EXPENSES:
Advisory fees 5,051,593
- ---------------------------------------------------------
Operating services fees 2,996,689
- ---------------------------------------------------------
Distribution fees-Class A 126,300
- ---------------------------------------------------------
Distribution fees-Class B 10,941
- ---------------------------------------------------------
Distribution fees-Class C 6,365,011
- ---------------------------------------------------------
Directors' fees and expenses 5,841
- ---------------------------------------------------------
Total expenses 14,556,375
- ---------------------------------------------------------
Less: Fees waived by advisor (1,328,869)
- ---------------------------------------------------------
Net expenses 13,227,506
- ---------------------------------------------------------
Net investment income 8,482,076
- ---------------------------------------------------------
REALIZED AND UNREALIZED GAIN FROM
INVESTMENT SECURITIES:
Net realized gain from investment
securities 59,176,179
- ---------------------------------------------------------
Net unrealized appreciation of investment
securities 11,782,197
- ---------------------------------------------------------
Net gain from investment securities 70,958,376
- ---------------------------------------------------------
Net increase in net assets resulting from
operations $ 79,440,452
=========================================================
</TABLE>
See Notes to Financial Statements.
FS-6
<PAGE> 147
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 8,482,076 $ 9,048,951
- -----------------------------------------------------------------------------------------
Net realized gain from investment securities 59,176,179 23,883,293
- -----------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities 11,782,197 86,058,520
- -----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 79,440,452 118,990,764
- -----------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (693,499) (246,939)
- -----------------------------------------------------------------------------------------
Class B (14,661) --
- -----------------------------------------------------------------------------------------
Class C (7,001,855) (8,674,714)
- -----------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains on
investment securities:
Class A (3,877,358) (610,538)
- -----------------------------------------------------------------------------------------
Class B (270,410) --
- -----------------------------------------------------------------------------------------
Class C (56,203,971) (14,999,384)
- -----------------------------------------------------------------------------------------
Share transactions-net:
Class A 21,305,857 24,377,889
- -----------------------------------------------------------------------------------------
Class B 3,715,719 --
- -----------------------------------------------------------------------------------------
Class C 55,402,752 19,575,501
- -----------------------------------------------------------------------------------------
Net increase in net assets 91,803,026 138,412,579
- -----------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 628,330,517 489,917,938
- -----------------------------------------------------------------------------------------
End of period $720,133,543 $628,330,517
=========================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $510,018,210 $426,093,882
- -----------------------------------------------------------------------------------------
Undistributed net investment income 938,111 166,050
- -----------------------------------------------------------------------------------------
Undistributed net realized gain from investment securities 3,445,772 8,121,332
- -----------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 205,731,450 193,949,253
- -----------------------------------------------------------------------------------------
$720,133,543 $628,330,517
=========================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Advisor Flex Fund (the "Fund") is a series portfolio of AIM Advisor Funds,
Inc. (the "Company"). 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 five diversified
portfolios. The Fund currently offers three different classes of shares: Class A
shares, Class B shares and Class C shares. Class A shares are sold with a
front-end sales charge. Class B shares and 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. Information presented in these financial statements pertains only to
the Fund. 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.
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
FS-7
<PAGE> 148
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. Such dividends are
declared and paid quarterly. On December 31, 1998 additional paid-in capital
was increased by $3,500,000 and undistributed net realized gains was
decreased by $3,500,000 as a result of equalization credits and 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.
The Company, pursuant to an operating services agreement with AIM, has agreed
to pay AIM an annual rate of 0.45% of the Fund's average daily net assets 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
year ended December 31, 1998, AIM was paid $1,703,905 for such services. As of
June 1, 1998, AIM has voluntarily agreed to limit the operating services fees to
an annual rate of 0.45% of the first $50 million of the Fund's average daily net
assets and 0.10% of the Fund's average daily net assets in excess of $50
million. During the period June 1, 1998 through December 31, 1998, AIM
voluntarily waived operating services fees in the amount of $1,292,783.
The Company has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Company has adopted
distribution plans pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A shares and Class C shares (the "Class A and C Plan"), and the
Fund's Class B shares (the "Class B Plan") (collectively, the "Plans"). The
Fund, pursuant to the Class A and C Plan, pays AIM Distributors compensation at
an annual rate of 0.35% of the average daily net assets attributable to the
Class A shares and 1.00% of the average daily net assets attributable to the
Class C shares. AIM Distributors has voluntarily agreed to limit the Class A
shares plan payments to 0.25% for three years beginning August 4, 1997. The
Fund, pursuant to the Class B Plan, pays AIM Distributors compensation at an
annual rate of 1.00% of the average daily net assets attributable to the Class B
shares. Of these amounts, the Fund may pay a service fee of 0.25% of the average
daily net assets of the Class A, Class B or Class C shares to selected dealers
and financial institutions who furnish continuing personal shareholder services
to their customers who purchase and own the appropriate class of shares of the
Fund. Any amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. The Plans also impose a cap on the total sales
charges, including asset-based sales charges, that may be paid by the respective
classes. During the year ended December 31, 1998, for the Class A and Class C
shares and the period March 3, 1998 (date sales commenced) through December 31,
1998 for the Class B shares, the Class A, Class B and Class C shares paid AIM
Distributors $90,214, $10,941 and $6,365,011, respectively, as compensation
under the Plans. During the year ended December 31, 1998, AIM Distributors
waived fees of $36,086 for the Class A shares.
AIM Distributors received commissions of $33,479 from sales of Class A shares
of the Fund during the year ended December 31, 1998. 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 year ended December 31, 1998,
AIM Distributors received commissions of $100,172 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.
The combined effect of the advisory agreements, operating services agreement
and the distribution plan for the Fund is to place a cap or ceiling on the total
annual 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 year ended December 31, 1998, the Fund paid legal fees of $4,762
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-8
<PAGE> 149
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-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $1,000,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. Interest on
borrowings under the line of credit is payable on maturity or prepayment date.
Prior to an amendment of the line of credit on May 1, 1998, the Fund was limited
to borrowing up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. During the year ended December 31, 1998, the Fund did
not borrow under the line of credit agreement. The funds which are party to the
line of credit are charged a commitment fee of 0.05% on the unused balance of
the committed line. The commitment fee is allocated among the funds based on
their respective average net assets for the period.
NOTE 5-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended December 31, 1998 was
$232,418,225 and $222,893,137, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of December 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $222,128,397
- --------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (16,396,947)
- --------------------------------------------------------------------------
Net unrealized appreciation of investment securities $205,731,450
==========================================================================
</TABLE>
Investments have the same cost for tax and financial statement purposes.
NOTE 6-CAPITAL STOCK
Changes in the Fund's capital stock outstanding during the years ended December
31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997*
-------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Sold:
Class A 1,076,842 $ 22,390,887 1,255,277 $ 24,015,843
- --------------------------------------------------------------------------------------------------------------------
Class B** 175,059 3,648,126 -- --
- --------------------------------------------------------------------------------------------------------------------
Class C 5,318,582 109,967,149 4,707,789 86,294,017
- --------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Class A 223,596 4,399,200 42,162 821,435
- --------------------------------------------------------------------------------------------------------------------
Class B** 14,140 277,225 -- --
- --------------------------------------------------------------------------------------------------------------------
Class C 3,067,888 60,325,811 1,120,103 21,660,078
- --------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (266,823) (5,484,230) (23,298) (459,389)
- --------------------------------------------------------------------------------------------------------------------
Class B** (10,191) (209,632) -- --
- --------------------------------------------------------------------------------------------------------------------
Class C (5,531,566) (114,890,208) (4,738,134) (88,378,594)
- --------------------------------------------------------------------------------------------------------------------
4,067,527 $ 80,424,328 2,363,899 $ 43,953,390
====================================================================================================================
</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 B shares commenced sales on March 3, 1998.
FS-9
<PAGE> 150
NOTE 7-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A capital stock
outstanding during each of the years in the two-year period ended December 31,
1998, for a share of Class B capital stock outstanding during the period March
3, 1998 (date sales commenced) through December 31, 1998, and for a share of
Class C capital stock outstanding during each of the years in the five-year
period ended December 31, 1998.
<TABLE>
<CAPTION>
CLASS A(a) CLASS B
----------------------- ------------
1998 1997(b) 1998
------- ------------ ------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 19.74 $ 16.63 $ 20.69
- ------------------------------------------------------------ ------- ---------- ----------
Income from investment operations:
Net investment income 0.39 0.41(c) 0.22
- ------------------------------------------------------------ ------- ---------- ----------
Net gains on securities (both realized and unrealized) 2.16 3.63 1.22
- ------------------------------------------------------------ ------- ---------- ----------
Total from investment operations 2.55 4.04 1.44
- ------------------------------------------------------------ ------- ---------- ----------
Less distributions:
Dividends from net investment income (0.39) (0.43) (0.23)
- ------------------------------------------------------------ ------- ---------- ----------
Distributions from net realized gains (1.84) (0.50) (1.84)
- ------------------------------------------------------------ ------- ---------- ----------
Total distributions (2.23) (0.93) (2.07)
- ------------------------------------------------------------ ------- ---------- ----------
Net asset value, end of period $ 20.06 $ 19.74 $ 20.06
- ------------------------------------------------------------ ------- ---------- ----------
Total return(d) 13.26% 24.60% 7.25%
- ------------------------------------------------------------ ------- ---------- ----------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $46,286 $ 25,151 $ 3,592
- ------------------------------------------------------------ ------- ---------- ----------
Ratio of expenses to average net assets(e) 1.23%(f) 1.45% 2.00%(f)(g)
- ------------------------------------------------------------ ------- ---------- ----------
Ratio of net investment income to average net assets(h) 1.99%(f) 2.34% 1.22%(f)(g)
- ------------------------------------------------------------ ------- ---------- ----------
Portfolio turnover rate 34% 17% 34%
- ------------------------------------------------------------ ------- ---------- ----------
</TABLE>
<TABLE>
<S> <C>
(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 and for periods less than one
year is not annualized.
(e) After fee waivers and/or expense reimbursements. Ratio of
expenses to average net assets prior to fee waivers and/or
expense reimbursements were 1.52% and 1.55% for 1998-1997
for Class A and 2.19% (annualized) for 1998 for Class B.
(f) Ratios are based on average net assets of $36,085,767 and
$1,313,596 for Class A and Class B, respectively.
(g) Annualized.
(h) After fee waivers and/or expense reimbursements. Ratio of
net investment income to average net assets prior to fee
waivers and/or expense reimbursements were 1.70% and 2.24%
for 1998-1997 for Class A and 1.03% (annualized) for 1998
for Class B.
</TABLE>
<TABLE>
<CAPTION>
CLASS C(a)
----------------------------------------------------------
1998 1997(b) 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 19.74 $ 16.63 $ 15.66 $ 12.63 $ 13.54
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.25 0.30(c) 0.30 0.32 0.32
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Net gains (losses) on securities (both realized and
unrealized) 2.14 3.60 1.81 3.09 (0.23)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total from investment operations 2.39 3.90 2.11 3.41 0.09
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.23) (0.29) (0.29) (0.32) (0.31)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Distributions from net realized gains (1.84) (0.50) (0.85) (0.06) (0.69)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total distributions (2.07) (0.79) (1.14) (0.38) (1.00)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Net asset value, end of period $ 20.06 $ 19.74 $ 16.63 $ 15.66 $ 12.63
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total return(d) 12.41% 23.64% 13.61% 27.30% 0.64%
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $670,256 $603,179 $489,918 $399,162 $243,848
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Ratio of expenses to average net assets 2.00%(e)(f) 2.20% 2.26% 2.28% 2.25%
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Ratio of net investment income to average net assets 1.22%(f)(g) 1.59% 1.81% 2.28% 2.32%
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Portfolio turnover rate 34% 17% 26% 5% 36%
- ------------------------------------------------------------ -------- -------- -------- -------- ---------
</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 to
average net assets prior to fee waivers and/or expense reimbursements were
2.19% for 1998.
(f) Ratios are based on average net assets of $636,501,142.
(g) After fee waivers and/or expense reimbursements. Ratios of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 1.03% for 1998.
FS-10
<PAGE> 151
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
AIM Advisor International Value Fund:
We have audited the accompanying statement of assets and
liabilities of AIM Advisor International Value Fund (a
portfolio of AIM Advisor Funds, Inc.), including the
schedule of investments, as of December 31, 1998, and the
related statement of operations, the statement of changes
in net assets, and the financial highlights for the year
then ended. These financial statements and financial
highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion
on these financial statements and the financial
highlights based on our audit. The accompanying statement
of changes in net assets for the year ended December 31,
1997 and the financial highlights for 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, were audited by other auditors whose
report thereon dated February 5, 1998, expressed an
unqualified opinion on such statement and financial
highlights.
We conducted our audit in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and
financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of
securities owned as of December 31, 1998, by
correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the 1998 financial statements and
financial highlights referred to above present fairly, in
all material respects, the financial position of AIM
Advisor International Value Fund as of December 31, 1998,
the results of its operations, the changes in its net
assets and the financial highlights for the year then
ended, in conformity with generally accepted accounting
principles.
KPMG LLP
Houston, Texas
February 5, 1999
FS-11
<PAGE> 152
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FOREIGN STOCKS-95.70%
ARGENTINA-1.62%
YPF Sociedad Anonima-ADR
(Oil-International Integrated) 80,000 $ 2,235,000
- -------------------------------------------------------------
AUSTRALIA-5.73%
National Australia Bank Ltd.-ADR
(Banks-Regional) 45,000 3,349,688
- -------------------------------------------------------------
News Corp. Ltd. (The)
(Publishing-Newspapers) 400,000 2,640,238
- -------------------------------------------------------------
Rio Tinto Ltd.-ADR (Metals Mining) 40,000 1,899,456
- -------------------------------------------------------------
7,889,382
- -------------------------------------------------------------
DENMARK-4.13%
Den Danske Bank-ADR (Banks-Money
Center) 25,000 3,358,552
- -------------------------------------------------------------
Novo-Nordisk A.S.-ADR (Health
Care-Drugs-Major Pharmaceuticals) 35,000 2,327,500
- -------------------------------------------------------------
5,686,052
- -------------------------------------------------------------
FRANCE-6.28%
Elf Aquitaine S.A.-ADR
(Oil-International Integrated) 30,000 1,698,750
- -------------------------------------------------------------
Groupe Danone-ADR (Foods) 60,000 3,375,000
- -------------------------------------------------------------
Societe Generale (Banks-Major
Regional) 110,000 3,564,264
- -------------------------------------------------------------
8,638,014
- -------------------------------------------------------------
GERMANY-7.79%
BASF A.G.-ADR (Chemicals-Diversified) 75,000 2,863,972
- -------------------------------------------------------------
Bayer A.G.-ADR
(Chemicals-Diversified) 55,000 2,296,729
- -------------------------------------------------------------
Deutsche Bank A.G.-ADR (Banks-Money
Center) 48,000 2,825,784
- -------------------------------------------------------------
RWE A.G.-ADR
(Manufacturing-Diversified) 50,000 2,739,385
- -------------------------------------------------------------
10,725,870
- -------------------------------------------------------------
ITALY-7.27%
ENI S.p.A.-ADR (Oil-International
Integrated) 32,000 2,168,000
- -------------------------------------------------------------
Istituto Bancario San Paolo di
Torino-ADR (Banks-Major
Regional)(a) 109,725 3,922,669
- -------------------------------------------------------------
Telecom Italia S.p.A.-ADR (Telephone) 45,000 3,915,000
- -------------------------------------------------------------
10,005,669
- -------------------------------------------------------------
JAPAN-10.44%
Canon, Inc.-ADR (Office Equipment &
Supplies) 75,000 1,612,500
- -------------------------------------------------------------
Dai Nippon Printing Co., Ltd.-ADR
(Specialty Printing) 11,000 1,757,323
- -------------------------------------------------------------
Fuji Photo Film-ADR
(Photography/Imaging) 50,000 1,831,250
- -------------------------------------------------------------
Hitachi Ltd.-ADR
(Manufacturing-Diversified) 20,000 1,208,750
- -------------------------------------------------------------
Kirin Brewery Co., Ltd.-ADR
(Beverages-Alcoholic) 23,000 2,846,250
- -------------------------------------------------------------
Kyocera Corp.-ADR
(Beverages-Alcoholic) 28,000 1,454,250
- -------------------------------------------------------------
Nintendo Co. Ltd. (Leisure
Time-Products) 25,000 2,411,931
- -------------------------------------------------------------
Takefuji Corp.
(Financial-Diversified) 17,000 1,241,370
- -------------------------------------------------------------
14,363,624
- -------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
MEXICO-0.71%
Telefonos de Mexico S.A.-ADR
(Telephone) 20,000 $ 973,750
- -------------------------------------------------------------
NETHERLANDS-9.01%
Akzo Nobel N.V.-ADR (Chemicals) 60,000 2,677,500
- -------------------------------------------------------------
ING Groep N.V.-ADR
(Insurance-Life/Health) 55,000 3,420,313
- -------------------------------------------------------------
Royal Dutch Petroleum Co.-New York
Shares (Oil-International
Integrated) 45,000 2,154,375
- -------------------------------------------------------------
Unilever N.V. (Foods) 50,000 4,146,875
- -------------------------------------------------------------
12,399,063
- -------------------------------------------------------------
NORWAY-0.87%
Norsk Hydro A.S.A.-ADR
(Manufacturing-Diversified) 35,000 1,196,562
- -------------------------------------------------------------
PORTUGAL-1.78%
Portugal Telecom S.A.-ADR (Telephone) 55,000 2,454,375
- -------------------------------------------------------------
SPAIN-9.69%
Banco Santander S.A.-ADR
(Banks-Regional) 102,000 2,014,500
- -------------------------------------------------------------
Endesa S.A.-ADR (Electric Companies) 160,000 4,320,000
- -------------------------------------------------------------
Repsol S.A.-ADR (Oil-International
Integrated) 65,000 3,550,625
- -------------------------------------------------------------
Telefonica S.A.-ADR (Telephone) 25,500 3,452,062
- -------------------------------------------------------------
13,337,187
- -------------------------------------------------------------
SWEDEN-3.71%
Astra A.B.-ADR (Health
Care-Drugs-Major Pharmaceutical) 185,000 3,827,187
- -------------------------------------------------------------
Volvo A.B.-ADR (Automobiles) 55,000 1,282,188
- -------------------------------------------------------------
5,109,375
- -------------------------------------------------------------
SWITZERLAND-5.23%
Nestle S.A.-ADR (Foods) 30,000 3,265,428
- -------------------------------------------------------------
Novartis A.G.-ADR (Health
Care-Diversified) 40,000 3,931,620
- -------------------------------------------------------------
7,197,048
- -------------------------------------------------------------
UNITED KINGDOM-21.44%
Associated British Foods PLC-ADR
(Foods) 300,000 2,800,200
- -------------------------------------------------------------
British Airways PLC-ADR (Airlines) 33,000 2,237,813
- -------------------------------------------------------------
British Telecommunications PLC
(Telephone) 30,000 4,550,625
- -------------------------------------------------------------
Carlton Communications PLC-ADR
(Electrical Equipment) 78,000 3,578,250
- -------------------------------------------------------------
Glaxo Wellcome PLC-ADR (Health
Care-Drugs-Major Pharmaceuticals) 50,000 3,475,000
- -------------------------------------------------------------
HSBC Holdings PLC-ADR (Banks-Money
Center) 15,000 3,736,921
- -------------------------------------------------------------
PowerGen PLC-ADR (Electric Companies) 55,000 2,942,500
- -------------------------------------------------------------
Scottish Power PLC (Electric
Companies) 250,000 2,565,558
- -------------------------------------------------------------
</TABLE>
FS-12
<PAGE> 153
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
UNITED KINGDOM-(CONTINUED)
SmithKline Beecham PLC-ADR (Health
Care-Drugs-Major Pharmaceuticals) 20,000 $ 1,390,000
- -------------------------------------------------------------
Unigate PLC (Foods) 310,000 2,233,344
- -------------------------------------------------------------
29,510,211
- -------------------------------------------------------------
Total Foreign Stocks (Cost
$101,385,402) 131,721,182
- -------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
REPURCHASE AGREEMENT-4.29%(b)
SBC Warburg Dillon Read Inc.,
4.75%, 01/04/99(c) (Cost
$5,913,111) $5,913,111 $ 5,913,111
- --------------------------------------------------------------
TOTAL INVESTMENTS-99.99% 137,634,293
- --------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-0.01% 17,635
- --------------------------------------------------------------
NET ASSETS-100.00% $137,651,928
- --------------------------------------------------------------
</TABLE>
Abbreviation:
ADR - American Depositary Receipt
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 ensure its market value is at least 102% of the sale 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 12/31/98 with a maturing value
$1,000,527,778. Collateralized by $2,207,068,000 U.S. Government
obligations, 0% to 6.75% due 06/30/99 to 11/15/21 with an aggregate market
value at 12/31/98 of $1,020,001,079.
See Notes to Financial Statements.
FS-13
<PAGE> 154
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$107,298,513) $137,634,293
- ---------------------------------------------------------
Foreign currencies, at value (cost $21,310) 19,060
- ---------------------------------------------------------
Receivables for:
Capital stock sold 136,224
- ---------------------------------------------------------
Interest and dividends 364,816
- ---------------------------------------------------------
Investment for deferred compensation plan 6,044
- ---------------------------------------------------------
Total assets 138,160,437
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Capital stock reacquired 119,578
- ---------------------------------------------------------
Deferred compensation plan 6,044
- ---------------------------------------------------------
Accrued advisory fees 114,615
- ---------------------------------------------------------
Accrued operating services fees 28,263
- ---------------------------------------------------------
Accrued distribution fees 237,507
- ---------------------------------------------------------
Accrued directors' fees and expenses 2,502
- ---------------------------------------------------------
Total liabilities 508,509
- ---------------------------------------------------------
Net assets applicable to shares outstanding $137,651,928
- ---------------------------------------------------------
NET ASSETS:
Class A $ 28,280,585
=========================================================
Class B $ 4,288,637
=========================================================
Class C $105,082,706
=========================================================
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Class A:
Authorized 100,000,000
- ---------------------------------------------------------
Outstanding 1,707,161
=========================================================
Class B:
Authorized 100,000,000
- ---------------------------------------------------------
Outstanding 260,201
=========================================================
Class C:
Authorized 100,000,000
- ---------------------------------------------------------
Outstanding 6,377,274
=========================================================
Class A:
Net asset value and redemption price per
share $ 16.57
- ---------------------------------------------------------
Offering price per share:
(Net asset value of $16.57
divided by 94.50%) $ 17.53
=========================================================
Class B:
Net asset value and offering price per
share $ 16.48
=========================================================
Class C:
Net asset value and offering price per
share $ 16.48
=========================================================
</TABLE>
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $393,010 foreign
withholding tax) $ 2,707,231
- --------------------------------------------------------
Interest 270,056
- --------------------------------------------------------
Total investment income 2,977,287
- --------------------------------------------------------
EXPENSES:
Advisory fees 1,238,568
- --------------------------------------------------------
Operating services fees 554,160
- --------------------------------------------------------
Distribution fees-Class A 58,205
- --------------------------------------------------------
Distribution fees-Class B 19,718
- --------------------------------------------------------
Distribution fees-Class C 1,052,550
- --------------------------------------------------------
Directors' fees and expenses 8,026
- --------------------------------------------------------
Total expenses 2,931,227
- --------------------------------------------------------
Less: Fees waived by advisor (180,746)
- --------------------------------------------------------
Net expenses 2,750,481
- --------------------------------------------------------
Net investment income 226,806
- --------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN
CURRENCIES:
Net realized gain (loss) from:
Investment securities (5,464,277)
- --------------------------------------------------------
Foreign currencies (29,923)
- --------------------------------------------------------
(5,494,200)
- --------------------------------------------------------
Net unrealized appreciation (depreciation)
of:
Investment securities 15,277,088
- --------------------------------------------------------
Foreign currencies (1,740)
- --------------------------------------------------------
15,275,348
- --------------------------------------------------------
Net gain from investment securities and
foreign currencies 9,781,148
- --------------------------------------------------------
Net increase in net assets resulting from
operations $10,007,954
========================================================
</TABLE>
FS-14
<PAGE> 155
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 226,806 $ 88,685
- -----------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
foreign currencies (5,494,200) 885,467
- -----------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities and
foreign currencies 15,275,348 7,942,380
- -----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 10,007,954 8,916,532
- -----------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (160,712) (4,884)
- -----------------------------------------------------------------------------------------
Class C -- (54,101)
- -----------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains on
investment securities:
Class A (237) (99,400)
- -----------------------------------------------------------------------------------------
Class B (51) --
- -----------------------------------------------------------------------------------------
Class C (1,274) (1,300,488)
- -----------------------------------------------------------------------------------------
Share transactions-net:
Class A 18,784,781 8,386,957
- -----------------------------------------------------------------------------------------
Class B 4,303,232 --
- -----------------------------------------------------------------------------------------
Class C 3,112,106 33,845,537
- -----------------------------------------------------------------------------------------
Net increase in net assets 36,045,799 49,690,153
- -----------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 101,606,129 51,915,976
- -----------------------------------------------------------------------------------------
End of period $137,651,928 $101,606,129
=========================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $113,159,037 $ 86,958,918
- -----------------------------------------------------------------------------------------
Undistributed net investment income 58,330 (25,744)
- -----------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities and foreign currencies (5,899,391) (385,649)
- -----------------------------------------------------------------------------------------
Unrealized appreciation of investment securities and
foreign currencies 30,333,952 15,058,604
- -----------------------------------------------------------------------------------------
$137,651,928 $101,606,129
=========================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Advisor International Value Fund (the "Fund") is a series portfolio of AIM
Advisor Funds, Inc. (the "Company"). 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 five
diversified portfolios. The Fund currently offers three different classes of
shares: Class A shares, Class B shares and Class C shares. Class A shares are
sold with a front-end sales charge. Class B shares and 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. Information presented in these financial statements pertains
only to the Fund. 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.
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. If a mean is not available, as is the case in some
foreign markets, the closing bid will be used absent a last sales price.
Each security traded in the over-the-counter market (but not including
securities reported on the NASDAQ National Market System) is valued at the
mean between the last bid and asked
FS-15
<PAGE> 156
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. The Fund does not separately account for that portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
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. Such dividends are
declared and paid annually. On December 31, 1998 undistributed net
investment income was increased by $17,980 and undistributed net realized
gains was decreased by $17,980 as a result of differing book/tax treatment
of foreign currency transactions and 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. The Fund has a capital loss
carryforward of $5,869,981 (which may be carried forward to offset future
taxable capital gain if any) which expires, if not previously utilized,
through the year 2006.
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.
The Company, pursuant to an operating services agreement with AIM, has agreed
to pay AIM an annual rate of 0.45% of the Fund's average daily net assets for
providing or arranging to provide accounting, legal (except litigation),
dividend disbursing, 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 year ended December 31, 1998, AIM
was paid $390,044 for such services. As of June 1, 1998, AIM has voluntarily
agreed to limit the operating services fees to an annual rate of 0.45% of the
first $50 million of the Fund's average daily net assets and 0.10% of the Fund's
average daily net assets in excess of $50 million. During the period June 1,
1998 through
FS-16
<PAGE> 157
December 31, 1998, AIM voluntarily waived operating services fees in the amount
of $164,116.
The Company has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Company has adopted
distribution plans pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A shares and Class C shares (the "Class A and C Plan"), and the
Fund's Class B shares (the "Class B Plan") (collectively, the "Plans"). The
Fund, pursuant to the Class A and C Plan, pays AIM Distributors compensation at
an annual rate of 0.35% of the average daily net assets attributable to the
Class A shares and 1.00% of the average daily net assets attributable to the
Class C shares. AIM Distributors has voluntarily agreed to limit the Class A
shares plan payments to 0.25% for three years beginning August 4, 1997. The Fund
pursuant to the Class B Plan, pays AIM Distributors compensation at an annual
rate of 1.00% of the average daily net assets attributable to the Class B
shares. Of these amounts, the Fund may pay a service fee of 0.25% of the average
daily net assets of the Class A, Class B or Class C shares to selected dealers
and financial institutions who furnish continuing personal shareholder services
to their customers who purchase and own the appropriate class of shares of the
Fund. Any amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. The Plans also impose a cap on the total sales
charges, including asset-based sales charges that may be paid by the respective
classes. During the year ended December 31, 1998, for the Class A and Class C
shares and the period March 3, 1998 (date sales commenced) through December 31,
1998 for the Class B shares, the Class A, Class B and Class C shares paid AIM
Distributors $41,575, $19,718 and $1,052,550, respectively, as compensation
under the Plans. During the year ended December 31, 1998, AIM Distributors
waived fees of $16,630 for the Class A shares.
AIM Distributors received commissions of $23,552 from sales of Class A shares
of the Fund during the year ended December 31, 1998. 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 year ended December 31, 1998,
AIM Distributors received commissions of $67,046 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.
The combined effect of the advisory agreements, operating services agreement
and the distribution plan for the Fund is to place a cap or ceiling on the total
annual 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 year ended December 31, 1998, the Fund paid legal fees of $3,673
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-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $1,000,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. Interest on
borrowings under the line of credit is payable on maturity or prepayment date.
Prior to an amendment of the line of credit on May 1, 1998, the Fund was limited
to borrowing up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. During the year ended December 31, 1998, the Fund did
not borrow under the line of credit agreement. The funds which are party to the
line of credit are charged a commitment fee of 0.05% on the unused balance of
the committed line. The commitment fee is allocated among the funds based on
their respective average net assets for the period.
NOTE 5-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended December 31, 1998 was
$32,865,421 and $10,102,638, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of December 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment
securities $34,724,754
- ------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (4,388,974)
- ------------------------------------------------------------
Net unrealized appreciation of investment
securities $30,335,780
============================================================
</TABLE>
Investments have the same cost for tax and financial statement purposes.
FS-17
<PAGE> 158
NOTE 6-CAPITAL STOCK
Changes in the Fund's capital stock outstanding during the years ended December
31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997*
------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Sold:
Class A 1,753,054 $ 28,241,964 638,784 $ 9,521,875
- --------------------------------------------------------------------------------------------------------------------
Class B** 309,463 5,088,103 -- --
- --------------------------------------------------------------------------------------------------------------------
Class C 1,767,625 28,826,767 3,118,584 44,774,893
- --------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Class A 9,847 156,574 5,815 92,368
- --------------------------------------------------------------------------------------------------------------------
Class B 3 46 -- --
- --------------------------------------------------------------------------------------------------------------------
Class C 71 1,122 59,331 998,719
- --------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (619,207) (9,613,757) (81,132) (1,227,286)
- --------------------------------------------------------------------------------------------------------------------
Class B** (49,265) (784,917) -- --
- --------------------------------------------------------------------------------------------------------------------
Class C (1,630,166) (25,715,783) (806,643) (11,928,075)
- --------------------------------------------------------------------------------------------------------------------
1,541,425 $ 26,200,119 2,934,739 $ 42,232,494
====================================================================================================================
</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 B Shares commenced sales on March 3, 1998.
FS-18
<PAGE> 159
NOTE 7-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A capital stock
outstanding during each of the years in the two-year period ended December 31,
1998, for a share of Class B capital stock outstanding during the period March
3, 1998 (date sales commenced) through December 31, 1998 and for a share of
Class C capital stock outstanding during each of the years in the three-year
period ended December 31, 1998 and the period May 1, 1995 (date operations
commenced) through December 31, 1995.
<TABLE>
<CAPTION>
CLASS A(a) CLASS B
-------------------------- ------------
1998 1997(B) 1998
------- ------------ ------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 14.99 $13.42 $16.21
- ------------------------------------------------------------ ------- ------ ------
Income from investment operations:
Net investment income 0.09 0.17(c) --
- ------------------------------------------------------------ ------- ------ ------
Net gains on securities (both realized and unrealized) 1.59 1.69 0.27
- ------------------------------------------------------------ ------- ------ ------
Total from investment operations 1.68 1.86 0.27
- ------------------------------------------------------------ ------- ------ ------
Less distributions:
Dividends from net investment income (0.10) (0.07) --
- ------------------------------------------------------------ ------- ------ ------
Distributions from net realized gains -- (0.22) --
- ------------------------------------------------------------ ------- ------ ------
Total distributions (0.10) (0.29) --
- ------------------------------------------------------------ ------- ------ ------
Net asset value, end of period $ 16.57 $14.99 $16.48
- ------------------------------------------------------------ ------- ------ ------
Total return(d) 11.20% 13.84% 1.67%
- ------------------------------------------------------------ ------- ------ ------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $28,281 $8,444 $4,289
- ------------------------------------------------------------ ------- ------ ------
Ratio of expenses to average net assets(e) 1.57%(f) 1.71% 2.32%(f)(g)
- ------------------------------------------------------------ ------- ------ ------
Ratio of net investment income to average net assets(h) 0.84%(f) 0.83% 0.09%(f)(g)
- ------------------------------------------------------------ ------- ------ ------
Portfolio turnover rate 9% 9% 9%
- ------------------------------------------------------------ ------- ------ ------
</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 and is not annualized for periods less than
one year.
(e) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.81% and 1.81% for 1998-1997 for Class A and 2.46% (annualized) for 1998
for Class B.
(f) Ratios are based on average net assets of $16,630,080 and $2,367,422 for
Class A and Class B, respectively.
(g) Annualized.
(h) After fee waivers and/or expense reimbursements. Ratios of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursements were 0.60% and 0.73% for 1998-1997 for Class A and (0.05)%
(annualized) for 1998 for Class B.
<TABLE>
<CAPTION>
CLASS C(a)
--------------------------------------------------
1998 1997(b) 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 14.93 $ 13.42 $ 11.13 $ 10.00
- ------------------------------------------------------------ -------- -------- -------- --------
Income from investment operations:
Net investment income (loss) --(c) 0.01(c) (0.01) --
- ------------------------------------------------------------ -------- -------- -------- --------
Net gains on securities (both realized and unrealized) 1.55 1.73 2.34 1.13
- ------------------------------------------------------------ -------- -------- -------- --------
Total from investment operations 1.55 1.74 2.33 1.13
- ------------------------------------------------------------ -------- -------- -------- --------
Less distributions:
Dividends from net investment income -- (0.01) -- --
- ------------------------------------------------------------ -------- -------- -------- --------
Distributions from net realized gains -- (0.22) (0.04) --
- ------------------------------------------------------------ -------- -------- -------- --------
Total distributions -- (0.23) (0.04) --
- ------------------------------------------------------------ -------- -------- -------- --------
Net asset value, end of period $ 16.48 $ 14.93 $ 13.42 $ 11.13
- ------------------------------------------------------------ -------- -------- -------- --------
Total return(d) 10.38% 12.98% 20.99% 11.28%
- ------------------------------------------------------------ -------- -------- -------- --------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $105,083 $ 93,162 $ 51,916 $ 9,467
- ------------------------------------------------------------ -------- -------- -------- --------
Ratio of expenses to average net assets(e) 2.32%(f) 2.46% 2.50% 2.50%(g)
- ------------------------------------------------------------ -------- -------- -------- --------
Ratio of net investment income (loss) to average net
assets(h) 0.09%(f) 0.08% (0.16)% 0.03%(g)
- ------------------------------------------------------------ -------- -------- -------- --------
Portfolio turnover rate 9% 9% 5% 2%
- ------------------------------------------------------------ -------- -------- -------- --------
</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 is not annualized for
periods less than one year.
(e) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
2.46% for 1998.
(f) Ratios are based on average net assets of $105,254,958.
(g) Annualized
(h) After fee waivers and/or expense reimbursements. Ratios of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursements were (0.05)% for 1998.
FS-19
<PAGE> 160
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
AIM Advisor Large Cap Value Fund:
We have audited the accompanying statement of assets and
liabilities of AIM Advisor Large Cap Value Fund (a
portfolio of AIM Advisor Funds, Inc.), including the
schedule of investments, as of December 31, 1998, and the
related statement of operations, the statement of changes
in net assets, and the financial highlights for the year
then ended. These financial statements and financial
highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion
on these financial statements and the financial
highlights based on our audit. The accompanying statement
of changes in net assets for the year ended December 31,
1997 and the financial highlights for each of the years
in the four-year period ended December 31, 1997, were
audited by other auditors whose report thereon dated
February 5, 1998, expressed an unqualified opinion on
such statement and financial highlights.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and
financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of
securities owned as of December 31, 1998, by
correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial presentation. We believe
that our audit provides a reasonable basis for our
opinion.
In our opinion, the 1998 financial statements and
financial highlights referred to above present fairly, in
all material respects, the financial position of AIM
Advisor Large Cap Value Fund as of December 31, 1998, the
results of its operations, the changes in its net assets
and the financial highlights for the year then ended, in
conformity with generally accepted accounting principles.
KPMG LLP
Houston, Texas
February 5, 1999
FS-20
<PAGE> 161
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS-97.45%
AEROSPACE/DEFENSE-1.00%
Lockheed Martin Corp. 24,360 $ 2,064,510
- --------------------------------------------------------------
AIRLINES-1.45%
Southwest Airlines Co. 132,450 2,971,846
- --------------------------------------------------------------
AUTOMOBILES-1.40%
DaimlerChrysler AG 30,000 2,881,875
- --------------------------------------------------------------
BANKS (MAJOR REGIONAL)-3.70%
Bank One Corp. 69,660 3,557,013
- --------------------------------------------------------------
National City Corp. 56,000 4,060,000
- --------------------------------------------------------------
7,617,013
- --------------------------------------------------------------
BANKS (MONEY CENTER)-4.25%
BankAmerica Corp. 45,674 2,746,150
- --------------------------------------------------------------
Chase Manhattan Corp. (The) 34,500 2,348,156
- --------------------------------------------------------------
First Union Corp. 60,000 3,648,750
- --------------------------------------------------------------
8,743,056
- --------------------------------------------------------------
BANKS (REGIONAL)-0.95%
Commerce Bancshares, Inc. 45,990 1,954,575
- --------------------------------------------------------------
BEVERAGES (ALCOHOLIC)-0.73%
Anheuser-Busch Companies, Inc. 23,000 1,509,375
- --------------------------------------------------------------
BEVERAGES (NON-ALCOHOLIC)-1.03%
PepsiCo, Inc. 51,600 2,112,375
- --------------------------------------------------------------
CHEMICALS-0.63%
Dow Chemical Co. (The) 14,300 1,300,407
- --------------------------------------------------------------
COMPUTERS (HARDWARE)-4.71%
Compaq Computer Corp. 67,900 2,847,557
- --------------------------------------------------------------
International Business Machines
Corp. 16,500 3,048,375
- --------------------------------------------------------------
Sun Microsystems, Inc.(a) 44,300 3,793,188
- --------------------------------------------------------------
9,689,120
- --------------------------------------------------------------
COMPUTERS (SOFTWARE &
SERVICES)-4.07%
Computer Associates International,
Inc. 56,000 2,387,000
- --------------------------------------------------------------
Electronic Data Systems Corp. 52,200 2,623,050
- --------------------------------------------------------------
Oracle Corp.(a) 78,100 3,368,063
- --------------------------------------------------------------
8,378,113
- --------------------------------------------------------------
CONSTRUCTION (CEMENT &
AGGREGATES)-1.66%
Vulcan Materials Co. 25,900 3,407,468
- --------------------------------------------------------------
CONSUMER (JEWELRY, NOVELTIES &
GIFTS)-0.62%
American Greetings Corp.-Class A 31,000 1,272,937
- --------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH)-2.07%
SUPERVALU, INC. 152,000 4,256,000
- --------------------------------------------------------------
ELECTRIC COMPANIES-3.16%
DTE Energy Co. 35,000 1,500,625
- --------------------------------------------------------------
GPU, Inc. 35,000 1,546,563
- --------------------------------------------------------------
Southern Co. 70,000 2,034,375
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ELECTRIC COMPANIES-(CONTINUED)
Teco Energy, Inc. 50,000 $ 1,409,375
- --------------------------------------------------------------
6,490,938
- --------------------------------------------------------------
ELECTRICAL EQUIPMENT-2.51%
Emerson Electric Co. 30,000 1,876,875
- --------------------------------------------------------------
General Electric Co. 32,200 3,286,412
- --------------------------------------------------------------
5,163,287
- --------------------------------------------------------------
ELECTRONICS (COMPONENT
DISTRIBUTORS)-0.55%
W.W. Grainger, Inc. 27,000 1,123,875
- --------------------------------------------------------------
ELECTRONICS (DEFENSE)-1.02%
Raytheon Co. 39,400 2,098,050
- --------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-6.25%
American General Corp. 48,600 3,790,800
- --------------------------------------------------------------
Fannie Mae 50,000 3,700,000
- --------------------------------------------------------------
MGIC Investment Corp. 44,000 1,751,750
- --------------------------------------------------------------
Morgan Stanley, Dean Witter,
Discover & Co. 50,750 3,603,250
- --------------------------------------------------------------
12,845,800
- --------------------------------------------------------------
FOODS-1.61%
H.J. Heinz Co. 58,350 3,304,068
- --------------------------------------------------------------
HEALTH CARE (DIVERSIFIED)-3.50%
Abbott Laboratories 71,200 3,488,800
- --------------------------------------------------------------
American Home Products Corp. 65,800 3,705,363
- --------------------------------------------------------------
7,194,163
- --------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC &
OTHER)-0.77%
Mylan Laboratories, Inc. 50,000 1,575,000
- --------------------------------------------------------------
HEALTH CARE (DRUGS-MAJOR
PHARMACEUTICALS)-4.24%
Merck & Co., Inc. 25,900 3,825,106
- --------------------------------------------------------------
Schering-Plough Corp. 88,400 4,884,100
- --------------------------------------------------------------
8,709,206
- --------------------------------------------------------------
HOUSEHOLD FURNITURE AND
APPLIANCES-1.17%
Maytag Corp. 38,600 2,402,850
- --------------------------------------------------------------
HOUSEHOLD PRODUCTS
(NON-DURABLES)-1.00%
Kimberly-Clark Corp. 37,900 2,065,550
- --------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-1.99%
Jefferson-Pilot Corp. 36,000 2,700,000
- --------------------------------------------------------------
Torchmark Corp. 39,700 1,401,906
- --------------------------------------------------------------
4,101,906
- --------------------------------------------------------------
INSURANCE (MULTI-LINE)-0.62%
Loews Corp. 13,000 1,277,250
- --------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY)-4.01%
Allstate Corp. (The) 45,000 1,738,125
- --------------------------------------------------------------
General Re Corp.(a)>) 13,500 3,363,727
- --------------------------------------------------------------
Old Republic International Corp. 60,000 1,350,000
- --------------------------------------------------------------
</TABLE>
FS-21
<PAGE> 162
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
INSURANCE
(PROPERTY-CASUALTY)-(CONTINUED)
SAFECO Corp. 42,000 $ 1,803,375
- --------------------------------------------------------------
8,255,227
- --------------------------------------------------------------
IRON & STEEL-0.93%
Nucor Corp. 44,000 1,903,000
- --------------------------------------------------------------
MACHINERY (DIVERSIFIED)-0.85%
Dover Corp. 48,000 1,758,000
- --------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-2.52%
Hanson PLC-ADR (United Kingdom) 61,000 2,379,000
- --------------------------------------------------------------
Illinois Tool Works Inc. 17,000 986,000
- --------------------------------------------------------------
Textron, Inc. 24,000 1,822,500
- --------------------------------------------------------------
5,187,500
- --------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-1.09%
Federal Signal Corp. 82,000 2,244,750
- --------------------------------------------------------------
METALS MINING-0.25%
Phelps Dodge Corp. 10,100 513,839
- --------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES-1.05%
Pitney Bowes, Inc. 32,600 2,153,637
- --------------------------------------------------------------
OIL (INTERNATIONAL INTEGRATED)-6.68%
Amoco Corp. 45,400 2,741,025
- --------------------------------------------------------------
Exxon Corp. 52,000 3,802,500
- --------------------------------------------------------------
Repsol S.A.-ADR (Spain) 60,000 3,277,500
- --------------------------------------------------------------
Royal Dutch Petroleum Co.-New York
Shares-ADR (Netherlands) 40,400 1,934,150
- --------------------------------------------------------------
YPF Sociedad Anonima-ADR (Argentina) 70,900 1,980,770
- --------------------------------------------------------------
13,735,945
- --------------------------------------------------------------
PHOTOGRAPHY/IMAGING-1.49%
Xerox Corp. 26,000 3,068,000
- --------------------------------------------------------------
PUBLISHING (NEWSPAPERS)-1.54%
Gannett Co., Inc. 48,000 3,177,000
- --------------------------------------------------------------
RAILROADS-0.83%
GATX Corp. 25,000 946,875
- --------------------------------------------------------------
Norfolk Southern Corp. 24,000 760,500
- --------------------------------------------------------------
1,707,375
- --------------------------------------------------------------
RETAIL (BUILDING SUPPLIES)-3.19%
Lowe's Companies, Inc. 79,000 4,043,813
- --------------------------------------------------------------
Sherwin-Williams Co. 85,400 2,508,625
- --------------------------------------------------------------
6,552,438
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (DEPARTMENT STORES)-1.14%
J.C. Penney Co., Inc. 50,000 $ 2,343,750
- --------------------------------------------------------------
RETAIL (DRUG STORES)-1.35%
Rite Aid Corp. 55,900 2,770,543
- --------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-1.60%
Limited, Inc. (The) 113,000 3,291,125
- --------------------------------------------------------------
SERVICES (COMMERCIAL &
CONSUMER)-2.05%
Dun & Bradstreet Corp. (The) 125,000 3,945,313
- --------------------------------------------------------------
Waddell & Reed Financial, Inc. 2,258 53,486
- --------------------------------------------------------------
Waddell & Reed Financial, Inc.-Class
B 9,722 226,036
- --------------------------------------------------------------
4,224,835
- --------------------------------------------------------------
SPECIALTY PRINTING-1.33%
Deluxe Corp. 75,000 2,742,187
- --------------------------------------------------------------
TELEPHONE-3.37%
Ameritech Corp. 25,000 1,584,375
- --------------------------------------------------------------
Bell Atlantic Corp. 25,000 1,420,313
- --------------------------------------------------------------
Telefonos de Mexico S.A.-ADR
(Mexico) 40,800 1,986,450
- --------------------------------------------------------------
US West, Inc. 30,000 1,938,750
- --------------------------------------------------------------
6,929,888
- --------------------------------------------------------------
TEXTILES (APPAREL)-1.33%
VF Corp. 58,500 2,742,187
- --------------------------------------------------------------
TOBACCO-3.75%
Philip Morris Companies, Inc. 48,500 2,594,750
- --------------------------------------------------------------
UST, Inc. 147,000 5,126,626
- --------------------------------------------------------------
7,721,376
- --------------------------------------------------------------
WASTE MANAGEMENT-0.44%
Browning-Ferris Industries, Inc. 32,100 912,843
- --------------------------------------------------------------
Total Common Stocks (Cost $123,395,128) 200,446,058
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
REPURCHASE AGREEMENT-2.06%(b)
SBC Warburg Dillon Read, Inc.,
4.75%, 01/04/99(c) (Cost
$4,238,817) $4,238,817 4,238,817
- --------------------------------------------------------------
TOTAL INVESTMENTS-99.51% 204,684,875
- --------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-0.49% 1,003,333
- --------------------------------------------------------------
NET ASSETS-100.00% $205,688,208
==============================================================
</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 daily to
ensure its market value is at least 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.
(c) Joint repurchase agreement entered into 12/31/98 with a maturing value of
$1,000,527,778. Collateralized by $2,207,068,000 U.S. Government
obligations, 0% to 6.75% due 06/30/99 to 11/15/21 with an aggregate market
value at 12/31/98 of $1,020,001,079.
Abbreviation:
ADR - American Depositary Receipt
See Notes to Financial Statements.
FS-22
<PAGE> 163
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$127,633,945) $204,684,875
- ---------------------------------------------------------
Receivables for:
Investments sold 1,646,315
- ---------------------------------------------------------
Capital stock sold 179,131
- ---------------------------------------------------------
Interest and dividends 227,786
- ---------------------------------------------------------
Investment for deferred compensation plan 6,268
- ---------------------------------------------------------
Other assets 7,473
- ---------------------------------------------------------
Total assets 206,751,848
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Capital stock reacquired 452,659
- ---------------------------------------------------------
Deferred compensation plan 6,268
- ---------------------------------------------------------
Accrued advisory fees 128,722
- ---------------------------------------------------------
Accrued operating services fees 32,189
- ---------------------------------------------------------
Accrued distribution fees 429,703
- ---------------------------------------------------------
Accrued directors' fees and expenses 14,099
- ---------------------------------------------------------
Total liabilities 1,063,640
- ---------------------------------------------------------
Net assets applicable to shares outstanding $205,688,208
=========================================================
NET ASSETS:
Class A $ 15,683,734
=========================================================
Class B $ 7,325,026
=========================================================
Class C $182,679,448
=========================================================
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Class A:
Authorized 100,000,000
- ---------------------------------------------------------
Outstanding 622,440
=========================================================
Class B:
Authorized 100,000,000
- ---------------------------------------------------------
Outstanding 292,328
=========================================================
Class C:
Authorized 100,000,000
- ---------------------------------------------------------
Outstanding 7,291,777
=========================================================
Class A:
Net asset value and redemption price per
share $ 25.20
=========================================================
Offering price per share:
(Net asset value of $25.20 divided
by 94.50%) $ 26.67
=========================================================
Class B:
Net asset value and offering price per
share $ 25.06
=========================================================
Class C:
Net asset value and offering price per
share $ 25.05
=========================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $27,237 foreign
withholding tax) $ 3,755,243
- --------------------------------------------------------
Interest 458,728
- --------------------------------------------------------
Total investment income 4,213,971
- --------------------------------------------------------
EXPENSES:
Advisory fees 1,430,336
- --------------------------------------------------------
Operating services fees 858,298
- --------------------------------------------------------
Directors' fees and expenses 9,117
- --------------------------------------------------------
Distribution fees-Class A 38,204
- --------------------------------------------------------
Distribution fees-Class B 35,283
- --------------------------------------------------------
Distribution fees-Class C 1,763,061
- --------------------------------------------------------
Total expenses 4,134,299
- --------------------------------------------------------
Less: Fees waived by advisor (303,604)
- --------------------------------------------------------
Net expenses 3,830,695
- --------------------------------------------------------
Net investment income 383,276
- --------------------------------------------------------
REALIZED AND UNREALIZED GAIN FROM
INVESTMENT SECURITIES:
Net realized gain from investment
securities 13,666,132
- --------------------------------------------------------
Net unrealized appreciation of investment
securities 9,514,639
- --------------------------------------------------------
Net gain on investment securities 23,180,771
- --------------------------------------------------------
Net increase in net assets resulting from
operations $23,564,047
========================================================
</TABLE>
See Notes to Financial Statements.
FS-23
<PAGE> 164
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 383,276 $ 45,808
- -----------------------------------------------------------------------------------------
Net realized gain from investment securities 13,666,132 17,674,268
- -----------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities 9,514,639 24,024,117
- -----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 23,564,047 41,744,193
- -----------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (63,186) (6,926)
- -----------------------------------------------------------------------------------------
Class B (4,659) --
- -----------------------------------------------------------------------------------------
Class C (130,140) (10,706)
- -----------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains on
investment securities:
Class A (1,168,568) (415,931)
- -----------------------------------------------------------------------------------------
Class B (558,881) --
- -----------------------------------------------------------------------------------------
Class C (14,182,679) (17,806,373)
- -----------------------------------------------------------------------------------------
Share transactions-net:
Class A 10,506,884 5,055,769
- -----------------------------------------------------------------------------------------
Class B 7,500,215 --
- -----------------------------------------------------------------------------------------
Class C 2,997,348 11,252,055
- -----------------------------------------------------------------------------------------
Net increase in net assets 28,460,381 39,812,081
- -----------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 177,227,827 137,415,746
- -----------------------------------------------------------------------------------------
End of period $205,688,208 $177,227,827
=========================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $127,632,168 $105,927,721
- -----------------------------------------------------------------------------------------
Undistributed net investment income 210,789 5,961
- -----------------------------------------------------------------------------------------
Undistributed net realized gain from investment securities 794,321 3,757,854
- -----------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 77,050,930 67,536,291
- -----------------------------------------------------------------------------------------
$205,688,208 $177,227,827
=========================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Advisor Large Cap Value Fund (the "Fund") is a series portfolio of AIM
Advisor Funds, Inc. (the "Company"). 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 five
diversified portfolios. The Fund currently offers three different classes of
shares: Class A shares, Class B shares and Class C shares. Class A shares are
sold with a front-end sales charge. Class B shares and 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. Information presented in these financial statements pertains
only to the Fund. 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.
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
FS-24
<PAGE> 165
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 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. Such dividends are
declared and paid quarterly. On December 31, 1998 additional paid in capital
increased $700,000, undistributed net investment income was increased
$19,537 and undistributed net realized gains decreased by $719,537 as a
result of equalization credits and 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
reclassification discussed above.
C. Federal Income Taxes-The Fund intends to comply with the requirements of the
Internal Revenue Code necessary to qualify as a regulated investment company
and, as such, will not be subject to federal income taxes on otherwise
taxable income (including net realized capital gains) which is distributed
to shareholders. Therefore, no provision for federal income taxes is
recorded in the financial statements.
D. Expenses-Distribution expenses directly attributable to a class of shares
are charged to that class' operations. All other expenses 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.
The Company, pursuant to an operating services agreement with AIM, has agreed
to pay AIM an annual rate of 0.45% of the Fund's average daily net assets 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
year ended December 31, 1998, AIM was paid $565,610 for such services. As of
June 1, 1998, AIM has voluntarily agreed to limit the operating services fees to
an annual rate of 0.45% of the first $50 million of the Fund's average daily net
assets and 0.10% of the Fund's average daily net assets in excess of $50
million. During the period June 1, 1998 through December 31, 1998, AIM
voluntarily waived operating services fees in the amount of $292,688.
The Company has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Company has adopted
distribution plans pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A shares and Class C shares (the "Class A and C Plan"), and the
Fund's Class B shares (the "Class B Plan") (collectively, the "Plans"). The
Fund, pursuant to the Class A and C Plan, pays AIM Distributors compensation at
an annual rate of 0.35% of the average daily net assets attributable to the
Class A shares and 1.00% of the average daily net assets attributable to the
Class C shares. AIM Distributors has voluntarily agreed to limit the Class A
shares plan payments to 0.25% for three years beginning August 4, 1997. The
Fund, pursuant to the Class B Plan, pays AIM Distributors compensation at an
annual rate of 1.00% of the average daily net assets attributable to the Class B
shares. Of these amounts, the Fund may pay a service fee of 0.25% of the average
daily net assets of the Class A, Class B or Class C shares to selected dealers
and financial institutions who furnish continuing personal shareholder services
to their customers who purchase and own the appropriate class of shares of the
Fund. Any amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. The Plans also impose a cap on the total sales
charges, including asset-based sales charges, that may be paid by the respective
classes. During the year ended December 31, 1998, for the Class A and Class C
shares and the period March 3, 1998 (date sales commenced) through December 31,
1998 for the Class B shares, the Class A, Class B and Class C shares paid AIM
Distributors $27,288, $35,283 and $1,763,060, respectively, as compensation
under the Plans. During the year ended December 31, 1998, AIM Distributors
waived fees of $10,916 for the Class A shares.
AIM Distributors received commissions of $32,564 from sales of Class A shares
of the Fund during the year ended December 31, 1998. 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 year ended December 31, 1998,
AIM Distributors received commissions of $34,868 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.
FS-25
<PAGE> 166
The combined effect of the advisory agreements, operating services agreement
and the distribution plan for the Fund is to place a cap or ceiling on the total
annual 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
$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 year ended December 31, 1998, the Fund paid legal fees of $3,813
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-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $1,000,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. Interest on
borrowings under the line of credit is payable on maturity or prepayment date.
Prior to an amendment of the line of credit on May 1, 1998, the Fund was limited
to borrowing up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. During the year ended December 31, 1998, the Fund did
not borrow under the line of credit agreement. The funds which are party to the
line of credit are charged a commitment fee of 0.05% on the unused balance of
the committed line. The commitment fee is allocated among the funds based on
their respective average net assets for the period.
NOTE 5-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended December 31, 1998, was
$99,685,561 and $94,791,863, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of December 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment
securities $78,415,322
- -------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (1,364,392)
- -------------------------------------------------------------
Net unrealized appreciation of investment
securities $77,050,930
=============================================================
Investments have the same cost for tax and financial
statement purposes.
</TABLE>
NOTE 6-CAPITAL STOCK
Changes in the Fund's capital stock outstanding during the years ended December
31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997*
------------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Sold:
Class A 546,830 $ 13,836,246 198,806 $ 4,859,057
- --------------------------------------------------------------------------
Class B** 312,678 8,015,582 -- --
- --------------------------------------------------------------------------
Class C 745,155 18,894,552 745,080 17,246,229
- --------------------------------------------------------------------------
Issued as
reinvestment of
dividends:
Class A 48,828 1,187,383 15,389 365,541
- --------------------------------------------------------------------------
Class B 20,082 485,925 -- --
- --------------------------------------------------------------------------
Class C 553,152 13,379,377 683,868 16,255,395
- --------------------------------------------------------------------------
Reacquired:
Class A (180,617) (4,516,745) (6,796) (168,829)
- --------------------------------------------------------------------------
Class B** (40,432) (1,001,292) -- --
- --------------------------------------------------------------------------
Class C (1,159,833) (29,276,581) (955,477) (22,249,569)
- --------------------------------------------------------------------------
845,843 $ 21,004,447 680,870 $ 16,307,824
==========================================================================
</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 B shares commenced sales on March 3, 1998.
FS-26
<PAGE> 167
NOTE 7-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A capital stock
outstanding during each of the years in the two-year period ended December 31,
1998, for a share of Class B capital stock outstanding during the period March
3, 1998 (date sales commenced) through December 31, 1998, and for a share of
Class C capital stock outstanding during each of the years in the five-year
period ended December 31, 1998.
<TABLE>
<CAPTION>
CLASS A(a) CLASS B
------------------ -------
1998 1997(b) 1998
------- ------- -------
<S> <C> <C> <C>
Net asset value, beginning of period $ 24.11 $20.57 $25.59
- ------------------------------------------------------------ ------- ------ ------
Income from investment operations:
Net investment income 0.20(c) 0.23(c) 0.02
- ------------------------------------------------------------ ------- ------ ------
Net gains on securities (both realized and unrealized) 3.11 6.17 1.57
- ------------------------------------------------------------ ------- ------ ------
Total from investment operations 3.31 6.40 1.59
- ------------------------------------------------------------ ------- ------ ------
Less distributions:
Dividends from net investment income (0.12) (0.15) (0.02)
- ------------------------------------------------------------ ------- ------ ------
Distributions from net realized gains (2.10) (2.71) (2.10)
- ------------------------------------------------------------ ------- ------ ------
Total distributions (2.22) (2.86) (2.12)
- ------------------------------------------------------------ ------- ------ ------
Net asset value, end of period $ 25.20 $24.11 $25.06
============================================================ ======= ====== ======
Total return(d) 14.07% 31.66% 6.51%
============================================================ ======= ====== ======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $15,684 $5,000 $7,325
============================================================ ======= ====== ======
Ratio of expenses to average net assets(e) 1.30%(f) 1.46% 2.05%(f)(g)
============================================================ ======= ====== ======
Ratio of net investment income to average net assets(h) 0.91%(f) 0.77% 0.16%(f)(g)
============================================================ ======= ====== ======
Portfolio turnover rate 52% 34% 52%
============================================================ ======= ====== ======
</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 and is not annualized for periods less than
one year.
(e) After fee waivers and/or reimbursements. Ratios of expenses to average net
assets prior to fee waivers and/or reimbursement were 1.55% and 1.56% for
1998-1997 for Class A and 2.20% (annualized) for 1998 for Class B.
(f) Ratios are based on average net assets of $10,915,560 and $4,236,305 for
Class A and Class B, respectively.
(g) Annualized.
(h) After fee waivers and/or reimbursements. Ratios of net investment income to
average net assets prior to fee waivers and/or reimbursement were 0.66% and
0.67% for 1998-1997 for Class A and 0.01% (annualized) for 1998 for Class B.
<TABLE>
<CAPTION>
CLASS C(a)
--------------------------------------------------------
1998 1997(b) 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 24.08 $ 20.57 $ 17.60 $ 13.96 $ 14.90
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.04 0.01(c) 0.05 0.10 0.09
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Net gains on securities (both realized and unrealized) 3.05 6.21 2.97 4.11 0.32
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total from investment operations 3.09 6.22 3.02 4.21 0.41
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.02) -- (0.05) (0.10) (0.09)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Distributions from net realized gains (2.10) (2.71) -- (0.47) (1.26)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total distributions (2.12) (2.71) (0.05) (0.57) (1.35)
============================================================ ======== ======== ======== ======== ========
Net asset value, end of period $ 25.05 $ 24.08 $ 20.57 $ 17.60 $ 13.96
============================================================ ======== ======== ======== ======== ========
Total return(d) 13.15% 30.66% 17.17% 30.28% 2.69%
============================================================ ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $182,679 $172,228 $137,416 $113,573 $ 77,929
============================================================ ======== ======== ======== ======== ========
Ratio of expenses to average net assets 2.05%(e)(f) 2.21% 2.26% 2.28% 2.25%
============================================================ ======== ======== ======== ======== ========
Ratio of net investment income to average net assets 0.16%(f)(g) 0.02% 0.24% 0.64% 0.61%
============================================================ ======== ======== ======== ======== ========
Portfolio turnover rate 52% 34% 19% 17% 21%
============================================================ ======== ======== ======== ======== ========
</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 reimbursements. Ratios of expenses to average net
assets prior to fee waivers and/or reimbursement were 2.20% for 1998.
(f) Ratios are based on average net assets of $176,305,963.
(g) After fee waivers and/or reimbursements. Ratios of net investment income to
average net assets prior to fee waivers and/or reimbursement were 0.01% for
1998.
FS-27
<PAGE> 168
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
AIM Advisor Multiflex Fund:
We have audited the accompanying statement of assets and
liabilities of AIM Advisor Multiflex Fund (a portfolio of
AIM Advisor Funds, Inc.), including the schedule of
investments, as of December 31, 1998, and the related
statement of operations, the statement of changes in net
assets, and the financial highlights for the year then
ended. These financial statements and financial
highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion
on these financial statements and financial highlights
based on our audit. The accompanying statement of changes
in net assets for the year ended December 31, 1997 and
the financial highlights for each of the years in the
four-year period ended December 31, 1997, were audited by
other auditors whose report thereon dated February 5,
1998, expressed an unqualified opinion on such statement
and financial highlights.
We conducted our audit in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and
financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of
securities owned as of December 31, 1998, by
correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the 1998 financial statements and
financial highlights referred to above present fairly, in
all material respects, the financial position of AIM
Advisor Multiflex Fund as of December 31, 1998, the
results of its operations, the changes in its net assets
and the financial highlights for the year then ended, in
conformity with generally accepted accounting principles.
KPMG LLP
Houston, Texas
February 5, 1999
FS-28
<PAGE> 169
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS & OTHER EQUITY
INTERESTS-95.63%
AEROSPACE/DEFENSE-0.45%
BE Aerospace, Inc.(a) 15,900 $ 333,900
- --------------------------------------------------------------
Precision Castparts Corp. 19,500 862,875
- --------------------------------------------------------------
Sequa Corp.(a) 5,500 329,312
- --------------------------------------------------------------
1,526,087
- --------------------------------------------------------------
AGRICULTURAL PRODUCTS-0.12%
Universal Corp. 11,600 407,450
- --------------------------------------------------------------
AIR FREIGHT-0.13%
Airborne Freight Corp. 11,900 429,143
- --------------------------------------------------------------
AIRLINES-0.98%
Alaska Air Group, Inc.(a) 12,600 557,550
- --------------------------------------------------------------
British Airways PLC-ADR (United
Kingdom) 19,000 1,288,437
- --------------------------------------------------------------
SkyWest, Inc. 8,300 271,306
- --------------------------------------------------------------
Southwest Airlines Co. 52,350 1,174,603
- --------------------------------------------------------------
3,291,896
- --------------------------------------------------------------
AUTO PARTS & EQUIPMENT-0.53%
Arvin Industries, Inc. 17,500 729,531
- --------------------------------------------------------------
Borg-Warner Automotive, Inc. 14,600 814,863
- --------------------------------------------------------------
Standard Products Co. (The) 11,400 232,275
- --------------------------------------------------------------
1,776,669
- --------------------------------------------------------------
AUTOMOBILES-0.57%
Ford Motor Co. 16,600 974,213
- --------------------------------------------------------------
Volvo A.B.-ADR (Sweden) 40,000 932,500
- --------------------------------------------------------------
1,906,713
- --------------------------------------------------------------
BANKS (MAJOR REGIONAL)-2.66%
ABN Amro Holding NV-ADR
(Netherlands) 100,000 2,175,000
- --------------------------------------------------------------
Bank One Corp. 27,540 1,406,261
- --------------------------------------------------------------
Istituto Bancario San Paolo di
Torino-ADR (Italy)(a) 70,537 2,521,698
- --------------------------------------------------------------
Societe Generale (France) 69,000 2,235,766
- --------------------------------------------------------------
Wachovia Corp. 7,000 612,063
- --------------------------------------------------------------
8,950,788
- --------------------------------------------------------------
BANKS (MONEY CENTER)-2.83%
BankAmerica Corp. 21,662 1,302,428
- --------------------------------------------------------------
Chase Manhattan Corp. (The) 13,800 939,263
- --------------------------------------------------------------
Den Danske Bank-ADR (Denmark) 17,000 2,283,816
- --------------------------------------------------------------
Deutsche Bank A.G.-ADR (Germany) 33,000 1,942,726
- --------------------------------------------------------------
First Union Corp. 13,000 790,563
- --------------------------------------------------------------
HSBC Holdings PLC-ADR (United
Kingdom) 9,000 2,242,153
- --------------------------------------------------------------
9,500,949
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
BANKS (REGIONAL)-2.11%
Commerce Bancorp, Inc. 15,625 $ 820,313
- --------------------------------------------------------------
Commerce Bancshares, Inc. 16,380 696,150
- --------------------------------------------------------------
Cullen/Frost Bankers, Inc. 11,600 636,550
- --------------------------------------------------------------
Firstbank Corp. 18,000 543,375
- --------------------------------------------------------------
GBC Bancorp 11,900 306,425
- --------------------------------------------------------------
HUBCO, Inc. 14,832 446,814
- --------------------------------------------------------------
Imperial Bancorp(a) 39,100 650,038
- --------------------------------------------------------------
Independent Bank Corp. 16,600 288,425
- --------------------------------------------------------------
National Australia Bank Ltd.-ADR
(Australia) 30,000 2,233,125
- --------------------------------------------------------------
Republic Bancorp, Inc. 6,700 91,287
- --------------------------------------------------------------
Silicon Valley Bancshares(a) 9,200 156,687
- --------------------------------------------------------------
Trustmark Corp. 9,900 223,987
- --------------------------------------------------------------
7,093,176
- --------------------------------------------------------------
BEVERAGES (ALCOHOLIC)-0.91%
Canandaigua Wine Co., Inc.-Class
A(a) 12,000 693,750
- --------------------------------------------------------------
Compania Cervecerias Unidas
S.A.-ADR (Chile) 45,000 866,250
- --------------------------------------------------------------
Kirin Brewery Co., Ltd.-ADR (Japan) 12,000 1,485,000
- --------------------------------------------------------------
3,045,000
- --------------------------------------------------------------
BEVERAGES (NON-ALCOHOLIC)-0.30%
PepsiCo, Inc. 24,750 1,013,203
- --------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO &
CABLE)-0.12%
Adelphia Communications Corp.(a) 9,100 416,325
- --------------------------------------------------------------
BUILDING MATERIALS-0.42%
Cameron Ashley Building Products(a) 12,700 165,894
- --------------------------------------------------------------
Cemex S.A. de C.V.-ADR (Mexico) 110,000 543,895
- --------------------------------------------------------------
Nortek, Inc.(a) 7,000 193,375
- --------------------------------------------------------------
TJ International, Inc. 20,400 524,025
- --------------------------------------------------------------
1,427,189
- --------------------------------------------------------------
CHEMICALS-0.59%
Akzo Nobel N.V.-ADR (Netherlands) 40,000 1,785,000
- --------------------------------------------------------------
NL Industries, Inc. 14,500 205,719
- --------------------------------------------------------------
1,990,719
- --------------------------------------------------------------
CHEMICALS (DIVERSIFIED)-1.07%
BASF A.G.-ADR (Germany) 50,000 1,909,315
- --------------------------------------------------------------
Bayer A.G.-ADR (Germany) 40,000 1,670,348
- --------------------------------------------------------------
3,579,663
- --------------------------------------------------------------
CHEMICALS (SPECIALTY)-0.27%
Dexter Corp. 28,800 905,400
- --------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-0.11%
Polycom, Inc.(a) 17,100 380,475
- --------------------------------------------------------------
</TABLE>
FS-29
<PAGE> 170
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (HARDWARE)-1.15%
Compaq Computer Corp. 22,000 $ 922,625
- --------------------------------------------------------------
International Business Machines
Corp. 6,500 1,200,875
- --------------------------------------------------------------
Micron Electronics, Inc.(a) 11,800 204,287
- --------------------------------------------------------------
Sun Microsystems, Inc.(a) 17,800 1,524,125
- --------------------------------------------------------------
3,851,912
- --------------------------------------------------------------
COMPUTERS (NETWORKING)-0.14%
META Group, Inc.(a) 16,100 478,975
- --------------------------------------------------------------
COMPUTERS (PERIPHERALS)-0.49%
Jabil Circuit, Inc.(a) 3,600 268,650
- --------------------------------------------------------------
MICROS Systems, Inc.(a) 8,800 289,300
- --------------------------------------------------------------
Network Appliance, Inc.(a) 18,600 837,000
- --------------------------------------------------------------
Xircom, Inc.(a) 7,200 244,800
- --------------------------------------------------------------
1,639,750
- --------------------------------------------------------------
COMPUTERS (SOFTWARE &
SERVICES)-1.80%
Aspect Development, Inc.(a) 8,900 394,381
- --------------------------------------------------------------
BroadVision, Inc.(a) 11,300 361,600
- --------------------------------------------------------------
Computer Associates International,
Inc. 23,000 980,375
- --------------------------------------------------------------
Electronic Data Systems Corp. 20,000 1,005,000
- --------------------------------------------------------------
Hyperion Solutions Corp.(a) 8,930 160,740
- --------------------------------------------------------------
Legato Systems, Inc.(a) 7,800 514,312
- --------------------------------------------------------------
Lycos, Inc.(a) 9,800 544,513
- --------------------------------------------------------------
Mastech Corp.(a) 8,500 243,312
- --------------------------------------------------------------
Oracle Corp.(a) 30,000 1,293,750
- --------------------------------------------------------------
Progress Software Corp.(a) 8,400 283,500
- --------------------------------------------------------------
Rational Software Corp.(a) 10,500 278,250
- --------------------------------------------------------------
6,059,733
- --------------------------------------------------------------
CONSTRUCTION (CEMENT & AGGREGATES)-0.77%
Centex Construction Products, Inc. 20,600 836,875
- --------------------------------------------------------------
Lone Star Industries, Inc. 8,200 301,862
- --------------------------------------------------------------
Vulcan Materials Co. 11,000 1,447,188
- --------------------------------------------------------------
2,585,925
- --------------------------------------------------------------
CONSUMER (JEWELRY, NOVELTIES & GIFTS)-0.15%
American Greetings Corp.-Class A 12,400 509,175
- --------------------------------------------------------------
CONSUMER FINANCE-0.33%
Doral Financial Corp. 34,700 767,738
- --------------------------------------------------------------
Flagstar Bancorp, Inc. 12,500 326,563
- --------------------------------------------------------------
1,094,301
- --------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH)-0.77%
AmeriSource Health Corp.-Class A(a) 12,600 819,000
- --------------------------------------------------------------
Bindley Western Industries, Inc. 24,666 1,214,801
- --------------------------------------------------------------
SUPERVALU, INC 20,000 560,000
- --------------------------------------------------------------
2,593,801
- --------------------------------------------------------------
ELECTRIC COMPANIES-3.43%
CILCORP, Inc. 5,500 336,531
- --------------------------------------------------------------
Cleco Corp. 13,500 463,219
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ELECTRIC COMPANIES-(CONTINUED)
CMP Group Inc. 16,000 $ 302,000
- --------------------------------------------------------------
Commonwealth Energy System 10,400 421,200
- --------------------------------------------------------------
DTE Energy Co. 26,700 1,144,763
- --------------------------------------------------------------
Endesa S.A.-ADR (Spain) 90,000 2,430,000
- --------------------------------------------------------------
Hawaiian Electric Industries, Inc. 15,200 611,800
- --------------------------------------------------------------
Interstate Energy Corp. 20,355 656,449
- --------------------------------------------------------------
Minnesota Power & Light Co. 8,300 365,200
- --------------------------------------------------------------
PowerGen PLC-ADR (United Kingdom) 35,000 1,872,500
- --------------------------------------------------------------
Scottish Power PLC-ADR (United
Kingdom) 40,000 1,652,500
- --------------------------------------------------------------
SIGCORP, Inc. 10,950 390,778
- --------------------------------------------------------------
Southern Co. 30,000 871,875
- --------------------------------------------------------------
11,518,815
- --------------------------------------------------------------
ELECTRICAL EQUIPMENT-2.31%
C & D Technologies, Inc. 11,600 319,000
- --------------------------------------------------------------
Carlton Communications PLC-ADR
(United Kingdom) 48,000 2,202,000
- --------------------------------------------------------------
Emerson Electric Co. 14,400 900,900
- --------------------------------------------------------------
Esterline Technologies Corp.(a) 16,300 354,525
- --------------------------------------------------------------
General Cable Corp. 29,100 596,550
- --------------------------------------------------------------
General Electric Co. 11,000 1,122,688
- --------------------------------------------------------------
Matsushita Electric Industrial Co.,
Ltd.-ADR (Japan) 8,000 1,396,000
- --------------------------------------------------------------
Pinnacle Systems, Inc.(a) 7,500 268,125
- --------------------------------------------------------------
Recoton Corp.(a) 21,500 385,656
- --------------------------------------------------------------
Technitrol, Inc. 7,100 226,312
- --------------------------------------------------------------
7,771,756
- --------------------------------------------------------------
ELECTRONICS (COMPONENT DISTRIBUTORS)-0.55%
Kyocera Corp.-ADR (Japan) 35,600 1,848,975
- --------------------------------------------------------------
ELECTRONICS (DEFENSE)-0.32%
Raytheon Co. 20,000 1,065,000
- --------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS)-0.54%
Applied Micro Circuits Corp.(a) 11,500 390,641
- --------------------------------------------------------------
Dallas Semiconductor Corp. 9,300 378,975
- --------------------------------------------------------------
PMC-Sierra, Inc.(a) 10,000 631,250
- --------------------------------------------------------------
TranSwitch Corp.(a) 10,300 401,056
- --------------------------------------------------------------
1,801,922
- --------------------------------------------------------------
ENGINEERING & CONSTRUCTION-0.15%
Granite Construction Inc. 2,100 70,481
- --------------------------------------------------------------
Stone & Webster, Inc. 12,700 422,275
- --------------------------------------------------------------
492,756
- --------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-1.84%
American General Corp. 19,900 1,552,200
- --------------------------------------------------------------
Associates First Capital
Corp.-Class A 16,000 678,000
- --------------------------------------------------------------
Citigroup Inc. 22,035 1,090,733
- --------------------------------------------------------------
Fannie Mae 24,300 1,798,200
- --------------------------------------------------------------
</TABLE>
FS-30
<PAGE> 171
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FINANCIAL (DIVERSIFIED)-(CONTINUED)
Morgan Stanley, Dean Witter,
Discover & Co. 14,850 $ 1,054,350
- --------------------------------------------------------------
6,173,483
- --------------------------------------------------------------
FOODS-3.91%
Associated British Foods PLC-ADR
(United Kingdom) 200,000 1,866,800
- --------------------------------------------------------------
Earthgrains Co. (The) 20,000 618,750
- --------------------------------------------------------------
Groupe Danone-ADR (France) 40,000 2,250,000
- --------------------------------------------------------------
H.J. Heinz Co. 19,000 1,075,875
- --------------------------------------------------------------
Nestle S.A.-ADR (Switzerland) 22,000 2,394,647
- --------------------------------------------------------------
Pilgrim's Pride Corp.-Class B 13,500 269,156
- --------------------------------------------------------------
Smithfield Foods, Inc.(a) 17,000 575,875
- --------------------------------------------------------------
Unigate PLC (Spain) 200,000 1,437,540
- --------------------------------------------------------------
Unilever N.V. (Netherlands) 32,000 2,654,000
- --------------------------------------------------------------
13,142,643
- --------------------------------------------------------------
GAMING, LOTTERY & PARIMUTUEL
COMPANIES-0.10%
Grand Casinos, Inc.(a) 42,300 341,044
- --------------------------------------------------------------
GOLD & PRECIOUS METALS MINING-0.10%
Stillwater Mining Co.(a) 7,800 319,800
- --------------------------------------------------------------
HEALTH CARE (DIVERSIFIED)-1.70%
Abbott Laboratories 29,500 1,445,500
- --------------------------------------------------------------
American Home Products Corp. 22,000 1,238,875
- --------------------------------------------------------------
Bristol-Myers Squibb Co. 15,900 2,127,619
- --------------------------------------------------------------
Johnson & Johnson 10,800 905,850
- --------------------------------------------------------------
5,717,844
- --------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC &
OTHER)-0.66%
Agouron Pharmaceuticals, Inc.(a) 6,500 381,875
- --------------------------------------------------------------
Alpharma, Inc.-Class A 30,100 1,062,906
- --------------------------------------------------------------
MedImmune, Inc.(a) 3,700 367,919
- --------------------------------------------------------------
Parexel International Corp.(a) 7,100 177,500
- --------------------------------------------------------------
Roberts Pharmaceutical Corp.(a) 10,500 228,375
- --------------------------------------------------------------
2,218,575
- --------------------------------------------------------------
HEALTH CARE (DRUGS-MAJOR
PHARMACEUTICALS)-3.27%
Astra A.B.-ADR (Sweden) 110,000 2,275,625
- --------------------------------------------------------------
Glaxo Wellcome PLC (United Kingdom) 20,000 1,390,000
- --------------------------------------------------------------
Merck & Co., Inc. 10,400 1,535,950
- --------------------------------------------------------------
Novartis A.G.-ADR (Switzerland) 26,666 2,621,014
- --------------------------------------------------------------
Novo-Nordisk A.S.-ADR (Denmark) 20,000 1,330,000
- --------------------------------------------------------------
Schering-Plough Corp. 33,000 1,823,250
- --------------------------------------------------------------
10,975,839
- --------------------------------------------------------------
HEALTH CARE (MANAGED CARE)-0.31%
Express Scripts, Inc.-Class A(a) 15,600 1,047,150
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES)-1.01%
Biomatrix, Inc.(a) 5,800 $ 337,850
- --------------------------------------------------------------
Biomet, Inc. 19,500 784,875
- --------------------------------------------------------------
MiniMed, Inc.(a) 3,600 377,100
- --------------------------------------------------------------
ResMed, Inc.(a) 14,400 653,400
- --------------------------------------------------------------
Theragenics Corp.(a) 41,500 697,719
- --------------------------------------------------------------
VISX, Inc.(a) 3,400 297,287
- --------------------------------------------------------------
West Co, Inc. (The) 6,800 242,675
- --------------------------------------------------------------
3,390,906
- --------------------------------------------------------------
HEALTH CARE (SPECIALIZED
SERVICES)-0.35%
Covance, Inc.(a) 18,600 541,725
- --------------------------------------------------------------
Hanger Orthopedic Group, Inc.(a) 15,700 353,250
- --------------------------------------------------------------
Hooper Holmes, Inc. 9,600 278,400
- --------------------------------------------------------------
1,173,375
- --------------------------------------------------------------
HOMEBUILDING-0.52%
M.D.C. Holdings, Inc. 19,700 421,088
- --------------------------------------------------------------
NVR Inc.(a) 16,700 796,381
- --------------------------------------------------------------
Pulte Corp. 8,500 236,406
- --------------------------------------------------------------
U.S. Home Corp.(a) 9,000 299,250
- --------------------------------------------------------------
1,753,125
- --------------------------------------------------------------
HOUSEHOLD FURNITURE &
APPLIANCES-0.31%
Furniture Brands International,
Inc.(a) 14,300 389,675
- --------------------------------------------------------------
Whirlpool Corp. 11,500 636,812
- --------------------------------------------------------------
1,026,487
- --------------------------------------------------------------
HOUSEHOLD PRODUCTS
(NON-DURABLES)-0.29%
Kimberly-Clark Corp. 18,000 981,000
- --------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-0.67%
Delphi Financial Group, Inc. 10,852 569,052
- --------------------------------------------------------------
ING Groep N.V.-ADR (Netherlands) 21,000 1,305,937
- --------------------------------------------------------------
Presidential Life Corp. 18,900 375,637
- --------------------------------------------------------------
2,250,626
- --------------------------------------------------------------
INSURANCE (MULTI-LINE)-0.40%
American International Group, Inc. 7,837 757,250
- --------------------------------------------------------------
Century Business Services, Inc.(a) 18,200 261,625
- --------------------------------------------------------------
FBL Financial Group, Inc. 13,400 324,950
- --------------------------------------------------------------
1,343,825
- --------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY)-0.98%
Fidelity National Financial, Inc. 11,220 342,210
- --------------------------------------------------------------
First American Financial Corp.
(The) 17,200 552,550
- --------------------------------------------------------------
LandAmerica Financial Group, Inc. 14,800 826,025
- --------------------------------------------------------------
Old Republic International Corp. 23,000 517,500
- --------------------------------------------------------------
Orion Capital Corp. 26,000 1,035,125
- --------------------------------------------------------------
3,273,410
- --------------------------------------------------------------
</TABLE>
FS-31
<PAGE> 172
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
INSURANCE BROKERS-0.34%
Marsh & McLennan Co. 12,075 $ 705,633
- --------------------------------------------------------------
Poe & Brown, Inc. 12,300 429,731
- --------------------------------------------------------------
1,135,364
- --------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE-0.06%
Advest Group, Inc. 10,800 199,800
- --------------------------------------------------------------
IRON & STEEL-0.69%
AK Steel Holding Corp. 40,700 956,450
- --------------------------------------------------------------
Nucor Corp. 17,000 735,250
- --------------------------------------------------------------
Texas Industries, Inc. 23,000 619,562
- --------------------------------------------------------------
2,311,262
- --------------------------------------------------------------
LEISURE TIME (PRODUCTS)-1.07%
Bally Total Fitness Holding
Corp.(a) 11,600 288,550
- --------------------------------------------------------------
International Speedway Corp.-Class
A 13,100 530,550
- --------------------------------------------------------------
Mattel, Inc. 30,900 704,906
- --------------------------------------------------------------
Nintendo Co. Ltd.-ADR (Japan) 170,000 2,053,481
- --------------------------------------------------------------
3,577,487
- --------------------------------------------------------------
LODGING-HOTELS-0.73%
Crestline Capital Corp.(a) 16,110 235,609
- --------------------------------------------------------------
Host Marriott Corp. 161,100 2,225,194
- --------------------------------------------------------------
2,460,803
- --------------------------------------------------------------
MACHINERY (DIVERSIFIED)-0.76%
Applied Power, Inc.-Class A 15,400 581,350
- --------------------------------------------------------------
Dover Corp. 19,700 721,512
- --------------------------------------------------------------
Manitiwoc Co., Inc. (The) 14,850 658,969
- --------------------------------------------------------------
NACCO Industries, Inc.-Class A 3,000 276,000
- --------------------------------------------------------------
Terex Corp.(a) 11,100 317,044
- --------------------------------------------------------------
2,554,875
- --------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-2.07%
Carlisle Companies, Inc. 8,800 454,300
- --------------------------------------------------------------
GenCorp, Inc. 17,200 428,925
- --------------------------------------------------------------
Hitachi Ltd.-ADR (Japan) 18,000 1,087,875
- --------------------------------------------------------------
IDEX Corp. 13,300 325,850
- --------------------------------------------------------------
Illinois Tool Works Inc. 9,000 522,000
- --------------------------------------------------------------
Norsk Hydro A.S.A.-ADR (Norway) 30,000 1,025,625
- --------------------------------------------------------------
RWE A.G.-ADR (Germany) 32,000 1,753,206
- --------------------------------------------------------------
Textron, Inc. 10,700 812,531
- --------------------------------------------------------------
Tredegar Industries, Inc. 24,550 552,375
- --------------------------------------------------------------
6,962,687
- --------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-1.07%
AptarGroup, Inc. 29,200 819,425
- --------------------------------------------------------------
Federal Signal Corp. 32,300 884,213
- --------------------------------------------------------------
Insituform Technologies, Inc.-Class
A(a) 22,500 326,250
- --------------------------------------------------------------
Superior TeleCom Inc. 12,100 571,725
- --------------------------------------------------------------
York International Corp. 24,600 1,003,988
- --------------------------------------------------------------
3,605,601
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
METAL FABRICATORS-0.06%
Metals USA(a) 19,100 $ 186,225
- --------------------------------------------------------------
METALS MINING-0.44%
Rio Tinto Ltd.-ADR (Australia) 31,000 1,472,078
- --------------------------------------------------------------
NATURAL GAS-0.30%
Energen Corp. 33,000 643,500
- --------------------------------------------------------------
ONEOK, Inc. 10,200 368,475
- --------------------------------------------------------------
1,011,975
- --------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES-0.65%
Knoll, Inc.(a) 16,100 476,963
- --------------------------------------------------------------
Mail-Well, Inc.(a) 22,700 259,631
- --------------------------------------------------------------
Pitney Bowes, Inc. 14,000 924,875
- --------------------------------------------------------------
United Stationers, Inc.(a) 20,000 520,000
- --------------------------------------------------------------
2,181,469
- --------------------------------------------------------------
OIL & GAS (DRILLING &
EQUIPMENT)-0.28%
Marine Drilling Companies, Inc.(a) 21,400 164,512
- --------------------------------------------------------------
Pride International, Inc.(a) 36,300 256,369
- --------------------------------------------------------------
SEACOR Holdings Inc.(a) 5,600 276,850
- --------------------------------------------------------------
Veritas DGC, Inc.(a) 18,500 240,500
- --------------------------------------------------------------
938,231
- --------------------------------------------------------------
OIL & GAS (EXPLORATION &
PRODUCTION)-0.37%
Barrett Resources Corp.(a) 22,800 547,200
- --------------------------------------------------------------
Basin Exploration, Inc.(a) 15,300 192,206
- --------------------------------------------------------------
Evergreen Resources, Inc.(a) 11,500 204,125
- --------------------------------------------------------------
HS Resources, Inc.(a) 38,600 291,913
- --------------------------------------------------------------
1,235,444
- --------------------------------------------------------------
OIL (DOMESTIC INTEGRATED)-0.18%
Atlantic Richfield Co. 9,000 587,250
- --------------------------------------------------------------
OIL (INTERNATIONAL
INTEGRATED)-2.77%
Amoco Corp. 14,000 845,250
- --------------------------------------------------------------
Exxon Corp. 17,400 1,272,375
- --------------------------------------------------------------
Repsol S.A.-ADR (Spain) 48,000 2,622,000
- --------------------------------------------------------------
Royal Dutch Petroleum Co.-New York
Shares (Netherlands) 16,100 770,787
- --------------------------------------------------------------
Shell Transport & Trading Co.-ADR
(United Kingdom) 45,000 1,673,438
- --------------------------------------------------------------
Total S.A.-ADR (France) 20,000 995,000
- --------------------------------------------------------------
YPF Sociedad Anonima-ADR
(Argentina) 40,000 1,117,500
- --------------------------------------------------------------
9,296,350
- --------------------------------------------------------------
OIL & GAS (REFINING &
MARKETING)-0.13%
Tesoro Petroleum Corp.(a) 34,700 420,737
- --------------------------------------------------------------
PHOTOGRAPHY/IMAGING-1.02%
Fuji Photo Film-ADR (Japan) 60,000 2,197,500
- --------------------------------------------------------------
Xerox Corp. 10,500 1,239,000
- --------------------------------------------------------------
3,436,500
- --------------------------------------------------------------
</TABLE>
FS-32
<PAGE> 173
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
PUBLISHING (NEWSPAPERS)-0.94%
Gannett Co., Inc. 11,600 $ 767,775
- --------------------------------------------------------------
Hollinger International, Inc. 31,800 443,213
- --------------------------------------------------------------
McClatchy Newspapers, Inc. 17,300 611,988
- --------------------------------------------------------------
News Corp. Ltd.-ADR (The)
(Australia) 50,000 1,321,875
- --------------------------------------------------------------
3,144,851
- --------------------------------------------------------------
RAILROADS-0.32%
GATX Corp. 19,000 719,625
- --------------------------------------------------------------
Johnstown America Industries,
Inc.(a) 26,400 346,500
- --------------------------------------------------------------
1,066,125
- --------------------------------------------------------------
REAL ESTATE INVESTMENT
TRUSTS-25.22%
Apartment Investment & Management
Co. 24,400 907,375
- --------------------------------------------------------------
Arden Realty Group, Inc. 114,000 2,643,375
- --------------------------------------------------------------
Avalonbay Communities, Inc. 51,300 1,757,025
- --------------------------------------------------------------
Beacon Capital(a) 60,000 952,500
- --------------------------------------------------------------
Bedford Property Investors, Inc. 97,500 1,645,313
- --------------------------------------------------------------
Camden Property Trust 54,589 1,419,314
- --------------------------------------------------------------
CarrAmerica Realty Corp. 138,000 3,312,000
- --------------------------------------------------------------
CBL & Associates Properties, Inc. 75,000 1,935,938
- --------------------------------------------------------------
Charles E. Smith Residential
Realty, Inc. 58,400 1,876,100
- --------------------------------------------------------------
Crescent Real Estate Equities, Co. 59,000 1,357,000
- --------------------------------------------------------------
CRIIMI MAE, Inc. 40,000 140,000
- --------------------------------------------------------------
Eastgroup Properties, Inc. 39,400 726,438
- --------------------------------------------------------------
Equity Office Properties Trust 124,879 2,997,096
- --------------------------------------------------------------
Equity Residential Properties Trust 79,900 3,230,956
- --------------------------------------------------------------
Essex Property Trust, Inc. 76,700 2,281,825
- --------------------------------------------------------------
First Industrial Realty Trust, Inc. 80,500 2,158,406
- --------------------------------------------------------------
Gables Residential Trust 60,100 1,393,569
- --------------------------------------------------------------
General Growth Properties 28,500 1,079,438
- --------------------------------------------------------------
Glenborough Realty Trust, Inc. 62,800 1,279,550
- --------------------------------------------------------------
Highwoods Properties, Inc. 113,800 2,930,350
- --------------------------------------------------------------
Hospitality Properties Trust 60,700 1,464,388
- --------------------------------------------------------------
JDN Realty Corp. 72,000 1,552,500
- --------------------------------------------------------------
Kilroy Realty Corp. 60,700 1,396,100
- --------------------------------------------------------------
Kimco Realty Corp. 40,600 1,611,313
- --------------------------------------------------------------
Koger Equity, Inc. 87,900 1,510,781
- --------------------------------------------------------------
Liberty Property Trust 117,700 2,898,363
- --------------------------------------------------------------
Mack-Cali Realty Corp. 64,200 1,982,175
- --------------------------------------------------------------
Meditrust Corp. 172,900 2,615,112
- --------------------------------------------------------------
MeriStar Hospitality Corp. 110,259 2,046,683
- --------------------------------------------------------------
MGI Properties, Inc. 46,000 1,285,125
- --------------------------------------------------------------
New Plan Excel Realty Trust 95,060 2,109,144
- --------------------------------------------------------------
Pan Pacific Retail Properties, Inc. 35,300 703,794
- --------------------------------------------------------------
Parkway Properties, Inc. 24,900 778,125
- --------------------------------------------------------------
Patriot American Hospitality, Inc. 407,128 2,442,768
- --------------------------------------------------------------
Philips International Realty Corp. 52,400 805,650
- --------------------------------------------------------------
Post Properties, Inc. 22,600 868,687
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
REAL ESTATE INVESTMENT TRUSTS-(CONTINUED)
Prentiss Properties Trust 147,700 $ 3,295,556
- --------------------------------------------------------------
Prime Group Realty Trust 65,500 990,687
- --------------------------------------------------------------
Public Storage, Inc. 97,600 2,641,300
- --------------------------------------------------------------
Realty Income Corp. 36,000 895,500
- --------------------------------------------------------------
Regency Realty Corp. 70,000 1,557,500
- --------------------------------------------------------------
Security Capital U.S. Realty
(Luxembourg)(a) 98,700 977,130
- --------------------------------------------------------------
Shurgard Storage Centers, Inc. 87,700 2,263,756
- --------------------------------------------------------------
Simon Property Group, Inc. 63,600 1,812,600
- --------------------------------------------------------------
SL Green Realty Corp. 65,600 1,418,600
- --------------------------------------------------------------
Starwood Hotels & Resorts 67,150 1,523,466
- --------------------------------------------------------------
Sunstone Hotel Investors, Inc. 135,900 1,282,556
- --------------------------------------------------------------
TriNet Corporate Realty Trust, Inc. 49,900 1,334,825
- --------------------------------------------------------------
Vornado Realty Trust 56,600 1,910,250
- --------------------------------------------------------------
Weeks Corp. 25,600 721,600
- --------------------------------------------------------------
84,719,602
- --------------------------------------------------------------
RESTAURANTS-0.84%
Brinker International, Inc.(a) 27,400 791,175
- --------------------------------------------------------------
Buffets, Inc.(a) 27,900 333,056
- --------------------------------------------------------------
Cheesecake Factory (The)(a) 14,400 427,050
- --------------------------------------------------------------
Consolidated Products, Inc.(a) 20,156 415,723
- --------------------------------------------------------------
McDonald's Corp. 11,300 865,862
- --------------------------------------------------------------
2,832,866
- --------------------------------------------------------------
RETAIL (BUILDING SUPPLIES)-0.57%
Lowe's Companies, Inc. 17,000 870,187
- --------------------------------------------------------------
Sherwin-Williams Co. 35,800 1,051,625
- --------------------------------------------------------------
1,921,812
- --------------------------------------------------------------
RETAIL (DEPARTMENT STORES)-0.20%
J.C. Penney Co., Inc. 14,375 673,828
- --------------------------------------------------------------
RETAIL (DISCOUNTERS)-0.15%
ShopKo Stores, Inc.(a) 15,400 512,050
- --------------------------------------------------------------
RETAIL (DRUG STORES)-0.41%
Rite Aid Corp. 27,900 1,382,794
- --------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE)-0.26%
Wal-Mart Stores, Inc. 10,500 855,094
- --------------------------------------------------------------
RETAIL (HOME SHOPPING)-0.10%
Lands' End, Inc.(a) 11,800 317,862
- --------------------------------------------------------------
RETAIL (SPECIALTY)-0.40%
Footstar, Inc.(a) 15,400 385,000
- --------------------------------------------------------------
Inacom Corp.(a) 21,500 319,813
- --------------------------------------------------------------
Zale Corp.(a) 20,300 654,675
- --------------------------------------------------------------
1,359,488
- --------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-0.44%
American Eagle Outfitters, Inc.(a) 5,400 359,775
- --------------------------------------------------------------
Cato Corp. (The)-Class A 25,700 252,984
- --------------------------------------------------------------
</TABLE>
FS-33
<PAGE> 174
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (SPECIALTY-APPAREL)-(CONTINUED)
Limited, Inc. (The) 30,000 $ 873,750
- --------------------------------------------------------------
1,486,509
- --------------------------------------------------------------
SAVINGS & LOAN COMPANIES-0.87%
Anchor Bancorp Wisconsin, Inc. 10,100 242,400
- --------------------------------------------------------------
Astoria Financial Corp. 7,700 352,275
- --------------------------------------------------------------
Downey Financial Corp. 20,705 526,683
- --------------------------------------------------------------
FirstFed Financial Corp.(a) 33,400 597,025
- --------------------------------------------------------------
TR Financial Corp. 15,900 626,063
- --------------------------------------------------------------
Webster Financial Corp. 13,600 373,150
- --------------------------------------------------------------
WSFS Financial Corp. 12,700 214,312
- --------------------------------------------------------------
2,931,908
- --------------------------------------------------------------
SERVICES
(ADVERTISING/MARKETING)-0.49%
Acxiom Corp.(a) 25,400 787,400
- --------------------------------------------------------------
Metris Companies Inc. 8,643 434,851
- --------------------------------------------------------------
True North Communications, Inc. 16,100 432,687
- --------------------------------------------------------------
1,654,938
- --------------------------------------------------------------
SERVICES (COMMERCIAL &
CONSUMER)-0.75%
Comfort Systems USA, Inc.(a) 29,900 534,463
- --------------------------------------------------------------
Copart, Inc.(a) 9,800 317,275
- --------------------------------------------------------------
DeVry, Inc.(a) 43,000 1,316,875
- --------------------------------------------------------------
Sylvan Learning Systems, Inc.(a) 11,200 341,600
- --------------------------------------------------------------
2,510,213
- --------------------------------------------------------------
SERVICES (COMPUTER SYSTEMS)-0.24%
Banctec, Inc.(a) 21,800 273,863
- --------------------------------------------------------------
Gerber Scientific, Inc. 22,900 545,306
- --------------------------------------------------------------
819,169
- --------------------------------------------------------------
SERVICES (DATA PROCESSING)-0.52%
Computer Horizons Corp.(a) 7,900 210,338
- --------------------------------------------------------------
Lason Holdings, Inc.(a) 14,100 820,444
- --------------------------------------------------------------
MedQuist, Inc.(a) 18,200 718,900
- --------------------------------------------------------------
1,749,682
- --------------------------------------------------------------
SERVICES (EMPLOYMENT)-0.65%
AHL Services, Inc.(a) 8,700 271,875
- --------------------------------------------------------------
Labor Ready, Inc.(a) 18,000 354,375
- --------------------------------------------------------------
Norrell Corp. 20,800 306,800
- --------------------------------------------------------------
ProBusiness Services, Inc.(a) 2,300 104,650
- --------------------------------------------------------------
Romac International, Inc.(a) 27,000 600,750
- --------------------------------------------------------------
StaffMark, Inc.(a) 11,100 248,362
- --------------------------------------------------------------
Syntel, Inc.(a) 26,600 300,913
- --------------------------------------------------------------
2,187,725
- --------------------------------------------------------------
SPECIALTY PRINTING-0.81%
Consolidated Graphics, Inc.(a) 3,300 222,956
- --------------------------------------------------------------
Dai Nippon Printing Co., Ltd.-ADR
(Japan) 9,000 1,437,809
- --------------------------------------------------------------
Deluxe Corp. 28,900 1,056,656
- --------------------------------------------------------------
2,717,421
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TELECOMMUNICATIONS (CELLULAR/
WIRELESS)-0.36%
Centennial Cellular Corp.(a) 18,900 $ 774,900
- --------------------------------------------------------------
Metromedia Fiber Network, Inc.(a) 13,200 442,200
- --------------------------------------------------------------
1,217,100
- --------------------------------------------------------------
TELECOMMUNICATIONS (LONG
DISTANCE)-0.20%
ITC DeltaCom, Inc.(a) 22,500 343,125
- --------------------------------------------------------------
Pacific Gateway Exchange, Inc.(a) 6,700 322,019
- --------------------------------------------------------------
665,144
- --------------------------------------------------------------
TELEPHONE-3.10%
Bell Atlantic Corp. 10,000 568,125
- --------------------------------------------------------------
British Telecommunications PLC
(United Kingdom) 15,000 2,275,313
- --------------------------------------------------------------
Century Telephone Enterprises, Inc. 16,000 1,080,000
- --------------------------------------------------------------
GeoTel Communications Corp.(a) 10,400 387,400
- --------------------------------------------------------------
Portugal Telecom S.A.-ADR
(Portugal) 43,300 1,932,262
- --------------------------------------------------------------
Telecom Italia S.p.A.-ADR (Italy) 30,000 2,610,000
- --------------------------------------------------------------
Telefonica S.A.-ADR (Spain) 6,120 828,495
- --------------------------------------------------------------
Telefonos de Mexico S.A.-ADR
(Mexico) 15,000 730,312
- --------------------------------------------------------------
10,411,907
- --------------------------------------------------------------
TEXTILES (APPAREL)-0.18%
Kellwood Co. 23,800 595,000
- --------------------------------------------------------------
TEXTILES (HOME FURNISHINGS)-0.28%
Interface, Inc. 30,800 285,862
- --------------------------------------------------------------
Springs Industries, Inc.-Class A 15,600 646,425
- --------------------------------------------------------------
932,287
- --------------------------------------------------------------
TEXTILES (SPECIALTY)-0.22%
Burlington Industries, Inc.(a) 52,700 579,700
- --------------------------------------------------------------
Galey & Lord, Inc.(a) 19,200 165,600
- --------------------------------------------------------------
745,300
- --------------------------------------------------------------
TOBACCO-0.34%
Philip Morris Companies, Inc. 21,450 1,147,575
- --------------------------------------------------------------
TRUCKERS-0.22%
Roadway Express, Inc. 22,700 327,731
- --------------------------------------------------------------
Werner Enterprises, Inc. 22,875 404,602
- --------------------------------------------------------------
732,333
- --------------------------------------------------------------
WATER UTILITIES-0.07%
E'Town Corp. 5,100 241,613
- --------------------------------------------------------------
Total Common Stocks (Cost
$273,747,418) 321,189,107
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
CORPORATE BONDS & NOTES-1.54%
BROADCASTING (TELEVISION, RADIO &
CABLE)-0.15%
CSC Holdings, Inc., Sr. Notes,
7.25%, 07/15/08 $ 500,000 $ 515,900
- --------------------------------------------------------------
</TABLE>
FS-34
<PAGE> 175
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
BUILDING MATERIALS-0.18%
USG Corp., Sr. Notes, 8.50%,
08/01/05 $ 550,000 $ 600,363
- --------------------------------------------------------------
CONTAINERS (METAL & GLASS)-0.15%
Owens-Illinois, Inc., Deb., 7.80%,
05/15/18 500,000 506,675
- --------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-0.17%
Tyco International Group S.A.,
Yankee Bonds, 7.00%, 06/15/28 550,000 554,119
- --------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS-0.18%
Highwoods Properties, Sr. Unsec.
Notes, 7.50%, 04/15/18 700,000 619,360
- --------------------------------------------------------------
RETAIL (DEPARTMENT STORES)-0.15%
Neiman Marcus Group, Inc., Sr.
Deb., 7.125%, 06/01/28 500,000 486,050
- --------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/
WIRELESS)-0.30%
Bellsouth Telecommunications, Deb.,
5.85%, 11/15/45 1,000,000 1,012,690
- --------------------------------------------------------------
TELEPHONE-0.26%
GTE Corp., Deb., 10.25%, 11/01/20 790,000 885,149
- --------------------------------------------------------------
Total Corporate Bonds & Notes
(Cost $5,180,748) 5,180,306
- --------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES-1.26%
FEDERAL HOME LOAN MORTGAGE CORP.
("FHLMC")-0.36%
Pass Through Certificates
6.50%, 08/01/03 218,613 226,741
- --------------------------------------------------------------
9.00%, 01/01/05 to 08/15/06 696,417 725,967
- --------------------------------------------------------------
8.00%, 08/01/17 244,872 258,722
- --------------------------------------------------------------
1,211,430
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
FEDERAL NATIONAL MORTGAGE
ASSOCIATION ("FNMA")-0.73%
Pass Through Certificates
9.00%, 12/01/06 $ 590,033 $ 619,346
- --------------------------------------------------------------
8.50%, 06/01/07 579,905 598,931
- --------------------------------------------------------------
5.50%, 02/01/14 410,000 395,266
- --------------------------------------------------------------
7.00%, 01/14/28 830,000 846,859
- --------------------------------------------------------------
2,460,402
- --------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION ("GNMA")-0.17%
Pass Through Certificates
7.00%, 01/16/07 570,096 573,251
- --------------------------------------------------------------
Total U.S. Government Agency
Securities (Cost $4,244,008) 4,245,083
- --------------------------------------------------------------
U.S. TREASURY SECURITIES-1.99%
U.S. TREASURY BOND-0.21%
7.50%, 11/15/16 580,000 720,650
- --------------------------------------------------------------
U.S. TREASURY NOTES-1.78%
7.50%, 11/15/01 3,000,000 3,224,490
- --------------------------------------------------------------
6.25%, 02/15/07 2,500,000 2,741,950
- --------------------------------------------------------------
5,966,440
- --------------------------------------------------------------
Total U.S. Treasury Securities
(Cost $6,646,242) 6,687,090
- --------------------------------------------------------------
REPURCHASE AGREEMENT(b)-0.87%
SBC Warburg Dillon Read, Inc.,
4.75%, 01/04/99(c) (Cost
$2,913,509) 2,913,509 2,913,509
- --------------------------------------------------------------
TOTAL INVESTMENTS-101.29% 340,215,095
- --------------------------------------------------------------
LIABILITIES LESS OTHER
ASSETS-(1.29%) (4,325,554)
- --------------------------------------------------------------
NET ASSETS-100.00% $335,889,541
==============================================================
</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 ensure its market value is at least 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 12/31/98 with a maturing value of
$1,000,527,778. Collateralized by $2,207,068,000 U.S. Government
obligations, 0% to 6.75% due 06/30/99 to 11/15/21 with an aggregate market
value at 12/31/98 of $1,020,001,079.
Abbreviations:
ADR - American Depositary Receipt
Deb. - Debentures
Gtd. - Guaranteed
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
See Notes to Financial Statements.
FS-35
<PAGE> 176
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$292,731,925) $340,215,095
- ---------------------------------------------------------
Receivables for:
Capital stock sold 369,339
- ---------------------------------------------------------
Interest and dividends 1,589,287
- ---------------------------------------------------------
Paydowns 35,226
- ---------------------------------------------------------
Investment for deferred compensation plan 6,914
- ---------------------------------------------------------
Other assets 4,610
- ---------------------------------------------------------
Total assets 342,220,471
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 2,732,192
- ---------------------------------------------------------
Capital stock reacquired 2,506,522
- ---------------------------------------------------------
Deferred compensation plan 6,914
- ---------------------------------------------------------
Accrued advisory fees 283,254
- ---------------------------------------------------------
Accrued operating services fees 43,477
- ---------------------------------------------------------
Accrued distribution fees 734,061
- ---------------------------------------------------------
Accrued directors' fees and expenses 24,510
- ---------------------------------------------------------
Total liabilities 6,330,930
- ---------------------------------------------------------
Net assets applicable to shares outstanding $335,889,541
- ---------------------------------------------------------
NET ASSETS:
Class A $ 16,485,231
=========================================================
Class B $ 7,221,683
=========================================================
Class C $312,182,627
=========================================================
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Class A:
Authorized 100,000,000
- ---------------------------------------------------------
Outstanding 1,225,276
=========================================================
Class B:
Authorized 100,000,000
- ---------------------------------------------------------
Outstanding 535,931
=========================================================
Class C:
Authorized 100,000,000
- ---------------------------------------------------------
Outstanding 23,188,570
=========================================================
Class A:
Net asset value and redemption price per
share $ 13.45
- ---------------------------------------------------------
Offering price per share:
(Net asset value of $13.45
divided by 94.50%) $ 14.23
=========================================================
Class B:
Net asset value and offering price per
share $ 13.48
=========================================================
Class C:
Net asset value and offering price per
share $ 13.46
=========================================================
</TABLE>
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 3,810,775
- --------------------------------------------------------
Dividends (net of $278,923 foreign
withholding tax) 9,401,993
- --------------------------------------------------------
Total investment income 13,212,768
- --------------------------------------------------------
EXPENSES:
Advisory fees 3,855,357
- --------------------------------------------------------
Operating services fees 1,670,511
- --------------------------------------------------------
Distribution fees-Class A 54,320
- --------------------------------------------------------
Distribution fees-Class B 38,874
- --------------------------------------------------------
Distribution fees-Class C 3,661,284
- --------------------------------------------------------
Directors' fees and expenses 11,183
- --------------------------------------------------------
Total expenses 9,291,529
- --------------------------------------------------------
Less: Fees waived (666,698)
- --------------------------------------------------------
Net expenses 8,624,831
- --------------------------------------------------------
Net investment income 4,587,937
- --------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES:
Net realized gain on sales of investment
securities 12,874,380
- --------------------------------------------------------
Net unrealized appreciation (depreciation)
of investment securities (22,961,634)
- --------------------------------------------------------
Net gain (loss) from investment
securities (10,087,254)
- --------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $(5,499,317)
=========================================================
</TABLE>
FS-36
<PAGE> 177
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 4,587,937 $ 3,030,247
- ------------------------------------------------------------------------------------------
Net realized gain on sales of investment securities 12,874,380 28,345,151
- ------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities (22,961,634) 24,205,999
- ------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (5,499,317) 55,581,397
- ------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (307,700) (54,439)
- ------------------------------------------------------------------------------------------
Class B (57,949) --
- ------------------------------------------------------------------------------------------
Class C (3,942,359) (2,620,318)
- ------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains on
investment securities:
Class A (674,979) (574,586)
- ------------------------------------------------------------------------------------------
Class B (277,833) --
- ------------------------------------------------------------------------------------------
Class C (12,255,976) (29,179,585)
- ------------------------------------------------------------------------------------------
Share transactions-net:
Class A 8,660,733 9,196,237
- ------------------------------------------------------------------------------------------
Class B 7,834,101 --
- ------------------------------------------------------------------------------------------
Class C (43,459,114) 86,678,096
- ------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (49,980,393) 119,026,802
- ------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 385,869,934 266,843,132
- ------------------------------------------------------------------------------------------
End of period $335,889,541 $385,869,934
==========================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $287,690,477 $313,154,757
- ------------------------------------------------------------------------------------------
Undistributed net investment income 759,557 479,628
- ------------------------------------------------------------------------------------------
Undistributed net realized gain on sales of investment
securities (43,663) 1,790,745
- ------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 47,483,170 70,444,804
- ------------------------------------------------------------------------------------------
$335,889,541 $385,869,934
==========================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Advisor MultiFlex Fund (the "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 five diversified
portfolios. The Fund currently offers three different classes of shares: Class A
shares, Class B shares and Class C shares. Class A shares are sold with a
front-end sales charge. Class B shares and 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. Information presented in these financial statements pertains only to
the Fund. 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.
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
FS-37
<PAGE> 178
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. Such dividends are
declared and paid quarterly. On December 31, 1998 additional paid-in capital
was increased by $1,500,000 and undistributed net realized gains was
decreased by $1,500,000 as a result of equalization credits and 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 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.
The Company, pursuant to an operating services agreement with AIM, has agreed
to pay AIM an annual rate of 0.45% of the Fund's average daily net assets 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
year ended December 31, 1998, AIM was paid $1,019,333 for such services. As of
June 1, 1998, AIM has voluntarily agreed to limit the operating services fees to
an annual rate of 0.45% of the first $50 million of the Fund's average daily net
assets and 0.10% of the Fund's average daily net assets in excess of $50
million. During the period June 1, 1998 through December 31, 1998, AIM
voluntarily waived operating services fees in the amount of $651,178.
The Company has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Company has adopted
distribution plans pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A shares and Class C shares (the "Class A and C Plan"), and the
Fund's Class B shares (the "Class B Plan") (collectively, the "Plans"). The
Fund, pursuant to the Class A and C Plan, pays AIM Distributors compensation at
an annual rate of 0.35% of the average daily net assets attributable to the
Class A shares and 1.00% of the average daily net assets attributable to the
Class C shares. AIM Distributors has voluntarily agreed to limit the Class A
shares plan payments to 0.25% for three years beginning August 4, 1997. The Fund
pursuant to the Class B Plan, pays AIM Distributors compensation at an annual
rate of 1.00% of the average daily net assets attributable to the Class B
shares. Of these amounts, the Fund may pay a service fee of 0.25% of the average
daily net assets of the Class A, Class B or Class C shares to selected dealers
and financial institutions who furnish continuing personal shareholder services
to their customers who purchase and own the appropriate class of shares of the
Fund. Any amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. The Plans also impose a cap on the total sales
charges, including asset-based sales charges that may be paid by the respective
classes. During the year ended December 31, 1998, for the Class A and Class C
shares and the period March 3, 1998 (date sales commenced) through December 31,
1998 for the Class B shares, the Class A, Class B and Class C shares paid AIM
Distributors $38,800, $38,874 and $3,661,284, respectively, as compensation
under the Plans. During the year ended December 31, 1998, AIM Distributors
waived fees of $15,520 for the Class A shares.
AIM Distributors received commissions of $66,763 from sales of Class A shares
of the Fund during the year ended December 31, 1998. 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 year ended December 31, 1998,
AIM Distributors received commissions of $86,385 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.
FS-38
<PAGE> 179
The combined effect of the advisory agreements, operating services agreement
and the distribution plan for the Fund is to place a cap or ceiling on the total
annual 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 year ended December 31, 1998, the Fund paid legal fees of $4,230
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-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $1,000,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. Interest on
borrowings under the line of credit is payable on maturity or prepayment date.
Prior to an amendment of the line of credit on May 1, 1998, the Fund was limited
to borrowing up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. During the year ended December 31, 1998, the Fund did
not borrow under the line of credit agreement. The funds which are party to the
line of credit are charged a commitment fee of 0.05% on the unused balance of
the committed line. The commitment fee is allocated among the funds based on
their respective average net assets for the period.
NOTE 5-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended December 31, 1998 was
$270,515,961 and $291,512,781, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of December 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $ 72,943,595
- ------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (25,503,273)
- ------------------------------------------------------------
Net unrealized appreciation of investment
securities $ 47,440,322
============================================================
Cost of investments for tax purposes is
$292,774,773.
</TABLE>
NOTE 6-CAPITAL STOCK
Changes in the Fund's capital stock outstanding for the years ended December 31,
1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997*
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Sold:
Class A 898,890 $ 12,964,303 619,395 $ 8,916,997
- ------------------------------------------------------------------------------
Class B** 560,937 8,180,606 -- --
- ------------------------------------------------------------------------------
Class C 3,605,748 52,233,849 6,751,442 95,937,310
- ------------------------------------------------------------------------------
Issued as
reinvestment of
dividends:
Class A 73,100 958,674 44,119 616,050
- ------------------------------------------------------------------------------
Class B** 24,700 321,494 -- --
- ------------------------------------------------------------------------------
Class C 1,187,114 15,552,589 2,197,213 30,337,244
- ------------------------------------------------------------------------------
Reacquired:
Class A (384,926) (5,262,244) (25,302) (336,810)
- ------------------------------------------------------------------------------
Class B** (49,706) (667,999) -- --
- ------------------------------------------------------------------------------
Class C (8,111,162) (111,245,552) (2,756,585) (39,596,458)
- ------------------------------------------------------------------------------
(2,195,305) $ (26,964,280) 6,830,282 $ 95,874,333
==============================================================================
</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 B shares commenced sales on March 3, 1998.
FS-39
<PAGE> 180
NOTE 7-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A capital stock
outstanding during each of the years in the two-year period ended December 31,
1998, for a share of Class B capital stock outstanding during the period March
3, 1998 (date sales commenced) through December 31, 1998 and for a share of
Class C capital stock outstanding during each of the years in the five-year
period ended December 31, 1998.
<TABLE>
<CAPTION>
CLASS A(a) CLASS B
----------------------- ------------
1998 1997(b) 1998
------- ------------ ------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 14.21 $ 13.14 $ 14.79
- ------------------------------------------------------------ ------- ------- -------
Income from investment operations:
Net investment income 0.24 0.23 0.14
- ------------------------------------------------------------ ------- ------- -------
Net gains (losses) on securities (both realized and
unrealized) (0.20) 2.26 (0.75)
- ------------------------------------------------------------ ------- ------- -------
Total from investment operations 0.04 2.49 (0.61)
- ------------------------------------------------------------ ------- ------- -------
Less distributions:
Dividends from net investment income (0.26) (0.22) (0.16)
- ------------------------------------------------------------ ------- ------- -------
Distributions from net realized gains (0.54) (1.20) (0.54)
- ------------------------------------------------------------ ------- ------- -------
Total distributions (0.80) (1.42) (0.70)
- ------------------------------------------------------------ ------- ------- -------
Net asset value, end of period $ 13.45 $ 14.21 $ 13.48
============================================================ ======= ======= =======
Total return(c) 0.51% 19.40% (3.96)%
============================================================ ======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $16,485 $ 9,066 $ 7,222
============================================================ ======= ======= =======
Ratio of expenses to average net assets(d) 1.52%(e) 1.67% 2.27%(e)(f)
============================================================ ======= ======= =======
Ratio of net investment income to average net assets(g) 1.91%(e) 1.67% 1.16%(e)(f)
============================================================ ======= ======= =======
Portfolio turnover rate 72% 62% 72%
============================================================ ======= ======= =======
</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 and are not annualized for periods less than
one year.
(d) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.79% and 1.77% for 1998-1997 for Class A and 2.44% (annualized) for 1998
for Class B.
(e) Ratios are based on average net assets of $15,519,872 and $4,667,498 for
Class A and Class B, respectively.
(f) Annualized.
(g) After fee waivers and/or expense reimbursements. Ratios of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 1.64% and 1.57% for 1998-1997 for Class A and 0.99%
(annualized) for 1998 for Class B.
<TABLE>
<CAPTION>
CLASS C(a)
-----------------------------------------------------
1998 1997(b) 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 14.22 $ 13.14 $ 11.68 $ 9.78 $ 10.04
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.17 0.13 0.14 0.16 0.16
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Net gains (losses) on securities (both realized and
unrealized) (0.23) 2.26 1.83 1.94 (0.26)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total from investment operations (0.06) 2.39 1.97 2.10 (0.10)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.16) (0.11) (0.13) (0.16) (0.16)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Distributions from net realized gains (0.54) (1.20) (0.38) (0.04) --
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total distributions (0.70) (1.31) (0.51) (0.20) (0.16)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Net asset value, end of period $ 13.46 $ 14.22 $ 13.14 $ 11.68 $ 9.78
============================================================ ======== ======== ======== ======== ========
Total return(c) (0.26)% 18.55% 17.03% 21.58% (1.02)%
============================================================ ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $312,183 $376,804 $266,843 $174,592 $120,220
============================================================ ======== ======== ======== ======== ========
Ratio of expenses to average net assets(d) 2.27%(e) 2.42% 2.45% 2.50% 2.49%
============================================================ ======== ======== ======== ======== ========
Ratio of net investment income to average net assets(f) 1.16%(e) 0.92% 1.16% 1.53% 2.01%
============================================================ ======== ======== ======== ======== ========
Portfolio turnover rate 72% 62% 62% 50% 81%
============================================================ ======== ======== ======== ======== ========
</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 and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
2.44%.
(e) Ratios are based on average net assets of $366,128,391.
(f) After fee waivers and/or expense reimbursements. Ratio of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements was 0.99%.
FS-40
<PAGE> 181
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
AIM Advisor Real Estate Fund:
We have audited the accompanying statement of assets and
liabilities of AIM Advisor Real Estate Fund (a portfolio
of AIM Advisor Funds, Inc.), including the schedule of
investments, as of December 31, 1998, and the related
statement of operations, the statement of changes in net
assets, and the financial highlights for the year then
ended. These financial statements and financial
highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion
on these financial statements and the financial
highlights based on our audit. The accompanying statement
of changes in net assets for the year ended December 31,
1997 and the financial highlights for 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, were audited by other auditors whose
report thereon dated February 5, 1998, expressed an
unqualified opinion on such statement and financial
highlights.
We conducted our audit in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and
financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of
securities owned as of December 31, 1998, by
correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the 1998 financial statements and
financial highlights referred to above present fairly, in
all material respects, the financial position of AIM
Advisor Real Estate Fund as of December 31, 1998, the
results of its operations, the changes in its net assets
and the financial highlights for the year then ended, in
conformity with generally accepted accounting principles.
KPMG LLP
Houston, Texas
February 5, 1999
FS-41
<PAGE> 182
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
REAL ESTATE INVESTMENT TRUSTS &
OTHER EQUITY INTERESTS-100.02%
DIVERSIFIED-12.72%
Beacon Capital(a) 55,000 $ 873,125
- --------------------------------------------------------------
Catellus Development Corp.(a) 53,900 771,444
- --------------------------------------------------------------
Crescent Real Estate Equities, Co. 79,000 1,817,000
- --------------------------------------------------------------
Glenborough Realty Trust, Inc. 70,000 1,426,250
- --------------------------------------------------------------
RioCan Real Estate Investment Trust
(Canada) 115,000 706,535
- --------------------------------------------------------------
Security Capital U.S. Realty
(Luxembourg)(a) 74,800 740,520
- --------------------------------------------------------------
Vornado Operating Co.(a) 2,625 21,164
- --------------------------------------------------------------
Vornado Realty Trust 37,500 1,265,625
- --------------------------------------------------------------
7,621,663
- --------------------------------------------------------------
FINANCIAL SERVICES-0.84%
AMRESCO, Inc.(a) 57,850 506,188
- --------------------------------------------------------------
HEALTHCARE (DIVERSIFIED)-1.97%
Meditrust Corp. 78,100 1,181,263
- --------------------------------------------------------------
INDUSTRIAL PROPERTIES-8.03%
Bedford Property Investors, Inc. 46,800 789,750
- --------------------------------------------------------------
Eastgroup Properties, Inc. 21,600 398,250
- --------------------------------------------------------------
First Industrial Realty Trust, Inc. 56,700 1,520,268
- --------------------------------------------------------------
Prime Group Realty Trust 45,200 683,650
- --------------------------------------------------------------
ProLogis Trust 22,500 466,875
- --------------------------------------------------------------
TriNet Corporate Realty Trust, Inc. 35,500 949,625
- --------------------------------------------------------------
4,808,418
- --------------------------------------------------------------
INDUSTRIAL/OFFICE PROPERTIES-3.74%
Liberty Property Trust 72,950 1,796,394
- --------------------------------------------------------------
Reckson Associates Realty Corp. 20,000 443,750
- --------------------------------------------------------------
2,240,144
- --------------------------------------------------------------
LODGING-HOTELS-14.55%
Crestline Capital Corp.(a) 6,260 91,553
- --------------------------------------------------------------
Hospitality Properties Trust 46,400 1,119,400
- --------------------------------------------------------------
Host Marriott Corp. 62,600 864,663
- --------------------------------------------------------------
MeriStar Hospitality Corp. 94,814 1,759,985
- --------------------------------------------------------------
MeriStar Hotels & Resorts, Inc.(a) 112,700 295,838
- --------------------------------------------------------------
Patriot American Hospitality, Inc. 190,000 1,140,000
- --------------------------------------------------------------
Starwood Hotels & Resorts 96,700 2,193,881
- --------------------------------------------------------------
Sunstone Hotel Investors, Inc. 132,800 1,253,300
- --------------------------------------------------------------
8,718,620
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
MANUFACTURED HOMES-0.92%
Asset Investors Corp. 44,000 $ 550,000
- --------------------------------------------------------------
MORTGAGE BACKED SECURITIES-0.51%
CRIIMI MAE, Inc. 87,700 306,950
- --------------------------------------------------------------
OFFICE PROPERTIES-22.40%
Arden Realty Group, Inc. 114,300 2,650,331
- --------------------------------------------------------------
CarrAmerica Realty Corp. 81,800 1,963,200
- --------------------------------------------------------------
Cornerstone Properties, Inc. 35,700 557,812
- --------------------------------------------------------------
Highwoods Properties, Inc. 70,050 1,803,788
- --------------------------------------------------------------
Kilroy Realty Corp. 42,700 982,100
- --------------------------------------------------------------
Koger Equity, Inc. 30,000 515,625
- --------------------------------------------------------------
Mack-Cali Realty Corp. 43,700 1,349,238
- --------------------------------------------------------------
Prentiss Properties Trust 89,700 2,001,431
- --------------------------------------------------------------
SL Green Realty Corp. 73,900 1,598,088
- --------------------------------------------------------------
13,421,613
- --------------------------------------------------------------
REGIONAL MALLS-8.16%
CBL & Associates Properties, Inc. 72,350 1,867,534
- --------------------------------------------------------------
Macerich Co. (The) 25,500 653,437
- --------------------------------------------------------------
Simon Property Group, Inc. 71,900 2,049,150
- --------------------------------------------------------------
SPG Properties Inc., $2.19 Series B
Pfd. 7,000 178,937
- --------------------------------------------------------------
Taubman Centers, Inc. 10,000 137,500
- --------------------------------------------------------------
4,886,558
- --------------------------------------------------------------
RESIDENTIAL PROPERTIES-15.27%
Avalonbay Communities, Inc. 54,800 1,876,900
- --------------------------------------------------------------
Camden Property Trust 31,432 817,232
- --------------------------------------------------------------
Charles E. Smith Residential Realty,
Inc. 63,800 2,049,575
- --------------------------------------------------------------
Equity Residential Properties Trust 25,500 1,031,156
- --------------------------------------------------------------
Equity Residential Properties, $1.75
Conv. Pfd. 7,000 164,062
- --------------------------------------------------------------
Essex Property Trust, Inc. 64,500 1,918,875
- --------------------------------------------------------------
Post Properties, Inc. 33,600 1,291,500
- --------------------------------------------------------------
9,149,300
- --------------------------------------------------------------
SELF-STORAGE-2.81%
Public Storage, Inc. 55,800 1,510,088
- --------------------------------------------------------------
Public Storage Inc., $2.50 Series E
Pfd. 6,000 170,625
- --------------------------------------------------------------
1,680,713
- --------------------------------------------------------------
SHOPPING CENTERS-8.10%
JDN Realty Corp. 67,500 1,455,469
- --------------------------------------------------------------
Kimco Realty Corp. 31,900 1,266,031
- --------------------------------------------------------------
</TABLE>
FS-42
<PAGE> 183
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SHOPPING CENTERS-(CONTINUED)
Pan Pacific Retail Properties, Inc. 47,700 $ 951,019
- --------------------------------------------------------------
Philips International Realty Corp. 76,600 1,177,725
- --------------------------------------------------------------
4,850,244
- --------------------------------------------------------------
Total Real Estate Investment
Trusts & Other Equity
Interests (Cost $66,915,860) 59,921,674
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
REPURCHASE AGREEMENT-1.72%(b)
SBC Warburg Dillon Read Inc., 4.75%,
01/04/99(c) (Cost $1,028,091) $1,028,091 $ 1,028,091
- --------------------------------------------------------------
TOTAL INVESTMENTS-101.74% 60,949,765
- --------------------------------------------------------------
LIABILITIES LESS OTHER
ASSETS-(1.74)% (1,040,480)
- --------------------------------------------------------------
NET ASSETS-100.00% $59,909,285
==============================================================
</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 is at least 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 12/31/98 with a maturing value of
$1,000,527,778. Collateralized by $2,207,068,000 U.S. Government
obligations, 0% to 6.75% due 06/30/99 to 11/15/21 with an aggregate market
value at 12/31/98 of $1,020,001,079.
Abbreviations:
Conv. - Convertible
Pfd. - Preferred
See Notes to Financial Statements.
FS-43
<PAGE> 184
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$67,943,951) $ 60,949,765
- ---------------------------------------------------------
Foreign currencies, at value (cost $15,226) 15,187
- ---------------------------------------------------------
Receivables for:
Capital stock sold 185,829
- ---------------------------------------------------------
Interest and dividends 732,720
- ---------------------------------------------------------
Investment for deferred compensation plan 5,872
- ---------------------------------------------------------
Other assets 1,199
- ---------------------------------------------------------
Total assets 61,890,572
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 1,167,762
- ---------------------------------------------------------
Capital stock reacquired 649,902
- ---------------------------------------------------------
Deferred compensation plan 5,872
- ---------------------------------------------------------
Accrued advisory fees 46,459
- ---------------------------------------------------------
Accrued operating services fees 18,693
- ---------------------------------------------------------
Accrued distribution fees 92,599
- ---------------------------------------------------------
Total liabilities 1,981,287
- ---------------------------------------------------------
Net assets applicable to shares outstanding $ 59,909,285
=========================================================
NET ASSETS:
Class A $ 20,087,313
=========================================================
Class B $ 6,900,789
=========================================================
Class C $ 32,921,183
=========================================================
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Class A:
Authorized 100,000,000
- ---------------------------------------------------------
Outstanding 1,753,528
=========================================================
Class B:
Authorized 100,000,000
- ---------------------------------------------------------
Outstanding 601,186
=========================================================
Class C:
Authorized 100,000,000
- ---------------------------------------------------------
Outstanding 2,872,166
=========================================================
Class A:
Net asset value and redemption price per
share $ 11.46
=========================================================
Offering price per share:
(Net asset value of $11.46
divided by 95.25%) $ 12.03
=========================================================
Class B:
Net asset value and offering price per
share $ 11.48
=========================================================
Class C:
Net asset value and offering price per
share $ 11.46
=========================================================
</TABLE>
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $11,814 foreign
withholding tax) $ 3,916,800
- ---------------------------------------------------------
Interest 198,373
- ---------------------------------------------------------
Total investment income 4,115,173
- ---------------------------------------------------------
EXPENSES:
Advisory fees 625,129
- ---------------------------------------------------------
Operating services fees 312,558
- ---------------------------------------------------------
Distribution fees-Class A 80,966
- ---------------------------------------------------------
Distribution fees-Class B 50,872
- ---------------------------------------------------------
Distribution fees-Class C 412,382
- ---------------------------------------------------------
Directors' fees and expenses 5,297
- ---------------------------------------------------------
Total expenses 1,487,204
- ---------------------------------------------------------
Less: Fees waived by advisor (59,719)
- ---------------------------------------------------------
Net expenses 1,427,485
- ---------------------------------------------------------
Net investment income 2,687,688
- ---------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN
CURRENCIES:
Net realized gain (loss) from:
Investment securities (7,856,868)
- ---------------------------------------------------------
Foreign currencies (11,340)
- ---------------------------------------------------------
(7,868,208)
- ---------------------------------------------------------
Net unrealized appreciation (depreciation)
of:
Investment securities (13,364,558)
- ---------------------------------------------------------
Foreign currencies 56
- ---------------------------------------------------------
(13,364,502)
- ---------------------------------------------------------
Net gain (loss) from investment
securities and foreign currencies (21,232,710)
- ---------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $(18,545,022)
=========================================================
</TABLE>
FS-44
<PAGE> 185
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
OPERATIONS:
Net investment income $ 2,687,688 $ 930,868
- ----------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
foreign currencies (7,868,208) 3,781,061
- ----------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities and foreign currencies (13,364,502) 1,996,379
- ----------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (18,545,022) 6,708,308
- ----------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (879,078) (138,336)
- ----------------------------------------------------------------------------------------
Class B (195,557) --
- ----------------------------------------------------------------------------------------
Class C (1,184,516) (755,032)
- ----------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains on
investment securities:
Class A (434,776) (609,759)
- ----------------------------------------------------------------------------------------
Class B (143,531) --
- ----------------------------------------------------------------------------------------
Class C (703,226) (1,923,812)
- ----------------------------------------------------------------------------------------
Share transactions-net:
Class A 11,098,948 16,620,595
- ----------------------------------------------------------------------------------------
Class B 8,539,414 --
- ----------------------------------------------------------------------------------------
Class C 1,916,228 19,971,956
- ----------------------------------------------------------------------------------------
Net increase (decrease) in net assets (531,116) 39,873,920
- ----------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 60,440,401 20,566,481
- ----------------------------------------------------------------------------------------
End of period $ 59,909,285 $60,440,401
========================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $ 74,263,053 $52,709,732
- ----------------------------------------------------------------------------------------
Undistributed net investment income 490,850 72,384
- ----------------------------------------------------------------------------------------
Undistributed net realized gain (loss) on sales of
investment securities (7,850,489) 1,287,912
- ----------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities (6,994,129) 6,370,373
- ----------------------------------------------------------------------------------------
$ 59,909,285 $60,440,401
========================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Advisor Real Estate Fund (the "Fund") is a series portfolio of AIM Advisor
Funds, Inc. (the "Company"). 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 five
diversified portfolios. The Fund currently offers three different classes of
shares: Class A shares, Class B shares and Class C shares. Class A shares are
sold with a front-end sales charge. Class B shares and 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. Information presented in these financial statements pertains
only to the Fund. 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.
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
FS-45
<PAGE> 186
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 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. Such dividends are
declared and paid quarterly. On December 31, 1998 additional paid-in capital
was decreased by $1,269, undistributed net investment income was decreased
by $10,071 and undistributed net realized gains was increased by $11,340 as
a result of differing book/tax treatment of foreign currency transactions
and in order to comply with the requirements of the American Institute of
Certified Public Accountants Statement of Position 93-2. Net assets of the
Fund were unaffected by the reclassifications discussed above.
C. Foreign Currency Translations-Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at 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. The
Fund does not separately account for that portion of the results of
operations resulting from changes in foreign exchange rates on investments
and the fluctuations arising from changes in market prices of securities
held. Such fluctuations are included with the net realized and unrealized
gain or loss from investments.
D. 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.
E. Federal Income Taxes-The Fund intends to comply with the requirements of the
Internal Revenue Code necessary to qualify as a regulated investment company
and, as such, will not be subject to federal income taxes on otherwise
taxable income (including net realized capital gains) which is distributed
to shareholders. Therefore, no provision for federal income taxes is
recorded in the financial statements. The Fund has a capital loss
carryforward of $1,027,346 (which may be carried forward to offset future
taxable capital gains, if any) which expires, if not previously utilized,
through the year 2006. The Fund cannot distribute capital gains to
shareholders until the tax loss carryforwards have been utilized.
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 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.
The Company, pursuant to an operating services agreement with AIM, has agreed
to pay AIM an annual rate of 0.45% of the Fund's average daily net assets 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
year ended December 31, 1998, AIM was paid $275,972 for such services. As of
June 1, 1998, AIM has voluntarily agreed to limit the operating services fees to
an annual rate of 0.45% of the first $50 million of the Fund's average daily net
assets and 0.10% of the Fund's average daily net assets in excess of $50
million. During the period June 1, 1998 through December 31, 1998, AIM
voluntarily waived operating services fees in the amount of $36,586.
The Company has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Company has adopted
distribution plans pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A shares and Class C shares (the "Class A and C Plan"), and the
Fund's Class B shares (the "Class B Plan") (collectively, the "Plans"). The
Fund, pursuant to the Class A and C Plan, pays AIM Distributors compensation at
an annual rate of 0.35% of the average daily net assets attributable to the
Class A shares and 1.00% of the average daily net assets attributable to the
Class C shares. AIM Distributors has voluntarily agreed to limit the Class A
shares plan payments to 0.25% for three years beginning August 4, 1997. The Fund
pursuant to the Class B Plan, pays AIM Distributors compensation at an annual
rate of 1.00% of the
FS-46
<PAGE> 187
average daily net assets attributable to the Class B shares. Of these amounts,
the Fund may pay a service fee of 0.25% of the average daily net assets of the
Class A, Class B or Class C shares to selected dealers and financial
institutions who furnish continuing personal shareholder services to their
customers who purchase and own the appropriate class of shares of the Fund. Any
amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. The Plans also impose a cap on the total sales
charges, including asset-based sales charges that may be paid by the respective
classes. During the year ended December 31, 1998, for the Class A and Class C
shares and the period March 3, 1998 (date sales commenced) through December 31,
1998 for the Class B shares, the Class A, Class B and Class C shares paid AIM
Distributors $57,833, $50,872 and $412,382, respectively, as compensation under
the Plans. During the year ended December 31, 1998, AIM Distributors waived fees
of $23,133 for the Class A shares.
AIM Distributors received commissions of $85,554 from sales of Class A shares
of the Fund during the year ended December 31, 1998. 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 year ended December 31, 1998,
AIM Distributors received commissions of $25,274 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.
The combined effect of the advisory agreements, operating services agreement
and the distribution plan for the Fund is to place a cap or ceiling on the total
annual 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
$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 year ended December 31, 1998, the Fund paid legal fees of $3,558
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-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $1,000,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. Interest on
borrowings under the line of credit is payable on maturity or prepayment date.
Prior to an amendment of the line of credit on May 1, 1998, the Fund was limited
to borrowing up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. During the year ended December 31, 1998, the Fund did
not borrow under the line of credit agreement. The funds which are party to the
line of credit are charged a commitment fee of 0.05% on the unused balance of
the committed line. The commitment fee is allocated among the funds based on
their respective average net assets for the period.
NOTE 5-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended December 31, 1998 was
$69,794,053 and $45,015,610, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of December 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $ 830,188
- -------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (12,663,672)
- -------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investment securities $(11,833,484)
=============================================================
Cost of investments for tax purposes is $72,783,249.
</TABLE>
NOTE 6-CAPITAL STOCK
Changes in the Fund's capital stock outstanding during the years ended December
31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997*
------------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Sold:
Class A 1,866,966 $ 26,220,226 1,054,003 $16,739,222
- ------------------------ ---------- ------------ --------- -----------
Class B** 965,596 13,668,547 -- --
- ------------------------ ---------- ------------ --------- -----------
Class C 867,066 12,416,738 1,421,288 21,204,369
- ------------------------ ---------- ------------ --------- -----------
Issued as reinvestment
of dividends:
Class A 103,931 1,234,506 47,730 725,852
- ------------------------ ---------- ------------ --------- -----------
Class B** 26,797 312,988 -- --
- ------------------------ ---------- ------------ --------- -----------
Class C 146,264 1,732,251 162,326 2,458,661
- ------------------------ ---------- ------------ --------- -----------
Reacquired:
Class A (1,266,277) (16,355,784) (52,825) (844,479)
- ------------------------ ---------- ------------ --------- -----------
Class B** (391,207) (5,442,121) -- --
- ------------------------ ---------- ------------ --------- -----------
Class C (933,062) (12,232,761) (240,812) (3,691,074)
- ------------------------ ---------- ------------ --------- -----------
1,386,074 $ 21,554,590 2,391,710 $36,592,551
======================== ========== ============ ========= ===========
</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 B shares commenced sales March 3, 1998.
FS-47
<PAGE> 188
NOTE 7-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A capital stock
outstanding during each of the years in the two-year period ended December 31,
1998, for a share of Class B capital stock outstanding during the period March
3, 1998 (date sales commenced) through December 31, 1998, and a share of Class C
capital stock outstanding during each of the years in the three-year period
ended December 31, 1998 and the period May 1, 1995 (date operations commenced)
through December 31, 1995.
<TABLE>
<CAPTION>
CLASS A(a) CLASS B
------------------ ------------
1998 1997(b) 1998
------- ------- ------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 15.74 $ 14.19 $ 15.34
- ------------------------------------------------------------ ------- ------- -------
Income from investment operations:
Net investment income 0.58(c) 0.34(c) 0.37(c)
- ------------------------------------------------------------ ------- ------- -------
Net gains (losses) on securities (both realized and
unrealized) (4.11) 2.39 (3.58)
- ------------------------------------------------------------ ------- ------- -------
Total from investment operations (3.53) 2.73 (3.21)
- ------------------------------------------------------------ ------- ------- -------
Less distributions:
Dividends from net investment income (0.50) (0.44) (0.40)
- ------------------------------------------------------------ ------- ------- -------
Distributions from net realized gains (0.25) (0.74) (0.25)
- ------------------------------------------------------------ ------- ------- -------
Total distributions (0.75) (1.18) (0.65)
- ------------------------------------------------------------ ------- ------- -------
Net asset value, end of period $ 11.46 $ 15.74 $ 11.48
============================================================ ======= ======= =======
Total return(d) (22.54)% 19.78% (21.02)%
============================================================ ======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $20,087 $16,507 $ 6,901
============================================================ ======= ======= =======
Ratio of expenses to average net assets(e) 1.55%(f) 1.60% 2.31%(f)(g)
============================================================ ======= ======= =======
Ratio of net investment income to average net assets(h) 4.37%(f) 3.26% 3.62%(f)(g)
============================================================ ======= ======= =======
Portfolio turnover rate 69% 57% 69%
============================================================ ======= ======= =======
</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 and is not annualized for periods less than
one year.
(e) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.71% and 1.70% for 1998-1997 for Class A and 2.37% (annualized) for 1998
for Class B.
(f) Ratios are based on average net assets of $23,133,391 and $6,107,990 for
Class A and Class B, respectively.
(g) Annualized.
(h) After fee waivers and/or expense reimbursements. Ratios of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 4.21% and 3.16% for 1998-1997 for Class A and 3.56%
(annualized) for 1998 for Class B.
<TABLE>
<CAPTION>
CLASS C(a)
------------------------------------------
1998 1997(b) 1996 1995
------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 15.74 $ 14.19 $ 10.76 $ 10.00
- ------------------------------------------------------------ ------- -------- -------- --------
Income from investment operations:
Net investment income 0.50(c) 0.36(c) 0.33 0.16
- ------------------------------------------------------------ ------- -------- -------- --------
Net gains (losses) on securities (both realized and
unrealized) (4.13) 2.26 3.51 0.75
- ------------------------------------------------------------ ------- -------- -------- --------
Total from investment operations (3.63) 2.62 3.84 0.91
- ------------------------------------------------------------ ------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.40) (0.33) (0.31) (0.15)
- ------------------------------------------------------------ ------- -------- -------- --------
Distributions from net realized gains (0.25) (0.74) (0.10) --
- ------------------------------------------------------------ ------- -------- -------- --------
Total distributions (0.65) (1.07) (0.41) (0.15)
- ------------------------------------------------------------ ------- -------- -------- --------
Net asset value, end of period $ 11.46 $ 15.74 $ 14.19 $ 10.76
============================================================ ======= ======== ======== ========
Total return(d) (23.16)% 18.88% 36.43% 9.12%
============================================================ ======= ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $32,921 $ 43,934 $ 20,566 $ 5,565
============================================================ ======= ======== ======== ========
Ratio of expenses to average net assets(e) 2.31%(f) 2.35% 2.40% 2.40%(g)
============================================================ ======= ======== ======== ========
Ratio of net investment income to average net assets(h) 3.62%(f) 2.54% 3.21% 4.68%(g)
============================================================ ======= ======== ======== ========
Portfolio turnover rate 69% 57% 25% 7%
============================================================ ======= ======== ======== ========
</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 is not annualized for
periods less than one year.
(e) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
2.37% for 1998.
(f) Ratios are based on average net assets of $41,238,200.
(g) Annualized.
(h) After fee waivers and/or expense reimbursements. Ratio of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements was 3.56% for 1998.
FS-48
