<PAGE> 1
As filed with the Securities and Exchange Commission on December 30, 1998
1933 Act Registration No. 33-19338
1940 Act Registration No. 811-05426
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 56 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 57 [X]
(Check appropriate box or boxes.)
AIM INVESTMENT FUNDS
------------------------------------------------
(Exact name of Registrant as Specified in Charter)
11 Greenway Plaza, Suite 100, Houston, TX 77046
---------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (713) 626-1919
Copy to:
Lisa A. Moss, Esq. Arthur J. Brown, Esq.
A I M Advisors, Inc. R. Darrell Mounts, Esq.
11 Greenway Plaza, Suite 100 Kirkpatrick & Lockhart LLP
Houston, Texas 77046 1800 Massachusetts Avenue, N.W., 2nd Floor
Washington, D.C. 20036
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Amendment
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date), pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(1)
[ ] on March 1, 1999, pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2)
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Shares of Common Stock
(Continued on Next Page)
<PAGE> 2
Certain Series of the AIM Investment Funds are "feeder funds" in a
"master/feeder" fund arrangement. This Post-Effective Amendment No. 56 includes
manually executed signature pages for two master trusts, Emerging Markets Debt
Portfolio and Global Investment Portfolio.
Pursuant to Rule 414 under the Securities Act of 1933 (the "Securities
Act") by this amendment to the registration statement on Form N-1A of AIM
Investment Funds, a Delaware business trust, the Registrant adopts, effective
March 1, 1999, the Registration Statement of such corporation under the
Securities Act and Notification of Registration and Registration Statement of
such corporation under the Investment Company Act of 1940.
<PAGE> 3
[AIM LOGO]
AIM DEVELOPING MARKETS FUND
PROSPECTUS
MARCH 1, 1999
AIM Developing Markets Fund seeks to provide long-term growth of capital with a
secondary objective of income.
This prospectus contains important information. Please read it before investing
and keep it for future reference.
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. There is a risk that you could lose a portion or all of your money.
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.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES AND STRATEGIES.....................................................................3
PRINCIPAL RISKS OF INVESTING IN THE FUND.................................................................4
PERFORMANCE INFORMATION..................................................................................5
ANNUAL TOTAL RETURNS............................................................................5
PERFORMANCE TABLE...............................................................................6
FEE TABLE AND EXPENSE EXAMPLE............................................................................7
FEE TABLE.......................................................................................7
EXPENSE EXAMPLE.................................................................................7
FUND MANAGEMENT..........................................................................................9
THE ADVISOR AND SUBADVISOR......................................................................9
ADVISOR COMPENSATION............................................................................9
PORTFOLIO MANAGERS..............................................................................9
OTHER INFORMATION.......................................................................................10
DIVIDENDS AND DISTRIBUTIONS....................................................................10
FINANCIAL HIGHLIGHTS....................................................................................11
SHAREHOLDER INFORMATION................................................................................A-1
CHOOSING A SHARE CLASS........................................................................A-1
PURCHASING SHARES.............................................................................A-1
REDEEMING SHARES..............................................................................A-3
EXCHANGING SHARES.............................................................................A-5
PRICING OF SHARES.............................................................................A-6
TAXES.........................................................................................A-6
OBTAINING ADDITIONAL INFORMATION...........................................................BACK COVER PAGE
</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 is a service
mark of A I M Management Group Inc.
2
<PAGE> 5
INVESTMENT OBJECTIVES AND STRATEGIES
The fund's primary investment objective is long-term growth of capital and its
secondary investment objective is income, to the extent consistent with seeking
growth of capital.
The fund seeks to achieve its objectives by investing substantially all of its
assets in issuers in developing countries, i.e., those that are in the initial
stages of their industrial cycles. The fund will invest a majority of its assets
in equity securities, and may also invest in debt securities, of developing
countries. The fund considers issuers in "developing countries" to be those (i)
organized under the laws of a developing country or have a principal office in a
developing country; (ii) that derive 50% or more, alone or on a consolidated
basis, of their total revenues from business in developing countries; or (iii)
whose securities are trading principally on a stock exchange, or in an
over-the-counter market, in a developing country. The fund will normally invest
in issuers in at least four countries, but it will not invest more than 25% of
its assets in issuers in any one country. The fund also may not hold more than
40% of its assets in any one foreign currency and securities denominated in or
indexed to such currency. The fund may invest in debt securities when economic
and other factors appear to favor such investments. The fund may also invest up
to 100% of its assets in lower-quality debt securities, i.e., "junk bonds."
The fund may invest up to 50% of its total assets in the following types of
developing market debt securities: (1) debt securities issued or guaranteed by
governments, their agencies, instrumentalities or political subdivisions, or by
government owned, controlled or sponsored entities, including central banks
(sovereign debt), including "Brady Bonds"; (2) interests in issuers organized
and operated for the purpose of restructuring the investment characteristics of
sovereign debt; (3) debt securities issued by banks and other business entities;
and (4) debt securities denominated in or indexed to the currencies of emerging
markets. Brady Bonds are debt restructurings that provide for the exchange of
cash and loans for newly issued bonds. There is no requirement with respect to
the maturity or duration of debt securities in which the fund may invest.
The portfolio managers focus on companies that have experienced above-average,
long-term growth in earnings and have excellent prospects for future growth. In
selecting countries in which the fund will invest, the portfolio managers also
consider such factors as the prospect for relative economic growth among
countries or regions, economic or political conditions, currency exchange
fluctuations, tax considerations and the liquidity of a particular security. The
portfolio managers usually sell a particular security when any of those factors
materially changes.
The fund is a non-diversified portfolio, which means that with respect to 50% of
its assets, it is permitted to invest more than 5% of its assets in the
securities of any one issuer.
In anticipation of or in response to adverse market conditions or for cash
management purposes, the fund may hold all or a portion of its assets in cash
(U.S. dollars, foreign currencies or multinational currency units), money market
securities, bonds or other debt securities. As a result, the fund may not
achieve its investment objective.
[The fund may engage in active and frequent trading of portfolio securities to
achieve its investment objective. If the fund does trade in this way, it may
incur increased transaction costs and brokerage commissions, both of which can
lower the actual return on your investment. Active trading may also increase
short-term capital gains and losses, which may affect the taxes you have to
pay.]
3
<PAGE> 6
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 price of equity securities rises and
falls in response to many factors, including the historical and prospective
earnings of the issuer of the stock, the value of its assets, general economic
conditions, interest rates, investor perceptions, and market liquidity. Debt
securities are particularly vulnerable to credit risk and interest rate
fluctuations. When interest rates rise, bond prices fall; the longer the bond's
duration, the more sensitive it is to this risk.
The prices of securities issued by foreign issuers may be further affected by
other factors including
o Currency exchange rates -- The dollar value of the fund's investments in
emerging markets will be affected by changes in the exchange rates between
the dollar and the currencies in which those investments are traded.
o Political and economic conditions -- The value of the fund's emerging
market investments may be adversely affected by political and social
instability and by changes in economic or taxation policies in those
countries.
o Regulations -- emerging market companies generally are subject to less
stringent regulations, including financial and accounting controls, than
are U.S. companies. As a result, among other things, there generally is
less publicly available information about foreign companies than about U.S.
companies.
o Markets -- The securities markets of emerging market countries are smaller
and less developed than U.S. securities markets. As a result, many foreign
securities may be less liquid and more volatile than U.S.
securities.
These factors may affect the price of securities issued by foreign companies
located in developing countries more than those in countries with mature
economies. For example, many developing countries have, in the past, experienced
high rates of inflation or sharply devalued their currencies against the U.S.
dollar, thereby causing the value of investments in companies located in those
countries to decline. Transaction costs are often higher in developing countries
and there may be delays in settlement procedures. In addition, developing
countries may have greater political or economic instability, less regulation
and smaller, less liquid and more volatile markets than countries with more
mature economies.
Sovereign debt securities of developing country governments are generally
lower-quality debt securities. Sovereign debt securities are subject to the
additional risk that, under some political, diplomatic, social or economic
circumstances, some developing countries that issue lower-quality debt
securities may be unable or unwilling to make principal or interest payments as
they come due.
Compared to higher-quality debt securities, junk bonds involve greater risk of
default or price changes due to changes in the credit quality of the issuer
because they are generally unsecured and may be subordinated to other creditors'
claims. The value of lower-quality debt securities often fluctuates in response
to company, political or economic developments and can decline significantly
over short periods of time or during periods of general or regional economic
difficulty.
Because it is non-diversified, the fund may invest in fewer issuers than if it
was a diversified fund. The value of the fund's shares may vary more widely, and
the fund may be subject to greater investment and credit risk, than if the fund
invested more broadly.
Many software systems are unable to distinguish the year 2000 from the year
1900. The fund's investment advisor, together with independent technology
consultants, has completed its determination as to whether any software systems
that the fund uses or depends on has that problem and is in the process of
correcting and testing those systems that may have such problem. This problem,
if not corrected, may adversely
4
<PAGE> 7
affect services provided to the fund or may affect companies in which the fund
may invest and, therefore, may lower the value of your shares.
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.
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.
[GRAPH]
AIM DEVELOPING MARKETS FUND
<TABLE>
<CAPTION>
Annual
Year Ended Total
December 31 Return
- ----------- ------
<S> <C>
1994 .......................................... 1.30%
1995 .......................................... 35.45%
1996 .......................................... 16.27%
1997 .......................................... 12.92%
1998 .......................................... _____%
</TABLE>
ANNUAL TOTAL RETURNS *
The following bar chart shows changes in the performance of the fund's Advisor
Class shares over a 5-year period.
*The year-to-date return as of 1/31/99 (the end of the most recent fiscal
quarter) was ____ %.
[BAR CHART TO BE REVISED]
[INFO BELOW TO BE PROVIDED AT ANNUAL UPDATE FILING - NOT NOW]
During the 5-year period shown in the bar chart, the highest quarterly return
was [____________%] (quarter ended [____________]) and the lowest quarterly
return was [____________%] (quarter ended [____________]).
5
<PAGE> 8
PERFORMANCE TABLE
The following performance table shows how the fund's average annual returns for
one, five and 10 years compare to those of a broad-based securities market
index.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Average Annual Total Returns
(for the periods ending December 31, 1998)
1 Year 5 Years 10 Years
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Shares*
- ----------------------------------------------------------------------------------------------
Class B Shares**
- ----------------------------------------------------------------------------------------------
JP Morgan EMBI Plus***
- ----------------------------------------------------------------------------------------------
</TABLE>
* Class A returns are since inception (1/11/94).
** Class B returns are since inception (11/1/97).
*** JP Morgan EMBI Plus is a market value-weighted average of government bonds
from 13 emerging bond markets. It includes the effect of reinvested coupons
and is measured in U.S. dollars. Relative to the J.P. Morgan EMBI (Brady),
the EMBI Plus is more diversified both geographically and in the
instruments it tracts.
[INFO IN THE ABOVE CHART TO BE UPDATED/PROVIDED AT THE ANNUAL UPDATE FILING -
NOT NOW]
6
<PAGE> 9
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>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Shareholder Fees (fees paid directly from your investment)
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
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
Management Fees(2) ____% ____% ____%
Distribution and/or Service (12b-1) Fees ____% ____% ____%
Other Expenses:
Transfer agent fees and costs ____% ____% ____%
Other ____% ____% ____%
Total Other Expenses ____% ____% ____%
Total Annual Fund Operating Expenses ____% ____% ____%
</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 investment advisor is currently waiving a portion of its fees. The
management fees were 0.61% after such waiver. The waiver may be
terminated at any time with the approval of the fund's Board of
Directors. If the waiver is terminated before the end of the fund's
fiscal year, the investment advisor may be reimbursed the waived amounts
for that year.]
As a result of 12b-1fees, 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 operating expenses remain the same. Although your actual returns and
costs may be higher or lower, based on these assumptions your costs would be:
7
<PAGE> 10
[FUND ACCOUNTING TO PROVIDE INFO AT THE ANNUAL UPDATE FILING - NOT NOW]
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $ $ $ $
Class B
Class C
</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 $ $ $ $
Class B
Class C
</TABLE>
8
<PAGE> 11
FUND MANAGEMENT
THE ADVISOR AND SUBADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor.
INVESCO Asset Management Ltd. (the subadvisor), [an affiliate] of the advisor,
is the fund's subadvisor and is responsible for its day-to-day management. The
advisor is located at 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173.
The subadvisor is located at 11 Devonshire Square, London, EC2M 4YR, England.
The advisors supervise all aspects of the fund's operations and provide
investment advisory services to the fund, including obtaining and evaluating
economic, statistical and financial information to formulate and implement
investment programs for the fund.
The advisor has acted as an investment adviser since its organization in 1976,
and the subadvisor has acted as an investment adviser since its organization in
________. Today, the advisor, together with its subsidiaries, advises or manages
over 90 investment portfolios, including the fund, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the fund's last fiscal year ended October 31, 1998, the fund paid the
advisor advisory fees of ________% of the fund's average net assets.
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, [all of whom are officers of the subadvisor], are
o Francesco Bertoni, Portfolio Manager, who has been responsible for the
fund since 1998 and has been associated with INVESCO (NY), Inc. and/or
its affiliates since 1998. From 1990 to 1994, he was a Portfolio
Manager for the subadvisor. In 1994, he became an Investment Director
for the subadvisor.
o Cheng-Hock Lau, Chief Investment Officer for Global Fixed Income and
Portfolio Manager, who has been responsible for the fund since 1997 and
has been associated with INVESCO (NY), Inc. and/or its affiliates since
1995. He has been Chief Investment Officer for Global Fixed Income and
Portfolio Manger for INVESCO (NY), Inc. since October 1996. From July
1995 to October 1996, he was Senior Portfolio Manager for
Global/International Fixed Income for INVESCO (NY), Inc. and was
employed by Chancellor Capital Management Inc. ("Chancellor Capital"),
a predecessor of INVESCO (NY), Inc. From 1993 to 1995, he was Senior
Vice President and Senior Portfolio Manager for Fiduciary Trust Company
International. He was Vice President at the Bankers Trust Company from
1991 to 1993.
9
<PAGE> 12
OTHER INFORMATION
INITIAL SALES CHARGES FOR CLASS A SHARES
Purchases of Class A shares of the fund are subject to the maximum of 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.
DIVIDENDS AND DISTRIBUTIONS
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.
Dividends
The fund generally declares and pays dividends, if any, monthly.
10
<PAGE> 13
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 table shows the financial highlights for a share of the fund outstanding
during each of the fiscal years (or periods) indicated.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the fund's financial statements, is included in the fund's annual
report, which is available upon request.
<TABLE>
<CAPTION>
Class A
------------------------------------------------------------
------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
- ----------------------------------------------------------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment Income (loss) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
- ----------------------------------------------------------- ------- ------- ------- ------- -------
Net gains on securities (both realized and unrealized) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
- ----------------------------------------------------------- ------- ------- ------- ------- -------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
- ----------------------------------------------------------- ------- ------- ------- ------- -------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
- ----------------------------------------------------------- ------- ------- ------- ------- -------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $xx.xx
- ----------------------------------------------------------- ------- ------- ------- ------- -------
Total return (a) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
- ----------------------------------------------------------- ------- ------- ------- ------- -------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $xx,xxx $xx,xxx $xx,xxx $xx,xxx $xx,xxx
- ----------------------------------------------------------- ------- ------- ------- ------- -------
Ratio of expenses to average net assets (b) x.xx%(c)(d) x.xx% x.xx% x.xx% x.xx%
- ----------------------------------------------------------- ------- ------- ------- ------- -------
Ratio of net investment income (loss) to average
net assets(e) (x.xx)%(c) (x.xx)% (x.xx)% (x.xx)% (x.xx)%
- ----------------------------------------------------------- ------- ------- ------- ------- -------
Portfolio turnover rate xx% xx% xx% xx% xx%
- ----------------------------------------------------------- ------- ------- ------- ------- -------
</TABLE>
(a) Does not deduct sales charges and are 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 were
X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(c) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have been the same.
(e) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (X.XX)%, (X.XX)%, (X.XX)%, (X.XX)% and (X.XX)% for
1998-1994.
[ACCT. TO INCLUDE 1998 INFO AT THE ANNUAL UPDATE - NOT NOW]
11
<PAGE> 14
<TABLE>
<CAPTION>
Class B
------------------------------------------------------------
------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
- ----------------------------------------------------------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment Income (loss) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
- ----------------------------------------------------------- ------- ------- ------- ------- -------
Net gains on securities (both realized and unrealized) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
- ----------------------------------------------------------- ------- ------- ------- ------- -------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
- ----------------------------------------------------------- ------- ------- ------- ------- -------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
- ----------------------------------------------------------- ------- ------- ------- ------- -------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $xx.xx
- ----------------------------------------------------------- ------- ------- ------- ------- -------
Total return (a) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
- ----------------------------------------------------------- ------- ------- ------- ------- -------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $xx,xxx $xx,xxx $xx,xxx $xx,xxx $xx,xxx
- ----------------------------------------------------------- ------- ------- ------- ------- -------
Ratio of expenses to average net assets (b) x.xx%(c)(d) x.xx% x.xx% x.xx% x.xx%
- ----------------------------------------------------------- ------- ------- ------- ------- -------
Ratio of net investment income (loss) to average
net assets(e) (x.xx)%(c) (x.xx)% (x.xx)% (x.xx)% (x.xx)%
- ----------------------------------------------------------- ------- ------- ------- ------- -------
Portfolio turnover rate xx% xx% xx% xx% xx%
- ----------------------------------------------------------- ------- ------- ------- ------- -------
</TABLE>
(a) Does not deduct sales charges and are 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 were
X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(c) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have been the same.
(e) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (X.XX)%, (X.XX)%, (X.XX)%, (X.XX)% and (X.XX)% for
1998-1994.
12
<PAGE> 15
SHAREHOLDER INFORMATION
Choosing a Share Class
Many of the funds advised by the advisor (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>
o Initial sales charge o No initial sales charge o No initial sales charge
o Reduced or o Contingent deferred o Contingent deferred
waived initial sales charge on sales charge on
sales charge for redemptions within redemptions within
certain purchases six years one year
o Lower distribution o 12b-1 fee of 1.00% o 12b-1 fee of 1.00%
and service (12b-1)
fee than Class B or
Class C shares
(See "Fee Table o Converts to Class A o Does not convert to
and Expense shares after eight years Class A shares
Example") along with a pro rata
portion of its reinvested
dividends and distributions*
o Generally more o Purchase orders limited o Generally more
appropriate for long- to amounts less than appropriate for short-
term investors $250,000 term investors
</TABLE>
* If you held Class B shares of AIM Global Trends Fund 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
<PAGE> 16
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.
CATEGORY I Initial Sales Charges
- --------------------------------
<TABLE>
<CAPTION>
INVESTOR'S SALES CHARGE
-----------------------
AS A PERCENTAGE
AS A PERCENTAGE OF THE
AMOUNT OF INVESTMENT OF THE PUBLIC NET AMOUNT
IN SINGLE TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<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>
CATEGORY II Initial Sales Charges
- ---------------------------------
<TABLE>
<CAPTION>
INVESTOR'S SALES CHARGE
-----------------------
AS A PERCENTAGE
AS A PERCENTAGE OF THE
AMOUNT OF INVESTMENT OF THE PUBLIC NET AMOUNT
IN SINGLE TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<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>
CATEGORY III Initial Sales Charges
- ----------------------------------
<TABLE>
<CAPTION>
INVESTOR'S SALES CHARGE
-----------------------
AS A PERCENTAGE
AS A PERCENTAGE OF THE
AMOUNT OF INVESTMENT OF THE PUBLIC NET AMOUNT
IN SINGLE TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<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.
A-2
<PAGE> 17
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>
CLASS B CLASS C
CDSC AS A PERCENTAGE CDSC AS A PERCENTAGE
OF DOLLAR AMOUNT OF DOLLAR AMOUNT
YEAR SINCE PURCHASE MADE SUBJECT TO CHARGE SUBJECT TO CHARGE
------------------------ ----------------- -----------------
<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>
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 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
o on shares purchased by reinvesting dividends and distributions;
o when exchanging shares among certain AIM Funds;
o when using the reinstatement privilege; and
o 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
o if you redeem Class B shares you held for more than six years;
o if you redeem Class C shares you held for more than one year;
o if you redeem shares acquired through reinvestment of dividends and
distributions; and
o on increases in the net asset value of your shares.
A-3
<PAGE> 18
There may be other situations in which you or other shareholders may be able to
purchase or redeem shares at reduced or without sales charges. You should
consult the fund's Statement of Additional Information for details regarding
these situations.
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>
- -------------------------------------------------------------------------------------------------------------------------
Type of Account Initial Additional
Investments Investments
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing plans, 401(k) plans, Simplified $0 ($25 per $25
Employee Pension (SEP) accounts, Salary Reduction (SARSEP) accounts, Savings AIM Fund
Incentive Match Plans for Employee IRA (Simple IRA) accounts, 403(b) or 457 investment
plans) for salary
deferrals
from Savings
Plans)
- -------------------------------------------------------------------------------------------------------------------------
Automatic Investment Plans $50 $50
- -------------------------------------------------------------------------------------------------------------------------
IRA, Education IRA or Roth IRA $250 $50
- -------------------------------------------------------------------------------------------------------------------------
All other accounts $500 $50
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-4
<PAGE> 19
HOW TO PURCHASE SHARES
There are several ways you can purchase your shares. You can make direct
purchases or select from one of three automatic investment methods.
DIRECT PURCHASES
<TABLE>
<CAPTION>
Opening An Account Adding to An Account
<S> <C> <C>
Through a
Financial
Consultant Contact your financial consultant. Same
By Mail Mail completed Account Mail your check and the
Application and purchase payment to the transfer agent, remittance slip from
A I M Fund Services, Inc., P.O. Box 4739, your confirmation statement
Houston, TX 77210-4739. to the transfer agent.
By Wire Mail completed Account Call the transfer agent to
Application to the transfer agent. receive a reference number.
Call the transfer agent at Then, use the wire
(800) 959-4246 to receive a reference number. instructions at left.
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 methods described Mail completed AIM Bank
above. Connection(sm) form to the
transfer agent. Once
the transfer agent has
received the form, call the
transfer agent to place your
purchase.
</TABLE>
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 and in the same class of shares. 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
A-5
<PAGE> 20
10th or 25th day of the month 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 at net
asset value in certain AIM Funds without paying a sales charge. 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. 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
TIMING OF REDEMPTIONS
You can redeem shares during the hours the New York Stock Exchange (NYSE) is
open for business. An AIM Fund may postpone the right of redemption only under
unusual circumstances, such as when the NYSE restricts or suspends trading.
A-6
<PAGE> 21
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).
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.
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 eighteen 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.
HOW TO REDEEM SHARES
<TABLE>
<CAPTION>
Through a
Financial Consultant Contact your financial consultant.
<S> <C>
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 thirty
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 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.
A-7
<PAGE> 22
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 New York Stock Exchange (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.
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
A-8
<PAGE> 23
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 and it may have tax consequences.
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, in 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 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;
A-9
<PAGE> 24
(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:
o You must meet the minimum purchase requirements for the AIM Fund into
which you are exchanging;
o Shares of the AIM Fund you wish to acquire must be qualified for sale in
your state of residence;
o Exchanges must be made between accounts with identical registration
information;
o 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);
o Shares must have been held for at least one day prior to the exchange; and
o If you have physical share certificates, you must return them to the
transfer agent prior to the exchange.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the issuance of shares
being purchased 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
A-10
<PAGE> 25
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; OR WITHDRAW ALL OR ANY PART OF
THE OFFERING MADE BY THIS PROSPECTUS.
Pricing of Shares
Each of the AIM Funds prices its shares based on its net asset value. 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 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 New York Stock
Exchange (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. The AIM Funds price purchase, exchange and redemption
orders at the net asset value calculated after the transfer agent receives an
order in good form.
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. Every year, an
A-11
<PAGE> 26
account statement showing the amount of dividends and distributions you
received from each AIM Fund during the prior year will be sent to you.
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 of the AIM Fund's shares, and any gain
realized on the transaction will 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.
A-12
<PAGE> 27
[BACK COVER PAGE]
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
United States 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 semi-annual 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
or your account, or wish to obtain free copies of the fund's current SAI or
annual or semi-annual reports, please contact us:
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
semi-annual reports only)
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, D.C., 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, D.C. 20549-6009. Please call the SEC
at 1-800-SEC-0330 for information about the Public Reference Room.
AIM Developing Markets Fund
SEC 1940 Act file number: 811-05426
13
<PAGE> 28
[AIM LOGO APPEARS HERE]
ADVISOR CLASS
AIM DEVELOPING MARKETS FUND
PROSPECTUS
MARCH 1, 1999
AIM Developing Markets Fund seeks to provide long-term growth of capital with a
secondary objective of income.
This prospectus contains important information. Please read it before investing
and keep it for future reference.
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. There is a risk that you could lose a portion or all of your money.
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.
1
<PAGE> 29
TABLE OF CONTENTS
INVESTMENT OBJECTIVES AND STRATEGIES.......................................3
PRINCIPAL RISKS OF INVESTING IN THE FUND...................................4
PERFORMANCE INFORMATION....................................................5
ANNUAL TOTAL RETURNS..............................................5
PERFORMANCE TABLE.................................................6
FEE TABLE AND EXPENSE EXAMPLE..............................................7
FEE TABLE.........................................................7
EXPENSE EXAMPLE...................................................7
FUND MANAGEMENT............................................................9
THE ADVISOR AND SUBADVISOR........................................9
ADVISOR COMPENSATION..............................................9
PORTFOLIO MANAGERS................................................9
OTHER INFORMATION.........................................................10
DIVIDENDS AND DISTRIBUTIONS......................................10
FINANCIAL HIGHLIGHTS......................................................11
SHAREHOLDER INFORMATION..................................................A-1
PURCHASING SHARES...............................................A-1
REDEEMING SHARES................................................A-3
EXCHANGING SHARES...............................................A-5
PRICING OF SHARES...............................................A-6
TAXES...........................................................A-6
OBTAINING ADDITIONAL INFORMATION.............................BACK COVER PAGE
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 is a service
mark of A I M Management Group Inc.
2
<PAGE> 30
INVESTMENT OBJECTIVES AND STRATEGIES
The fund's primary investment objective is long-term growth of capital and its
secondary investment objective is income, to the extent consistent with seeking
growth of capital.
The fund seeks to achieve its objectives by investing substantially all of its
assets in issuers in developing countries, i.e., those that are in the initial
stages of their industrial cycles. The fund will invest a majority of its assets
in equity securities, and may also invest in debt securities, of developing
countries. The fund considers issuers in "developing countries" to be those (i)
organized under the laws of a developing country or have a principal office in a
developing country; (ii) that derive 50% or more, alone or on a consolidated
basis, of their total revenues from business in developing countries; or (iii)
whose securities are trading principally on a stock exchange, or in an
over-the-counter market, in a developing country. The fund will normally invest
in issuers in at least four countries, but it will not invest more than 25% of
its assets in issuers in any one country. The fund also may not hold more than
40% of its assets in any one foreign currency and securities denominated in or
indexed to such currency. The fund may invest in debt securities when economic
and other factors appear to favor such investments. The fund may also invest up
to 100% of its assets in lower-quality debt securities, i.e., "junk bonds."
The fund may invest up to 50% of its total assets in the following types of
developing market debt securities: (1) debt securities issued or guaranteed by
governments, their agencies, instrumentalities or political subdivisions, or by
government owned, controlled or sponsored entities, including central banks
(sovereign debt), including "Brady Bonds"; (2) interests in issuers organized
and operated for the purpose of restructuring the investment characteristics of
sovereign debt; (3) debt securities issued by banks and other business entities;
and (4) debt securities denominated in or indexed to the currencies of emerging
markets. Brady Bonds are debt restructurings that provide for the exchange of
cash and loans for newly issued bonds. There is no requirement with respect to
the maturity or duration of debt securities in which the fund may invest.
The portfolio managers focus on companies that have experienced above-average,
long-term growth in earnings and have excellent prospects for future growth. In
selecting countries in which the fund will invest, the portfolio managers also
consider such factors as the prospect for relative economic growth among
countries or regions, economic or political conditions, currency exchange
fluctuations, tax considerations and the liquidity of a particular security. The
portfolio managers usually sell a particular security when any of those factors
materially changes.
The fund is a non-diversified portfolio, which means that with respect to 50% of
its assets, it is permitted to invest more than 5% of its assets in the
securities of any one issuer.
In anticipation of or in response to adverse market conditions or for cash
management purposes, the fund may hold all or a portion of its assets in cash
(U.S. dollars, foreign currencies or multinational currency units), money market
securities, bonds or other debt securities. As a result, the fund may not
achieve its investment objective.
[The fund may engage in active and frequent trading of portfolio securities to
achieve its investment objective. If the fund does trade in this way, it may
incur increased transaction costs and brokerage commissions, both of which can
lower the actual return on your investment. Active trading may also increase
short-term capital gains and losses, which may affect the taxes you have to
pay.]
3
<PAGE> 31
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 price of equity securities rises and
falls in response to many factors, including the historical and prospective
earnings of the issuer of the stock, the value of its assets, general economic
conditions, interest rates, investor perceptions, and market liquidity. Debt
securities are particularly vulnerable to credit risk and interest rate
fluctuations. When interest rates rise, bond prices fall; the longer the bond's
duration, the more sensitive it is to this risk.
The prices of securities issued by foreign issuers may be further affected by
other factors including
o Currency exchange rates -- The dollar value of the fund's investments in
emerging markets will be affected by changes in the exchange rates between
the dollar and the currencies in which those investments are traded.
o Political and economic conditions -- The value of the fund's emerging market
investments may be adversely affected by political and social instability
and by changes in economic or taxation policies in those countries.
o Regulations -- emerging market companies generally are subject to less
stringent regulations, including financial and accounting controls, than are
U.S. companies. As a result, among other things, there generally is less
publicly available information about foreign companies than about U.S.
companies.
o Markets -- The securities markets of emerging market countries are smaller
and less developed than U.S. securities markets. As a result, many foreign
securities may be less liquid and more volatile than U.S. securities.
These factors may affect the price of securities issued by foreign companies
located in developing countries more than those in countries with mature
economies. For example, many developing countries have, in the past, experienced
high rates of inflation or sharply devalued their currencies against the U.S.
dollar, thereby causing the value of investments in companies located in those
countries to decline. Transaction costs are often higher in developing countries
and there may be delays in settlement procedures. In addition, developing
countries may have greater political or economic instability, less regulation
and smaller, less liquid and more volatile markets than countries with more
mature economies.
Sovereign debt securities of developing country governments are generally
lower-quality debt securities. Sovereign debt securities are subject to the
additional risk that, under some political, diplomatic, social or economic
circumstances, some developing countries that issue lower-quality debt
securities may be unable or unwilling to make principal or interest payments as
they come due.
Compared to higher-quality debt securities, junk bonds involve greater risk of
default or price changes due to changes in the credit quality of the issuer
because they are generally unsecured and may be subordinated to other creditors'
claims. The value of lower-quality debt securities often fluctuates in response
to company, political or economic developments and can decline significantly
over short periods of time or during periods of general or regional economic
difficulty.
Because it is non-diversified, the fund may invest in fewer issuers than if it
was a diversified fund. The value of the fund's shares may vary more widely, and
the fund may be subject to greater investment and credit risk, than if the fund
invested more broadly.
Many software systems are unable to distinguish the year 2000 from the year
1900. The fund's investment advisor, together with independent technology
consultants, has completed its determination as to whether any software systems
that the fund uses or depends on has that problem and is in the process of
correcting and testing those systems that may have such problem. This problem,
if not corrected, may adversely affect services provided to the fund or may
affect companies in which the fund may invest and, therefore, may lower the
value of your shares.
4
<PAGE> 32
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.
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 Advisor
Class shares over a 2-year period.
AIM Developing Markets Fund
(Advisor)
[GRAPH]
Annual
Years ended Total
December 31, Returns
------------ -------
12/31/97 ...................................... 12.92%
*The year-to-date return as of 1/31/99 (the end of the most recent fiscal
quarter) was ____ %.
[BAR CHART TO BE REVISED]
[INFO BELOW TO BE PROVIDED AT ANNUAL UPDATE FILING - NOT NOW]
During the 2-year period shown in the bar chart, the highest quarterly return
was [____%] (quarter ended [______________________]) and the lowest quarterly
return was [____%] (quarter ended [______________________]).
5
<PAGE> 33
PERFORMANCE TABLE
The following performance table shows how the fund's average annual returns for
one, five and 10 years compare to those of a broad-based securities market
index.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Average Annual Total Returns
(for the periods ending December 31, 1998)
1 Year 5 Years 10 Years
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Advisor Class*
- -------------------------------------------------------------------------------
JP Morgan EMBI Plus**
- -------------------------------------------------------------------------------
</TABLE>
* Advisor Class returns are since inception (11/1/97).
** JP Morgan EMBI Plus is a market value-weighted average of government bonds
from 13 emerging bond markets. It includes the effect of reinvested coupons
and is measured in U.S. dollars. Relative to the J.P. Morgan EMBI (Brady),
the EMBI Plus is more diversified both geographically and in the
instruments it tracts.
[INFO IN THE ABOVE CHART TO BE UPDATED/PROVIDED AT THE ANNUAL UPDATE FILING -
NOT NOW]
6
<PAGE> 34
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>
Advisor Class
-------------
<S> <C>
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price
or redemption proceeds, whichever is less) None
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
Management Fees(1) 0.98%
Distribution and/or Service (12b-1) Fees None
Other Expenses:
Transfer agent fees and costs --
Other --
Total Other Expenses --
Total Annual Fund Operating Expenses --
</TABLE>
- -------------------
[(1) The investment advisor is currently waiving a portion of its fees. The
management fees were 0.61% after such waiver. The waiver may be terminated
at any time with the approval of the fund's Board of Directors. If the
waiver is terminated before the end of the fund's fiscal year, the
investment advisor may be reimbursed the waived amounts for that year.]
EXPENSE EXAMPLE
This example is intended to help you compare the cost of investing in the
Advisor Class of the fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's operating expenses remain the same. Although your actual returns and
costs may be higher or lower, based on these assumptions your costs would be:
7
<PAGE> 35
[FUND ACCOUNTING TO PROVIDE INFO AT ANNUAL UPDATE FILING - NOT NOW]
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Advisor Class [$ $ $ $
</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>
Advisor Class $ $ $ $ ]
</TABLE>
8
<PAGE> 36
FUND MANAGEMENT
THE ADVISOR AND SUBADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor.
INVESCO Asset Management Ltd. (the subadvisor), [an affiliate] of the advisor,
is the fund's subadvisor and is responsible for its day-to-day management. The
advisor is located at 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173.
The subadvisor is located at 11 Devonshire Square, London, EC2M 4YR, England.
The advisors supervise all aspects of the fund's operations and provide
investment advisory services to the fund, including obtaining and evaluating
economic, statistical and financial information to formulate and implement
investment programs for the fund.
The advisor has acted as an investment adviser since its organization in 1976,
and the subadvisor has acted as an investment adviser since its organization in
___________________. Today, the advisor, together with its subsidiaries, advises
or manages over 90 investment portfolios, including the fund, encompassing a
broad range of investment objectives.
ADVISOR COMPENSATION
During the fund's last fiscal year ended October 31, 1998, the fund paid the
advisor advisory fees of ________% of the fund's average net assets.
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, [all of whom are officers of the subadvisor], are
o Francesco Bertoni, Portfolio Manager, who has been responsible for the fund
since 1998 and has been associated with INVESCO (NY), Inc. and/or its
affiliates since 1998. From 1990 to 1994, he was a Portfolio Manager for the
subadvisor. In 1994, he became an Investment Director for the subadvisor.
o Cheng-Hock Lau, Chief Investment Officer for Global Fixed Income and
Portfolio Manager, who has been responsible for the fund since 1997 and has
been associated with INVESCO (NY), Inc. and/or its affiliates since 1995. He
has been Chief Investment Officer for Global Fixed Income and Portfolio
Manger for INVESCO (NY), Inc. since October 1996. From July 1995 to October
1996, he was Senior Portfolio Manager for Global/International Fixed Income
for INVESCO (NY), Inc. and was employed by Chancellor Capital Management
Inc. ("Chancellor Capital"), a predecessor of INVESCO (NY), Inc. From 1993
to 1995, he was Senior Vice President and Senior Portfolio Manager for
Fiduciary Trust Company International. He was Vice President at the Bankers
Trust Company from 1991 to 1993.
9
<PAGE> 37
OTHER INFORMATION
DIVIDENDS AND DISTRIBUTIONS
Capital Gains Distributions
The fund generally distributes any long-term and short-term capital gains
(including any net gains from foreign currency transactions), if any, annually.
Dividends
The fund generally declares and pays dividends, if any, annually.
10
<PAGE> 38
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 table shows the financial highlights for a share of the fund outstanding
during each of the fiscal years (or periods) indicated.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the fund's financial statements, is included in the fund's annual
report, which is available upon request.
<TABLE>
<CAPTION>
1998
----------
<S> <C>
Net asset value, beginning of period $ 17.04
----------
Income from investment operations:
Net investment income (loss) (0.02)
----------
Net gains on securities (both realized and unrealized) 1.29
----------
Total from investment operations 1.27
==========
Distributions from net realized gains --
----------
Net asset value, end of period $ 18.31
----------
Total return (a) 7.45%
==========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $3,726,029
==========
Ratio of expenses to average net assets (b) 0.01%
==========
Ratio of net investment income (loss) to average net assets (e) (0.15)%
==========
Portfolio turnover rate 79%
==========
</TABLE>
[(a) Does not deduct sales charges and are 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 were
X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(c) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been the
same.
(e) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (X.XX)%, (X.XX)%, (X.XX)%, (X.XX)% and (X.XX)% for
[ACCT. TO INCLUDE 1998 INFO AT THE ANNUAL UPDATE - NOT NOW]
11
<PAGE> 39
SHAREHOLDER INFORMATION FOR ADVISOR CLASS SHARES
- -------------------------------------------------------------------------------
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM ACCOUNT
The minimum initial investment for Advisor Class shares is $500; and the
minimum investment for purchases of additional Advisor Class shares is $50.
HOW TO PURCHASE SHARES
Shares offered by this prospectus are available for purchase only by certain
investors and are offered at net asset value without the imposition of a
front-end or contingent deferred sales charge or Rule 12b-1 fees. Advisor Class
shares are available through financial consultants (such as financial planners,
trust companies, bank trust departments, and registered investment advisors).
In order to purchase Advisor Class shares of any AIM Fund, your financial
consultant, on your behalf, must submit a fully completed new account
application form directly to the transfer agent.
There are several ways you can purchase your shares. You can make direct
purchases or select from two automatic investment methods.
DIRECT PURCHASES
<TABLE>
<CAPTION>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Through a Financial Consultant Contact your financial consultant. Same
By Mail Must be submitted by your financial Mail your check and the remittance
consultant. slip from your confirmation
statement to the transfer agent.
A I M Fund Services, Inc., P.O. Box
4739
Houston, TX 77210-4739
By Wire Your financial consultant must mail a Call the transfer agent to receive a
completed account application to the reference number. Then, use the
transfer agent. You or your financial wire instructions at left.
consultant may call the transfer agent
at (800) 959-4246 to 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 #
</TABLE>
A-1
<PAGE> 40
<TABLE>
<CAPTION>
<S> <C> <C>
By AIM Bank Open your account using one of the Mail completed AIM Bank Connection(sm)
Connection(sm) methods described above. form to the transfer agent. Once the
transfer agent has received the form,
call the transfer agent to place your
purchase order.
</TABLE>
SPECIAL PLANS
Automatic Dividend Investment
All of your dividends and distributions may be paid in cash or invested in
Advisor Class shares of certain AIM Funds. Unless you specify otherwise, your
dividends and distributions will automatically be reinvested in the same AIM
Fund.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in Advisor Class shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend or
distribution must be at least $5,000; or (b) in the AIM Fund receiving the
dividend or distribution 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 and
distributions 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 holdings of Advisor Class shares of AIM Funds 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 Advisor
Class shares 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.
The distributor and its agents reserve the right at any time to (1) reject or
cancel any part of any purchase or exchange order; (2) modify any terms or
conditions of purchase of shares of any AIM Fund; or (3) withdraw all or any
part of the offering made by this Prospectus.
A-2
<PAGE> 41
REDEEMING SHARES
TIMING OF REDEMPTIONS
You can redeem shares during the hours the New York Stock Exchange (NYSE) is
open for business. An AIM Fund may postpone the right of redemption only under
unusual circumstances, such as when the NYSE restricts or suspends trading.
REDEMPTION FEES
No redemption fee is imposed when shares are redeemed or repurchased; however,
dealers/financial institutions may charge service fees for handling repurchase
transactions.
A-3
<PAGE> 42
<TABLE>
<CAPTION>
HOW TO REDEEM SHARES
- -------------------------------------------------------------------------------------------------------------------
<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.
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. The transfer agent must receive your call
during the hours the 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 at the address on record with
us.
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.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
A-4
<PAGE> 43
(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.
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, IN ITS DISCRETION, REDEEM THE ACCOUNT AND DISTRIBUTE THE PROCEEDS
TO YOU.]
EXCHANGING SHARES
You may, under certain circumstances, exchange Advisor Class shares in one AIM
Fund for Advisor Class shares of another AIM Fund. Before requesting an
exchange, review the prospectus of the AIM Fund you wish to acquire.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
o You must meet the minimum purchase requirements for the AIM Fund into
which you are exchanging;
o Shares of the AIM Fund you wish to acquire must be qualified for sale in
your state of residence;
o Exchanges must be made between accounts with identical registration
information;
o 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);
o The AIM Fund from which you are exchanging must have received the full
amount of the purchase price for the shares being exchanged;
o Recently acquired shares must have been held in your account for ten
business days, and all other shares must have been held for at least one
day, prior to the exchange; and
o If you have physical share certificates, you must return them to the
transfer agent prior to the exchange.
A-5
<PAGE> 44
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the issuance of shares
being purchased 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.
GENERAL INFORMATION
- -------------------------------------------------------------------------------
PRICING OF SHARES
Each of the AIM Funds prices its shares based on its net asset value. 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. 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 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 Trustees 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. The AIM Funds price
purchase, exchange, and redemption orders calculated at the net asset value
after the transfer agent receives an order in good form.
A-6
<PAGE> 45
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. Long-term capital gain
distributions are taxable as long-term capital gains when distributed to you,
no matter how long you held your shares. Different rates of tax may apply to
ordinary income and long-term capital gain distributions. Every year, an
account statement showing the amount of dividends and distributions you
received from each AIM Fund during the prior year will be sent to you.
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 of the AIM Fund's shares, and any gain
realized on the transaction will 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.
A-7
<PAGE> 46
[BACK COVER PAGE]
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
United States 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 semi-annual 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 semi-annual reports, please contact us:
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
semi-annual reports only)
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, D.C., 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, D.C. 20549-6009. Please call the SEC
at 1-800-SEC-0330 for information about the Public Reference Room.
12
<PAGE> 47
[AIM LOGO]
[AIM EMERGING MARKETS FUND]
PROSPECTUS
MARCH 1, 1999
AIM Emerging Markets Fund seeks to provide long-term growth of capital.
This prospectus contains important information. Please read it before investing
and keep it for future reference.
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. There is a risk that you could lose a portion or all of your money.
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.
<PAGE> 48
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT OBJECTIVE AND STRATEGIES......................................................................3
PRINCIPAL RISKS OF INVESTING IN THE FUND.................................................................3
PERFORMANCE INFORMATION..................................................................................6
ANNUAL TOTAL RETURNS............................................................................6
PERFORMANCE TABLE...............................................................................7
FEE TABLE AND EXPENSE EXAMPLE............................................................................8
FEE TABLE.......................................................................................8
EXPENSE EXAMPLE.................................................................................9
FUND MANAGEMENT.........................................................................................10
THE ADVISOR....................................................................................10
ADVISOR COMPENSATION...........................................................................10
PORTFOLIO MANAGERS.............................................................................10
OTHER INFORMATION.......................................................................................11
INITIAL SALES CHARGES FOR CLASS A SHARES.......................................................11
DIVIDENDS AND DISTRIBUTIONS....................................................................11
FINANCIAL HIGHLIGHTS....................................................................................12
SHAREHOLDER INFORMATION................................................................................A-1
CHOOSING A SHARE CLASS........................................................................A-1
PURCHASING SHARES.............................................................................A-4
REDEEMING SHARES..............................................................................A-6
EXCHANGING SHARES.............................................................................A-9
PRICING OF SHARES............................................................................A-11
TAXES........................................................................................A-11
OBTAINING ADDITIONAL INFORMATION...........................................................BACK COVER PAGE
</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 is a service
mark of A I M Management Group Inc.
2
<PAGE> 49
INVESTMENT OBJECTIVE AND STRATEGIES
[The fund's investment objective is to seek growth of capital without regard to
income. The fund attempts to meet this objective by investing principally in
common stocks of domestic and foreign small and medium-sized growth companies.
The fund's investment objective may be changed by the fund's Board of Trustees
without shareholder approval.
The fund's portfolio managers focus on companies they believe that are likely
to benefit from new or innovative products, services or processes as well as
those that have experienced above-average, long-term growth in earnings and
have excellent prospects for future growth. The fund's portfolio managers
usually sell a particular security when those factors reverse.
In anticipation of or in response to adverse market conditions or for cash
management purposes, the fund may hold all or a portion of its assets in cash,
money market securities, bonds or other debt securities. As a result, the fund
may not achieve its investment objective.]
[The fund may engage in active and frequent trading of portfolio securities to
achieve its investment objectives. If the fund does trade in this way, it may
incur increased transaction costs and brokerage commissions, both of which can
lower the actual return on your investment. Active trading may also increase
short-term capital gains and losses, which may affect the taxes you have to
pay.]
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. The value of your investment in the fund will go up and down with the
prices of the common stocks in which the fund invests. The price of common
stock goes up and down in response to many factors, including the historical
and prospective earnings of the issuer of the stock, the value of its assets,
general economic conditions, interest rates, investor perceptions and market
liquidity. This is especially true with respect to common stocks of small- and
medium-sized growth companies, whose prices may go up and down more than common
stocks of larger, more-established companies. Because the fund primarily
invests in common stocks that have greater price fluctuation, the price of your
shares similarly may go up and down. Also, since common stocks of small- and
medium-sized growth companies may not be traded as often as common stocks of
larger companies, it may be difficult or impossible for the fund to sell
securities in the fund at a desired price. As a result, the price of your
shares may decline.
The fund also may invest in common stock issued by foreign companies, which
have additional risks, including exchange rate changes, political and economic
upheaval, the relative lack of information about these companies and the
potential lack of strict controls and standards.
In addition, the prices of common stocks issued by foreign companies may be
further affected by other factors, including
3
<PAGE> 50
o 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.
o 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.
o Regulations - Foreign companies generally are subject to less stringent
regulation that are U.S. companies. As a result, among other things, there
generally is less publicly available information about foreign companies
than about U.S. companies.
o 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.
Many software systems are unable to distinguish the year 2000 from the year
1900. The fund's investment advisor, together with independent technology
consultants, has completed its determination as to whether any software systems
the fund uses or depends on has that problem and is in the process of
correcting and testing those systems that may have such problem. This problem,
if not corrected, may adversely affect the services provided to the fund or may
affect companies in which the fund may invest, and, therefore, may lower the
value of your shares.
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.
4
<PAGE> 51
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 *
<TABLE>
<CAPTION>
Year Ended
December 31, Annual Return
- ----------- -------------
<S> <C>
1993 17.29%
1994 1.30%
1995 35.45%
1996 16.27%
1997 12.92%
1998
</TABLE>
The following bar chart shows changes in the performance of the fund's Class A
shares from year to year over a 6-year period. The bar chart does not reflect
sales loads. If it did, the annual total returns shown would be lower.
*The year-to-date return as of ____/_____/_____ (the end of the most recent
fiscal quarter) was ____ %.
[BAR CHART TO BE REVISED - LEAVE A BLANK FOR 1998]
[INFO BELOW TO BE UPDATED/PROVIDED AT THE TIME OF THE ANNUAL UPDATE FILING -
NOT NOW]
During the 6-year period shown in the bar chart, the highest quarterly return
was __________% (quarter ended _________) and the lowest quarterly return was
_____________% (quarter ended ____________).
PERFORMANCE TABLE
The following performance table shows how the fund's average annual returns for
one, five and 10 years compare to those of a broad-based securities market
index.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Average Annual Total Returns
(for the periods ending December 31, 1998)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 Year 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 52
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Average Annual Total Returns
(for the periods ending December 31, 1998)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 Year 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------
Class A* [ ]% [ ]% [ ]%
- ---------------------------------------------------------------------------------------------------
Class B** [ ] [ ] [ ]
- ---------------------------------------------------------------------------------------------------
MSCI Emerging Markets*** [ ] [ ] [ ]
- ---------------------------------------------------------------------------------------------------
</TABLE>
* Class A returns are since inception (__ /__ /__ ).
** Class B returns are since inception (__ /__ /__ ).
*** MSCI Emerging Markets.
[PLEASE REVIEW/REFINE THE ABOVE DESCRIPTION OF MSCI EMERGING MARKETS]
[INFO IN THE ABOVE CHART TO BE UPDATE/PROVIDED AT THE ANNUAL UPDATE FILING -
NOT NOW]
6
<PAGE> 53
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>
Class A Class B
------- -------
<S> <C> <C>
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) 4.75% None
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price
or redemption proceeds, whichever is less) None(1) 15.00
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
Management Fees 2 0.98% 0.98%
Distribution and/or Service (12b-1) Fees 0.50 1.00
Other Expenses:
Transfer agent fees and costs ____ ____
Other ____ ____
Total Other Expenses ____ ____
Total Annual Fund Operating Expenses ____ ____
- -------------------
</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 investment advisor is currently waiving a portion of its fees. The
management fees were 0.61% after such waiver. The waiver may be terminated
at any time with the approval of the fund's Board of Trustees. If the
waiver is terminated before the end of the fund's fiscal year, the
investment advisor may be reimbursed the waived amounts for that year.]
As a result of 12b-1 fees, long-term shareholders in the fund may pay more than
the maximum permitted initial sales charge.
<PAGE> 54
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 $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that
the fund's operating expenses remain the same. Although your actual returns and
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A [$ $ $ $
Class B
You would pay the following expenses if you did not redeem your shares:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A $ $ $ $
Class B
</TABLE>
<PAGE> 55
FUND MANAGEMENT
THE ADVISOR AND SUBADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment adviser.
INVESCO Asset Management Ltd. (the subadvisor), an affiliate of the advisor, is
the fund's subadvisor and is responsible for its day-to-day management. The
advisor is located at 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173.
The subadvisor is located at 11 Devonshire Square, London EC2M 4YR, England.
The advisors supervise all aspects of the fund's operations and provide
investment advisory services to the fund, including obtaining and evaluating
economic, statistical and financial information to formulate and implement
investment programs for the fund.
The advisor has acted as an investment adviser since its organization in 1976,
and the subadvisor has acted as an investment adviser since __________. Today,
the advisor, together with its subsidiaries, advises or manages over 90
investment portfolios, including the fund, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the fund's last fiscal year ended October 31, 1998, the fund paid the
advisor advisory fees of ________% of the fund's average net assets.
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, [all of whom are officers of the subadvisor], are
o Francesco Bertoni, Portfolio Manager, who has been responsible for the fund
since 1998 and has been associated with INVESCO (NY), Inc. and/or its
affiliates since 1998. From 1990 to 1994, he was a Portfolio Manager for
the subadvisor. In 1994, he became an Investment Director of the
subadvisor.
o Christine Rowley, Portfolio Manager for the INVESCO (NY), Inc., INVESCO GT
Asset Management PLC (London) and INVESCO GT Asset Management Asia Ltd.
(Hong Kong), has been responsible for the fund since 1997 and has been
associated with the INVESCO (NY), Inc. and/or its affiliates since 1992.
<PAGE> 56
OTHER INFORMATION
INITIAL SALES CHARGES FOR CLASS A SHARES
Purchases of Class A shares of the 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.
DIVIDENDS AND DISTRIBUTIONS
Capital Gains Distributions
The fund generally distributes any long-term and short-term capital gains
(including any net gains from foreign currency transactions), if any, annually.
Dividends
The fund generally declares and pays dividends, if any, annually.
<PAGE> 57
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 table shows the financial highlights for a share of the fund outstanding
during each of the fiscal years (or periods) indicated.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the fund's financial statements, is included in the fund's annual
report, which is available upon request.
<TABLE>
<CAPTION>
Class A
--------------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- -------
Net gains on securities (both realized
and unrealized) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- -------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- -------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- -------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $xx.xx
------- ------- ------- ------- -------
Total return (a) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------- ------- ------- ------- -------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $xx,xxx $xx,xxx $xx,xxx $xx,xxx $xx,xxx
------- ------- ------- ------- -------
Ratio of expenses to average net assets (b) x.xx% (c)(d) x.xx% x.xx% x.xx% x.xx%
------- ------- ------- ------- -------
Ratio of net investment income (loss) to
average net assets (e) (x.xx)% (c) (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------- ------- ------- ------- -------
Portfolio turnover rate xx% xx% xx% xx% xx%
------- ------- ------- ------- -------
</TABLE>
(a) Does not deduct sales charges and are 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 were
X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(c) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been the
same.
(e) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (X.XX)%, (X.XX)%, (X.XX)%, (X.XX)% and (X.XX)% for
1998-1994.
[FINANCIAL HIGHLIGHTS BELOW ARE FOR CLASS A AND CLASS B FOR THE YEARS/PERIODS
INDICATED - TO BE
REVISED BY FUND ACCOUNTING TO INCLUDE 1998 INFORMATION AT THE ANNUAL UPDATE
FILING-NOT NOW]
<PAGE> 58
<TABLE>
<CAPTION>
Class B
--------------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------- ------ ------- ------- -------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------ ------- ------- -------
Net gains on securities (both realized
and unrealized) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------ ------- ------- -------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------ ------- ------- -------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------ ------- ------- -------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $xx.xx
------- ------ ------- ------- -------
Total return (a) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------- ------ ------- ------- -------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $xx,xxx $xx,xxx $xx,xxx $xx,xxx $xx,xxx
------- ------ ------- ------- -------
Ratio of expenses to average net assets (b) x.xx% (c)(d) x.xx% x.xx% x.xx% x.xx%
------- ------ ------- ------- -------
Ratio of net investment income (loss) to
average net assets (e) (x.xx)% (c) (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------- ------ ------- ------- -------
Portfolio turnover rate xx% xx% xx% xx% xx%
------- ------ ------- ------- -------
</TABLE>
(a) Does not deduct sales charges and are 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 were
X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(c) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been the
same.
(e) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (X.XX)%, (X.XX)%, (X.XX)%, (X.XX)% and (X.XX)% for
1998-1994.
<PAGE> 59
SHAREHOLDER INFORMATION
Choosing a Share Class
Many of the funds advised by the advisor (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>
o Initial sales charge o No initial sales charge o No initial sales charge
o Reduced or o Contingent deferred o Contingent deferred
waived initial sales charge on sales charge on
sales charge for redemptions within redemptions within
certain purchases six years one year
o Lower distribution o 12b-1 fee of 1.00% o 12b-1 fee of 1.00%
and service (12b-1)
fee than Class B or
Class C shares
(See "Fee Table o Converts to Class A o Does not convert to
and Expense shares after eight years Class A shares
Example") along with a pro rata
portion of its reinvested
dividends and distributions*
o Generally more o Purchase orders limited o Generally more
appropriate for long- to amounts less than appropriate for short-
term investors $250,000 term investors
</TABLE>
* If you held Class B shares of AIM Global Trends Fund 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
<PAGE> 60
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.
CATEGORY I Initial Sales Charges
- --------------------------------
<TABLE>
<CAPTION>
INVESTOR'S SALES CHARGE
-----------------------
AS A PERCENTAGE
AS A PERCENTAGE OF THE
AMOUNT OF INVESTMENT OF THE PUBLIC NET AMOUNT
IN SINGLE TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<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>
CATEGORY II Initial Sales Charges
- ---------------------------------
<TABLE>
<CAPTION>
INVESTOR'S SALES CHARGE
-----------------------
AS A PERCENTAGE
AS A PERCENTAGE OF THE
AMOUNT OF INVESTMENT OF THE PUBLIC NET AMOUNT
IN SINGLE TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<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>
CATEGORY III Initial Sales Charges
- ----------------------------------
<TABLE>
<CAPTION>
INVESTOR'S SALES CHARGE
-----------------------
AS A PERCENTAGE
AS A PERCENTAGE OF THE
AMOUNT OF INVESTMENT OF THE PUBLIC NET AMOUNT
IN SINGLE TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<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.
A-2
<PAGE> 61
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>
CLASS B CLASS C
CDSC AS A PERCENTAGE CDSC AS A PERCENTAGE
OF DOLLAR AMOUNT OF DOLLAR AMOUNT
YEAR SINCE PURCHASE MADE SUBJECT TO CHARGE SUBJECT TO CHARGE
------------------------ ----------------- -----------------
<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>
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 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
o on shares purchased by reinvesting dividends and distributions;
o when exchanging shares among certain AIM Funds;
o when using the reinstatement privilege; and
o 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
o if you redeem Class B shares you held for more than six years;
o if you redeem Class C shares you held for more than one year;
o if you redeem shares acquired through reinvestment of dividends and
distributions; and
o on increases in the net asset value of your shares.
A-3
<PAGE> 62
There may be other situations in which you or other shareholders may be able to
purchase or redeem shares at reduced or without sales charges. You should
consult the fund's Statement of Additional Information for details regarding
these situations.
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>
- -------------------------------------------------------------------------------------------------------------------------
Type of Account Initial Additional
Investments Investments
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing plans, 401(k) plans, Simplified $0 ($25 per $25
Employee Pension (SEP) accounts, Salary Reduction (SARSEP) accounts, Savings AIM Fund
Incentive Match Plans for Employee IRA (Simple IRA) accounts, 403(b) or 457 investment
plans) for salary
deferrals
from Savings
Plans)
- -------------------------------------------------------------------------------------------------------------------------
Automatic Investment Plans $50 $50
- -------------------------------------------------------------------------------------------------------------------------
IRA, Education IRA or Roth IRA $250 $50
- -------------------------------------------------------------------------------------------------------------------------
All other accounts $500 $50
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 63
HOW TO PURCHASE SHARES
There are several ways you can purchase your shares. You can make direct
purchases or select from one of three automatic investment methods.
DIRECT PURCHASES
<TABLE>
<CAPTION>
Opening An Account Adding to An Account
<S> <C> <C>
Through a
Financial
Consultant Contact your financial consultant. Same
By Mail Mail completed Account Mail your check and the
Application and purchase payment to the transfer agent, remittance slip from
A I M Fund Services, Inc., P.O. Box 4739, your confirmation statement
Houston, TX 77210-4739. to the transfer agent.
By Wire Mail completed Account Call the transfer agent to
Application to the transfer agent. receive a reference number.
Call the transfer agent at Then, use the wire
(800) 959-4246 to receive a reference number. instructions at left.
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 methods described Mail completed AIM Bank
above. Connection(sm) form to the
transfer agent. Once
the transfer agent has
received the form, call the
transfer agent to place your
purchase.
</TABLE>
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 and in the same class of shares. 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
A-5
<PAGE> 64
10th or 25th day of the month 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 at net
asset value in certain AIM Funds without paying a sales charge. 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. 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
TIMING OF REDEMPTIONS
You can redeem shares during the hours the New York Stock Exchange (NYSE) is
open for business. An AIM Fund may postpone the right of redemption only under
unusual circumstances, such as when the NYSE restricts or suspends trading.
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<PAGE> 65
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).
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.
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 eighteen 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.
HOW TO REDEEM SHARES
<TABLE>
<CAPTION>
Through a
Financial Consultant Contact your financial consultant.
<S> <C>
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 thirty
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 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.
A-7
<PAGE> 66
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 New York Stock Exchange (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.
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
A-8
<PAGE> 67
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 and it may have tax consequences.
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, in 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 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;
A-9
<PAGE> 68
(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:
o You must meet the minimum purchase requirements for the AIM Fund into
which you are exchanging;
o Shares of the AIM Fund you wish to acquire must be qualified for sale in
your state of residence;
o Exchanges must be made between accounts with identical registration
information;
o 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);
o Shares must have been held for at least one day prior to the exchange; and
o If you have physical share certificates, you must return them to the
transfer agent prior to the exchange.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the issuance of shares
being purchased 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
A-10
<PAGE> 69
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; OR WITHDRAW ALL OR ANY PART OF
THE OFFERING MADE BY THIS PROSPECTUS.
Pricing of Shares
Each of the AIM Funds prices its shares based on its net asset value. 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 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 New York Stock
Exchange (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. The AIM Funds price purchase, exchange and redemption
orders at the net asset value calculated after the transfer agent receives an
order in good form.
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. Every year, an
A-11
<PAGE> 70
account statement showing the amount of dividends and distributions you
received from each AIM Fund during the prior year will be sent to you.
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 of the AIM Fund's shares, and any gain
realized on the transaction will 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.
A-12
<PAGE> 71
[BACK COVER PAGE]
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
United States 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 semi-annual 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 semi-annual reports, please contact us:
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
semi-annual reports only)
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, D.C., 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, D.C. 20549-6009. Please call
the SEC at 1-800-SEC-0330 for information about the Public Reference Room.
AIM Emerging Markets Fund
SEC 1940 Act file number: 811-05426
<PAGE> 72
[AIM LOGO]
ADVISOR CLASS
[AIM EMERGING MARKETS FUND]
PROSPECTUS
MARCH 1, 1999
AIM Emerging Markets Fund seeks to provide long-term growth of capital.
This prospectus contains important information. Please read it before investing
and keep it for future reference.
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. There is a risk that you could lose a portion or all of your money.
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.
<PAGE> 73
TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES......................................................................3
PRINCIPAL RISKS OF INVESTING IN THE FUND.................................................................4
PERFORMANCE INFORMATION..................................................................................5
ANNUAL TOTAL RETURNS............................................................................5
PERFORMANCE TABLE...............................................................................6
FEE TABLE AND EXPENSE EXAMPLE............................................................................7
FEE TABLE.......................................................................................7
EXPENSE EXAMPLE.................................................................................7
FUND MANAGEMENT..........................................................................................9
THE ADVISOR AND SUBADVISOR......................................................................9
ADVISOR COMPENSATION............................................................................9
PORTFOLIO MANAGERS..............................................................................9
OTHER INFORMATION.......................................................................................10
DIVIDENDS AND DISTRIBUTIONS....................................................................10
FINANCIAL HIGHLIGHTS....................................................................................11
SHAREHOLDER INFORMATION................................................................................A-1
PURCHASING SHARES.............................................................................A-1
REDEEMING SHARES..............................................................................A-3
EXCHANGING SHARES.............................................................................A-5
PRICING OF SHARES.............................................................................A-6
TAXES.........................................................................................A-6
OBTAINING ADDITIONAL INFORMATION...........................................................BACK COVER PAGE
</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 is a service
mark of A I M Management Group Inc.
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<PAGE> 74
INVESTMENT OBJECTIVE AND STRATEGIES
[The fund's investment objective is to seek growth of capital without regard to
income. The fund attempts to meet this objective by investing principally in
common stocks of domestic and foreign small and medium-sized growth companies.
The fund's investment objective may be changed by the fund's Board of Trustees
without shareholder approval.
The fund's portfolio managers focus on companies they believe that are likely to
benefit from new or innovative products, services or processes as well as those
that have experienced above-average, long-term growth in earnings and have
excellent prospects for future growth. The fund's portfolio managers usually
sell a particular security when those factors reverse.
In anticipation of or in response to adverse market conditions or for cash
management purposes, the fund may hold all or a portion of its assets in cash,
money market securities, bonds or other debt securities. As a result, the fund
may not achieve its investment objective.]
[The fund may engage in active and frequent trading of portfolio securities to
achieve its investment objectives. If the fund does trade in this way, it may
incur increased transaction costs and brokerage commissions, both of which can
lower the actual return on your investment. Active trading may also increase
short-term capital gains and losses, which may affect the taxes you have to
pay.]
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. The value of your investment in the fund will go up and down with the
prices of the common stocks in which the fund invests. The price of common stock
goes up and down in response to many factors, including the historical and
prospective earnings of the issuer of the stock, the value of its assets,
general economic conditions, interest rates, investor perceptions and market
liquidity. This is especially true with respect to common stocks of small- and
medium-sized growth companies, whose prices may go up and down more than common
stocks of larger, more-established companies. Because the fund primarily invests
in common stocks that have greater price fluctuation, the price of your shares
similarly may go up and down. Also, since common stocks of small and
medium-sized growth companies may not be traded as often as common stocks of
larger companies, it may be difficult or impossible for the fund to sell
securities in the fund at a desired price. As a result, the price of your shares
may decline.
The fund also may invest in common stock issued by foreign companies, which have
additional risks, including exchange rate changes, political and economic
upheaval, the relative lack of information about these companies and the
potential lack of strict controls and standards.
In addition, the prices of common stocks issued by foreign companies may be
further affected by other factors, including
o 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.
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<PAGE> 75
o 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.
o Regulations - Foreign companies generally are subject to less stringent
regulation that are U.S. companies. As a result, among other things, there
generally is less publicly available information about foreign companies
than about U.S. companies.
o 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.
Many software systems are unable to distinguish the year 2000 from the year
1900. The fund's investment advisor, together with independent technology
consultants, has completed its determination as to whether any software systems
the fund uses or depends on has that problem and is in the process of correcting
and testing those systems that may have such problem. This problem, if not
corrected, may adversely affect the services provided to the fund or may affect
companies in which the fund may invest, and, therefore, may lower the value of
your shares.
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.
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<PAGE> 76
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 Advisor
Class shares from year to year over a 4-year period. The bar chart does not
reflect sales loads. If it did, the annual total returns shown would be lower.
<TABLE>
<CAPTION>
Years Ended December 31 Annual Return
- ----------------------- -------------
<S> <C>
1995 35.45%
1996 16.27%
1997 12.92%
1998
</TABLE>
* The year-to-date return as of __/__/__ (the end of the most recent fiscal
quarter) was ___%.
[BAR CHART TO BE REVISED - LEAVE A BLANK FOR 1998]
[INFO BELOW TO BE UPDATED/PROVIDED AT THE TIME OF THE ANNUAL UPDATE FILING - NOT
NOW]
During the ____-year period shown in the bar chart, the highest quarterly return
was _____%
(quarter ended ____________________) and the lowest quarterly return was
_____________% (quarter ended _____________).
5
<PAGE> 77
PERFORMANCE TABLE
The following performance table shows how the fund's average annual returns for
one, five and 10 years compare to those of a broad-based securities market
index.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Average Annual Total Returns
(for the periods ending December 31, 1998)
1 Year 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Advisor Class* [ ]% [ ]% [ ]%
- ---------------------------------------------------------------------------------------------------
MSCI Emerging Markets** [ ] [ ] [ ]
- ---------------------------------------------------------------------------------------------------
</TABLE>
* Advisor Class returns are since inception (5/18/92).
** MSCI Emerging Markets ________________________.
[PLEASE REVIEW/REFINE THE ABOVE DESCRIPTION OF MSCI EMERGING MARKETS]
[INFO IN THE ABOVE CHART TO BE UPDATE/PROVIDED AT THE ANNUAL UPDATE FILING - NOT
NOW]
6
<PAGE> 78
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>
Advisor Class
-------------
<S> <C>
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price
or redemption proceeds, whichever is less) None
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
Management Fees(2) 0.98%
Distribution and/or Service (12b-1) Fees None
Other Expenses:
Transfer agent fees and costs ____
Other ____
Total Other Expenses ____
Total Annual Fund Operating Expenses ____
</TABLE>
- -------------------
[(1) The investment advisor is currently waiving a portion of its fees. The
management fees were x.xx% after such waiver. The waiver may be terminated
at any time with the approval of the fund's Board of Directors. If the
waiver is terminated before the end of the fund's fiscal year, the
investment advisor may be reimbursed the waived amounts for that year.]
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 $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's operating expenses remain the same. Although your actual returns and
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Advisor Class [$ $ $ $ ]
</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>
Advisor Class [$ $ $ $ ]
</TABLE>
7
<PAGE> 79
FUND MANAGEMENT
THE ADVISOR AND SUBADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment adviser.
INVESCO Asset Management Ltd. (the subadvisor), an affiliate of the advisor, is
the fund's subadvisor and is responsible for its day-to-day management. The
advisor is located at 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173.
The subadvisor is located at 11 Devonshire Square, London EC2M 4YR, England. The
advisors supervise all aspects of the fund's operations and provide investment
advisory services to the fund, including obtaining and evaluating economic,
statistical and financial information to formulate and implement investment
programs for the fund.
The advisor has acted as an investment adviser since its organization in 1976,
and the subadvisor has acted as an investment adviser since ____________. Today,
the advisor, together with its subsidiaries, advises or manages over 90
investment portfolios, including the fund, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the fund's last fiscal year ended October 31, 1998, the fund paid the
advisor advisory fees of ________% of the fund's average net assets.
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, [all of whom are officers of the subadvisor], are
o Francesco Bertoni, Portfolio Manager, who has been responsible for the fund
since 1998 and has been associated with INVESCO (NY), Inc. and/or its
affiliates since 1998. From 1990 to 1994, he was a Portfolio Manager for
the subadvisor. In 1994, he became an Investment Director of the
subadvisor.
o Christine Rowley, Portfolio Manager for the INVESCO (NY), Inc., INVESCO GT
Asset Management PLC (London) and INVESCO GT Asset Management Asia Ltd.
(Hong Kong), has been responsible for the fund since 1997 and has been
associated with the INVESCO (NY), Inc. and/or its affiliates since 1992.
8
<PAGE> 80
OTHER INFORMATION
DIVIDENDS AND DISTRIBUTIONS
Capital Gains Distributions
The fund generally distributes any long-term and short-term capital gains
(including any net gains from foreign currency transactions), if any, annually.
Dividends
The fund generally declares and pays dividends, if any, annually.
9
<PAGE> 81
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 table shows the financial highlights for a share of the fund outstanding
during each of the fiscal years (or periods) indicated.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the fund's financial statements, is included in the fund's annual
report, which is available upon request.
[FINANCIAL HIGHLIGHTS BELOW ARE FOR ADVISOR CLASS SHARES FOR THE YEARS/PERIODS
INDICATED - TO BE
<TABLE>
<CAPTION>
Advisor Class
------------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- -------
Net gains on securities (both realized and unrealized) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- -------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- -------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- -------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------- ------- ------- ------- -------
Total Return(a) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------- ------- ------- ------- -------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $xx,xxx $xx,xxx $xx,xxx $xx,xxx $xx,xxx
------- ------- ------- ------- -------
Ratio of expenses to average net assets(c) x.xx%(c)(d) x.xx% x.xx% x.xx% x.xx%
------- ------- ------- ------- -------
Ratio of net investment income (loss) to average net assets(e) (x.xx)%(c) (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------- ------- ------- ------- -------
Portfolio turnover rate xx% xx% xx% xx% xx%
------- ------- ------- ------- -------
</TABLE>
(a) Does not deduct sales charges and are 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 were
X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(c) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been the
same.
(e) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (X.XX)%, (X.XX)%, (X.XX)%, (X.XX)% and (X.XX)% for
1998-1994.
REVISED BY FUND ACCOUNTING TO INCLUDE 1998 INFORMATION AT THE ANNUAL UPDATE
FILING - NOT NOW]
10
<PAGE> 82
SHAREHOLDER INFORMATION FOR ADVISOR CLASS SHARES
- -------------------------------------------------------------------------------
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM ACCOUNT
The minimum initial investment for Advisor Class shares is $500; and the
minimum investment for purchases of additional Advisor Class shares is $50.
HOW TO PURCHASE SHARES
Shares offered by this prospectus are available for purchase only by certain
investors and are offered at net asset value without the imposition of a
front-end or contingent deferred sales charge or Rule 12b-1 fees. Advisor Class
shares are available through financial consultants (such as financial planners,
trust companies, bank trust departments, and registered investment advisors).
In order to purchase Advisor Class shares of any AIM Fund, your financial
consultant, on your behalf, must submit a fully completed new account
application form directly to the transfer agent.
There are several ways you can purchase your shares. You can make direct
purchases or select from two automatic investment methods.
DIRECT PURCHASES
<TABLE>
<CAPTION>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Through a Financial Consultant Contact your financial consultant. Same
By Mail Must be submitted by your financial Mail your check and the remittance
consultant. slip from your confirmation
statement to the transfer agent.
A I M Fund Services, Inc., P.O. Box
4739
Houston, TX 77210-4739
By Wire Your financial consultant must mail a Call the transfer agent to receive a
completed account application to the reference number. Then, use the
transfer agent. You or your financial wire instructions at left.
consultant may call the transfer agent
at (800) 959-4246 to 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 #
</TABLE>
A-1
<PAGE> 83
<TABLE>
<CAPTION>
<S> <C> <C>
By AIM Bank Open your account using one of the Mail completed AIM Bank Connection(sm)
Connection(sm) methods described above. form to the transfer agent. Once the
transfer agent has received the form,
call the transfer agent to place your
purchase order.
</TABLE>
SPECIAL PLANS
Automatic Dividend Investment
All of your dividends and distributions may be paid in cash or invested in
Advisor Class shares of certain AIM Funds. Unless you specify otherwise, your
dividends and distributions will automatically be reinvested in the same AIM
Fund.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in Advisor Class shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend or
distribution must be at least $5,000; or (b) in the AIM Fund receiving the
dividend or distribution 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 and
distributions 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 holdings of Advisor Class shares of AIM Funds 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 Advisor
Class shares 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.
The distributor and its agents reserve the right at any time to (1) reject or
cancel any part of any purchase or exchange order; (2) modify any terms or
conditions of purchase of shares of any AIM Fund; or (3) withdraw all or any
part of the offering made by this Prospectus.
A-2
<PAGE> 84
REDEEMING SHARES
TIMING OF REDEMPTIONS
You can redeem shares during the hours the New York Stock Exchange (NYSE) is
open for business. An AIM Fund may postpone the right of redemption only under
unusual circumstances, such as when the NYSE restricts or suspends trading.
REDEMPTION FEES
No redemption fee is imposed when shares are redeemed or repurchased; however,
dealers/financial institutions may charge service fees for handling repurchase
transactions.
A-3
<PAGE> 85
<TABLE>
<CAPTION>
HOW TO REDEEM SHARES
- -------------------------------------------------------------------------------------------------------------------
<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.
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. The transfer agent must receive your call
during the hours the 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 at the address on record with
us.
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.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
A-4
<PAGE> 86
(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.
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, IN ITS DISCRETION, REDEEM THE ACCOUNT AND DISTRIBUTE THE PROCEEDS
TO YOU.]
EXCHANGING SHARES
You may, under certain circumstances, exchange Advisor Class shares in one AIM
Fund for Advisor Class shares of another AIM Fund. Before requesting an
exchange, review the prospectus of the AIM Fund you wish to acquire.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
o You must meet the minimum purchase requirements for the AIM Fund into
which you are exchanging;
o Shares of the AIM Fund you wish to acquire must be qualified for sale in
your state of residence;
o Exchanges must be made between accounts with identical registration
information;
o 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);
o The AIM Fund from which you are exchanging must have received the full
amount of the purchase price for the shares being exchanged;
o Recently acquired shares must have been held in your account for ten
business days, and all other shares must have been held for at least one
day, prior to the exchange; and
o If you have physical share certificates, you must return them to the
transfer agent prior to the exchange.
A-5
<PAGE> 87
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the issuance of shares
being purchased 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.
GENERAL INFORMATION
- -------------------------------------------------------------------------------
PRICING OF SHARES
Each of the AIM Funds prices its shares based on its net asset value. 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. 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 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 Trustees 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. The AIM Funds price
purchase, exchange, and redemption orders calculated at the net asset value
after the transfer agent receives an order in good form.
A-6
<PAGE> 88
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. Long-term capital gain
distributions are taxable as long-term capital gains when distributed to you,
no matter how long you held your shares. Different rates of tax may apply to
ordinary income and long-term capital gain distributions. Every year, an
account statement showing the amount of dividends and distributions you
received from each AIM Fund during the prior year will be sent to you.
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 of the AIM Fund's shares, and any gain
realized on the transaction will 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.
A-7
<PAGE> 89
[BACK COVER PAGE]
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
United States 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 semi-annual 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 semi-annual reports, please contact us:
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
semi-annual reports only)
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, D.C., 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, D.C. 20549-6009. Please call the SEC
at 1-800-SEC-0330 for information about the Public Reference Room.
AIM Emerging Markets Fund
SEC 1940 Act file number: 811-05426
11
<PAGE> 90
[AIM LOGO APPEARS HERE]
AIM EMERGING MARKETS DEBT FUND
PROSPECTUS
MARCH 1, 1999
AIM Emerging Markets Debt Fund primarily seeks high current income and
secondarily growth of capital.
This prospectus contains important information. Please read it before investing
and keep it for future reference.
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. There is a risk that you could lose a portion or all of your money.
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.
<PAGE> 91
TABLE OF CONTENTS
INVESTMENT OBJECTIVES AND STRATEGIES....................................3
PRINCIPAL RISKS OF INVESTING IN THE FUND................................4
PERFORMANCE INFORMATION.................................................6
ANNUAL TOTAL RETURNS...........................................6
PERFORMANCE TABLE..............................................7
FEE TABLE AND EXPENSE EXAMPLE...........................................8
FEE TABLE......................................................8
EXPENSE EXAMPLE................................................8
FUND MANAGEMENT........................................................10
THE ADVISOR AND SUBADVISOR....................................10
ADVISOR COMPENSATION..........................................10
PORTFOLIO MANAGERS............................................10
OTHER INFORMATION......................................................11
INITIAL SALES CHARGES FOR CLASS A SHARES......................11
DIVIDENDS AND DISTRIBUTIONS...................................11
FINANCIAL HIGHLIGHTS...................................................12
SHAREHOLDER INFORMATION...............................................A-1
CHOOSING A SHARE CLASS ......................................A-1
PURCHASING SHARES............................................A-1
REDEEMING SHARES.............................................A-3
EXCHANGING SHARES............................................A-5
PRICING OF SHARES............................................A-6
TAXES........................................................A-6
OBTAINING ADDITIONAL INFORMATION..........................BACK COVER PAGE
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 is a service
mark of A I M Management Group Inc.
2
<PAGE> 92
INVESTMENT OBJECTIVES AND STRATEGIES
The fund's primary investment objective is high current income and its secondary
investment objective is growth of capital.
The fund seeks to achieve its objectives by investing all of its assets in the
Emerging Markets Debt Portfolio (the portfolio). The portfolio, in turn,
normally invests at least 65% of its total assets in debt securities of issuers
located in developing or emerging market countries, i.e., those that are in the
initial stages of their industrial cycles. The fund may invest 100% of its total
assets in lower-quality debt securities, i.e., "junk bonds," including
securities that are in default. The portfolio will invest in debt securities
issued or guaranteed by the governments of developing countries, or their
agencies or instrumentalities; securities issued or guaranteed by the central
banks of emerging market countries; securities issued by other banks and
companies in such countries; and securities denominated in or indexed to the
currencies of developing countries.
The portfolio will normally invest substantially all of its assets in debt
securities of governmental and corporate issuers in emerging markets. These
securities may consist primarily of "Brady Bonds" and other sovereign debt
securities. Brady Bonds are debt restructurings that provide for the exchange of
cash and loans for newly-issued bonds. The portfolio may also invest up to 35%
of its total assets in equity securities of issuers in developing countries;
equity and debt securities of issuers in developed countries, including the
U.S.; and cash and money market instruments.
The portfolio managers allocate assets among securities of issuers in countries
and in currency denominations where opportunities for meeting the fund's
investment objectives are expected to be the most attractive. The principal
determinants of the emphasis given to various country, geographic, and industry
sectors within the portfolio are fundamental economic strength, credit quality,
and currency and interest rate trends. Further, the portfolio managers select
particular issuers based on additional economic criteria such as yield,
maturity, issue classification, and quality characteristics. Currency
investments are based on economic factors (such as relative inflation, interest
rate levels and trends, growth rate forecasts, balance of payments status, and
economic policies) and on political and technical data. The portfolio managers
usually sell a particular security when any of those factors materially changes.
The fund and the portfolio are non-diversified portfolios, which means that with
respect to 50% of their assets, they are permitted to invest more than 5% of
their assets in the securities of any one issuer. In anticipation of or in
response to adverse market conditions or for cash management purposes, the
portfolio may hold all or a portion of its assets in cash (U.S. dollars, foreign
currencies or multinational currency units), money market securities, bonds or
other debt securities. As a result, the fund or the portfolio may not achieve
its investment objectives.
The portfolio may engage in active and frequent trading of portfolio securities
to achieve its investment objective. If the portfolio does trade in this way, it
may incur increased transaction costs, which can lower the actual return on your
investment. Active trading may also increase short-term capital gains and
losses, which may affect the taxes you have to pay.
3
<PAGE> 93
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 portfolio invests. Debt securities are particularly
vulnerable to credit risk and interest rate fluctuations. When interest rates
rise, bond prices fall; the higher the bond's duration, the more sensitive it is
to this risk.
In addition, the prices of securities of foreign issuers may be further affected
by other factors including
o Currency exchange rates - The dollar value of the portfolio's foreign
investments will be affected by changes in the exchange rates between the
dollar and the currencies in which those investments are traded.
o Political and economic conditions - The value of the portfolio's
investments in emerging markets may be adversely affected by political and
social instability and by changes in economic or taxation policies in those
countries.
o Regulations - Companies in emerging markets generally are subject to less
stringent regulations, including financial and accounting controls, than
are U.S. companies. As a result, among other things, there generally is
less publicly available information about emerging market companies than
about U.S. companies.
o Markets - The securities markets of emerging market countries are smaller
than U.S. securities markets. As a result, many emerging market securities
may be less liquid and more volatile than U.S. securities.
These factors may affect the price of securities issued by foreign companies
located in developing or emerging market countries more than those in countries
with mature economies. For example, many developing countries have, in the past,
experienced high rates of inflation or sharply devalued their currencies against
the U.S. dollar, thereby causing the value of investments in companies located
in those countries to decline. Transaction costs are often higher in developing
countries and there may be delays in settlement procedures. In addition,
developing countries may have greater political or economic instability, less
regulation and smaller, less liquid and more volatile markets than countries
with more mature economies.
Sovereign debt securities of developing country governments are generally
lower-quality debt securities. Sovereign debt securities are subject to the
additional risk that, under some political, diplomatic, social, or economic
circumstances, some developing countries that issue lower-quality debt
securities may be unable or unwilling to make principal or interest repayments
as they come due.
Compared to higher-quality debt securities, junk bonds involve greater risk of
default or price changes due to changes in the credit quality of the issuer
because they are generally unsecured and may be subordinated to other creditors'
claims. The value of lower-quality debt securities often fluctuates in response
to company, political or economic developments and can decline significantly
over short periods of time or during periods of general or regional economic
difficulty.
Because they are non-diversified, the fund and the portfolio may invest in fewer
issuers than if they were diversified funds. Thus, the value of the fund's
shares may vary more widely, and the portfolio may be subject to greater
investment and credit risk, than if the portfolio invested more broadly.
4
<PAGE> 94
Many software systems are unable to distinguish the year 2000 from the year
1900. The portfolio's investment advisor, together with independent technology
consultants, has completed its determination as to whether any software systems
that the portfolio or the fund uses or depends on has that problem and is in the
process of correcting and testing those systems that may have such problem. This
problem, if not corrected, may adversely affect services provided to the
portfolio or the fund or may affect companies in which the portfolio may invest
and, therefore, may lower the value of your shares.
An investment in the portfolio is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
5
<PAGE> 95
[INFORMATION TO BE PROVIDED BY GARY WENDLER'S GROUP]
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 A
shares from year to year over a 5-year period.
AIM Emerging Markets Debt Fund
<TABLE>
<CAPTION>
Years ended
December 31 Return %
----------- --------
<S> <C>
1994 ............................................. 1.30%
1995 ............................................. 35.45%
1996 ............................................. 16.27%
1997 ............................................. 12.92%
1998 ............................................. _____%
</TABLE>
[BAR CHART TO BE REVISED - DELETE INFO FOR 1988 AND LEAVE A BLANK FOR 1998]
[INFO BELOW TO BE UPDATED/PROVIDED AT THE TIME OF THE ANNUAL UPDATE FILING - NOT
NOW]
During the 5-year period shown in the bar chart, the highest quarterly return
was [__________%] (quarter ended [__________]) and the lowest quarterly return
was[__________%] (quarter ended [__________]).
6
<PAGE> 96
PERFORMANCE TABLE
The following performance table shows how the fund's average annual returns for
one, five and 10 years compare to those of a broad-based securities market
index.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Average Annual Total Returns
(for the periods ending December 31, 1998)
1 Year 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A [ ]% [ ]% [ ]%
- ---------------------------------------------------------------------------------------------------
Class B [ ]% [ ]% [ ]%
- ---------------------------------------------------------------------------------------------------
JP Morgan EMBI (Brady) Index* [ ] [ ] [ ]
- ---------------------------------------------------------------------------------------------------
</TABLE>
* JP Morgan EMBI (Brady) Index is a market value weighted average of Brady
bonds from ten emerging bond markets. It includes the effect of reinvested
coupons and is measured in U.S. dollars.
[INFO IN THE ABOVE CHART TO BE UPDATED/PROVIDED AT THE ANNUAL UPDATE FILING -
NOT NOW]
7
<PAGE> 97
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>
Class A Class B Class C
<S> <C> <C> <C>
Shareholder Fees (fees paid directly from your investment)
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) 15.00 1.00
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
Management Fees (2) _____% _____% _____%
Distribution and/or Service (12b-1) Fees _____ _____ _____
Other Expenses:
Transfer agent fees and costs _____ _____ _____
Other _____ _____ _____
Total Other Expenses _____ _____ _____
Total Annual Fund Operating Expenses _____ _____ _____
</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 investment advisor is currently waiving a portion of its fees. The
management fees were 0.61% after such waiver. The waiver may be
terminated at any time with the approval of the fund's Board of Trustees.
If the waiver is terminated before the end of the fund's fiscal year, the
investment advisor may be reimbursed the waived amounts for that year.]
As a result of 12b-1fees, 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 operating expenses remain the same. Although your actual returns and
costs may be higher or lower, based on these assumptions your costs would be:
8
<PAGE> 98
[FUND ACCOUNTING TO PROVIDE INFO AT THE ANNUAL UPDATE FILING - NOT NOW]
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $ $ $ $
Class B
Class C
</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 $ $ $ $
Class B
Class C
</TABLE>
9
<PAGE> 99
FUND MANAGEMENT
THE ADVISOR AND SUBADVISOR
A I M Advisors, Inc. (the advisor) serves as the investment advisor of Emerging
Markets Debt Portfolio (the portfolio). INVESCO Asset Management Ltd. (the
subadvisor), an affiliate of the advisor, is the portfolio's subadvisor and is
responsible for its day-to-day management. The advisor is located at 11 Greenway
Plaza, Suite 100, Houston, Texas 77046-1173. The subadvisor is located at 11
Devonshire Square, London, EC2M 4YR, England. The advisors supervise all aspects
of the fund's operations and provide investment advisory services to the fund,
including obtaining and evaluating economic, statistical and financial
information to formulate and implement investment programs for the fund.
The advisor has acted as an investment adviser since its organization in 1976,
and the subadvisor has acted as an investment adviser since . Today, the
advisor, together with its subsidiaries, advises or manages over 90 investment
portfolios, including the fund, encompassing a broad range of investment
objectives.
ADVISOR COMPENSATION
During the portfolio's last fiscal year ended October 31, 1998, the portfolio
paid the advisor advisory fees of _____% of the fund's average net assets.
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 portfolio, all of whom are officers of the subadvisor, are
o John Cleary, Portfolio Manager, who has been responsible for the fund
since 1999 and has been associated with INVESCO Asset Management Ltd.
since December 1998. From 1997 to 1998 he was Manager of a global
emerging markets fixed income fund for West Merchant Bank Ltd.
o Craig Munro, Portfolio Manager, who has been responsible for the fund
since 1998 and has been associated with the advisor and/or its
affiliates since 1997. He has been Portfolio Manager for the INVESCO
(NY), Inc. since August 1997. From 1993 to 1997, he was Vice President
and Senior Analyst in the Emerging Markets Group of the Global Fixed
income Division of Merrill Lynch Asset Management.
10
<PAGE> 100
OTHER INFORMATION
INITIAL SALES CHARGES FOR CLASS A SHARES
Purchases of Class A shares of the fund are subject to the maximum of 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.
DIVIDENDS AND DISTRIBUTIONS
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.
Dividends
The fund generally declares and pays dividends, if any, monthly.
11
<PAGE> 101
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 table shows the financial highlights for a share of the fund outstanding
during each of the fiscal years (or periods) indicated.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the fund's financial statements, is included in the fund's annual
report, which is available upon request.
[FINANCIAL HIGHLIGHTS BELOW ARE FOR CLASS A AND CLASS B FOR THE YEARS/PERIODS
INDICATED - TO BE REVISED BY FUND ACCOUNTING TO INCLUDE 1998 INFORMATION AT THE
ANNUAL UPDATE FILING - NOT NOW]
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------
1998 1997 1996 1995 1994
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $xx.xx $xx.xx $xx.xx $xx.xx $xx.xx
----------- --------- --------- --------- ---------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
----------- --------- --------- --------- ---------
Net gains on securities (both realized and unrealized) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
----------- --------- --------- --------- ---------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
----------- --------- --------- --------- ---------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
----------- --------- --------- --------- ---------
Net asset value, end of period $xx.xx $xx.xx $xx.xx $xx.xx $xx.xx
----------- --------- --------- --------- ---------
Total return (a) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
----------- --------- --------- --------- ---------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $xx,xxx $xx,xxx $xx,xxx $xx,xxx $xx,xxx
----------- --------- --------- --------- ---------
Ratio of expenses to average net assets (b) x.xx% (c)(d) x.xx% x.xx% x.xx% x.xx%
----------- --------- --------- --------- ---------
Ratio of net investment income (loss) to average net assets (e) (x.xx)% (c) (x.xx)% (x.xx)% (x.xx)% (x.xx)%
----------- --------- --------- --------- ---------
Portfolio turnover rate xx% xx% xx% xx% xx%
----------- --------- --------- --------- ---------
</TABLE>
(a) Does not deduct sales charges and are 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
were X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(c) Ratios are annualized and based on average net assets of
$XX,XXX,XXX,XXX.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been
the same.
(e) After fee waivers and/or expense reimbursements. Ratio of net
investment income (loss) to average net assets prior to fee waivers
and/or expense reimbursement were (X.XX)%, (X.XX)%, (X.XX)%, (X.XX)%
and (X.XX)% for 1998-1994.
12
<PAGE> 102
<TABLE>
<CAPTION>
Class B
----------------------------------------------------------
1998 1997 1996 1995 1994
----------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $xx.xx $xx.xx $xx.xx $xx.xx $xx.xx
----------- --------- --------- --------- --------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
----------- --------- --------- --------- --------
Net gains on securities (both realized and unrealized) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
----------- --------- --------- --------- --------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
----------- --------- --------- --------- --------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
----------- --------- --------- --------- --------
Net asset value, end of period $xx.xx $xx.xx $xx.xx $xx.xx $xx.xx
----------- --------- --------- --------- --------
Total return (a) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
----------- --------- --------- --------- --------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $xx,xxx $xx,xxx $xx,xxx $xx,xxx $xx,xxx
----------- --------- --------- --------- --------
Ratio of expenses to average net assets (b) x.xx% (c)(d) x.xx% x.xx% x.xx% x.xx%
----------- --------- --------- --------- --------
Ratio of net investment income (loss) to average net assets (e) (x.xx)% (c) (x.xx)% (x.xx)% (x.xx)% (x.xx)%
----------- --------- --------- --------- --------
Portfolio turnover rate xx% xx% xx% xx% xx%
----------- --------- --------- --------- --------
</TABLE>
(a) Does not deduct sales charges and are 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
were X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(c) Ratios are annualized and based on average net assets of
$XX,XXX,XXX,XXX.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been
the same.
(e) After fee waivers and/or expense reimbursements. Ratio of net
investment income (loss) to average net assets prior to fee waivers
and/or expense reimbursement were (X.XX)%, (X.XX)%, (X.XX)%, (X.XX)%
and (X.XX)% for 1998-1994.
13
<PAGE> 103
SHAREHOLDER INFORMATION
Choosing a Share Class
Many of the funds advised by the advisor (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>
o Initial sales charge o No initial sales charge o No initial sales charge
o Reduced or o Contingent deferred o Contingent deferred
waived initial sales charge on sales charge on
sales charge for redemptions within redemptions within
certain purchases six years one year
o Lower distribution o 12b-1 fee of 1.00% o 12b-1 fee of 1.00%
and service (12b-1)
fee than Class B or
Class C shares
(See "Fee Table o Converts to Class A o Does not convert to
and Expense shares after eight years Class A shares
Example") along with a pro rata
portion of its reinvested
dividends and distributions*
o Generally more o Purchase orders limited o Generally more
appropriate for long- to amounts less than appropriate for short-
term investors $250,000 term investors
</TABLE>
* If you held Class B shares of AIM Global Trends Fund 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
<PAGE> 104
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.
CATEGORY I Initial Sales Charges
- --------------------------------
<TABLE>
<CAPTION>
INVESTOR'S SALES CHARGE
-----------------------
AS A PERCENTAGE
AS A PERCENTAGE OF THE
AMOUNT OF INVESTMENT OF THE PUBLIC NET AMOUNT
IN SINGLE TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<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>
CATEGORY II Initial Sales Charges
- ---------------------------------
<TABLE>
<CAPTION>
INVESTOR'S SALES CHARGE
-----------------------
AS A PERCENTAGE
AS A PERCENTAGE OF THE
AMOUNT OF INVESTMENT OF THE PUBLIC NET AMOUNT
IN SINGLE TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<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>
CATEGORY III Initial Sales Charges
- ----------------------------------
<TABLE>
<CAPTION>
INVESTOR'S SALES CHARGE
-----------------------
AS A PERCENTAGE
AS A PERCENTAGE OF THE
AMOUNT OF INVESTMENT OF THE PUBLIC NET AMOUNT
IN SINGLE TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<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.
A-2
<PAGE> 105
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>
CLASS B CLASS C
CDSC AS A PERCENTAGE CDSC AS A PERCENTAGE
OF DOLLAR AMOUNT OF DOLLAR AMOUNT
YEAR SINCE PURCHASE MADE SUBJECT TO CHARGE SUBJECT TO CHARGE
------------------------ ----------------- -----------------
<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>
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 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
o on shares purchased by reinvesting dividends and distributions;
o when exchanging shares among certain AIM Funds;
o when using the reinstatement privilege; and
o 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
o if you redeem Class B shares you held for more than six years;
o if you redeem Class C shares you held for more than one year;
o if you redeem shares acquired through reinvestment of dividends and
distributions; and
o on increases in the net asset value of your shares.
A-3
<PAGE> 106
There may be other situations in which you or other shareholders may be able to
purchase or redeem shares at reduced or without sales charges. You should
consult the fund's Statement of Additional Information for details regarding
these situations.
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>
- -------------------------------------------------------------------------------------------------------------------------
Type of Account Initial Additional
Investments Investments
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing plans, 401(k) plans, Simplified $0 ($25 per $25
Employee Pension (SEP) accounts, Salary Reduction (SARSEP) accounts, Savings AIM Fund
Incentive Match Plans for Employee IRA (Simple IRA) accounts, 403(b) or 457 investment
plans) for salary
deferrals
from Savings
Plans)
- -------------------------------------------------------------------------------------------------------------------------
Automatic Investment Plans $50 $50
- -------------------------------------------------------------------------------------------------------------------------
IRA, Education IRA or Roth IRA $250 $50
- -------------------------------------------------------------------------------------------------------------------------
All other accounts $500 $50
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-4
<PAGE> 107
HOW TO PURCHASE SHARES
There are several ways you can purchase your shares. You can make direct
purchases or select from one of three automatic investment methods.
DIRECT PURCHASES
<TABLE>
<CAPTION>
Opening An Account Adding to An Account
<S> <C> <C>
Through a
Financial
Consultant Contact your financial consultant. Same
By Mail Mail completed Account Mail your check and the
Application and purchase payment to the transfer agent, remittance slip from
A I M Fund Services, Inc., P.O. Box 4739, your confirmation statement
Houston, TX 77210-4739. to the transfer agent.
By Wire Mail completed Account Call the transfer agent to
Application to the transfer agent. receive a reference number.
Call the transfer agent at Then, use the wire
(800) 959-4246 to receive a reference number. instructions at left.
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 methods described Mail completed AIM Bank
above. Connection(sm) form to the
transfer agent. Once
the transfer agent has
received the form, call the
transfer agent to place your
purchase.
</TABLE>
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 and in the same class of shares. 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
A-5
<PAGE> 108
10th or 25th day of the month 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 at net
asset value in certain AIM Funds without paying a sales charge. 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. 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
TIMING OF REDEMPTIONS
You can redeem shares during the hours the New York Stock Exchange (NYSE) is
open for business. An AIM Fund may postpone the right of redemption only under
unusual circumstances, such as when the NYSE restricts or suspends trading.
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<PAGE> 109
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).
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.
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 eighteen 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.
HOW TO REDEEM SHARES
<TABLE>
<CAPTION>
Through a
Financial Consultant Contact your financial consultant.
<S> <C>
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 thirty
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 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.
A-7
<PAGE> 110
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 New York Stock Exchange (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.
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
A-8
<PAGE> 111
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 and it may have tax consequences.
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, in 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 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;
A-9
<PAGE> 112
(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:
o You must meet the minimum purchase requirements for the AIM Fund into
which you are exchanging;
o Shares of the AIM Fund you wish to acquire must be qualified for sale in
your state of residence;
o Exchanges must be made between accounts with identical registration
information;
o 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);
o Shares must have been held for at least one day prior to the exchange; and
o If you have physical share certificates, you must return them to the
transfer agent prior to the exchange.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the issuance of shares
being purchased 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
A-10
<PAGE> 113
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; OR WITHDRAW ALL OR ANY PART OF
THE OFFERING MADE BY THIS PROSPECTUS.
Pricing of Shares
Each of the AIM Funds prices its shares based on its net asset value. 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 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 New York Stock
Exchange (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. The AIM Funds price purchase, exchange and redemption
orders at the net asset value calculated after the transfer agent receives an
order in good form.
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. Every year, an
A-11
<PAGE> 114
account statement showing the amount of dividends and distributions you
received from each AIM Fund during the prior year will be sent to you.
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 of the AIM Fund's shares, and any gain
realized on the transaction will 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.
A-12
<PAGE> 115
[BACK COVER PAGE]
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
United States 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 semi-annual 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 semi-annual reports, please contact us:
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
semi-annual reports only)
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, D.C., 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, D.C. 20549-6009. Please call the SEC
at 1-800-SEC-0330 for information about the Public Reference Room.
AIM Emerging Markets Debt Fund
SEC 1940 Act file number: 811-05426
14
<PAGE> 116
[AIM LOGO]
ADVISOR CLASS
AIM EMERGING MARKETS DEBT FUND
PROSPECTUS
MARCH 1, 1999
AIM Emerging Markets Debt Fund primarily seeks high current income and
secondarily growth of capital.
This prospectus contains important information. Please read it before investing
and keep it for future reference.
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. There is a risk that you could lose a portion or all of your money.
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.
<PAGE> 117
TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES AND STRATEGIES..........................................3
PRINCIPAL RISKS OF INVESTING IN THE FUND......................................3
PERFORMANCE INFORMATION.......................................................5
ANNUAL TOTAL RETURNS.................................................5
PERFORMANCE TABLE....................................................5
FEE TABLE AND EXPENSE EXAMPLE.................................................6
FEE TABLE............................................................6
EXPENSE EXAMPLE......................................................6
FUND MANAGEMENT...............................................................7
THE ADVISOR .........................................................7
ADVISOR COMPENSATION.................................................7
PORTFOLIO MANAGERS...................................................7
OTHER INFORMATION.............................................................8
DIVIDENDS AND DISTRIBUTIONS..........................................8
FINANCIAL HIGHLIGHTS..........................................................9
SHAREHOLDER INFORMATION.....................................................A-1
PURCHASING SHARES..................................................A-1
REDEEMING SHARES...................................................A-3
EXCHANGING SHARES..................................................A-5
PRICING OF SHARES..................................................A-6
TAXES..............................................................A-6
OBTAINING ADDITIONAL INFORMATION................................BACK COVER PAGE
</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 is a service
mark of A I M Management Group Inc.
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<PAGE> 118
INVESTMENT OBJECTIVES AND STRATEGIES
The fund's primary investment objective is high current income and its secondary
investment objective is growth of capital.
The fund seeks to achieve its objectives by investing all of its assets in the
Emerging Markets Debt Portfolio (the portfolio). The portfolio, in turn,
normally invests at least 65% of its total assets in debt securities of issuers
located in developing or emerging market countries, i.e., those that are in the
initial stages of their industrial cycles. The fund may invest 100% of its total
assets in lower-quality debt securities, i.e., "junk bonds," including
securities that are in default. The portfolio will invest in debt securities
issued or guaranteed by the governments of developing countries, or their
agencies or instrumentalities; securities issued or guaranteed by the central
banks of emerging market countries; securities issued by other banks and
companies in such countries; and securities denominated in or indexed to the
currencies of developing countries.
The portfolio will normally invest substantially all of its assets in debt
securities of governmental and corporate issuers in emerging markets. These
securities may consist primarily of "Brady Bonds" and other sovereign debt
securities. Brady Bonds are debt restructurings that provide for the exchange of
cash and loans for newly-issued bonds. The portfolio may also invest up to 35%
of its total assets in equity securities of issuers in developing countries;
equity and debt securities of issuers in developed countries, including the
U.S.; and cash and money market instruments.
The portfolio managers allocate assets among securities of issuers in countries
and in currency denominations where opportunities for meeting the fund's
investment objectives are expected to be the most attractive. The principal
determinants of the emphasis given to various country, geographic, and industry
sectors within the portfolio are fundamental economic strength, credit quality,
and currency and interest rate trends. Further, the portfolio managers select
particular issuers based on additional economic criteria such as yield,
maturity, issue classification, and quality characteristics. Currency
investments are based on economic factors (such as relative inflation, interest
rate levels and trends, growth rate forecasts, balance of payments status, and
economic policies) and on political and technical data. The portfolio managers
usually sell a particular security when any of those factors materially changes.
The fund and the portfolio are non-diversified portfolios, which means that with
respect to 50% of their assets, they are permitted to invest more than 5% of
their assets in the securities of any one issuer. In anticipation of or in
response to adverse market conditions or for cash management purposes, the
portfolio may hold all or a portion of its assets in cash (U.S. dollars, foreign
currencies or multinational currency units), money market securities, bonds or
other debt securities. As a result, the fund or the portfolio may not achieve
its investment objectives.
The portfolio may engage in active and frequent trading of portfolio securities
to achieve its investment objective. If the portfolio does trade in this way, it
may incur increased transaction costs, which can lower the actual return on your
investment. Active trading may also increase short-term capital gains and
losses, which may affect the taxes you have to pay.
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<PAGE> 119
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 portfolio invests. Debt securities are particularly
vulnerable to credit risk and interest rate fluctuations. When interest rates
rise, bond prices fall; the higher the bond's duration, the more sensitive it is
to this risk.
In addition, the prices of securities of foreign issuers may be further affected
by other factors including
o Currency exchange rates - The dollar value of the portfolio's foreign
investments will be affected by changes in the exchange rates between the
dollar and the currencies in which those investments are traded.
o Political and economic conditions - The value of the portfolio's
investments in emerging markets may be adversely affected by political and
social instability and by changes in economic or taxation policies in those
countries.
o Regulations - Companies in emerging markets generally are subject to less
stringent regulations, including financial and accounting controls, than
are U.S. companies. As a result, among other things, there generally is
less publicly available information about emerging market companies than
about U.S. companies.
o Markets - The securities markets of emerging market countries are smaller
than U.S. securities markets.
As a result, many emerging market securities may be less liquid and more
volatile than U.S. securities. These factors may affect the price of securities
issued by foreign companies located in developing or emerging market countries
more than those in countries with mature economies. For example, many developing
countries have, in the past, experienced high rates of inflation or sharply
devalued their currencies against the U.S. dollar, thereby causing the value of
investments in companies located in those countries to decline. Transaction
costs are often higher in developing countries and there may be delays in
settlement procedures. In addition, developing countries may have greater
political or economic instability, less regulation and smaller, less liquid and
more volatile markets than countries with more mature economies.
Sovereign debt securities of developing country governments are generally
lower-quality debt securities. Sovereign debt securities are subject to the
additional risk that, under some political, diplomatic, social, or economic
circumstances, some developing countries that issue lower-quality debt
securities may be unable or unwilling to make principal or interest repayments
as they come due.
Compared to higher-quality debt securities, junk bonds involve greater risk of
default or price changes due to changes in the credit quality of the issuer
because they are generally unsecured and may be subordinated to other creditors'
claims. The value of lower-quality debt securities often fluctuates in response
to company, political or economic developments and can decline significantly
over short periods of time or during periods of general or regional economic
difficulty.
Because they are non-diversified, the fund and the portfolio may invest in fewer
issuers than if they were diversified funds. Thus, the value of the fund's
shares may vary more widely, and the portfolio may be subject to greater
investment and credit risk, than if the portfolio invested more broadly.
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<PAGE> 120
Many software systems are unable to distinguish the year 2000 from the year
1900. The portfolio's investment advisor, together with independent technology
consultants, has completed its determination as to whether any software systems
that the portfolio or the fund uses or depends on has that problem and is in the
process of correcting and testing those systems that may have such problem. This
problem, if not corrected, may adversely affect services provided to the
portfolio or the fund or may affect companies in which the portfolio may invest
and, therefore, may lower the value of your shares.
An investment in the portfolio is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
5
<PAGE> 121
[INFORMATION TO BE PROVIDED BY GARY WENDLER'S GROUP]
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 A
shares from year to year over a 4-year period.
[BAR CHART TO BE REVISED - DELETE INFO FOR 1988 AND LEAVE A BLANK FOR 1998]
<TABLE>
<CAPTION>
Years Ended
December 31 Annual Return
----------- -------------
<S> <C>
1995 35.45%
1996 16.27%
1997 12.92%
1998 %
</TABLE>
[INFO BELOW TO BE UPDATED/PROVIDED AT THE TIME OF THE ANNUAL UPDATE FILING - NOT
NOW]
During the 4-year period shown in the bar chart, the highest quarterly return
was [____%] (quarter ended [____]) and the lowest quarterly return was[____%]
(quarter ended [____]).
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<PAGE> 122
PERFORMANCE TABLE
The following performance table shows how the fund's average annual returns for
one, five and 10 years compare to those of a broad-based securities market
index.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Average Annual Total Returns
(for the periods ending December 31, 1998)
1 Year 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Advisor Class* [ ]% [ ]% [ ]%
- ---------------------------------------------------------------------------------------------------
J.P. Morgan EMBI (Brady) Index** [ ] [ ] [ ]
- ---------------------------------------------------------------------------------------------------
</TABLE>
* Advisor Class returns are since inception (6/1/95).
** J.P. Morgan EMBI (Brady) Index is a market value weighted average of Brady
bonds from ten emerging bond markets. It includes the effect of reinvested
coupons and is measured in U.S. dollars.
[INFO IN THE ABOVE CHART TO BE UPDATED/PROVIDED AT THE ANNUAL UPDATE FILING -
NOT NOW]
7
<PAGE> 123
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>
Advisor Class
-------------
<S> <C>
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price
or redemption proceeds, whichever is less) None
Annual Fund Operating Expenses (expenses that are
deducted from fund assets)
Management Fees(1) 0.90%
Distribution and/or Service (12b-1) Fees None
Other Expenses:
Transfer agent fees and costs ---
Total Other Expenses ---
Total Annual Fund Operating Expenses ---
</TABLE>
- -------------------
[(1) The investment advisor is currently waiving a portion of its fees. The
management fees were 0.61% after such waiver. The waiver may be
terminated at any time with the approval of the fund's Board of Trustees.
If the waiver is terminated before the end of the fund's fiscal year, the
investment advisor may be reimbursed the waived amounts for that year.]
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 operating expenses remain the same. Although your actual returns and
costs may be higher or lower, based on these assumptions your costs would be:
[FUND ACCOUNTING TO PROVIDE INFO AT THE ANNUAL UPDATE FILING - NOT NOW]
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Advisor Class [ $ $ $ $
</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>
Advisor Class $ $ $ $
</TABLE>
8
<PAGE> 124
FUND MANAGEMENT
THE ADVISOR AND SUBADVISOR
A I M Advisors, Inc. (the advisor) serves as the investment advisor of Emerging
Markets Debt Portfolio (the portfolio). INVESCO Asset Management Ltd. (the
subadvisor), an affiliate of the advisor, is the portfolio's subadvisor and is
responsible for its day-to-day management. The advisor is located at 11 Greenway
Plaza, Suite 100, Houston, Texas 77046-1173. The subadvisor is located at 11
Devonshire Square, London, EC2M 4YR, England. The advisors supervise all aspects
of the portfolio's operations and provide investment advisory services to the
portfolio, including obtaining and evaluating economic, statistical and
financial information to formulate and implement investment programs for the
portfolio.
The advisor has acted as an investment adviser since its organization in 1976,
and the subadvisor has acted as an investment adviser since its organization in
_________. Today, the advisor, together with its subsidiaries, advises or
manages over 90 investment portfolios, including the portfolio, encompassing a
broad range of investment objectives.
ADVISOR COMPENSATION
During the portfolio's last fiscal year ended October 31, 1998, the portfolio
paid the advisor advisory fees of ________% of the portfolio's average net
assets.
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 portfolio, all of whom are officers of the subadvisor, are
o John Cleary, Portfolio Manager, who has been responsible for the fund since
1999 and has been associated with INVESCO Asset Management Ltd. since
December 1998. From 1997 to 1998 he was Manager of a global markets fixed
income fund for West Merchant Bank Ltd.
o Craig Munro, Portfolio Manager, who has been responsible for the fund since
1998 and has been associated with the advisor and/or its affiliates since
1997. He has been Portfolio Manager for the INVESCO (NY), Inc. since August
1997. From 1993 to 1997, he was Vice President and Senior Analyst in the
Emerging Markets Group of the Global Fixed income Division of Merrill Lynch
Asset Management.
9
<PAGE> 125
OTHER INFORMATION
DIVIDENDS AND DISTRIBUTIONS
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.
Dividends
The fund generally declares and pays dividends, if any, monthly.
10
<PAGE> 126
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 table shows the financial highlights for a share of the fund outstanding
during each of the fiscal years (or periods) indicated.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the fund's financial statements, is included in the fund's annual
report, which is available upon request.
<TABLE>
<CAPTION>
Advisor Class
------------------------------------------------------
June 1, 1995
to
1998 1997 1996 October 1, 1995
------- ------- ------- ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------- ------- ------- -------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- -------
Net gains on securities (both realized and unrealized) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- -------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- -------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- -------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------- ------- ------- -------
Total return(a) (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------- ------- ------- -------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $xx,xxx $xx,xxx $xx,xxx $xx,xxx
------- ------- ------- -------
Ratio of expenses to average net assets(b) x.xx% (c)(d) x.xx% x.xx% x.xx%
------- ------- ------- -------
Ratio of net investment income (loss) to average net assets(e) (x.xx)%(c) (x.xx)% (x.xx)% (x.xx)%
------- ------- ------- -------
Portfolio turnover rate xx% xx% xx% xx%
------- ------- ------- -------
</TABLE>
(a) Does not deduct sales charges and are 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 were
X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(c) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(X.XX)% for 1998-1994.
[FINANCIAL HIGHLIGHTS BELOW ARE FOR ADVISOR CLASS FOR THE YEARS/PERIODS
INDICATED - TO BE REVISED BY FUND ACCOUNTING TO INCLUDE 1998 INFORMATION AT THE
ANNUAL UPDATE FILING - NOT NOW]
11
<PAGE> 127
SHAREHOLDER INFORMATION FOR ADVISOR CLASS SHARES
- -------------------------------------------------------------------------------
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM ACCOUNT
The minimum initial investment for Advisor Class shares is $500; and the
minimum investment for purchases of additional Advisor Class shares is $50.
HOW TO PURCHASE SHARES
Shares offered by this prospectus are available for purchase only by certain
investors and are offered at net asset value without the imposition of a
front-end or contingent deferred sales charge or Rule 12b-1 fees. Advisor Class
shares are available through financial consultants (such as financial planners,
trust companies, bank trust departments, and registered investment advisors).
In order to purchase Advisor Class shares of any AIM Fund, your financial
consultant, on your behalf, must submit a fully completed new account
application form directly to the transfer agent.
There are several ways you can purchase your shares. You can make direct
purchases or select from two automatic investment methods.
DIRECT PURCHASES
<TABLE>
<CAPTION>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Through a Financial Consultant Contact your financial consultant. Same
By Mail Must be submitted by your financial Mail your check and the remittance
consultant. slip from your confirmation
statement to the transfer agent.
A I M Fund Services, Inc., P.O. Box
4739
Houston, TX 77210-4739
By Wire Your financial consultant must mail a Call the transfer agent to receive a
completed account application to the reference number. Then, use the
transfer agent. You or your financial wire instructions at left.
consultant may call the transfer agent
at (800) 959-4246 to 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 #
</TABLE>
A-1
<PAGE> 128
<TABLE>
<CAPTION>
<S> <C> <C>
By AIM Bank Open your account using one of the Mail completed AIM Bank Connection(sm)
Connection(sm) methods described above. form to the transfer agent. Once the
transfer agent has received the form,
call the transfer agent to place your
purchase order.
</TABLE>
SPECIAL PLANS
Automatic Dividend Investment
All of your dividends and distributions may be paid in cash or invested in
Advisor Class shares of certain AIM Funds. Unless you specify otherwise, your
dividends and distributions will automatically be reinvested in the same AIM
Fund.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in Advisor Class shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend or
distribution must be at least $5,000; or (b) in the AIM Fund receiving the
dividend or distribution 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 and
distributions 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 holdings of Advisor Class shares of AIM Funds 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 Advisor
Class shares 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.
The distributor and its agents reserve the right at any time to (1) reject or
cancel any part of any purchase or exchange order; (2) modify any terms or
conditions of purchase of shares of any AIM Fund; or (3) withdraw all or any
part of the offering made by this Prospectus.
A-2
<PAGE> 129
REDEEMING SHARES
TIMING OF REDEMPTIONS
You can redeem shares during the hours the New York Stock Exchange (NYSE) is
open for business. An AIM Fund may postpone the right of redemption only under
unusual circumstances, such as when the NYSE restricts or suspends trading.
REDEMPTION FEES
No redemption fee is imposed when shares are redeemed or repurchased; however,
dealers/financial institutions may charge service fees for handling repurchase
transactions.
A-3
<PAGE> 130
<TABLE>
<CAPTION>
HOW TO REDEEM SHARES
- -------------------------------------------------------------------------------------------------------------------
<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.
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. The transfer agent must receive your call
during the hours the 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 at the address on record with
us.
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.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
A-4
<PAGE> 131
(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.
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, IN ITS DISCRETION, REDEEM THE ACCOUNT AND DISTRIBUTE THE PROCEEDS
TO YOU.]
EXCHANGING SHARES
You may, under certain circumstances, exchange Advisor Class shares in one AIM
Fund for Advisor Class shares of another AIM Fund. Before requesting an
exchange, review the prospectus of the AIM Fund you wish to acquire.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
o You must meet the minimum purchase requirements for the AIM Fund into
which you are exchanging;
o Shares of the AIM Fund you wish to acquire must be qualified for sale in
your state of residence;
o Exchanges must be made between accounts with identical registration
information;
o 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);
o The AIM Fund from which you are exchanging must have received the full
amount of the purchase price for the shares being exchanged;
o Recently acquired shares must have been held in your account for ten
business days, and all other shares must have been held for at least one
day, prior to the exchange; and
o If you have physical share certificates, you must return them to the
transfer agent prior to the exchange.
A-5
<PAGE> 132
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the issuance of shares
being purchased 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.
GENERAL INFORMATION
- -------------------------------------------------------------------------------
PRICING OF SHARES
Each of the AIM Funds prices its shares based on its net asset value. 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. 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 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 Trustees 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. The AIM Funds price
purchase, exchange, and redemption orders calculated at the net asset value
after the transfer agent receives an order in good form.
A-6
<PAGE> 133
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. Long-term capital gain
distributions are taxable as long-term capital gains when distributed to you,
no matter how long you held your shares. Different rates of tax may apply to
ordinary income and long-term capital gain distributions. Every year, an
account statement showing the amount of dividends and distributions you
received from each AIM Fund during the prior year will be sent to you.
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 of the AIM Fund's shares, and any gain
realized on the transaction will 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.
A-7
<PAGE> 134
[BACK COVER PAGE]
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
United States 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 semi-annual 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 semi-annual reports, please contact us:
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
semi-annual reports only)
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, D.C., 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, D.C. 20549-6009. Please call the SEC
at 1-800-SEC-0330 for information about the Public Reference Room.
AIM Emerging Markets Debt Fund
SEC 1940 Act file number: 811-05426
<PAGE> 135
[AIM LOGO APPEARS HERE]
AIM GLOBAL CONSUMER PRODUCTS AND SERVICES FUND
PROSPECTUS
MARCH 1, 1999
AIM Global Consumer Products and Services Fund seeks to provide long-term growth
of capital.
This prospectus contains important information. Please read it before investing
and keep it for future reference.
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. There is a risk that you could lose a portion or all of your money.
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.
1
<PAGE> 136
TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES......................................................................3
PRINCIPAL RISKS OF INVESTING IN THE FUND.................................................................3
PERFORMANCE INFORMATION..................................................................................6
ANNUAL TOTAL RETURNS............................................................................6
PERFORMANCE TABLE...............................................................................7
FEE TABLE AND EXPENSE EXAMPLE............................................................................8
FEE TABLE.......................................................................................8
EXPENSE EXAMPLE.................................................................................9
FUND MANAGEMENT.........................................................................................10
THE ADVISOR....................................................................................10
ADVISOR COMPENSATION...........................................................................10
PORTFOLIO MANAGERS.............................................................................10
OTHER INFORMATION.......................................................................................11
INITIAL SALES CHARGES FOR CLASS A SHARES.......................................................11
DIVIDENDS AND DISTRIBUTIONS....................................................................11
FINANCIAL HIGHLIGHTS....................................................................................12
SHAREHOLDER INFORMATION................................................................................A-1
CHOOSING A SHARE CLASS........................................................................A-1
PURCHASING SHARES.............................................................................A-4
REDEEMING SHARES..............................................................................A-6
EXCHANGING SHARES.............................................................................A-9
PRICING OF SHARES............................................................................A-11
TAXES........................................................................................A-11
OBTAINING ADDITIONAL INFORMATION...........................................................BACK COVER PAGE
</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 is a service
mark of A I M Management Group Inc.
2
<PAGE> 137
INVESTMENT OBJECTIVE AND STRATEGIES
The fund's investment objective is long-term growth of capital.
The fund seeks to achieve its objective by investing all of its assets in the
Global Consumer Products and Services Portfolio (the portfolio), that in turn
normally invests at least 65% of its total assets in common and preferred
stocks, and warrants to acquire such securities, of domestic and foreign
consumer products and services companies. The portfolio considers a "consumer
products or services" company to be one that (i) derives at least 50% of either
its revenues or earnings from activities related to consumer products, or (ii)
devotes at least 50% of its assets to such activities, based on the company's
most recent fiscal year. Such companies include those that manufacture, market,
retail, or distribute consumer products (such as homes, automobiles, appliances,
computers, household goods, food, and apparel) and goods and services related to
entertainment, publishing, sports, and media (such as television broadcasts,
motion pictures, theme parks, restaurants, and lodging) or supply goods and
services to such companies (such as advertising, textile, and shipping
companies).
The portfolio may invest up to 35% of its assets in debt securities of domestic
and foreign consumer products and services companies and/or equity and debt
securities of companies outside the consumer products or services industry,
which, in the opinion of the portfolio manager, stand to benefit from
development in such industries. The portfolio will normally invest in the
securities of issuers located in at least three countries, including the United
States, and may invest a significant portion of its assets in the securities of
U.S. issuers. However, the portfolio will not invest more than 50% of its total
assets in the securities of issuers in any one country, other than the U.S. The
portfolio may invest up to 20% of its total assets in high-yield debt securities
rated below investment grade, i.e., "junk bonds."
The portfolio managers allocate the portfolio's assets among securities of
countries and in currency denominations that are expected to provide the best
opportunities for meeting the portfolio's investment objective. In analyzing
specific companies for possible investment, the portfolio managers ordinarily
look for several of the following characteristics: above-average per share
earnings growth; high return on invested capital; a healthy balance sheet; sound
financial and accounting policies and overall financial strength; strong
competitive advantages; effective research and product development and
marketing; development of new technologies; efficient service; pricing
flexibility; strong management; and general operating characteristics that will
enable the companies to compete successfully in their respective markets. The
portfolio managers usually sell a particular security when any of those factors
materially changes.
In anticipation of or in response to adverse market conditions or for cash
management purposes, the portfolio may hold all or a portion of its assets in
cash (U.S. dollars, foreign currencies or multinational currency units), money
market securities, bonds or other debt securities. As a result, the fund or the
portfolio may not achieve its investment objective.
The portfolio may engage in active and frequent trading of portfolio securities
to achieve its investment objective. If the portfolio does trade in this way, it
may incur increased transaction costs and brokerage commissions, both of which
can lower the actual return on your investment. Active trading may also increase
short-term capital gains and losses, which may affect the taxes you have to pay.
3
<PAGE> 138
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. The value of your investment in the fund will go up and down with the
prices of the common stocks in which the portfolio invests. The price of common
stock rises and falls in response to many factors, including the historical and
prospective earnings of the issuer of the stock, the value of its assets,
general economic conditions, interest rates, investor perceptions, and market
liquidity.
The value of the fund's shares is particularly vulnerable to factors affecting
the consumer products and services industry, such as government regulation,
demographic shifts, and intense competition. These factors may, among other
things, affect the demand for and success of certain consumer products and
services. Because the portfolio focuses its investments in the consumer products
and services industries, the value of your fund shares may rise and fall more
than the value of shares of a fund that invests more broadly.
In addition, the prices of securities of foreign issuers may be further
affected by other factors, including
o Currency exchange rates - The dollar value of the portfolio's foreign
investments will be affected by changes in the exchange rates between the
dollar and the currencies in which those investments are traded.
o Political and economic conditions - The value of the portfolio's foreign
investments may be adversely affected by political and economic conditions
in foreign countries and by changes in economic or tax policies in those
countries.
o Regulations - Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, among other things, there generally is less
publicly available information about foreign companies than about U.S.
companies.
o 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 their prices may be more volatile than U.S. securities.
[Compared to higher-quality debt securities, junk bonds involve greater risk of
default or price changes due to changes in the credit quality of the issuer
because they are generally unsecured and may be subordinated to other creditors'
claims. The value of lower-quality debt securities often fluctuates in response
to company, political or economic developments and can decline significantly
over short periods of time or during periods of general or regional economic
difficulty.]
Many software systems are unable to distinguish the year 2000 from the year
1900. The portfolio's investment advisor, together with independent technology
consultants, has completed its determination as to whether any software systems
that the portfolio or the fund uses or depends on has that problem and is in the
process of correcting and testing
4
<PAGE> 139
those systems that may have such problem. This problem, if not corrected, may
adversely affect services provided to the portfolio or the fund or may affect
companies in which the portfolio may invest and, therefore, may lower the value
of your shares.
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.
5
<PAGE> 140
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 A
shares from year to year over a 5-year period. The bar chart does not reflect
sales loads. If it did, the annual total returns shown would be lower.
AIM GLOBAL CONSUMER PRODUCTS AND SERVICES FUND
<TABLE>
<CAPTION>
Year Ended
December 31 Return %
----------- --------
<S> <C>
1995 ............................................. 35.37%
1996 ............................................. 38.30%
1997 ............................................. 17.55%
1998 .............................................
</TABLE>
During the 5-year period shown in the bar chart, the highest quarterly return
was [ ]% (quarter ended [ ]) and the lowest quarterly return was [ ]% (quarter
ended [ ]).
[BAR CHART TO BE REVISED - DELETE INFO FOR 1988 AND LEAVE A BLANK FOR 1998]
6
<PAGE> 141
[INFO BELOW TO BE UPDATED/PROVIDED AT THE TIME OF THE ANNUAL UPDATE FILING - NOT
NOW]
PERFORMANCE TABLE
The following performance table shows how the fund's average annual returns for
one, five and 10 years compare to those of a broad-based securities market
index.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Average Annual
Total Returns
(for the periods ending December 31, 1998)
1 Year 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A* [ ]% [ ]% [ ]%
- ---------------------------------------------------------------------------------------------------
Class B** [ ] [ ] [ ]
- ---------------------------------------------------------------------------------------------------
Class C [ ] [ ] [ ]
- ---------------------------------------------------------------------------------------------------
MSCI World Index*** [ ] [ ] [ ]
- ---------------------------------------------------------------------------------------------------
</TABLE>
* Class A returns are since inception (12/30/94).
** Class B returns are since inception (12/30/94)
*** The Morgan Stanley Capital International World Index measures performance
for twenty-two developed country global stock markets. The index is
capitalization weighted. Companies included in the index replicated the
industry composition of each local market and, in addition, represent a
sampling of large, medium and small capitalization companies from each
local market taking into account the stocks liquidity.
[INFO IN THE ABOVE CHART TO BE UPDATED/PROVIDED AT THE ANNUAL UPDATE FILING -
NOT NOW]
7
<PAGE> 142
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>
Class A Class B Class C
------- ------- -------
Shareholder Fees (fees paid directly from your investment)
<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
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
Management Fees(2) 0.98% 0.98% --%
Distribution and/or Service (12b-1) Fees 0.50 1.00 --
Other Expenses:
Transfer agent fees and costs -- -- --
Other -- -- --
Total Other Expenses -- -- --
Total Annual Fund Operating Expenses -- -- --
</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 investment advisor is currently waiving a portion of its fees. The
management fees were 0.61% after such waiver. The waiver may be
terminated at any time with the approval of the fund's Board of Trustees.
If the waiver is terminated before the end of the fund's fiscal year, the
investment advisor may be reimbursed the waived amounts for that year.]
As a result of 12b-1 fees, long-term shareholders in the fund may pay more than
the maximum permitted initial sales charge.
8
<PAGE> 143
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 $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's operating expenses remain the same. Although your actual returns and
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A [$ $ $ $
Class B
Class C
</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 $ $ $ $
Class B
Class C ]
</TABLE>
9
<PAGE> 144
FUND MANAGEMENT
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the investment adviser of Global
Consumer Products and Services Portfolio (the Portfolio) and is responsible for
its day-to-day management. The advisor is located at 11 Greenway Plaza, Suite
100, Houston, Texas 77046-1173. The advisor supervises all aspects of the fund's
operations and provide investment advisory services to the portfolio, including
obtaining and evaluating economic, statistical and financial information to
formulate and implement investment programs for the portfolio.
The advisor has acted as an investment adviser since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 90
investment portfolios, including the portfolio, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the portfolio's last fiscal year ended October 31, 1997, the portfolio
paid the advisor advisory fees of % of the portfolio's average net assets.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual member
of the team who is primarily responsible for the day-to-day management of the
portfolio, is
o Derek H. Webb, Portfolio Manager, who has been responsible for the fund
since 1994 and has been associated with the advisor and/or its affiliates
since 1992. He has been Head of the Theme Funds for the INVESCO (NY), Inc.
since 1997. From 1992 to 1994, he was an analyst for the INVESCO (NY), Inc.
10
<PAGE> 145
OTHER INFORMATION
INITIAL SALES CHARGES FOR CLASS A SHARES
Purchases of Class A shares of the 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.
DIVIDENDS AND DISTRIBUTIONS
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.
Dividends
The fund generally declares and pays dividends, if any, annually.
11
<PAGE> 146
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 table shows the financial highlights for a share of the fund outstanding
during each of the fiscal years (or periods) indicated.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the fund's financial statements, is included in the fund's annual
report, which is available upon request.
[FINANCIAL HIGHLIGHTS BELOW ARE FOR CLASS A AND CLASS B FOR THE YEARS/PERIODS
INDICATED - TO BE REVISED BY FUND ACCOUNTING TO INCLUDE 1998 INFORMATION AT THE
ANNUAL UPDATE FILING - NOT NOW]
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------
Dec. 31, 1994
to
1998 1997 1996 Oct. 31, 1995
--------- --------- --------- --------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $xx.xx $xx.xx $xx.xx $xx.xx
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx)
Net gains on securities (both realized and unrealized) (x.xx) (x.xx) (x.xx) (x.xx)
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx)
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx)
Net asset value, end of period $xx.xx $xx.xx $xx.xx $xx.xx
Total return (a) (x.xx)% (x.xx)% (x.xx)% (x.xx)%
Ratios/supplemental data:
Net assets, end of period (000s omitted) $xx,xxx $xx,xxx $xx,xxx $xx,xxx
Ratio of expenses to average net assets (b) x.xx% (c)(d) x.xx% x.xx% x.xx%
Ratio of net investment income (loss) to average net assets (e) (x.xx)% (c) (x.xx)% (x.xx)% (x.xx)%
Portfolio turnover rate xx% xx% xx% xx%
</TABLE>
(a) Does not deduct sales charges and are 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 were
X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(c) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been the
same.
(e) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (X.XX)%, (X.XX)%, (X.XX)%, (X.XX)% and (X.XX)% for
1998-1994.
12
<PAGE> 147
<TABLE>
<CAPTION>
Class B
-------------------------------------------------------
Dec. 31, 1994
to
1998 1997 1996 Oct. 31, 1995
--------- --------- --------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx
--------- --------- --------- ---------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx)
--------- --------- --------- ---------
Net gains on securities (both realized and unrealized) (x.xx) (x.xx) (x.xx) (x.xx)
--------- --------- --------- ---------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx)
========= ========= ========= =========
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx)
--------- --------- --------- ---------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx
--------- --------- --------- ---------
Total return (a) (x.xx)% (x.xx)% (x.xx)% (x.xx)%
========= ========= ========= =========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ xx,xxx $ xx,xxx $ xx,xxx $ xx,xxx
========= ========= ========= =========
Ratio of expenses to average net assets (b) x.xx% (c)(d) x.xx% x.xx% x.xx%
========= ========= ========= =========
Ratio of net investment income (loss) to average net assets (e) (x.xx)%(c) (x.xx)% (x.xx)% (x.xx)%
========= ========= ========= =========
Portfolio turnover rate xx% xx% xx% xx%
========= ========= ========= =========
</TABLE>
(a) Does not deduct sales charges and are 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 were
X.XX%, X.XX%, X.XX%, .XX%, and X.XX% for 1998-1994.
(c) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been the
same.
(e) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (X.XX)%, (X.XX)%, (X.XX)%, (X.XX)% and (X.XX)% for
1998-1994.
13
<PAGE> 148
SHAREHOLDER INFORMATION
Choosing a Share Class
Many of the funds advised by the advisor (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>
o Initial sales charge o No initial sales charge o No initial sales charge
o Reduced or o Contingent deferred o Contingent deferred
waived initial sales charge on sales charge on
sales charge for redemptions within redemptions within
certain purchases six years one year
o Lower distribution o 12b-1 fee of 1.00% o 12b-1 fee of 1.00%
and service (12b-1)
fee than Class B or
Class C shares
(See "Fee Table o Converts to Class A o Does not convert to
and Expense shares after eight years Class A shares
Example") along with a pro rata
portion of its reinvested
dividends and distributions*
o Generally more o Purchase orders limited o Generally more
appropriate for long- to amounts less than appropriate for short-
term investors $250,000 term investors
</TABLE>
* If you held Class B shares of AIM Global Trends Fund 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
<PAGE> 149
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.
CATEGORY I Initial Sales Charges
- --------------------------------
<TABLE>
<CAPTION>
INVESTOR'S SALES CHARGE
-----------------------
AS A PERCENTAGE
AS A PERCENTAGE OF THE
AMOUNT OF INVESTMENT OF THE PUBLIC NET AMOUNT
IN SINGLE TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<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>
CATEGORY II Initial Sales Charges
- ---------------------------------
<TABLE>
<CAPTION>
INVESTOR'S SALES CHARGE
-----------------------
AS A PERCENTAGE
AS A PERCENTAGE OF THE
AMOUNT OF INVESTMENT OF THE PUBLIC NET AMOUNT
IN SINGLE TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<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>
CATEGORY III Initial Sales Charges
- ----------------------------------
<TABLE>
<CAPTION>
INVESTOR'S SALES CHARGE
-----------------------
AS A PERCENTAGE
AS A PERCENTAGE OF THE
AMOUNT OF INVESTMENT OF THE PUBLIC NET AMOUNT
IN SINGLE TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<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.
A-2
<PAGE> 150
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>
CLASS B CLASS C
CDSC AS A PERCENTAGE CDSC AS A PERCENTAGE
OF DOLLAR AMOUNT OF DOLLAR AMOUNT
YEAR SINCE PURCHASE MADE SUBJECT TO CHARGE SUBJECT TO CHARGE
------------------------ ----------------- -----------------
<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>
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 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
o on shares purchased by reinvesting dividends and distributions;
o when exchanging shares among certain AIM Funds;
o when using the reinstatement privilege; and
o 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
o if you redeem Class B shares you held for more than six years;
o if you redeem Class C shares you held for more than one year;
o if you redeem shares acquired through reinvestment of dividends and
distributions; and
o on increases in the net asset value of your shares.
A-3
<PAGE> 151
There may be other situations in which you or other shareholders may be able to
purchase or redeem shares at reduced or without sales charges. You should
consult the fund's Statement of Additional Information for details regarding
these situations.
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>
- -------------------------------------------------------------------------------------------------------------------------
Type of Account Initial Additional
Investments Investments
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing plans, 401(k) plans, Simplified $0 ($25 per $25
Employee Pension (SEP) accounts, Salary Reduction (SARSEP) accounts, Savings AIM Fund
Incentive Match Plans for Employee IRA (Simple IRA) accounts, 403(b) or 457 investment
plans) for salary
deferrals
from Savings
Plans)
- -------------------------------------------------------------------------------------------------------------------------
Automatic Investment Plans $50 $50
- -------------------------------------------------------------------------------------------------------------------------
IRA, Education IRA or Roth IRA $250 $50
- -------------------------------------------------------------------------------------------------------------------------
All other accounts $500 $50
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-4
<PAGE> 152
HOW TO PURCHASE SHARES
There are several ways you can purchase your shares. You can make direct
purchases or select from one of three automatic investment methods.
DIRECT PURCHASES
<TABLE>
<CAPTION>
Opening An Account Adding to An Account
<S> <C> <C>
Through a
Financial
Consultant Contact your financial consultant. Same
By Mail Mail completed Account Mail your check and the
Application and purchase payment to the transfer agent, remittance slip from
A I M Fund Services, Inc., P.O. Box 4739, your confirmation statement
Houston, TX 77210-4739. to the transfer agent.
By Wire Mail completed Account Call the transfer agent to
Application to the transfer agent. receive a reference number.
Call the transfer agent at Then, use the wire
(800) 959-4246 to receive a reference number. instructions at left.
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 methods described Mail completed AIM Bank
above. Connection(sm) form to the
transfer agent. Once
the transfer agent has
received the form, call the
transfer agent to place your
purchase.
</TABLE>
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 and in the same class of shares. 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
A-5
<PAGE> 153
10th or 25th day of the month 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 at net
asset value in certain AIM Funds without paying a sales charge. 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. 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
TIMING OF REDEMPTIONS
You can redeem shares during the hours the New York Stock Exchange (NYSE) is
open for business. An AIM Fund may postpone the right of redemption only under
unusual circumstances, such as when the NYSE restricts or suspends trading.
A-6
<PAGE> 154
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).
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.
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 eighteen 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.
HOW TO REDEEM SHARES
<TABLE>
<CAPTION>
Through a
Financial Consultant Contact your financial consultant.
<S> <C>
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 thirty
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 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.
A-7
<PAGE> 155
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 New York Stock Exchange (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.
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
A-8
<PAGE> 156
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 and it may have tax consequences.
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, in 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 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;
A-9
<PAGE> 157
(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:
o You must meet the minimum purchase requirements for the AIM Fund into
which you are exchanging;
o Shares of the AIM Fund you wish to acquire must be qualified for sale in
your state of residence;
o Exchanges must be made between accounts with identical registration
information;
o 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);
o Shares must have been held for at least one day prior to the exchange; and
o If you have physical share certificates, you must return them to the
transfer agent prior to the exchange.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the issuance of shares
being purchased 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
A-10
<PAGE> 158
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; OR WITHDRAW ALL OR ANY PART OF
THE OFFERING MADE BY THIS PROSPECTUS.
Pricing of Shares
Each of the AIM Funds prices its shares based on its net asset value. 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 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 New York Stock
Exchange (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. The AIM Funds price purchase, exchange and redemption
orders at the net asset value calculated after the transfer agent receives an
order in good form.
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. Every year, an
A-11
<PAGE> 159
account statement showing the amount of dividends and distributions you
received from each AIM Fund during the prior year will be sent to you.
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 of the AIM Fund's shares, and any gain
realized on the transaction will 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.
A-12
<PAGE> 160
[BACK COVER PAGE]
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
United States 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 semi-annual 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
or your account, or wish to obtain free copies of the fund's current SAI or
annual or semi-annual reports, please contact us:
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 semi-
annual reports only)
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, D.C., 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, D.C. 20549-6009. Please call the SEC
at 1-800-SEC-0330 for information about the Public Reference Room.
AIM Global Consumer Products and Services Fund
SEC 1940 Act file number: 811-05426
<PAGE> 161
[AIM LOGO APPEARS HERE]
ADVISOR CLASS
AIM GLOBAL CONSUMER PRODUCTS AND SERVICES FUND
PROSPECTUS
MARCH 1, 1999
AIM Global Consumer Products and Services Fund seeks to provide long-term growth
of capital.
This prospectus contains important information. Please read it before investing
and keep it for future reference.
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. There is a risk that you could lose a portion or all of your money.
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.
1
<PAGE> 162
TABLE OF CONTENTS
INVESTMENT OBJECTIVE AND STRATEGIES............................3
PRINCIPAL RISKS OF INVESTING IN THE FUND.......................3
PERFORMANCE INFORMATION........................................5
ANNUAL TOTAL RETURNS..................................5
PERFORMANCE TABLE.....................................6
FEE TABLE AND EXPENSE EXAMPLE..................................7
FEE TABLE.............................................7
EXPENSE EXAMPLE.......................................7
FUND MANAGEMENT................................................8
THE ADVISOR...........................................8
ADVISOR COMPENSATION..................................8
PORTFOLIO MANAGERS....................................8
OTHER INFORMATION..............................................9
DIVIDENDS AND DISTRIBUTIONS...........................9
FINANCIAL HIGHLIGHTS..........................................10
SHAREHOLDER INFORMATION......................................A-1
PURCHASING SHARES...................................A-1
REDEEMING SHARES....................................A-3
EXCHANGING SHARES...................................A-5
PRICING OF SHARES...................................A-6
TAXES...............................................A-6
OBTAINING ADDITIONAL INFORMATION.................BACK COVER PAGE
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 is a service
mark of A I M Management Group Inc.
2
<PAGE> 163
INVESTMENT OBJECTIVE AND STRATEGIES
The fund's investment objective is long-term growth of capital.
The fund seeks to achieve its objective by investing all of its assets in the
Global Consumer Products and Services Portfolio (the portfolio), that in turn
normally invests at least 65% of its total assets in common and preferred
stocks, and warrants to acquire such securities, of domestic and foreign
consumer products and services companies. The portfolio considers a "consumer
products or services" company to be one that (i) derives at least 50% of either
its revenues or earnings from activities related to consumer products, or (ii)
devotes at least 50% of its assets to such activities, based on the company's
most recent fiscal year. Such companies include those that manufacture, market,
retail, or distribute consumer products (such as homes, automobiles, appliances,
computers, household goods, food, and apparel) and goods and services related to
entertainment, publishing, sports, and media (such as television broadcasts,
motion pictures, theme parks, restaurants, and lodging) or supply goods and
services to such companies (such as advertising, textile, and shipping
companies).
The portfolio may invest up to 35% of its assets in debt securities of domestic
and foreign consumer products and services companies and/or equity and debt
securities of companies outside the consumer products or services industry,
which, in the opinion of the portfolio manager, stand to benefit from
development in such industries. The portfolio will normally invest in the
securities of issuers located in at least three countries, including the United
States, and may invest a significant portion of its assets in the securities of
U.S. issuers. However, the portfolio will not invest more than 50% of its total
assets in the securities of issuers in any one country, other than the U.S. The
portfolio may invest up to 20% of its total assets in high-yield debt securities
rated below investment grade, i.e., "junk bonds."
The portfolio managers allocate the portfolio's assets among securities of
countries and in currency denominations that are expected to provide the best
opportunities for meeting the portfolio's investment objective. In analyzing
specific companies for possible investment, the portfolio managers ordinarily
look for several of the following characteristics: above-average per share
earnings growth; high return on invested capital; a healthy balance sheet; sound
financial and accounting policies and overall financial strength; strong
competitive advantages; effective research and product development and
marketing; development of new technologies; efficient service; pricing
flexibility; strong management; and general operating characteristics that will
enable the companies to compete successfully in their respective markets. The
portfolio managers usually sell a particular security when any of those factors
materially changes.
In anticipation of or in response to adverse market conditions or for cash
management purposes, the portfolio may hold all or a portion of its assets in
cash (U.S. dollars, foreign currencies or multinational currency units), money
market securities, bonds or other debt securities. As a result, the fund or the
portfolio may not achieve its investment objective.
The portfolio may engage in active and frequent trading of portfolio securities
to achieve its investment objective. If the portfolio does trade in this way, it
may incur increased transaction costs and brokerage commissions, both of which
can lower the actual return on your investment. Active trading may also increase
short-term capital gains and losses, which may affect the taxes you have to pay.
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. The value of your investment in the fund will go up and down with the
prices of the common stocks in which the portfolio invests. The price of common
stock rises and falls in response to many factors, including the historical and
prospective earnings of the issuer of the stock, the value of its assets,
general economic conditions, interest rates, investor perceptions, and market
liquidity.
3
<PAGE> 164
The value of the fund's shares is particularly vulnerable to factors affecting
the consumer products and services industry, such as government regulation,
demographic shifts, and intense competition. These factors may, among other
things, affect the demand for and success of certain consumer products and
services. Because the portfolio focuses its investments in the consumer products
and services industries, the value of your fund shares may rise and fall more
than the value of shares of a fund that invests more broadly.
In addition, the prices of securities of foreign issuers may be further affected
by other factors, including
o Currency exchange rates - The dollar value of the portfolio's foreign
investments will be affected by changes in the exchange rates between the
dollar and the currencies in which those investments are traded.
o Political and economic conditions - The value of the portfolio's foreign
investments may be adversely affected by political and economic conditions
in foreign countries and by changes in economic or tax policies in those
countries.
o Regulations - Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, among other things, there generally is less
publicly available information about foreign companies than about U.S.
companies.
o 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 their prices may be more volatile than U.S. securities.
[Compared to higher-quality debt securities, junk bonds involve greater risk of
default or price changes due to changes in the credit quality of the issuer
because they are generally unsecured and may be subordinated to other creditors'
claims. The value of lower-quality debt securities often fluctuates in response
to company, political or economic developments and can decline significantly
over short periods of time or during periods of general or regional economic
difficulty.]
Many software systems are unable to distinguish the year 2000 from the year
1900. The portfolio's investment advisor, together with independent technology
consultants, has completed its determination as to whether any software systems
that the portfolio or the fund uses or depends on has that problem and is in the
process of correcting and testing those systems that may have such problem. This
problem, if not corrected, may adversely affect services provided to the
portfolio or the fund or may affect companies in which the portfolio may invest
and, therefore, may lower the value of your shares.
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.
4
<PAGE> 165
[INFORMATION TO BE PROVIDED BY GARY WENDLER'S GROUP]
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
AIM GLOBAL CONSUMER PRODUCTS AND SERVICES FUND
(Advisor)
<TABLE>
<CAPTION>
Year Ended
December 31 Return %
----------- --------
<S> <C>
1996................................................ 39.01
1997................................................ 18.19
1998................................................ --
</TABLE>
The following bar chart shows changes in the performance of the fund's Advisor
Class shares from year to year over a 4-year period.
[BAR CHART TO BE REVISED - DELETE INFO FOR 1988 AND LEAVE A BLANK FOR 1998]
[INFO BELOW TO BE UPDATED/PROVIDED AT THE TIME OF THE ANNUAL UPDATE FILING - NOT
NOW]
During the 4-year period shown in the bar chart, the highest quarterly return
was [_____________%] (quarter ended [__________]) and the lowest quarterly
return was[_____________%] (quarter ended [__________]).
5
<PAGE> 166
PERFORMANCE TABLE
The following performance table shows how the fund's average annual returns for
one, five and 10 years compare to those of a broad-based securities market
index.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Average Annual Total Returns
(for the periods ending December 31, 1998)
1 Year 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Advisor Class* [ ]% [ ]% [ ]%
- ---------------------------------------------------------------------------------------------------
MSCI World Index** [ ] [ ] [ ]
- ---------------------------------------------------------------------------------------------------
</TABLE>
* Advisor Class returns are since inception (6-1-95).
** The Morgan Stanley Capital International World Index measures performance
for twenty-two developed country global stock markets. The index is
capitalization weighted. Companies included in the index replicated the
industry composition of each local market and, in addition, represent a
sampling of large, medium and small capitalization companies from each
local market taking into account the stocks liquidity.
[INFO IN THE ABOVE CHART TO BE UPDATED/PROVIDED AT THE ANNUAL UPDATE FILING -
NOT NOW]
6
<PAGE> 167
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>
Advisor Class
<S> <C>
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price
or redemption proceeds, whichever is less) None
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
Management Fees(1) 0.98%
Distribution and/or Service (12b-1) Fees None
Other Expenses:
Transfer agent fees and costs ____
Other ____
Total Other Expenses ____
Total Annual Fund Operating Expenses ____
</TABLE>
- -------------------
[(1) The investment advisor is currently waiving a portion of its fees. The
management fees were 0.61% after such waiver. The waiver may be terminated
at any time with the approval of the fund's Board of Trustees. If the
waiver is terminated before the end of the fund's fiscal year, the
investment advisor may be reimbursed the waived amounts for that year.]
EXPENSE EXAMPLE
This example is intended to help you compare the cost of investing in the
Advisor Class 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 operating expenses remain the same. Although your actual returns and
costs may be higher or lower, based on these assumptions your costs would be:
[FUND ACCOUNTING TO PROVIDE INFO AT THE ANNUAL UPDATE FILING - NOT NOW]
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Advisor Class $ $ $ $
</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>
Advisor Class $ $ $ $
</TABLE>
7
<PAGE> 168
FUND MANAGEMENT
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the investment adviser of Global
Consumer Products and Services Portfolio (the portfolio) and is responsible for
its day-to-day management. The advisor is located at 11 Greenway Plaza, Suite
100, Houston, Texas 77046-1173. The advisor supervises all aspects of the
portfolio's operations and provide investment advisory services to the
portfolio, including obtaining and evaluating economic, statistical and
financial information to formulate and implement investment programs for the
portfolio.
The advisor has acted as an investment adviser since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 90
investment portfolios, including the portfolio, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the portfolio's last fiscal year ended October 31, 1998, the portfolio
paid the advisor advisory fees of [___]% of the fund's average net assets.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual member
of the team who is primarily responsible for the day-to-day management of the
portfolio, is
o Derek H. Webb, Portfolio Manager, who has been responsible for the
fund since 1994 and has been associated with the advisor and/or its
affiliates since 1992. He has been Head of the Theme Funds for the
INVESCO (NY), Inc. since 1997. From 1992 to 1994, he was an analyst
for the INVESCO (NY), Inc.
8
<PAGE> 169
OTHER INFORMATION
DIVIDENDS AND DISTRIBUTIONS
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.
Dividends
The fund generally declares and pays dividends, if any, annually.
9
<PAGE> 170
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 table shows the financial highlights for a share of the fund outstanding
during each of the fiscal years (or periods) indicated.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the fund's financial statements, is included in the fund's annual
report, which is available upon request.
[FINANCIAL HIGHLIGHTS BELOW ARE FOR ADVISOR CLASS FOR THE YEARS/PERIODS
INDICATED - TO BE REVISED BY FUND ACCOUNTING TO INCLUDE 1998 INFORMATION AT THE
ANNUAL UPDATE FILING - NOT NOW]
<TABLE>
<CAPTION>
Advisor Class
--------------------------------------------------------------
June 1, 1995
to
Year Ended October 31, October 31, 1995
----------------------------------------- -----------------
1998 1997 1996 1995
------------- ---------- ---------- -----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $xx.xx $xx.xx $xx.xx $xx.xx
------------- ---------- ---------- --------------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx)
------------- ---------- ---------- --------------
Net gains on securities (both realized and unrealized) (x.xx) (x.xx) (x.xx) (x.xx)
------------- ---------- ---------- --------------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx)
------------- ---------- ---------- --------------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx)
------------- ---------- ---------- --------------
Net asset value, end of period $xx.xx $xx.xx $xx.xx $xx.xx
------------- ---------- ---------- --------------
Total return (a) (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------------- ---------- ---------- --------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $xx,xxx $xx,xxx $xx,xxx $xx,xxx
------------- ---------- ---------- --------------
Ratio of expenses to average net assets (b) x.xx% (c)(d) X.XX X.XX X.XX
------------- ---------- ---------- --------------
Ratio of net investment income (loss) to average net assets (e) (x.xx)% (c) (X.XX)% (X.XX)% (X.XX)%
------------- ---------- ---------- --------------
Portfolio turnover rate xx% xx% xx% xx%
------------- ---------- ---------- --------------
</TABLE>
[(a) Does not deduct sales charges and are 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
were X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(c) Ratios are annualized and based on average net assets of
$XX,XXX,XXX,XXX.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been
the same.
(e) After fee waivers and/or expense reimbursements. Ratio of net
investment income (loss) to average net assets prior to fee waivers
and/or expense reimbursement were (X.XX)%, (X.XX)%, (X.XX)%, (X.XX)%
and (X.XX)% for 1998-1994.]
10
<PAGE> 171
SHAREHOLDER INFORMATION FOR ADVISOR CLASS SHARES
- -------------------------------------------------------------------------------
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM ACCOUNT
The minimum initial investment for Advisor Class shares is $500; and the
minimum investment for purchases of additional Advisor Class shares is $50.
HOW TO PURCHASE SHARES
Shares offered by this prospectus are available for purchase only by certain
investors and are offered at net asset value without the imposition of a
front-end or contingent deferred sales charge or Rule 12b-1 fees. Advisor Class
shares are available through financial consultants (such as financial planners,
trust companies, bank trust departments, and registered investment advisors).
In order to purchase Advisor Class shares of any AIM Fund, your financial
consultant, on your behalf, must submit a fully completed new account
application form directly to the transfer agent.
There are several ways you can purchase your shares. You can make direct
purchases or select from two automatic investment methods.
DIRECT PURCHASES
<TABLE>
<CAPTION>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Through a Financial Consultant Contact your financial consultant. Same
By Mail Must be submitted by your financial Mail your check and the remittance
consultant. slip from your confirmation
statement to the transfer agent.
A I M Fund Services, Inc., P.O. Box
4739
Houston, TX 77210-4739
By Wire Your financial consultant must mail a Call the transfer agent to receive a
completed account application to the reference number. Then, use the
transfer agent. You or your financial wire instructions at left.
consultant may call the transfer agent
at (800) 959-4246 to 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 #
</TABLE>
A-1
<PAGE> 172
<TABLE>
<CAPTION>
<S> <C> <C>
By AIM Bank Open your account using one of the Mail completed AIM Bank Connection(sm)
Connection(sm) methods described above. form to the transfer agent. Once the
transfer agent has received the form,
call the transfer agent to place your
purchase order.
</TABLE>
SPECIAL PLANS
Automatic Dividend Investment
All of your dividends and distributions may be paid in cash or invested in
Advisor Class shares of certain AIM Funds. Unless you specify otherwise, your
dividends and distributions will automatically be reinvested in the same AIM
Fund.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in Advisor Class shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend or
distribution must be at least $5,000; or (b) in the AIM Fund receiving the
dividend or distribution 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 and
distributions 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 holdings of Advisor Class shares of AIM Funds 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 Advisor
Class shares 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.
The distributor and its agents reserve the right at any time to (1) reject or
cancel any part of any purchase or exchange order; (2) modify any terms or
conditions of purchase of shares of any AIM Fund; or (3) withdraw all or any
part of the offering made by this Prospectus.
A-2
<PAGE> 173
REDEEMING SHARES
TIMING OF REDEMPTIONS
You can redeem shares during the hours the New York Stock Exchange (NYSE) is
open for business. An AIM Fund may postpone the right of redemption only under
unusual circumstances, such as when the NYSE restricts or suspends trading.
REDEMPTION FEES
No redemption fee is imposed when shares are redeemed or repurchased; however,
dealers/financial institutions may charge service fees for handling repurchase
transactions.
A-3
<PAGE> 174
<TABLE>
<CAPTION>
HOW TO REDEEM SHARES
- -------------------------------------------------------------------------------------------------------------------
<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.
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. The transfer agent must receive your call
during the hours the 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 at the address on record with
us.
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.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
A-4
<PAGE> 175
(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.
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, IN ITS DISCRETION, REDEEM THE ACCOUNT AND DISTRIBUTE THE PROCEEDS
TO YOU.]
EXCHANGING SHARES
You may, under certain circumstances, exchange Advisor Class shares in one AIM
Fund for Advisor Class shares of another AIM Fund. Before requesting an
exchange, review the prospectus of the AIM Fund you wish to acquire.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
o You must meet the minimum purchase requirements for the AIM Fund into
which you are exchanging;
o Shares of the AIM Fund you wish to acquire must be qualified for sale in
your state of residence;
o Exchanges must be made between accounts with identical registration
information;
o 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);
o The AIM Fund from which you are exchanging must have received the full
amount of the purchase price for the shares being exchanged;
o Recently acquired shares must have been held in your account for ten
business days, and all other shares must have been held for at least one
day, prior to the exchange; and
o If you have physical share certificates, you must return them to the
transfer agent prior to the exchange.
A-5
<PAGE> 176
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the issuance of shares
being purchased 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.
GENERAL INFORMATION
- -------------------------------------------------------------------------------
PRICING OF SHARES
Each of the AIM Funds prices its shares based on its net asset value. 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. 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 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 Trustees 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. The AIM Funds price
purchase, exchange, and redemption orders calculated at the net asset value
after the transfer agent receives an order in good form.
A-6
<PAGE> 177
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. Long-term capital gain
distributions are taxable as long-term capital gains when distributed to you,
no matter how long you held your shares. Different rates of tax may apply to
ordinary income and long-term capital gain distributions. Every year, an
account statement showing the amount of dividends and distributions you
received from each AIM Fund during the prior year will be sent to you.
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 of the AIM Fund's shares, and any gain
realized on the transaction will 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.
A-7
<PAGE> 178
[BACK COVER PAGE]
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
United States 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 semi-annual 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
or your account, or wish to obtain free copies of the fund's current SAI or
annual or semi-annual reports, please contact us:
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
semi-annual reports only)
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, D.C., 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, D.C. 20549-6009. Please call the SEC
at 1-800-SEC-0330 for information about the Public Reference Room.
AIM Global Consumer Products and Services Fund
SEC 1940 Act file number: 811-05426
<PAGE> 179
[AIM LOGO]
AIM GLOBAL FINANCIAL SERVICES FUND
PROSPECTUS
MARCH 1, 1999
AIM Global Financial Services Fund seeks to provide long-term capital growth.
This prospectus contains important information. Please read it before investing
and keep it for future reference.
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. There is a risk that you could lose a portion or all of your money.
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.
<PAGE> 180
TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES......................................................................3
PRINCIPAL RISKS OF INVESTING IN THE FUND.................................................................3
PERFORMANCE INFORMATION..................................................................................5
ANNUAL TOTAL RETURNS............................................................................5
PERFORMANCE TABLE...............................................................................5
FEE TABLE AND EXPENSE EXAMPLE............................................................................7
FEE TABLE.......................................................................................7
EXPENSE EXAMPLE.................................................................................8
FUND MANAGEMENT..........................................................................................9
THE ADVISOR.....................................................................................9
ADVISOR COMPENSATION............................................................................9
PORTFOLIO MANAGERS..............................................................................9
OTHER INFORMATION.......................................................................................10
INITIAL SALES CHARGES FOR CLASS A SHARES.......................................................10
DIVIDENDS AND DISTRIBUTIONS....................................................................10
FINANCIAL HIGHLIGHTS....................................................................................11
SHAREHOLDER INFORMATION................................................................................A-1
CHOOSING A SHARE CLASS........................................................................A-1
PURCHASING SHARES.............................................................................A-4
REDEEMING SHARES..............................................................................A-6
EXCHANGING SHARES.............................................................................A-9
PRICING OF SHARES............................................................................A-11
TAXES........................................................................................A-11
OBTAINING ADDITIONAL INFORMATION...........................................................BACK COVER PAGE
</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 is a service
mark of A I M Management Group Inc.
2
<PAGE> 181
INVESTMENT OBJECTIVE AND STRATEGIES
The fund's investment objective is long-term growth of capital.
The fund seeks to achieve its objective by investing all of its assets in the
Global Financial Services Portfolio (the portfolio), which in turn normally
invests at least 65% of its total assets in common and preferred stocks, and
warrants to acquire such securities, of domestic and foreign financial services
companies. The portfolio considers a "financial services" company to be one
that (i) derives at least 50% of its revenues or earnings from financial
services activities, or (ii) devotes at least 50% of its assets to such
activities, based on its most recent fiscal year. Such companies include those
that provide financial services (such as commercial banks, insurance
brokerages, securities brokerages, investment banks, leasing companies, and
real estate-related companies).
The portfolio may invest up to 35% of its assets in debt securities of domestic
and foreign financial services companies and/or equity and debt securities of
companies outside the financial services industry, which, in the opinion of the
portfolio managers, stand to benefit from developments in the financial
services industries. The portfolio will normally invest in securities of
issuers in at least three countries, including the United States, and may
invest a significant portion of its assets in the securities of U.S. issuers.
However, the portfolio will not invest more than 40% of its total assets in
securities of issuers in any one country, other than the U.S.
The portfolio managers allocate the portfolio's assets among securities of
countries and in currency denominations that are expected to provide the best
opportunities for meeting the portfolio's investment objective. In analyzing
specific companies for possible investment, the portfolio managers ordinarily
look for several of the following characteristics: above-average per share
earnings growth; high return on invested capital; a healthy balance sheet;
sound financial and accounting policies and overall financial strength; strong
competitive advantages; effective research and product development and
marketing; development of new technologies; efficient service; pricing
flexibility; strong management; and general operating characteristics that will
enable the companies to compete successfully in their respective markets. The
portfolio managers usually sell a particular security when any of those factors
materially changes.
In anticipation of or in response to adverse market conditions or for cash
management purposes, the portfolio may hold all or a portion of its assets in
cash (U.S. dollars, foreign currencies or multinational currency units), money
market securities, bonds or other debt securities. As a result, the fund or the
portfolio 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. The value of your investment in the fund will go up and down with the
prices of the common stocks in which the portfolio invests. The price of common
stock rises and falls in response to many factors, including the historical and
prospective earnings of the issuer of the stock, the value of its assets,
general economic conditions, interest rates, investor perceptions, and market
liquidity.
The value of the fund's shares is particularly vulnerable to factors affecting
the financial services industry, such as government regulation, rapid business
changes, significant competition, and value fluctuations. Such factors may
limit the financial commitments that financial services companies can make,
including amounts and types of loans, and interest rates they can charge.
Because the portfolio focuses its investments in the financial services
industries, the value of your fund shares may rise and fall more than the value
of shares of a fund that invests more broadly.
3
<PAGE> 182
In addition, the prices of securities of foreign issuers may be further
affected by other factors, including
o Currency exchange rates - The dollar value of the portfolio's foreign
investments will be affected by changes in the exchange rates between the
dollar and the currencies in which those investments are traded.
o Political and economic conditions - The value of the portfolio's foreign
investments may be adversely affected by political and economic conditions
in foreign countries and by changes in economic or tax policies in those
countries.
o Regulations - Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, among other things, there generally is less
publicly available information about foreign companies than about U.S.
companies.
o 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 their prices may be more volatile than U.S. securities.
Many software systems are unable to distinguish the year 2000 from the year
1900. The portfolio's investment advisor, together with independent technology
consultants, has completed its determination as to whether any software systems
that the portfolio or the fund uses or depends on has that problem and is in
the process of correcting and testing those systems that may have such problem.
This problem, if not corrected, may adversely affect services provided to the
portfolio or the fund or may affect companies in which the portfolio may invest
and, therefore, may lower the value of your shares.
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.
4
<PAGE> 183
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 A
shares from year to year over a 5-year period. The bar chart does not reflect
sales loads. If it did, the annual total returns shown would be lower.
GLOBAL FINANCIAL SERVICES FUND
<TABLE>
<CAPTION>
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURN
------------- --------
<S> <C>
1995 19.06%
1996 15.21%
1997 30.32%
1998 %
</TABLE>
During the 5-year period shown in the bar chart, the highest quarterly return
was [______]% (quarter ended [_________]) and the lowest quarterly return was
[_______]% (quarter ended [__________ ]).
[BAR CHART TO BE REVISED - DELETE INFO FOR 1988 AND LEAVE A BLANK FOR 1998]
5
<PAGE> 184
[INFO BELOW TO BE UPDATED/PROVIDED AT THE TIME OF THE ANNUAL UPDATE FILING -
NOT NOW]
PERFORMANCE TABLE
The following performance table shows how the fund's average annual returns for
one, five and 10 years compare to those of a broad-based securities market
index.
5
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Average Annual Total Returns
(for the periods ending
December 31, 1997)
1 Year 5 Years 10 Years
- ---------------------------------------- ------ ------- ---------
<S> <C> <C> <C>
Class A* [ ]% [ ]% [ ]%
------ ------- ---------
Class B** [ ] [ ] [ ]
------ ------- ---------
MSCI World Index*** [ ] [ ] [ ]
- -------------------------------------------------------------------------------------------------
</TABLE>
* Class A returns are since inception (5/31/94).
** Class B returns are since inception (5/31/94).
*** The Morgan Stanley Capital International World Index measures performance
for twenty-two developed country global stock markets. The index is
capitalization weighted. Companies included in the index replicated the
industry composition of each local market and, in addition, represent a
sampling of large, medium and small capitalization companies from each
local market taking into account the stocks liquidity.
[INFO IN THE ABOVE CHART TO BE UPDATED/PROVIDED AT THE ANNUAL UPDATE FILING -
NOT NOW]
6
<PAGE> 185
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>
Class A Class B Class C
------- ------- -------
Shareholder Fees (fees paid directly from your investment)
<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
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
Management Fees (2) 0.98% 0.98% ----%
Distribution and/or Service (12b-1) Fees 0.50 1.00 ----
Other Expenses:
Transfer agent fees and costs ---- ---- ----
Other ---- ---- ----
Total Other Expenses ---- ---- ----
Total Annual Fund Operating Expenses ---- ---- ----
</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 investment advisor is currently waiving a portion of its fees. The
management fees were 0.61% after such waiver. The waiver may be
terminated at any time with the approval of the fund's Board of Trustees.
If the waiver is terminated before the end of the fund's fiscal year, the
investment advisor may be reimbursed the waived amounts for that year.]
As a result of 12b-1 fees, long-term shareholders in the fund may pay more than
the maximum permitted initial sales charge.
7
<PAGE> 186
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 operating expenses remain the same. 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 $ $ $ $
Class B
Class C
</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 $ $ $ $
Class B
Class C
</TABLE>
8
<PAGE> 187
FUND MANAGEMENT
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the investment adviser of Global
Financial Services Portfolio (the portfolio) and is responsible for its
day-to-day management. The advisor is located at 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173. The advisor supervises all aspects of the
portfolio's operations and provide investment advisory services to the
portfolio, including obtaining and evaluating economic, statistical and
financial information to formulate and implement investment programs for the
portfolio.
The advisor has acted as an investment adviser since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 90
investment portfolios, including the portfolio, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the portfolio's last fiscal year ended October 31, 1998, the portfolio
paid the advisor advisory fees of [_______ ]% of the portfolio's average
net assets.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual
member of the team who is primarily responsible for the day-to-day management
of the portfolio is
o A. James Ellman, Portfolio Manager, who has been responsible for the fund
since 1995 and has been associated with the advisor and/or its affiliates
since 1994. He was an Analyst for INVESCO (NY), Inc. from 1994 to 1995.
9
<PAGE> 188
OTHER INFORMATION
INITIAL SALES CHARGES FOR CLASS A SHARES
Purchases of Class A shares of the 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.
DIVIDENDS AND DISTRIBUTIONS
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.
Dividends
The fund generally declares and pays dividends, if any, annually.
10
<PAGE> 189
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 table shows the financial highlights for a share of the fund outstanding
during each of the fiscal years (or periods) indicated.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the fund's financial statements, is included in the fund's annual
report, which is available upon request.
[FINANCIAL HIGHLIGHTS BELOW ARE FOR CLASS A AND CLASS B FOR THE YEARS/PERIODS
INDICATED - TO BE REVISED BY FUND ACCOUNTING TO INCLUDE 1998 INFORMATION A THE
ANNUAL UPDATE FILING - NOT NOW]
<TABLE>
<CAPTION>
--------------------------------------------------------------------
Class A
--------------------------------------------------------------------
May 31, 1994
to
1998 1997 1996 1995 October 31, 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- -------
Net gains on securities (both realized and unrealized) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- -------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- -------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- -------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------- ------- ------- ------- -------
Total return (a) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------- ------- ------- ------- -------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $xx,xxx $xx,xxx $xx,xxx $xx,xxx $xx,xxx
------- ------- ------- ------- -------
Ratio of expenses to average net assets (b) x.xx% (c)(d) x.xx% x.xx% x.xx% x.xx%
------- ------- ------- ------- -------
Ratio of net investment income (loss) to average net assets (e) (x.xx)% (c) (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------- ------- ------- ------- -------
Portfolio turnover rate xx% xx% xx% xx% xx%
------- ------- ------- ------- -------
</TABLE>
(a) Does not deduct sales charges and are 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 were
X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(c) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been the
same.
(e) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (X.XX)%, (X.XX)%, (X.XX)%, (X.XX)% and (X.XX)% for
1998-1994.
[INCLUDE 1998 INFORMAITON A THE ANNUAL UPDATE FILING-NOT NOW]
11
<PAGE> 190
<TABLE>
<CAPTION>
---------------------------------------------------------------------
Class B
---------------------------------------------------------------------
May 31, 1994
to
1998 1997 1996 1995 October 31, 1994
------- ------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------- ------- ------- ------- ----------------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- ----------------
Net gains on securities (both realized
and unrealized) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- ----------------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- ----------------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- ----------------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------- ------- ------- ------- ----------------
Total return(a) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------- ------- ------- ------- ----------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $xx,xxx $xx,xxx $xx,xxx $xx,xxx $xx,xxx
------- ------- ------- ------- ----------------
Ratio of expenses to average net assets(b) x.xx% (c)(d) x.xx% x.xx% x.xx% x.xx%
------- ------- ------- ------- ----------------
Ratio of net investment income (loss) to average
net assets(e) (x.xx)% (c) (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------- ------- ------- ------- ----------------
Portfolio turnover rate xx% xx% xx% xx% xx%
------- ------- ------- ------- ----------------
</TABLE>
(a) Does not deduct sales charges and are 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 were
X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(c) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been the
same.
(e) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (X.XX)%, (X.XX)%, (X.XX)%, (X.XX)% and (X.XX)% for
1998-1994.
12
<PAGE> 191
SHAREHOLDER INFORMATION
Choosing a Share Class
Many of the funds advised by the advisor (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>
o Initial sales charge o No initial sales charge o No initial sales charge
o Reduced or o Contingent deferred o Contingent deferred
waived initial sales charge on sales charge on
sales charge for redemptions within redemptions within
certain purchases six years one year
o Lower distribution o 12b-1 fee of 1.00% o 12b-1 fee of 1.00%
and service (12b-1)
fee than Class B or
Class C shares
(See "Fee Table o Converts to Class A o Does not convert to
and Expense shares after eight years Class A shares
Example") along with a pro rata
portion of its reinvested
dividends and distributions*
o Generally more o Purchase orders limited o Generally more
appropriate for long- to amounts less than appropriate for short-
term investors $250,000 term investors
</TABLE>
* If you held Class B shares of AIM Global Trends Fund 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
<PAGE> 192
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.
CATEGORY I Initial Sales Charges
- --------------------------------
<TABLE>
<CAPTION>
INVESTOR'S SALES CHARGE
-----------------------
AS A PERCENTAGE
AS A PERCENTAGE OF THE
AMOUNT OF INVESTMENT OF THE PUBLIC NET AMOUNT
IN SINGLE TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<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>
CATEGORY II Initial Sales Charges
- ---------------------------------
<TABLE>
<CAPTION>
INVESTOR'S SALES CHARGE
-----------------------
AS A PERCENTAGE
AS A PERCENTAGE OF THE
AMOUNT OF INVESTMENT OF THE PUBLIC NET AMOUNT
IN SINGLE TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<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>
CATEGORY III Initial Sales Charges
- ----------------------------------
<TABLE>
<CAPTION>
INVESTOR'S SALES CHARGE
-----------------------
AS A PERCENTAGE
AS A PERCENTAGE OF THE
AMOUNT OF INVESTMENT OF THE PUBLIC NET AMOUNT
IN SINGLE TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<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.
A-2
<PAGE> 193
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>
CLASS B CLASS C
CDSC AS A PERCENTAGE CDSC AS A PERCENTAGE
OF DOLLAR AMOUNT OF DOLLAR AMOUNT
YEAR SINCE PURCHASE MADE SUBJECT TO CHARGE SUBJECT TO CHARGE
------------------------ ----------------- -----------------
<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>
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 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
o on shares purchased by reinvesting dividends and distributions;
o when exchanging shares among certain AIM Funds;
o when using the reinstatement privilege; and
o 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
o if you redeem Class B shares you held for more than six years;
o if you redeem Class C shares you held for more than one year;
o if you redeem shares acquired through reinvestment of dividends and
distributions; and
o on increases in the net asset value of your shares.
A-3
<PAGE> 194
There may be other situations in which you or other shareholders may be able to
purchase or redeem shares at reduced or without sales charges. You should
consult the fund's Statement of Additional Information for details regarding
these situations.
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>
- -------------------------------------------------------------------------------------------------------------------------
Type of Account Initial Additional
Investments Investments
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing plans, 401(k) plans, Simplified $0 ($25 per $25
Employee Pension (SEP) accounts, Salary Reduction (SARSEP) accounts, Savings AIM Fund
Incentive Match Plans for Employee IRA (Simple IRA) accounts, 403(b) or 457 investment
plans) for salary
deferrals
from Savings
Plans)
- -------------------------------------------------------------------------------------------------------------------------
Automatic Investment Plans $50 $50
- -------------------------------------------------------------------------------------------------------------------------
IRA, Education IRA or Roth IRA $250 $50
- -------------------------------------------------------------------------------------------------------------------------
All other accounts $500 $50
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-4
<PAGE> 195
HOW TO PURCHASE SHARES
There are several ways you can purchase your shares. You can make direct
purchases or select from one of three automatic investment methods.
DIRECT PURCHASES
<TABLE>
<CAPTION>
Opening An Account Adding to An Account
<S> <C> <C>
Through a
Financial
Consultant Contact your financial consultant. Same
By Mail Mail completed Account Mail your check and the
Application and purchase payment to the transfer agent, remittance slip from
A I M Fund Services, Inc., P.O. Box 4739, your confirmation statement
Houston, TX 77210-4739. to the transfer agent.
By Wire Mail completed Account Call the transfer agent to
Application to the transfer agent. receive a reference number.
Call the transfer agent at Then, use the wire
(800) 959-4246 to receive a reference number. instructions at left.
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 methods described Mail completed AIM Bank
above. Connection(sm) form to the
transfer agent. Once
the transfer agent has
received the form, call the
transfer agent to place your
purchase.
</TABLE>
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 and in the same class of shares. 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
A-5
<PAGE> 196
10th or 25th day of the month 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 at net
asset value in certain AIM Funds without paying a sales charge. 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. 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
TIMING OF REDEMPTIONS
You can redeem shares during the hours the New York Stock Exchange (NYSE) is
open for business. An AIM Fund may postpone the right of redemption only under
unusual circumstances, such as when the NYSE restricts or suspends trading.
A-6
<PAGE> 197
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).
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.
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 eighteen 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.
HOW TO REDEEM SHARES
<TABLE>
<CAPTION>
Through a
Financial Consultant Contact your financial consultant.
<S> <C>
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 thirty
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 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.
A-7
<PAGE> 198
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 New York Stock Exchange (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.
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
A-8
<PAGE> 199
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 and it may have tax consequences.
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, in 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 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;
A-9
<PAGE> 200
(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:
o You must meet the minimum purchase requirements for the AIM Fund into
which you are exchanging;
o Shares of the AIM Fund you wish to acquire must be qualified for sale in
your state of residence;
o Exchanges must be made between accounts with identical registration
information;
o 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);
o Shares must have been held for at least one day prior to the exchange; and
o If you have physical share certificates, you must return them to the
transfer agent prior to the exchange.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the issuance of shares
being purchased 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
A-10
<PAGE> 201
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; OR WITHDRAW ALL OR ANY PART OF
THE OFFERING MADE BY THIS PROSPECTUS.
Pricing of Shares
Each of the AIM Funds prices its shares based on its net asset value. 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 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 New York Stock
Exchange (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. The AIM Funds price purchase, exchange and redemption
orders at the net asset value calculated after the transfer agent receives an
order in good form.
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. Every year, an
A-11
<PAGE> 202
account statement showing the amount of dividends and distributions you
received from each AIM Fund during the prior year will be sent to you.
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 of the AIM Fund's shares, and any gain
realized on the transaction will 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.
A-12
<PAGE> 203
[BACK COVER PAGE]
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
United States 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 semi-annual 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 semi-annual reports, please contact us:
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
semi-annual reports only)
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, D.C., 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, D.C. 20549-6009. Please call
the SEC at 1-800-SEC-0330 for information about the Public Reference Room.
AIM Global Financial Services Fund
SEC 1940 Act file number: 811-05426
13
<PAGE> 204
[AIM LOGO]
ADVISOR CLASS
AIM GLOBAL FINANCIAL SERVICES FUND
PROSPECTUS
MARCH 1, 1999
AIM Global Financial Services Fund seeks to provide long-term capital growth.
This prospectus contains important information. Please read it before investing
and keep it for future reference.
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. There is a risk that you could lose a portion or all of your money.
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.
<PAGE> 205
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES........................................3
PRINCIPAL RISKS OF INVESTING IN THE FUND...................................3
PERFORMANCE INFORMATION....................................................5
ANNUAL TOTAL RETURNS..............................................5
PERFORMANCE TABLE.................................................5
FEE TABLE AND EXPENSE EXAMPLE..............................................6
FEE TABLE.........................................................6
EXPENSE EXAMPLE...................................................6
FUND MANAGEMENT............................................................7
THE ADVISOR ......................................................7
ADVISOR COMPENSATION..............................................7
PORTFOLIO MANAGERS................................................7
OTHER INFORMATION..........................................................8
DIVIDENDS AND DISTRIBUTIONS.......................................8
FINANCIAL HIGHLIGHTS.......................................................9
SHAREHOLDER INFORMATION..................................................A-1
PURCHASING SHARES...............................................A-1
REDEEMING SHARES................................................A-3
EXCHANGING SHARES...............................................A-5
PRICING OF SHARES...............................................A-6
TAXES...........................................................A-6
OBTAINING ADDITIONAL INFORMATION.............................BACK COVER PAGE
</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 is a service
mark of A I M Management Group Inc.
2
<PAGE> 206
INVESTMENT OBJECTIVE AND STRATEGIES
The fund's investment objective is long-term growth of capital.
The fund seeks to achieve its objective by investing all of its assets in the
Global Financial Services Portfolio (the portfolio), which in turn normally
invests at least 65% of its total assets in common and preferred stocks, and
warrants to acquire such securities, of domestic and foreign financial services
companies. The portfolio considers a "financial services" company to be one that
(i) derives at least 50% of its revenues or earnings from financial services
activities, or (ii) devotes at least 50% of its assets to such activities, based
on its most recent fiscal year. Such companies include those that provide
financial services (such as commercial banks, insurance brokerages, securities
brokerages, investment banks, leasing companies, and real estate-related
companies).
The portfolio may invest up to 35% of its assets in debt securities of domestic
and foreign financial services companies and/or equity and debt securities of
companies outside the financial services industry, which, in the opinion of the
portfolio managers, stand to benefit from developments in the financial services
industries. The portfolio will normally invest in securities of issuers in at
least three countries, including the United States, and may invest a significant
portion of its assets in the securities of U.S. issuers. However, the portfolio
will not invest more than 40% of its total assets in securities of issuers in
any one country, other than the U.S.
The portfolio managers allocate the portfolio's assets among securities of
countries and in currency denominations that are expected to provide the best
opportunities for meeting the portfolio's investment objective. In analyzing
specific companies for possible investment, the portfolio managers ordinarily
look for several of the following characteristics: above-average per share
earnings growth; high return on invested capital; a healthy balance sheet; sound
financial and accounting policies and overall financial strength; strong
competitive advantages; effective research and product development and
marketing; development of new technologies; efficient service; pricing
flexibility; strong management; and general operating characteristics that will
enable the companies to compete successfully in their respective markets. The
portfolio managers usually sell a particular security when any of those factors
materially changes.
In anticipation of or in response to adverse market conditions or for cash
management purposes, the portfolio may hold all or a portion of its assets in
cash (U.S. dollars, foreign currencies or multinational currency units), money
market securities, bonds or other debt securities. As a result, the fund or the
portfolio 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. The value of your investment in the fund will go up and down with the
prices of the common stocks in which the portfolio invests. The price of common
stock rises and falls in response to many factors, including the historical and
prospective earnings of the issuer of the stock, the value of its assets,
general economic conditions, interest rates, investor perceptions, and market
liquidity.
The value of the fund's shares is particularly vulnerable to factors affecting
the financial services industry, such as government regulation, rapid business
changes, significant competition, and value fluctuations. Such factors may limit
the financial commitments that financial services companies can make, including
amounts and types of loans, and interest rates they can charge. Because the
portfolio focuses its investments in the financial services industries, the
value of your fund shares may rise and fall more than the value of shares of a
fund that invests more broadly.
In addition, the prices of securities of foreign issuers may be further affected
by other factors, including
3
<PAGE> 207
o Currency exchange rates - The dollar value of the portfolio's foreign
investments will be affected by changes in the exchange rates between the
dollar and the currencies in which those investments are traded.
o Political and economic conditions - The value of the portfolio's foreign
investments may be adversely affected by political and economic conditions
in foreign countries and by changes in economic or tax policies in those
countries.
o Regulations - Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, among other things, there generally is less
publicly available information about foreign companies than about U.S.
companies.
o 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 their prices may be more volatile than U.S. securities.
Many software systems are unable to distinguish the year 2000 from the year
1900. The portfolio's investment advisor, together with independent technology
consultants, has completed its determination as to whether any software systems
that the portfolio or the fund uses or depends on has that problem and is in the
process of correcting and testing those systems that may have such problem. This
problem, if not corrected, may adversely affect services provided to the
portfolio or the fund or may affect companies in which the portfolio may invest
and, therefore, may lower the value of your shares.
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.
4
<PAGE> 208
[INFORMATION TO BE PROVIDED BY GARY WENDLER'S GROUP]
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 Advisor
Class shares from year to year over a 3-year period.
[BAR CHART TO BE REVISED - DELETE INFO FOR 1988 AND LEAVE A BLANK FOR 1998]
[INFO BELOW TO BE UPDATED/PROVIDED AT THE TIME OF THE ANNUAL UPDATE
FILING - NOT NOW]
During the 3-year period shown in the bar chart, the highest quarterly return
was [ __________ %] (quarter ended [___________________]) and the lowest
quarterly return was[ ___________ %] (quarter ended [ __________ ]).
PERFORMANCE TABLE
The following performance table shows how the fund's average annual returns for
one, five and 10 years compare to those of a broad-based securities market
index.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Average Annual Total Returns
(for the periods ending December 31, 1998)
1 Year 5 Years 10 Years
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Advisor Class* [ ]% [ ]% [ ]%
- ----------------------------------------------------------------------------------------------
MSCI World Index** [ ] [ ] [ ]
- ----------------------------------------------------------------------------------------------
</TABLE>
* Advisor Class returns are since inception (6-1-95).
** The Morgan Stanley Capital International World Index measures performance
for twenty-two developed country global stock markets. The index is
capitalization weighted. Companies included in the index replicate the
industry composition of each local market and, in addition, represent a
sampling of large, medium and small capitalization companies from each
local market taking into account the stocks liquidity.
[INFO IN THE ABOVE CHART TO BE UPDATED/PROVIDED AT THE ANNUAL UPDATE
FILING - NOT NOW]
5
<PAGE> 209
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>
Advisor Class
-------------
<S> <C>
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price
or redemption proceeds, whichever is less) None
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
Management Fees(1) 0.98%
Distribution and/or Service (12b-1) Fees None
Other Expenses:
Transfer agent fees and costs ---
Other ---
Total Other Expenses ---
Total Annual Fund Operating Expenses ---
</TABLE>
- -------------------
[(1) The investment advisor is currently waiving a portion of its fees. The
management fees were 0.61% after such waiver. The waiver may be terminated
at any time with the approval of the fund's Board of Trustees. If the
waiver is terminated before the end of the fund's fiscal year, the
investment advisor may be reimbursed the waived amounts for that year.]
EXPENSE EXAMPLE
This example is intended to help you compare the cost of investing in the
Advisor Class 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 operating expenses remain the same. Although your actual returns and
costs may be higher or lower, based on these assumptions your costs would be:
[FUND ACCOUNTING TO PROVIDE INFO AT THE ANNUAL UPDATE FILING - NOT NOW]
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Advisor Class [ $ $ $ $
</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>
Advisor Class [ $ $ $ $
</TABLE>
6
<PAGE> 210
FUND MANAGEMENT
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the investment adviser of Global
Financial Services Portfolio (the portfolio) and is responsible for its
day-to-day management. The advisor is located at 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173. The advisor supervises all aspects of the portfolio's
operations and provide investment advisory services to the portfolio, including
obtaining and evaluating economic, statistical and financial information to
formulate and implement investment programs for the fund.
The advisor has acted as an investment adviser since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 90
investment portfolios, including the portfolio, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the portfolio's last fiscal year ended October 31, 1998, the portfolio
paid the advisor advisory fees of [ ________ ]% of the portfolio's average net
assets.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual member
of the team who is primarily responsible for the day-to-day management of the
portfolio is
o A. James Ellman, Portfolio Manager, who has been responsible for the
fund since 1995 and has been associated with the advisor and/or its
affiliates since 1994. He was an analyst for INVESCO (NY), Inc.
from 1994 to 1995.
7
<PAGE> 211
OTHER INFORMATION
DIVIDENDS AND DISTRIBUTIONS
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.
Dividends
The fund generally declares and pays dividends, if any, annually.
8
<PAGE> 212
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 table shows the financial highlights for a share of the fund outstanding
during each of the fiscal years (or periods) indicated.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the fund's financial statements, is included in the fund's annual
report, which is available upon request.
[FINANCIAL HIGHLIGHTS BELOW ARE FOR ADVISOR CLASS SHARES FOR THE YEARS/PERIODS
INDICATED - TO BE REVISED BY FUND ACCOUNTING TO INCLUDE 1998 INFORMATION AT THE
ANNUAL UPDATE FILING - NOT NOW]
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Class A
-------------------------------------------------------------------
May 31, 1994
to
1998 1997 1996 1995 Oct. 31, 1994
-------- -------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
-------- -------- --------- --------- -------------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
-------- -------- --------- --------- -------------
Net gains on securities (both realized and unrealized) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
-------- -------- --------- --------- -------------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
-------- -------- --------- --------- -------------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
-------- -------- --------- --------- -------------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
-------- -------- --------- --------- -------------
Total return(a) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
-------- -------- --------- --------- -------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ xx,xxx $ xx,xxx $ xx,xxx $ xx,xxx $ xx,xxx
-------- -------- --------- --------- -------------
Ratio of expenses to average net assets(b) x.xx% (c)(d) x.xx% x.xx% x.xx% x.xx%
-------- -------- --------- --------- -------------
Ratio of net investment income (loss) to average net assets(e) (x.xx)% (c) (x.xx)% (x.xx)% (x.xx)% (x.xx)%
-------- -------- --------- --------- -------------
Portfolio turnover rate xx% xx% xx% xx% xx%
-------- -------- --------- --------- -------------
</TABLE>
(a) Does not deduct sales charges and are 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 were
X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(c) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been the
same.
(e) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (X.XX)%, (X.XX)%, (X.XX)%, (X.XX)% and (X.XX)% for
1998-1994.
<PAGE> 213
SHAREHOLDER INFORMATION FOR ADVISOR CLASS SHARES
- -------------------------------------------------------------------------------
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM ACCOUNT
The minimum initial investment for Advisor Class shares is $500; and the
minimum investment for purchases of additional Advisor Class shares is $50.
HOW TO PURCHASE SHARES
Shares offered by this prospectus are available for purchase only by certain
investors and are offered at net asset value without the imposition of a
front-end or contingent deferred sales charge or Rule 12b-1 fees. Advisor Class
shares are available through financial consultants (such as financial planners,
trust companies, bank trust departments, and registered investment advisors).
In order to purchase Advisor Class shares of any AIM Fund, your financial
consultant, on your behalf, must submit a fully completed new account
application form directly to the transfer agent.
There are several ways you can purchase your shares. You can make direct
purchases or select from two automatic investment methods.
DIRECT PURCHASES
<TABLE>
<CAPTION>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Through a Financial Consultant Contact your financial consultant. Same
By Mail Must be submitted by your financial Mail your check and the remittance
consultant. slip from your confirmation
statement to the transfer agent.
A I M Fund Services, Inc., P.O. Box
4739
Houston, TX 77210-4739
By Wire Your financial consultant must mail a Call the transfer agent to receive a
completed account application to the reference number. Then, use the
transfer agent. You or your financial wire instructions at left.
consultant may call the transfer agent
at (800) 959-4246 to 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 #
</TABLE>
A-1
<PAGE> 214
<TABLE>
<CAPTION>
<S> <C> <C>
By AIM Bank Open your account using one of the Mail completed AIM Bank Connection(sm)
Connection(sm) methods described above. form to the transfer agent. Once the
transfer agent has received the form,
call the transfer agent to place your
purchase order.
</TABLE>
SPECIAL PLANS
Automatic Dividend Investment
All of your dividends and distributions may be paid in cash or invested in
Advisor Class shares of certain AIM Funds. Unless you specify otherwise, your
dividends and distributions will automatically be reinvested in the same AIM
Fund.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in Advisor Class shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend or
distribution must be at least $5,000; or (b) in the AIM Fund receiving the
dividend or distribution 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 and
distributions 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 holdings of Advisor Class shares of AIM Funds 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 Advisor
Class shares 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.
The distributor and its agents reserve the right at any time to (1) reject or
cancel any part of any purchase or exchange order; (2) modify any terms or
conditions of purchase of shares of any AIM Fund; or (3) withdraw all or any
part of the offering made by this Prospectus.
A-2
<PAGE> 215
REDEEMING SHARES
TIMING OF REDEMPTIONS
You can redeem shares during the hours the New York Stock Exchange (NYSE) is
open for business. An AIM Fund may postpone the right of redemption only under
unusual circumstances, such as when the NYSE restricts or suspends trading.
REDEMPTION FEES
No redemption fee is imposed when shares are redeemed or repurchased; however,
dealers/financial institutions may charge service fees for handling repurchase
transactions.
A-3
<PAGE> 216
<TABLE>
<CAPTION>
HOW TO REDEEM SHARES
- -------------------------------------------------------------------------------------------------------------------
<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.
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. The transfer agent must receive your call
during the hours the 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 at the address on record with
us.
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.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
A-4
<PAGE> 217
(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.
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, IN ITS DISCRETION, REDEEM THE ACCOUNT AND DISTRIBUTE THE PROCEEDS
TO YOU.]
EXCHANGING SHARES
You may, under certain circumstances, exchange Advisor Class shares in one AIM
Fund for Advisor Class shares of another AIM Fund. Before requesting an
exchange, review the prospectus of the AIM Fund you wish to acquire.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
o You must meet the minimum purchase requirements for the AIM Fund into
which you are exchanging;
o Shares of the AIM Fund you wish to acquire must be qualified for sale in
your state of residence;
o Exchanges must be made between accounts with identical registration
information;
o 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);
o The AIM Fund from which you are exchanging must have received the full
amount of the purchase price for the shares being exchanged;
o Recently acquired shares must have been held in your account for ten
business days, and all other shares must have been held for at least one
day, prior to the exchange; and
o If you have physical share certificates, you must return them to the
transfer agent prior to the exchange.
A-5
<PAGE> 218
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the issuance of shares
being purchased 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.
GENERAL INFORMATION
- -------------------------------------------------------------------------------
PRICING OF SHARES
Each of the AIM Funds prices its shares based on its net asset value. 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. 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 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 Trustees 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. The AIM Funds price
purchase, exchange, and redemption orders calculated at the net asset value
after the transfer agent receives an order in good form.
A-6
<PAGE> 219
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. Long-term capital gain
distributions are taxable as long-term capital gains when distributed to you,
no matter how long you held your shares. Different rates of tax may apply to
ordinary income and long-term capital gain distributions. Every year, an
account statement showing the amount of dividends and distributions you
received from each AIM Fund during the prior year will be sent to you.
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 of the AIM Fund's shares, and any gain
realized on the transaction will 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.
A-7
<PAGE> 220
[BACK COVER PAGE]
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
United States 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 semi-annual 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 semi-annual reports, please contact us:
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
semi-annual reports only)
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, D.C., 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, D.C. 20549-6009. Please call the SEC
at 1-800-SEC-0330 for information about the Public Reference Room.
AIM Global Financial Services Fund
SEC 1940 Act file number: 811-05426
<PAGE> 221
[AIM LOGO]
AIM GLOBAL GOVERNMENT INCOME FUND
PROSPECTUS
MARCH 1, 1999
AIM Global Government Income Fund primarily seeks high current income and,
secondarily, capital appreciation and preservation of capital.
This prospectus contains important information. Please read it before investing
and keep it for future reference.
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. There is a risk that you could lose a portion or all of your money.
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.
1
<PAGE> 222
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT OBJECTIVES AND STRATEGIES.....................................................................3
PRINCIPAL RISKS OF INVESTING IN THE FUND.................................................................4
PERFORMANCE INFORMATION..................................................................................6
ANNUAL TOTAL RETURNS............................................................................6
PERFORMANCE TABLE...............................................................................6
FEE TABLE AND EXPENSE EXAMPLE............................................................................7
FEE TABLE.......................................................................................7
EXPENSE EXAMPLE.................................................................................8
FUND MANAGEMENT..........................................................................................9
THE ADVISOR AND SUBADVISOR......................................................................9
ADVISOR COMPENSATION............................................................................9
PORTFOLIO MANAGERS..............................................................................9
OTHER INFORMATION.......................................................................................10
INITIAL SALES CHARGES FOR CLASS A SHARES.......................................................10
DIVIDENDS AND DISTRIBUTIONS....................................................................10
FINANCIAL HIGHLIGHTS....................................................................................11
SHAREHOLDER INFORMATION................................................................................A-1
PURCHASING SHARES.............................................................................A-1
REDEEMING SHARES..............................................................................A-3
EXCHANGING SHARES.............................................................................A-5
PRICING OF SHARES.............................................................................A-6
TAXES.........................................................................................A-6
OBTAINING ADDITIONAL INFORMATION...........................................................BACK COVER PAGE
</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 is a service
mark of A I M Management Group Inc.
2
<PAGE> 223
INVESTMENT OBJECTIVE AND STRATEGIES
The fund's primary investment objective is high current income and its
secondary investment objectives are growth of capital and preservation of
principal.
The fund seeks to achieve its objectives by investing at least 65% of its total
assets in debt securities (including mortgage-backed securities) issued or
guaranteed by U.S. and foreign governments or by their agencies, authorities,
and instrumentalities, as well as by supranational entities, such as the World
Bank. The fund primarily invests in high-quality government debt securities,
that are rated in the top two ratings categories by Moody's Investors Service,
Inc. or Standard & Poor's or deemed by INVESCO Asset Management Ltd., the
fund's subadvisor, to be of comparable quality. The fund may invest in
lower-quality debt securities, i.e., "junk bonds."
The fund may invest up to 35% of its total assets in (i) foreign government
securities that are rated within the third and fourth highest ratings
categories by Moody's or S&P or deemed by the fund's subadvisor to be of
comparable quality, (ii) corporate debt obligations of U.S. or foreign issuers
rated at least investment grade (rated within the the four highest ratings
categories by Moody's or S&P), (iii) privately issued mortgage-backed and
asset-backed securities that are rated at least investment grade, or deemed by
the subadvisor to be of comparable quality, and (iv) common stocks, preferred
stocks and warrants, provided that the fund will not invest more than 20% of
its total assets in such securities.
The fund will normally invest in securities issued by at least three different
countries, including the United States, and may invest a significant portion of
its assets in the securities of U.S. issuers. However, the fund will not invest
more than 40% of its total assets in securities of any one country, other than
the U.S. The fund will only invest in a foreign currency or in securities
denominated in a foreign currency if the fund's subadvisor considers the
currency to be fully exchangeable into U.S. dollars or a multinational currency
unit.
The portfolio managers allocate assets among securities of countries and in
currency denominations where the combination of fixed-income market returns,
the price appreciation of fixed-income securities and currency exchange rate
movements will present opportunities for meeting the fund's investment
objectives. The principal determinants of the emphasis given to various
country, geographic, and industry sectors within the fund are fundamental
economic strength, credit quality, and currency and interest rate trends.
Further, the portfolio managers select particular issuers based on additional
economic criteria such as yield, maturity, issue classification, and quality
characteristics. Currency investments are based on economic factors (such as
relative inflation, interest rate levels and trends, growth rate forecasts,
balance of payments status, and economic policies) and on political and
technical data. The portfolio managers usually sell a particular security when
any of those factors materially changes.
The fund is a non-diversified portfolio, which means that with respect to 50%
of its assets, it is permitted to invest more than 5% of its assets in the
securities of any one issuer.
In anticipation of or in response to adverse market conditions or for cash
management purposes, the fund may hold all or a portion of its assets in cash
(U.S. dollars, foreign currencies or multinational currency units), money
market securities, bonds or other debt securities. As a result, the fund may
not achieve its investment objectives.
The fund may engage in active and frequent trading of portfolio securities to
achieve its investment objective. If the fund does trade in this way, it may
incur increased transaction costs which can lower the actual return on your
investment. Active trading may also increase short-term capital gains and
losses, which may affect the taxes you have to pay.
3
<PAGE> 224
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. Debt securities are particularly
vulnerable to credit risk and interest rate fluctuations. When interest rates
rise, bond prices fall; the longer the bond's duration, the more sensitive it
is to this risk. The fund could also lose money if any debt securities that the
fund holds are downgraded or go into default.
Mortgage-backed and asset-backed securities are subject to different risks from
bonds and, as a result, may respond to changes in interest rates differently.
If interest rates fall, people refinance or pay off their mortgages ahead of
time, which may cause mortgage-backed securities to lose value. If interest
rates rise, many people may refinance or prepay their mortgages at a
slower-than-expected rate. This may effectively lengthen the life of
mortgage-backed securities, which may cause the securities to be more sensitive
to changes in interest rates.
In addition, the prices of securities of foreign issuers may be further
affected by other factors, including
o 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.
o 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.
o Regulations - Foreign companies generally are subject to less
stringent regulations, including financial and accounting controls,
than are U.S. companies. As a result, among other things, there
generally is less publicly available information about foreign
companies than about U.S. companies.
o 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.
These factors may affect the price of securities issued by foreign companies
located in developing countries more than those in countries with mature
economies. For example, many developing countries have, in the past,
experienced high rates of inflation or sharply devalued their currencies
against the U.S. dollar, thereby causing the value of investments in companies
located in those countries to decline. Transaction costs are often higher in
developing countries and there may be delays in settlement procedures. In
addition, developing countries may have greater political or economic
instability, less regulation and smaller, less liquid and more volatile markets
than countries with more mature economies.
Sovereign debt securities of developing country governments are generally
lower-quality debt securities. Sovereign debt securities are subject to the
additional risk that, under some political, diplomatic, social or economic
circumstances, some developing countries that issue lower-quality debt
securities may be unable or unwilling to make principal or interest repayments
as they come due. Compared to higher-quality debt securities, junk bonds
involve greater risk of default or price changes due to changes in the credit
quality of the issuer because they are generally unsecured and may be
subordinated to other creditors' claims. The value of lower-quality debt
securities often fluctuates in response to company, political or economic
developments and can decline significantly over short periods of time or during
periods of general or regional economic difficulty.
4
<PAGE> 225
The fund may attempt to hedge against investment and currency risks by engaging
in options, futures, and forward currency transactions. However, there may be
an imperfect correlation, or even no correlation, between movements in the
price of options, forward contracts, futures contracts or options thereon and
the movements in the price of the currency or security hedged.
Because it is non-diversified, the fund may invest in fewer issuers than if it
was a diversified fund. The value of the fund's shares may vary more widely,
and the fund may be subject to greater investment and credit risk, than if the
fund invested more broadly.
Many software systems are unable to distinguish the year 2000 from the year
1900. The fund's investment advisor, together with independent technology
consultants, has completed its determination as to whether any software systems
that the fund uses or depends on has that problem and is in the process of
correcting and testing those systems that may have such problem. This problem,
if not corrected, may adversely affect services provided to the fund or may
affect companies in which the fund may invest and, therefore, may lower the
value of your shares.
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.
5
<PAGE> 226
[INFORMATION TO BE PROVIDED BY GARY WENDLER'S GROUP]
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 A
shares from year to year over a 5-year period. [The bar chart does not reflect
sales loads. If it did, the annual total returns shown would be lower.]
[BAR CHART TO BE REVISED - DELETE INFO FOR 1988 AND LEAVE A BLANK FOR 1998]
[INFO BELOW TO BE UPDATED/PROVIDED AT THE TIME OF THE ANNUAL UPDATE FILING -
NOT NOW]
AIM GLOBAL GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
ANNUAL
YEARS ENDED TOTAL
DECEMBER 31 RETURN
----------- ------
<S> <C>
1989 ................ 11.18%
1990 ................ 8.77%
1991 ................ 13.67%
1992 ................ 1.95%
1993 ................ 25.52%
1994 ................ -13.95%
1995 ................ 15.63%
1996 ................ 6.06%
1997 ................ 3.97%
1998 ................ %
</TABLE>
During the 5-year period shown in the bar chart, the highest quarterly return
was [_________ %] (quarter ended [__________ ]) and the lowest quarterly return
was [________ %] (quarter ended [____________ ]).
PERFORMANCE TABLE
The following performance table shows how the fund's average annual returns for
one, five and 10 years compare to those of a broad-based securities market
index.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Average Annual Total Returns
(for the periods ending December 31, 1998)
1 Year 5 Years 10 Years
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A* [ ] [ ] [ ]
- ----------------------------------------------------------------------------------------------
Class B** [ ] [ ] [ ]
- ----------------------------------------------------------------------------------------------
JP Morgan Global Government Bond Index*** [ ] [ ] [ ]
- ----------------------------------------------------------------------------------------------
</TABLE>
* Class A returns are since inception ( _____________).
** Class B returns are since inception (_____________).
*** JP Morgan Global Government Bond Index is a market value-weighted
average of government bonds form 13 major bond markets. It includes
the effect of reinvested coupons and is measured in U.S. dollars.
[INFO IN THE ABOVE CHART TO BE UPDATED/PROVIDED AT THE ANNUAL UPDATE FILING -
NOT NOW]
6
<PAGE> 227
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>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Shareholder Fees (fees paid directly from your investment)
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
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
Management Fees(2) 0.73% 0.73% ____%
Distribution and/or Service (12b-1) Fees 0.30 1.00 1.00
Other Expenses:
Transfer agent fees and costs
---- ---- ----
Other 0.35 0.35
---- ---- ----
Total Other Expenses 0.43 0.43
----
Total Annual Fund Operating Expenses 1.51 2.16
==== ==== ----
</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 investment advisor is currently waiving a portion of its fees.
The management fees were 0.61% after such waiver. The waiver may be
terminated at any time with the approval of the fund's Board of Trustees.
If the waiver is terminated before the end of the fund's fiscal year, the
investment advisor may be reimbursed the waived amounts for that year.]
As a result of 12b-1 fees, long-term shareholders in the fund may pay more than
the maximum permitted initial sales charge.
7
<PAGE> 228
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 operating expenses remain the same. Although your actual returns and
costs may be higher or lower, based on these assumptions your costs would be:
[FUND ACCOUNTING TO PROVIDE INFO AT THE ANNUAL UPDATE FILING - NOT NOW]
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A [ $ $ $ $
Class B
Class C ]
You would pay the following expenses if you did not redeem your shares:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A $ $ $ $
Class B
Class C
</TABLE>
8
<PAGE> 229
FUND MANAGEMENT
THE ADVISOR AND SUBADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment adviser.
INVESCO Asset Management Ltd. (the subadvisor), an affiliate of the advisor, is
the fund's subadvisor and is responsible for its day-to-day management. The
advisor is located at 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173.
The subadvisor is located at 11 Devonshire Square, London EC2M 4YR, England.
The advisors supervise all aspects of the fund's operations and provide
investment advisory services to the fund, including obtaining and evaluating
economic, statistical and financial information to formulate and implement
investment programs for the fund.
The advisor has acted as an investment adviser since its organization in 1976,
and the subadvisor has acted as an investment adviser since _______________ .
Today, the advisor, together with its subsidiaries, advises or manages over 90
investment portfolios, including the fund, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the fund's last fiscal year ended October 31, 1998, the fund paid the
advisor advisory fees of _____________% of the fund's average net assets.
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, [all of whom are officers of the subadvisor], are
o Thomas J. Berger, Portfolio Manager, has been responsible for the fund
since 1999. He has been Director and Head of the Global Fixed Income
Group for the subadvisor since 1997. From 1993 to 1997 he was Director
of Mercury Asset Management plc.
o Paul Griffiths, Portfolio Manager, has been responsible for the fund
since 1999. He has been Director, Head of Global Fixed Income Team and
Portfolio Manager for the subadvisor since June 1997. From 1994 to
1997, he was Portfolio Manager. From 1993 to 1994, he was Global Bond
Fund Manager for Lazard Investors.
o David B. Hughes, Portfolio Manager, has been responsible for the fund
since 1998. He has been Director, Global Fixed Income Group and
Portfolio Manager of the subadvisor since December 1998. From January
1998 to December 1998, he was Head of Global Fixed Income, North
America, and Portfolio Manager for INVESCO (NY), Inc. From July 1995
to December 1997, he was Senior Portfolio Manager for
Global/International Fixed Income for INVESCO (NY), Inc. He was
employed by Chancellor Capital from July 1995 to October 1996. From
1994 to 1995, he was Assistant Vice President of Fiduciary Trust
Company International. From 1991 to 1994, he was Assistant Treasurer
at the Bankers Trust Company.
9
<PAGE> 230
OTHER INFORMATION
INITIAL SALES CHARGES FOR CLASS A SHARES
Purchases of Class A shares of the 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.
DIVIDENDS AND DISTRIBUTIONS
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.
Dividends
The fund generally declares and pays dividends, if any, monthly.
10
<PAGE> 231
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 table shows the financial highlights for a share of the fund outstanding
during each of the fiscal years (or periods) indicated.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the fund's financial statements, is included in the fund's annual
report, which is available upon request.
[FINANCIAL HIGHLIGHTS BELOW ARE FOR CLASS A AND CLASS B FOR THE YEARS/PERIODS
INDICATED - TO BE REVISED BY FUND ACCOUNTING TO INCLUDE 1998 INFORMATION AT THE
ANNUAL UPDATE FILING - NOT NOW]
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Class A
-------------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
- ----------------------------------------------------------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
- ----------------------------------------------------------- ------- ------- ------- ------- -------
Net gains on securities (both realized and unrealized) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
- ----------------------------------------------------------- ------- ------- ------- ------- -------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
- ----------------------------------------------------------- ------- ------- ------- ------- -------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
- ----------------------------------------------------------- ------- ------- ------- ------- -------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $xx.xx $xx.xx
- ----------------------------------------------------------- ------- ------- ------- ------- -------
Total return (a) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
- ----------------------------------------------------------- ------- ------- ------- ------- -------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $xx,xxx $xx,xxx $xx,xxx $xx,xxx $xx,xxx
- ----------------------------------------------------------- ------- ------- ------- ------- -------
Ratio of expenses to average net assets (b) x.xx%(c)(d) x.xx% x.xx% x.xx% x.xx%
- ----------------------------------------------------------- ------- ------- ------- ------- -------
Ratio of net investment income (loss) to average net assets(e) (x.xx)%(c) (x.xx)% (x.xx)% (x.xx)% (x.xx)%
- ----------------------------------------------------------- ------- ------- ------- ------- -------
Portfolio turnover rate xx% xx% xx% xx% xx%
- ----------------------------------------------------------- ------- ------- ------- ------- -------
</TABLE>
(a) Does not deduct sales charges and are 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 were
X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(c) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been
the same.
(e) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (x.xx)%, (x.xx)%, (x.xx)%, (x.xx)% and (x.xx)% for
1998-1994.
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Class B
-------------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
- ----------------------------------------------------------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
- ----------------------------------------------------------- ------- ------- ------- ------- -------
Net gains on securities (both realized and unrealized) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
- ----------------------------------------------------------- ------- ------- ------- ------- -------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
- ----------------------------------------------------------- ------- ------- ------- ------- -------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
- ----------------------------------------------------------- ------- ------- ------- ------- -------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $xx.xx $xx.xx
- ----------------------------------------------------------- ------- ------- ------- ------- -------
Total return (a) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
- ----------------------------------------------------------- ------- ------- ------- ------- -------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $xx,xxx $xx,xxx $xx,xxx $xx,xxx $xx,xxx
- ----------------------------------------------------------- ------- ------- ------- ------- -------
Ratio of expenses to average net assets (b) x.xx%(c)(d) x.xx% x.xx% x.xx% x.xx%
- ----------------------------------------------------------- ------- ------- ------- ------- -------
Ratio of net investment income (loss) to average net assets(e) (x.xx)%(c) (x.xx)% (x.xx)% (x.xx)% (x.xx)%
- ----------------------------------------------------------- ------- ------- ------- ------- -------
Portfolio turnover rate xx% xx% xx% xx% xx%
- ----------------------------------------------------------- ------- ------- ------- ------- -------
</TABLE>
(a) Does not deduct sales charges and are 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 were
X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(c) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been
the same.
(e) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (x.xx)%, (x.xx)%, (x.xx)%, (x.xx)% and (x.xx)% for
1998-1994.
11
<PAGE> 232
SHAREHOLDER INFORMATION
Choosing a Share Class
Many of the funds advised by the advisor (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>
o Initial sales charge o No initial sales charge o No initial sales charge
o Reduced or o Contingent deferred o Contingent deferred
waived initial sales charge on sales charge on
sales charge for redemptions within redemptions within
certain purchases six years one year
o Lower distribution o 12b-1 fee of 1.00% o 12b-1 fee of 1.00%
and service (12b-1)
fee than Class B or
Class C shares
(See "Fee Table o Converts to Class A o Does not convert to
and Expense shares after eight years Class A shares
Example") along with a pro rata
portion of its reinvested
dividends and distributions*
o Generally more o Purchase orders limited o Generally more
appropriate for long- to amounts less than appropriate for short-
term investors $250,000 term investors
</TABLE>
* If you held Class B shares of AIM Global Trends Fund 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
<PAGE> 233
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.
CATEGORY I Initial Sales Charges
- --------------------------------
<TABLE>
<CAPTION>
INVESTOR'S SALES CHARGE
-----------------------
AS A PERCENTAGE
AS A PERCENTAGE OF THE
AMOUNT OF INVESTMENT OF THE PUBLIC NET AMOUNT
IN SINGLE TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<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>
CATEGORY II Initial Sales Charges
- ---------------------------------
<TABLE>
<CAPTION>
INVESTOR'S SALES CHARGE
-----------------------
AS A PERCENTAGE
AS A PERCENTAGE OF THE
AMOUNT OF INVESTMENT OF THE PUBLIC NET AMOUNT
IN SINGLE TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<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>
CATEGORY III Initial Sales Charges
- ----------------------------------
<TABLE>
<CAPTION>
INVESTOR'S SALES CHARGE
-----------------------
AS A PERCENTAGE
AS A PERCENTAGE OF THE
AMOUNT OF INVESTMENT OF THE PUBLIC NET AMOUNT
IN SINGLE TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<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.
A-2
<PAGE> 234
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>
CLASS B CLASS C
CDSC AS A PERCENTAGE CDSC AS A PERCENTAGE
OF DOLLAR AMOUNT OF DOLLAR AMOUNT
YEAR SINCE PURCHASE MADE SUBJECT TO CHARGE SUBJECT TO CHARGE
------------------------ ----------------- -----------------
<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>
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 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
o on shares purchased by reinvesting dividends and distributions;
o when exchanging shares among certain AIM Funds;
o when using the reinstatement privilege; and
o 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
o if you redeem Class B shares you held for more than six years;
o if you redeem Class C shares you held for more than one year;
o if you redeem shares acquired through reinvestment of dividends and
distributions; and
o on increases in the net asset value of your shares.
A-3
<PAGE> 235
There may be other situations in which you or other shareholders may be able to
purchase or redeem shares at reduced or without sales charges. You should
consult the fund's Statement of Additional Information for details regarding
these situations.
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>
- -------------------------------------------------------------------------------------------------------------------------
Type of Account Initial Additional
Investments Investments
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing plans, 401(k) plans, Simplified $0 ($25 per $25
Employee Pension (SEP) accounts, Salary Reduction (SARSEP) accounts, Savings AIM Fund
Incentive Match Plans for Employee IRA (Simple IRA) accounts, 403(b) or 457 investment
plans) for salary
deferrals
from Savings
Plans)
- -------------------------------------------------------------------------------------------------------------------------
Automatic Investment Plans $50 $50
- -------------------------------------------------------------------------------------------------------------------------
IRA, Education IRA or Roth IRA $250 $50
- -------------------------------------------------------------------------------------------------------------------------
All other accounts $500 $50
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-4
<PAGE> 236
HOW TO PURCHASE SHARES
There are several ways you can purchase your shares. You can make direct
purchases or select from one of three automatic investment methods.
DIRECT PURCHASES
<TABLE>
<CAPTION>
Opening An Account Adding to An Account
<S> <C> <C>
Through a
Financial
Consultant Contact your financial consultant. Same
By Mail Mail completed Account Mail your check and the
Application and purchase payment to the transfer agent, remittance slip from
A I M Fund Services, Inc., P.O. Box 4739, your confirmation statement
Houston, TX 77210-4739. to the transfer agent.
By Wire Mail completed Account Call the transfer agent to
Application to the transfer agent. receive a reference number.
Call the transfer agent at Then, use the wire
(800) 959-4246 to receive a reference number. instructions at left.
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 methods described Mail completed AIM Bank
above. Connection(sm) form to the
transfer agent. Once
the transfer agent has
received the form, call the
transfer agent to place your
purchase.
</TABLE>
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 and in the same class of shares. 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
A-5
<PAGE> 237
10th or 25th day of the month 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 at net
asset value in certain AIM Funds without paying a sales charge. 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. 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
TIMING OF REDEMPTIONS
You can redeem shares during the hours the New York Stock Exchange (NYSE) is
open for business. An AIM Fund may postpone the right of redemption only under
unusual circumstances, such as when the NYSE restricts or suspends trading.
A-6
<PAGE> 238
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).
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.
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 eighteen 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.
HOW TO REDEEM SHARES
<TABLE>
<CAPTION>
Through a
Financial Consultant Contact your financial consultant.
<S> <C>
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 thirty
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 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.
A-7
<PAGE> 239
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 New York Stock Exchange (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.
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
A-8
<PAGE> 240
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 and it may have tax consequences.
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, in 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 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;
A-9
<PAGE> 241
(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:
o You must meet the minimum purchase requirements for the AIM Fund into
which you are exchanging;
o Shares of the AIM Fund you wish to acquire must be qualified for sale in
your state of residence;
o Exchanges must be made between accounts with identical registration
information;
o 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);
o Shares must have been held for at least one day prior to the exchange; and
o If you have physical share certificates, you must return them to the
transfer agent prior to the exchange.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the issuance of shares
being purchased 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
A-10
<PAGE> 242
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; OR WITHDRAW ALL OR ANY PART OF
THE OFFERING MADE BY THIS PROSPECTUS.
Pricing of Shares
Each of the AIM Funds prices its shares based on its net asset value. 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 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 New York Stock
Exchange (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. The AIM Funds price purchase, exchange and redemption
orders at the net asset value calculated after the transfer agent receives an
order in good form.
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. Every year, an
A-11
<PAGE> 243
account statement showing the amount of dividends and distributions you
received from each AIM Fund during the prior year will be sent to you.
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 of the AIM Fund's shares, and any gain
realized on the transaction will 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.
A-12
<PAGE> 244
[BACK COVER PAGE]
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
United States 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 semi-annual 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 any questions about this fund, another fund in The AIM Family of
Funds or your account, or wish to obtain free copies of the fund's current
SAI or annual or semi-annual reports, please contact us:
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
semi-annual reports only)
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, D.C., 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, D.C. 20549-6009. Please call
the SEC at 1-800-SEC-0330 for information about the Public Reference Room.
AIM Global Government Income Fund
SEC 1940 Act file number: 811-05426
<PAGE> 245
[AIM LOGO]
ADVISOR CLASS
AIM GLOBAL GOVERNMENT INCOME FUND
PROSPECTUS
MARCH 1, 1999
AIM Global Government Income Fund seeks to provide high current income and,
secondarily, capital appreciation and preservation of capital.
This prospectus contains important information. Please read it before investing
and keep it for future reference.
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. There is a risk that you could lose a portion or all of your money.
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.
1
<PAGE> 246
TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES AND STRATEGIES..............................3
PRINCIPAL RISKS OF INVESTING IN THE FUND..........................4
PERFORMANCE INFORMATION...........................................6
ANNUAL TOTAL RETURNS.....................................6
PERFORMANCE TABLE........................................7
FEE TABLE AND EXPENSE EXAMPLE.....................................8
FEE TABLE................................................8
EXPENSE EXAMPLE..........................................8
FUND MANAGEMENT...................................................9
THE ADVISOR AND SUBADVISOR...............................9
ADVISOR COMPENSATION.....................................9
PORTFOLIO MANAGERS.......................................9
OTHER INFORMATION................................................10
DIVIDENDS AND DISTRIBUTIONS.............................10
FINANCIAL HIGHLIGHTS.............................................11
SHAREHOLDER INFORMATION.........................................A-1
PURCHASING SHARES......................................A-1
REDEEMING SHARES.......................................A-3
EXCHANGING SHARES......................................A-5
PRICING OF SHARES......................................A-6
TAXES..................................................A-6
OBTAINING ADDITIONAL INFORMATION....................BACK COVER PAGE
</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 is a service
mark of A I M Management Group Inc.
2
<PAGE> 247
INVESTMENT OBJECTIVE AND STRATEGIES
The fund's primary investment objective is high current income and its secondary
investment objectives are growth of capital and preservation of principal.
The fund seeks to achieve its objectives by investing at least 65% of its total
assets in debt securities (including mortgage-backed securities) issued or
guaranteed by U.S. and foreign governments or by their agencies, authorities,
and instrumentalities, as well as by supranational entities, such as the World
Bank. The fund primarily invests in high-quality government debt securities,
that are rated in the top two ratings categories by Moody's Investors Service,
Inc. or Standard & Poor's or deemed by INVESCO Asset Management Ltd. Inc., the
fund's subadvisor, to be of comparable quality. The fund may invest in
lower-quality debt securities, i.e., "junk bonds."
The fund may invest up to 35% of its total assets in (i) foreign government
securities that are rated within the third and fourth highest ratings categories
by Moody's or S&P or deemed by the fund's subadvisor to be of comparable
quality, (ii) corporate debt obligations of U.S. or foreign issuers rated at
least investment grade (rated within the four highest ratings categories by
Moody's or S&P), (iii) privately issued mortgage-backed and asset-backed
securities that are rated at least investment grade, or deemed by the subadvisor
to be of comparable quality, and (iv) common stocks, preferred stocks and
warrants, provided that the fund will not invest more than 20% of its total
assets in such securities.
The fund will normally invest in securities issued by at least three different
countries, including the United States, and may invest a significant portion of
its assets in the securities of U.S. issuers. However, the fund will not invest
more than 40% of its total assets in securities of any one country, other than
the U.S. The fund will only invest in a foreign currency or in securities
denominated in a foreign currency if the fund's subadvisor considers the
currency to be fully exchangeable into U.S. dollars or a multinational currency
unit.
The portfolio managers allocate assets among securities of countries and in
currency denominations where the combination of fixed-income market returns, the
price appreciation of fixed-income securities and currency exchange rate
movements will present opportunities for meeting the fund's investment
objectives. The principal determinants of the emphasis given to various country,
geographic, and industry sectors within the fund are fundamental economic
strength, credit quality, and currency and interest rate trends. Further, the
portfolio managers select particular issuers based on additional economic
criteria such as yield, maturity, issue classification, and quality
characteristics. Currency investments are based on economic factors (such as
relative inflation, interest rate levels and trends, growth rate forecasts,
balance of payments status, and economic policies) and on political and
technical data. The portfolio managers usually sell a particular security when
any of those factors materially changes.
The fund is a non-diversified portfolio, which means that with respect to 50% of
its assets, it is permitted to invest more than 5% of its assets in the
securities of any one issuer.
In anticipation of or in response to adverse market conditions or for cash
management purposes, the fund may hold all or a portion of its assets in cash
(U.S. dollars, foreign currencies or multinational currency units), money market
securities, bonds or other debt securities. As a result, the fund may not
achieve its investment objectives.
The fund may engage in active and frequent trading of portfolio securities to
achieve its investment objective. If the fund does trade in this way, it may
incur increased transaction costs which can lower the actual return on your
investment. Active trading may also increase short-term capital gains and
losses, which may affect the taxes you have to pay.
3
<PAGE> 248
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. Debt securities are particularly
vulnerable to credit risk and interest rate fluctuations. When interest rates
rise, bond prices fall; the longer the bond's duration, the more sensitive it is
to this risk. The fund could also lose money if any debt securities that the
fund holds are downgraded or go into default.
Mortgage-backed and asset-backed securities are subject to different risks from
bonds and, as a result, may respond to changes in interest rates differently. If
interest rates fall, people refinance or pay off their mortgages ahead of time,
which may cause mortgage-backed securities to lose value. If interest rates
rise, many people may refinance or prepay their mortgages at a
slower-than-expected rate. This may effectively lengthen the life of
mortgage-backed securities, which may cause the securities to be more sensitive
to changes in interest rates.
In addition, the prices of securities of foreign issuers may be further affected
by other factors, including
o 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.
o 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.
o Regulations - Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, among other things, there generally is less
publicly available information about foreign companies than about U.S.
companies.
o 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.
These factors may affect the price of securities issued by foreign companies
located in developing countries more than those in countries with mature
economies. For example, many developing countries have, in the past, experienced
high rates of inflation or sharply devalued their currencies against the U.S.
dollar, thereby causing the value of investments in companies located in those
countries to decline. Transaction costs are often higher in developing countries
and there may be delays in settlement procedures. In addition, developing
countries may have greater political or economic instability, less regulation
and smaller, less liquid and more volatile markets than countries with more
mature economies.
Sovereign debt securities of developing country governments are generally
lower-quality debt securities. Sovereign debt securities are subject to the
additional risk that, under some political, diplomatic, social or economic
circumstances, some developing countries that issue lower-quality debt
securities may be unable or unwilling to make principal or interest repayments
as they come due.
Compared to higher-quality debt securities, junk bonds involve greater risk of
default or price changes due to changes in the credit quality of the issuer
because they are generally unsecured and may be subordinated to other creditors'
claims. The value of lower-quality debt securities often fluctuates in response
to company, political or economic developments and can decline significantly
over short periods of time or during periods of general or regional economic
difficulty.
The fund may attempt to hedge against investment and currency risks by engaging
in options, futures, and forward currency transactions. However, there may be an
imperfect correlation, or even no correlation,
4
<PAGE> 249
between movements in the price of options, forward contracts, futures contracts
or options thereon and the movements in the price of the currency or security
hedged.
Because it is non-diversified, the fund may invest in fewer issuers than if it
was a diversified fund. The value of the fund's shares may vary more widely, and
the fund may be subject to greater investment and credit risk, than if the fund
invested more broadly.
Many software systems are unable to distinguish the year 2000 from the year
1900. The fund's investment advisor, together with independent technology
consultants, has completed its determination as to whether any software systems
that the fund uses or depends on has that problem and is in the process of
correcting and testing those systems that may have such problem. This problem,
if not corrected, may adversely affect services provided to the fund or may
affect companies in which the fund may invest and, therefore, may lower the
value of your shares.
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.
5
<PAGE> 250
[INFORMATION TO BE PROVIDED BY GARY WENDLER'S GROUP]
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 Advisor
Class shares from year to year over a 4-year period.
[BAR CHART TO BE REVISED - DELETE INFO FOR 1988 AND LEAVE A BLANK FOR 1998]
[GRAPH]
<TABLE>
<CAPTION>
Annual
Year Ended Total
December 31 Return
----------- ------
<S> <C>
1988 ..................................................... 16.34%
1989 ..................................................... 38.03%
1990 ..................................................... (4.10)%
1991 ..................................................... 70.41%
1992 ..................................................... 15.03%
1993 ..................................................... 17.29%
1994 ..................................................... 1.30%
1995 ..................................................... 35.45%
1996 ..................................................... 16.27%
1997 ..................................................... 12.92%
</TABLE>
[INFO BELOW TO BE UPDATED/PROVIDED AT THE TIME OF THE ANNUAL UPDATE
FILING - NOT NOW]
During the 4-year period shown in the bar chart, the highest quarterly was
[_______%] (quarter ended [________]) and the lowest quarterly return was
[_______%] (quarter ended [________]).
6
<PAGE> 251
PERFORMANCE TABLE
The following performance table shows how the fund's average annual returns for
one, five and 10 years compare to those of a broad-based securities market
index.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Average Annual Total Returns
(for the periods ending December 31, 1998)
1 Year 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Advisor Class* [ ]% [ ]% [ ]%
- ---------------------------------------------------------------------------------------------------
JP Morgan Global Government Bond Index** [ ] [ ] [ ]
- ---------------------------------------------------------------------------------------------------
</TABLE>
* Advisor Class returns are since inception (6/1/95).
** JP Morgan Global Government Bond Index is a market value-weighted average
of government bonds form 13 major bond markets. It includes the effect of
reinvested coupons and is measured in U.S. dollars.
[INFO IN THE ABOVE CHART TO BE UPDATED/PROVIDED AT THE ANNUAL UPDATE
FILING - NOT NOW]
7
<PAGE> 252
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>
Advisor Class
-------------
<S> <C>
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price
or redemption proceeds, whichever is less) None
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
Management Fees(1) 0.73%
Distribution and/or Service (12b-1) Fees None
Other Expenses:
Transfer agent fees and costs ---
Total Other Expenses ---
Total Annual Fund Operating Expenses ---
</TABLE>
- -------------------
[(1) The investment advisor is currently waiving a portion of its fees. The
management fees were 0.61% after such waiver. The waiver may be
terminated at any time with the approval of the fund's Board of Trustees.
If the waiver is terminated before the end of the fund's fiscal year, the
investment advisor may be reimbursed the waived amounts for that year.]
EXPENSE EXAMPLE
This example is intended to help you compare the cost of investing in the
Advisor Class 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 operating expenses remain the same. Although your actual returns and
costs may be higher or lower, based on these assumptions your costs would be:
[FUND ACCOUNTING TO PROVIDE INFO AT THE ANNUAL UPDATE FILING - NOT NOW]
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Advisor Class [ $ $ $ $
</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>
Advisor Class $ $ $ $
</TABLE>
8
<PAGE> 253
FUND MANAGEMENT
THE ADVISOR AND SUBADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor.
INVESCO Asset Management Ltd. (the subadvisor), an affiliate of the advisor, is
the fund?s subadvisor and is responsible for its day-to-day management. The
advisor is located at 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173.
The subadvisor is located at 11 Devonshire Square, London, EC2M 4YR, England.
The advisors supervise all aspects of the fund's operations and provide
investment advisory services to the fund, including obtaining and evaluating
economic, statistical and financial information to formulate and implement
investment programs for the fund.
The advisor has acted as an investment adviser since its organization in 1976,
and the subadvisor has acted as an investment adviser since its organization in
___________. Today, the advisor, together with its subsidiaries, advises or
manages over 90 investment portfolios, including the fund, encompassing a broad
range of investment objectives.
ADVISOR COMPENSATION
During the fund's last fiscal year ended October 31, 1998, the fund paid the
advisor advisory fees of ______________ % of the fund's average net assets.
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, [all of whom are officers of the subadvisor], are
o Thomas J. Berger, Portfolio Manager, has been responsible for the fund
since 1999. He has been Director and Head of the Global Fixed Income Group
for the subadvisor since 1997. From 1993 to 1997 he was Director of Mercury
Asset Management PLC.
o Paul Griffiths, Portfolio Manager, has been responsible for the fund since
1999. He has been Director, Head of Global Fixed Income Team and Portfolio
Manager for the subadvisor since June 1997. From 1994 to 1997, he was
Portfolio Manager. From 1993 to 1994, he was Global Bond Fund Manager for
Lazard Investors.
o David B. Hughes, Portfolio Manager, has been responsible for the fund
since 1998. He has been Director, Global Fixed Income Group and Portfolio
Manager of the subadvisor since December 1998. From January 1998 to
December 1998, he was Head of Global Fixed Income, North America, and
Portfolio Manager for INVESCO (NY), Inc. From July 1995 to December 1997,
he was Senior Portfolio Manager for Global/International Fixed Income for
INVESCO (NY), Inc. He was employed by Chancellor Capital from July 1995 to
October 1996. From 1994 to 1995, he was Assistant Vice President of
Fiduciary Trust Company International. From 1991 to 1994, he was Assistant
Treasurer at the Bankers Trust Company.
9
<PAGE> 254
OTHER INFORMATION
DIVIDENDS AND DISTRIBUTIONS
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.
Dividends
The fund generally declares and pays dividends, if any, annually.
10
<PAGE> 255
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 table shows the financial highlights for a share of the fund outstanding
during each of the fiscal years (or periods) indicated.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the fund's financial statements, is included in the fund's annual
report, which is available upon request.
[FINANCIAL HIGHLIGHTS BELOW ARE FOR ADVISOR CLASS FOR THE YEARS/PERIODS
INDICATED - TO BE REVISED BY FUND ACCOUNTING TO INCLUDE 1998 INFORMATION AT THE
ANNUAL UPDATE FILING - NOT NOW]
<TABLE>
<CAPTION>
Advisor Class
--------------------------------------------------------------
June 1, 1995
to
1998 1997 1996 October 1, 1995
------- ------- ------- ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------- ------- ------- ---------------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ---------------
Net gains on securities (both realized and unrealized) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ---------------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ---------------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ---------------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx
======= ======= ======= ===============
Total return (a) (x.xx)% (x.xx)% (x.xx)% (x.xx)%
======= ======= ======= ===============
Ratios/supplemental data:
Net assets, end of period (000s omitted) $xx,xxx $xx,xxx $xx,xxx $ xx,xxx
======= ======= ======= ===============
Ratio of expenses to average net assets (b) x.xx%(c)(d) x.xx% x.xx% x.xx%
======= ======= ======= ===============
Ratio of net investment income (loss) to average net assets (x.xx)%(c) (x.xx)% (x.xx)% (x.xx)%
======= ======= ======= ===============
Portfolio turnover rate xx% xx% xx% xx%
======= ======= ======= ===============
</TABLE>
(a) Does not deduct sales charges and are 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 were
X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(c) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(X.XX)% for 1998-1994.
11
<PAGE> 256
SHAREHOLDER INFORMATION FOR ADVISOR CLASS SHARES
- -------------------------------------------------------------------------------
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM ACCOUNT
The minimum initial investment for Advisor Class shares is $500; and the
minimum investment for purchases of additional Advisor Class shares is $50.
HOW TO PURCHASE SHARES
Shares offered by this prospectus are available for purchase only by certain
investors and are offered at net asset value without the imposition of a
front-end or contingent deferred sales charge or Rule 12b-1 fees. Advisor Class
shares are available through financial consultants (such as financial planners,
trust companies, bank trust departments, and registered investment advisors).
In order to purchase Advisor Class shares of any AIM Fund, your financial
consultant, on your behalf, must submit a fully completed new account
application form directly to the transfer agent.
There are several ways you can purchase your shares. You can make direct
purchases or select from two automatic investment methods.
DIRECT PURCHASES
<TABLE>
<CAPTION>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Through a Financial Consultant Contact your financial consultant. Same
By Mail Must be submitted by your financial Mail your check and the remittance
consultant. slip from your confirmation
statement to the transfer agent.
A I M Fund Services, Inc., P.O. Box
4739
Houston, TX 77210-4739
By Wire Your financial consultant must mail a Call the transfer agent to receive a
completed account application to the reference number. Then, use the
transfer agent. You or your financial wire instructions at left.
consultant may call the transfer agent
at (800) 959-4246 to 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 #
</TABLE>
A-1
<PAGE> 257
<TABLE>
<CAPTION>
<S> <C> <C>
By AIM Bank Open your account using one of the Mail completed AIM Bank Connection(sm)
Connection(sm) methods described above. form to the transfer agent. Once the
transfer agent has received the form,
call the transfer agent to place your
purchase order.
</TABLE>
SPECIAL PLANS
Automatic Dividend Investment
All of your dividends and distributions may be paid in cash or invested in
Advisor Class shares of certain AIM Funds. Unless you specify otherwise, your
dividends and distributions will automatically be reinvested in the same AIM
Fund.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in Advisor Class shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend or
distribution must be at least $5,000; or (b) in the AIM Fund receiving the
dividend or distribution 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 and
distributions 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 holdings of Advisor Class shares of AIM Funds 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 Advisor
Class shares 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.
The distributor and its agents reserve the right at any time to (1) reject or
cancel any part of any purchase or exchange order; (2) modify any terms or
conditions of purchase of shares of any AIM Fund; or (3) withdraw all or any
part of the offering made by this Prospectus.
A-2
<PAGE> 258
REDEEMING SHARES
TIMING OF REDEMPTIONS
You can redeem shares during the hours the New York Stock Exchange (NYSE) is
open for business. An AIM Fund may postpone the right of redemption only under
unusual circumstances, such as when the NYSE restricts or suspends trading.
REDEMPTION FEES
No redemption fee is imposed when shares are redeemed or repurchased; however,
dealers/financial institutions may charge service fees for handling repurchase
transactions.
A-3
<PAGE> 259
<TABLE>
<CAPTION>
HOW TO REDEEM SHARES
- -------------------------------------------------------------------------------------------------------------------
<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.
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. The transfer agent must receive your call
during the hours the 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 at the address on record with
us.
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.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
A-4
<PAGE> 260
(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.
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, IN ITS DISCRETION, REDEEM THE ACCOUNT AND DISTRIBUTE THE PROCEEDS
TO YOU.]
EXCHANGING SHARES
You may, under certain circumstances, exchange Advisor Class shares in one AIM
Fund for Advisor Class shares of another AIM Fund. Before requesting an
exchange, review the prospectus of the AIM Fund you wish to acquire.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
o You must meet the minimum purchase requirements for the AIM Fund into
which you are exchanging;
o Shares of the AIM Fund you wish to acquire must be qualified for sale in
your state of residence;
o Exchanges must be made between accounts with identical registration
information;
o 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);
o The AIM Fund from which you are exchanging must have received the full
amount of the purchase price for the shares being exchanged;
o Recently acquired shares must have been held in your account for ten
business days, and all other shares must have been held for at least one
day, prior to the exchange; and
o If you have physical share certificates, you must return them to the
transfer agent prior to the exchange.
A-5
<PAGE> 261
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the issuance of shares
being purchased 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.
GENERAL INFORMATION
- -------------------------------------------------------------------------------
PRICING OF SHARES
Each of the AIM Funds prices its shares based on its net asset value. 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. 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 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 Trustees 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. The AIM Funds price
purchase, exchange, and redemption orders calculated at the net asset value
after the transfer agent receives an order in good form.
A-6
<PAGE> 262
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. Long-term capital gain
distributions are taxable as long-term capital gains when distributed to you,
no matter how long you held your shares. Different rates of tax may apply to
ordinary income and long-term capital gain distributions. Every year, an
account statement showing the amount of dividends and distributions you
received from each AIM Fund during the prior year will be sent to you.
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 of the AIM Fund's shares, and any gain
realized on the transaction will 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.
A-7
<PAGE> 263
[BACK COVER PAGE]
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
United States 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 semi-annual 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 funds performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of Funds
or your account, or wish to obtain free copies of the fund's current SAI or
annual or semi-annual reports, please contact us:
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
semi-annual reports only)
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, D.C., 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, D.C. 20549-6009. Please call the SEC
at 1-800-SEC-0330 for information about the Public Reference Room.
AIM Global Government Income Fund
SEC 1940 Act file number: 811-05426
<PAGE> 264
[AIM LOGO]
AIM GLOBAL GROWTH & INCOME FUND
PROSPECTUS
MARCH 1, 1999
AIM Global Growth & Income Fund seeks to provide growth of capital together with
current income.
This prospectus contains important information. Please read it before investing
and keep it for future reference.
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. There is a risk that you could lose a portion or all of your money.
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.
<PAGE> 265
TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES......................................................................3
PRINCIPAL RISKS OF INVESTING IN THE FUND.................................................................3
PERFORMANCE INFORMATION..................................................................................5
ANNUAL TOTAL RETURNS............................................................................5
PERFORMANCE TABLE...............................................................................5
FEE TABLE AND EXPENSE EXAMPLE............................................................................6
FEE TABLE.......................................................................................6
EXPENSE EXAMPLE.................................................................................6
FUND MANAGEMENT..........................................................................................7
THE ADVISOR AND SUBADVISOR......................................................................7
ADVISOR COMPENSATION............................................................................7
PORTFOLIO MANAGERS..............................................................................7
OTHER INFORMATION........................................................................................8
DIVIDENDS AND DISTRIBUTIONS.....................................................................8
FINANCIAL HIGHLIGHTS.....................................................................................9
SHAREHOLDER INFORMATION................................................................................A-1
CHOOSING A SHARE CLASS........................................................................A-1
PURCHASING SHARES.............................................................................A-4
REDEEMING SHARES..............................................................................A-6
EXCHANGING SHARES.............................................................................A-9
PRICING OF SHARES............................................................................A-11
TAXES........................................................................................A-11
OBTAINING ADDITIONAL INFORMATION...........................................................BACK COVER PAGE
</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 is a service
mark of A I M Management Group Inc.
2
<PAGE> 266
INVESTMENT OBJECTIVE AND STRATEGIES
The fund's investment objective is growth of capital together with current
income.
The fund seeks to achieve its objective by investing at least 65% of its total
assets in a combination of blue-chip equity securities and high-quality
government bonds of U.S. and foreign issuers. "Blue chip" equity securities are
those which (i) offered, during the issuer's most recent fiscal year, an above
average dividend yield relative to the latest reported dividend yield on the
Morgan Stanley Capital World Index, and (ii) are issued by a company with total
equity market capitalization of at least $1 billion. High-quality government
bonds are rated within one of the two highest ratings categories of Moody's
Investors Service, Inc. or Standard & Poor's, or are deemed by INVESCO Asset
Management Ltd., the fund's subadvisor, to be of comparable quality.
The fund may invest up to 35% of its total assets in other equity securities and
government and corporate debt securities that are investment grade, i.e., rated
within one of the four highest ratings categories of Moody's or S&P, or are
deemed by the fund's subadvisor to be of comparable quality. The fund may
purchase debt obligations issued or guaranteed by the U.S. or foreign
governments, including foreign states, provinces or municipalities, or their
agencies, authorities or instrumentalities and debt obligations of supranational
organizations, such as the World Bank. The fund will normally invest in
securities of issuers in at least three countries, including the United States,
and the fund may invest a significant portion of its assets in the securities of
U.S. issuers. However, the fund may not invest more than 40% of its assets in
securities of issuers in any one country, other than the U.S. The fund may
invest up to 100% of its total assets in either equity or debt securities in
response to general economic changes and market conditions around the world.
The portfolio managers allocate assets among securities of countries and in
currency denominations where opportunities for meeting the fund's investment
objective are expected to be the most attractive. The portfolio managers
consider fundamental economic strength, credit quality, and currency and
interest rate trends in emphasizing various country, geographic, and industry
sectors within the fund. Further, the portfolio managers select particular
issuers based on additional economic and countries criteria such as yield,
maturity, issue classification, and quality characteristics. Currency
investments are based on economic factors (such as relative inflation, interest
rate levels and trends, growth rate forecasts, balance of payments status, and
economic policies) and on political and technical data. The portfolio managers
usually sell a particular security when any of those factors materially changes.
The fund is a non-diversified portfolio, which means that with respect to 50% of
its assets, it is permitted to invest more than 5% of its assets in the
securities of any one issuer.
In anticipation of or in response to adverse market conditions or for cash
management purposes, the fund may hold all or a portion of its assets in cash
(U.S. dollars, foreign currencies or multinational currency units), money market
securities, 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 price of equity securities rises and
falls in response to many factors, including the historical and prospective
earnings of the issuer of the stock, the value of its assets, general economic
conditions, interest rates, investor perceptions, and market
3
<PAGE> 267
liquidity. Debt securities are particularly vulnerable to credit risk and
interest rate fluctuations. When interest rates rise, bond prices fall; the
longer the bond's duration, the more sensitive it is to this risk.
In addition, the prices of securities issued by foreign issuers may be further
affected by other factors, including
o 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.
o 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.
o Regulations - Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, among other things, there generally is less
publicly available information about foreign companies than about U.S.
companies.
o 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.
Because it is non-diversified, the fund may invest in fewer issuers than if it
were a diversified fund. The value of the fund's shares may vary more widely,
and the fund may be subject to greater investment and credit risk, than if the
fund invested more broadly.
Many software systems are unable to distinguish the year 2000 from the year
1900. The fund's investment advisor, together with independent technology
consultants, has completed its determination as to whether any software systems
that the fund uses or depends on has that problem and is in the process of
correcting and testing those systems that may have such problem. This problem,
if not corrected, may adversely affect services provided to the fund or may
affect companies in which the fund may invest and, therefore, may lower the
value of your shares.
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.
4
<PAGE> 268
[INFORMATION TO BE PROVIDED BY GARY WENDLER'S GROUP]
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 A
shares from year to year over a 4-year period. The bar chart does not reflect
sales loads. If it did, the annual total returns shown would be lower.
[BAR CHART TO BE REVISED - DELETE INFO FOR 1988 AND LEAVE A BLANK FOR 1998]
AIM GLOBAL GROWTH & INCOME FUND
<TABLE>
<CAPTION>
Annual
Year Ended Total
December 31 Return
----------- ------
<S> <C>
1991 ........................ 19.14%
1992 ........................ 2.57%
1993 ........................ 27.36%
1994 ........................ -3.57%
1995 ........................ 15.32%
1996 ........................ 17.02%
1997 ........................ 18.16%
1998 ........................ %
</TABLE>
[INFO BELOW TO BE UPDATED/PROVIDED AT THE TIME OF THE ANNUAL UPDATE FILING - NOT
NOW]
During the 4-year period shown in the bar chart, the highest quarterly return
was [___________%] (quarter ended [______________________]) and the lowest
quarterly return was[_______%] (quarter ended [_______________________]).
PERFORMANCE TABLE
The following performance table shows how the fund's average annual returns for
one, five and 10 years compare to those of a broad-based securities market
index.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Average Annual
Total Returns
(for the periods ending
December 31, 1998) 1 Year 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A* [ ]% [ ]% [ ]%
- ---------------------------------------------------------------------------------------------------
Class B ** [ ] [ ] [ ]
- ---------------------------------------------------------------------------------------------------
MSCI World Index*** [ ] [ ] [ ]
- ---------------------------------------------------------------------------------------------------
</TABLE>
* Class A returns are since inception ( ).
** Class B returns are since inception ( ).
** The Morgan Stanley Capital International World Index measures performance
for twenty-two developed country global stock markets. The index is
capitalization weighted. Companies included in the index replicate the
industry composition of each local market and, in addition, represent a
sampling of large, medium and small capitalization companies from each
local market, taking into account the stocks' liquidity.
[INFO IN THE ABOVE CHART TO BE UPDATED/PROVIDED AT THE ANNUAL UPDATE FILING -
NOT NOW]
5
<PAGE> 269
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>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Shareholder Fees (fees paid directly from your investment)
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
Annual Fund Operating Expenses
(expenses that are deducted from fund assets)
Management Fees(2) % % %
---- ---- ----
Distribution and/or Service (12b-1) Fees
---- ---- ----
Other Expenses:
Transfer agent fees and costs
---- ---- ----
Other
---- ---- ----
Total Other Expenses
---- ---- ----
Total Annual Fund Operating Expenses
---- ---- ----
</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 investment advisor is currently waiving a portion of its fees. The
management fees were 0.61% after such waiver. The waiver may be terminated
at any time with the approval of the fund's Board of Trustees. If the
waiver is terminated before the end of the fund's fiscal year, the
investment advisor may be reimbursed the waived amounts for that year.]
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in the
Advisor Class of the fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's operating expenses remain the same. Although your actual returns and
costs may be higher or lower, based on these assumptions your costs would be:
[FUND ACCOUNTING TO PROVIDE INFO AT THE ANNUAL UPDATE FILING - NOT NOW]
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A [$ $ $ $
Class B [$ $ $ $
Class C [$ $ $ $
</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 [$ $ $ $
Class B [$ $ $ $
Class C [$ $ $ $ ]
</TABLE>
6
<PAGE> 270
FUND MANAGEMENT
THE ADVISOR AND SUBADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment adviser.
INVESCO Asset Management Ltd., (the subadvisor), an affiliate of the advisor, is
the fund's subadvisor and is responsible for its day-to-day management. The
advisor is located at 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173.
The subadvisor is located at 50 California Street, 27th Floor, San Francisco,
California 94111 and 1166 Avenue of the Americas, New York, New York 10036. The
advisors supervise all aspects of the fund's operations and provide investment
advisory services to the fund, including obtaining and evaluating economic,
statistical and financial information to formulate and implement investment
programs for the fund.
The advisor has acted as an investment adviser since its organization in 1976,
and the subadvisor has acted as an investment adviser since its organization in
[1969]. Today, the advisor, together with its subsidiaries, advises or manages
over 90 investment portfolios, including the fund, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the fund's last fiscal year ended October 31, 1998, the fund paid the
advisor advisory fees of _______% of the fund's average net assets.
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, all of whom are officers of the subadvisor, are
o Paul Griffiths, Portfolio Manager, who has been responsible for the fund
since 1995 and has been associated with the advisor and/or its affiliates
since 1994. He has been Head of Global Fixed Income and Portfolio Manager
for the subadvisor and INVESCO GT Asset Management PLC (London) ("GT
London") since June 1997. From 1994 to 1997, he was Portfolio Manager. From
1993 to 1994, he was Global Bond Fund Manager for Lazard Investors. He was
Global Bond Fund Manager for Sanwa International PLC from 1991 to 1993.
o Michael Lindsell, Portfolio Manager, who has been responsible for the fund
since 1998 and has been associated with the advisor and/or its affiliates
since 1992. He has been Head of Investment Strategy for Global Equities and
Portfolio Manager for the subadvisor and GT London since 1996. From 1992 to
1996, he was Chief Investment Officer for Japan and Portfolio Manager for
INVESCO GT Asset Management Asia Ltd. (Hong Kong) ("GT Asia") and for the
subadvisor. Prior thereto, he was Director of Warburg Asset Management
(Tokyo). GT London and GT Asia are affiliates of the subadvisor.
o John Nadell, Portfolio Manager, who has been responsible for the fund since
1998 and has been associated with the advisor and/or its affiliates since
1994. He has been Portfolio Manager for the subadvisor since July 1998 and
for INVESCO GT Asset Management Japan Ltd. (Tokyo) ("GT Tokyo") since 1996.
In 1995 he joined GT Tokyo as an Investment Analyst. From 1990 to 1994, he
was an Investment Analyst at Pacific Equity Management (Oakland,
California). GT Tokyo is also an affiliate of the subadvisor.
7
<PAGE> 271
OTHER INFORMATION
INITIAL SALES CHARGES FOR CLASS A SHARES
Purchases of Class A shares of the 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.
DIVIDENDS AND DISTRIBUTIONS
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.
Dividends
The fund generally declares and pays dividends, if any, quarterly.
8
<PAGE> 272
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 table shows the financial highlights for a share of the fund outstanding
during each of the fiscal years (or periods) indicated.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the fund's financial statements, is included in the fund's annual
report, which is available upon request.
[FINANCIAL HIGHLIGHTS BELOW ARE FOR CLASS A AND CLASS B FOR THE YEARS/PERIODS
INDICATED - TO BE REVISED BY FUND ACCOUNTING TO INCLUDE 1998 INFORMATION AT THE
ANNUAL UPDATE FILING - NOT NOW]
<TABLE>
<CAPTION>
------------------------------------------------------------------
Class A
------------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- -------
Net gains on securities (both realized and unrealized) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- -------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- -------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- -------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------- ------- ------- ------- -------
Total return(a) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------- ------- ------- ------- -------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $xx,xxx $xx,xxx $xx,xxx $xx,xxx $xx,xxx
------- ------- ------- ------- -------
Ratio of expenses to average net assets(b) x.xx%(c)(d) x.xx% x.xx% x.xx% x.xx%
------- ------- ------- ------- -------
Ratio of net investment income (loss) to average net assets(e) (x.xx)%(c) (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------- ------- ------- ------- -------
Portfolio turnover rate xx% xx% xx% xx% xx%
------- ------- ------- ------- -------
</TABLE>
(a) Does not deduct sales charges and are 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 were
X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(c) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have been the same.
(e) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (X.XX)%, (X.XX)%, (X.XX)%, (X.XX)% and (X.XX)% for
1998-1994.
9
<PAGE> 273
<TABLE>
<CAPTION>
------------------------------------------------------------------
Class B
------------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- -------
Net gains on securities (both realized and unrealized) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- -------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- -------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- -------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------- ------- ------- ------- -------
Total return(a) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------- ------- ------- ------- -------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $xx,xxx $xx,xxx $xx,xxx $xx,xxx $xx,xxx
------- ------- ------- ------- -------
Ratio of expenses to average net assets(b) x.xx%(c)(d) x.xx% x.xx% x.xx% x.xx%
------- ------- ------- ------- -------
Ratio of net investment income (loss) to average net assets(e) (x.xx)%(c) (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------- ------- ------- ------- -------
Portfolio turnover rate xx% xx% xx% xx% xx%
------- ------- ------- ------- -------
</TABLE>
(a) Does not deduct sales charges and are 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 were
X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(c) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have been the same.
(e) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (X.XX)%, (X.XX)%, (X.XX)%, (X.XX)% and (X.XX)% for
1998-1994.
10
<PAGE> 274
SHAREHOLDER INFORMATION
Choosing a Share Class
Many of the funds advised by the advisor (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>
o Initial sales charge o No initial sales charge o No initial sales charge
o Reduced or o Contingent deferred o Contingent deferred
waived initial sales charge on sales charge on
sales charge for redemptions within redemptions within
certain purchases six years one year
o Lower distribution o 12b-1 fee of 1.00% o 12b-1 fee of 1.00%
and service (12b-1)
fee than Class B or
Class C shares
(See "Fee Table o Converts to Class A o Does not convert to
and Expense shares after eight years Class A shares
Example") along with a pro rata
portion of its reinvested
dividends and distributions*
o Generally more o Purchase orders limited o Generally more
appropriate for long- to amounts less than appropriate for short-
term investors $250,000 term investors
</TABLE>
* If you held Class B shares of AIM Global Trends Fund 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.
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<PAGE> 275
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.
CATEGORY I Initial Sales Charges
- --------------------------------
<TABLE>
<CAPTION>
INVESTOR'S SALES CHARGE
-----------------------
AS A PERCENTAGE
AS A PERCENTAGE OF THE
AMOUNT OF INVESTMENT OF THE PUBLIC NET AMOUNT
IN SINGLE TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<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>
CATEGORY II Initial Sales Charges
- ---------------------------------
<TABLE>
<CAPTION>
INVESTOR'S SALES CHARGE
-----------------------
AS A PERCENTAGE
AS A PERCENTAGE OF THE
AMOUNT OF INVESTMENT OF THE PUBLIC NET AMOUNT
IN SINGLE TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<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>
CATEGORY III Initial Sales Charges
- ----------------------------------
<TABLE>
<CAPTION>
INVESTOR'S SALES CHARGE
-----------------------
AS A PERCENTAGE
AS A PERCENTAGE OF THE
AMOUNT OF INVESTMENT OF THE PUBLIC NET AMOUNT
IN SINGLE TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<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.
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<PAGE> 276
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>
CLASS B CLASS C
CDSC AS A PERCENTAGE CDSC AS A PERCENTAGE
OF DOLLAR AMOUNT OF DOLLAR AMOUNT
YEAR SINCE PURCHASE MADE SUBJECT TO CHARGE SUBJECT TO CHARGE
------------------------ ----------------- -----------------
<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>
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 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
o on shares purchased by reinvesting dividends and distributions;
o when exchanging shares among certain AIM Funds;
o when using the reinstatement privilege; and
o 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
o if you redeem Class B shares you held for more than six years;
o if you redeem Class C shares you held for more than one year;
o if you redeem shares acquired through reinvestment of dividends and
distributions; and
o on increases in the net asset value of your shares.
A-3
<PAGE> 277
There may be other situations in which you or other shareholders may be able to
purchase or redeem shares at reduced or without sales charges. You should
consult the fund's Statement of Additional Information for details regarding
these situations.
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>
- -------------------------------------------------------------------------------------------------------------------------
Type of Account Initial Additional
Investments Investments
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing plans, 401(k) plans, Simplified $0 ($25 per $25
Employee Pension (SEP) accounts, Salary Reduction (SARSEP) accounts, Savings AIM Fund
Incentive Match Plans for Employee IRA (Simple IRA) accounts, 403(b) or 457 investment
plans) for salary
deferrals
from Savings
Plans)
- -------------------------------------------------------------------------------------------------------------------------
Automatic Investment Plans $50 $50
- -------------------------------------------------------------------------------------------------------------------------
IRA, Education IRA or Roth IRA $250 $50
- -------------------------------------------------------------------------------------------------------------------------
All other accounts $500 $50
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-4
<PAGE> 278
HOW TO PURCHASE SHARES
There are several ways you can purchase your shares. You can make direct
purchases or select from one of three automatic investment methods.
DIRECT PURCHASES
<TABLE>
<CAPTION>
Opening An Account Adding to An Account
<S> <C> <C>
Through a
Financial
Consultant Contact your financial consultant. Same
By Mail Mail completed Account Mail your check and the
Application and purchase payment to the transfer agent, remittance slip from
A I M Fund Services, Inc., P.O. Box 4739, your confirmation statement
Houston, TX 77210-4739. to the transfer agent.
By Wire Mail completed Account Call the transfer agent to
Application to the transfer agent. receive a reference number.
Call the transfer agent at Then, use the wire
(800) 959-4246 to receive a reference number. instructions at left.
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 methods described Mail completed AIM Bank
above. Connection(sm) form to the
transfer agent. Once
the transfer agent has
received the form, call the
transfer agent to place your
purchase.
</TABLE>
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 and in the same class of shares. 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
A-5
<PAGE> 279
10th or 25th day of the month 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 at net
asset value in certain AIM Funds without paying a sales charge. 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. 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
TIMING OF REDEMPTIONS
You can redeem shares during the hours the New York Stock Exchange (NYSE) is
open for business. An AIM Fund may postpone the right of redemption only under
unusual circumstances, such as when the NYSE restricts or suspends trading.
A-6
<PAGE> 280
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).
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.
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 eighteen 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.
HOW TO REDEEM SHARES
<TABLE>
<CAPTION>
Through a
Financial Consultant Contact your financial consultant.
<S> <C>
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 thirty
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 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.
A-7
<PAGE> 281
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 New York Stock Exchange (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.
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
A-8
<PAGE> 282
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 and it may have tax consequences.
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, in 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 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;
A-9
<PAGE> 283
(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:
o You must meet the minimum purchase requirements for the AIM Fund into
which you are exchanging;
o Shares of the AIM Fund you wish to acquire must be qualified for sale in
your state of residence;
o Exchanges must be made between accounts with identical registration
information;
o 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);
o Shares must have been held for at least one day prior to the exchange; and
o If you have physical share certificates, you must return them to the
transfer agent prior to the exchange.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the issuance of shares
being purchased 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
A-10
<PAGE> 284
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; OR WITHDRAW ALL OR ANY PART OF
THE OFFERING MADE BY THIS PROSPECTUS.
Pricing of Shares
Each of the AIM Funds prices its shares based on its net asset value. 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 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 New York Stock
Exchange (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. The AIM Funds price purchase, exchange and redemption
orders at the net asset value calculated after the transfer agent receives an
order in good form.
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. Every year, an
A-11
<PAGE> 285
account statement showing the amount of dividends and distributions you
received from each AIM Fund during the prior year will be sent to you.
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 of the AIM Fund's shares, and any gain
realized on the transaction will 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.
A-12
<PAGE> 286
[BACK COVER PAGE]
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
United States 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 semi-annual 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 semi-annual reports, please contact us:
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
semi-annual reports only)
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, D.C., 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, D.C. 20549-6009. Please call the SEC
at 1-800-SEC-0330 for information about the Public Reference Room.
AIM Global Growth & Income Fund
SEC 1940 Act file number: 811-05426
11
<PAGE> 287
[AIM LOGO]
ADVISOR CLASS
AIM GLOBAL GROWTH & INCOME FUND
PROSPECTUS
MARCH 1, 1999
AIM Global Growth & Income Fund seeks to provide growth of capital together with
current income.
This prospectus contains important information. Please read it before investing
and keep it for future reference.
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. There is a risk that you could lose a portion or all of your money.
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.
<PAGE> 288
TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES............................................3
PRINCIPAL RISKS OF INVESTING IN THE FUND.......................................3
PERFORMANCE INFORMATION........................................................5
ANNUAL TOTAL RETURNS..................................................5
PERFORMANCE TABLE.....................................................5
FEE TABLE AND EXPENSE EXAMPLE..................................................6
FEE TABLE.............................................................6
EXPENSE EXAMPLE.......................................................6
FUND MANAGEMENT................................................................7
THE ADVISOR AND SUBADVISOR............................................7
ADVISOR COMPENSATION..................................................7
PORTFOLIO MANAGERS....................................................7
OTHER INFORMATION..............................................................8
DIVIDENDS AND DISTRIBUTIONS...........................................8
FINANCIAL HIGHLIGHTS...........................................................9
SHAREHOLDER INFORMATION......................................................A-1
PURCHASING SHARES...................................................A-1
REDEEMING SHARES....................................................A-3
EXCHANGING SHARES...................................................A-5
PRICING OF SHARES...................................................A-6
TAXES...............................................................A-6
OBTAINING ADDITIONAL INFORMATION.................................BACK COVER PAGE
</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 is a service
mark of A I M Management Group Inc.
2
<PAGE> 289
INVESTMENT OBJECTIVE AND STRATEGIES
The fund's investment objective is growth of capital together with current
income.
The fund seeks to achieve its objective by investing at least 65% of its total
assets in a combination of blue-chip equity securities and high-quality
government bonds of U.S. and foreign issuers. "Blue chip" equity securities are
those which (i) offered, during the issuer's most recent fiscal year, an above
average dividend yield relative to the latest reported dividend yield on the
Morgan Stanley Capital World Index, and (ii) are issued by a company with total
equity market capitalization of at least $1 billion. High-quality government
bonds are rated within one of the two highest ratings categories of Moody's
Investors Service, Inc. or Standard & Poor's, or are deemed by INVESCO Asset
Management Ltd., the fund's subadvisor, to be of comparable quality.
The fund may invest up to 35% of its total assets in other equity securities and
government and corporate debt securities that are investment grade, i.e., rated
within one of the four highest ratings categories of Moody's or S&P, or are
deemed by the fund's subadvisor to be of comparable quality. The fund may
purchase debt obligations issued or guaranteed by the U.S. or foreign
governments, including foreign states, provinces or municipalities, or their
agencies, authorities or instrumentalities and debt obligations of supranational
organizations, such as the World Bank. The fund will normally invest in
securities of issuers in at least three countries, including the United States,
and the fund may invest a significant portion of its assets in the securities of
U.S. issuers. However, the fund may not invest more than 40% of its assets in
securities of issuers in any one country, other than the U.S. The fund may
invest up to 100% of its total assets in either equity or debt securities in
response to general economic changes and market conditions around the world.
The portfolio managers allocate assets among securities of countries and in
currency denominations where opportunities for meeting the fund's investment
objective are expected to be the most attractive. The portfolio managers
consider fundamental economic strength, credit quality, and currency and
interest rate trends in emphasizing various country, geographic, and industry
sectors within the fund. Further, the portfolio managers select particular
issuers based on additional economic and countries criteria such as yield,
maturity, issue classification, and quality characteristics. Currency
investments are based on economic factors (such as relative inflation, interest
rate levels and trends, growth rate forecasts, balance of payments status, and
economic policies) and on political and technical data. The portfolio managers
usually sell a particular security when any of those factors materially changes.
The fund is a non-diversified portfolio, which means that with respect to 50% of
its assets, it is permitted to invest more than 5% of its assets in the
securities of any one issuer.
In anticipation of or in response to adverse market conditions or for cash
management purposes, the fund may hold all or a portion of its assets in cash
(U.S. dollars, foreign currencies or multinational currency units), money market
securities, 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 price of equity securities rises and
falls in response to many factors, including the historical and prospective
earnings of the issuer of the stock, the value of its assets, general economic
conditions, interest rates, investor perceptions, and market liquidity. Debt
securities are particularly vulnerable to credit risk and interest rate
fluctuations. When interest rates rise, bond prices fall; the longer the bond's
duration, the more sensitive it is to this risk. In addition, the prices of
securities issued by foreign issuers may be further affected by other factors,
including
3
<PAGE> 290
o 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.
o 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.
o Regulations - Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, among other things, there generally is less
publicly available information about foreign companies than about U.S.
companies.
o 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.
Because it is non-diversified, the fund may invest in fewer issuers than if it
were a diversified fund. The value of the fund's shares may vary more widely,
and the fund may be subject to greater investment and credit risk, than if the
fund invested more broadly.
Many software systems are unable to distinguish the year 2000 from the year
1900. The fund's investment advisor, together with independent technology
consultants, has completed its determination as to whether any software systems
that the fund uses or depends on has that problem and is in the process of
correcting and testing those systems that may have such problem. This problem,
if not corrected, may adversely affect services provided to the fund or may
affect companies in which the fund may invest and, therefore, may lower the
value of your shares.
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.
4
<PAGE> 291
[INFORMATION TO BE PROVIDED BY GARY WENDLER'S GROUP]
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 Advisor
Class shares from year to year over a 4-year period.
[BAR CHART TO BE REVISED - DELETE INFO FOR 1988 AND LEAVE A BLANK FOR 1998]
[INFO BELOW TO BE UPDATED/PROVIDED AT THE TIME OF THE ANNUAL UPDATE
FILING - NOT NOW]
AIM GLOBAL GROWTH & INCOME FUND
(Advisor
<TABLE>
<CAPTION>
Annual
Year Ended Total
December 31 Return
----------- ------
<S> <C>
1996 ........................ 17.42%
1997 ........................ 18.38%
1998 ........................ %
</TABLE>
During the 4-year period shown in the bar chart, the highest quarterly return
was [___________%] (quarter ended [_____]) and the lowest quarterly return was
[_________%] (quarter ended [___________]
PERFORMANCE TABLE
The following performance table shows how the fund's average annual returns for
one, five and 10 years compare to those of a broad-based securities market
index.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Average Annual Total Returns
(for the periods ending December 31, 1998)
1 Year 5 Years 10 Years
- --------------------------------------------- ------ ------- --------
<S> <C> <C> <C>
Advisor Class* [ ]% [ ]% [ ]%
------ ------- --------
MSCI World Index** [ ] [ ] [ ]
- ---------------------------------------------------------------------------------------------------
</TABLE>
* Advisor Class returns are since inception (6/1/95).
** The Morgan Stanley Capital International World Index measures performance
for twenty-two developed country global stock markets. The index is
capitalization weighted. Companies included in the index replicate the
industry composition of each local market and, in addition, represent a
sampling of large, medium and small capitalization companies from each
local market, taking into account the stocks' liquidity.
[INFO IN THE ABOVE CHART TO BE UPDATED/PROVIDED AT THE ANNUAL UPDATE
FILING - NOT NOW]
5
<PAGE> 292
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>
Advisor Class
-------------
<S> <C>
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price
or redemption proceeds, whichever is less) None
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
Management Fees (1) 0.97%
Distribution and/or Service (12b-1) Fees None
Other Expenses:
Transfer agent fees and costs ---
Other ---
Total Other Expenses ---
Total Annual Fund Operating Expenses ---
</TABLE>
- -------------------
[(1) The investment advisor is currently waiving a portion of its fees. The
management fees were 0.61% after such waiver. The waiver may be terminated
at any time with the approval of the fund's Board of Trustees. If the
waiver is terminated before the end of the fund's fiscal year, the
investment advisor may be reimbursed the waived amounts for that year. 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 cost of investing in the
Advisor Class 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 operating expenses remain the same. Although your actual returns and
costs may be higher or lower, based on these assumptions your costs would be:
[FUND ACCOUNTING TO PROVIDE INFO AT THE ANNUAL UPDATE FILING - NOT NOW]
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Advisor Class [ $ $ $ $
</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>
Advisor Class [ $ $ $ $
</TABLE>
6
<PAGE> 293
FUND MANAGEMENT
THE ADVISOR AND SUBADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment adviser.
INVESCO Asset Management Ltd. (the subadvisor), an affiliate of the advisor, is
the fund's subadvisor and is responsible for its day-to-day management. The
advisor is located at 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173.
The subadvisor is located at 11 Devonshire Square, London, EC2M 4YR, England.
The advisors supervise all aspects of the fund's operations and provide
investment advisory services to the fund, including obtaining and evaluating
economic, statistical and financial information to formulate and implement
investment programs for the fund.
The advisor has acted as an investment adviser since its organization in 1976,
and the subadvisor has acted as an investment adviser since its organization in
__________ . Today, the advisor, together with its subsidiaries, advises or
manages over 90 investment portfolios, including the fund, encompassing a broad
range of investment objectives.
ADVISOR COMPENSATION
During the fund's last fiscal year ended October 31, 1998, the fund paid the
advisor advisory fees of _________ % of the fund's average net assets.
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, all of whom are officers of the subadvisor, are
o Paul Griffiths, Portfolio Manager, who has been responsible for the fund
since 1995 and has been associated with the advisor and/or its affiliates
since 1994. He has been Head of Global Fixed Income and Portfolio Manager
for INVESCO (NY), Inc. and INVESCO GT Asset Management PLC (London) (AGT
London@) since June 1997. From 1994 to 1997, he was Portfolio Manager. From
1993 to 1994, he was Global Bond Fund Manager for Lazard Investors. He was
Global Bond Fund Manager for Sanwa International PLC from 1991 to 1993.
o Michael Lindsell, Portfolio Manager, who has been responsible for the fund
since 1998 and has been associated with the advisor and/or its affiliates
since 1992. He has been Head of Investment Strategy for Global Equities and
Portfolio Manager for the subadvisor and GT London since 1996. From 1992 to
1996, he was Chief Investment Officer for Japan and Portfolio Manager for
INVESCO GT Asset Management Asia Ltd. (Hong Kong) (AGT Asia@) and for the
subadvisor. Prior thereto, he was Director of Warburg Asset Management
(Tokyo).
o John Nadell, Portfolio Manager, who has been responsible for the fund
since 1998 and has been associated with the advisor and/or its affiliates
since 1994. He has been Portfolio Manager for the subadvisor since July
1998 and for INVESCO GT Asset Management Japan Ltd. (Tokyo) ("GT Tokyo")
since 1996. In 1995, he joined GT Tokyo as an Investment Analyst. From 1990
to 1994, he was an Investment Analyst at Pacific Equity Management
(Oakland, California).
7
<PAGE> 294
OTHER INFORMATION
DIVIDENDS AND DISTRIBUTIONS
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.
Dividends
The fund generally declares and pays dividends, if any, quarterly.
8
<PAGE> 295
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 table shows the financial highlights for a share of the fund outstanding
during each of the fiscal years (or periods) indicated.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the fund's financial statements, is included in the fund's annual
report, which is available upon request.
[FINANCIAL HIGHLIGHTS BELOW ARE FOR CLASS A AND CLASS B FOR THE YEARS/PERIODS
INDICATED - TO BE REVISED BY FUND ACCOUNTING TO INCLUDE 1998 INFORMATION AT THE
ANNUAL UPDATE FILING - NOT NOW]
<TABLE>
<CAPTION>
---------------------------------------------------------
Advisor
---------------------------------------------------------
June 1, 1995
to
1998 1997 1996 Oct. 31, 1995
-------- -------- -------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx
-------- -------- -------- -------------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx)
-------- -------- -------- -------------
Net gains on securities (both realized and unrealized) (x.xx) (x.xx) (x.xx) (x.xx)
-------- -------- -------- -------------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx)
-------- -------- -------- -------------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx)
-------- -------- -------- -------------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx
======== ======== ======== =============
Total return (a) (x.xx)% (x.xx)% (x.xx)% (x.xx)%
======== ======== ======== =============
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ xx,xxx $ xx,xxx $ xx,xxx $ xx,xxx
======== ======== ======== =============
Ratio of expenses to average net assets (b) x.xx% (c)(d) x.xx% x.xx% x.xx%
======== ======== ======== =============
Ratio of net investment income (loss) to average net assets (x.xx)% (c) (x.xx)% (x.xx)% (x.xx)%
======== ======== ======== =============
Portfolio turnover rate xx% xx% xx% xx%
======== ======== ======== =============
</TABLE>
(a) Does not deduct sales charges and are 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 were
X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(c) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been the
same.
(e) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (X.XX)%, (X.XX)%, (X.XX)%, (X.XX)% and (X.XX)% for
1998-1994.
9
<PAGE> 296
SHAREHOLDER INFORMATION FOR ADVISOR CLASS SHARES
- -------------------------------------------------------------------------------
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM ACCOUNT
The minimum initial investment for Advisor Class shares is $500; and the
minimum investment for purchases of additional Advisor Class shares is $50.
HOW TO PURCHASE SHARES
Shares offered by this prospectus are available for purchase only by certain
investors and are offered at net asset value without the imposition of a
front-end or contingent deferred sales charge or Rule 12b-1 fees. Advisor Class
shares are available through financial consultants (such as financial planners,
trust companies, bank trust departments, and registered investment advisors).
In order to purchase Advisor Class shares of any AIM Fund, your financial
consultant, on your behalf, must submit a fully completed new account
application form directly to the transfer agent.
There are several ways you can purchase your shares. You can make direct
purchases or select from two automatic investment methods.
DIRECT PURCHASES
<TABLE>
<CAPTION>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Through a Financial Consultant Contact your financial consultant. Same
By Mail Must be submitted by your financial Mail your check and the remittance
consultant. slip from your confirmation
statement to the transfer agent.
A I M Fund Services, Inc., P.O. Box
4739
Houston, TX 77210-4739
By Wire Your financial consultant must mail a Call the transfer agent to receive a
completed account application to the reference number. Then, use the
transfer agent. You or your financial wire instructions at left.
consultant may call the transfer agent
at (800) 959-4246 to 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 #
</TABLE>
A-1
<PAGE> 297
<TABLE>
<CAPTION>
<S> <C> <C>
By AIM Bank Open your account using one of the Mail completed AIM Bank Connection(sm)
Connection(sm) methods described above. form to the transfer agent. Once the
transfer agent has received the form,
call the transfer agent to place your
purchase order.
</TABLE>
SPECIAL PLANS
Automatic Dividend Investment
All of your dividends and distributions may be paid in cash or invested in
Advisor Class shares of certain AIM Funds. Unless you specify otherwise, your
dividends and distributions will automatically be reinvested in the same AIM
Fund.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in Advisor Class shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend or
distribution must be at least $5,000; or (b) in the AIM Fund receiving the
dividend or distribution 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 and
distributions 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 holdings of Advisor Class shares of AIM Funds 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 Advisor
Class shares 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.
The distributor and its agents reserve the right at any time to (1) reject or
cancel any part of any purchase or exchange order; (2) modify any terms or
conditions of purchase of shares of any AIM Fund; or (3) withdraw all or any
part of the offering made by this Prospectus.
A-2
<PAGE> 298
REDEEMING SHARES
TIMING OF REDEMPTIONS
You can redeem shares during the hours the New York Stock Exchange (NYSE) is
open for business. An AIM Fund may postpone the right of redemption only under
unusual circumstances, such as when the NYSE restricts or suspends trading.
REDEMPTION FEES
No redemption fee is imposed when shares are redeemed or repurchased; however,
dealers/financial institutions may charge service fees for handling repurchase
transactions.
A-3
<PAGE> 299
<TABLE>
<CAPTION>
HOW TO REDEEM SHARES
- -------------------------------------------------------------------------------------------------------------------
<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.
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. The transfer agent must receive your call
during the hours the 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 at the address on record with
us.
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.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
A-4
<PAGE> 300
(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.
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, IN ITS DISCRETION, REDEEM THE ACCOUNT AND DISTRIBUTE THE PROCEEDS
TO YOU.]
EXCHANGING SHARES
You may, under certain circumstances, exchange Advisor Class shares in one AIM
Fund for Advisor Class shares of another AIM Fund. Before requesting an
exchange, review the prospectus of the AIM Fund you wish to acquire.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
o You must meet the minimum purchase requirements for the AIM Fund into
which you are exchanging;
o Shares of the AIM Fund you wish to acquire must be qualified for sale in
your state of residence;
o Exchanges must be made between accounts with identical registration
information;
o 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);
o The AIM Fund from which you are exchanging must have received the full
amount of the purchase price for the shares being exchanged;
o Recently acquired shares must have been held in your account for ten
business days, and all other shares must have been held for at least one
day, prior to the exchange; and
o If you have physical share certificates, you must return them to the
transfer agent prior to the exchange.
A-5
<PAGE> 301
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the issuance of shares
being purchased 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.
GENERAL INFORMATION
- -------------------------------------------------------------------------------
PRICING OF SHARES
Each of the AIM Funds prices its shares based on its net asset value. 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. 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 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 Trustees 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. The AIM Funds price
purchase, exchange, and redemption orders calculated at the net asset value
after the transfer agent receives an order in good form.
A-6
<PAGE> 302
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. Long-term capital gain
distributions are taxable as long-term capital gains when distributed to you,
no matter how long you held your shares. Different rates of tax may apply to
ordinary income and long-term capital gain distributions. Every year, an
account statement showing the amount of dividends and distributions you
received from each AIM Fund during the prior year will be sent to you.
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 of the AIM Fund's shares, and any gain
realized on the transaction will 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.
A-7
<PAGE> 303
[BACK COVER PAGE]
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
United States 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 semi-annual 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
or your account, or wish to obtain free copies of the fund's current SAI or
annual or semi-annual reports, please contact us:
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
semi-annual reports only)
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, D.C., 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, D.C. 20549-6009. Please call the SEC
at 1-800-SEC-0330 for information about the Public Reference Room.
AIM Global Growth & Income Fund
SEC 1940 Act file number: 811-05426
10
<PAGE> 304
[AIM LOGO]
AIM GLOBAL HEALTH CARE FUND
PROSPECTUS
MARCH 1, 1999
AIM Global Health Care Fund seeks to provide long-term growth of capital.
This prospectus contains important information. Please read it before investing
and keep it for future reference.
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. There is a risk that you could lose a portion or all of your money.
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.
<PAGE> 305
TABLE OF CONTENTS
<TABLE>
<S> <C>
Investment Objective and Strategies .......................................3
Principal Risks of Investing in the Fund ..................................3
Performance Information ...................................................5
Annual Total Returns .................................................5
Performance Table ....................................................6
Fee Table and Expense Example .............................................7
Fee Table ............................................................7
Expense Example ......................................................8
Fund Management ...........................................................9
The Advisor ..........................................................9
Advisor Compensation .................................................9
Portfolio Managers ...................................................9
Other Information ........................................................10
Initial Sales Charges for Class A Shares ............................10
Dividends and Distributions .........................................10
Financial Highlights .....................................................11
Shareholder Information .................................................A-1
Choosing a Share Class .............................................A-1
Purchasing Shares ..................................................A-1
Redeeming Shares ...................................................A-3
Exchanging Shares ..................................................A-5
Pricing of Shares ..................................................A-6
Taxes ..............................................................A-6
Obtaining Additional Information ............................Back Cover Page
</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 is a service
mark of A I M Management Group Inc.
2
<PAGE> 306
INVESTMENT OBJECTIVE AND STRATEGIES
The fund's investment objective is long term growth of capital.
The fund seeks to achieve its objective by investing at least 65% of its total
assets in equity securities of domestic and foreign health care companies. The
fund considers a "health care company" to be one that (i) derives at least 50%
of its revenues or earnings from health care activities, or (ii) devotes at
least 50% of its assets to such activities, based on its most recent fiscal
year. Such companies include those that design, manufacture, or sell products or
services used for or in connection with health care or medicine (such as
pharmaceutical companies, biotechnology research firms, companies that sell
medical products, and companies that own or operate health care facilities). The
fund may invest up to 35% of its assets in debt securities issued by health care
companies, or equity and debt securities of other companies the fund's portfolio
managers believe will benefit from developments in the health care industries.
The fund will normally invest in the securities of companies located in at least
three different countries, including the United States, and may invest a
significant portion of its assets in the securities of U.S. issuers. However,
the fund will not invest more than 50% of its total assets in the securities of
issuers in any one country, other than the U.S. The fund may invest
substantially in securities denominated in one or more currencies.
The portfolio managers allocate the fund's assets among securities of countries
and in currency denominations that are expected to provide the best
opportunities for meeting the fund's investment objective. In analyzing specific
companies for possible investment, the portfolio managers ordinarily look for
several of the following characteristics: above average per share earnings
growth; high return on invested capital; a healthy balance sheet; sound
financial and accounting policies and overall financial strength; strong
competitive advantages; effective research and product development and
marketing; development of new technologies; efficient service; pricing
flexibility; strong management; and general operating characteristics that will
enable the companies to compete successfully in their respective markets. The
portfolio managers usually sell a particular security when any of those factors
materially changes.
In anticipation of or in response to adverse market conditions or for cash
management purposes, the fund may hold all or a portion of its assets in cash
(U.S. dollars, foreign currencies or multinational currency units), money market
securities, bonds or other debt securities. As a result, the fund may not
achieve its investment objective. The fund may engage in active and frequent
trading of portfolio securities to achieve its investment objective. If the fund
does trade in this way, it may incur increased transaction costs and brokerage
commissions, both of which can lower the actual return on your investment.
Active trading may also increase short term capital gains and losses, which may
affect the taxes you have to pay.
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. The value of your investment in the fund will go up and down with the
prices of the common stocks in which the fund invests. The price of common stock
rises and falls in response to many factors, including the historical and
prospective earnings of the issuer of the stock, the value of its assets,
general economic conditions, interest rates, investor perceptions, and market
liquidity.
3
<PAGE> 307
The value of the fund's shares is particularly vulnerable to factors affecting
the health care industry, such as substantial government regulation. Government
regulation may, among other things, impact the demand for products and services
offered by health care companies. Furthermore, the products and services offered
by health care companies may be subject to rapid obsolescence caused by
scientific advances and technological innovations. Because the fund focuses its
investments in the health care industries, the value of your fund shares may
rise and fall more than the value of shares of a fund that invests more broadly.
In addition, the prices of securities issued by foreign issuers may be further
affected by other factors, including
o 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.
o 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.
o Regulations - Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, among other things, there generally is less
publicly available information about foreign companies than about U.S.
companies.
o 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.
Many software systems are unable to distinguish the year 2000 from the year
1900. The fund's investment advisor, together with independent technology
consultants, has completed its determination as to whether any software systems
that the fund uses or depends on has that problem and is in the process of
correcting and testing those systems that may have such problem. This problem,
if not corrected, may adversely affect services provided to the fund or may
affect companies in which the fund may invest and, therefore, may lower the
value of your shares.
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.
4
<PAGE> 308
PERFORMANCE INFORMATION
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The funds 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 funds Class A
shares from year to year over a 10-year period. The bar chart does not reflect
sales loads. If it did, the annual total returns shown would be lower.
[GRAPH]
<TABLE>
<CAPTION>
Annual
Total
Year Ended December 31 Return
- ---------------------- ------
<S> <C>
1989 .......................................... 38.03%
1990 .......................................... (4.10)%
1991 .......................................... 70.41%
1992 .......................................... 15.03%
1993 .......................................... 17.29%
1994 .......................................... 1.30%
1995 .......................................... 35.45%
1996 .......................................... 16.27%
1997 .......................................... 12.92%
</TABLE>
During the 5-year period shown in the bar chart, the highest quarterly return
was [ ]% (quarter ended [ ]) and the lowest quarterly return
was [ ]% (quarter ended [ ]).
[BAR CHART TO BE REVISED - DELETE INFO FOR 1988 AND LEAVE A BLANK FOR 1998]
5
<PAGE> 309
[INFO BELOW TO BE UPDATED/PROVIDED AT THE TIME OF THE ANNUAL UPDATE FILING - NOT
NOW]
PERFORMANCE TABLE
The following performance table shows how the fund's average annual returns for
one, five and 10 years compare to those of a broad-based securities market
index.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Average Annual Total Returns
(for the periods ending December 31, 1997)
1 Year 5 Years 10 Years
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A* [ ]% [ ]% [ ]%
- ------------------------------------------------------------------------------------
Class B** [ ] [ ] [ ]
- ------------------------------------------------------------------------------------
MSCI Health & Personal Care*** [ ] [ ] [ ]
- ------------------------------------------------------------------------------------
</TABLE>
* Class A returns are since inception ( / /94).
** Class B returns are since inception ( / /94).
*** The MSCI Health and Personal Care Index is a market value-weighted
average of the performance of 55 securities listed on major world stock
exchanges. Index returns are given without dividend before December
1993 and with dividends after 1994.
[INFO IN THE ABOVE CHART TO BE UPDATED/PROVIDED AT THE ANNUAL UPDATE FILING -
NOT NOW]
6
<PAGE> 310
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>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Shareholder Fees (fees paid directly from your investment)
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
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
Management Fees(1) 0.97% 0.97% ---%
Distribution and/or Service (12b-1) Fees 0.50 1.00 ---
Other Expenses:
Transfer agent fees and costs --- --- ---
Other --- --- ---
Total Other Expenses --- --- ---
Total Annual Fund Operating Expenses --- --- ---
</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 investment advisor is currently waiving a portion of its fees. The
management fees were 0.61% after such waiver. The waiver may be terminated
at any time with the approval of the fund s Board of Directors. If the
waiver is terminated before the end of the fund's fiscal year, the
investment advisor may be reimbursed the waived amounts for that year.]
As a result of 12b-1 fees, long-term shareholders in the fund may pay more than
the maximum permitted initial sales charge.
7
<PAGE> 311
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 $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's operating expenses remain the same. Although your actual returns and
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A [$ $ $ $
Class B
Class C
</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 $ $ $ $
Class B
Class C ]
Fund Management
</TABLE>
8
<PAGE> 312
FUND MANAGEMENT
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment adviser and
is responsible for its day-to-day management. The advisor is located at 11
Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The advisor supervises all
aspects of the fund's operations and provide investment advisory services to the
fund, including obtaining and evaluating economic, statistical and financial
information to formulate and implement investment programs for the fund.
The advisor has acted as an investment adviser since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 90
investment portfolios, including the fund, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the fund's last fiscal year ended October 31, 1997, the fund paid the
advisor advisory fees of ___% of the fund's average net assets.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual member
of the team who is primarily responsible for the day-to-day management of the
fund's portfolio, is
o Michael Yellen, Portfolio Manager, who has been responsible for the fund
since 1996 and has been associated with the advisor and/or its affiliates
since 1994. From 1991 to 1994, he was a Securities Analyst and Co-Portfolio
Manager for Franklin Resources, Inc. (San Mateo, CA).
9
<PAGE> 313
OTHER INFORMATION
INITIAL SALES CHARGES FOR CLASS A SHARES
Purchases of Class A shares of the 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.
DIVIDENDS AND DISTRIBUTIONS
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.
Dividends
The fund generally declares and pays dividends, if any, annually.
10
<PAGE> 314
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 table shows the financial highlights for a share of the fund outstanding
during each of the fiscal years (or periods) indicated.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the fund's financial statements, is included in the fund's annual
report, which is available upon request.
[FINANCIAL HIGHLIGHTS BELOW ARE FOR CLASS A AND CLASS B FOR THE YEARS/PERIODS
INDICATED - TO BE REVISED BY FUND ACCOUNTING TO INCLUDE 1998 INFORMATION AT THE
ANNUAL UPDATE FILING - NOT NOW]
<TABLE>
<CAPTION>
Class A
----------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
- ----------------------------------------------------------- ------- ------- ------- ------- --------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
- ----------------------------------------------------------- ------- ------- ------- ------- --------
Net gains on securities (both realized and unrealized) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
- ----------------------------------------------------------- ------- ------- ------- ------- --------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
- ----------------------------------------------------------- ------- ------- ------- ------- --------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
- ----------------------------------------------------------- ------- ------- ------- ------- --------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
- ----------------------------------------------------------- ------- ------- ------- ------- --------
Total return (a) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
- ----------------------------------------------------------- ------- ------- ------- ------- --------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $xx,xxx $xx,xxx $xx,xxx $xx,xxx $ xx,xxx
- ----------------------------------------------------------- ------- ------- ------- ------- --------
Ratio of expenses to average net assets (b) x.xx%(c)(d) x.xx% x.xx% x.xx% x.xx%
- ----------------------------------------------------------- ------- ------- ------- ------- --------
Ratio of net investment income (loss) to average net assets (x.xx)%(c) (x.xx)% (x.xx)% (x.xx)% (x.xx)%
- ----------------------------------------------------------- ------- ------- ------- ------- --------
Portfolio turnover rate xx% xx% xx% xx% xx%
- ----------------------------------------------------------- ------- ------- ------- ------- --------
</TABLE>
(a) Does not deduct sales charges and are 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 were
X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(c) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the radio of expenses to average net assets would have been the
same.
(e) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (X.XX)%, (X.XX)%, (X.XX)%, (X.XX)% and (X.XX)% for
1998-1994.
11
<PAGE> 315
<TABLE>
<CAPTION>
Class B
----------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
- ----------------------------------------------------------- ------- ------- ------- ------- --------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
- ----------------------------------------------------------- ------- ------- ------- ------- --------
Net gains on securities (both realized and unrealized) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
- ----------------------------------------------------------- ------- ------- ------- ------- --------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
- ----------------------------------------------------------- ------- ------- ------- ------- --------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
- ----------------------------------------------------------- ------- ------- ------- ------- --------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
- ----------------------------------------------------------- ------- ------- ------- ------- --------
Total return (a) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
- ----------------------------------------------------------- ------- ------- ------- ------- --------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $xx,xxx $xx,xxx $xx,xxx $xx,xxx $ xx,xxx
- ----------------------------------------------------------- ------- ------- ------- ------- --------
Ratio of expenses to average net assets (b) x.xx%(c)(d) x.xx% x.xx% x.xx% x.xx%
- ----------------------------------------------------------- ------- ------- ------- ------- --------
Ratio of net investment income (loss) to average net assets (x.xx)%(c) (x.xx)% (x.xx)% (x.xx)% (x.xx)%
- ----------------------------------------------------------- ------- ------- ------- ------- --------
Portfolio turnover rate xx% xx% xx% xx% xx%
- ----------------------------------------------------------- ------- ------- ------- ------- --------
</TABLE>
(a) Does not deduct sales charges and are 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 were
X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(c) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the radio of expenses to average net assets would have been the
same.
(e) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (X.XX)%, (X.XX)%, (X.XX)%, (X.XX)% and (X.XX)% for
1998-1994.
12
<PAGE> 316
SHAREHOLDER INFORMATION
Choosing a Share Class
Many of the funds advised by the advisor (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>
o Initial sales charge o No initial sales charge o No initial sales charge
o Reduced or o Contingent deferred o Contingent deferred
waived initial sales charge on sales charge on
sales charge for redemptions within redemptions within
certain purchases six years one year
o Lower distribution o 12b-1 fee of 1.00% o 12b-1 fee of 1.00%
and service (12b-1)
fee than Class B or
Class C shares
(See "Fee Table o Converts to Class A o Does not convert to
and Expense shares after eight years Class A shares
Example") along with a pro rata
portion of its reinvested
dividends and distributions*
o Generally more o Purchase orders limited o Generally more
appropriate for long- to amounts less than appropriate for short-
term investors $250,000 term investors
</TABLE>
* If you held Class B shares of AIM Global Trends Fund 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.
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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.
CATEGORY I Initial Sales Charges
- --------------------------------
<TABLE>
<CAPTION>
INVESTOR'S SALES CHARGE
-----------------------
AS A PERCENTAGE
AS A PERCENTAGE OF THE
AMOUNT OF INVESTMENT OF THE PUBLIC NET AMOUNT
IN SINGLE TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<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>
CATEGORY II Initial Sales Charges
- ---------------------------------
<TABLE>
<CAPTION>
INVESTOR'S SALES CHARGE
-----------------------
AS A PERCENTAGE
AS A PERCENTAGE OF THE
AMOUNT OF INVESTMENT OF THE PUBLIC NET AMOUNT
IN SINGLE TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<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>
CATEGORY III Initial Sales Charges
- ----------------------------------
<TABLE>
<CAPTION>
INVESTOR'S SALES CHARGE
-----------------------
AS A PERCENTAGE
AS A PERCENTAGE OF THE
AMOUNT OF INVESTMENT OF THE PUBLIC NET AMOUNT
IN SINGLE TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<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.
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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>
CLASS B CLASS C
CDSC AS A PERCENTAGE CDSC AS A PERCENTAGE
OF DOLLAR AMOUNT OF DOLLAR AMOUNT
YEAR SINCE PURCHASE MADE SUBJECT TO CHARGE SUBJECT TO CHARGE
------------------------ ----------------- -----------------
<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>
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 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
o on shares purchased by reinvesting dividends and distributions;
o when exchanging shares among certain AIM Funds;
o when using the reinstatement privilege; and
o 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
o if you redeem Class B shares you held for more than six years;
o if you redeem Class C shares you held for more than one year;
o if you redeem shares acquired through reinvestment of dividends and
distributions; and
o on increases in the net asset value of your shares.
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There may be other situations in which you or other shareholders may be able to
purchase or redeem shares at reduced or without sales charges. You should
consult the fund's Statement of Additional Information for details regarding
these situations.
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>
- -------------------------------------------------------------------------------------------------------------------------
Type of Account Initial Additional
Investments Investments
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing plans, 401(k) plans, Simplified $0 ($25 per $25
Employee Pension (SEP) accounts, Salary Reduction (SARSEP) accounts, Savings AIM Fund
Incentive Match Plans for Employee IRA (Simple IRA) accounts, 403(b) or 457 investment
plans) for salary
deferrals
from Savings
Plans)
- -------------------------------------------------------------------------------------------------------------------------
Automatic Investment Plans $50 $50
- -------------------------------------------------------------------------------------------------------------------------
IRA, Education IRA or Roth IRA $250 $50
- -------------------------------------------------------------------------------------------------------------------------
All other accounts $500 $50
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 320
HOW TO PURCHASE SHARES
There are several ways you can purchase your shares. You can make direct
purchases or select from one of three automatic investment methods.
DIRECT PURCHASES
<TABLE>
<CAPTION>
Opening An Account Adding to An Account
<S> <C> <C>
Through a
Financial
Consultant Contact your financial consultant. Same
By Mail Mail completed Account Mail your check and the
Application and purchase payment to the transfer agent, remittance slip from
A I M Fund Services, Inc., P.O. Box 4739, your confirmation statement
Houston, TX 77210-4739. to the transfer agent.
By Wire Mail completed Account Call the transfer agent to
Application to the transfer agent. receive a reference number.
Call the transfer agent at Then, use the wire
(800) 959-4246 to receive a reference number. instructions at left.
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 methods described Mail completed AIM Bank
above. Connection(sm) form to the
transfer agent. Once
the transfer agent has
received the form, call the
transfer agent to place your
purchase.
</TABLE>
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 and in the same class of shares. 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
A-5
<PAGE> 321
10th or 25th day of the month 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 at net
asset value in certain AIM Funds without paying a sales charge. 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. 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
TIMING OF REDEMPTIONS
You can redeem shares during the hours the New York Stock Exchange (NYSE) is
open for business. An AIM Fund may postpone the right of redemption only under
unusual circumstances, such as when the NYSE restricts or suspends trading.
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<PAGE> 322
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).
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.
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 eighteen 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.
HOW TO REDEEM SHARES
<TABLE>
<CAPTION>
Through a
Financial Consultant Contact your financial consultant.
<S> <C>
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 thirty
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 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.
A-7
<PAGE> 323
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 New York Stock Exchange (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.
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
A-8
<PAGE> 324
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 and it may have tax consequences.
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, in 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 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;
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<PAGE> 325
(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:
o You must meet the minimum purchase requirements for the AIM Fund into
which you are exchanging;
o Shares of the AIM Fund you wish to acquire must be qualified for sale in
your state of residence;
o Exchanges must be made between accounts with identical registration
information;
o 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);
o Shares must have been held for at least one day prior to the exchange; and
o If you have physical share certificates, you must return them to the
transfer agent prior to the exchange.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the issuance of shares
being purchased 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
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<PAGE> 326
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; OR WITHDRAW ALL OR ANY PART OF
THE OFFERING MADE BY THIS PROSPECTUS.
Pricing of Shares
Each of the AIM Funds prices its shares based on its net asset value. 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 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 New York Stock
Exchange (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. The AIM Funds price purchase, exchange and redemption
orders at the net asset value calculated after the transfer agent receives an
order in good form.
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. Every year, an
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<PAGE> 327
account statement showing the amount of dividends and distributions you
received from each AIM Fund during the prior year will be sent to you.
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 of the AIM Fund's shares, and any gain
realized on the transaction will 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.
A-12
<PAGE> 328
[BACK COVER PAGE]
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
United States 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 semi-annual 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
or your account, or wish to obtain free copies of the fund's current SAI or
annual or semi-annual reports, please contact us:
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
semi-annual reports only)
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, D.C., 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, D.C. 20549-6009. Please call
the SEC at 1-800-SEC-0330 for information about the Public Reference Room.
AIM Global Health Care Fund
SEC 1940 Act file number: 811-05426
<PAGE> 329
[AIM LOGO]
ADVISOR CLASS
AIM GLOBAL HEALTH CARE FUND
PROSPECTUS
MARCH 1, 1999
AIM Global Health Care Fund seeks to provide long-term growth of capital.
This prospectus contains important information. Please read it before investing
and keep it for future reference.
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. There is a risk that you could lose a portion or all of your money.
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.
1
<PAGE> 330
TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES......................................................................3
PRINCIPAL RISKS OF INVESTING IN THE FUND.................................................................3
PERFORMANCE INFORMATION..................................................................................5
ANNUAL TOTAL RETURNS............................................................................5
PERFORMANCE TABLE...............................................................................5
FEE TABLE AND EXPENSE EXAMPLE............................................................................7
FEE TABLE.......................................................................................7
EXPENSE EXAMPLE.................................................................................7
FUND MANAGEMENT..........................................................................................8
THE ADVISOR.....................................................................................8
ADVISOR COMPENSATION............................................................................8
PORTFOLIO MANAGERS..............................................................................8
OTHER INFORMATION........................................................................................9
DIVIDENDS AND DISTRIBUTIONS.....................................................................9
FINANCIAL HIGHLIGHTS....................................................................................10
SHAREHOLDER INFORMATION................................................................................A-1
PURCHASING SHARES.............................................................................A-1
REDEEMING SHARES..............................................................................A-3
EXCHANGING SHARES.............................................................................A-5
PRICING OF SHARES.............................................................................A-6
TAXES.........................................................................................A-6
OBTAINING ADDITIONAL INFORMATION...........................................................BACK COVER PAGE
</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 is a service
mark of A I M Management Group Inc.
2
<PAGE> 331
INVESTMENT OBJECTIVE AND STRATEGIES
The fund's investment objective is long-term growth of capital.
The fund seeks to achieve its objective by investing at least 65% of its total
assets in equity securities of domestic and foreign health care companies. The
fund considers a "health care company" to be one that (i) derives at least 50%
of its revenues or earnings from health care activities, or (ii) devotes at
least 50% of its assets to such activities, based on its most recent fiscal
year. Such companies include those that design, manufacture, or sell products or
services used for or in connection with health care or medicine (such as
pharmaceutical companies, biotechnology research firms, companies that sell
medical products, and companies that own or operate health care facilities). The
fund may invest up to 35% of its assets in debt securities issued by health care
companies, or equity and debt securities of other companies the fund's portfolio
managers believe will benefit from developments in the health care industries.
The fund will normally invest in the securities of companies located in at least
three different countries, including the United States, and may invest a
significant portion of its assets in the securities of U.S. issuers. However,
the fund will not invest more than 50% of its total assets in the securities of
issuers in any one country, other than the U.S. The fund may invest
substantially in securities denominated in one or more currencies.
The portfolio managers allocate the fund's assets among securities of countries
and in currency denominations that are expected to provide the best
opportunities for meeting the fund's investment objective. In analyzing specific
companies for possible investment, the portfolio managers ordinarily look for
several of the following characteristics: above-average per share earnings
growth; high return on invested capital; a healthy balance sheet; sound
financial and accounting policies and overall financial strength; strong
competitive advantages; effective research and product development and
marketing; development of new technologies; efficient service; pricing
flexibility; strong management; and general operating characteristics that will
enable the companies to compete successfully in their respective markets. The
portfolio managers usually sell a particular security when any of those factors
materially changes.
In anticipation of or in response to adverse market conditions or for cash
management purposes, the fund may hold all or a portion of its assets in cash
(U.S. dollars, foreign currencies or multinational currency units), money market
securities, bonds or other debt securities. As a result, the fund may not
achieve its investment objective.
The fund may engage in active and frequent trading of portfolio securities to
achieve its investment objective. If the fund does trade in this way, it may
incur increased transaction costs and brokerage commissions, both of which can
lower the actual return on your investment. Active trading may also increase
short-term capital gains and losses, which may affect the taxes you have to pay.
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. The value of your investment in the fund will go up and down with the
prices of the common stocks in which the fund invests. The price of common stock
rises and falls in response to many factors, including the historical and
prospective earnings of the issuer of the stock, the value of its assets,
general economic conditions, interest rates, investor perceptions, and market
liquidity.
The value of the fund's shares is particularly vulnerable to factors affecting
the health care industry, such as substantial government regulation. Government
regulation may, among other things, impact the demand for products and services
offered by health care companies. Furthermore, the products and services offered
by health care companies may be subject to rapid obsolescence caused by
scientific advances and
3
<PAGE> 332
technological innovations. Because the fund focuses its investments in the
health care industries, the value of your fund shares may rise and fall more
than the value of shares of a fund that invests more broadly.
In addition, the prices of securities issued by foreign issuers may be further
affected by other factors, including
o 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.
o 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.
o Regulations - Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, among other things, there generally is less
publicly available information about foreign companies than about U.S.
companies.
o 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.
Many software systems are unable to distinguish the year 2000 from the year
1900. The fund's investment advisor, together with independent technology
consultants, has completed its determination as to whether any software systems
that the fund uses or depends on has that problem and is in the process of
correcting and testing those systems that may have such problem. This problem,
if not corrected, may adversely affect services provided to the fund or may
affect companies in which the fund may invest and, therefore, may lower the
value of your shares.
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.
4
<PAGE> 333
[INFORMATION TO BE PROVIDED BY GARY WENDLER'S GROUP]
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.
AIM GLOBAL HEALTH CARE FUND
(Advisor Class)
<TABLE>
<CAPTION>
Annual
Year Ended Total
December 31 Return
----------- ------
<S> <C>
1995............................................ 35.45%
1996............................................ 16.27%
1997............................................ 12.92%
1998............................................ _____%
</TABLE>
ANNUAL TOTAL RETURNS
The following bar chart shows changes in the performance of the fund's Advisor
Class shares from year to year over a 4-year period.
[BAR CHART TO BE REVISED - DELETE INFO FOR 1988 AND LEAVE A BLANK FOR 1998][INFO
BELOW TO BE UPDATED/PROVIDED AT THE TIME OF THE ANNUAL UPDATE FILING - NOT NOW]
During the 4-year period shown in the bar chart, the highest quarterly return
was [_______%] (quarter ended [_______________]) and the lowest quarterly return
was [______%] (quarter ended [_______________________]).
PERFORMANCE TABLE
The following performance table shows how the fund's average annual returns for
one, five and 10 years compare to those of a broad-based securities market
index.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Average Annual Total Returns (for the periods 1 Year 5 Years 10 Years
ending December 31, 1998)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Advisor Class* [ ]% [ ]% [ ]%
- ---------------------------------------------------------------------------------------------------
MSCI Health & Personal Care** [ ] [ ] [ ]
- ---------------------------------------------------------------------------------------------------
</TABLE>
* Advisor Class returns are since inception (6-1-95).
** The MSCI Health and Personal Care Index is a market value-weighted
average of the performance of 55 securities listed on major world stock
exchanges. Index returns are given without dividend before December
1993 and with dividends after 1994.
5
<PAGE> 334
[INFO IN THE ABOVE CHART TO BE UPDATED/PROVIDED AT THE ANNUAL UPDATE FILING -
NOT NOW]
6
<PAGE> 335
DRAFT
DECEMBER 9, 1998
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>
Advisor Class
-------------
<S> <C>
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchase
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price
or redemption proceeds, whichever is less) None
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
Management Fees(1) 0.97%
Distribution and/or Service (12b-1) Fees None
Other Expenses:
Transfer agent fees and costs ---
Other ---
Total Other Expenses ---
Total Operating Expenses ---
</TABLE>
- -------------------------
[(1) The investment advisor is currently waiving a portion of its fees. The
management fees were 0.61% after such waiver. The waiver may be
terminated at any time with the approval of the fund's Board of Trustees.
If the waiver is terminated before the end of the fund's fiscal year, the
investment advisor may be reimbursed the waived amounts for that year.]
EXPENSE EXAMPLE
This example is intended to help you compare the cost of investing in the
Advisor Class 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 operating expenses remain the same. Although your actual returns and
costs may be higher or lower, based on these assumptions your costs would be:
[FUND ACCOUNTING TO PROVIDE INFO AT THE ANNUAL UPDATE FILING - NOT NOW]
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Advisor Class [ $ $ $ $
You would pay the following expenses if you did not redeem your shares:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Advisor Class [ $ $ $ $
</TABLE>
7
<PAGE> 336
FUND MANAGEMENT
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment adviser and
is responsible for its day-to-day management. The advisor is located at 11
Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The advisor supervises all
aspects of the fund's operations and provide investment advisory services to the
fund, including obtaining and evaluating economic, statistical and financial
information to formulate and implement investment programs for the fund.
The advisor has acted as an investment adviser since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 90
investment portfolios, including the fund, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the fund's last fiscal year ended October 31, 1998, the fund paid the
advisor advisory fees of [ ]% of the fund's average net assets.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual member
of the team who is primarily responsible for the day-to-day management of the
fund's portfolio, is
o Michael Yellen, Portfolio Manager, who has been responsible for the fund
since 1996 and has been associated with the advisor and/or its affiliates
since 1994. From 1991 to 1994, he was a Securities Analyst and Co-Portfolio
Manager for Franklin Resources, Inc. (San Mateo, CA).
8
<PAGE> 337
DRAFT
DECEMBER 9, 1998
OTHER INFORMATION
DIVIDENDS AND DISTRIBUTIONS
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.
Dividends
The fund generally declares and pays dividends, if any, annually.
9
<PAGE> 338
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 table shows the financial highlights for a share of the fund outstanding
during each of the fiscal years (or periods) indicated.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the fund's financial statements, is included in the fund's annual
report, which is available upon request. [FINANCIAL HIGHLIGHTS BELOW ARE FOR
ADVISOR CLASS FOR THE YEARS/PERIODS INDICATED - TO BE REVISED BY FUND ACCOUNTING
TO INCLUDE 1998 INFORMATION AT THE ANNUAL UPDATE FILING - NOT NOW]
<TABLE>
<CAPTION>
Advisor Class
---------------------------------------------------------
June 1, 1995
to
1998 1997 1996 October 1, 1995
------- ------- ------- ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx
- ----------------------------------------------------------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx)
- ----------------------------------------------------------- ------- ------- ------- -------
Net gains on securities (both realized and unrealized) (x.xx) (x.xx) (x.xx) (x.xx)
- ----------------------------------------------------------- ------- ------- ------- -------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx)
- ----------------------------------------------------------- ------- ------- ------- -------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx)
- ----------------------------------------------------------- ------- ------- ------- -------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $xx.xx
- ----------------------------------------------------------- ------- ------- ------- -------
Total return (a) (x.xx)% (x.xx)% (x.xx)% (x.xx)%
- ----------------------------------------------------------- ------- ------- ------- -------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $xx,xxx $xx,xxx $xx,xxx $xx,xxx
- ----------------------------------------------------------- ------- ------- ------- -------
Ratio of expenses to average net assets (b) x.xx%(c)(d) x.xx% x.xx% x.xx%
- ----------------------------------------------------------- ------- ------- ------- -------
Ratio of net investment income (loss) to average net assets ((x.xx)%(c) (x.xx)% (x.xx)% (x.xx)%
- ----------------------------------------------------------- ------- ------- ------- -------
Portfolio turnover rate xx% xx% xx% xx%
- ----------------------------------------------------------- ------- ------- ------- -------
</TABLE>
(a) Does not deduct sales charges and are 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 were
X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(c) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(X.XX)% for 1998-1994.
10
<PAGE> 339
SHAREHOLDER INFORMATION FOR ADVISOR CLASS SHARES
- -------------------------------------------------------------------------------
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM ACCOUNT
The minimum initial investment for Advisor Class shares is $500; and the
minimum investment for purchases of additional Advisor Class shares is $50.
HOW TO PURCHASE SHARES
Shares offered by this prospectus are available for purchase only by certain
investors and are offered at net asset value without the imposition of a
front-end or contingent deferred sales charge or Rule 12b-1 fees. Advisor Class
shares are available through financial consultants (such as financial planners,
trust companies, bank trust departments, and registered investment advisors).
In order to purchase Advisor Class shares of any AIM Fund, your financial
consultant, on your behalf, must submit a fully completed new account
application form directly to the transfer agent.
There are several ways you can purchase your shares. You can make direct
purchases or select from two automatic investment methods.
DIRECT PURCHASES
<TABLE>
<CAPTION>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Through a Financial Consultant Contact your financial consultant. Same
By Mail Must be submitted by your financial Mail your check and the remittance
consultant. slip from your confirmation
statement to the transfer agent.
A I M Fund Services, Inc., P.O. Box
4739
Houston, TX 77210-4739
By Wire Your financial consultant must mail a Call the transfer agent to receive a
completed account application to the reference number. Then, use the
transfer agent. You or your financial wire instructions at left.
consultant may call the transfer agent
at (800) 959-4246 to 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 #
</TABLE>
A-1
<PAGE> 340
<TABLE>
<CAPTION>
<S> <C> <C>
By AIM Bank Open your account using one of the Mail completed AIM Bank Connection(sm)
Connection(sm) methods described above. form to the transfer agent. Once the
transfer agent has received the form,
call the transfer agent to place your
purchase order.
</TABLE>
SPECIAL PLANS
Automatic Dividend Investment
All of your dividends and distributions may be paid in cash or invested in
Advisor Class shares of certain AIM Funds. Unless you specify otherwise, your
dividends and distributions will automatically be reinvested in the same AIM
Fund.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in Advisor Class shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend or
distribution must be at least $5,000; or (b) in the AIM Fund receiving the
dividend or distribution 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 and
distributions 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 holdings of Advisor Class shares of AIM Funds 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 Advisor
Class shares 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.
The distributor and its agents reserve the right at any time to (1) reject or
cancel any part of any purchase or exchange order; (2) modify any terms or
conditions of purchase of shares of any AIM Fund; or (3) withdraw all or any
part of the offering made by this Prospectus.
A-2
<PAGE> 341
REDEEMING SHARES
TIMING OF REDEMPTIONS
You can redeem shares during the hours the New York Stock Exchange (NYSE) is
open for business. An AIM Fund may postpone the right of redemption only under
unusual circumstances, such as when the NYSE restricts or suspends trading.
REDEMPTION FEES
No redemption fee is imposed when shares are redeemed or repurchased; however,
dealers/financial institutions may charge service fees for handling repurchase
transactions.
A-3
<PAGE> 342
<TABLE>
<CAPTION>
HOW TO REDEEM SHARES
- -------------------------------------------------------------------------------------------------------------------
<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.
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. The transfer agent must receive your call
during the hours the 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 at the address on record with
us.
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.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
A-4
<PAGE> 343
(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.
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, IN ITS DISCRETION, REDEEM THE ACCOUNT AND DISTRIBUTE THE PROCEEDS
TO YOU.]
EXCHANGING SHARES
You may, under certain circumstances, exchange Advisor Class shares in one AIM
Fund for Advisor Class shares of another AIM Fund. Before requesting an
exchange, review the prospectus of the AIM Fund you wish to acquire.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
o You must meet the minimum purchase requirements for the AIM Fund into
which you are exchanging;
o Shares of the AIM Fund you wish to acquire must be qualified for sale in
your state of residence;
o Exchanges must be made between accounts with identical registration
information;
o 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);
o The AIM Fund from which you are exchanging must have received the full
amount of the purchase price for the shares being exchanged;
o Recently acquired shares must have been held in your account for ten
business days, and all other shares must have been held for at least one
day, prior to the exchange; and
o If you have physical share certificates, you must return them to the
transfer agent prior to the exchange.
A-5
<PAGE> 344
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the issuance of shares
being purchased 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.
GENERAL INFORMATION
- -------------------------------------------------------------------------------
PRICING OF SHARES
Each of the AIM Funds prices its shares based on its net asset value. 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. 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 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 Trustees 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. The AIM Funds price
purchase, exchange, and redemption orders calculated at the net asset value
after the transfer agent receives an order in good form.
A-6
<PAGE> 345
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. Long-term capital gain
distributions are taxable as long-term capital gains when distributed to you,
no matter how long you held your shares. Different rates of tax may apply to
ordinary income and long-term capital gain distributions. Every year, an
account statement showing the amount of dividends and distributions you
received from each AIM Fund during the prior year will be sent to you.
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 of the AIM Fund's shares, and any gain
realized on the transaction will 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.
A-7
<PAGE> 346
DRAFT
DECEMBER 9, 1998
[BACK COVER PAGE]
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
United States 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 semi-annual 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,
or your account, or wish to obtain free copies of the fund's current SAI or
annual or semi-annual reports, please contact us:
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
semi-annual reports only)
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, D.C., 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, D.C. 20549-6009. Please call the SEC
at 1-800-SEC-0330 for information about the Public Reference Room.
AIM Global Health Care Fund
SEC 1940 Act file number: 811-05426
11
<PAGE> 347
[AIM LOGO]
AIM GLOBAL INFRASTRUCTURE FUND
PROSPECTUS
MARCH 1, 1999
AIM Global Infrastructure Fund seeks to provide long-term growth of capital.
This prospectus contains important information. Please read it before investing
and keep it for future reference.
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. There is a risk that you could lose a portion or all of your money.
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.
1
<PAGE> 348
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES..........................................3
PRINCIPAL RISKS OF INVESTING IN THE FUND.....................................3
PERFORMANCE INFORMATION......................................................5
ANNUAL TOTAL RETURNS................................................5
PERFORMANCE TABLE...................................................6
FEE TABLE AND EXPENSE EXAMPLE................................................7
FEE TABLE...........................................................7
EXPENSE EXAMPLE.....................................................8
FUND MANAGEMENT..............................................................9
THE ADVISOR.........................................................9
ADVISOR COMPENSATION................................................9
PORTFOLIO MANAGERS..................................................9
OTHER INFORMATION...........................................................10
INITIAL SALES CHARGES FOR CLASS A SHARES...........................10
DIVIDENDS AND DISTRIBUTIONS........................................10
FINANCIAL HIGHLIGHTS........................................................11
SHAREHOLDER INFORMATION....................................................A-1
CHOOSING A SHARE CLASS............................................A-1
PURCHASING SHARES.................................................A-4
REDEEMING SHARES..................................................A-6
EXCHANGING SHARES.................................................A-9
PRICING OF SHARES................................................A-11
TAXES............................................................A-11
OBTAINING ADDITIONAL INFORMATION...............................BACK COVER PAGE
</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 is a service
mark of A I M Management Group Inc.
2
<PAGE> 349
INVESTMENT OBJECTIVE AND STRATEGIES
The fund's investment objective is long-term growth of capital.
The fund seeks to achieve its objective by investing all of its assets in the
Global Infrastructure Portfolio (the portfolio), which in turn normally invests
at least 65% of its total assets in equity securities of domestic and foreign
infrastructure companies. The portfolio considers an "infrastructure company" to
be one that (i) derives at least 50% of its revenues or earnings from
infrastructure activities, or (ii) devotes at least 50% of its assets to such
activities, based on its most recent fiscal year. Such companies include those
that design, develop, or provide products and services significant to a
country's infrastructure (such as transportation systems, communications
equipment and services, nuclear power and other energy sources, water supply,
and oil, gas, and coal exploration). The portfolio may invest up to 35% of its
assets in debt securities issued by infrastructure companies, or equity and debt
securities of other companies the portfolio managers believe will benefit from
developments in the infrastructure industries.
The portfolio will normally invest in the securities of companies located in at
least three different countries, including the United States, and may invest a
significant portion of its assets in the securities of U.S. issuers. However,
the portfolio will not invest more than 50% of its total assets in the
securities of issuers in any one country, other than the U.S. The portfolio may
invest up to 20% of its total assets in high-yield debt securities rated below
investment grade, i.e., "junk bonds."
The portfolio managers allocate the portfolio's assets among securities of
countries and in currency denominations that are expected to provide the best
opportunities for meeting the portfolio's investment objective. In analyzing
specific companies for possible investment, the portfolio managers ordinarily
look for several of the following characteristics: above-average per share
earnings growth; high return on invested capital; a healthy balance sheet; sound
financial and accounting policies and overall financial strength; strong
competitive advantages; effective research and product development and
marketing; development of new technologies; efficient service; pricing
flexibility; strong management; and general operating characteristics that will
enable the companies to compete successfully in their respective markets. The
portfolio managers usually sell a particular security when any of those factors
materially changes.
In anticipation of or in response to adverse market conditions or for cash
management purposes, the portfolio may hold all or a portion of its assets in
cash (U.S. dollars, foreign currencies or multinational currency units), money
market securities, bonds or other debt securities. As a result, the fund or the
portfolio 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. The value of your investment in the fund will go up and down with the
prices of the common stocks in which the portfolio invests. The price of common
stock rises and falls in response to many factors, including the historical and
prospective earnings of the issuer of the stock, the value of its assets,
general economic conditions, interest rates, investor perceptions, and market
liquidity.
The value of the fund's shares is particularly vulnerable to factors affecting
the infrastructure industry, such as substantial political, environmental, and
other governmental regulation. Such regulation may, among other things, increase
compliance costs and proscribe the development of new technologies. In addition,
increases in fuel, energy and other prices have historically limited the growth
potential of infrastructure companies. Because the portfolio focuses its
investments in the infrastructure industries, the value of your fund shares may
rise and fall more than the value of shares of a fund that invests more broadly.
In addition, the prices of securities of foreign issuers may be further affected
by other factors, including
3
<PAGE> 350
o Currency exchange rates - The dollar value of the portfolio's foreign
investments will be affected by changes in the exchange rates between the
dollar and the currencies in which those investments are traded.
o Political and economic conditions - The value of the portfolio's foreign
investments may be adversely affected by political and economic conditions
in foreign countries and by changes in economic or taxation policies in
those countries.
o Regulations - Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, among other things, there generally is less
publicly available information about foreign companies than about U.S.
companies.
o 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 their prices may be more volatile than U.S. securities.
[Compared to higher-quality debt securities, junk bonds involve greater risk of
default or price changes due to changes in the credit quality of the issuer
because they are generally unsecured and may be subordinated to other creditors'
claims. The value of lower-quality debt securities often fluctuates in response
to company, political or economic developments and can decline significantly
over short periods of time or during periods of general or regional economic
difficulty.]
Many software systems are unable to distinguish the year 2000 from the year
1900. The portfolio's investment advisor, together with independent technology
consultants, has completed its determination as to whether any software systems
that the portfolio or the fund uses or depends on has that problem and is in the
process of correcting and testing those systems that may have such problem. This
problem, if not corrected, may adversely affect services provided to the
portfolio or the fund or may affect companies in which the portfolio may invest
and, therefore, may lower the value of your shares.
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.
4
<PAGE> 351
[INFORMATION TO BE PROVIDED BY GARY WENDLER'S GROUP]
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 A
shares from year to year over a 5-year period. The bar chart does not reflect
sales loads. If it did, the annual total returns shown would be lower.
[BAR CHART TO BE REVISED - DELETE INFO FOR 1988 AND LEAVE A BLANK FOR 1998]
<TABLE>
<CAPTION>
Year Annual
Ended Total
December 31 Return
----------- ------
<S> <C>
1994 1.30%
1995 35.45%
1996 16.27%
1997 12.92%
</TABLE>
[INFO BELOW TO BE UPDATED/PROVIDED AT THE TIME OF THE ANNUAL UPDATE
FILING - NOT NOW]
During the 5-year period shown in the bar chart, the highest quarterly return
was [________ %] (quarter ended [ ________ ]) and the lowest quarterly return
was [ __________ %] (quarter ended [ _________ ]).
5
<PAGE> 352
PERFORMANCE TABLE
The following performance table shows how the fund's average annual returns for
one, five and 10 years compare to those of a broad-based securities market
index.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Average Annual
Total Returns
(for the periods ending
December 31, 1998) 1 Year 5 Years 10 Years
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A* [ ]% [ ]% [ ]%
- ----------------------------------------------------------------------------------------------
Class B** [ ] -- --
- ----------------------------------------------------------------------------------------------
MSCI World Index*** [ ] [ ] [ ]
- ----------------------------------------------------------------------------------------------
</TABLE>
* Class A returns are since inception (5/31/94).
** Class B returns are since inception (5/31/94).
*** The Morgan Stanley Capital International World Index measures performance
for twenty-two developed country global stock markets. The index is
capitalization weighted. Companies included in the index replicate the
industry composition of each local market and, in addition, represent a
sampling of large, medium and small capitalization companies from each
local market, taking into account the stocks' liquidity.
[INFO IN THE ABOVE CHART TO BE UPDATED/PROVIDED AT THE ANNUAL UPDATE
FILING - NOT NOW]
6
<PAGE> 353
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>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Shareholder Fees (fees paid directly from your investment)
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
Annual Fund Operating Expenses (expenses that are
deducted from fund assets)
Management Fees(2) 0.98% 0.98% ---%
Distribution and/or Service (12b-1) Fees 0.50 --- ---
Other Expenses:
Transfer agent fees and costs --- --- ---
Other --- --- ---
Total Other Expenses --- --- ---
Total Annual Fund Operating Expenses --- --- ---
</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 investment advisor is currently waiving a portion of its fees. The
management fees were 0.61% after such waiver. The waiver may be
terminated at any time with the approval of the fund's Board of Trustees.
If the waiver is terminated before the end of the fund's fiscal year, the
investment advisor may be reimbursed the waived amounts for that year.]
As a result of 12b-1 fees, long-term shareholders in the fund may pay more than
the maximum permitted initial sales charge.
7
<PAGE> 354
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 operating expenses remain the same. Although your actual returns and
costs may be higher or lower, based on these assumptions your costs would be:
[FUND ACCOUNTING TO PROVIDE INFO AT THE ANNUAL UPDATE FILING - NOT NOW]
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A [ $ $ $ $
Class B
Class C ]
</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 [ $ $ $ $
Class B
Class C ]
</TABLE>
8
<PAGE> 355
FUND MANAGEMENT
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the investment adviser of Global
Infrastructure Portfolio (the portfolio) and is responsible for its day-to-day
management. The advisor is located at 11 Greenway Plaza, Suite 100, Houston,
Texas 77046-1173. The advisor supervises all aspects of the portfolio's
operations and provide investment advisory services to the portfolio, including
obtaining and evaluating economic, statistical and financial information to
formulate and implement investment programs for the portfolio.
The advisor has acted as an investment adviser since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 90
investment portfolios, including the portfolio, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the portfolio's last fiscal year ended October 31, 1998, the portfolio
paid the advisor advisory fees of ________ % of the portfolio's average net
assets.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual member
of the team who is primarily responsible for the day-to-day management of the
portfolio, is
o Brian T. Nelson, Portfolio Manager, who has been responsible for the
fund since 1997 and has been associated with the advisor and/or its
affiliates since 1994. He was a Senior Research Analyst for the INVESCO
(NY), Inc. from October 1994 to September 1997. He was employed by
Chancellor Capital Management, Inc., a predecessor of the INVESCO (NY),
Inc., from 1994 to October 1996. From 1988 to 1994, he was an Equity
Research Analyst and Co-Portfolio Manager for Franklin Resources, Inc.
(San Mateo, CA).
9
<PAGE> 356
OTHER INFORMATION
INITIAL SALES CHARGES FOR CLASS A SHARES
Purchases of Class A shares of the 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.
DIVIDENDS AND DISTRIBUTIONS
Capital Gains Distributions
The fund generally distributes any long-term and short-term capital gains
(including any net gains from foreign currency transactions), if any, annually.
Dividends
The fund generally declares and pays dividends, if any, annually.
10
<PAGE> 357
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 table shows the financial highlights for a share of the fund outstanding
during each of the fiscal years (or periods) indicated.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the fund's financial statements, is included in the fund's annual
report, which is available upon request.
[FINANCIAL HIGHLIGHTS BELOW ARE FOR CLASS A AND CLASS B FOR THE YEARS/PERIODS
INDICATED - TO BE REVISED BY FUND ACCOUNTING TO INCLUDE 1998 INFORMATION AT THE
ANNUAL UPDATE FILING - NOT NOW]
<TABLE>
<CAPTION>
Class A
-------------------------------------------------------------------
Year Ended October 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- -------
Net gains on securities (both realized and unrealized) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- -------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- -------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- -------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------- ------- ------- ------- -------
Total return(a) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------- ------- ------- ------- -------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $xx,xxx $xx,xxx $xx,xxx $xx,xxx $xx,xxx
------- ------- ------- ------- -------
Ratio of expenses to average net assets(b) x.xx% (c)(d) x.xx% x.xx% x.xx% x.xx%
------- ------- ------- ------- -------
Ratio of net investment income (loss) to average net assets(e) (x.xx)% (c) (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------- ------- ------- ------- -------
Portfolio turnover rate xx% xx% xx% xx% xx%
------- ------- ------- ------- -------
</TABLE>
(a) Does not deduct sales charges and are 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 were
X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(c) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been the
same.
(e) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (X.XX)%, (X.XX)%, (X.XX)%, (X.XX)% and (X.XX)% for
1998-1994.
11
<PAGE> 358
<TABLE>
<CAPTION>
Class B
------------------------------------------------------------------
Year Ended October 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- -------
Net gains on securities (both realized and unrealized) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- -------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- -------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- -------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------- ------- ------- ------- -------
Total return(a) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------- ------- ------- ------- -------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $xx,xxx $xx,xxx $xx,xxx $xx,xxx $xx,xxx
------- ------- ------- ------- -------
Ratio of expenses to average net assets(b) x.xx% (c)(d) x.xx% x.xx% x.xx% x.xx%
------- ------- ------- ------- -------
Ratio of net investment income (loss) to average net assets(e) (x.xx)% (c) (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------- ------- ------- ------- -------
Portfolio turnover rate xx% xx% xx% xx% xx%
------- ------- ------- ------- -------
</TABLE>
(a) Does not deduct sales charges and are 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 were
X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(c) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been the
same.
(e) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (X.XX)%, (X.XX)%, (X.XX)%, (X.XX)% and (X.XX)% for
1998-1994.
12
<PAGE> 359
SHAREHOLDER INFORMATION
Choosing a Share Class
Many of the funds advised by the advisor (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>
o Initial sales charge o No initial sales charge o No initial sales charge
o Reduced or o Contingent deferred o Contingent deferred
waived initial sales charge on sales charge on
sales charge for redemptions within redemptions within
certain purchases six years one year
o Lower distribution o 12b-1 fee of 1.00% o 12b-1 fee of 1.00%
and service (12b-1)
fee than Class B or
Class C shares
(See "Fee Table o Converts to Class A o Does not convert to
and Expense shares after eight years Class A shares
Example") along with a pro rata
portion of its reinvested
dividends and distributions*
o Generally more o Purchase orders limited o Generally more
appropriate for long- to amounts less than appropriate for short-
term investors $250,000 term investors
</TABLE>
* If you held Class B shares of AIM Global Trends Fund 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
<PAGE> 360
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.
CATEGORY I Initial Sales Charges
- --------------------------------
<TABLE>
<CAPTION>
INVESTOR'S SALES CHARGE
-----------------------
AS A PERCENTAGE
AS A PERCENTAGE OF THE
AMOUNT OF INVESTMENT OF THE PUBLIC NET AMOUNT
IN SINGLE TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<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>
CATEGORY II Initial Sales Charges
- ---------------------------------
<TABLE>
<CAPTION>
INVESTOR'S SALES CHARGE
-----------------------
AS A PERCENTAGE
AS A PERCENTAGE OF THE
AMOUNT OF INVESTMENT OF THE PUBLIC NET AMOUNT
IN SINGLE TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<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>
CATEGORY III Initial Sales Charges
- ----------------------------------
<TABLE>
<CAPTION>
INVESTOR'S SALES CHARGE
-----------------------
AS A PERCENTAGE
AS A PERCENTAGE OF THE
AMOUNT OF INVESTMENT OF THE PUBLIC NET AMOUNT
IN SINGLE TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<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.
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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>
CLASS B CLASS C
CDSC AS A PERCENTAGE CDSC AS A PERCENTAGE
OF DOLLAR AMOUNT OF DOLLAR AMOUNT
YEAR SINCE PURCHASE MADE SUBJECT TO CHARGE SUBJECT TO CHARGE
------------------------ ----------------- -----------------
<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>
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 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
o on shares purchased by reinvesting dividends and distributions;
o when exchanging shares among certain AIM Funds;
o when using the reinstatement privilege; and
o 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
o if you redeem Class B shares you held for more than six years;
o if you redeem Class C shares you held for more than one year;
o if you redeem shares acquired through reinvestment of dividends and
distributions; and
o on increases in the net asset value of your shares.
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There may be other situations in which you or other shareholders may be able to
purchase or redeem shares at reduced or without sales charges. You should
consult the fund's Statement of Additional Information for details regarding
these situations.
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>
- -------------------------------------------------------------------------------------------------------------------------
Type of Account Initial Additional
Investments Investments
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing plans, 401(k) plans, Simplified $0 ($25 per $25
Employee Pension (SEP) accounts, Salary Reduction (SARSEP) accounts, Savings AIM Fund
Incentive Match Plans for Employee IRA (Simple IRA) accounts, 403(b) or 457 investment
plans) for salary
deferrals
from Savings
Plans)
- -------------------------------------------------------------------------------------------------------------------------
Automatic Investment Plans $50 $50
- -------------------------------------------------------------------------------------------------------------------------
IRA, Education IRA or Roth IRA $250 $50
- -------------------------------------------------------------------------------------------------------------------------
All other accounts $500 $50
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 363
HOW TO PURCHASE SHARES
There are several ways you can purchase your shares. You can make direct
purchases or select from one of three automatic investment methods.
DIRECT PURCHASES
<TABLE>
<CAPTION>
Opening An Account Adding to An Account
<S> <C> <C>
Through a
Financial
Consultant Contact your financial consultant. Same
By Mail Mail completed Account Mail your check and the
Application and purchase payment to the transfer agent, remittance slip from
A I M Fund Services, Inc., P.O. Box 4739, your confirmation statement
Houston, TX 77210-4739. to the transfer agent.
By Wire Mail completed Account Call the transfer agent to
Application to the transfer agent. receive a reference number.
Call the transfer agent at Then, use the wire
(800) 959-4246 to receive a reference number. instructions at left.
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 methods described Mail completed AIM Bank
above. Connection(sm) form to the
transfer agent. Once
the transfer agent has
received the form, call the
transfer agent to place your
purchase.
</TABLE>
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 and in the same class of shares. 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
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<PAGE> 364
10th or 25th day of the month 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 at net
asset value in certain AIM Funds without paying a sales charge. 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. 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
TIMING OF REDEMPTIONS
You can redeem shares during the hours the New York Stock Exchange (NYSE) is
open for business. An AIM Fund may postpone the right of redemption only under
unusual circumstances, such as when the NYSE restricts or suspends trading.
A-6
<PAGE> 365
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).
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.
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 eighteen 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.
HOW TO REDEEM SHARES
<TABLE>
<CAPTION>
Through a
Financial Consultant Contact your financial consultant.
<S> <C>
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 thirty
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 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.
A-7
<PAGE> 366
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 New York Stock Exchange (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.
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
A-8
<PAGE> 367
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 and it may have tax consequences.
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, in 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 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;
A-9
<PAGE> 368
(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:
o You must meet the minimum purchase requirements for the AIM Fund into
which you are exchanging;
o Shares of the AIM Fund you wish to acquire must be qualified for sale in
your state of residence;
o Exchanges must be made between accounts with identical registration
information;
o 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);
o Shares must have been held for at least one day prior to the exchange; and
o If you have physical share certificates, you must return them to the
transfer agent prior to the exchange.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the issuance of shares
being purchased 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
A-10
<PAGE> 369
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; OR WITHDRAW ALL OR ANY PART OF
THE OFFERING MADE BY THIS PROSPECTUS.
Pricing of Shares
Each of the AIM Funds prices its shares based on its net asset value. 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 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 New York Stock
Exchange (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. The AIM Funds price purchase, exchange and redemption
orders at the net asset value calculated after the transfer agent receives an
order in good form.
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. Every year, an
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<PAGE> 370
account statement showing the amount of dividends and distributions you
received from each AIM Fund during the prior year will be sent to you.
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 of the AIM Fund's shares, and any gain
realized on the transaction will 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.
A-12
<PAGE> 371
[BACK COVER PAGE]
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
United States 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 semi-annual 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 semi-annual reports, please contact us:
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
semi-annual reports only)
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, D.C., 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, D.C. 20549-6009. Please call the SEC
at 1-800-SEC-0330 for information about the Public Reference Room.
AIM Global Infrastructure Fund
SEC 1940 Act file number: 811-05426
<PAGE> 372
[AIM LOGO]
ADVISOR CLASS
AIM GLOBAL INFRASTRUCTURE FUND
PROSPECTUS
MARCH 1, 1999
AIM Global Infrastructure Fund seeks to provide long-term growth of capital.
This prospectus contains important information. Please read it before investing
and keep it for future reference.
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. There is a risk that you could lose a portion or all of your money.
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.
1
<PAGE> 373
TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES......................................................................3
PRINCIPAL RISKS OF INVESTING IN THE FUND.................................................................3
PERFORMANCE INFORMATION..................................................................................5
ANNUAL TOTAL RETURNS............................................................................5
PERFORMANCE TABLE...............................................................................6
FEE TABLE AND EXPENSE EXAMPLE............................................................................7
FEE TABLE.......................................................................................7
EXPENSE EXAMPLE.................................................................................7
FUND MANAGEMENT..........................................................................................8
THE ADVISOR ....................................................................................8
ADVISOR COMPENSATION............................................................................8
PORTFOLIO MANAGERS..............................................................................8
OTHER INFORMATION........................................................................................9
DIVIDENDS AND DISTRIBUTIONS.....................................................................9
FINANCIAL HIGHLIGHTS....................................................................................10
SHAREHOLDER INFORMATION................................................................................A-1
PURCHASING SHARES.............................................................................A-1
REDEEMING SHARES..............................................................................A-3
EXCHANGING SHARES.............................................................................A-5
PRICING OF SHARES.............................................................................A-6
TAXES.........................................................................................A-6
OBTAINING ADDITIONAL INFORMATION...........................................................BACK COVER PAGE
</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 is a service
mark of A I M Management Group Inc.
2
<PAGE> 374
INVESTMENT OBJECTIVE AND STRATEGIES
The fund's investment objective is long-term growth of capital.
The fund seeks to achieve its objective by investing all of its assets in the
Global Infrastructure Portfolio (the portfolio), which in turn normally invests
at least 65% of its total assets in equity securities of domestic and foreign
infrastructure companies. The portfolio considers an "infrastructure company" to
be one that (i) derives at least 50% of its revenues or earnings from
infrastructure activities, or (ii) devotes at least 50% of its assets to such
activities, based on its most recent fiscal year. Such companies include those
that design, develop, or provide products and services significant to a
country's infrastructure (such as transportation systems, communications
equipment and services, nuclear power and other energy sources, water supply,
and oil, gas, and coal exploration). The portfolio may invest up to 35% of its
assets in debt securities issued by infrastructure companies, or equity and debt
securities of other companies the portfolio managers believe will benefit from
developments in the infrastructure industries.
The portfolio will normally invest in the securities of companies located in at
least three different countries, including the United States, and may invest a
significant portion of its assets in the securities of U.S. issuers. However,
the portfolio will not invest more than 50% of its total assets in the
securities of issuers in any one country, other than the U.S. The portfolio may
invest up to 20% of its total assets in high-yield debt securities rated below
investment grade, i.e., "junk bonds."
The portfolio managers allocate the portfolio's assets among securities of
countries and in currency denominations that are expected to provide the best
opportunities for meeting the portfolio's investment objective. In analyzing
specific companies for possible investment, the portfolio managers ordinarily
look for several of the following characteristics: above-average per share
earnings growth; high return on invested capital; a healthy balance sheet; sound
financial and accounting policies and overall financial strength; strong
competitive advantages; effective research and product development and
marketing; development of new technologies; efficient service; pricing
flexibility; strong management; and general operating characteristics that will
enable the companies to compete successfully in their respective markets. The
portfolio managers usually sell a particular security when any of those factors
materially changes.
In anticipation of or in response to adverse market conditions or for cash
management purposes, the portfolio may hold all or a portion of its assets in
cash (U.S. dollars, foreign currencies or multinational currency units), money
market securities, bonds or other debt securities. As a result, the fund or the
portfolio 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. The value of your investment in the fund will go up and down with the
prices of the common stocks in which the portfolio invests. The price of common
stock rises and falls in response to many factors, including the historical and
prospective earnings of the issuer of the stock, the value of its assets,
general economic conditions, interest rates, investor perceptions, and market
liquidity.
The value of the fund's shares is particularly vulnerable to factors affecting
the infrastructure industry, such as substantial political, environmental, and
other governmental regulation. Such regulation may, among other things, increase
compliance costs and proscribe the development of new technologies. In addition,
increases in fuel, energy and other prices have historically limited the growth
potential of infrastructure companies. Because the portfolio focuses its
investments in the infrastructure industries, the value of your fund shares may
rise and fall more than the value of shares of a fund that invests more broadly.
In addition, the prices of securities of foreign issuers may be further affected
by other factors, including
3
<PAGE> 375
o Currency exchange rates - The dollar value of the portfolio's foreign
investments will be affected by changes in the exchange rates between the
dollar and the currencies in which those investments are traded.
o Political and economic conditions - The value of the portfolio's foreign
investments may be adversely affected by political and economic conditions
in foreign countries and by changes in economic or taxation policies in
those countries.
o Regulations - Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, among other things, there generally is less
publicly available information about foreign companies than about U.S.
companies.
o 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 their prices may be more volatile than U.S. securities.
[Compared to higher-quality debt securities, junk bonds involve greater risk of
default or price changes due to changes in the credit quality of the issuer
because they are generally unsecured and may be subordinated to other creditors'
claims. The value of lower-quality debt securities often fluctuates in response
to company, political or economic developments and can decline significantly
over short periods of time or during periods of general or regional economic
difficulty.]
Many software systems are unable to distinguish the year 2000 from the year
1900. The portfolio's investment advisor, together with independent technology
consultants, has completed its determination as to whether any software systems
that the portfolio or the fund uses or depends on has that problem and is in the
process of correcting and testing those systems that may have such problem. This
problem, if not corrected, may adversely affect services provided to the
portfolio or the fund or may affect companies in which the portfolio may invest
and, therefore, may lower the value of your shares.
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.
4
<PAGE> 376
[INFORMATION TO BE PROVIDED BY GARY WENDLER'S GROUP]
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 Advisor
Class shares from year to year over a 4-year period.
[GRAPH]
AIM GLOBAL INFRASTRUCTURE FUND
(Advisor)
<TABLE>
<CAPTION>
Annual
Year Ended Total
December 31 Return
----------- ------
<S> <C>
1995................................................. 35.45%
1996................................................. 16.27%
1997................................................. 12.92%
1998................................................. -- %
</TABLE>
[BAR CHART TO BE REVISED - DELETE INFO FOR 1988 AND LEAVE A BLANK FOR 1998]
[INFO BELOW TO BE UPDATED/PROVIDED AT THE TIME OF THE ANNUAL UPDATE FILING - NOT
NOW]
During the 4-year period shown in the bar chart, the highest quarterly return
was [________%] (quarter ended [________]) and the lowest quarterly return was
[________%] (quarter ended [________]).
5
<PAGE> 377
PERFORMANCE TABLE
The following performance table shows how the fund's average annual returns for
one, five and 10 years compare to those of a broad-based securities market
index.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Average Annual
Total Returns
(for the periods ending
December 31, 1998) 1 Year 5 Years 10 Years
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Advisor Class* [ ]% [ ]% [ ]%
- ----------------------------------------------------------------------------------------------
MSCI World Index** [ ] [ ] [ ]
- ----------------------------------------------------------------------------------------------
</TABLE>
* Advisor Class returns are since inception (6-1-95).
** The Morgan Stanley Capital International World Index measures performance
for twenty-two developed country global stock markets. The index is
capitalization weighted. Companies included in the index replicate the
industry composition of each local market and, in addition, represent a
sampling of large, medium and small capitalization companies from each
local market, taking into account the stocks' liquidity.
[INFO IN THE ABOVE CHART TO BE UPDATED/PROVIDED AT THE ANNUAL UPDATE FILING -
NOT NOW]
6
<PAGE> 378
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>
Advisor Class
-------------
<S> <C>
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price
or redemption proceeds, whichever is less) None
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
Management Fees1 0.98 %
Distribution and/or Service (12b-1) Fees None
Other Expenses:
Transfer agent fees and costs ____
Other ____
Total Other Expenses ____
Total Annual Fund Operating Expenses ____
</TABLE>
- -------------------
[1 The investment advisor is currently waiving a portion of its fees. The
management fees were 0.61% after such waiver. The waiver may be terminated
at any time with the approval of the fund's Board of Trustees. If the
waiver is terminated before the end of the fund's fiscal year, the
investment advisor may be reimbursed the waived amounts for that year. ]
EXPENSE EXAMPLE
This example is intended to help you compare the cost of investing in the
Advisor Class 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 operating expenses remain the same. Although your actual returns and
costs may be higher or lower, based on these assumptions your costs would be:
[FUND ACCOUNTING TO PROVIDE INFO AT THE ANNUAL UPDATE FILING - NOT NOW]
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Advisor Class [ $ $ $ $
</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>
Advisor Class [ $ $ $ $
</TABLE>
7
<PAGE> 379
FUND MANAGEMENT
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the investment adviser of Global
Infrastructure Portfolio (the portfolio) and is responsible for its day-to-day
management. The advisor is located at 11 Greenway Plaza, Suite 100, Houston,
Texas 77046-1173. The advisor supervises all aspects of the portfolio's
operations and provide investment advisory services to the portfolio, including
obtaining and evaluating economic, statistical and financial information to
formulate and implement investment programs for the portfolio.
The advisor has acted as an investment adviser since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 90
investment portfolios, including the portfolio, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the portfolio's last fiscal year ended October 31, 1998, the portfolio
paid the advisor advisory fees of % of the portfolio's average net assets.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual member
of the team who is primarily responsible for the day-to-day management of the
portfolio, is
o Brian T. Nelson, Portfolio Manager, who has been responsible for the
fund since 1997 and has been associated with the advisor and/or its
affiliates since 1994. He was a Senior Research Analyst for the INVESCO
(NY), Inc. from October 1994 to September 1997. He was employed by
Chancellor Capital Management, Inc., a predecessor of the INVESCO (NY),
Inc., from 1994 to October 1996. From 1988 to 1994, he was an Equity
Research Analyst and Co-Portfolio Manager for Franklin Resources, Inc.
(San Mateo, CA).
8
<PAGE> 380
OTHER INFORMATION
DIVIDENDS AND DISTRIBUTIONS
Capital Gains Distributions
The fund generally distributes any long-term and short-term capital gains
(including any net gains from foreign currency transactions), if any, annually.
Dividends
The fund generally declares and pays dividends, if any, annually.
9
<PAGE> 381
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 table shows the financial highlights for a share of the fund outstanding
during each of the fiscal years (or periods) indicated.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the fund's financial statements, is included in the fund's annual
report, which is available upon request. [FINANCIAL HIGHLIGHTS FOR THE
YEARS/PERIODS INDICATED - TO BE REVISED BY FUND ACCOUNTING TO INCLUDE 1998
INFORMATION AT THE ANNUAL UPDATE FILING - NOT NOW]
<TABLE>
<CAPTION>
Advisor Class
---------------------------------------------------------
June 1, 1995
to
1998 1997 1996 October 1, 1995
------- ------- ------- ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx
- ----------------------------------------------------------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx)
- ----------------------------------------------------------- ------- ------- ------- -------
Net gains on securities (both realized and unrealized) (x.xx) (x.xx) (x.xx) (x.xx)
- ----------------------------------------------------------- ------- ------- ------- -------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx)
- ----------------------------------------------------------- ------- ------- ------- -------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx)
- ----------------------------------------------------------- ------- ------- ------- -------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $xx.xx
- ----------------------------------------------------------- ------- ------- ------- -------
Total return (a) (x.xx)% (x.xx)% (x.xx)% (x.xx)%
- ----------------------------------------------------------- ------- ------- ------- -------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $xx,xxx $xx,xxx $xx,xxx $xx,xxx
- ----------------------------------------------------------- ------- ------- ------- -------
Ratio of expenses to average net assets (b) x.xx%(c)(d) x.xx% x.xx% x.xx%
- ----------------------------------------------------------- ------- ------- ------- -------
Ratio of net investment income (loss) to average net assets (x.xx)%(c) (x.xx)% (x.xx)% (x.xx)%
- ----------------------------------------------------------- ------- ------- ------- -------
Portfolio turnover rate xx% xx% xx% xx%
- ----------------------------------------------------------- ------- ------- ------- -------
</TABLE>
(a) Does not deduct sales charges and are 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 were
X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(c) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(X.XX)% for 1998-1994.
10
<PAGE> 382
SHAREHOLDER INFORMATION FOR ADVISOR CLASS SHARES
- -------------------------------------------------------------------------------
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM ACCOUNT
The minimum initial investment for Advisor Class shares is $500; and the
minimum investment for purchases of additional Advisor Class shares is $50.
HOW TO PURCHASE SHARES
Shares offered by this prospectus are available for purchase only by certain
investors and are offered at net asset value without the imposition of a
front-end or contingent deferred sales charge or Rule 12b-1 fees. Advisor Class
shares are available through financial consultants (such as financial planners,
trust companies, bank trust departments, and registered investment advisors).
In order to purchase Advisor Class shares of any AIM Fund, your financial
consultant, on your behalf, must submit a fully completed new account
application form directly to the transfer agent.
There are several ways you can purchase your shares. You can make direct
purchases or select from two automatic investment methods.
DIRECT PURCHASES
<TABLE>
<CAPTION>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Through a Financial Consultant Contact your financial consultant. Same
By Mail Must be submitted by your financial Mail your check and the remittance
consultant. slip from your confirmation
statement to the transfer agent.
A I M Fund Services, Inc., P.O. Box
4739
Houston, TX 77210-4739
By Wire Your financial consultant must mail a Call the transfer agent to receive a
completed account application to the reference number. Then, use the
transfer agent. You or your financial wire instructions at left.
consultant may call the transfer agent
at (800) 959-4246 to 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 #
</TABLE>
A-1
<PAGE> 383
<TABLE>
<CAPTION>
<S> <C> <C>
By AIM Bank Open your account using one of the Mail completed AIM Bank Connection(sm)
Connection(sm) methods described above. form to the transfer agent. Once the
transfer agent has received the form,
call the transfer agent to place your
purchase order.
</TABLE>
SPECIAL PLANS
Automatic Dividend Investment
All of your dividends and distributions may be paid in cash or invested in
Advisor Class shares of certain AIM Funds. Unless you specify otherwise, your
dividends and distributions will automatically be reinvested in the same AIM
Fund.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in Advisor Class shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend or
distribution must be at least $5,000; or (b) in the AIM Fund receiving the
dividend or distribution 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 and
distributions 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 holdings of Advisor Class shares of AIM Funds 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 Advisor
Class shares 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.
The distributor and its agents reserve the right at any time to (1) reject or
cancel any part of any purchase or exchange order; (2) modify any terms or
conditions of purchase of shares of any AIM Fund; or (3) withdraw all or any
part of the offering made by this Prospectus.
A-2
<PAGE> 384
REDEEMING SHARES
TIMING OF REDEMPTIONS
You can redeem shares during the hours the New York Stock Exchange (NYSE) is
open for business. An AIM Fund may postpone the right of redemption only under
unusual circumstances, such as when the NYSE restricts or suspends trading.
REDEMPTION FEES
No redemption fee is imposed when shares are redeemed or repurchased; however,
dealers/financial institutions may charge service fees for handling repurchase
transactions.
A-3
<PAGE> 385
<TABLE>
<CAPTION>
HOW TO REDEEM SHARES
- -------------------------------------------------------------------------------------------------------------------
<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.
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. The transfer agent must receive your call
during the hours the 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 at the address on record with
us.
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.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
A-4
<PAGE> 386
(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.
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, IN ITS DISCRETION, REDEEM THE ACCOUNT AND DISTRIBUTE THE PROCEEDS
TO YOU.]
EXCHANGING SHARES
You may, under certain circumstances, exchange Advisor Class shares in one AIM
Fund for Advisor Class shares of another AIM Fund. Before requesting an
exchange, review the prospectus of the AIM Fund you wish to acquire.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
o You must meet the minimum purchase requirements for the AIM Fund into
which you are exchanging;
o Shares of the AIM Fund you wish to acquire must be qualified for sale in
your state of residence;
o Exchanges must be made between accounts with identical registration
information;
o 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);
o The AIM Fund from which you are exchanging must have received the full
amount of the purchase price for the shares being exchanged;
o Recently acquired shares must have been held in your account for ten
business days, and all other shares must have been held for at least one
day, prior to the exchange; and
o If you have physical share certificates, you must return them to the
transfer agent prior to the exchange.
A-5
<PAGE> 387
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the issuance of shares
being purchased 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.
GENERAL INFORMATION
- -------------------------------------------------------------------------------
PRICING OF SHARES
Each of the AIM Funds prices its shares based on its net asset value. 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. 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 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 Trustees 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. The AIM Funds price
purchase, exchange, and redemption orders calculated at the net asset value
after the transfer agent receives an order in good form.
A-6
<PAGE> 388
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. Long-term capital gain
distributions are taxable as long-term capital gains when distributed to you,
no matter how long you held your shares. Different rates of tax may apply to
ordinary income and long-term capital gain distributions. Every year, an
account statement showing the amount of dividends and distributions you
received from each AIM Fund during the prior year will be sent to you.
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 of the AIM Fund's shares, and any gain
realized on the transaction will 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.
A-7
<PAGE> 389
[BACK COVER PAGE]
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
United States 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 semi-annual 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
or your account, or wish to obtain free copies of the fund's current SAI or
annual or semi-annual reports, please contact us:
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
semi-annual reports only)
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, D.C., 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, D.C. 20549-6009. Please call the SEC
at 1-800-SEC-0330 for information about the Public Reference Room.
AIM Infrastructure Fund
SEC 1940 Act file number: 811-05426
11
<PAGE> 390
[AIM LOGO]
AIM GLOBAL RESOURCES FUND
PROSPECTUS
MARCH 1, 1999
AIM Global Resources Fund seeks to provide long-term growth of capital.
This prospectus contains important information. Please read it before investing
and keep it for future reference.
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. There is a risk that you could lose a portion or all of your money.
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.
1
<PAGE> 391
TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES............................................3
PRINCIPAL RISKS OF INVESTING IN THE FUND.......................................3
PERFORMANCE INFORMATION........................................................5
ANNUAL TOTAL RETURNS..................................................5
PERFORMANCE TABLE.....................................................5
FEE TABLE AND EXPENSE EXAMPLE..................................................7
FEE TABLE.............................................................7
EXPENSE EXAMPLE.......................................................8
FUND MANAGEMENT................................................................9
THE ADVISOR...........................................................9
ADVISOR COMPENSATION..................................................9
PORTFOLIO MANAGERS....................................................9
OTHER INFORMATION.............................................................10
INITIAL SALES CHARGES FOR CLASS A SHARES.............................10
DIVIDENDS AND DISTRIBUTIONS..........................................10
FINANCIAL HIGHLIGHTS..........................................................11
SHAREHOLDER INFORMATION......................................................A-1
CHOOSING A SHARE CLASS..............................................A-1
PURCHASING SHARES...................................................A-4
REDEEMING SHARES....................................................A-6
EXCHANGING SHARES...................................................A-9
PRICING OF SHARES..................................................A-11
TAXES..............................................................A-11
OBTAINING ADDITIONAL INFORMATION.................................BACK COVER PAGE
</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 is a service
mark of A I M Management Group Inc.
2
<PAGE> 392
INVESTMENT OBJECTIVE AND STRATEGIES
The fund's investment objective is long-term growth of capital.
The fund seeks to achieve its objective by investing all of its total assets in
the Global Resources Portfolio (the portfolio), which in turn normally invests
at least 65% of its total assets in equity securities of domestic and foreign
natural resources companies. The portfolio considers a "natural resources"
company to be one that (i) derives at least 50% of its revenues or earnings from
natural resource activities, or (ii) devotes at least 50% of its assets to such
activities, based on its most recent fiscal year. Such companies include those
that own, explore, or develop natural resources (such as oil, metals, forest
products, and chemicals) and other basic commodities (such as foodstuffs) or
supply goods and services to such companies. The portfolio may invest up to 35%
of its assets in debt securities issued by natural resources companies, or
equity and debt securities of other companies the portfolio managers believe
will benefit from developments in the natural resource industries.
The portfolio will normally invest in the securities of issuers located in at
least three different countries, including the United States, and may invest a
significant portion of its assets in the securities of U.S. issuers. However,
the portfolio will not invest more than 50% of its total assets in the
securities of issuers in any one country, other than the U.S. The fund may
invest substantially in securities denominated in one or more currencies. The
portfolio may invest up to 20% of its total assets in high-yield debt securities
rated below investment grade, i.e., "junk bonds."
The portfolio managers allocate the portfolio's assets among securities of
countries and in currency denominations that are expected to provide the best
opportunities for meeting the portfolio's investment objective. In analyzing
specific companies for possible investment, the portfolio managers ordinarily
look for several of the following characteristics: above-average per share
earnings growth; high return on invested capital; a healthy balance sheet; sound
financial and accounting policies and overall financial strength; strong
competitive advantages; effective research and product development and
marketing; development of new technologies; efficient service; pricing
flexibility; strong management; and general operating characteristics that will
enable the companies to compete successfully in their respective markets. The
portfolio managers usually sell a particular security when any of those factors
materially changes.
In anticipation of or in response to adverse market conditions or for cash
management purposes, the portfolio may hold all or a portion of its assets in
cash (U.S. dollars, foreign currencies or multinational currency units), money
market securities, bonds or other debt securities. As a result, the fund or the
portfolio may not achieve its investment objective.
The portfolio may engage in active and frequent trading of portfolio securities
to achieve its investment objective. If the portfolio does trade in this way, it
may incur increased transaction costs and brokerage commissions, both of which
can lower the actual return on your investment. Active trading may also increase
short-term capital gains and losses, which may affect the taxes you have to pay.
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. The value of your investment in the fund will go up and down with the
prices of the securities in which the portfolio invests. The price of common
stock rises and falls in response to many factors, including the historical and
prospective earnings of the issuer of the stock, the value of its assets,
general economic conditions, interest rates, investor perceptions, and market
liquidity.
The value of the fund's shares is particularly vulnerable to factors affecting
the natural resources industry, such as increasing regulation of the environment
by both U.S. and foreign governments. Increased environmental regulations may,
among other things, increase compliance costs and affect business opportunities
for the companies in which the portfolio invests. The value is also affected by
changing
3
<PAGE> 393
commodity prices, which can be highly volatile and are subject to risks of
oversupply and reduced demand. Because the portfolio focuses its investments in
the natural resources industries, the value of your fund shares may rise and
fall more than the value of shares of a fund that invests more broadly.
In addition, the prices of securities of foreign issuers may be further affected
by other factors, including
o Currency exchange rates - The dollar value of the portfolio's foreign
investments will be affected by changes in the exchange rates between the
dollar and the currencies in which those investments are traded.
o Political and economic conditions - The value of the portfolio's foreign
investments may be adversely affected by political and economic conditions
in foreign countries and by changes in economic or taxation policies in
those countries.
o Regulations - Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, among other things, there generally is less
publicly available information about foreign companies than about U.S.
companies.
o 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 their prices may be more volatile than U.S. securities.
[Compared to higher-quality debt securities, junk bonds involve greater risk of
default or price changes due to changes in the credit quality of the issuer
because they are generally unsecured and may be subordinated to other creditors'
claims. The value of lower-quality debt securities often fluctuates in response
to company, political or economic developments and can decline significantly
over short periods of time or during periods of general or regional economic
difficulty.]
Many software systems are unable to distinguish the year 2000 from the year
1900. The portfolio's investment advisor, together with independent technology
consultants, has completed its determination as to whether any software systems
that the portfolio or the fund uses or depends on has that problem and is in the
process of correcting and testing those systems that may have such problem. This
problem, if not corrected, may adversely affect services provided to the
portfolio or the fund or may affect companies in which the portfolio may invest
and, therefore, may lower the value of your shares.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by Federal Deposit Insurance Corporation or any other government
agency.
4
<PAGE> 394
[INFORMATION TO BE PROVIDED BY GARY WENDLER'S GROUP]
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 A
shares from year to year over a 5-year period. The bar chart does not reflect
sales loads. If it did, the annual total returns shown would be lower.
[BAR CHART TO BE REVISED - DELETE INFO FOR 1988 AND LEAVE A BLANK FOR 1998]
AIM GLOBAL RESOURCES
[GRAPH]
<TABLE>
<CAPTION>
Annual
Total
Year Ended December 31 Return
---------------------- ------
<S> <C>
1995............................................ 7.05%
1996............................................ 47.20%
1997............................................ (1.51)%
1998............................................
</TABLE>
[INFO BELOW TO BE UPDATED/PROVIDED AT THE TIME OF THE ANNUAL UPDATE FILING - NOT
NOW]
During the 5-year period shown in the bar chart, the highest quarterly return
was [____%] (quarter ended [___]) and the lowest quarterly return was[____%]
(quarter ended [______]).
PERFORMANCE TABLE
The following performance table shows how the fund's average annual returns for
one, five and 10 years compare to those of a broad-based securities market
index.
5
<PAGE> 395
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Average Annual
Total Returns
(for the periods ending
December 31, 1998) 1 Year 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A* [ ]% [ ]% [ ]%
- ---------------------------------------------------------------------------------------------------
Class B** [ ] -- --
- ---------------------------------------------------------------------------------------------------
MSCI World Index*** [ ] [ ] [ ]
- ---------------------------------------------------------------------------------------------------
</TABLE>
* Class A returns are since inception (5/31/94).
** Class B returns are since inception (5/31/94).
*** The Morgan Stanley Capital International World Index measures performance
for twenty-two developed country global stock markets. The index is
capitalization weighted. Companies included in the index replicate the
industry composition of each local market and, in addition, represent a
sampling of large, medium and small capitalization companies from each
local market, taking into account the stocks' liquidity.
[INFO IN THE ABOVE CHART TO BE UPDATED/PROVIDED AT THE ANNUAL UPDATE FILING -
NOT NOW]
6
<PAGE> 396
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>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Shareholder Fees (fees paid directly from your investment)
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) None 1.00
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
Management Fees 2 0.98% 0.98% ---%
Distribution and/or Service (12b-1) Fees 0.50 1.00 ---
Other Expenses:
Transfer agent fees and costs --- --- ---
Other --- --- ---
Total Other Expenses --- --- ---
Total Annual Fund Operating Expenses --- --- ---
</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 investment advisor is currently waiving a portion of its fees. The
management fees were 0.61% after such waiver. The waiver may be
terminated at any time with the approval of the fund's Board of Trustees.
If the waiver is terminated before the end of the fund's fiscal year, the
investment advisor may be reimbursed the waived amounts for that year.]
As a result of 12b-1 fees, long-term shareholders in the fund may pay more than
the maximum permitted initial sales charge.
7
<PAGE> 397
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 operating expenses remain the same. Although your actual returns and
costs may be higher or lower, based on these assumptions your costs would be:
[FUND ACCOUNTING TO PROVIDE INFO AT THE ANNUAL UPDATE FILING - NOT NOW]
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A [ $ $ $ $
Class B
Class C ]
</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 [ $ $ $ $
Class B
Class C ]
</TABLE>
8
<PAGE> 398
FUND MANAGEMENT
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the investment adviser of Global
Resources Portfolio (the portfolio) and is responsible for its day-to-day
management. The advisor is located at 11 Greenway Plaza, Suite 100, Houston,
Texas 77046-1173. The advisor supervises all aspects of the portfolio's
operations and provide investment advisory services to the portfolio, including
obtaining and evaluating economic, statistical and financial information to
formulate and implement investment programs for the portfolio.
The advisor has acted as an investment adviser since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 90
investment portfolios, including the portfolio, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the portfolio's last fiscal year ended October 31, 1998, the portfolio
paid the advisor advisory fees of [___]% of the portfolio's average net assets.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual member
of the team who is primarily responsible for the day-to-day management of the
portfolio is
o Derek H. Webb, Portfolio Manager, who has been responsible for the fund
since 1994 and has been associated with the advisor and/or its affiliates
since 1992. He has been Head of the Theme Funds since 1997. He was an
Analyst for INVESCO (NY), Inc. from 1992 to 1994.
9
<PAGE> 399
OTHER INFORMATION
INITIAL SALES CHARGES FOR CLASS A SHARES
Purchases of Class A shares of the 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.
DIVIDENDS AND DISTRIBUTIONS
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.
Dividends
The fund generally declares and pays dividends, if any, annually.
10
<PAGE> 400
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 table shows the financial highlights for a share of the fund outstanding
during each of the fiscal years (or periods) indicated.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the fund's financial statements, is included in the fund's annual
report, which is available upon request. [FINANCIAL HIGHLIGHTS BELOW ARE FOR
CLASS A AND CLASS B FOR THE YEARS/PERIODS INDICATED - TO BE REVISED BY FUND
ACCOUNTING TO INCLUDE 1998 INFORMATION AT THE ANNUAL UPDATE FILING - NOT NOW]
<TABLE>
<CAPTION>
------------------------------------------------------------------
Class A
------------------------------------------------------------------
May 31, 1994
(commencement
of operations) to
Years Ended October 31, October 31, 1994
------------------------------------------------ -----------------
1998 1997 1996 1995 1994
------------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------------ ------- ------- ------- -------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------------ ------- ------- ------- -------
Net gains on securities (both realized and unrealized) (x.xx) x.xx x.xx x.xx x.xx
------------ ------- ------- ------- -------
Total from investment operations (x.xx) x.xx x.xx x.xx x.xx
------------ ------- ------- ------- -------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx) --
------------ ------- ------- ------- -------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------------ ------- ------- ------- -------
Total return (a) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------------ ------- ------- ------- -------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ xx,xxx $xx,xxx $xx,xxx $xx,xxx $xx,xxx
------------ ------- ------- ------- -------
Ratio of expenses to average net assets (b) x.xx%(c)(d) x.xx x.xx x.xx x.xx
------------ ------- ------- ------- -------
Ratio of net investment income (loss) to average net assets (e) (x.xx)%(c) (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------------ ------- ------- ------- -------
Portfolio turnover rate xx% xx% xx% xx% xx%
------------ ------- ------- ------- -------
</TABLE>
[(a) Does not deduct sales charges and are 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
were X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(c) Ratios are annualized and based on average net assets of
$XX,XXX,XXX,XXX.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been
the same.
(e) After fee waivers and/or expense reimbursements. Ratio of net
investment income (loss) to average net assets prior to fee waivers
and/or expense reimbursement were (X.XX)%, (X.XX)%, (X.XX)%, (X.XX)%
and (X.XX)% for 1998-1994.]
11
<PAGE> 401
<TABLE>
<CAPTION>
------------------------------------------------------------------
Class B
------------------------------------------------------------------
May 31, 1994
(commencement
of operations) to
Years Ended October 31, October 31, 1994
----------------------------------------------- -----------------
1998 1997 1996 1995 1994
------------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------------ ------- ------- ------- -------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------------ ------- ------- ------- -------
Net gains on securities (both realized and unrealized) (x.xx) x.xx x.xx x.xx x.xx
------------ ------- ------- ------- -------
Total from investment operations (x.xx) x.xx x.xx x.xx x.xx
------------ ------- ------- ------- -------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx) --
------------ ------- ------- ------- -------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------------ ------- ------- ------- -------
Total return (a) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------------ ------- ------- ------- -------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ xx,xxx $xx,xxx $xx,xxx $xx,xxx $xx,xxx
------------ ------- ------- ------- -------
Ratio of expenses to average net assets (b) x.xx%(c)(d) x.xx x.xx x.xx x.xx
------------ ------- ------- ------- -------
Ratio of net investment income (loss) to average net assets (e) (x.xx)%(c) (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------------ ------- ------- ------- -------
Portfolio turnover rate xx% xx% xx% xx% xx%
------------ ------- ------- ------- -------
</TABLE>
[(a) Does not deduct sales charges and are 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
were X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(c) Ratios are annualized and based on average net assets of
$XX,XXX,XXX,XXX.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been
the same.
(e) After fee waivers and/or expense reimbursements. Ratio of net
investment income (loss) to average net assets prior to fee waivers
and/or expense reimbursement were (X.XX)%, (X.XX)%, (X.XX)%, (X.XX)%
and (X.XX)% for 1998-1994.]
12
<PAGE> 402
SHAREHOLDER INFORMATION
Choosing a Share Class
Many of the funds advised by the advisor (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>
o Initial sales charge o No initial sales charge o No initial sales charge
o Reduced or o Contingent deferred o Contingent deferred
waived initial sales charge on sales charge on
sales charge for redemptions within redemptions within
certain purchases six years one year
o Lower distribution o 12b-1 fee of 1.00% o 12b-1 fee of 1.00%
and service (12b-1)
fee than Class B or
Class C shares
(See "Fee Table o Converts to Class A o Does not convert to
and Expense shares after eight years Class A shares
Example") along with a pro rata
portion of its reinvested
dividends and distributions*
o Generally more o Purchase orders limited o Generally more
appropriate for long- to amounts less than appropriate for short-
term investors $250,000 term investors
</TABLE>
* If you held Class B shares of AIM Global Trends Fund 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
<PAGE> 403
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.
CATEGORY I Initial Sales Charges
- --------------------------------
<TABLE>
<CAPTION>
INVESTOR'S SALES CHARGE
-----------------------
AS A PERCENTAGE
AS A PERCENTAGE OF THE
AMOUNT OF INVESTMENT OF THE PUBLIC NET AMOUNT
IN SINGLE TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<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>
CATEGORY II Initial Sales Charges
- ---------------------------------
<TABLE>
<CAPTION>
INVESTOR'S SALES CHARGE
-----------------------
AS A PERCENTAGE
AS A PERCENTAGE OF THE
AMOUNT OF INVESTMENT OF THE PUBLIC NET AMOUNT
IN SINGLE TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<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>
CATEGORY III Initial Sales Charges
- ----------------------------------
<TABLE>
<CAPTION>
INVESTOR'S SALES CHARGE
-----------------------
AS A PERCENTAGE
AS A PERCENTAGE OF THE
AMOUNT OF INVESTMENT OF THE PUBLIC NET AMOUNT
IN SINGLE TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<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.
A-2
<PAGE> 404
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>
CLASS B CLASS C
CDSC AS A PERCENTAGE CDSC AS A PERCENTAGE
OF DOLLAR AMOUNT OF DOLLAR AMOUNT
YEAR SINCE PURCHASE MADE SUBJECT TO CHARGE SUBJECT TO CHARGE
------------------------ ----------------- -----------------
<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>
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 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
o on shares purchased by reinvesting dividends and distributions;
o when exchanging shares among certain AIM Funds;
o when using the reinstatement privilege; and
o 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
o if you redeem Class B shares you held for more than six years;
o if you redeem Class C shares you held for more than one year;
o if you redeem shares acquired through reinvestment of dividends and
distributions; and
o on increases in the net asset value of your shares.
A-3
<PAGE> 405
There may be other situations in which you or other shareholders may be able to
purchase or redeem shares at reduced or without sales charges. You should
consult the fund's Statement of Additional Information for details regarding
these situations.
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>
- -------------------------------------------------------------------------------------------------------------------------
Type of Account Initial Additional
Investments Investments
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing plans, 401(k) plans, Simplified $0 ($25 per $25
Employee Pension (SEP) accounts, Salary Reduction (SARSEP) accounts, Savings AIM Fund
Incentive Match Plans for Employee IRA (Simple IRA) accounts, 403(b) or 457 investment
plans) for salary
deferrals
from Savings
Plans)
- -------------------------------------------------------------------------------------------------------------------------
Automatic Investment Plans $50 $50
- -------------------------------------------------------------------------------------------------------------------------
IRA, Education IRA or Roth IRA $250 $50
- -------------------------------------------------------------------------------------------------------------------------
All other accounts $500 $50
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-4
<PAGE> 406
HOW TO PURCHASE SHARES
There are several ways you can purchase your shares. You can make direct
purchases or select from one of three automatic investment methods.
DIRECT PURCHASES
<TABLE>
<CAPTION>
Opening An Account Adding to An Account
<S> <C> <C>
Through a
Financial
Consultant Contact your financial consultant. Same
By Mail Mail completed Account Mail your check and the
Application and purchase payment to the transfer agent, remittance slip from
A I M Fund Services, Inc., P.O. Box 4739, your confirmation statement
Houston, TX 77210-4739. to the transfer agent.
By Wire Mail completed Account Call the transfer agent to
Application to the transfer agent. receive a reference number.
Call the transfer agent at Then, use the wire
(800) 959-4246 to receive a reference number. instructions at left.
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 methods described Mail completed AIM Bank
above. Connection(sm) form to the
transfer agent. Once
the transfer agent has
received the form, call the
transfer agent to place your
purchase.
</TABLE>
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 and in the same class of shares. 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
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10th or 25th day of the month 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 at net
asset value in certain AIM Funds without paying a sales charge. 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. 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
TIMING OF REDEMPTIONS
You can redeem shares during the hours the New York Stock Exchange (NYSE) is
open for business. An AIM Fund may postpone the right of redemption only under
unusual circumstances, such as when the NYSE restricts or suspends trading.
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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).
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.
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 eighteen 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.
HOW TO REDEEM SHARES
<TABLE>
<CAPTION>
Through a
Financial Consultant Contact your financial consultant.
<S> <C>
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 thirty
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 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.
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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 New York Stock Exchange (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.
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
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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 and it may have tax consequences.
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, in 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 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;
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(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:
o You must meet the minimum purchase requirements for the AIM Fund into
which you are exchanging;
o Shares of the AIM Fund you wish to acquire must be qualified for sale in
your state of residence;
o Exchanges must be made between accounts with identical registration
information;
o 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);
o Shares must have been held for at least one day prior to the exchange; and
o If you have physical share certificates, you must return them to the
transfer agent prior to the exchange.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the issuance of shares
being purchased 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
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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; OR WITHDRAW ALL OR ANY PART OF
THE OFFERING MADE BY THIS PROSPECTUS.
Pricing of Shares
Each of the AIM Funds prices its shares based on its net asset value. 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 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 New York Stock
Exchange (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. The AIM Funds price purchase, exchange and redemption
orders at the net asset value calculated after the transfer agent receives an
order in good form.
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. Every year, an
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account statement showing the amount of dividends and distributions you
received from each AIM Fund during the prior year will be sent to you.
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 of the AIM Fund's shares, and any gain
realized on the transaction will 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.
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[BACK COVER PAGE]
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
United States 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 semi-annual 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 funds performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of Funds
or your account, or wish to obtain free copies of the fund's current SAI or
annual or semi-annual reports, please contact us:
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
semi-annual reports only)
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, D.C., 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, D.C. 20549-6009. Please call the SEC
at 1-800-SEC-0330 for information about the Public Reference Room.
AIM Global Resources Fund
SEC 1940 Act file number: 811-05426
<PAGE> 415
[AIM LOGO]
ADVISOR CLASS
AIM GLOBAL RESOURCES FUND
PROSPECTUS
MARCH 1, 1999
AIM Global Resources Fund seeks to provide long-term growth of capital.
This prospectus contains important information. Please read it before investing
and keep it for future reference.
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. There is a risk that you could lose a portion or all of your money.
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.
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<PAGE> 416
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES......................................................................3
PRINCIPAL RISKS OF INVESTING IN THE FUND.................................................................3
PERFORMANCE INFORMATION..................................................................................5
ANNUAL TOTAL RETURNS............................................................................5
PERFORMANCE TABLE...............................................................................6
FEE TABLE AND EXPENSE EXAMPLE............................................................................7
FEE TABLE.......................................................................................7
EXPENSE EXAMPLE.................................................................................7
FUND MANAGEMENT..........................................................................................8
THE ADVISOR ....................................................................................8
ADVISOR COMPENSATION............................................................................8
PORTFOLIO MANAGERS..............................................................................8
OTHER INFORMATION........................................................................................9
DIVIDENDS AND DISTRIBUTIONS.....................................................................9
FINANCIAL HIGHLIGHTS....................................................................................10
SHAREHOLDER INFORMATION................................................................................A-1
PURCHASING SHARES.............................................................................A-1
REDEEMING SHARES..............................................................................A-3
EXCHANGING SHARES.............................................................................A-5
PRICING OF SHARES.............................................................................A-6
TAXES.........................................................................................A-6
OBTAINING ADDITIONAL INFORMATION...........................................................BACK COVER PAGE
</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 is a service
mark of A I M Management Group Inc.
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INVESTMENT OBJECTIVE AND STRATEGIES
The fund's investment objective is long-term growth of capital.
The fund seeks to achieve its objective by investing all of its total assets in
the Global Resources Portfolio (the portfolio), which in turn normally invests
at least 65% of its total assets in equity securities of domestic and foreign
natural resources companies. The portfolio considers a "natural resources"
company to be one that (i) derives at least 50% of its revenues or earnings from
natural resource activities, or (ii) devotes at least 50% of its assets to such
activities, based on its most recent fiscal year. Such companies include those
that own, explore, or develop natural resources (such as oil, metals, forest
products, and chemicals) and other basic commodities (such as foodstuffs) or
supply goods and services to such companies. The portfolio may invest up to 35%
of its assets in debt securities issued by natural resources companies, or
equity and debt securities of other companies the portfolio managers believe
will benefit from developments in the natural resource industries.
The portfolio will normally invest in the securities of issuers located in at
least three different countries, including the United States, and may invest a
significant portion of its assets in the securities of U.S. issuers. However,
the portfolio will not invest more than 50% of its total assets in the
securities of issuers in any one country, other than the U.S. The fund may
invest substantially in securities denominated in one or more currencies. The
portfolio may invest up to 20% of its total assets in high-yield debt securities
rated below investment grade, i.e., "junk bonds."
The portfolio managers allocate the portfolio's assets among securities of
countries and in currency denominations that are expected to provide the best
opportunities for meeting the portfolio's investment objective. In analyzing
specific companies for possible investment, the portfolio managers ordinarily
look for several of the following characteristics: above-average per share
earnings growth; high return on invested capital; a healthy balance sheet; sound
financial and accounting policies and overall financial strength; strong
competitive advantages; effective research and product development and
marketing; development of new technologies; efficient service; pricing
flexibility; strong management; and general operating characteristics that will
enable the companies to compete successfully in their respective markets. The
portfolio managers usually sell a particular security when any of those factors
materially changes.
In anticipation of or in response to adverse market conditions or for cash
management purposes, the portfolio may hold all or a portion of its assets in
cash (U.S. dollars, foreign currencies or multinational currency units), money
market securities, bonds or other debt securities. As a result, the fund or the
portfolio may not achieve its investment objective.
The portfolio may engage in active and frequent trading of portfolio securities
to achieve its investment objective. If the portfolio does trade in this way, it
may incur increased transaction costs and brokerage commissions, both of which
can lower the actual return on your investment. Active trading may also increase
short-term capital gains and losses, which may affect the taxes you have to pay.
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. The value of your investment in the fund will go up and down with the
prices of the securities in which the portfolio invests. The price of common
stock rises and falls in response to many factors, including the historical and
prospective earnings of the issuer of the stock, the value of its assets,
general economic conditions, interest rates, investor perceptions, and market
liquidity.
The value of the fund's shares is particularly vulnerable to factors affecting
the natural resources industry, such as increasing regulation of the environment
by both U.S. and foreign governments. Increased environmental regulations may,
among other things, increase compliance costs and affect business opportunities
for the companies in which the portfolio invests. The value is also affected by
changing
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commodity prices, which can be highly volatile and are subject to risks of
oversupply and reduced demand. Because the portfolio focuses its investments in
the natural resources industries, the value of your fund shares may rise and
fall more than the value of shares of a fund that invests more broadly.
In addition, the prices of securities of foreign issuers may be further affected
by other factors, including
o Currency exchange rates - The dollar value of the portfolio's foreign
investments will be affected by changes in the exchange rates between the
dollar and the currencies in which those investments are traded.
o Political and economic conditions - The value of the portfolio's foreign
investments may be adversely affected by political and economic conditions
in foreign countries and by changes in economic or taxation policies in
those countries.
o Regulations - Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, among other things, there generally is less
publicly available information about foreign companies than about U.S.
companies.
o 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 their prices may be more volatile than U.S. securities.
[Compared to higher-quality debt securities, junk bonds involve greater risk of
default or price changes due to changes in the credit quality of the issuer
because they are generally unsecured and may be subordinated to other creditors'
claims. The value of lower-quality debt securities often fluctuates in response
to company, political or economic developments and can decline significantly
over short periods of time or during periods of general or regional economic
difficulty.]
Many software systems are unable to distinguish the year 2000 from the year
1900. The portfolio's investment advisor, together with independent technology
consultants, has completed its determination as to whether any software systems
that the portfolio or the fund uses or depends on has that problem and is in the
process of correcting and testing those systems that may have such problem. This
problem, if not corrected, may adversely affect services provided to the
portfolio or the fund or may affect companies in which the portfolio may invest
and, therefore, may lower the value of your shares.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by Federal Deposit Insurance Corporation or any other government
agency.
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[INFORMATION TO BE PROVIDED BY GARY WENDLER'S GROUP]
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 Advisor
Class shares from year to year over a 4-year period.
AIM GLOBAL RESOURCES
[GRAPH]
<TABLE>
<CAPTION>
Annual
Total
Year Ended December 31 Return
- ---------------------- ------
<S> <C>
1995 .......................................... 7.05%
1996 .......................................... 47.20%
1997 .......................................... (1.51)%
1998 ..........................................
</TABLE>
[BAR CHART TO BE REVISED - DELETE INFO FOR 1988 AND LEAVE A BLANK FOR 1998]
[INFO BELOW TO BE UPDATED/PROVIDED AT THE TIME OF THE ANNUAL UPDATE FILING - NOT
NOW]
During the 4-year period shown in the bar chart, the highest quarterly return
was [______%] (quarter ended [______]) and the lowest quarterly return
was [______%] (quarter ended [______]).
5
<PAGE> 420
PERFORMANCE TABLE
The following performance table shows how the fund's average annual returns for
one, five and 10 years compare to those of a broad-based securities market
index.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Average Annual Total Returns
(for the periods ending December 31, 1998)
1 Year 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Advisor Class* [ ]% [ ]% [ ]%
- ---------------------------------------------------------------------------------------------------
MSCI World Index** [ ] [ ] [ ]
- ---------------------------------------------------------------------------------------------------
</TABLE>
* Advisor Class returns are since inception (6-1-95).
** The Morgan Stanley Capital International World Index measures performance
for twenty-two developed country global stock markets. The index is
capitalization weighted. Companies included in the index replicate the
industry composition of each local market and, in addition, represent a
sampling of large, medium and small capitalization companies from each
local market, taking into account the stocks' liquidity.
[INFO IN THE ABOVE CHART TO BE UPDATED/PROVIDED AT THE ANNUAL UPDATE FILING -
NOT NOW]
6
<PAGE> 421
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>
Advisor Class
-------------
<S> <C>
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price
or redemption proceeds, whichever is less) None
Annual Fund Operating Expenses (expenses that are deducted
from fund assets)
Management Fees(1) 0.98%
Distribution and/or Service (12b-1) Fees None
Other Expenses:
Transfer agent fees and costs ----
Other ----
Total Other Expenses ----
Total Annual Fund Operating Expenses ----
</TABLE>
- -------------------
[(1) The investment advisor is currently waiving a portion of its fees. The
management fees were 0.61% after such waiver. The waiver may be terminated
at any time with the approval of the fund's Board of Trustees. If the
waiver is terminated before the end of the fund's fiscal year, the
investment advisor may be reimbursed the waived amounts for that year.]
EXPENSE EXAMPLE
This example is intended to help you compare the cost of investing in the
Advisor Class 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 operating expenses remain the same. Although your actual returns and
costs may be higher or lower, based on these assumptions your costs would be:
[FUND ACCOUNTING TO PROVIDE INFO AT THE ANNUAL UPDATE FILING - NOT NOW]
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Advisor Class $ $ $ $
You would pay the following expenses if you did not redeem your shares:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Advisor Class $ $ $ $
7
<PAGE> 422
FUND MANAGEMENT
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the investment adviser of Global
Resources Portfolio (the portfolio) and is responsible for its day-to-day
management. The advisor is located at 11 Greenway Plaza, Suite 100, Houston,
Texas 77046-1173. The advisor supervises all aspects of the portfolio's
operations and provide investment advisory services to the portfolio, including
obtaining and evaluating economic, statistical and financial information to
formulate and implement investment programs for the portfolio.
The advisor has acted as an investment adviser since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 90
investment portfolios, including the portfolio, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the portfolio's last fiscal year ended October 31, 1998, the portfolio
paid the advisor advisory fees of [ ]% of the portfolio's average net assets.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual member
of the team who is primarily responsible for the day-to-day management of the
portfolio is
o Derek H. Webb, Portfolio Manager, who has been responsible for the fund
since 1994 and has been associated with the advisor and/or its affiliates
since 1992. He has been Head of the Theme Funds since 1997. He was an
Analyst for INVESCO (NY), Inc. from 1992 to 1994.
8
<PAGE> 423
OTHER INFORMATION
DIVIDENDS AND DISTRIBUTIONS
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.
Dividends
The fund generally declares and pays dividends, if any, annually.
9
<PAGE> 424
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 table shows the financial highlights for a share of the fund outstanding
during each of the fiscal years (or periods) indicated.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the fund's financial statements, is included in the fund's annual
report, which is available upon request.
[FINANCIAL HIGHLIGHTS BELOW ARE FOR ADVISOR CLASS A FOR THE YEARS/PERIODS
INDICATED - TO BE REVISED BY FUND ACCOUNTING TO INCLUDE 1998
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Advisor Class
-------------------------------------------------------------------
- June 1, 1995
Year Ended October 31, - to
1998 1997 1996 Oct. 31, 1995
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx
- ------------------------------------------------------------- ------------ ------------ ------------ ------------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx)
- ------------------------------------------------------------- ------------ ------------ ------------ ------------
Net gains on securities (both realized and unrealized) (x.xx) (x.xx) (x.xx) (x.xx)
- ------------------------------------------------------------- ------------ ------------ ------------ ------------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx)
- ------------------------------------------------------------- ------------ ------------ ------------ ------------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx)
- ------------------------------------------------------------- ------------ ------------ ------------ ------------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx
============================================================= ============ ============ ============ ============
Total return (a) (x.xx)% (x.xx)% (x.xx)% (x.xx)%
============================================================= ============ ============ ============ ============
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ xx,xxx $ xx,xxx $ xx,xxx $ xx,xxx
============================================================= ============ ============ ============ ============
Ratio of expenses to average net assets (b) x.xx%(c)(d) x.xx% x.xx% x.xx%
============================================================= ============ ============ ============ ============
Ratio of net investment income (loss) to average net assets(c) (x.xx)%(c) (x.xx)% (x.xx)% (x.xx)%
============================================================= ============ ============ ============ ============
Portfolio turnover rate xx% xx% xx% xx%
============================================================= ============ ============ ============ ============
</TABLE>
(a) Does not deduct sales charges and are 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 were
X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(c) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been the
same.
(e) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (X.XX)%, (X.XX)%, (X.XX)%, (X.XX)% and (X.XX)% for
1998-1994.
INFORMATION AT THE ANNUAL UPDATE FILING - NOT NOW]
<PAGE> 425
SHAREHOLDER INFORMATION FOR ADVISOR CLASS SHARES
- -------------------------------------------------------------------------------
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM ACCOUNT
The minimum initial investment for Advisor Class shares is $500; and the
minimum investment for purchases of additional Advisor Class shares is $50.
HOW TO PURCHASE SHARES
Shares offered by this prospectus are available for purchase only by certain
investors and are offered at net asset value without the imposition of a
front-end or contingent deferred sales charge or Rule 12b-1 fees. Advisor Class
shares are available through financial consultants (such as financial planners,
trust companies, bank trust departments, and registered investment advisors).
In order to purchase Advisor Class shares of any AIM Fund, your financial
consultant, on your behalf, must submit a fully completed new account
application form directly to the transfer agent.
There are several ways you can purchase your shares. You can make direct
purchases or select from two automatic investment methods.
DIRECT PURCHASES
<TABLE>
<CAPTION>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Through a Financial Consultant Contact your financial consultant. Same
By Mail Must be submitted by your financial Mail your check and the remittance
consultant. slip from your confirmation
statement to the transfer agent.
A I M Fund Services, Inc., P.O. Box
4739
Houston, TX 77210-4739
By Wire Your financial consultant must mail a Call the transfer agent to receive a
completed account application to the reference number. Then, use the
transfer agent. You or your financial wire instructions at left.
consultant may call the transfer agent
at (800) 959-4246 to 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 #
</TABLE>
A-1
<PAGE> 426
<TABLE>
<CAPTION>
<S> <C> <C>
By AIM Bank Open your account using one of the Mail completed AIM Bank Connection(sm)
Connection(sm) methods described above. form to the transfer agent. Once the
transfer agent has received the form,
call the transfer agent to place your
purchase order.
</TABLE>
SPECIAL PLANS
Automatic Dividend Investment
All of your dividends and distributions may be paid in cash or invested in
Advisor Class shares of certain AIM Funds. Unless you specify otherwise, your
dividends and distributions will automatically be reinvested in the same AIM
Fund.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in Advisor Class shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend or
distribution must be at least $5,000; or (b) in the AIM Fund receiving the
dividend or distribution 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 and
distributions 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 holdings of Advisor Class shares of AIM Funds 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 Advisor
Class shares 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.
The distributor and its agents reserve the right at any time to (1) reject or
cancel any part of any purchase or exchange order; (2) modify any terms or
conditions of purchase of shares of any AIM Fund; or (3) withdraw all or any
part of the offering made by this Prospectus.
A-2
<PAGE> 427
REDEEMING SHARES
TIMING OF REDEMPTIONS
You can redeem shares during the hours the New York Stock Exchange (NYSE) is
open for business. An AIM Fund may postpone the right of redemption only under
unusual circumstances, such as when the NYSE restricts or suspends trading.
REDEMPTION FEES
No redemption fee is imposed when shares are redeemed or repurchased; however,
dealers/financial institutions may charge service fees for handling repurchase
transactions.
A-3
<PAGE> 428
<TABLE>
<CAPTION>
HOW TO REDEEM SHARES
- -------------------------------------------------------------------------------------------------------------------
<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.
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. The transfer agent must receive your call
during the hours the 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 at the address on record with
us.
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.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
A-4
<PAGE> 429
(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.
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, IN ITS DISCRETION, REDEEM THE ACCOUNT AND DISTRIBUTE THE PROCEEDS
TO YOU.]
EXCHANGING SHARES
You may, under certain circumstances, exchange Advisor Class shares in one AIM
Fund for Advisor Class shares of another AIM Fund. Before requesting an
exchange, review the prospectus of the AIM Fund you wish to acquire.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
o You must meet the minimum purchase requirements for the AIM Fund into
which you are exchanging;
o Shares of the AIM Fund you wish to acquire must be qualified for sale in
your state of residence;
o Exchanges must be made between accounts with identical registration
information;
o 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);
o The AIM Fund from which you are exchanging must have received the full
amount of the purchase price for the shares being exchanged;
o Recently acquired shares must have been held in your account for ten
business days, and all other shares must have been held for at least one
day, prior to the exchange; and
o If you have physical share certificates, you must return them to the
transfer agent prior to the exchange.
A-5
<PAGE> 430
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the issuance of shares
being purchased 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.
GENERAL INFORMATION
- -------------------------------------------------------------------------------
PRICING OF SHARES
Each of the AIM Funds prices its shares based on its net asset value. 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. 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 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 Trustees 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. The AIM Funds price
purchase, exchange, and redemption orders calculated at the net asset value
after the transfer agent receives an order in good form.
A-6
<PAGE> 431
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. Long-term capital gain
distributions are taxable as long-term capital gains when distributed to you,
no matter how long you held your shares. Different rates of tax may apply to
ordinary income and long-term capital gain distributions. Every year, an
account statement showing the amount of dividends and distributions you
received from each AIM Fund during the prior year will be sent to you.
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 of the AIM Fund's shares, and any gain
realized on the transaction will 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.
A-7
<PAGE> 432
[BACK COVER PAGE]
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
United States 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 semi-annual 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
or your account, or wish to obtain free copies of the fund's current SAI or
annual or semi-annual reports, please contact us:
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
semi-annual reports only)
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, D.C., 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, D.C. 20549-6009. Please call the SEC
at 1-800-SEC-0330 for information about the Public Reference Room.
A I M Global Resources Fund
SEC 1940 Act file number: 811-05426
<PAGE> 433
[AIM LOGO]
AIM GLOBAL TELECOMMUNICATIONS FUND
PROSPECTUS
MARCH 1, 1999
AIM Global Telecommunications Fund seeks to provide long-term growth of capital.
This prospectus contains important information. Please read it before investing
and keep it for future reference.
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. There is a risk that you could lose a portion or all of your money.
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.
<PAGE> 434
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES............................................3
PRINCIPAL RISKS OF INVESTING IN THE FUND.......................................3
PERFORMANCE INFORMATION........................................................6
ANNUAL TOTAL RETURNS..................................................6
PERFORMANCE TABLE.....................................................7
FEE TABLE AND EXPENSE EXAMPLE..................................................8
FEE TABLE.............................................................8
EXPENSE EXAMPLE.......................................................9
FUND MANAGEMENT...............................................................10
THE ADVISOR..........................................................10
ADVISOR COMPENSATION.................................................10
PORTFOLIO MANAGERS...................................................10
OTHER INFORMATION.............................................................11
INITIAL SALES CHARGES FOR CLASS A SHARES.............................11
DIVIDENDS AND DISTRIBUTIONS..........................................11
FINANCIAL HIGHLIGHTS..........................................................12
SHAREHOLDER INFORMATION......................................................A-1
CHOOSING A SHARE CLASS..............................................A-1
PURCHASING SHARES...................................................A-4
REDEEMING SHARES....................................................A-6
EXCHANGING SHARES...................................................A-9
PRICING OF SHARES..................................................A-11
TAXES..............................................................A-11
OBTAINING ADDITIONAL INFORMATION.................................BACK COVER PAGE
</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 is a service
mark of A I M Management Group Inc.
2
<PAGE> 435
INVESTMENT OBJECTIVE AND STRATEGIES
The fund's investment objective is long-term growth of capital.
The fund seeks to achieve its objective by investing at least 65% of its total
assets in equity securities of domestic and foreign telecommunications
companies. The fund considers a "telecommunications company" to be one that (i)
derives at least 50% of its revenues or earnings from telecommunications
activities, or (ii) devotes at least 50% of its assets to such activities, based
on its most recent fiscal year. Such companies include those that develop,
manufacture, or sell communications services and equipment, computer and
electronic components and equipment, mobile communications, and broadcasting.
The fund may invest up to 35% of its assets in debt securities issued by
telecommunications companies, or equity and debt securities of other companies
the portfolio managers believe will benefit from developments in the
telecommunications industries.
The fund will normally invest in the securities of companies located in at least
three different countries, including the United States, and may invest a
significant portion of its assets in the securities of U.S. issuers. However,
the fund will not invest more than 40% of its total assets in the securities of
issuers in any one country, other than the U.S. The fund may invest
substantially in securities denominated in one or more currencies.
The portfolio managers allocate the fund's assets among securities of countries
and in currency denominations that are expected to provide the best
opportunities for meeting the fund's investment objective. In analyzing specific
companies for possible investment, the portfolio managers ordinarily look for
several of the following characteristics: above-average per share earnings
growth; high return on invested capital; a healthy balance sheet; sound
financial and accounting policies and overall financial strength; strong
competitive advantages; effective research and product development and
marketing; development of new technologies; efficient service; pricing
flexibility; strong management; and general operating characteristics that will
enable the companies to compete successfully in their respective markets.
The portfolio managers normally sell a particular security when any of those
factors materially changes. In anticipation of or in response to adverse market
conditions or for cash management purposes, the fund may hold all or a portion
of its assets in cash (U.S. dollars, foreign currencies or multinational
currency units), money market securities, 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. The value of your investment in the fund will go up and down with the
prices of the common stocks in which the fund invests. The price of common stock
rises and falls in response to many factors, including the historical and
prospective earnings of the issuer of the stock, the value of its assets,
general economic conditions, interest rates, investor perceptions, and market
liquidity.
The value of the fund's shares is particularly vulnerable to factors affecting
the telecommunications industry, such as substantial government regulation.
Because the fund focuses its investments in the telecommunications industries,
the value of your fund shares may rise and fall more than the value of shares of
a fund that invests more broadly.
In addition, the prices of securities issued by foreign issuers may be further
affected by other factors, including
3
<PAGE> 436
o 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.
o 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
o Regulations - Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, among other things, there generally is less
publicly available information about foreign companies than about U.S.
companies.
o 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.
These factors may affect the price of securities issued by foreign companies
located in developing countries more than those in countries with mature
economies. For example, many developing countries have, in the past, experienced
high rates of inflation or sharply devalued their currencies against the U.S.
dollar, thereby causing the value of investments in companies located in those
countries to decline. Transaction costs are often higher in developing countries
and there may be delays in settlement procedures. In addition, developing
countries may have greater political or economic instability, less regulation
and smaller, less liquid and more volatile markets than countries with more
mature economies.
Many software systems are unable to distinguish the year 2000 from the year
1900. The fund's investment advisor, together with independent technology
consultants, has completed its determination as to whether any software systems
that the fund uses or depends on has that problem and is in the process of
correcting and testing those systems that may have such problem. This problem,
if not corrected, may adversely affect services provided to the fund or may
affect companies in which the fund may invest and, therefore, may lower the
value of your shares.
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.
4
<PAGE> 437
[INFORMATION TO BE PROVIDED BY GARY WENDLER'S GROUP]
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 A
shares from year to year over a 4-year period. The bar chart does not reflect
sales loads. If it did, the annual total returns shown would be lower.
[BAR CHART TO BE REVISED - DELETE INFO FOR 1988 AND LEAVE A BLANK FOR 1998]
[INFO BELOW TO BE UPDATED/PROVIDED AT THE TIME OF THE ANNUAL UPDATE
FILING - NOT NOW]
During the 4-year period shown in the bar chart, the highest quarterly return
was [______%] (quarter ended [______]) and the lowest quarterly return
was[______%] (quarter ended [______]).
PERFORMANCE TABLE
The following performance table shows how the fund's average annual returns for
one, five and 10 years compare to those of a broad-based securities market
index.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Average Annual
Total Returns
(for the periods ending
December 31, 1998) 1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A* [ ]% [ ]% [ ]%
- --------------------------------------------------------------------------------
Class B ** [ ] [ ] [ ]
- --------------------------------------------------------------------------------
MSCI World Index*** [ ] [ ] [ ]
- --------------------------------------------------------------------------------
</TABLE>
* Class A returns are since inception ( ).
** Class B returns are since inception ( ).
*** The Morgan Stanley Capital International World Index measures performance
for twenty-two developed country global stock markets. The index is
capitalization weighted. Companies included in the index replicate the
industry composition of each local market and, in addition, represent a
sampling of large, medium and small capitalization companies from each
local market, taking into account the stocks' liquidity.
[INFO IN THE ABOVE CHART TO BE UPDATED/PROVIDED AT THE ANNUAL UPDATE
FILING - NOT NOW]
5
<PAGE> 438
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>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Shareholder Fees (fees paid directly from your investment)
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
Annual Fund Operating Expenses
(expenses that are deducted from fund assets)
Management Fees(2) % % %
---- ---- ----
Distribution and/or Service (12b-1) Fees
---- ---- ----
Other Expenses:
Transfer agent fees and costs
---- ---- ----
Other
---- ---- ----
Total Other Expenses
---- ---- ----
Total Annual Fund Operating Expenses
---- ---- ----
</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 investment advisor is currently waiving a portion of its fees. The
management fees were 0.61% after such waiver. The waiver may be terminated
at any time with the approval of the fund's Board of Trustees. If the
waiver is terminated before the end of the fund's fiscal year, the
investment advisor may be reimbursed the waived amounts for that year.]
6
<PAGE> 439
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in the
Advisor Class 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 operating expenses remain the same. Although your actual returns and
costs may be higher or lower, based on these assumptions your costs would be:
[FUND ACCOUNTING TO PROVIDE INFO AT THE ANNUAL UPDATE FILING - NOT NOW]
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A [ $ $ $ $
Class B [ $ $ $ $
Class C [ $ $ $ $
</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 [ $ $ $ $
Class B [ $ $ $ $
Class C [ $ $ $ $ ]
</TABLE>
7
<PAGE> 440
FUND MANAGEMENT
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment adviser and
is responsible for its day-to-day management. The advisor is located at 11
Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The advisor supervises all
aspects of the fund's operations and provide investment advisory services to the
fund, including obtaining and evaluating economic, statistical and financial
information to formulate and implement investment programs for the fund.
The advisor has acted as an investment adviser since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 90
investment portfolios, including the fund, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the fund's last fiscal year ended October 31, 1998, the fund paid the
advisor advisory fees of [_____]% of the fund's average net assets.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual member
of the team who is primarily responsible for the day-to-day management of the
fund's portfolio, is
o Michael Mahoney, Portfolio Manager, who has been responsible for the
fund since 1993 and has been associated with the advisor and/or its
affiliates since 1991. From 1991 to 1993, he was an Investment Analyst
for the INVESCO (NY), Inc.
8
<PAGE> 441
OTHER INFORMATION
INITIAL SALES CHARGES FOR CLASS A SHARES
Purchases of Class A shares of the 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.
DIVIDENDS AND DISTRIBUTIONS
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.
Dividends
The fund generally declares and pays dividends, if any, quarterly.
9
<PAGE> 442
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 table shows the financial highlights for a share of the fund outstanding
during each of the fiscal years (or periods) indicated.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the fund's financial statements, is included in the fund's annual
report, which is available upon request.
[FINANCIAL HIGHLIGHTS BELOW ARE FOR CLASS A AND CLASS B FOR THE YEARS/PERIODS
INDICATED - TO BE REVISED BY FUND ACCOUNTING TO INCLUDE 1998 INFORMATION AT THE
ANNUAL UPDATE FILING - NOT NOW]
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Class A
-------------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- -------
Net gains on securities (both realized and unrealized) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- -------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- -------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- -------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------- ------- ------- ------- -------
Total return(a) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------- ------- ------- ------- -------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $xx,xxx $xx,xxx $xx,xxx $xx,xxx $xx,xxx
------- ------- ------- ------- -------
Ratio of expenses to average net assets(b) x.xx% (c)(d) x.xx% x.xx% x.xx% x.xx%
------- ------- ------- ------- -------
Ratio of net investment income (loss)
to average net assets(e) (x.xx)%(c) (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------- ------- ------- ------- -------
Portfolio turnover rate xx% xx% xx% xx% xx%
------- ------- ------- ------- -------
</TABLE>
(a) Does not deduct sales charges and are 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 were
X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(c) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have been the same.
(e) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (X.XX)%, (X.XX)%, (X.XX)%, (X.XX)% and (X.XX)% for
1998-1994.
10
<PAGE> 443
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Class B
-------------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- -------
Net gains on securities (both realized and unrealized) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- -------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- -------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- -------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------- ------- ------- ------- -------
Total return(a) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------- ------- ------- ------- -------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $xx,xxx $xx,xxx $xx,xxx $xx,xxx $xx,xxx
------- ------- ------- ------- -------
Ratio of expenses to average net assets(b) x.xx% (c)(d) x.xx% x.xx% x.xx% x.xx%
------- ------- ------- ------- -------
Ratio of net investment income (loss)
to average net assets(e) (x.xx)%(c) (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------- ------- ------- ------- -------
Portfolio turnover rate xx% xx% xx% xx% xx%
------- ------- ------- ------- -------
</TABLE>
(a) Does not deduct sales charges and are 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 were
X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(c) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have been the same.
(e) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (X.XX)%, (X.XX)%, (X.XX)%, (X.XX)% and (X.XX)% for
1998-1994.
11
<PAGE> 444
SHAREHOLDER INFORMATION
Choosing a Share Class
Many of the funds advised by the advisor (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>
o Initial sales charge o No initial sales charge o No initial sales charge
o Reduced or o Contingent deferred o Contingent deferred
waived initial sales charge on sales charge on
sales charge for redemptions within redemptions within
certain purchases six years one year
o Lower distribution o 12b-1 fee of 1.00% o 12b-1 fee of 1.00%
and service (12b-1)
fee than Class B or
Class C shares
(See "Fee Table o Converts to Class A o Does not convert to
and Expense shares after eight years Class A shares
Example") along with a pro rata
portion of its reinvested
dividends and distributions*
o Generally more o Purchase orders limited o Generally more
appropriate for long- to amounts less than appropriate for short-
term investors $250,000 term investors
</TABLE>
* If you held Class B shares of AIM Global Trends Fund 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
<PAGE> 445
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.
CATEGORY I Initial Sales Charges
- --------------------------------
<TABLE>
<CAPTION>
INVESTOR'S SALES CHARGE
-----------------------
AS A PERCENTAGE
AS A PERCENTAGE OF THE
AMOUNT OF INVESTMENT OF THE PUBLIC NET AMOUNT
IN SINGLE TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<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>
CATEGORY II Initial Sales Charges
- ---------------------------------
<TABLE>
<CAPTION>
INVESTOR'S SALES CHARGE
-----------------------
AS A PERCENTAGE
AS A PERCENTAGE OF THE
AMOUNT OF INVESTMENT OF THE PUBLIC NET AMOUNT
IN SINGLE TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<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>
CATEGORY III Initial Sales Charges
- ----------------------------------
<TABLE>
<CAPTION>
INVESTOR'S SALES CHARGE
-----------------------
AS A PERCENTAGE
AS A PERCENTAGE OF THE
AMOUNT OF INVESTMENT OF THE PUBLIC NET AMOUNT
IN SINGLE TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<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.
A-2
<PAGE> 446
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>
CLASS B CLASS C
CDSC AS A PERCENTAGE CDSC AS A PERCENTAGE
OF DOLLAR AMOUNT OF DOLLAR AMOUNT
YEAR SINCE PURCHASE MADE SUBJECT TO CHARGE SUBJECT TO CHARGE
------------------------ ----------------- -----------------
<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>
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 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
o on shares purchased by reinvesting dividends and distributions;
o when exchanging shares among certain AIM Funds;
o when using the reinstatement privilege; and
o 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
o if you redeem Class B shares you held for more than six years;
o if you redeem Class C shares you held for more than one year;
o if you redeem shares acquired through reinvestment of dividends and
distributions; and
o on increases in the net asset value of your shares.
A-3
<PAGE> 447
There may be other situations in which you or other shareholders may be able to
purchase or redeem shares at reduced or without sales charges. You should
consult the fund's Statement of Additional Information for details regarding
these situations.
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>
- -------------------------------------------------------------------------------------------------------------------------
Type of Account Initial Additional
Investments Investments
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing plans, 401(k) plans, Simplified $0 ($25 per $25
Employee Pension (SEP) accounts, Salary Reduction (SARSEP) accounts, Savings AIM Fund
Incentive Match Plans for Employee IRA (Simple IRA) accounts, 403(b) or 457 investment
plans) for salary
deferrals
from Savings
Plans)
- -------------------------------------------------------------------------------------------------------------------------
Automatic Investment Plans $50 $50
- -------------------------------------------------------------------------------------------------------------------------
IRA, Education IRA or Roth IRA $250 $50
- -------------------------------------------------------------------------------------------------------------------------
All other accounts $500 $50
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-4
<PAGE> 448
HOW TO PURCHASE SHARES
There are several ways you can purchase your shares. You can make direct
purchases or select from one of three automatic investment methods.
DIRECT PURCHASES
<TABLE>
<CAPTION>
Opening An Account Adding to An Account
<S> <C> <C>
Through a
Financial
Consultant Contact your financial consultant. Same
By Mail Mail completed Account Mail your check and the
Application and purchase payment to the transfer agent, remittance slip from
A I M Fund Services, Inc., P.O. Box 4739, your confirmation statement
Houston, TX 77210-4739. to the transfer agent.
By Wire Mail completed Account Call the transfer agent to
Application to the transfer agent. receive a reference number.
Call the transfer agent at Then, use the wire
(800) 959-4246 to receive a reference number. instructions at left.
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 methods described Mail completed AIM Bank
above. Connection(sm) form to the
transfer agent. Once
the transfer agent has
received the form, call the
transfer agent to place your
purchase.
</TABLE>
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 and in the same class of shares. 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
A-5
<PAGE> 449
10th or 25th day of the month 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 at net
asset value in certain AIM Funds without paying a sales charge. 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. 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
TIMING OF REDEMPTIONS
You can redeem shares during the hours the New York Stock Exchange (NYSE) is
open for business. An AIM Fund may postpone the right of redemption only under
unusual circumstances, such as when the NYSE restricts or suspends trading.
A-6
<PAGE> 450
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).
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.
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 eighteen 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.
HOW TO REDEEM SHARES
<TABLE>
<CAPTION>
Through a
Financial Consultant Contact your financial consultant.
<S> <C>
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 thirty
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 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.
A-7
<PAGE> 451
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 New York Stock Exchange (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.
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
A-8
<PAGE> 452
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 and it may have tax consequences.
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, in 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 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;
A-9
<PAGE> 453
(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:
o You must meet the minimum purchase requirements for the AIM Fund into
which you are exchanging;
o Shares of the AIM Fund you wish to acquire must be qualified for sale in
your state of residence;
o Exchanges must be made between accounts with identical registration
information;
o 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);
o Shares must have been held for at least one day prior to the exchange; and
o If you have physical share certificates, you must return them to the
transfer agent prior to the exchange.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the issuance of shares
being purchased 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
A-10
<PAGE> 454
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; OR WITHDRAW ALL OR ANY PART OF
THE OFFERING MADE BY THIS PROSPECTUS.
Pricing of Shares
Each of the AIM Funds prices its shares based on its net asset value. 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 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 New York Stock
Exchange (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. The AIM Funds price purchase, exchange and redemption
orders at the net asset value calculated after the transfer agent receives an
order in good form.
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. Every year, an
A-11
<PAGE> 455
account statement showing the amount of dividends and distributions you
received from each AIM Fund during the prior year will be sent to you.
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 of the AIM Fund's shares, and any gain
realized on the transaction will 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.
A-12
<PAGE> 456
[BACK COVER PAGE]
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
United States 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 semi-annual 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 semi-annual reports, please contact us:
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
semi-annual reports only)
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, D.C., 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, D.C. 20549-6009. Please call the SEC
at 1-800-SEC-0330 for information about the Public Reference Room.
AIM Global Telecommunications Fund
SEC 1940 Act file number: 811-05426
12
<PAGE> 457
[AIM LOGO]
ADVISOR CLASS
AIM GLOBAL TELECOMMUNICATIONS FUND
PROSPECTUS
MARCH 1, 1999
AIM Global Telecommunications Fund seeks to provide long-term growth of
capital.
This prospectus contains important information. Please read it before investing
and keep it for future reference.
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. There is a risk that you could lose a portion or all of your money.
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.
<PAGE> 458
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT OBJECTIVE AND STRATEGIES......................................................................3
PRINCIPAL RISKS OF INVESTING IN THE FUND.................................................................3
PERFORMANCE INFORMATION..................................................................................5
ANNUAL TOTAL RETURNS............................................................................5
PERFORMANCE TABLE...............................................................................6
FEE TABLE AND EXPENSE EXAMPLE............................................................................7
FEE TABLE.......................................................................................7
EXPENSE EXAMPLE.................................................................................7
FUND MANAGEMENT..........................................................................................8
THE ADVISOR.....................................................................................8
ADVISOR COMPENSATION............................................................................8
PORTFOLIO MANAGERS..............................................................................8
OTHER INFORMATION........................................................................................9
DIVIDENDS AND DISTRIBUTIONS.....................................................................9
FINANCIAL HIGHLIGHTS....................................................................................10
SHAREHOLDER INFORMATION................................................................................A-1
PURCHASING SHARES.............................................................................A-1
REDEEMING SHARES..............................................................................A-3
EXCHANGING SHARES.............................................................................A-5
PRICING OF SHARES.............................................................................A-6
TAXES.........................................................................................A-6
OBTAINING ADDITIONAL INFORMATION...........................................................BACK COVER PAGE
</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 is a service
mark of A I M Management Group Inc.
<PAGE> 459
INVESTMENT OBJECTIVE AND STRATEGIES
The fund's investment objective is long-term growth of capital.
The fund seeks to achieve its objective by investing at least 65% of its total
assets in equity securities of domestic and foreign telecommunications
companies. The fund considers a "telecommunications company" to be one that (i)
derives at least 50% of its revenues or earnings from telecommunications
activities, or (ii) devotes at least 50% of its assets to such activities,
based on its most recent fiscal year. Such companies include those that
develop, manufacture, or sell communications services and equipment, computer
and electronic components and equipment, mobile communications, and
broadcasting. The fund may invest up to 35% of its assets in debt securities
issued by telecommunications companies, or equity and debt securities of other
companies the portfolio managers believe will benefit from developments in the
telecommunications industries.
The fund will normally invest in the securities of companies located in at
least three different countries, including the United States, and may invest a
significant portion of its assets in the securities of U.S. issuers. However,
the fund will not invest more than 40% of its total assets in the securities of
issuers in any one country, other than the U.S. The fund may invest
substantially in securities denominated in one or more currencies.
The portfolio managers allocate the fund's assets among securities of countries
and in currency denominations that are expected to provide the best
opportunities for meeting the fund's investment objective. In analyzing
specific companies for possible investment, the portfolio managers ordinarily
look for several of the following characteristics: above-average per share
earnings growth; high return on invested capital; a healthy balance sheet;
sound financial and accounting policies and overall financial strength; strong
competitive advantages; effective research and product development and
marketing; development of new technologies; efficient service; pricing
flexibility; strong management; and general operating characteristics that will
enable the companies to compete successfully in their respective markets.
The portfolio managers normally sell a particular security when any of those
factors materially changes. In anticipation of or in response to adverse market
conditions or for cash management purposes, the fund may hold all or a portion
of its assets in cash (U.S. dollars, foreign currencies or multinational
currency units), money market securities, 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. The value of your investment in the fund will go up and down with the
prices of the common stocks in which the fund invests. The price of common
stock rises and falls in response to many factors, including the historical and
prospective earnings of the issuer of the stock, the value of its assets,
general economic conditions, interest rates, investor perceptions, and market
liquidity.
The value of the fund's shares is particularly vulnerable to factors affecting
the telecommunications industry, such as substantial government regulation.
Because the fund focuses its investments in the telecommunications industries,
the value of your fund shares may rise and fall more than the value of shares
of a fund that invests more broadly.
In addition, the prices of securities issued by foreign issuers may be further
affected by other factors, including
<PAGE> 460
o 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.
o 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
o Regulations - Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, among other things, there generally is less
publicly available information about foreign companies than about U.S.
companies.
o 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.
These factors may affect the price of securities issued by foreign companies
located in developing countries more than those in countries with mature
economies. For example, many developing countries have, in the past,
experienced high rates of inflation or sharply devalued their currencies
against the U.S. dollar, thereby causing the value of investments in companies
located in those countries to decline. Transaction costs are often higher in
developing countries and there may be delays in settlement procedures. In
addition, developing countries may have greater political or economic
instability, less regulation and smaller, less liquid and more volatile markets
than countries with more mature economies.
Many software systems are unable to distinguish the year 2000 from the year
1900. The fund's investment advisor, together with independent technology
consultants, has completed its determination as to whether any software systems
that the fund uses or depends on has that problem and is in the process of
correcting and testing those systems that may have such problem. This problem,
if not corrected, may adversely affect services provided to the fund or may
affect companies in which the fund may invest and, therefore, may lower the
value of your shares.
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.
<PAGE> 461
[INFORMATION TO BE PROVIDED BY GARY WENDLER'S GROUP]
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
[GRAPH]
AIM GLOBAL TELECOMMUNICATIONS FUND
(Advisor)
<TABLE>
<CAPTION>
Annual
Year Ended Total
December 31 Return
----------- ------
<S> <C>
1995 ...................................................... 35.45%
1996 ...................................................... 16.27%
1997 ...................................................... 12.92%
</TABLE>
The following bar chart shows changes in the performance of the fund's Advisor
Class shares from year to year over a 4-year period.
[BAR CHART TO BE REVISED - DELETE INFO FOR 1988 AND LEAVE A BLANK FOR 1998]
[INFO BELOW TO BE UPDATED/PROVIDED AT THE TIME OF THE ANNUAL UPDATE FILING -
NOT NOW]
During the 4-year period shown in the bar chart, the highest quarterly return
was [____________%] (quarter ended [____________________]) and the lowest
quarterly return was[___________%] (quarter ended [___________________]).
<PAGE> 462
PERFORMANCE TABLE
The following performance table shows how the fund's average annual returns for
one, five and 10 years compare to those of a broad-based securities market
index.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Average Annual Total Returns
(for the periods ending December 31, 1998)
1 Year 5 Years 10 Years
- -------------------------------------------- ------ ------- ---------
<S> <C> <C> <C>
Advisor Class* [ ]% [ ]% [ ]%
------ ------- ---------
MSCI World Index** [ ] [ ] [ ]
- -----------------------------------------------------------------------------------------------
</TABLE>
* Advisor Class returns are since inception (6/1/95)
** The Morgan Stanley Capital International World Index measures performance
for twenty-two developed country global stock markets. The index is
capitalization weighted. Companies included in the index replicate the
industry composition of each local market and, in addition, represent a
sampling of large, medium and small capitalization companies from each
local market, taking into account the stocks' liquidity.
[INFO IN THE ABOVE CHART TO BE UPDATED/PROVIDED AT THE ANNUAL UPDATE FILING -
NOT NOW]
<PAGE> 463
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>
Advisor Class
-------------
<S> <C>
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price
or redemption proceeds, whichever is less) None
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
Management Fees(1) 0.94%
----
Distribution and/or Service (12b-1) Fees None
Other Expenses:
Transfer agent fees and costs
----
Other
----
Total Other Expenses
----
Total Annual Fund Operating Expenses
----
</TABLE>
- ------------------
[(1) The investment advisor is currently waiving a portion of its fees. The
management fees were 0.61% after such waiver. The waiver may be terminated
at any time with the approval of the fund's Board of
Trustees. If the waiver is terminated before the end of the fund's fiscal
year, the investment advisor may be reimbursed the waived amounts for that
year. ]
EXPENSE EXAMPLE
This example is intended to help you compare the cost of investing in the
Advisor Class 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 operating expenses remain the same. Although your actual returns and
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
[FUND ACCOUNTING TO PROVIDE INFO AT THE ANNUAL UPDATE FILING - NOT NOW]
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Advisor Class [ $ $ $ $
</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>
Advisor Class [ $ $ $ $
</TABLE>
<PAGE> 464
FUND MANAGEMENT
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment adviser and
is responsible for its day-to-day management. The advisor is located at 11
Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The advisor supervises
all aspects of the fund's operations and provide investment advisory services
to the fund, including obtaining and evaluating economic, statistical and
financial information to formulate and implement investment programs for the
fund.
The advisor has acted as an investment adviser since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 90
investment portfolios, including the fund, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the fund's last fiscal year ended October 31, 1998, the fund paid the
advisor advisory fees of [______]% of the fund's average net assets.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual
member of the team who is primarily responsible for the day-to-day management
of the fund's portfolio, is
o Michael Mahoney, Portfolio Manager, who has been responsible for the fund
since 1993 and has been associated with the advisor and/or its affiliates
since 1991. From 1991 to 1993, he was an Investment Analyst for the INVESCO
(NY), Inc.
<PAGE> 465
OTHER INFORMATION
DIVIDENDS AND DISTRIBUTIONS
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.
Dividends
The fund generally declares and pays dividends, if any, annually.
<PAGE> 466
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 table shows the financial highlights for a share of the fund outstanding
during each of the fiscal years (or periods) indicated.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the fund's financial statements, is included in the fund's annual
report, which is available upon request.
[FINANCIAL HIGHLIGHTS BELOW ARE FOR ADVISOR CLASS FOR THE
<TABLE>
<CAPTION>
----------------------------------------------------------
Advisor Class
----------------------------------------------------------
June 1, 1995
to
Year Ended October 31, October 31, 1995
----------------------------------------------------------
1998 1997 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $xx.xx $xx.xx $xx.xx $xx.xx
------- ------- ------- -------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- -------
Net gains on securities (both realized and
unrealized) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- -------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- -------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- -------
Net asset value, end of period $xx.xx $xx.xx $xx.xx $xx.xx
======= ======= ======= =======
Total return (a) (x.xx)% (x.xx)% (x.xx)% (x.xx)%
======= ======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $xx,xxx $xx,xxx $xx,xxx $xx,xxx
======= ======= ======= =======
Ratio of expenses to average net assets (b) x.xx% (c)(d) x.xx% x.xx% x.xx%
======= ======= ======= =======
Ratio of net investment income (loss) to
average net assets(e) (x.xx)% (c) (x.xx)% (x.xx)% (x.xx)%
======= ======= ======= =======
Portfolio turnover rate xx% xx% xx% xx%
======= ======= ======= =======
</TABLE>
(a) Does not deduct sales charges and are 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 were
X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(c) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been the
same.
(e) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (X.XX)%, (X.XX)%, (X.XX)%, (X.XX)% and (X.XX)% for
1998-1994.
YEARS/PERIODS INDICATED - TO BE REVISED BY FUND ACCOUNTING TO INCLUDE 1998
INFORMATION AT THE ANNUAL UPDATE FILING - NOT NOW]
<PAGE> 467
SHAREHOLDER INFORMATION FOR ADVISOR CLASS SHARES
- -------------------------------------------------------------------------------
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM ACCOUNT
The minimum initial investment for Advisor Class shares is $500; and the
minimum investment for purchases of additional Advisor Class shares is $50.
HOW TO PURCHASE SHARES
Shares offered by this prospectus are available for purchase only by certain
investors and are offered at net asset value without the imposition of a
front-end or contingent deferred sales charge or Rule 12b-1 fees. Advisor Class
shares are available through financial consultants (such as financial planners,
trust companies, bank trust departments, and registered investment advisors).
In order to purchase Advisor Class shares of any AIM Fund, your financial
consultant, on your behalf, must submit a fully completed new account
application form directly to the transfer agent.
There are several ways you can purchase your shares. You can make direct
purchases or select from two automatic investment methods.
DIRECT PURCHASES
<TABLE>
<CAPTION>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Through a Financial Consultant Contact your financial consultant. Same
By Mail Must be submitted by your financial Mail your check and the remittance
consultant. slip from your confirmation
statement to the transfer agent.
A I M Fund Services, Inc., P.O. Box
4739
Houston, TX 77210-4739
By Wire Your financial consultant must mail a Call the transfer agent to receive a
completed account application to the reference number. Then, use the
transfer agent. You or your financial wire instructions at left.
consultant may call the transfer agent
at (800) 959-4246 to 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 #
</TABLE>
A-1
<PAGE> 468
<TABLE>
<CAPTION>
<S> <C> <C>
By AIM Bank Open your account using one of the Mail completed AIM Bank Connection(sm)
Connection(sm) methods described above. form to the transfer agent. Once the
transfer agent has received the form,
call the transfer agent to place your
purchase order.
</TABLE>
SPECIAL PLANS
Automatic Dividend Investment
All of your dividends and distributions may be paid in cash or invested in
Advisor Class shares of certain AIM Funds. Unless you specify otherwise, your
dividends and distributions will automatically be reinvested in the same AIM
Fund.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in Advisor Class shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend or
distribution must be at least $5,000; or (b) in the AIM Fund receiving the
dividend or distribution 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 and
distributions 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 holdings of Advisor Class shares of AIM Funds 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 Advisor
Class shares 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.
The distributor and its agents reserve the right at any time to (1) reject or
cancel any part of any purchase or exchange order; (2) modify any terms or
conditions of purchase of shares of any AIM Fund; or (3) withdraw all or any
part of the offering made by this Prospectus.
A-2
<PAGE> 469
REDEEMING SHARES
TIMING OF REDEMPTIONS
You can redeem shares during the hours the New York Stock Exchange (NYSE) is
open for business. An AIM Fund may postpone the right of redemption only under
unusual circumstances, such as when the NYSE restricts or suspends trading.
REDEMPTION FEES
No redemption fee is imposed when shares are redeemed or repurchased; however,
dealers/financial institutions may charge service fees for handling repurchase
transactions.
A-3
<PAGE> 470
<TABLE>
<CAPTION>
HOW TO REDEEM SHARES
- -------------------------------------------------------------------------------------------------------------------
<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.
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. The transfer agent must receive your call
during the hours the 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 at the address on record with
us.
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.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
A-4
<PAGE> 471
(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.
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, IN ITS DISCRETION, REDEEM THE ACCOUNT AND DISTRIBUTE THE PROCEEDS
TO YOU.]
EXCHANGING SHARES
You may, under certain circumstances, exchange Advisor Class shares in one AIM
Fund for Advisor Class shares of another AIM Fund. Before requesting an
exchange, review the prospectus of the AIM Fund you wish to acquire.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
o You must meet the minimum purchase requirements for the AIM Fund into
which you are exchanging;
o Shares of the AIM Fund you wish to acquire must be qualified for sale in
your state of residence;
o Exchanges must be made between accounts with identical registration
information;
o 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);
o The AIM Fund from which you are exchanging must have received the full
amount of the purchase price for the shares being exchanged;
o Recently acquired shares must have been held in your account for ten
business days, and all other shares must have been held for at least one
day, prior to the exchange; and
o If you have physical share certificates, you must return them to the
transfer agent prior to the exchange.
A-5
<PAGE> 472
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the issuance of shares
being purchased 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.
GENERAL INFORMATION
- -------------------------------------------------------------------------------
PRICING OF SHARES
Each of the AIM Funds prices its shares based on its net asset value. 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. 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 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 Trustees 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. The AIM Funds price
purchase, exchange, and redemption orders calculated at the net asset value
after the transfer agent receives an order in good form.
A-6
<PAGE> 473
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. Long-term capital gain
distributions are taxable as long-term capital gains when distributed to you,
no matter how long you held your shares. Different rates of tax may apply to
ordinary income and long-term capital gain distributions. Every year, an
account statement showing the amount of dividends and distributions you
received from each AIM Fund during the prior year will be sent to you.
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 of the AIM Fund's shares, and any gain
realized on the transaction will 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.
A-7
<PAGE> 474
[BACK COVER PAGE]
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
United States 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 semi-annual 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?
or your account, or wish to obtain free copies of the fund's current SAI or
annual or semi-annual reports, please contact us:
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
semi-annual reports only)
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, D.C., 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, D.C. 20549-6009. Please call
the SEC at 1-800-SEC-0330 for information about the Public Reference Room.
AIM Global Telecommunications Fund
SEC 1940 Act file number: 811-05426
<PAGE> 475
[AIM LOGO]
PROSPECTUS
MARCH 1, 1999
AIM LATIN AMERICAN GROWTH FUND
AIM Latin American Growth Fund seeks to provide growth of capital.
This prospectus contains important information. Please read it before investing
and keep it for future reference.
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. There is a risk that you could lose a portion or all of your money.
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.
<PAGE> 476
TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES......................................................................3
PRINCIPAL RISKS OF INVESTING IN THE FUND.................................................................3
PERFORMANCE INFORMATION..................................................................................5
ANNUAL TOTAL RETURNS............................................................................5
PERFORMANCE TABLE...............................................................................+
FEE TABLE AND EXPENSE EXAMPLE............................................................................7
FEE TABLE.......................................................................................7
EXPENSE EXAMPLE.................................................................................7
FUND MANAGEMENT..........................................................................................8
THE ADVISOR AND SUBADVISOR......................................................................8
ADVISOR COMPENSATION............................................................................8
PORTFOLIO MANAGERS..............................................................................8
OTHER INFORMATION........................................................................................9
DIVIDENDS AND DISTRIBUTIONS.....................................................................9
FINANCIAL HIGHLIGHTS....................................................................................10
SHAREHOLDER INFORMATION................................................................................A-1
CHOOSING A SHARE CLASS........................................................................A-1
PURCHASING SHARES.............................................................................A-4
REDEEMING SHARES..............................................................................A-6
EXCHANGING SHARES.............................................................................A-9
PRICING OF SHARES............................................................................A-11
TAXES........................................................................................A-11
OBTAINING ADDITIONAL INFORMATION...........................................................BACK COVER PAGE
</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 is a service
mark of A I M Management Group Inc.
2
<PAGE> 477
INVESTMENT OBJECTIVES AND STRATEGIES
The fund's investment objective is growth of capital.
The fund seeks to achieve its objective by investing at least 65% of its total
assets in equity and debt securities of Latin American issuers. The fund
considers securities of "Latin American issuers" to include (i) securities of
companies organized under the laws of, or having a principal office located in,
a Latin American country, (ii) securities of companies that derive 50% or more
of their total revenues from business in Latin America, provided that, in the
view of INVESCO Asset Management Ltd. (the fund's subadvisor), the value of such
issuers' securities reflect Latin American developments to a greater extent than
developments elsewhere, (iii) securities issued or guaranteed by the government
of a country in Latin America, its agencies or instrumentalities, or
municipalities, or the central bank of such country, (iv) U.S.
dollar-denominated securities or securities denominated in a Latin American
currency issued by companies to finance operations in Latin America, and (v)
securities of Latin American issuers in the form of depositary shares. The fund
considers Latin America to include Mexico and the countries within Central and
South America and the Caribbean.
The fund will normally invest a majority of its assets in equity securities. The
fund may invest up to 35% of its total assets in a combination of equity and
debt securities of U.S. issuers. The fund may also invest up to 50% of its total
assets in debt securities, which may consist of lower-quality debt securities,
i.e., "junk bonds," and "Brady Bonds." Brady Bonds are debt restructurings that
provide for the exchange of cash and loans for newly-issued bonds. The fund
currently expects to invest primarily in securities issued by companies and
governments in Mexico, Chile, Brazil and Argentina. The fund may invest more
than 25% of its total assets in any of these four countries but does not expect
to invest more than 60% of its total assets in any one country.
In allocating investments among the various Latin American countries, the
portfolio managers look principally at the stage of industrialization, potential
for productivity gains through economic deregulation, the impact of financial
liberalization, and monetary conditions and the political outlook in each
country. Further, the portfolio managers select between debt and equity
investments based on additional economic criteria such as fundamental economic
strength, expected corporate profits, the condition of balance of payments,
changes in terms of trade, and currency and interest rate trends. The portfolio
managers usually sell a particular security when any of those factors materially
changes.
The fund is a non-diversified portfolio, which means that with respect to 50% of
its assets, it is permitted to invest more than 5% of its assets in the
securities of any one issuer.
In anticipation of or in response to adverse market conditions or for cash
management purposes, the fund may hold all or a portion of its assets in cash
(U.S. dollars, foreign currencies and multinational currency units), money
market securities, 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. 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 price of equity
securities rises and falls in response to many factors, including the historical
and prospective earnings of the issuer of the stock, the value of its assets,
general economic conditions, interest rates, investor perceptions, and market
liquidity. Debt securities are particularly vulnerable to credit risk and
interest rate fluctuations. When interest rates rise, bond prices fall; the
longer the bond's duration, the more sensitive it is to this risk.
[In comparison to the value of higher-quality debt securities, junk bonds
involve greater risk of default or price changes due to changes in the credit
quality of the issuer because they are generally unsecured and may be
subordinated to other creditors' claims. The value of lower-quality debt
securities often fluctuates in response to company, political or economic
developments and can decline significantly over short periods of time or during
periods of general or regional economic difficulty. Under some circumstances,
some Latin American countries that issue lower quality debt securities may be
unable or unwilling make principal or interest repayments as they come due.]
3
<PAGE> 478
Because the fund focuses its investments in Latin America, the value of your
shares may rise and fall more than the value of shares of a fund that invests in
a broader geographic region. In addition, the prices of securities issued by
Latin American issuers may be further affected by other factors such as higher
transaction costs and delays in settlement procedures, as well as
o 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. Some Latin
American countries have, in the past, sharply devalued their currencies
against the dollar.
o Political and economic conditions - The value of the fund's Latin American
investments may be adversely affected by political and social instability
and by changes in economic or taxation policies in Latin America.
Investments may be subject to the risk that Latin American governments may
expropriate, nationalize, or confiscate assets or may impose restrictions
on foreign investments or on currency transfers.
o Regulations - Latin American companies generally are subject to less
stringent regulation, including financial and accounting controls (and less
vigorous regulatory enforcement), than are U.S. companies. As a result,
among other things, there generally is less publicly available information
about foreign companies than about U.S. companies.
o Markets - The securities markets of Latin American countries are smaller
and less developed than U.S. securities markets. As a result, many foreign
securities may be less liquid and more volatile than U.S.
securities.
Because it is non-diversified, the fund may invest in fewer issuers than if it
was a diversified fund. Thus, the value of the fund's shares may vary more
widely, and the fund may be subject to greater investment and credit risk, than
if the fund invested more broadly.
Many software systems are unable to distinguish the year 2000 from the year
1900. The fund's investment advisor, together with independent technology
consultants, has completed its determination as to whether any software systems
that the fund uses or depends on has that problem and is in the process of
correcting and testing those systems that may have such problem. This problem,
if not corrected, may adversely affect services provided to the fund or may
affect companies in which the fund may invest and, therefore, may lower the
value of your shares.
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.
4
<PAGE> 479
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 Advisor
Class shares from year to year over a 4-year period.
insert chart here
* The year-to-date return as of 1/31/99 (the end of the most recent fiscal
quarter) was %. ----------------
[BAR CHART TO BE REVISED]
[INFO BELOW TO BE UPDATED/PROVIDED AT ANN. UPDATE - NOT NOW]
AIM LATIN AMERICAN GROWTH FUND
<TABLE>
<CAPTION>
Annual
Year Ended Total
December 31 Return
----------- ------
<S> <C>
1992 ........................ -2.32%
1993 ........................ 52.95%
1994 ........................ -6.64%
1995 ........................ -21.34%
1996 ........................ 17.00%
1997 ........................ 14.52%
1998 ........................ %
</TABLE>
During the 4-year period shown in the bar chart, the highest quarterly return
was [__________ %] (quarter ended [_________]) and the lowest quarterly return
was[_________ %] (quarter ended [______________________]).
PERFORMANCE TABLE
The following performance table shows how the fund's average annual returns for
one, five and 10 years compare to those of a broad-based securities market
index.
5
<PAGE> 480
<TABLE>
<CAPTION>
Average Annual Total
Returns
(for the periods ending
December 31, 1998) 1 Year 5 Years 10 Years
=============================================== ============ ============== ================
<S> <C> <C> <C>
Class A*
- ----------------------------------------------- ------------ -------------- -----------------
Class B**
- ----------------------------------------------- ------------ -------------- -----------------
MSCI Emerging Latin America***
- ----------------------------------------------- ------------ -------------- -----------------
</TABLE>
* Class A returns are since inception (____________).
** Class B returns are since inception (____________).
*** The MSCI Emerging Latin America Index are market value-weighted averages of
companies listed in Argentina, Brazil, Chile, Colombia, Mexico, Peru and
Venezuela. This index is measured in U.S. dollars and includes the effect
of reinvested dividends. The MSCI Emerging Latin American Index has an
aggregate market capitalization of $318.95 billion.
[INFO IN CHART TO BE UPDATED/PROVIDED AT ANN. UPDATE - NOT NOW]
6
<PAGE> 481
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>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Shareholder Fees (fees paid directly from your investment)
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 5.00 1.00
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
Management Fees(2) % % %
----- ----- -----
Distribution and/or Service (12b-1) Fees
----- ----- -----
Other Expenses:
Transfer agent fees and costs
----- ----- -----
Other
----- ----- -----
Total Other Expenses
----- ----- -----
Total Annual Fund Operating Expenses
----- ----- -----
</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 investment advisor is currently waiving a portion of its fees. The
management fees were 0.61% after such waiver. The waiver may be terminated
at any time with the approval of the fund's Board of Trustees. If the
waiver is terminated before the end of the fund's fiscal year, the
investment advisor may be reimbursed the waived amounts for that year.]
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in the
Advisor Class 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 operating expenses remain the same. Although your actual returns and
costs may be higher or lower, based on these assumptions your costs would be:
[FUND ACCOUNTING TO PROVIDE INFO AT THE ANNUAL UPDATE FILING - NOT NOW]
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A [ $ $ $ $
Class B [ $ $ $ $
Class C [ $ $ $ $
</TABLE>
7
<PAGE> 482
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 [ $ $ $ $
Class B [ $ $ $ $
Class C [ $ $ $ $ ]
</TABLE>
8
<PAGE> 483
FUND MANAGEMENT
THE ADVISOR AND SUBADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment adviser.
INVESCO Asset Management Ltd. (the sub-advisor), an affiliate of the advisor, is
the fund's subadvisor and is responsible for its day-to-day management. The
advisor is located at 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173.
The sub-advisor is located at 11 Devonshire Squire, London EC2M 4YR, England.
The advisors supervise all aspects of the fund's operations and provide
investment advisory services to the fund, including obtaining and evaluating
economic, statistical and financial information to formulate and implement
investment programs for the fund.
The advisor has acted as an investment adviser since its organization in 1976,
and the subadvisor has acted as an investment adviser since its organization in
[_____]. Today, the advisor, together with its subsidiaries, advises or manages
over 90 investment portfolios, including the fund, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the fund's last fiscal year ended October 31, 1998, the fund paid the
advisor advisory fees of _______ % of the fund's average net assets.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual member
of the team who is primarily responsible for the day-to-day management of the
fund's portfolio, is
o David Manuel, Portfolio Manager for the subadvisor and INVESCO GT Asset
Management PLC (London), has been responsible for the fund since 1997 and
has been associated with the INVESCO (NY), Inc. and/or its affiliates since
1987. From 1987 to 1997, he was an Investment Analyst and Portfolio Manager
for Abbey Life Investment Services Ltd. (Bournemouth) from 1987 to 1997,
and as Head of Latin American Equities from 1994 to 1997.
9
<PAGE> 484
OTHER INFORMATION
INITIAL SALES CHARGES FOR CLASS A SHARES
Purchases of Class A shares of the 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.
DIVIDENDS AND DISTRIBUTIONS
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.
Dividends
The fund generally declares and pays dividends, if any, quarterly.
10
<PAGE> 485
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 table shows the financial highlights for a share of the fund outstanding
during each of the fiscal years (or periods) indicated.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the fund's financial statements, is included in the fund's annual
report, which is available upon request.
[FINANCIAL HIGHLIGHTS BELOW ARE FOR CLASS A AND CLASS B FOR THE YEARS/PERIODS
INDICATED - TO BE REVISED BY FUND ACCOUNTING TO INCLUDE 1998
<TABLE>
<CAPTION>
---------------------------------------------------------------
Class A
---------------------------------------------------------------
1998 1997 1996 1995 1994
-------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
-------- ---------- --------- --------- ---------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
-------- ---------- --------- --------- ---------
Net gains on securities (both realized and
unrealized) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
-------- ---------- --------- --------- ---------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
-------- ---------- --------- --------- ---------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
-------- ---------- --------- --------- ---------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
======== ========== ========= ========= =========
Total return (a) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
======== ========== ========= ========= =========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
======== ========== ========= ========= =========
Ratio of expenses to average net assets (b) x.xx% (c)(d) x.xx% x.xx% x.xx% x.xx%
======== ========== ========= ========= =========
Ratio of net investment income (loss) to
average net assets (x.xx)% (c) (x.xx)% (x.xx)% (x.xx)% (x.xx)%
======== ========== ========= ========= =========
Portfolio turnover rate xx% xx% xx% xx% xx%
======== ========== ========= ========= =========
</TABLE>
(a) Does not deduct sales charges and are 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 were
X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(c) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have been the same.
(e) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (X.XX)%, (X.XX)%, (X.XX)%, (X.XX)% and (X.XX)% for
1998-1994.
INFORMATION AT THE ANNUAL UPDATE FILING NOT NOW]
11
<PAGE> 486
<TABLE>
<CAPTION>
Class B
---------------------------------------------------------------
1998 1997 1996 1995 1994
-------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
-------- ---------- --------- --------- ---------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
-------- ---------- --------- --------- ---------
Net gains on securities (both realized and
unrealized) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
-------- ---------- --------- --------- ---------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
-------- ---------- --------- --------- ---------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
-------- ---------- --------- --------- ---------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
======== ========== ========= ========= =========
Total return (a) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
======== ========== ========= ========= =========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
======== ========== ========= ========= =========
Ratio of expenses to average net assets (b) x.xx% (c)(d) x.xx% x.xx% x.xx% x.xx%
======== ========== ========= ========= =========
Ratio of net investment income (loss) to
average net assets (x.xx)% (c) (x.xx)% (x.xx)% (x.xx)% (x.xx)%
======== ========== ========= ========= =========
Portfolio turnover rate xx% xx% xx% xx% xx%
======== ========== ========= ========= =========
</TABLE>
(a) Does not deduct sales charges and are 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 were
X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(c) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have been the same.
(e) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (X.XX)%, (X.XX)%, (X.XX)%, (X.XX)% and (X.XX)% for
1998-1994.
12
<PAGE> 487
SHAREHOLDER INFORMATION
Choosing a Share Class
Many of the funds advised by the advisor (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>
o Initial sales charge o No initial sales charge o No initial sales charge
o Reduced or o Contingent deferred o Contingent deferred
waived initial sales charge on sales charge on
sales charge for redemptions within redemptions within
certain purchases six years one year
o Lower distribution o 12b-1 fee of 1.00% o 12b-1 fee of 1.00%
and service (12b-1)
fee than Class B or
Class C shares
(See "Fee Table o Converts to Class A o Does not convert to
and Expense shares after eight years Class A shares
Example") along with a pro rata
portion of its reinvested
dividends and distributions*
o Generally more o Purchase orders limited o Generally more
appropriate for long- to amounts less than appropriate for short-
term investors $250,000 term investors
</TABLE>
* If you held Class B shares of AIM Global Trends Fund 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
<PAGE> 488
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.
CATEGORY I Initial Sales Charges
- --------------------------------
<TABLE>
<CAPTION>
INVESTOR'S SALES CHARGE
-----------------------
AS A PERCENTAGE
AS A PERCENTAGE OF THE
AMOUNT OF INVESTMENT OF THE PUBLIC NET AMOUNT
IN SINGLE TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<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>
CATEGORY II Initial Sales Charges
- ---------------------------------
<TABLE>
<CAPTION>
INVESTOR'S SALES CHARGE
-----------------------
AS A PERCENTAGE
AS A PERCENTAGE OF THE
AMOUNT OF INVESTMENT OF THE PUBLIC NET AMOUNT
IN SINGLE TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<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>
CATEGORY III Initial Sales Charges
- ----------------------------------
<TABLE>
<CAPTION>
INVESTOR'S SALES CHARGE
-----------------------
AS A PERCENTAGE
AS A PERCENTAGE OF THE
AMOUNT OF INVESTMENT OF THE PUBLIC NET AMOUNT
IN SINGLE TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<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.
A-2
<PAGE> 489
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>
CLASS B CLASS C
CDSC AS A PERCENTAGE CDSC AS A PERCENTAGE
OF DOLLAR AMOUNT OF DOLLAR AMOUNT
YEAR SINCE PURCHASE MADE SUBJECT TO CHARGE SUBJECT TO CHARGE
------------------------ ----------------- -----------------
<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>
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 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
o on shares purchased by reinvesting dividends and distributions;
o when exchanging shares among certain AIM Funds;
o when using the reinstatement privilege; and
o 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
o if you redeem Class B shares you held for more than six years;
o if you redeem Class C shares you held for more than one year;
o if you redeem shares acquired through reinvestment of dividends and
distributions; and
o on increases in the net asset value of your shares.
A-3
<PAGE> 490
There may be other situations in which you or other shareholders may be able to
purchase or redeem shares at reduced or without sales charges. You should
consult the fund's Statement of Additional Information for details regarding
these situations.
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>
- -------------------------------------------------------------------------------------------------------------------------
Type of Account Initial Additional
Investments Investments
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing plans, 401(k) plans, Simplified $0 ($25 per $25
Employee Pension (SEP) accounts, Salary Reduction (SARSEP) accounts, Savings AIM Fund
Incentive Match Plans for Employee IRA (Simple IRA) accounts, 403(b) or 457 investment
plans) for salary
deferrals
from Savings
Plans)
- -------------------------------------------------------------------------------------------------------------------------
Automatic Investment Plans $50 $50
- -------------------------------------------------------------------------------------------------------------------------
IRA, Education IRA or Roth IRA $250 $50
- -------------------------------------------------------------------------------------------------------------------------
All other accounts $500 $50
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-4
<PAGE> 491
HOW TO PURCHASE SHARES
There are several ways you can purchase your shares. You can make direct
purchases or select from one of three automatic investment methods.
DIRECT PURCHASES
<TABLE>
<CAPTION>
Opening An Account Adding to An Account
<S> <C> <C>
Through a
Financial
Consultant Contact your financial consultant. Same
By Mail Mail completed Account Mail your check and the
Application and purchase payment to the transfer agent, remittance slip from
A I M Fund Services, Inc., P.O. Box 4739, your confirmation statement
Houston, TX 77210-4739. to the transfer agent.
By Wire Mail completed Account Call the transfer agent to
Application to the transfer agent. receive a reference number.
Call the transfer agent at Then, use the wire
(800) 959-4246 to receive a reference number. instructions at left.
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 methods described Mail completed AIM Bank
above. Connection(sm) form to the
transfer agent. Once
the transfer agent has
received the form, call the
transfer agent to place your
purchase.
</TABLE>
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 and in the same class of shares. 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
A-5
<PAGE> 492
10th or 25th day of the month 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 at net
asset value in certain AIM Funds without paying a sales charge. 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. 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
TIMING OF REDEMPTIONS
You can redeem shares during the hours the New York Stock Exchange (NYSE) is
open for business. An AIM Fund may postpone the right of redemption only under
unusual circumstances, such as when the NYSE restricts or suspends trading.
A-6
<PAGE> 493
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).
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.
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 eighteen 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.
HOW TO REDEEM SHARES
<TABLE>
<CAPTION>
Through a
Financial Consultant Contact your financial consultant.
<S> <C>
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 thirty
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 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.
A-7
<PAGE> 494
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 New York Stock Exchange (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.
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
A-8
<PAGE> 495
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 and it may have tax consequences.
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, in 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 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;
A-9
<PAGE> 496
(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:
o You must meet the minimum purchase requirements for the AIM Fund into
which you are exchanging;
o Shares of the AIM Fund you wish to acquire must be qualified for sale in
your state of residence;
o Exchanges must be made between accounts with identical registration
information;
o 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);
o Shares must have been held for at least one day prior to the exchange; and
o If you have physical share certificates, you must return them to the
transfer agent prior to the exchange.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the issuance of shares
being purchased 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
A-10
<PAGE> 497
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; OR WITHDRAW ALL OR ANY PART OF
THE OFFERING MADE BY THIS PROSPECTUS.
Pricing of Shares
Each of the AIM Funds prices its shares based on its net asset value. 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 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 New York Stock
Exchange (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. The AIM Funds price purchase, exchange and redemption
orders at the net asset value calculated after the transfer agent receives an
order in good form.
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. Every year, an
A-11
<PAGE> 498
account statement showing the amount of dividends and distributions you
received from each AIM Fund during the prior year will be sent to you.
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 of the AIM Fund's shares, and any gain
realized on the transaction will 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.
A-12
<PAGE> 499
[BACK COVER PAGE]
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
United States 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 semi-annual 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
or your account, or wish to obtain free copies of the fund's current SAI or
annual or semi-annual reports, please contact us:
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 semi-annual reports
only)
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, D.C., 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, D.C. 20549-6009. Please call the SEC
at 1-800-SEC-0330 for information about the Public Reference Room.
A I M Latin American Growth Fund
SEC 1940 Act file number: 811-05426
13
<PAGE> 500
[AIM LOGO]
ADVISOR CLASS
PROSPECTUS
MARCH 1, 1999
AIM LATIN AMERICAN GROWTH FUND
AIM Latin American Growth Fund seeks to provide growth of capital.
This prospectus contains important information. Please read it before investing
and keep it for future reference.
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. There is a risk that you could lose a portion or all of your money.
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.
1
<PAGE> 501
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES.........................................3
PRINCIPAL RISKS OF INVESTING IN THE FUND....................................3
PERFORMANCE INFORMATION.....................................................5
ANNUAL TOTAL RETURNS...............................................5
PERFORMANCE TABLE..................................................6
FEE TABLE AND EXPENSE EXAMPLE...............................................7
FEE TABLE..........................................................7
EXPENSE EXAMPLE....................................................7
FUND MANAGEMENT.............................................................8
THE ADVISOR AND SUBADVISOR.........................................8
ADVISOR COMPENSATION...............................................8
PORTFOLIO MANAGERS.................................................8
OTHER INFORMATION...........................................................9
DIVIDENDS AND DISTRIBUTIONS........................................9
FINANCIAL HIGHLIGHTS.......................................................10
SHAREHOLDER INFORMATION...................................................A-1
PURCHASING SHARES................................................A-1
REDEEMING SHARES.................................................A-3
EXCHANGING SHARES................................................A-5
PRICING OF SHARES................................................A-6
TAXES............................................................A-6
OBTAINING ADDITIONAL INFORMATION..............................BACK COVER PAGE
</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 is a service
mark of A I M Management Group Inc.
2
<PAGE> 502
INVESTMENT OBJECTIVE AND STRATEGIES
The fund's investment objective is growth of capital.
The fund seeks to achieve its objective by investing at least 65% of its total
assets in equity and debt securities of Latin American issuers. The fund
considers securities of "Latin American issuers" to include (i) securities of
companies organized under the laws of, or having a principal office located in,
a Latin American country, (ii) securities of companies that derive 50% or more
of their total revenues from business in Latin America, provided that, in the
view of INVESCO Asset Management Ltd. (the fund's subadvisor), the value of such
issuers' securities reflect Latin American developments to a greater extent than
developments elsewhere, (iii) securities issued or guaranteed by the government
of a country in Latin America, its agencies or instrumentalities, or
municipalities, or the central bank of such country, (iv) U.S.
dollar-denominated securities or securities denominated in a Latin American
currency issued by companies to finance operations in Latin America, and (v)
securities of Latin American issuers in the form of depositary shares. The fund
considers Latin America to include Mexico and the countries within Central and
South America and the Caribbean.
The fund will normally invest a majority of its assets in equity securities. The
fund may invest up to 35% of its total assets in a combination of equity and
debt securities of U.S. issuers. The fund may also invest up to 50% of its total
assets in debt securities, which may consist of lower-quality debt securities,
i.e., "junk bonds," and "Brady Bonds." Brady Bonds are debt restructurings that
provide for the exchange of cash and loans for newly-issued bonds. The fund
currently expects to invest primarily in securities issued by companies and
governments in Mexico, Chile, Brazil and Argentina. The fund may invest more
than 25% of its total assets in any of these four countries but does not expect
to invest more than 60% of its total assets in any one country.
In allocating investments among the various Latin American countries, the
portfolio managers look principally at the stage of industrialization, potential
for productivity gains through economic deregulation, the impact of financial
liberalization, and monetary conditions and the political outlook in each
country. Further, the portfolio managers select between debt and equity
investments based on additional economic criteria such as fundamental economic
strength, expected corporate profits, the condition of balance of payments,
changes in terms of trade, and currency and interest rate trends. The portfolio
managers usually sell a particular security when any of those factors materially
changes.
The fund is a non-diversified portfolio, which means that with respect to 50% of
its assets, it is permitted to invest more than 5% of its assets in the
securities of any one issuer.
In anticipation of or in response to adverse market conditions or for cash
management purposes, the fund may hold all or a portion of its assets in cash
(U.S. dollars, foreign currencies and multinational currency units), money
market securities, 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. 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 price of equity
securities rises and falls in response to many factors, including the historical
and prospective earnings of the issuer of the stock, the value of its assets,
general economic conditions, interest rates, investor perceptions, and market
liquidity. Debt securities are particularly vulnerable to credit risk and
interest rate fluctuations. When interest rates rise, bond prices fall; the
longer the bond's duration, the more sensitive it is to this risk.
[In comparison to the value of higher-quality debt securities, junk bonds
involve greater risk of default or price changes due to changes in the credit
quality of the issuer because they are generally unsecured and may be
subordinated to other creditors' claims. The value of lower-quality debt
securities often fluctuates in response to company, political or economic
developments and can decline significantly over short periods of time or during
periods of general or regional economic difficulty. Under some circumstances,
some Latin American countries that issue lower quality debt securities may be
unable or unwilling make principal or interest repayments as they come due.]
3
<PAGE> 503
Because the fund focuses its investments in Latin America, the value of your
shares may rise and fall more than the value of shares of a fund that invests in
a broader geographic region. In addition, the prices of securities issued by
Latin American issuers may be further affected by other factors such as higher
transaction costs and delays in settlement procedures, as well as
o 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. Some Latin
American countries have, in the past, sharply devalued their currencies
against the dollar.
o Political and economic conditions - The value of the fund's Latin American
investments may be adversely affected by political and social instability
and by changes in economic or taxation policies in Latin America.
Investments may be subject to the risk that Latin American governments may
expropriate, nationalize, or confiscate assets or may impose restrictions
on foreign investments or on currency transfers.
o Regulations - Latin American companies generally are subject to less
stringent regulation, including financial and accounting controls (and less
vigorous regulatory enforcement), than are U.S. companies. As a result,
among other things, there generally is less publicly available information
about foreign companies than about U.S. companies.
o Markets - The securities markets of Latin American countries are smaller
and less developed than U.S. securities markets. As a result, many foreign
securities may be less liquid and more volatile than U.S. securities.
Because it is non-diversified, the fund may invest in fewer issuers than if it
was a diversified fund. Thus, the value of the fund's shares may vary more
widely, and the fund may be subject to greater investment and credit risk, than
if the fund invested more broadly.
Many software systems are unable to distinguish the year 2000 from the year
1900. The fund's investment advisor, together with independent technology
consultants, has completed its determination as to whether any software systems
that the fund uses or depends on has that problem and is in the process of
correcting and testing those systems that may have such problem. This problem,
if not corrected, may adversely affect services provided to the fund or may
affect companies in which the fund may invest and, therefore, may lower the
value of your shares.
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.
4
<PAGE> 504
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 Advisor
Class shares from year to year over a 4-year period.
insert chart here
* The year-to-date return as of 1/31/99 (the end of the most recent fiscal
quarter) was ________________ %.
[BAR CHART TO BE REVISED]
[INFO BELOW TO BE UPDATED/PROVIDED AT ANN. UPDATE - NOT NOW]
AIM LATIN AMERICAN GROWTH FUND
(Advisor)
<TABLE>
<CAPTION>
Annual
Year Ended Total
December 31 Return
----------- ------
<S> <C>
1995 ........................ -0.09%
1996 ........................ 17.51%
1997 ........................ 14.80%
1998 ........................ %
</TABLE>
During the 4-year period shown in the bar chart, the highest quarterly return
was [ ___________ %] (quarter ended [ ___________ ]) and the lowest quarterly
return was[ _________ %] (quarter ended [ ___________ ]).
5
<PAGE> 505
PERFORMANCE TABLE
The following performance table shows how the fund's average annual returns for
one, five and 10 years compare to those of a broad-based securities market
index.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Average Annual Total
Returns
(for the periods ending
December 31, 1998) 1 Year 5 Years 10 Years
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Advisor Class*
- ----------------------------------------------------------------------------------------------
MSCI Emerging Latin America**
- ----------------------------------------------------------------------------------------------
</TABLE>
* Advisor Class returns are since inception (6/1/95).
** The MSCI Emerging Latin America Index are market value-weighted averages of
companies listed in Argentina, Brazil, Chile, Colombia, Mexico, Peru and
Venezuela. This index is measured in U.S. dollars and includes the effect
of reinvested dividends. The MSCI Emerging Latin American Index has an
aggregate market capitalization of $318.95 billion.
[INFO IN CHART TO BE UPDATED/PROVIDED AT ANN. UPDATE - NOT NOW]
6
<PAGE> 506
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>
Advisor Class
-------------
<S> <C>
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price
or redemption proceeds, whichever is less) None
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
Management Fees(1) 0.98%
Distribution and/or Service (12b-1) Fees None
Other Expenses:
Transfer agent fees and costs ---
Other ---
Total Other Expenses ---
Total Annual Fund Operating Expenses ---
</TABLE>
- -----------------
[(1) The investment advisor is currently waiving a portion of its fees. The
management fees were 0.61% after such waiver. The waiver may be terminated
at any time with the approval of the fund's Board of Trustees. If the
waiver is terminated before the end of the fund's fiscal year, the
investment advisor may be reimbursed the waived amounts for that year.]
EXPENSE EXAMPLE
This example is intended to help you compare the cost of investing in the
Advisor Class 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 operating expenses remain the same. Although your actual returns and
costs may be higher or lower, based on these assumptions your costs would be:
[FUND ACCOUNTING TO PROVIDE INFO AT THE ANNUAL UPDATE FILING - NOT NOW]
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Advisor Class [ $ $ $ $
</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>
Advisor Class [ $ $ $ $
</TABLE>
7
<PAGE> 507
FUND MANAGEMENT
THE ADVISOR AND SUBADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment adviser.
INVESCO Asset Management Ltd. (the sub-advisor), an affiliate of the advisor, is
the fund's subadvisor and is responsible for its day-to-day management. The
advisor is located at 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173.
The sub-advisor is located at 11 Devonshire Squire, London EC2M 4YR, England.
The advisors supervise all aspects of the fund's operations and provide
investment advisory services to the fund, including obtaining and evaluating
economic, statistical and financial information to formulate and implement
investment programs for the fund.
The advisor has acted as an investment adviser since its organization in 1976,
and the subadvisor has acted as an investment adviser since its organization in
[ _____ ]. Today, the advisor, together with its subsidiaries, advises or
manages over 90 investment portfolios, including the fund, encompassing a broad
range of investment objectives.
ADVISOR COMPENSATION
During the fund's last fiscal year ended October 31, 1998, the fund paid the
advisor advisory fees of ______% of the fund's average net assets.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual member
of the team who is primarily responsible for the day-to-day management of the
fund's portfolio, is
o David Manuel, Portfolio Manager for the subadvisor and INVESCO GT Asset
Management PLC (London), has been responsible for the fund since 1997 and
has been associated with the INVESCO (NY), Inc. and/or its affiliates since
1987. From 1987 to 1997, he was an Investment Analyst and Portfolio Manager
for Abbey Life Investment Services Ltd. (Bournemouth) from 1987 to 1997,
and as Head of Latin American Equities from 1994 to 1997.
8
<PAGE> 508
OTHER INFORMATION
DIVIDENDS AND DISTRIBUTIONS
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.
Dividends
The fund generally declares and pays dividends, if any, annually.
9
<PAGE> 509
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 table shows the financial highlights for a share of the fund outstanding
during each of the fiscal years (or periods) indicated.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the fund's financial statements, is included in the fund's annual
report, which is available upon request.
<TABLE>
<CAPTION>
Advisor Class
-------------------------------------------------------------
June 1, 1995
to
1998 1997 1996 October 1, 1995
-------- ------- ------- ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx
-------- ------- ------- ---------------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx)
-------- ------- ------- ---------------
Net gains on securities (both realized and unrealized) (x.xx) (x.xx) (x.xx) (x.xx)
-------- ------- ------- ---------------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx)
-------- ------- ------- ---------------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx)
-------- ------- ------- ---------------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx
-------- ------- ------- ---------------
Total return(a) (x.xx)% (x.xx)% (x.xx)% (x.xx)%
-------- ------- ------- ---------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $xx,xxx $xx,xxx $xx,xxx $ xx,xxx
-------- ------- ------- ---------------
Ratio of expenses to average net assets(b) x.xx% (c)(d) x.xx% x.xx% x.xx%
-------- ------- ------- ---------------
Ratio of net investment income (loss) to average net assets(e) (x.xx)% (c) (x.xx)% (x.xx)% (x.xx)%
-------- ------- ------- ---------------
Portfolio turnover rate xx% xx% xx% xx%
-------- ------- ------- ---------------
</TABLE>
(a) Does not deduct sales charges and are 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 were
X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(c) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(X.XX)% for 1998-1994.
[ACCT. TO INCLUDE 1998 INFO AT THE ANNUAL UPDATE - NOT NOW]
10
<PAGE> 510
SHAREHOLDER INFORMATION FOR ADVISOR CLASS SHARES
- -------------------------------------------------------------------------------
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM ACCOUNT
The minimum initial investment for Advisor Class shares is $500; and the
minimum investment for purchases of additional Advisor Class shares is $50.
HOW TO PURCHASE SHARES
Shares offered by this prospectus are available for purchase only by certain
investors and are offered at net asset value without the imposition of a
front-end or contingent deferred sales charge or Rule 12b-1 fees. Advisor Class
shares are available through financial consultants (such as financial planners,
trust companies, bank trust departments, and registered investment advisors).
In order to purchase Advisor Class shares of any AIM Fund, your financial
consultant, on your behalf, must submit a fully completed new account
application form directly to the transfer agent.
There are several ways you can purchase your shares. You can make direct
purchases or select from two automatic investment methods.
DIRECT PURCHASES
<TABLE>
<CAPTION>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Through a Financial Consultant Contact your financial consultant. Same
By Mail Must be submitted by your financial Mail your check and the remittance
consultant. slip from your confirmation
statement to the transfer agent.
A I M Fund Services, Inc., P.O. Box
4739
Houston, TX 77210-4739
By Wire Your financial consultant must mail a Call the transfer agent to receive a
completed account application to the reference number. Then, use the
transfer agent. You or your financial wire instructions at left.
consultant may call the transfer agent
at (800) 959-4246 to 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 #
</TABLE>
A-1
<PAGE> 511
<TABLE>
<CAPTION>
<S> <C> <C>
By AIM Bank Open your account using one of the Mail completed AIM Bank Connection(sm)
Connection(sm) methods described above. form to the transfer agent. Once the
transfer agent has received the form,
call the transfer agent to place your
purchase order.
</TABLE>
SPECIAL PLANS
Automatic Dividend Investment
All of your dividends and distributions may be paid in cash or invested in
Advisor Class shares of certain AIM Funds. Unless you specify otherwise, your
dividends and distributions will automatically be reinvested in the same AIM
Fund.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in Advisor Class shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend or
distribution must be at least $5,000; or (b) in the AIM Fund receiving the
dividend or distribution 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 and
distributions 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 holdings of Advisor Class shares of AIM Funds 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 Advisor
Class shares 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.
The distributor and its agents reserve the right at any time to (1) reject or
cancel any part of any purchase or exchange order; (2) modify any terms or
conditions of purchase of shares of any AIM Fund; or (3) withdraw all or any
part of the offering made by this Prospectus.
A-2
<PAGE> 512
REDEEMING SHARES
TIMING OF REDEMPTIONS
You can redeem shares during the hours the New York Stock Exchange (NYSE) is
open for business. An AIM Fund may postpone the right of redemption only under
unusual circumstances, such as when the NYSE restricts or suspends trading.
REDEMPTION FEES
No redemption fee is imposed when shares are redeemed or repurchased; however,
dealers/financial institutions may charge service fees for handling repurchase
transactions.
A-3
<PAGE> 513
<TABLE>
<CAPTION>
HOW TO REDEEM SHARES
- -------------------------------------------------------------------------------------------------------------------
<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.
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. The transfer agent must receive your call
during the hours the 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 at the address on record with
us.
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.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
A-4
<PAGE> 514
(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.
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, IN ITS DISCRETION, REDEEM THE ACCOUNT AND DISTRIBUTE THE PROCEEDS
TO YOU.]
EXCHANGING SHARES
You may, under certain circumstances, exchange Advisor Class shares in one AIM
Fund for Advisor Class shares of another AIM Fund. Before requesting an
exchange, review the prospectus of the AIM Fund you wish to acquire.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
o You must meet the minimum purchase requirements for the AIM Fund into
which you are exchanging;
o Shares of the AIM Fund you wish to acquire must be qualified for sale in
your state of residence;
o Exchanges must be made between accounts with identical registration
information;
o 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);
o The AIM Fund from which you are exchanging must have received the full
amount of the purchase price for the shares being exchanged;
o Recently acquired shares must have been held in your account for ten
business days, and all other shares must have been held for at least one
day, prior to the exchange; and
o If you have physical share certificates, you must return them to the
transfer agent prior to the exchange.
A-5
<PAGE> 515
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the issuance of shares
being purchased 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.
GENERAL INFORMATION
- -------------------------------------------------------------------------------
PRICING OF SHARES
Each of the AIM Funds prices its shares based on its net asset value. 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. 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 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 Trustees 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. The AIM Funds price
purchase, exchange, and redemption orders calculated at the net asset value
after the transfer agent receives an order in good form.
A-6
<PAGE> 516
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. Long-term capital gain
distributions are taxable as long-term capital gains when distributed to you,
no matter how long you held your shares. Different rates of tax may apply to
ordinary income and long-term capital gain distributions. Every year, an
account statement showing the amount of dividends and distributions you
received from each AIM Fund during the prior year will be sent to you.
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 of the AIM Fund's shares, and any gain
realized on the transaction will 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.
A-7
<PAGE> 517
[BACK COVER PAGE]
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
United States 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 semi-annual 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 semi-annual reports, please contact us:
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
semi-annual reports only)
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, D.C., 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, D.C. 20549-6009. Please call the SEC
at 1-800-SEC-0330 for information about the Public Reference Room.
AIM Latin American Growth Fund
SEC 1940 Act file number: 811-05426
11
<PAGE> 518
[AIM LOGO]
AIM STRATEGIC INCOME FUND
PROSPECTUS
MARCH 1, 1999
AIM Strategic Income Fund primarily seeks high current income and, secondarily,
seeks growth of capital.
This prospectus contains important information. Please read it before investing
and keep it for future reference.
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. There is a risk that you could lose a portion or all of your money.
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.
<PAGE> 519
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT OBJECTIVES AND STRATEGIES.....................................................................3
PRINCIPAL RISKS OF INVESTING IN THE FUND.................................................................3
PERFORMANCE INFORMATION..................................................................................4
ANNUAL TOTAL RETURNS............................................................................4
PERFORMANCE TABLE...............................................................................5
FEE TABLE AND EXPENSE EXAMPLE............................................................................6
FEE TABLE.......................................................................................6
EXPENSE EXAMPLE.................................................................................6
FUND MANAGEMENT..........................................................................................8
THE ADVISOR AND SUBADVISOR......................................................................8
ADVISOR COMPENSATION............................................................................8
PORTFOLIO MANAGERS..............................................................................8
OTHER INFORMATION.......................................................................................10
INITIAL SALES CHARGES FOR CLASS A SHARES.......................................................10
DIVIDENDS AND DISTRIBUTIONS....................................................................10
FINANCIAL HIGHLIGHTS....................................................................................11
SHAREHOLDER INFORMATION................................................................................A-1
CHOOSING A SHARE CLASS........................................................................A-1
PURCHASING SHARES.............................................................................A-4
REDEEMING SHARES..............................................................................A-6
EXCHANGING SHARES.............................................................................A-9
PRICING OF SHARES............................................................................A-11
TAXES........................................................................................A-11
OBTAINING ADDITIONAL INFORMATION...........................................................BACK COVER PAGE
</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 is a service
mark of A I M Management Group Inc.
2
<PAGE> 520
INVESTMENT OBJECTIVES AND STRATEGIES
The fund's primary investment objective is high current income and its secondary
investment objective is growth of capital.
The fund seeks to achieve its objectives by investing primarily in debt
securities, including mortgage-backed and asset-backed securities, of issuers in
the United States and developed and developing countries, i.e., those that are
in the initial stages of their industrial cycles. The securities of issuers in
developing countries may consist substantially of "Brady Bonds" and other
sovereign debt securities issued by governments of such countries traded in the
markets of developed countries or groups of developed countries without regard
to ratings. Brady Bonds are debt restructurings that provide for the exchange of
cash and loans for newly-issued bonds.
The fund normally invests at least 35% of its total assets in U.S. and foreign
debt and other fixed income securities that are either rated at least investment
grade by Moody's Investors Service, Inc. or Standard & Poor's (rated in the four
highest ratings categories by Moody's or S&P), or that INVESCO (NY), Inc. the
fund's subadvisor, believes to be of comparable quality. The fund may invest up
to 65% of its total assets in debt securities that are rated below investment
grade by such agencies or that the fund's subadvisor believes to be of
comparable quality, i.e., "junk bonds." The fund may also invest up to 35% of
its total assets in equity securities. The fund may invest a significant portion
of its assets in the securities of U.S. issuers.
The portfolio managers allocate assets among securities of countries and in
currency denominations that are expected to provide the most attractive
opportunities for meeting the fund's investment objectives. The portfolio
managers consider fundamental economic strength, credit quality, and currency
and interest rate trends in emphasizing various country, geographic, and
industry sectors within the fund. Further, the portfolio managers select
particular issuers based on additional economic criteria such as yield,
maturity, issue classification, and quality characteristics. Currency
investments are based on factors such as relative inflation, interest rate
levels and trends, growth rate forecasts, balance of payments status, and
economic policies. The portfolio managers usually sell a particular security
when any of those factors materially changes.
The fund is a non-diversified portfolio, which means that with respect to 50% of
its assets, it is permitted to invest more than 5% of its assets in the
securities of only one issuer.
In anticipation of or in response to adverse market conditions or for cash
management purposes, the fund may hold all or a portion of its assets in cash
(U.S. dollars, foreign currencies or multinational currency units), money market
securities, bonds or other debt securities. As a result, the fund may not
achieve its investment objectives.
The fund may engage in active and frequent trading of portfolio securities to
achieve its investment objective. If the fund does trade in this way, it may
incur increased transaction costs, which can lower the actual return on your
investment. Active trading may also increase short-term capital gains and
losses, which may affect the taxes you have to pay
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. Debt securities are particularly
vulnerable to credit risk and interest rate fluctuations. When interest rates
rise, bond prices fall; the higher the bond's duration, the more sensitive it is
to this risk.
In addition, the prices of securities of foreign issuers may be further affected
by other factors including
3
<PAGE> 521
o 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.
o 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, among other things, there generally
is less publicly available information about foreign companies than about
U.S. companies.
o 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.
These factors may affect the price of securities issued by foreign companies
located in developing countries more than those in countries with mature
economies. For example, many developing countries have, in the past, experienced
high rates of inflation or sharply devalued their currencies against the U.S.
dollar, thereby causing the value of investments in companies located in those
countries to decline. Transaction costs are often higher in developing countries
and there may be delays in settlement procedures. In addition, developing
countries may have greater political or economic instability, less regulation
and smaller, less liquid and more volatile markets than countries with more
mature economies.
Sovereign debt securities of developing country governments are generally
lower-quality debt securities. Sovereign debt securities are subject to the
additional risk that, under some political, diplomatic, social, or economic
circumstances, some developing countries that issue lower-quality debt
securities may be unable or unwilling to make principal or interest repayments
as they come due.
[Compared to higher-quality debt securities, junk bonds involve greater risk of
default or price changes due to changes in the credit quality of the issuer
because they are generally unsecured and may be subordinated to other creditors'
claims. The value of lower-quality debt securities often fluctuates in response
to company, political or economic developments and can decline significantly
over short periods of time or during periods of general or regional economic
difficulty.]
Because it is non-diversified, the fund may invest in fewer issuers than if it
was a diversified fund. Thus, the value of the fund's shares may vary more
widely, and the fund may be subject to greater investment and credit risk, than
if the fund invested more broadly.
Many software systems are unable to distinguish the year 2000 from the year
1900. The fund's investment advisor, together with independent technology
consultants, has completed its determination as to whether any software systems
that the fund uses or depends on has that problem and is in the process of
correcting and testing those systems that may have such problem. This problem,
if not corrected, may adversely affect services provided to the fund or may
affect companies in which the fund may invest and, therefore, may lower the
value of your shares.
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.
4
<PAGE> 522
[INFORMATION TO BE PROVIDED BY GARY WENDLER'S GROUP]
PEFORMANCE 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 A
shares from year to year over a 10-year period. The bar chart does not reflect
sales loads. If it did, the annual total returns shown would be lower.
[GRAPH]
STRATEGIC INCOME
<TABLE>
<CAPTION>
Annual
Total
Year Ended Return
---------- ------
<S> <C>
1989 ...................................................... 10.17%
1990 ...................................................... 8.38%
1991 ...................................................... 15.78%
1992 ...................................................... 1.27%
1993 ...................................................... 43.95%
1994 ......................................................(20.85)%
1995 ...................................................... 17.05%
1996 ...................................................... 21.03%
1997 ...................................................... 6.94%
</TABLE>
[BAR CHART TO BE REVISED - DELETE INFO FOR 1988 AND LEAVE A BLANK FOR 1998]
[INFO BELOW TO BE UPDATED/PROVIDED AT THE TIME OF THE ANNUAL UPDATE FILING - NOT
NOW]
During the 10-year period shown in the bar chart, the highest quarterly return
was [____%] (quarter ended [_______, 199__]) and the lowest quarterly return
was[____%] (quarter ended [_______, 199__]).
5
<PAGE> 523
PERFORMANCE TABLE
The following performance table shows how the fund's average annual returns for
one, five and 10 years compare to those of a broad-based securities market
index.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Average Annual Total Returns
(for the periods ending December 31, 1998)
1 Year 5 Years 10 Years
- ----------------------------------------------- ------ ------- ---------
<S> <C> <C> <C>
Class A* [ ]% [ ]% [ ]%
------ ------- ---------
Class B** [ ] -- --
------ ------- ---------
J.P. Morgan Global Government Bond Index*** [ ] [ ] [ ]
- -----------------------------------------------------------------------------------------------
</TABLE>
* Class A returns are since inception ( ).
** Class B returns are since inception ( ).
*** The J.P. Morgan Global Government Bond Index is a market value-weighted
average of government bonds form 13 major bond markets. It includes the
effect of reinvested coupons and is measured in U.S. dollars.
[PLEASE REVIEW/REFINE THE ABOVE DESCRIPTION OF THE JP MORGAN GLOBAL GOVERNMENT
BOND INDEX]
[INFO IN THE ABOVE CHART TO BE UPDATED/PROVIDED AT THE ANNUAL UPDATE FILING -
NOT NOW]
6
<PAGE> 524
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>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Shareholder Fees (fees paid directly from your investment)
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
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
Management Fees (2) % % %
----- ----- -----
Distribution and/or Service (12b-1) Fees
----- ----- -----
Other Expenses:
Transfer agent fees and costs
----- ----- -----
Other
----- ----- -----
Total Other Expenses
----- ----- -----
Total Annual Fund Operating Expenses
===== ===== =====
</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 investment advisor is currently waiving a portion of its fees. The
management fees were 0.61% after such waiver. The waiver may be terminated
at any time with the approval of the fund's Board of Trustees. If the
waiver is terminated before the end of the fund's fiscal year, the
investment advisor may be reimbursed the waived amounts for that year.]
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 $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's operating expenses remain the same. Although your actual returns and
costs may be higher or lower, based on these assumptions your costs would be:
7
<PAGE> 525
[FUND ACCOUNTING TO PROVIDE INFO AT THE ANNUAL UPDATE FILING - NOT NOW]
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A [$ $ $ $
Class B
Class C
You would pay the following expenses if you did not redeem your shares:
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $ $ $ $
Class B
Class C ]
</TABLE>
8
<PAGE> 526
FUND MANAGEMENT
THE ADVISOR AND SUBADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment adviser.
INVESCO (NY), Inc. (the subadvisor), an affiliate of the advisor, is the fund's
subadviser and is responsible for its day-to-day management. The advisor is
located at 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The
subadvisor is located at 1166 Avenue of the Americas, New York, New York 10036.
The advisors supervise all aspects of the fund's operations and provide
investment advisory services to the fund, including obtaining and evaluating
economic, statistical and financial information to formulate and implement
investment programs for the fund.
The advisor has acted as an investment adviser since its organization in 1976,
and the subadvisor has acted as an investment adviser since its organization in
[_]. Today, the advisor, together with its subsidiaries, advises or manages over
90 investment portfolios, including the fund, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the fund's last fiscal year ended October 31, 1998, the fund paid the
advisor advisory fees of __% of the fund's average net assets.
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, [all of whom are officers of the subadvisor], are
o Cheng-Hock Lau, Portfolio Manager, who has been responsible for the fund
since 1996 and has been associated with the advisor and/or its affiliates
since 1995. He has been Chief Investment Officer for Global Fixed Income
and Portfolio Manager for the subadvisor since October 1996. From July 1995
to October 1996, he was Senior Portfolio Manager for Global/International
Fixed Income for the subadvisor. From 1995 to October 1996, he was employed
by Chancellor Capital Management, Inc. ("Chancellor Capital"), a
predecessor of the subadvisor. He was Senior Vice President and Senior
Portfolio Manager for Fiduciary Trust Company International from 1993 to
1995. He was Vice President at the Bankers Trust company from 1991 to 1993.
o David B. Hughes, Portfolio Manager, who has been responsible for the fund
since 1998 and has been associated with the advisor and/or its affiliates
since 1995. He has been Head of Global Fixed Income, North America, and
Portfolio Manager for the subadvisor since January 1998. From July 1995 to
December 1997, he was Senior Portfolio Manager for Global/International
Fixed Income for the subadvisor. From July 1995 to October 1996, he was
employed by Chancellor Capital. He was Assistant Vice President of
Fiduciary Trust Company International from 1994 to 1995. He was Assistant
Treasurer at the Bankers Trust Company from 1991 to 1994.
o Craig Munro, Portfolio Manager, who has been responsible for the fund since
1998 and has been associated with the advisor and/or its affiliates since
1997. He has been Portfolio Manager for the subadvisor since August 1997.
From 1993 to August 1997, he was Vice President and Senior Analyst in the
Emerging Markets Group of the Global Fixed Income Division of Merrill Lynch
Asset Management.
9
<PAGE> 527
OTHER INFORMATION
INITIAL SALES CHARGES FOR CLASS A SHARES
Purchases of Class A shares of the 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.
DIVIDENDS AND DISTRIBUTIONS
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.
Dividends
The fund generally declares and pays dividends, if any, monthly.
10
<PAGE> 528
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 table shows the financial highlights for a share of the fund outstanding
during each of the fiscal years (or periods) indicated.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the fund's financial statements, is included in the fund's annual
report, which is available upon request.
[FINANCIAL HIGHLIGHTS BELOW ARE FOR CLASS A AND CLASS B FOR THE YEARS/PERIODS
INDICATED - TO BE REVISED BY FUND ACCOUNTING TO INCLUDE 1998 INFORMATION AT THE
ANNUAL UPDATE FILING - NOT NOW]
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
----------- ----------- ----------- ----------- -----------
Net gains on securities (both realized and unrealized) (x.xx) x.xx x.xx x.xx x.xx
----------- ----------- ----------- ----------- -----------
Total from investment operations (x.xx) x.xx x.xx x.xx x.xx
----------- ----------- ----------- ----------- -----------
Distributions from net realized gains (x.xx) x.xx x.xx x.xx --
----------- ----------- ----------- ----------- -----------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
=========== =========== =========== =========== ===========
Total return (a) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
=========== =========== =========== =========== ===========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ xx,xxx $ xx,xxx $ xx,xxx $ xx,xxx $ xx,xxx
=========== =========== =========== =========== ===========
Ratio of expenses to average net assets (b) x.xx%(c)(d) x.xx x.xx x.xx x.xx
=========== =========== =========== =========== ===========
Ratio of net investment income (loss) to average net assets(e) (x.xx)%(c) (x.xx)% (x.xx)% (x.xx)% (x.xx)%
=========== =========== =========== =========== ===========
Portfolio turnover rate xx% xx% xx% xx% xx%
=========== =========== =========== =========== ===========
</TABLE>
(a) Does not deduct sales charges and are 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 were
X.XX%, 1.13%, 1.16%, 1.18%, and 1.21% for 1998-1994.
(c) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been the
same.
(e) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (X.XX)%, (0.42)%, (0.29)%, (0.34)% and (0.16)% for
1998-1994.
1998 INFORMATION AT THE ANNUAL UPDATE FILING - NOT NOW]
11
<PAGE> 529
<TABLE>
<CAPTION>
Class B
---------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
----------- ----------- ----------- ----------- -----------
Net gains on securities (both realized and unrealized) (x.xx) x.xx x.xx x.xx x.xx
----------- ----------- ----------- ----------- -----------
Total from investment operations (x.xx) x.xx x.xx x.xx x.xx
----------- ----------- ----------- ----------- -----------
Distributions from net realized gains (x.xx) x.xx x.xx x.xx --
----------- ----------- ----------- ----------- -----------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
=========== =========== =========== =========== ===========
Total return (a) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
=========== =========== =========== =========== ===========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ xx,xxx $ xx,xxx $ xx,xxx $ xx,xxx $ xx,xxx
=========== =========== =========== =========== ===========
Ratio of expenses to average net assets (b) x.xx%(c)(d) x.xx x.xx x.xx x.xx
=========== =========== =========== =========== ===========
Ratio of net investment income (loss) to average net assets(e) (x.xx)%(c) (x.xx)% (x.xx)% (x.xx)% (x.xx)%
=========== =========== =========== =========== ===========
Portfolio turnover rate xx% xx% xx% xx% xx%
=========== =========== =========== =========== ===========
</TABLE>
(a) Does not deduct sales charges and are 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 were
X.XX%, 1.13%, 1.16%, 1.18%, and 1.21% for 1998-1994.
(c) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been the
same.
(e) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (X.XX)%, (0.42)%, (0.29)%, (0.34)% and (0.16)% for
1998-1994.
12
<PAGE> 530
SHAREHOLDER INFORMATION
Choosing a Share Class
Many of the funds advised by the advisor (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>
o Initial sales charge o No initial sales charge o No initial sales charge
o Reduced or o Contingent deferred o Contingent deferred
waived initial sales charge on sales charge on
sales charge for redemptions within redemptions within
certain purchases six years one year
o Lower distribution o 12b-1 fee of 1.00% o 12b-1 fee of 1.00%
and service (12b-1)
fee than Class B or
Class C shares
(See "Fee Table o Converts to Class A o Does not convert to
and Expense shares after eight years Class A shares
Example") along with a pro rata
portion of its reinvested
dividends and distributions*
o Generally more o Purchase orders limited o Generally more
appropriate for long- to amounts less than appropriate for short-
term investors $250,000 term investors
</TABLE>
* If you held Class B shares of AIM Global Trends Fund 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
<PAGE> 531
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.
CATEGORY I Initial Sales Charges
- --------------------------------
<TABLE>
<CAPTION>
INVESTOR'S SALES CHARGE
-----------------------
AS A PERCENTAGE
AS A PERCENTAGE OF THE
AMOUNT OF INVESTMENT OF THE PUBLIC NET AMOUNT
IN SINGLE TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<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>
CATEGORY II Initial Sales Charges
- ---------------------------------
<TABLE>
<CAPTION>
INVESTOR'S SALES CHARGE
-----------------------
AS A PERCENTAGE
AS A PERCENTAGE OF THE
AMOUNT OF INVESTMENT OF THE PUBLIC NET AMOUNT
IN SINGLE TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<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>
CATEGORY III Initial Sales Charges
- ----------------------------------
<TABLE>
<CAPTION>
INVESTOR'S SALES CHARGE
-----------------------
AS A PERCENTAGE
AS A PERCENTAGE OF THE
AMOUNT OF INVESTMENT OF THE PUBLIC NET AMOUNT
IN SINGLE TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<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.
A-2
<PAGE> 532
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>
CLASS B CLASS C
CDSC AS A PERCENTAGE CDSC AS A PERCENTAGE
OF DOLLAR AMOUNT OF DOLLAR AMOUNT
YEAR SINCE PURCHASE MADE SUBJECT TO CHARGE SUBJECT TO CHARGE
------------------------ ----------------- -----------------
<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>
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 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
o on shares purchased by reinvesting dividends and distributions;
o when exchanging shares among certain AIM Funds;
o when using the reinstatement privilege; and
o 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
o if you redeem Class B shares you held for more than six years;
o if you redeem Class C shares you held for more than one year;
o if you redeem shares acquired through reinvestment of dividends and
distributions; and
o on increases in the net asset value of your shares.
A-3
<PAGE> 533
There may be other situations in which you or other shareholders may be able to
purchase or redeem shares at reduced or without sales charges. You should
consult the fund's Statement of Additional Information for details regarding
these situations.
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>
- -------------------------------------------------------------------------------------------------------------------------
Type of Account Initial Additional
Investments Investments
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing plans, 401(k) plans, Simplified $0 ($25 per $25
Employee Pension (SEP) accounts, Salary Reduction (SARSEP) accounts, Savings AIM Fund
Incentive Match Plans for Employee IRA (Simple IRA) accounts, 403(b) or 457 investment
plans) for salary
deferrals
from Savings
Plans)
- -------------------------------------------------------------------------------------------------------------------------
Automatic Investment Plans $50 $50
- -------------------------------------------------------------------------------------------------------------------------
IRA, Education IRA or Roth IRA $250 $50
- -------------------------------------------------------------------------------------------------------------------------
All other accounts $500 $50
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-4
<PAGE> 534
HOW TO PURCHASE SHARES
There are several ways you can purchase your shares. You can make direct
purchases or select from one of three automatic investment methods.
DIRECT PURCHASES
<TABLE>
<CAPTION>
Opening An Account Adding to An Account
<S> <C> <C>
Through a
Financial
Consultant Contact your financial consultant. Same
By Mail Mail completed Account Mail your check and the
Application and purchase payment to the transfer agent, remittance slip from
A I M Fund Services, Inc., P.O. Box 4739, your confirmation statement
Houston, TX 77210-4739. to the transfer agent.
By Wire Mail completed Account Call the transfer agent to
Application to the transfer agent. receive a reference number.
Call the transfer agent at Then, use the wire
(800) 959-4246 to receive a reference number. instructions at left.
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 methods described Mail completed AIM Bank
above. Connection(sm) form to the
transfer agent. Once
the transfer agent has
received the form, call the
transfer agent to place your
purchase.
</TABLE>
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 and in the same class of shares. 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
A-5
<PAGE> 535
10th or 25th day of the month 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 at net
asset value in certain AIM Funds without paying a sales charge. 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. 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
TIMING OF REDEMPTIONS
You can redeem shares during the hours the New York Stock Exchange (NYSE) is
open for business. An AIM Fund may postpone the right of redemption only under
unusual circumstances, such as when the NYSE restricts or suspends trading.
A-6
<PAGE> 536
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).
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.
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 eighteen 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.
HOW TO REDEEM SHARES
<TABLE>
<CAPTION>
Through a
Financial Consultant Contact your financial consultant.
<S> <C>
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 thirty
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 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.
A-7
<PAGE> 537
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 New York Stock Exchange (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.
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
A-8
<PAGE> 538
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 and it may have tax consequences.
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, in 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 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;
A-9
<PAGE> 539
(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:
o You must meet the minimum purchase requirements for the AIM Fund into
which you are exchanging;
o Shares of the AIM Fund you wish to acquire must be qualified for sale in
your state of residence;
o Exchanges must be made between accounts with identical registration
information;
o 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);
o Shares must have been held for at least one day prior to the exchange; and
o If you have physical share certificates, you must return them to the
transfer agent prior to the exchange.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the issuance of shares
being purchased 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
A-10
<PAGE> 540
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; OR WITHDRAW ALL OR ANY PART OF
THE OFFERING MADE BY THIS PROSPECTUS.
Pricing of Shares
Each of the AIM Funds prices its shares based on its net asset value. 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 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 New York Stock
Exchange (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. The AIM Funds price purchase, exchange and redemption
orders at the net asset value calculated after the transfer agent receives an
order in good form.
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. Every year, an
A-11
<PAGE> 541
account statement showing the amount of dividends and distributions you
received from each AIM Fund during the prior year will be sent to you.
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 of the AIM Fund's shares, and any gain
realized on the transaction will 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.
A-12
<PAGE> 542
[BACK COVER PAGE]
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
United States 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 semi-annual 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
or your account, or wish to obtain free copies of the fund's current SAI or
annual or semi-annual reports, please contact us:
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
semi-annual reports only)
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, D.C., 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, D.C. 20549-6009. Please call the SEC
at 1-800-SEC-0330 for information about the Public Reference Room.
AIM Strategic Income Fund
SEC 1940 Act file number: 811-05426
13
<PAGE> 543
[AIM LOGO]
ADVISOR CLASS
AIM STRATEGIC INCOME FUND
PROSPECTUS
MARCH 1, 1999
AIM Strategic Income Fund seeks to provide high current income and, secondarily,
seeks growth of capital.
This prospectus contains important information. Please read it before investing
and keep it for future reference.
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. There is a risk that you could lose a portion or all of your money.
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.
<PAGE> 544
TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES AND STRATEGIES..........................................3
PRINCIPAL RISKS OF INVESTING IN THE FUND......................................3
PERFORMANCE INFORMATION.......................................................5
ANNUAL TOTAL RETURNS.................................................5
PERFORMANCE TABLE....................................................6
FEE TABLE AND EXPENSE EXAMPLE.................................................7
FEE TABLE............................................................7
EXPENSE EXAMPLE......................................................7
FUND MANAGEMENT...............................................................8
THE ADVISOR AND SUBADVISOR...........................................8
ADVISOR COMPENSATION.................................................8
PORTFOLIO MANAGERS...................................................8
OTHER INFORMATION.............................................................9
DIVIDENDS AND DISTRIBUTIONS..........................................9
FINANCIAL HIGHLIGHTS.........................................................10
SHAREHOLDER INFORMATION.....................................................A-1
PURCHASING SHARES..................................................A-1
REDEEMING SHARES...................................................A-3
EXCHANGING SHARES..................................................A-5
PRICING OF SHARES..................................................A-6
TAXES..............................................................A-6
OBTAINING ADDITIONAL INFORMATION................................BACK COVER PAGE
</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 is a service
mark of A I M Management Group Inc.
2
<PAGE> 545
INVESTMENT OBJECTIVES AND STRATEGIES
The fund's primary investment objective is high current income and its secondary
investment objective is growth of capital.
The fund seeks to achieve its objectives by investing primarily in debt
securities, including mortgage-backed and asset-backed securities, of issuers in
the United States and developed and developing countries, i.e., those that are
in the initial stages of their industrial cycles. The securities of issuers in
developing countries may consist substantially of "Brady Bonds" and other
sovereign debt securities issued by governments of such countries traded in the
markets of developed countries or groups of developed countries without regard
to ratings. Brady Bonds are debt restructurings that provide for the exchange of
cash and loans for newly-issued bonds.
The fund normally invests at least 35% of its total assets in U.S. and foreign
debt and other fixed income securities that are either rated at least investment
grade by Moody's Investors Service, Inc. or Standard & Poor's (rated in the four
highest ratings categories by Moody's or S&P), or that INVESCO (NY), Inc. the
fund's subadvisor, believes to be of comparable quality. The fund may invest up
to 65% of its total assets in debt securities that are rated below investment
grade by such agencies or that the fund's subadvisor believes to be of
comparable quality, i.e., "junk bonds." The fund may also invest up to 35% of
its total assets in equity securities. The fund may invest a significant portion
of its assets in the securities of U.S. issuers.
The portfolio managers allocate assets among securities of countries and in
currency denominations that are expected to provide the most attractive
opportunities for meeting the fund's investment objectives. The portfolio
managers consider fundamental economic strength, credit quality, and currency
and interest rate trends in emphasizing various country, geographic, and
industry sectors within the fund. Further, the portfolio managers select
particular issuers based on additional economic criteria such as yield,
maturity, issue classification, and quality characteristics. Currency
investments are based on factors such as relative inflation, interest rate
levels and trends, growth rate forecasts, balance of payments status, and
economic policies. The portfolio managers usually sell a particular security
when any of those factors materially changes.
The fund is a non-diversified portfolio, which means that with respect to 50% of
its assets, it is permitted to invest more than 5% of its assets in the
securities of only one issuer.
In anticipation of or in response to adverse market conditions or for cash
management purposes, the fund may hold all or a portion of its assets in cash
(U.S. dollars, foreign currencies or multinational currency units), money market
securities, bonds or other debt securities. As a result, the fund may not
achieve its investment objectives.
The fund may engage in active and frequent trading of portfolio securities to
achieve its investment objective. If the fund does trade in this way, it may
incur increased transaction costs, which can lower the actual return on your
investment. Active trading may also increase short-term capital gains and
losses, which may affect the taxes you have to pay.
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. Debt securities are particularly
vulnerable to credit risk and interest rate fluctuations. When interest rates
rise, bond prices fall; the higher the bond's duration, the more sensitive it is
to this risk.
In addition, the prices of securities of foreign issuers may be further affected
by other factors including
3
<PAGE> 546
o 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.
o 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.
o Regulations - Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, among other things, there generally is less
publicly available information about foreign companies than about U.S.
companies.
o 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.
These factors may affect the price of securities issued by foreign companies
located in developing countries more than those in countries with mature
economies. For example, many developing countries have, in the past, experienced
high rates of inflation or sharply devalued their currencies against the U.S.
dollar, thereby causing the value of investments in companies located in those
countries to decline. Transaction costs are often higher in developing countries
and there may be delays in settlement procedures. In addition, developing
countries may have greater political or economic instability, less regulation
and smaller, less liquid and more volatile markets than countries with more
mature economies.
Sovereign debt securities of developing country governments are generally
lower-quality debt securities. Sovereign debt securities are subject to the
additional risk that, under some political, diplomatic, social, or economic
circumstances, some developing countries that issue lower-quality debt
securities may be unable or unwilling to make principal or interest repayments
as they come due.
[Compared to higher-quality debt securities, junk bonds involve greater risk of
default or price changes due to changes in the credit quality of the issuer
because they are generally unsecured and may be subordinated to other creditors'
claims. The value of lower-quality debt securities often fluctuates in response
to company, political or economic developments and can decline significantly
over short periods of time or during periods of general or regional economic
difficulty.]
Because it is non-diversified, the fund may invest in fewer issuers than if it
was a diversified fund. Thus, the value of the fund's shares may vary more
widely, and the fund may be subject to greater investment and credit risk, than
if the fund invested more broadly.
Many software systems are unable to distinguish the year 2000 from the year
1900. The fund's investment advisor, together with independent technology
consultants, has completed its determination as to whether any software systems
that the fund uses or depends on has that problem and is in the process of
correcting and testing those systems that may have such problem. This problem,
if not corrected, may adversely affect services provided to the fund or may
affect companies in which the fund may invest and, therefore, may lower the
value of your shares.
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.
4
<PAGE> 547
[INFORMATION TO BE PROVIDED BY GARY WENDLER'S GROUP]
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 Advisor
Class shares from year to year over a 4-year period.
[BAR CHART TO BE REVISED]
[GRAPH]
AIM STRATEGIC INCOME FUND
(Advisor)
<TABLE>
<CAPTION>
Annual
Year Ended Total
December 31 Return
----------- ------
<S> <C>
1988............................................ 16.34%
1989............................................ 38.03%
1990............................................ -4.10%
1991............................................ 70.41%
1992............................................ 15.03%
1993............................................ 17.29%
1994............................................ 1.30%
1995............................................ 35.45%
1996............................................ 16.27%
1997............................................ 12.92%
1998............................................ %
</TABLE>
[INFO BELOW TO BE UPDATED/PROVIDED AT THE TIME OF THE ANNUAL UPDATE
FILING - NOT NOW]
During the 4-year period shown in the bar chart, the highest quarterly return
was [___________%] (quarter ended [_____________]) and the lowest quarterly
return was[___________%] (quarter ended [______________]).
5
<PAGE> 548
PERFORMANCE TABLE
The following performance table shows how the fund's average annual returns for
one, five and 10 years compare to those of a broad-based securities market
index.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Average Annual Total Returns
(for the periods ending December 31, 1998)
1 Year 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Advisor Class* [ ]% [ ]% [ ]%
- ---------------------------------------------------------------------------------------------------
J.P. Morgan Global Government Bond** [ ] [ ] [ ]
- ---------------------------------------------------------------------------------------------------
</TABLE>
* Advisor Class returns are since inception (6/1/95).
** The J.P. Morgan Global Government Bond Index is a market value-weighted
average of government bonds form 13 major bond markets. It includes the
effect of reinvested coupons and is measured in U.S. dollars.
[INFO IN THE ABOVE CHART TO BE UPDATED/PROVIDED AT THE ANNUAL UPDATE FILING -
NOT NOW]
6
<PAGE> 549
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>
Advisor Class
------- -----
<S> <C>
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price
or redemption proceeds, whichever is less) None
Annual Fund Operating Expenses
(expenses that are deducted from fund assets)
Management Fees 1 0.73%
Distribution and/or Service (12b-1) Fees None
Other Expenses:
Transfer agent fees and costs
----
Other
----
Total Other Expenses
----
Total Annual Fund Operating Expenses
----
</TABLE>
- -------------------
[1 The investment advisor is currently waiving a portion of its fees. The
management fees were 0.61% after such waiver. The waiver may be
terminated at any time with the approval of the fund's Board of Trustees.
If the waiver is terminated before the end of the fund's fiscal year, the
investment advisor may be reimbursed the waived amounts for that year.]
EXPENSE EXAMPLE
This example is intended to help you compare the cost of investing in the
Advisor Class 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 operating expenses remain the same. Although your actual returns and
costs may be higher or lower, based on these assumptions your costs would be:
[FUND ACCOUNTING TO PROVIDE INFO AT THE ANNUAL UPDATE FILING - NOT NOW]
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Advisor Class [ $ $ $ $
</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>
Advisor Class [ $ $ $ $
</TABLE>
7
<PAGE> 550
FUND MANAGEMENT
THE ADVISOR AND SUBADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment adviser.
INVESCO (NY), Inc. (the subadvisor), an affiliate of the advisor, is the fund's
subadvisor and is responsible for its day-to-day management. The advisor is
located at 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The
subadvisor is located at 1166 Avenue of the Americas, New York, New York, 10036.
The advisors supervise all aspects of the fund's operations and provide
investment advisory services to the fund, including obtaining and evaluating
economic, statistical and financial information to formulate and implement
investment programs for the fund.
The advisor has acted as an investment adviser since its organization in 1976,
and the subadvisor has acted as an investment adviser since its organization in
[1969]. Today, the advisor, together with its subsidiaries, advises or manages
over 90 investment portfolios, including the fund, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the fund's last fiscal year ended October 31, 1998, the fund paid the
advisor advisory fees of %_______ of the fund's average net assets.
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, [all of whom are officers of the subadvisor], are
o Cheng-Hock Lau, Portfolio Manager, who has been responsible for the
fund since 1996 and has been associated with the advisor and/or its
affiliates since 1995. He has been Chief Investment Officer for Global
Fixed Income and Portfolio Manager for the subadvisor since October
1996. From July 1995 to October 1996, he was Senior Portfolio Manager
for Global/International Fixed Income for the subadvisor. From 1995 to
October 1996, he was employed by Chancellor Capital Management, Inc.
("Chancellor Capital"), a predecessor of the subadvisor. He was Senior
Vice President and Senior Portfolio Manager for Fiduciary Trust Company
International from 1993 to 1995. He was Vice President at the Bankers
Trust company from 1991 to 1993.
o David B. Hughes, Portfolio Manager, who has been responsible for the
fund since 1998 and has been associated with the advisor and/or its
affiliates since 1995. He has been Head of Global Fixed Income, North
America, and Portfolio Manager for the subadvisor since January 1998.
From July 1995 to December 1997, he was Senior Portfolio Manager for
Global/International Fixed Income for the subadvisor. From July 1995 to
October 1996, he was employed by Chancellor Capital. He was Assistant
Vice President of Fiduciary Trust Company International from 1994 to
1995. He was Assistant Treasurer at the Bankers Trust Company from 1991
to 1994.
o Craig Munro, Portfolio Manager, who has been responsible for the fund
since 1998 and has been associated with the advisor and/or its
affiliates since 1997. He has been Portfolio Manager for the subadvisor
since August 1997. From 1993 to August 1997, he was Vice President and
Senior Analyst in the Emerging Markets Group of the Global Fixed Income
Division of Merrill Lynch Asset Management.
8
<PAGE> 551
OTHER INFORMATION
DIVIDENDS AND DISTRIBUTIONS
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.
Dividends
The fund generally declares and pays dividends, if any, monthly.
9
<PAGE> 552
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 table shows the financial highlights for a share of the fund outstanding
during each of the fiscal years (or periods) indicated.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the fund's financial statements, is included in the fund's annual
report, which is available upon request. [FINANCIAL HIGHLIGHTS BELOW ARE FOR
ADVISOR CLASS FOR THE YEARS/PERIODS INDICATED - TO BE REVISED BY FUND ACCOUNTING
TO INCLUDE 1998 INFORMATION AT THE ANNUAL UPDATE FILING - NOT NOW]
<TABLE>
<CAPTION>
-----------------------------------------------------------
Advisor Class
-----------------------------------------------------------
June 1, 1995
to
1998 1997 1996 October 31, 1995
-------- ------- ------- ----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------- ------- ------- ----------------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ----------------
Net gains on securities (both realized and unrealized) (x.xx) (x.xx) (x.xx) (x.xx)
======= ======= ======= ================
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx)
======= ======= ======= ================
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx)
======= ======= ======= ================
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx
======= ======= ======= ================
Total return (a) (x.xx)% (x.xx)% (x.xx)% (x.xx)%
======= ======= ======= ================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $xx,xxx $xx,xxx $xx,xxx $xx,xxx
======= ======= ======= ================
Ratio of expenses to average net assets (b) x.xx%(c)(d) x.xx% x.xx% x.xx%
======= ======= ======= ================
Ratio of net investment income (loss) to average
net assets (a) ((x.xx)%(c) (x.xx)% (x.xx)% (x.xx)%
======= ======= ======= ================
Portfolio turnover rate xx% xx% xx% xx%
======= ======= ======= ================
</TABLE>
(a) Does not deduct sales charges and are 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 were
X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(c) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have been the same.
(e) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (X.XX)%, (X.XX)%, (X.XX)%, (X.XX)% and (X.XX)% for
1998-1994.
10
<PAGE> 553
SHAREHOLDER INFORMATION FOR ADVISOR CLASS SHARES
- -------------------------------------------------------------------------------
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM ACCOUNT
The minimum initial investment for Advisor Class shares is $500; and the
minimum investment for purchases of additional Advisor Class shares is $50.
HOW TO PURCHASE SHARES
Shares offered by this prospectus are available for purchase only by certain
investors and are offered at net asset value without the imposition of a
front-end or contingent deferred sales charge or Rule 12b-1 fees. Advisor Class
shares are available through financial consultants (such as financial planners,
trust companies, bank trust departments, and registered investment advisors).
In order to purchase Advisor Class shares of any AIM Fund, your financial
consultant, on your behalf, must submit a fully completed new account
application form directly to the transfer agent.
There are several ways you can purchase your shares. You can make direct
purchases or select from two automatic investment methods.
DIRECT PURCHASES
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OPENING AN ACCOUNT ADDING TO AN ACCOUNT
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Through a Financial Consultant Contact your financial consultant. Same
By Mail Must be submitted by your financial Mail your check and the remittance
consultant. slip from your confirmation
statement to the transfer agent.
A I M Fund Services, Inc., P.O. Box
4739
Houston, TX 77210-4739
By Wire Your financial consultant must mail a Call the transfer agent to receive a
completed account application to the reference number. Then, use the
transfer agent. You or your financial wire instructions at left.
consultant may call the transfer agent
at (800) 959-4246 to 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 #
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<S> <C> <C>
By AIM Bank Open your account using one of the Mail completed AIM Bank Connection(sm)
Connection(sm) methods described above. form to the transfer agent. Once the
transfer agent has received the form,
call the transfer agent to place your
purchase order.
</TABLE>
SPECIAL PLANS
Automatic Dividend Investment
All of your dividends and distributions may be paid in cash or invested in
Advisor Class shares of certain AIM Funds. Unless you specify otherwise, your
dividends and distributions will automatically be reinvested in the same AIM
Fund.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in Advisor Class shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend or
distribution must be at least $5,000; or (b) in the AIM Fund receiving the
dividend or distribution 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 and
distributions 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 holdings of Advisor Class shares of AIM Funds 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 Advisor
Class shares 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.
The distributor and its agents reserve the right at any time to (1) reject or
cancel any part of any purchase or exchange order; (2) modify any terms or
conditions of purchase of shares of any AIM Fund; or (3) withdraw all or any
part of the offering made by this Prospectus.
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<PAGE> 555
REDEEMING SHARES
TIMING OF REDEMPTIONS
You can redeem shares during the hours the New York Stock Exchange (NYSE) is
open for business. An AIM Fund may postpone the right of redemption only under
unusual circumstances, such as when the NYSE restricts or suspends trading.
REDEMPTION FEES
No redemption fee is imposed when shares are redeemed or repurchased; however,
dealers/financial institutions may charge service fees for handling repurchase
transactions.
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HOW TO REDEEM SHARES
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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.
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. The transfer agent must receive your call
during the hours the NYSE is open for business in order to effect the
redemption at that day's closing price.
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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 at the address on record with
us.
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.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
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<PAGE> 557
(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.
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, IN ITS DISCRETION, REDEEM THE ACCOUNT AND DISTRIBUTE THE PROCEEDS
TO YOU.]
EXCHANGING SHARES
You may, under certain circumstances, exchange Advisor Class shares in one AIM
Fund for Advisor Class shares of another AIM Fund. Before requesting an
exchange, review the prospectus of the AIM Fund you wish to acquire.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
o You must meet the minimum purchase requirements for the AIM Fund into
which you are exchanging;
o Shares of the AIM Fund you wish to acquire must be qualified for sale in
your state of residence;
o Exchanges must be made between accounts with identical registration
information;
o 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);
o The AIM Fund from which you are exchanging must have received the full
amount of the purchase price for the shares being exchanged;
o Recently acquired shares must have been held in your account for ten
business days, and all other shares must have been held for at least one
day, prior to the exchange; and
o If you have physical share certificates, you must return them to the
transfer agent prior to the exchange.
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<PAGE> 558
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the issuance of shares
being purchased 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.
GENERAL INFORMATION
- -------------------------------------------------------------------------------
PRICING OF SHARES
Each of the AIM Funds prices its shares based on its net asset value. 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. 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 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 Trustees 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. The AIM Funds price
purchase, exchange, and redemption orders calculated at the net asset value
after the transfer agent receives an order in good form.
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<PAGE> 559
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. Long-term capital gain
distributions are taxable as long-term capital gains when distributed to you,
no matter how long you held your shares. Different rates of tax may apply to
ordinary income and long-term capital gain distributions. Every year, an
account statement showing the amount of dividends and distributions you
received from each AIM Fund during the prior year will be sent to you.
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 of the AIM Fund's shares, and any gain
realized on the transaction will 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.
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<PAGE> 560
[BACK COVER PAGE]
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
United States 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 semi-annual 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
or your account, or wish to obtain free copies of the fund's current SAI or
annual or semi-annual reports, please contact us:
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
semi-annual reports only)
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, D.C., 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, D.C. 20549-6009. Please call the SEC
at 1-800-SEC-0330 for information about the Public Reference Room.
AIM Strategic Income Fund
SEC 1940 Act file number: 811-05426
11
<PAGE> 561
STATEMENT OF
ADDITIONAL INFORMATION
CLASS A, CLASS B AND CLASS C SHARES OF
AIM DEVELOPING MARKETS FUND
[AIM EMERGING MARKETS FUND]
AIM LATIN AMERICAN GROWTH FUND
(SERIES PORTFOLIOS OF
AIM INVESTMENT FUNDS)
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 FREE
OF CHARGE FROM AUTHORIZED DEALERS OR BY WRITING
A I M DISTRIBUTORS, INC.,
P.O. BOX 4739, HOUSTON, TEXAS 77210-4739
OR BY CALLING (800) 347-4246
---------------------
STATEMENT OF ADDITIONAL INFORMATION DATED MARCH 1, 1999
RELATING TO THE AIM DEVELOPING MARKETS FUND PROSPECTUS DATED MARCH 1, 1999,
[THE AIM EMERGING MARKETS FUND PROSPECTUS DATED MARCH 1, 1999]
AND THE AIM LATIN AMERICAN GROWTH FUND PROSPECTUS DATED MARCH 1, 1999
<PAGE> 562
TABLE OF CONTENTS
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INTRODUCTION................................................ 4
GENERAL INFORMATION ABOUT THE FUNDS......................... 4
The Trust and Its Shares.................................. 4
INVESTMENT STRATEGIES AND RISKS............................. 5
Investment Objectives..................................... 5
Selection of Equity Investments........................... 6
Investments in Other Investment Companies................. 7
Privatizations............................................ 7
When-Issued and Forward Commitment Securities............. 8
Depositary Receipts....................................... 8
Warrants or Rights........................................ 8
Lending of Portfolio Securities........................... 9
Commercial Bank Obligations............................... 9
Repurchase Agreements..................................... 9
Borrowing, Reverse Repurchase Agreements and "Roll"
Transactions........................................... 9
Short Sales............................................... 10
Temporary Defensive Strategies............................ 11
Samurai and Yankee Bonds.................................. 11
Debt Conversions.......................................... 11
Debt Securities........................................... 12
Premium Securities........................................ 12
Indexed Debt Securities................................... 12
Structured Investments.................................... 13
Stripped Income Securities................................ 13
Floating and Variable Rate Income Securities.............. 13
Zero Coupon Securities.................................... 13
Indexed Commercial Paper.................................. 14
Other Indexed Securities.................................. 14
Swaps, Caps, Floors and Collars........................... 14
Loan Participations and Assignments....................... 14
OPTIONS, FUTURES AND CURRENCY STRATEGIES.................... 15
Special Risks of Options, Futures and Currency
Strategies............................................. 15
Writing Call Options...................................... 16
Writing Put Options....................................... 17
Purchasing Put Options.................................... 17
Purchasing Call Options................................... 18
Index Options............................................. 19
Interest Rate, Currency and Stock Index Futures........... 20
Options on Futures Contracts.............................. 21
Limitations on Use of Futures, Options on Futures and
Certain Options on Currencies.......................... 22
Forward Contracts......................................... 22
Foreign Currency Strategies -- Special Considerations..... 23
Cover..................................................... 23
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RISK FACTORS................................................ 24
General................................................... 24
Non-Diversified Classification............................ 24
Illiquid Securities....................................... 24
Debt Securities........................................... 25
Loan Participations and Assignments....................... 26
Foreign Securities........................................ 26
INVESTMENT LIMITATIONS...................................... 33
Developing Markets Fund................................... 33
Emerging Markets Fund..................................... 34
Latin American Fund....................................... 35
EXECUTION OF PORTFOLIO TRANSACTIONS......................... 37
Portfolio Trading and Turnover............................ 38
MANAGEMENT.................................................. 39
Trustees and Executive Officers........................... 39
Investment Management and Administration Services......... 41
THE DISTRIBUTION PLANS...................................... 43
The Class A and C Plan.................................... 43
The Class B Plan.......................................... 43
Both Plans................................................ 44
THE DISTRIBUTOR............................................. 46
Expenses of the Funds..................................... 47
NET ASSET VALUE DETERMINATION............................... 48
HOW TO PURCHASE AND REDEEM SHARES........................... 54
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS.................... 56
General................................................... 56
Foreign Taxes............................................. 56
Passive Foreign Investment Companies...................... 56
Non-U.S. Shareholders..................................... 57
Options, Futures and Foreign Currency Transactions........ 57
SHAREHOLDER INFORMATION..................................... 58
MISCELLANEOUS INFORMATION................................... 60
Charges for Certain Account Information................... 60
Custodian and Transfer Agent.............................. 60
Independent Accountants................................... 60
Legal Matters............................................. 60
Shareholder Liability..................................... 60
Name...................................................... 61
Control Persons and Principle Holders of Securities....... 61
INVESTMENT RESULTS.......................................... 62
Total Return Quotations................................... 62
Other Information Regarding Standard Total and
Non-Standard Total Returns for Developing Markets
Fund................................................... 65
Performance Information................................... 65
APPENDIX.................................................... 67
Description of Bond Ratings............................... 67
Description of Commercial Paper Ratings................... 68
Absence of Rating......................................... 68
FINANCIAL STATEMENTS........................................ FS
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<PAGE> 564
INTRODUCTION
This Statement of Additional Information relates to the Class A, Class B and
Class C shares of AIM Developing Markets Fund ("Developing Markets Fund"), [AIM
Emerging Markets Fund ("Emerging Markets Fund")] and AIM Latin American Growth
Fund ("Latin American Fund") (each, a "Fund," and collectively, the "Funds").
Developing Markets Fund and Latin American Fund each is a non-diversified
series, [and Emerging Markets Fund is a diversified series] of AIM Investment
Funds (the "Trust"), a registered open-end management investment company
organized as a Delaware business trust. On October 31, 1997, the Developing
Markets Fund, which had no prior operating history, acquired the assets and
assumed the liabilities of G.T. Global Developing Markets Fund, Inc. (the
"Predecessor Fund"), a closed-end investment company.
A I M Advisors, Inc. ("AIM") serves as the investment manager of and
administrator for, and INVESCO Asset Management Ltd. (the "Sub-advisor") serves
as the investment sub-advisor and sub-administrator for the Funds.
The Trust is a series mutual fund. The rules and regulations of the Securities
and Exchange Commission (the "SEC") require all mutual funds to furnish
prospective investors certain information concerning the activities of the fund
being considered for investment. This information for Developing Markets Fund is
included in a separate Prospectus dated March 1, 1999, [for Emerging Markets
Fund is included in a separate Prospectus dated March 1, 1999] and for Latin
American Fund is included in a separate Prospectus dated March 1, 1999.
Additional copies of the Prospectuses and this Statement of Additional
Information may be obtained without charge by writing the principal distributor
of the Funds' shares, A I M Distributors, Inc. ("AIM Distributors"), P.O. Box
4739, Houston, TX 77210-4739 or by calling (800) 347-4246. Investors must
receive a Prospectus before they invest.
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
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 FUNDS
THE TRUST AND ITS SHARES
The Trust was organized as a Delaware business trust on May 7, 1998 and
previously operated under the name G.T. Investment Funds, Inc., which was
organized as a Maryland corporation on October 29, 1987 and later renamed AIM
Investment Funds, Inc. On September 8, 1998, the Trust acquired the assets of
and assumed the liabilities of AIM Investment Funds, Inc. The Trust is
registered with the SEC as a diversified open-end series management investment
company. The Trust currently consists of the following portfolios: AIM
Developing Markets Fund, [AIM Emerging Markets Fund], AIM Global Consumer
Products and Services Fund, AIM Global Financial Services Fund, AIM Global
Government Income Fund, AIM Global Growth and Income Fund, AIM Global Healthcare
Fund, AIM Global High Income Fund, AIM Global Infrastructure Fund, AIM Global
Resources Fund, AIM Global Telecommunications Fund, AIM Latin American Growth
Fund and AIM Strategic Income Fund. Each of these funds has three separate
classes: Class A, Class B and Advisor Class shares. All historical financial and
other information contained in this Statement of Additional Information for
periods prior to September 8, 1998, is that of the series of G.T. Investment
Funds, Inc. (renamed AIM Investment Funds, Inc.).
The term "majority of the Funds' outstanding shares" of the Trust, of a
particular Fund or of a particular class of a Fund means, respectively, the vote
of the lesser of (a) 67% or more of the shares of the Trust, such Fund or such
class present at a meeting of the Trust's shareholders, if the holders of more
than 50% of the outstanding shares of the Trust, such Fund or such class are
present or represented by proxy, or (b) more than 50% of the outstanding shares
of the Trust, such Fund or such class.
Class A, Class B, Class C and Advisor Class shares of Developing Markets Fund
and Latin American Fund [and Class A, Class B and Advisor Class shares of
Emerging Markets Fund] have equal rights and privileges. Each share of a
particular class is entitled to one vote, to participate equally in dividends
and distributions declared by the Trust's Board of Trustees with respect to the
class of such Fund and, upon liquidation of the Fund, to participate
proportionately in the net assets of the Fund allocable to such class remaining
after satisfaction of 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 Prospectus and this Statement of Additional
Information. Fractional
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<PAGE> 565
shares have proportionately the same rights, including voting rights, as are
provided for a full share. Other than the automatic conversion of Class B shares
to Class A shares, there are no conversion rights.
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 trustees may elect all of the members of the Board of
Trustees of the Trust. In such event, the remaining holders cannot elect any
trustees of the Trust.
On any matter submitted to a vote of shareholders, shares of each Fund will be
voted by each Fund's shareholders individually when the matter affects the
specific interest of a Fund only, such as approval of its investment management
arrangements. In addition, shares of a particular class of a Fund may vote on
matters affecting only that class. The shares of each Fund will be voted in the
aggregate on other matters, such as the election of Trustees and ratification of
the selection of the Trust's independent accountants.
Normally there will be no annual meeting of shareholders for any of the Funds
in any year, except as required under the Investment Company Act of 1940, as
amended (the "1940 Act"). A Trustee may be removed at any meeting of the
shareholders of the Trust by a vote of the shareholders owning at least
two-thirds of the outstanding shares [of a Fund]. Any Trustee may call a special
meeting of shareholders for any purpose. Furthermore, Trustees shall promptly
call a meeting of shareholders solely for the purpose of removing one or more
Trustees when requested in writing to do so by shareholders holding 10% of the
Trust's outstanding shares.
Pursuant to the Trust's Agreement and Declaration of Trust, the Trust may
issue an unlimited number of shares of each Fund. Each share of a Fund
represents an interest in the Fund only, has a par value of $0.01 per share,
represents an equal proportionate interest in the Fund with other shares of the
Fund and is entitled to such dividends and distributions out of the income
earned and gain realized on the assets belonging to the Fund as may be declared
by the Board of Trustees. Each share of a Fund is equal in earnings, assets and
voting privileges except that each class normally has exclusive voting rights
with respect to its distribution plan and bears the expenses, if any, related to
the distribution of its shares. Shares of a Fund, when issued, are fully paid
and nonassessable.
INVESTMENT STRATEGIES AND RISKS
The following discussion of investment strategies and risks supplements the
discussion of investment objectives and risks set forth in the Prospectus under
the headings "Investment Objectives and Strategies" and "Principal Risks of
Investing in the Funds."
INVESTMENT OBJECTIVES
The Funds' investment objectives may not be changed without the approval of a
majority of the Funds' outstanding voting securities.
Developing Markets Fund. The primary investment objective of Developing
Markets Fund is long-term capital appreciation. Its secondary investment
objective is income, to the extent consistent with seeking capital appreciation.
The Fund normally invests substantially all of its assets in issuers in the
developing (or "emerging") markets of Asia, Europe, Latin America and elsewhere.
A majority of Developing Markets Fund's assets normally are invested in emerging
market equity securities. The Developing Markets Fund may invest in the
following types of equity securities common stock, preferred stock, securities
convertible into common stock, American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs"), rights and warrants to acquire such securities and
substantially similar forms of equity with comparable risk characteristics.
Developing Markets Fund may also invest in emerging market debt securities that
will be selected based on their potential to provide a combination of capital
appreciation and current income. There can be no assurance Developing Markets
Fund will achieve its investment objectives.
For purposes of Developing Markets Fund's operations, emerging markets consist
of all countries determined by the Sub-advisor to have developing or emerging
economies and markets. These countries generally include every country in the
world except the United States, Canada, Japan, Australia, New Zealand and most
countries located in Western Europe.
[Emerging Markets Fund. The investment objective of Emerging Markets Fund is
long-term growth of capital. Emerging Markets Fund seeks this objective by
investing, under normal circumstances, at least 65% of its total assets in
equity securities of companies in emerging markets. Emerging Markets Fund does
not consider the following countries to be emerging markets: Australia, Austria,
Belgium, Canada, Denmark, England, Finland, France, Germany, Ireland, Italy,
Japan, the Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland and
United States. The Fund normally may invest up to 35% of its assets in a
combination of (i) debt securities of government or corporate issuers in
emerging markets; (ii) equity and debt securities of issuers in developed
countries, including the United States; (iii) securities of
5
<PAGE> 566
issuers in emerging markets not included in the list of emerging markets set
forth in the Fund's current Prospectus, if investing therein becomes feasible
and desirable subsequent to the date of the Fund's current Prospectus; and (iv)
cash and money market instruments.]
[Emerging Markets Fund invests in those emerging markets that the Sub-advisor
believes have strongly developing economies and in which the markets are
becoming more sophisticated. In selecting investments, the Sub-advisor seeks to
identify those countries and industries where economic and political factors,
including currency movements, are likely to produce above-average growth rates.
The Sub-advisor then invests in those companies in such countries and industries
that are best positioned and managed to take advantage of these economic and
political factors. Emerging Markets Fund ordinarily will be invested in the
securities of issuers in at least three different emerging markets. In
evaluating investments in securities of issuers in developed markets, the
Sub-advisor will consider, among other things, the business activities of the
issuer in emerging markets and the impact that developments in emerging markets
are likely to have on the issuer.]
[The Sub-advisor believes that the issuers of securities in emerging markets
often have sales and earnings growth rates that exceed those in developed
countries and that such growth rates may in turn be reflected in more rapid
share price appreciation. Accordingly, the Sub-advisor believes that Emerging
Markets Fund's policy of investing in equity securities of companies in emerging
markets may enable Emerging Markets Fund to achieve results superior to those
produced by mutual funds with similar objectives that invest solely in equity
securities of issuers domiciled in the United States and/or in other developed
markets.]
In determining what countries constitute emerging markets with respect to
Developing Market Fund [and Emerging Markets Fund], the Sub-advisor will
consider, among other things, data, analysis, and classification of countries
published or disseminated by the International Bank for Reconstruction and
Development (commonly known as the World Bank) and the International Finance
Corporation ("IFC").
Developing Markets Fund and [Emerging Markets Fund] will consider investments
in the following emerging markets:
<TABLE>
<S> <C> <C>
Algeria Hungary Peru
Argentina India Philippines
Bolivia Indonesia Poland
Botswana Israel Portugal
Brazil Ivory Coast Republic of Slovakia
Bulgaria Jamaica Russia
Chile Jordan Singapore
China Kazakhstan Slovenia
Colombia Kenya South Africa
Costa Rica Lebanon South Korea
Cyprus Malaysia Sri Lanka
Czech Republic Mauritius Swaziland
Dominican Republic Mexico Taiwan
Ecuador Morocco Thailand
Egypt Nicaragua Turkey
El Salvador Nigeria Ukraine
Finland Oman Uruguay
Ghana Pakistan Venezuela
Greece Panama Zambia
Hong Kong Paraguay Zimbabwe
</TABLE>
Although Developing Markets Fund [and Emerging Markets Fund] consider each of
the above-listed countries eligible for investment, it will not be invested in
all such markets at all times. Moreover, investing in some of those markets
currently may not be desirable or feasible, due to the lack of adequate custody
arrangements for a Fund's assets, overly burdensome repatriation and similar
restrictions, the lack of organized and liquid securities markets, unacceptable
political risks or for other reasons.
As used in this Statement of Additional Information, an issuer in an emerging
market is an entity (1) for which the principal securities trading market is an
emerging market, as defined above, (2) that (alone or on a consolidated basis)
derives 50% or more of its total revenues from business in emerging markets,
provided that, in the Sub-advisor's view, the
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<PAGE> 567
value of such issuer's securities will tend to reflect emerging market
developments to a greater extent than developments elsewhere, or (3) organized
under the laws of, or with a principal office in, an emerging market.
Latin American Fund. The investment objective of Latin American Fund is
capital appreciation. Latin American Fund will normally invest at least 65% of
its total assets in securities of a broad range of Latin American issuers. Under
current market conditions, the Fund expects to invest primarily in equity and
debt securities issued by companies and governments in Mexico, Chile, Brazil and
Argentina. The Fund may invest in common stock, preferred stock, rights,
warrants and securities convertible into common stock, and other substantially
similar forms of equity securities with comparable risk characteristics, as well
as bonds, notes, debentures or other forms of indebtedness that may be developed
in the future. The receipt of income from debt securities owned by the
fund is incidental to its objective of capital appreciation. Though Latin
American Fund can normally invest up to 35% of its total assets in U.S.
securities, Latin American Fund reserves the right to be primarily invested in
U.S. securities for temporary defensive purposes or pending investment of the
proceeds of the offering made hereby.
Unless otherwise indicated, Latin American Fund defines Latin America to
include the following countries: Argentina, the Bahamas, Barbados, Belize,
Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El
Salvador, French Guiana, Guatemala, Guyana, Haiti, Honduras, Jamaica, Mexico,
the Netherlands Antilles, Nicaragua, Panama, Paraguay, Peru, Suriname, Trinidad
and Tobago, Uruguay and Venezuela. Under current market conditions, Latin
American Fund expects to invest primarily in securities issued by companies and
governments in Mexico, Chile, Brazil and Argentina. Latin American Fund may
invest more than 25% of its total assets in any of these four countries but does
not expect to invest more than 60% of its total assets in any one country.
Latin American Fund defines securities of Latin American issuers to include:
(a) securities of companies organized under the laws of, or having a principal
office located in, a Latin American country; (b) securities of companies that
derive 50% or more of their total revenues from business in Latin America,
provided that, in the Sub-advisor's view, the value of such issuers' securities
reflect Latin American developments to a greater extent than developments
elsewhere; (c) securities issued or guaranteed by the government of a country in
Latin America, its agencies or instrumentalities, or municipalities, or the
central bank of such country; (d) U.S. dollar-denominated securities or
securities denominated in a Latin American currency issued by companies to
finance operations in Latin America; and (e) securities of Latin American
issuers, as defined herein, in the form of depositary shares. For purposes of
the foregoing definition, Latin American Fund's purchases of securities issued
by companies outside of Latin America to finance their Latin American operations
will be limited to securities the performance of which is materially related to
such company's Latin American activities.
Certain sectors of the economies of certain Latin American countries are
closed to equity investments by foreigners. Further, due to the absence of
securities markets and publicly owned corporations and due to restrictions on
direct investment by foreign entities in certain Latin American countries, the
Fund may be able to invest in such countries solely or primarily through
governmentally approved investment vehicles or companies. In addition, the
portion of Latin American Fund's assets invested directly in Chile may be less
than the portion invested in other Latin American countries because, at present,
capital directly invested in Chile normally cannot be repatriated for at least
one year. As a result, Latin American Fund currently intends to limit most of
its Chilean investments to indirect investments through ADRs and established
Chilean investment companies, the shares of which are not subject to
repatriation restrictions.
SELECTION OF INVESTMENTS AND ASSET ALLOCATION
In determining the appropriate distribution of investments among various
countries and geographic regions for the Funds, the Sub-advisor ordinarily
considers the following factors: prospects for relative economic growth among
the different countries in which a Fund may invest; expected levels of
inflation; government policies influencing business conditions; the outlook for
currency relationships; and the range of the individual investment opportunities
available to international investors.
In analyzing companies for investment by each Fund, the Sub-advisor ordinarily
looks for one or more of the following characteristics: an above-average
earnings growth per share; high return on invested capital; healthy balance
sheet; sound financial and accounting policies and overall financial strength;
strong competitive advantages; effective research and product development and
marketing; efficient service; pricing flexibility; strength of management; and
general operating characteristics which will enable the companies to compete
successfully in their respective marketplaces. In allocating Latin American
Fund's assets between debt and equity securities, the Sub-advisor considers, in
addition to the factors listed in the Prospectus, changes in Latin American
governmental policy including regulation governing industry, trade, financial
markets, and foreign and domestic investment, as well as the substance and
likely development of government finances. In certain countries, governmental
restrictions and other limitations on investment may affect the maximum
percentage of equity ownership in any one company by the Funds. In addition, in
some instances only special classes of securities may
7
<PAGE> 568
be purchased by foreigners and the market prices, liquidity and rights with
respect to those securities may vary from shares owned by nationals.
Although the Funds value their assets daily in terms of U.S. dollars, the
Funds do not intend to convert their holdings of foreign currencies into U.S.
dollars on a daily basis. The Funds will do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference ("spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to the Funds at one rate, while offering a lesser rate of exchange should a Fund
desire to sell that currency to the dealer.
There may be times when, in the opinion of the Sub-advisor, prevailing market,
economic or political conditions warrant reducing the proportion of each Fund's
assets invested in equity securities and increasing the proportion held in cash
or short-term obligations denominated in U.S. dollars or other currencies. A
portion of each Fund's assets may be held in U.S. dollars or short-term
interest-bearing dollar-denominated securities to provide for ongoing expenses
and redemptions. The Latin American Fund may invest up to 35% of its total
assets in a combination of equity and debt securities of U.S. issues. In
evaluating investments in securities of U.S. issues, the Sub-Advisor will
consider, among other factors, the issuer's Latin American business activities
and the impact that development in Latin America may have on the issuer's
operations and financial condition.
The Funds may be prohibited under the 1940 Act, from purchasing the securities
of any foreign company that, in its most recent fiscal year, derived more than
15% of its gross revenues from securities-related activities
("securities-related companies"). In a number of countries, including those in
Latin America, commercial banks act as securities broker/dealers, investment
advisors and underwriters or otherwise engage in securities-related activities,
which may limit the Fund's ability to hold securities issued by such banks. The
Fund has obtained an exemption from the SEC to permit it to invest in certain of
these securities subject to certain restrictions.
For investment purposes, an issuer is typically considered as located in a
particular country if it (a) is incorporated under the laws of or has its
principal office in that country, or (b) it normally derives 50% or more of its
total revenue from business in that country. However, these are not absolute
requirements, and certain companies incorporated in a particular country and
considered by the Sub-advisor to be located in that country may have substantial
off-shore operations or subsidiaries and/or export sales exceeding in size the
assets or sales in that country.
In selecting investments, the Sub-advisor seeks to identify those countries
and industries where economic and political factors, including currency
movements, are likely to produce above-average growth rates over the long term.
The Sub-advisor seeks those emerging markets that have strongly developing
economies and in which the markets are becoming more sophisticated. The
Sub-advisor then invests in those companies in such countries and industries
that it believes are best positioned and managed to take advantage of these
economic and political factors. The Sub-advisor believes that the issuers of
securities in emerging markets often have sales and earnings growth rates that
exceed those in developed countries and that such growth rates may in turn be
reflected in more rapid share price appreciation.
As opportunities to invest in securities in other emerging markets develop,
Developing Markets Fund expects to expand and further broaden the group of
emerging markets in which it invests. In some cases, investments in debt
securities could provide Developing Markets Fund with access to emerging markets
in the early stages of their economic development, when equity securities are
not yet generally available or, in the Sub-advisor's view, do not yet present an
acceptable investment alternative. While Developing Markets Fund generally is
not restricted in the portion of its assets that may be invested in a single
region, under normal conditions its assets will be invested in issuers in at
least four countries, and it will not invest more than 25% of its assets in
issuers in one country. Developing Markets Fund's holdings of any one foreign
currency together with securities denominated in or indexed to such currency
will not exceed 40% of its assets.
In allocating investments among the various Latin American countries for Latin
American Fund, the Sub-advisor looks principally at the stage of
industrialization, potential for productivity gains through economic
deregulation, the impact of financial liberalization and monetary conditions and
the political outlook in each country. In allocating assets between equity and
debt securities, the Sub-advisor will consider, among other factors: the level
and anticipated direction of interest rates; expected rates of economic growth
and corporate profits growth; changes in Latin American government policy
including regulation governing industry, trade, financial markets, and foreign
and domestic investment; substance and likely development of government
finances; and the condition of the balance of payments and changes in the terms
of trade. In evaluating investments in securities of U.S. issuers, the
Sub-advisor will consider, among other factors.
8
<PAGE> 569
INVESTMENTS IN OTHER INVESTMENT COMPANIES
Developing Markets Fund and Latin American Fund may be able to invest in
certain countries solely or primarily through governmentally authorized
investment vehicles or companies, some of which may be investment vehicles or
companies that are advised by the Sub-advisor or its affiliates. These
investments are subject to the limitations imposed by the 1940 Act, which. These
limitations currently provide that, in general, each Fund may purchase shares of
a closed-end investment company unless (a) such a purchase would cause the Fund
to own in the aggregate more than 3% of the total outstanding voting stock of
the investment company or (b) such a purchase would cause the Fund to have more
than 5% of its total assets invested in the investment company or more than 10%
of its total assets invested in an aggregate of all such investment companies.
Investment in other investment companies may also involve the payment of
substantial premiums above the value of such companies' portfolio securities.
The Funds do not intend to invest in other investment companies unless, in the
judgment of the Sub-advisor, the potential benefits of such investments justify
the payment of any applicable premiums. The return on such securities will be
reduced by operating expenses of such companies including payments to the
investment managers of those investment companies. With respect to investments
in Affiliated Funds, the Sub-advisor waives its advisory fee to the extent that
such fees are based on assets of the Fund invested in Affiliated Funds.
Certain countries in which the Funds invest presently may be made only by
acquiring shares of other investment companies with local governmental approval
to invest in those countries. At such time as direct investment in those
countries is allowed, the Funds anticipate investing directly in those markets.
PRIVATIZATIONS
The governments in some emerging markets have been engaged in programs of
selling part or all of their stakes in government owned or controlled
enterprises ("privatizations"). The Sub-advisor believes that privatizations may
offer opportunities for significant capital appreciation and intends to invest
assets of each Fund in privatizations in appropriate circumstances. In certain
Latin American and emerging markets, the ability of foreign entities such as the
Fund to participate in privatizations may be limited by local law or the terms
on which the Funds may be permitted to participate may be less advantageous than
those afforded local investors. There can be no assurance that governments in
emerging markets will continue to sell companies currently owned or controlled
by them or that privatization programs will be successful.
WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES
Each Fund may purchase debt securities on a "when-issued" basis and may
purchase or sell such securities on a "forward commitment" basis in order to
hedge against anticipated changes in interest rates and prices. The price, which
is generally expressed in yield terms, is fixed at the time the commitment is
made, but delivery and payment for the securities take place at a later date.
When-issued securities and forward commitments may be sold prior to the
settlement date, but the Funds will purchase or sell when-issued securities and
forward commitments only with the intention of actually receiving or delivering
the securities, as the case may be. No income accrues on securities that have
been purchased pursuant to a forward commitment or on a when-issued basis prior
to delivery to the Fund. If a Fund disposes of the right to acquire a
when-issued security prior to its acquisition or disposes of its right to
deliver or receive against a forward commitment, it may incur a gain or loss. At
the time a Fund enters into a transaction on a when-issued or forward commitment
basis, the Fund will segregate cash or liquid securities equal to the value of
the when-issued or forward commitment securities with its custodian bank and
will mark to market daily such assets. There is a risk that the securities may
not be delivered and that the Fund may incur a loss.
DEPOSITARY RECEIPTS
Each Fund may hold equity securities of foreign issuers in the form of ADRs,
American Depositary Shares ("ADSs"), GDRs and European Depositary Receipts
("EDRs"), or other securities convertible into securities of eligible issuers.
These securities may not necessarily be denominated in the same currency as the
securities for which they may be exchanged. ADRs and ADSs typically are issued
by an American bank or trust company and evidence ownership of underlying
securities issued by a foreign corporation. EDRs, which are sometimes referred
to as Continental Depository Receipts ("CDRs"), are issued in Europe typically
by foreign banks and trust companies and evidence ownership of either foreign or
domestic securities. GDRs are similar to EDRs and are designed for use in
several international financial markets. Generally, ADRs and ADSs in registered
form are designed for use in United States securities markets and EDRs in bearer
form are designed for use in European securities markets. For purposes of each
Fund's investment policies, a Fund's investments in ADRs, ADSs, GDRs and EDRs
will be deemed to be investments in the equity securities representing
securities of foreign issuers into which they may be converted.
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<PAGE> 570
ADR facilities may be established as either "unsponsored" or "sponsored."
While ADRs issued under these two types of facilities are in some respects
similar, there are distinctions between them relating to the rights and
obligations of ADR holders and the practices of market participants. A
depository may establish an unsponsored facility without participation by (or
even necessarily the acquiescence of) the issuer of the deposited securities,
although typically the depository requests a letter of non-objection from such
issuer prior to the establishment of the facility. Holders of unsponsored ADRs
generally bear all the costs of such facilities. The depository usually charges
fees upon the deposit and withdrawal of the deposited securities, the conversion
of dividends into U.S. dollars, the disposition of non-cash distributions, and
the performance of other services. The depository of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited securities or to pass-through voting
rights to ADR holders in respect of the deposited securities. Sponsored ADR
facilities are created in generally the same manner as unsponsored facilities,
except that the issuer of the deposited securities enters into a deposit
agreement with the depositary. The deposit agreement sets out the rights and
responsibilities of the issuer, the depository and the ADR holders. With
sponsored facilities, the issuer of the deposited securities generally will bear
some of the costs relating to the facility (such as dividend payment fees of the
depository), although ADR holders continue to bear certain other costs (such as
deposit and withdrawal fees). Under the terms of most sponsored arrangements,
depositories agree to distribute notices of shareholder meetings and voting
instructions, and to provide shareholder communications and other information to
the ADR holders at the request of the issuer of the deposited securities. The
Fund may invest in both sponsored and unsponsored ADRs.
WARRANTS OR RIGHTS
Warrants or rights may be acquired by each Fund in connection with other
securities or separately and provide a Fund with the right to purchase at a
later date other securities of the issuer. Warrants are securities permitting,
but not obligating, their holder to subscribe for other securities or
commodities. Warrants do not carry with them the right to dividends or voting
rights with respect to the securities that they entitle their holder to
purchase, and they do not represent any rights in the assets of the issuer. As a
result, warrants may be considered more speculative than certain other types of
investments. In addition, the value of a warrant does not necessarily change
with the value of the underlying securities and a warrant ceases to have value
if it is not exercised prior to its expiration date.
LENDING OF PORTFOLIO SECURITIES
For the purpose of realizing additional income, the Funds may make secured
loans of portfolio securities amounting to not more than 30% of its total
assets. Securities loans are made to broker/dealers or institutional investors
pursuant to agreements requiring that the loans continuously be secured by
collateral consisting of cash, U.S. government securities or certain irrevocable
letters of credit (or such other collateral as permitted by a Fund's investment
program and regulatory agencies and as approved by the Board) at least equal at
all times to the value of the securities lent plus any accrued interest, "marked
to market" on a daily basis. The Funds may pay reasonable administrative and
custodial fees in connection with loans of its securities. While the securities
loan is outstanding with respect to a Fund, the Fund will continue to receive
the equivalent of the interest or dividends paid by the issuer on the
securities, as well as interest on the investment of the collateral or a fee
from the borrower. The Fund will have a right to call each loan and obtain the
securities within the stated settlement period. The Fund will not have the right
to vote equity securities while they are lent, but it may call in a loan in
anticipation of any important vote. Loans will be made only to firms deemed by
the Sub-advisor to be of good standing and will not be made unless, in the
judgment of the Sub-advisor, the consideration to be earned from such loans
would justify the risk. The risks in lending portfolio securities, as with other
extensions of secured credit consist of possible delays in receiving additional
collateral or in recovery of the securities and possible loss of rights in the
collateral if the borrower fails financially.
COMMERCIAL BANK OBLIGATIONS
For the purposes of each Fund's investment policies with respect to bank
obligations, obligations of foreign branches of U.S. banks and of foreign banks
are obligations of the issuing bank and may be general obligations of the parent
bank. Such obligations, however, may be limited by the terms of a specific
obligation and by government regulation. As with investment in non-U.S.
securities in general, investments in the obligations of foreign branches of
U.S. banks and of foreign banks may subject a Fund to investment risks that are
different in some respects from those of investments in obligations of domestic
issuers. Although a Fund typically will acquire obligations issued and supported
by the credit of U.S. or foreign banks having total assets at the time of
purchase in excess of $1 billion, this $1 billion figure is not an investment
policy or restriction of any Fund. For the purposes of calculation with respect
to the $1 billion figure, the assets of a bank will be deemed to include the
assets of its U.S. and non-U.S. branches.
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<PAGE> 571
REPURCHASE AGREEMENTS
A repurchase agreement is a transaction in which a Fund purchases a security
from a bank or recognized securities dealer and simultaneously commits to resell
that security to the bank or dealer at an agreed upon price, date, and market
rate of interest unrelated to the coupon rate or maturity of the purchased
security. Although repurchase agreements carry certain risks not associated with
direct investments in securities, including possible decline in the market value
of the underlying securities and delays and costs to a Fund if the other party
to the repurchase agreement becomes bankrupt, the Funds intend to enter into
repurchase agreements only with banks and dealers believed by the Sub-advisor to
present minimum credit risks in accordance with guidelines established by the
Trust's Board of Trustees. The Sub-advisor will review and monitor the
creditworthiness of such institutions under the Board's general supervision.
The Funds will invest only in repurchase agreements collateralized at all
times in an amount at least equal to the repurchase price plus accrued interest.
To the extent that the proceeds from any sale of such collateral upon a default
in the obligation to repurchase were less than the repurchase price, a Fund
would suffer a loss. If the financial institution which is party to the
repurchase agreement petitions for bankruptcy or otherwise becomes subject to
bankruptcy or other liquidation proceedings, there may be restrictions on a
Fund's ability to sell the collateral and the Fund could suffer a loss. However,
with respect to financial institutions whose bankruptcy or liquidation
proceedings are subject to the U.S. Bankruptcy Code, each Fund intends to comply
with provisions under the U.S. Bankruptcy Code that would allow it immediately
to resell the collateral. There is no limitation on the amount of a Fund's
assets that may be subject to repurchase agreements at any given time. The Funds
will not enter into a repurchase agreement with a maturity of more than seven
days if, as a result, more than 15% (for Emerging Markets Fund and Developing
Markets Fund) or 10% (for Latin American Fund) of the value of its net assets
would be invested in such repurchase agreements and other illiquid investments.
BORROWING, REVERSE REPURCHASE AGREEMENTS AND "ROLL" TRANSACTIONS
No Fund's borrowings will exceed 33 1/3% of the Fund's total assets, i.e.,
each Fund's total assets at all times will equal at least 300% of the amount of
outstanding borrowings. If market fluctuations in the value of a Fund's
portfolio holdings or other factors cause the ratio of the Fund's total assets
to outstanding borrowings to fall below 300%, within three days (excluding
Sundays and holidays) of such event the Fund may be required to sell portfolio
securities to restore the 300% asset coverage, even though from an investment
standpoint such sales might be disadvantageous. Each Fund also may borrow up to
5% of its total assets for temporary or emergency purposes other than to meet
redemptions. Any borrowing by a Fund may cause greater fluctuation in the value
of its shares than would be the case if the Fund did not borrow.
The Funds' fundamental investment limitations permit them to borrow money for
leveraging purposes. Developing Market Fund, however, currently is prohibited,
pursuant to a non-fundamental investment policy, from borrowing money in order
to purchase securities. Latin American Fund and Developing Markets Fund may
borrow only in order to meet redemption requests. In addition, each Fund
currently is prohibited, pursuant to a non-fundamental investment policy, from
purchasing securities during times when outstanding borrowings represent more
than 5% of its assets. Nevertheless, this policy may be changed in the future by
a vote of a majority of the Trust's Board of Trustees. If a Fund employs
leverage in the future, it would be subject to certain additional risks. Use of
leverage creates an opportunity for greater growth of capital but would
exaggerate any increases or decreases in the Fund's net asset value. When the
income and gains on securities purchased with the proceeds of borrowings exceed
the costs of such borrowings, the Fund's earnings or net asset value will
increase faster than otherwise would be the case; conversely, if such income and
gains fail to exceed such costs, the Fund's earnings or net asset value would
decline faster than would otherwise be the case.
Each Fund may enter into reverse repurchase agreements. A reverse repurchase
agreement is a borrowing transaction in which a Fund transfers possession of a
security to another party, such as a bank or broker/dealer in return for cash,
and agrees to repurchase the security in the future at an agreed upon price,
which includes an interest component. [Emerging Markets Fund also may engage in
"roll" borrowing transactions which involve the Fund's sale of Government
National Mortgage Association certificates or other securities together with a
commitment (for which the Fund may receive a fee) to purchase similar, but not
identical, securities at a future date.] Each Fund will segregate with a
custodian, liquid assets in an amount sufficient to cover its obligations [under
"roll" transactions (for Emerging Markets Fund)] and reverse repurchase
agreements with broker/dealers. No segregation is required for reverse
repurchase agreements with banks.
SHORT SALES
The Fund may make short sales of securities, although it has no current
intention of doing so. A short sale is a transaction in which the Fund sells a
security in anticipation that the market price of that security will decline.
The Fund
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<PAGE> 572
may make short sales (i) as a form of hedging to offset potential declines in
long positions in securities it owns, or anticipates acquiring, and (ii) in
order to maintain portfolio flexibility.
When a Fund makes a short sale of a security it does not own, it must borrow
the security sold short and deliver it to the broker-dealer or other
intermediary through which it made the short sale. The Fund may have to pay a
fee to borrow particular securities and will often be obligated to pay over any
payments received on such borrowed securities.
A Fund's obligation to replace the borrowed security when the borrowing is
called or expires will be secured by collateral deposited with the intermediary.
The Fund will also be required to deposit collateral with its custodian to the
extent, if any, necessary so that the value of both collateral deposits in the
aggregate is at all times equal to at least 100% of the current market value of
the security sold short. Depending on arrangements made with the intermediary
from which it borrowed the security regarding payment of any amounts received by
the Fund on such security, the Fund may not receive any payments (including
interest) on its collateral deposited with such intermediary.
If the price of the security sold short increases between the time of the
short sale and the time the Fund replaces the borrowed security, the Fund will
incur a loss; conversely, if the price declines, the Fund will realize a gain.
Any gain will be decreased, and any loss increased, by the transaction costs
associated with the transaction. Although the Fund's gain is limited by the
price at which it sold the security short, its potential loss is theoretically
unlimited.
Neither [Emerging Markets Fund] nor Latin American Fund will make a short sale
if, after giving effect to such sale, the market value of the securities sold
short exceeds 25% of the value of its total assets or the Fund's aggregate short
sales of the securities of any one issuer exceed the lesser of 2% of the Fund's
net assets or 2% of the securities of any class of the issuer. Moreover, these
Funds may engage in short sales only with respect to securities listed on a
national securities exchange. These Funds may make short sales "against the box"
without respect to such limitations. In this type of short sale, at the time of
the sale the Fund owns the security it has sold short or has the immediate and
unconditional right to acquire at no additional cost the identical security.
Developing Markets Fund may only make short sales "against the box." The Fund
might make a short sale "against the box" in order to hedge against market risks
when the Sub-advisor believes that the price of a security may decline, causing
a decline in the value of a security owned by the Fund or a security convertible
into or exchangeable for such security. In such case, any future losses in the
Fund's long position should be reduced by a gain in the short position.
Conversely, any gain in the long position should be reduced by a loss in the
short position. The extent to which such gains or losses in the long position
are reduced will depend upon the amount of the securities sold short relative to
the amount of the securities the Fund owns, either directly or indirectly, and,
in the case where the Fund owns convertible securities, changes in the
investment values or conversion premiums of such securities. There will be
certain additional transaction costs associated with short sales "against the
box," but the Fund will endeavor to offset these costs with income from the
investment of the cash proceeds of short sales.
TEMPORARY DEFENSIVE STRATEGIES
In the interest of preserving shareholders' capital, the Sub-advisor may
employ a temporary defensive investment strategy if it determines such a
strategy to be warranted due to market, economic, or political conditions. Under
a defensive strategy, each Fund temporarily may invest up to 100% of its assets
in cash (U.S. dollars, foreign currencies, multinational currency units such as
Euros) and/or high quality debt securities or money market instruments of U.S.
or foreign issuers. In addition, for temporary defensive purposes, most of all
of its investments may be made in the United States and denominated in U.S.
dollars. To the extent a Fund employs a temporary defensive strategy, it will
not be invested so as to achieve directly its investment objective. In addition,
pending investment proceeds from new sales of Fund shares or to meet ordinary
daily cash needs, each Fund temporarily may hold cash (U.S. dollars, foreign
currencies or multinational currency units) and may invest any portion of its
assets in money market instruments.
In addition, Latin American Fund may be primarily invested in U.S. securities
for temporary defensive purposes or pending investment of the proceeds of sales
of new Fund shares. Latin American Fund may assume a temporary defensive
position when, due to political, market or other factors broadly affecting Latin
American markets, the Sub-advisor determines that opportunities for capital
appreciation in those markets would be significantly limited over an extended
period or that investing in those markets presents undue risk of loss.
The Funds may invest in the following types of money market instruments (i.e.,
debt instruments with less than 12 months remaining until maturity) denominated
in U.S. dollars or other currencies (in the case of Latin American Fund, the
currency of any Latin American country): (a) obligations issued or guaranteed by
the U.S. or foreign governments (in the case of Latin American Fund, the
government of any Latin American country), their agencies, instrumentalities or
municipalities; (b) obligations of international organizations designed or
supported by multiple foreign governmental
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entities to promote economic reconstruction or development; (c) finance company
obligations, corporate commercial paper and other short-term commercial
obligations; (d) bank obligations (including certificates of deposit, time
deposits, demand deposits and bankers' acceptances); (e) repurchase agreements
with respect to the foregoing; and (f) other substantially similar short-term
debt securities with comparable characteristics.
The Funds may invest in commercial paper rated as low as A-3 by Standard &
Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P") or P-3 by Moody's
Investors Service, Inc. ("Moody's") or, if not rated, determined by the Manager
to be of comparable quality. Obligations rated A-3 and P-3 are considered by S&P
and Moody's, respectively, to have an acceptable capacity for timely repayment.
However, these securities may be more vulnerable to adverse effects of changes
in circumstances than obligations carrying higher designations.
SAMURAI AND YANKEE BONDS
Subject to its fundamental investment restrictions, Developing Markets Fund
[and Emerging Markets Fund] may invest in yen-denominated bonds sold in Japan by
non-Japanese issuers ("Samurai bonds"), and may invest in dollar-denominated
bonds sold in the United States by non-U.S. issuers ("Yankee bonds"). As
compared with bonds issued in their countries of domicile, such bond issues
normally carry a higher interest rate but are less actively traded. It is the
policy of [each of these Funds] to invest in Samurai or Yankee bond issues only
after taking into account considerations of quality and liquidity, as well as
yield. [In the case of Emerging Markets Fund, these bonds would be issued by
governments which are members of the Organization for Economic Cooperation and
Development or have AAA ratings.]
DEBT CONVERSIONS
Several Latin American countries have adopted debt conversion programs,
pursuant to which investors may use external debt of a country, directly or
indirectly, to make investments in local companies. The terms of the various
programs vary from country to country, although each program includes
significant restrictions on the application of the proceeds received in the
conversion and on the remittance of profits on the investment and of the
invested capital. Latin American Fund intends to acquire Sovereign Debt, as
defined in the Prospectus, to hold and trade in appropriate circumstances as
described in the Prospectus, as well as to participate in Latin American debt
conversion programs. The Sub-advisor will evaluate opportunities to enter into
debt conversion transactions as they arise but does not currently intend to
invest more than 5% of the Fund's assets in such programs.
DEBT SECURITIES
Developing Markets Fund and Latin American Fund each may invest up to 50% of
its total assets in the following types of emerging market debt securities: (1)
debt securities issued or guaranteed by governments, their agencies,
instrumentalities or political subdivisions, or by government owned, controlled
or sponsored entities, including central banks (collectively, "Sovereign Debt"),
including Brady Bonds; (2) interests in issuers organized and operated for the
purpose of restructuring the investment characteristics of Sovereign Debt; (3)
debt securities issued by banks and other business entities; and (4) debt
securities denominated in or indexed to the currencies of emerging markets. Debt
securities held by those Funds may take the form of bonds, notes, bills,
debentures, bank debt obligations, short-term paper, loan participations,
assignments and interests issued by entities organized and operated for the
purpose of restructuring the investment characteristics of any of the foregoing.
There is no requirement with respect to the maturity or duration of debt
securities in which either Fund may invest.
[Emerging Markets Fund may invest in debt securities of governmental and
corporate issuers in emerging markets. Emerging Markets invest up to 20% of its
total assets in debt securities rated below investment grade. Investment in
below investment grade debt securities involves a high degree of risk and can be
speculative. If the rating of a debt security held by the Emerging Markets Fund
drops below a minimum rating considered acceptable by the Sub-advisor, the Fund
will dispose of such security as soon as practicable and consistent with the
best interests of the Fund and its shareholders. These debt securities are the
equivalent of high yield, high risk bonds, commonly known as "junk bonds." Debt
securities in which the Fund will invest may not be rated. If rated, it is
expected that such ratings will be below investment grade. See "Risk
Factors -- Risks Associated with Debt Securities" and "Risks Associated with
Below Investment Grade Debt Securities."]
Developing Markets Fund and Latin American Fund may invest in "Brady Bonds,"
which are debt restructurings that provide for the exchange of cash and loans
for newly issued bonds. Brady Bonds have been issued by the countries of
Albania, Argentina, Brazil, Bulgaria, Costa Rica, Dominican Republic, Ecuador,
Ivory Coast, Jordan, Mexico, Nigeria, Panama, Peru, Philippines, Poland,
Uruguay, Venezuela and Vietnam, and are expected to be issued by other emerging
market countries. As of the date of this Prospectus, the Fund is not aware of
the occurrence of any payment defaults on
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Brady Bonds. Investors should recognize, however, that Brady Bonds do not have a
long payment history. In addition, Brady Bonds are often rated below investment
grade.
Developing Markets Fund and Latin American Fund may invest in either
collateralized or uncollateralized Brady Bonds. U.S. dollar-denominated
collateralized Brady Bonds, which may be fixed rate par bonds or floating rate
discount bonds, are collateralized in full as to principal by U.S. Treasury zero
coupon bonds having the same maturity as the bonds. Interest payments on such
bonds generally are collateralized by cash or securities in an amount that, in
the case of fixed rate bonds, is equal to at least one year of rolling interest
payments or, in the case of floating rate bonds, initially is equal to at least
one year's rolling interest payments based on the applicable interest rate at
the time of issuance and is adjusted at regular intervals thereafter.
Capital appreciation in debt securities may arise as a result of a favorable
change in relative foreign exchange rates, relative interest rate levels and/or
the creditworthiness of issuers.
PREMIUM SECURITIES
Developing Markets Fund may invest in income securities bearing coupon rates
higher than prevailing market rates. Such "premium" securities are typically
purchased at prices greater than the principal amounts payable on maturity. The
Fund will not amortize the premium paid for such securities in calculating its
net investment income. As a result, in such cases the purchase of such
securities provides the Fund a higher level of investment income distributable
to shareholders on a current basis than if the Fund purchased securities bearing
current market rates of interest. If securities purchased by the Fund at a
premium are called or sold prior to maturity, the Fund will realize a loss to
the extent the call or sale price is less than the purchase price. Additionally,
the Fund will realize a loss if it holds such securities to maturity.
INDEXED DEBT SECURITIES
Developing Markets Fund may invest in debt securities issued by banks and
other business entities not located in developing market countries that are
indexed to certain specific foreign currency exchange rates, interest rates or
other reference rates. The terms of such securities provide that their principal
amount is adjusted upwards or downwards (but ordinarily not below zero) at
maturity to reflect changes in the exchange rate between two currencies (or
other rates) while the obligations are outstanding. While such securities offer
the potential for an attractive rate of return, they also entail the risk of
loss of principal. New forms of such securities continue to be developed. The
Fund may invest in such securities to the extent consistent with its investment
objectives.
STRUCTURED INVESTMENTS
Developing Markets Fund may invest a portion of its assets in interests in
entities organized and operated solely for the purpose of restructuring the
investment characteristics of Sovereign Debt. This type of restructuring
involves the deposit with or purchase by an entity, such as a corporation or
trust, of specified instruments (such as commercial bank loans or Brady Bonds)
and the issuance by that entity of one or more classes of securities
("Structured Investments") backed by, or representing interests in, the
underlying instruments. The cash flow on the underlying instruments may be
apportioned among the newly issued Structured Investments to create securities
with different investment characteristics such as varying maturities, payment
priorities and interest rate provisions, and the extent of the payments made
with respect to Structured Investments is dependent on the extent of the cash
flow on the underlying instruments. Because Structured Investments of the type
in which the Fund anticipates it will invest typically involve no credit
enhancement, their credit risk generally will be equivalent to that of the
underlying instruments.
Developing Markets Fund is permitted to invest in a class of Structured
Investments that is either subordinated or not subordinated to the right of
payment of another class. Subordinated Structured Investments typically have
higher yields and present greater risks than unsubordinated Structured
Investments.
Certain issuers of Structured Investments may be deemed to be "investment
companies" as defined in the 1940 Act. As a result, Developing Markets Fund's
investment in these Structured Investments may be limited by the restrictions
contained in the 1940 Act described above under "Investment Strategies and
Risks -- Investments in Other Investment Companies." Structured Investments are
typically sold in private placement transactions, and there currently is no
active trading market for Structured Investments.
STRIPPED INCOME SECURITIES
Developing Markets Fund may invest a portion of its assets in stripped income
securities, which are obligations representing an interest in all or a portion
of the income or principal components of an underlying or related security, a
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pool of securities or other assets. In the most extreme case, one class will
receive all of the interest (the "interest only class" or the "IO class"), while
the other class will receive all of the principal (the "principal-only class" or
the "PO class"). The market values of stripped income securities tend to be more
volatile in response to changes in interest rates than are conventional income
securities.
FLOATING AND VARIABLE RATE INCOME SECURITIES
Developing Markets Fund may invest a portion of its assets in floating or
variable rate income securities. Income securities may provide for floating or
variable rate interest or dividend payments. The floating or variable rate may
be determined by reference to a known lending rate, such as a bank's prime rate,
a certificate of deposit rate or the London Inter Bank Offered Rate (LIBOR).
Alternatively, the rate may be determined through an auction or remarketing
process. The rate also may be indexed to changes in the values of interest rate
or securities indexes, currency exchange rates or other commodities. The amount
by which the rate paid on an income security may increase or decrease may be
subject to periodic or lifetime caps. Floating and variable rate income
securities include securities whose rates vary inversely with changes in market
rates of interest. Such securities may also pay a rate of interest determined by
applying a multiple to the variable rate. The extent of increases and decreases
in the value of securities whose rates vary inversely with changes in market
rates of interest generally will be larger than comparable changes in the value
of an equal principal amount of a fixed rate security having similar credit
quality, redemption provisions and maturity.
ZERO COUPON SECURITIES
Developing Markets Fund may invest in certain zero coupon securities that are
"stripped" U.S. Treasury notes and bonds. Developing Markets Fund also may
invest in zero coupon and other deep discount securities issued by foreign
governments and domestic and foreign corporations, including certain Brady Bonds
and other foreign debt, and in payment-in-kind securities. Zero coupon
securities pay no interest to holders prior to maturity, and payment-in-kind
securities pay "interest" in the form of additional securities. However, a
portion of the original issue discount on zero coupon securities and the
interest on payment-in-kind securities will be included in Developing Markets
Fund's income. Accordingly, for Developing Markets Fund to continue to qualify
for tax treatment as a regulated investment company and to avoid a certain
excise tax (see "Dividends, Distributions and Tax Matters"), it may be required
to distribute an amount that is greater than the total amount of cash it
actually receives. These distributions may be made from Developing Markets
Fund's cash assets or, if necessary, from the proceeds of sales of portfolio
securities. Developing Markets Fund will not be able to purchase additional
income-producing securities with cash used to make such distributions, and its
current income ultimately may be reduced as a result. Zero coupon and
payment-in-kind securities usually trade at a deep discount from their face or
par value and will be subject to greater fluctuations of market value in
response to changing interest rates than debt obligations of comparable
maturities that make current distributions of interest in cash.
INDEXED COMMERCIAL PAPER
Developing Markets Fund may invest without limitation in commercial paper that
is indexed to certain specific foreign currency exchange rates. The terms of
such commercial paper provide that its principal amount is adjusted upwards or
downwards (but not below zero) at maturity to reflect changes in the exchange
rate between two currencies while the obligation is outstanding. Developing
Markets Fund will purchase such commercial paper with the currency in which it
is denominated and, at maturity, will receive interest and principal payments
thereon in that currency, but the amount of principal payable by the issuer at
maturity will change in proportion to the change (if any) in the exchange rate
between the two specified currencies between the date the instrument is issued
and the date the instrument matures. While such commercial paper entails the
risk of loss of principal, the potential for realizing gains as a result of
changes in foreign currency exchange rates enables Developing Markets Fund to
hedge against a decline in the U.S. dollar value of investments denominated in
foreign currencies while seeking to provide an attractive money market rate of
return. Developing Markets Fund will not purchase such commercial paper for
speculation.
OTHER INDEXED SECURITIES
Developing Markets Fund may invest in certain other indexed securities, which
are securities whose prices are indexed to the prices of other securities,
securities indices, currencies, precious metals or other commodities or other
financial indicators. Indexed securities typically, but not always, are debt
securities or deposits whose value at maturity or coupon rate is determined by
reference to a specific instrument or statistic. The performance of indexed
securities depends to a great extent on the performance of the security,
currency or other instrument to which they are indexed and also may be
influenced by interest rate changes in the United States and abroad. At the same
time, indexed securities are subject to the credit risks associated with the
issuer of the security, and their values may decline substantially if the
issuer's
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creditworthiness deteriorates. Indexed securities may be more volatile than the
underlying instruments. New forms of indexed securities continue to be
developed. Developing Markets Fund may invest in such securities to the extent
consistent with its investment objectives.
SWAPS, CAPS, FLOORS AND COLLARS
Developing Markets Fund may enter into interest rate, currency and index swaps
and may purchase or sell related caps, floors and collars and other derivative
instruments. The Fund expects to enter into these transactions primarily to
preserve a return or spread on a particular investment or portion of its
portfolio, to protect against currency fluctuations, as a technique for managing
the portfolio's duration (i.e., the price sensitivity to changes in interest
rates) or to protect against any increase in the price of securities the Fund
anticipates purchasing at a later date. The Fund intends to use these
transactions as hedges and will not sell interest rate caps, floors or collars
if it does not own securities or other instruments providing an income stream
roughly equivalent to what the Fund may be obligated to pay.
Interest rate swaps involve the exchange by Developing Markets Fund with
another party of their respective commitments to pay or receive interest (for
example, an exchange of floating rate payments for fixed rate payments) with
respect to a notional amount of principal. A currency swap is an agreement to
exchange cash flows on a notional amount based on changes in the values of the
reference indices.
The purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling the cap to the extent that a specified
index exceeds a predetermined interest rate. The purchase of an interest rate
floor entitles the purchaser to receive payments on a notional principal amount
from the party selling the floor to the extent that a specified index falls
below a predetermined interest rate or amount. A collar is a combination of a
cap and a floor that preserves a certain return within a predetermined range of
interest rates or values.
LOAN PARTICIPATIONS AND ASSIGNMENTS
Developing Markets Fund may invest in fixed and floating rate loans ("Loans")
arranged through private negotiations between a foreign entity and one or more
financial institutions ("Lenders"). The majority of Developing Markets Fund's
investments in Loans in emerging markets is expected to be in the form of
participations in Loans ("Participations") and assignments of portions of Loans
from third parties ("Assignments"). Participations typically will result in
Developing Markets Fund having a contractual relationship only with the Lender,
not with the borrower. Developing Markets Fund will have the right to receive
payments of principal, interest and any fees to which it is entitled only from
the Lender selling the Participation and only upon receipt by the Lender of the
payments from the borrower. In connection with purchasing Participations,
Developing Markets Fund generally will have no right to enforce compliance by
the borrower with the terms of the loan agreement relating to the loan, nor any
rights of set-off against the borrower, and Developing Markets Fund may not
directly benefit from any collateral supporting the Loan in which it has
purchased the Participation. As a result, Developing Markets Fund will assume
the credit risk of both the borrower and the Lender that is selling the
Participation.
In the event of the insolvency of the Lender selling a Participation,
Developing Markets Fund may be treated as a general creditor of the Lender and
may not benefit from any set-off between the Lender and the borrower. Developing
Markets Fund will acquire Participations only if the Lender interpositioned
between Developing Markets Fund and the borrower is determined by the
Sub-advisor to be creditworthy. When the Fund purchases Assignments from
Lenders, the Developing Markets Fund will acquire direct rights against the
borrower on the Loan. However, because Assignments are arranged through private
negotiations between potential assignees and assignors, the rights and
obligations acquired by Developing Markets Fund as the purchaser of an
Assignment may differ from, and be more limited than, those held by the
assigning Lender.
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OPTIONS, FUTURES AND CURRENCY STRATEGIES
SPECIAL RISKS OF OPTIONS, FUTURES AND CURRENCY STRATEGIES
To attempt to increase return, Development Markets Fund may write call options
on securities. This strategy will be employed only when, in the opinion of the
Sub-advisor, the size of the premium Developing Markets Fund receives for
writing the option is adequate to compensate it against the risk that
appreciation in the underlying security may not be fully realized if the option
is exercised. Developing Markets Fund also is authorized to write put options to
attempt to enhance return, although it does not currently intend to do so. Each
Fund may use forward currency contracts, futures contracts, options on
securities, options on currencies, options on indices and options on futures
contracts to attempt to hedge against the overall level of investment and
currency risk (i.e. fluctuations in exchange rates) normally associated with its
investments. These instruments are often referred to as "derivatives," which may
be defined as financial instruments whose performance is derived, at least in
part, from the performance of another asset (such as a security, currency or an
index of securities). Each Fund may enter into such instruments up to the full
value of its portfolio assets.
To attempt to hedge against adverse movements in exchange rates between
currencies, the Fund may enter into forward currency contracts for the purchase
or sale of a specified currency at a specified future date. Such contracts may
involve the purchase or sale of a foreign currency against the U.S. dollar or
may involve two foreign currencies. The Fund may enter into forward currency
contracts either with respect to specific transactions or with respect to its
portfolio positions. The Fund also may purchase and sell put and call options on
currencies, futures contracts on currencies and options on such futures
contracts to hedge its portfolio against movements in exchange rates. Only a
limited market, if any, currently exists for options and futures transactions
relating to currencies of most emerging markets including Latin American
Markets, to securities denominated in such currencies or to securities of
issuers domiciled or principally engaged in business in such emerging markets.
To the extent that such a market does not exist, the Sub-advisor may not be able
to effectively hedge its investment in such markets.
Each Fund may also purchase and sell put and call options on equity and debt
securities to hedge against the risk of fluctuations in the prices of securities
held by a Fund or that the Sub-advisor intends to include in a Fund's portfolio.
Each Fund may also purchase and sell put and call options on stock indices to
hedge against overall fluctuations in the securities markets or in a specific
market sector.
Further, each Fund may sell stock index futures contracts and may purchase put
options or write call options on such futures contracts to protect against a
general stock market decline or a decline in a specific market sector that could
adversely affect a Fund's portfolio. Each Fund may also purchase stock index
futures contracts and purchase call options or write put options on such
contracts to hedge against a general stock market or market sector advance and
thereby attempt to lessen the cost of future securities acquisitions. A Fund may
use interest rate futures contracts and options thereon to hedge the debt
portion of its portfolios against changes in the general level of interest
rates.
The use of options, futures contracts and forward currency contracts ("Forward
Contracts") involves special considerations and risks, as described below. Risks
pertaining to particular instruments are described in the sections that follow.
(1) Successful use of most of these instruments depends upon the
Sub-advisor's ability to predict movements of the overall securities and
currency markets, which requires different skills than predicting changes
in the prices of individual securities. While the Sub-advisor is
experienced in the use of these instruments, there can be no assurance that
any particular strategy adopted will succeed since the skills and
techniques needed to trade Forward Contracts are different from those
needed to select securities in which a Fund invests.
(2) There might be imperfect correlation, or even no correlation,
between price movements of an instrument and price movements of the
currency or the investments being hedged. For example, if the value of an
instrument used in a short hedge increased by less than the decline in
value of the hedged investment, the hedge would not be fully successful.
Such a lack of correlation might occur due to factors unrelated to the
value of the investments being hedged, such as speculative or other
pressures on the markets in which the hedging instrument is traded. The
effectiveness of hedges using hedging instruments on indices will depend on
the degree of correlation between price movements in the index and price
movements in the investments being hedged.
(3) Hedging strategies, if successful, can reduce risk of loss by
wholly or partially offsetting the negative effect of unfavorable price
movements in the investments being hedged. However, hedging strategies can
also reduce opportunity for gain by offsetting the positive effect of
favorable price movements in the hedged investments. For example, if a Fund
entered into a short hedge because the Sub-advisor projected a decline in
the price of a security in the Fund's portfolio, and the price of that
security increased instead, the gain from that increase might be wholly or
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partially offset by a decline in the price of the hedging instrument.
Moreover, if the price of the hedging instrument declined by more than the
increase in the price of the security, the Fund could suffer a loss
including the possible loss of principal under certain conditions. In
either such case, the Fund would have been in a better position had it not
hedged at all.
(4) As described below, a Fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it takes
positions in instruments involving obligations to third parties (i.e.,
instruments other than purchased options). If the Fund were unable to close
out its positions in such instruments, it might be required to continue to
maintain such assets or accounts or make such payments until the position
expired or matured. The requirements might impair the Fund's ability to
sell a portfolio security or make an investment at a time when it would
otherwise be favorable to do so, or require that the Fund sell a portfolio
security at a disadvantageous time. A Fund's ability to close out a
position in an instrument prior to expiration or maturity depends on the
existence of a liquid secondary market of which there is no assurance of
any particular time or, in the absence of such a market, the ability and
willingness of the other party to the transaction ("contra party") to enter
into a transaction closing out the position. Therefore, there is no
assurance that any position can be closed out at a time and price that is
favorable to the Funds. In addition, a Fund may be unable to purchase or
sell a portfolio security at a time when it would otherwise be favorable
for it to do so. A Fund may also need to sell a security at a
disadvantageous time, due to the need for the Fund to maintain "cover" or
to set aside securities in connection with hedging transactions.
WRITING CALL OPTIONS
Each Fund may write (sell) call options on securities, indices and currencies.
This strategy will be employed only when, in the opinion of the Sub-advisor, the
size of the premium a Fund receives for writing the option is adequate to
compensate it against the risk that appreciation in the underlying security may
not be fully realized if the option is exercised. Call options generally will be
written on securities and currencies that, in the opinion of the Sub-advisor are
not expected to make any major price moves in the near future but that, over the
long term, are deemed to be attractive investments for a Fund.
A call option gives the holder (buyer) the right to purchase a security or
currency at a specified price (the exercise price) at any time until (American
Style) or on (European Style) a certain date (the expiration date). So long as
the obligation of the writer of a call option continues, he may be assigned an
exercise notice, requiring him to deliver the underlying security or currency
against payment of the exercise price. This obligation terminates upon the
expiration of the call option, or such earlier time at which the writer effects
a closing purchase transaction by purchasing an option identical to that
previously sold.
Portfolio securities or currencies on which call options may be written will
be purchased solely on the basis of investment considerations consistent with
each Fund's investment objective. When writing a call option, a Fund, in return
for the premium, gives up the opportunity for profit from a price increase in
the underlying security or currency above the exercise price, and retains the
risk of loss should the price of the security or currency decline. Unlike one
who owns securities or currencies not subject to an option, a Fund has no
control over when it may be required to sell the underlying securities or
currencies, since most options may be exercised at any time prior to the
option's expiration. If a call option that a Fund has written expires, the Fund
will realize a gain in the amount of the premium; however, such gain may be
offset by a decline in the market value of the underlying security or currency
during the option period. If the call option is exercised, the Fund will realize
a gain or loss from the sale of the underlying security or currency, which will
be increased or offset by the premium received. The Funds do not consider a
security or currency covered by a call option to be "pledged" as that term is
used in the Funds' policies that limit the pledging or mortgaging of their
assets.
Writing call options can serve as a limited short hedge because declines in
the value of the hedged investment would be offset to the extent of the premium
received for writing the option. However, if the security or currency
appreciates to a price higher than the exercise price of the call option, it can
be expected that the option will be exercised and a Fund will be obligated to
sell the security or currency at less than its market value.
The premium that a Fund receives for writing a call option is deemed to
constitute the market value of an option. The premium a Fund will receive from
writing a call option will reflect, among other things, the current market price
of the underlying investment, the relationship of the exercise price to such
market price, the historical price volatility of the underlying investment, and
the length of the option period. In determining whether a particular call option
should be written, the Sub-advisor will consider the reasonableness of the
anticipated premium and the likelihood that a liquid secondary market will exist
for those options.
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Closing transactions will be effected in order to realize a profit on an
outstanding call option, to prevent an underlying security or currency from
being called, or to permit the sale of the underlying security or currency.
Furthermore, effecting a closing transaction will permit a Fund to write another
call option on the underlying security or currency with either a different
exercise price, expiration date or both.
Each Fund will pay transaction costs in connection with the writing of options
and in entering into closing purchase contracts. Transaction costs relating to
options activity normally are higher than those applicable to purchases and
sales of portfolio securities.
The exercise price of the options may be below, equal to or above the current
market values of the underlying securities or currencies at the time the options
are written. From time to time, a Fund may purchase an underlying security or
currency for delivery in accordance with the exercise of an option, rather than
delivering such security or currency from its portfolio. In such cases,
additional costs will be incurred.
A Fund will realize a profit or loss from a closing purchase transaction if
the cost of the transaction is less or more, respectively, than the premium
received from writing the option. Because increases in the market price of a
call option generally will reflect increases in the market price of the
underlying security or currency, any loss resulting from the repurchase of a
call option is likely to be offset in whole or in part by appreciation of the
underlying security or currency owned by the Fund.
WRITING PUT OPTIONS
Each Fund may write put options on securities, indices and currencies. A put
option gives the purchaser of the option the right to sell, and the writer
(seller) the obligation to buy, the underlying security or currency at the
exercise price at any time until (American style) or on (European style) the
expiration date. The operation of put options in other respects, including their
related risks and rewards, is identical substantially to that of call options.
A Fund generally would write put options in circumstances where the
Sub-advisor wishes to purchase the underlying security or currency for the
Fund's portfolio at a price lower than the current market price of the security
or currency. In such event, the Fund would write a put option at an exercise
price that, reduced by the premium received on the option, reflects the lower
price it is willing to pay. Since the Fund would also receive interest on debt
securities or currencies maintained to cover the exercise price of the option,
this technique could be used to enhance current return during periods of market
uncertainty. The risk in such a transaction would be that the market price of
the underlying security or currency would decline below the exercise price less
the premium received.
Writing put options can serve as a limited long hedge because increases in the
value of the hedged investment would be offset to the extent of the premium
received for writing the option. However, if the security or currency
depreciates to a price lower than the exercise price of the put option, it can
be expected that the put option will be exercised and the Fund will be obligated
to sell the security or currency at more than its market value.
PURCHASING PUT OPTIONS
Each Fund may purchase put options on securities, indices and currencies. As
the holder of a put option, a Fund would have the right to sell the underlying
security or currency at the exercise price at any time until (American style) or
on (European style) the expiration date. A Fund may enter into closing sale
transactions with respect to such options, exercise them or permit them to
expire.
A Fund may purchase a put option on an underlying security or currency
("protective put") owned by the Fund to protect against an anticipated decline
in the value of the security or currency. Such protection is provided only
during the life of the put option when the Fund, as the holder of the put
option, is able to sell the underlying security or currency at the put exercise
price regardless of any decline in the underlying security's market price or
currency's exchange value. The premium paid for the put option and any
transaction costs would reduce any profit otherwise available for distribution
when the security or currency is eventually sold.
A Fund also may purchase put options at a time when the Fund does not own the
underlying security or currency. By purchasing put options on a security or
currency it does not own, the Fund seeks to benefit from a decline in the market
price of the underlying security or currency. If the put option is not sold when
it has remaining value, and if the market price of the underlying security or
currency remains equal to or greater than the exercise price during the life of
the put option, the Fund will lose its entire investment in the put option. In
order for the purchase of a put option to be profitable, the market price of the
underlying security or currency must decline sufficiently below the exercise
price to cover the premium and transaction costs, unless the put option is sold
in a closing sale transaction.
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PURCHASING CALL OPTIONS
Each Fund may purchase call options on securities, indices and currencies. As
the holder of a call option, a Fund would have the right to purchase the
underlying security or currency at the exercise price at any time until
(American style) or on (European style) the expiration date. A Fund may enter
into closing sale transactions with respect to such options, exercise them or
permit them to expire.
Call options may be purchased by a Fund for the purpose of acquiring the
underlying security or currency for its portfolio. Utilized in this fashion, the
purchase of call options would enable the Fund to acquire the security or
currency at the exercise price of the call option plus the premium paid. At
times, the net cost of acquiring the security or currency in this manner may be
less than the cost of acquiring the security or currency directly. This
technique also may be useful to a Fund in purchasing a large block of securities
that would be more difficult to acquire by direct market purchases. So long as
it holds such a call option, rather than the underlying security or currency
itself, the Fund is partially protected from any unexpected decline in the
market price of the underlying security or currency and, in such event, could
allow the call option to expire, incurring a loss only to the extent of the
premium paid for the option.
A Fund also may purchase call options on underlying securities or currencies
it owns to avoid realizing losses that would result in a reduction of its
current return. For example, where a Fund has written a call option on an
underlying security or currency having a current market value below the price at
which it purchased the security or currency, an increase in the market price
could result in the exercise of the call option written by the Fund and the
realization of a loss on the underlying security or currency. Accordingly, the
Fund could purchase a call option on the same underlying security or currency,
which could be exercised to fulfill the Fund's delivery obligations under its
written call (if it is exercised). This strategy could allow the Fund to avoid
selling the portfolio security or currency at a time when it has an unrealized
loss; however, the Fund would have to pay a premium to purchase the call option
plus transaction costs.
Aggregate premiums paid for put and call options will not exceed 5% of a
Fund's total assets at the time of purchase.
Each Fund may attempt to accomplish objectives similar to those involved in
its use of Forward Contracts by purchasing put or call options on currencies. A
put option gives a Fund as purchaser the right (but not the obligation) to sell
a specified amount of currency at the exercise price at any time until (American
style) or on (European style) the expiration date. A call option gives a Fund as
purchaser the right (but not the obligation) to purchase a specified amount of
currency at the exercise price at any time until (American style) or on
(European style) the expiration date. A Fund might purchase a currency put
option, for example, to protect itself against a decline in the dollar value of
a currency in which it holds or anticipates holding securities. If the
currency's value should decline against the dollar, the loss in currency value
should be offset, in whole or in part, by an increase in the value of the put.
If the value of the currency instead should rise against the dollar, any gain to
the Fund would be reduced by the premium it had paid for the put option. A
currency call option might be purchased, for example, in anticipation of, or to
protect against, a rise in the value against the dollar of a currency in which a
Fund anticipates purchasing securities.
Options may be either listed on an exchange or traded in over-the-counter
("OTC") markets. Listed options are third-party contracts (i.e., performance of
the obligations of the purchaser and seller is guaranteed by the exchange or
clearing corporation), and have standardized strike prices and expiration dates.
OTC options are two-party contracts with negotiated strike prices and expiration
dates. A Fund will not purchase an OTC option unless it believes that daily
valuations for such options are readily obtainable. OTC options differ from
exchange-traded options in that OTC options are transacted with dealers directly
and not through a clearing corporation (which guarantees performance).
Consequently, there is a risk of non-performance by the dealer. Since no
exchange is involved, OTC options are valued on the basis of an average of the
last bid prices obtained from dealers, unless a quotation from only one dealer
is available, in which case only that dealer's price will be used. In the case
of OTC options, there can be no assurance that a liquid secondary market will
exist for any particular option at any specific time.
The staff of the SEC considers purchased OTC options to be illiquid
securities. A Fund may also sell OTC options and, in connection therewith,
segregate assets or cover its obligations with respect to OTC options written by
the Fund. The assets used as cover for OTC options written by the Fund will be
considered illiquid unless the OTC options are sold to qualified dealers who
agree that the Fund may repurchase any OTC option it writes at a maximum price
to be calculated by a formula set forth in the option agreement. The cover for
an OTC option written subject to this procedure would be considered illiquid
only to the extent that the maximum repurchase price under the formula exceeds
the intrinsic value of the option.
A Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. Each Fund intends to
purchase or write only those exchange-traded options for which there appears to
be a liquid secondary market. However, there can be no assurance that such a
market will exist at any particular time. Closing
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<PAGE> 581
transactions can be made for OTC options only by negotiating directly with the
contra party or by a transaction in the secondary market if any such market
exists. Although each Fund will enter into OTC options only with contra parties
that are expected to be capable of entering into closing transactions with the
Fund, there is no assurance that the Funds will in fact be able to close out an
OTC option position at a favorable price prior to expiration. In the event of
insolvency of the contra party, a Fund might be unable to close out an OTC
option position at any time prior to its expiration.
INDEX OPTIONS
Puts and calls on indices are similar to puts and calls on securities or
futures contracts except that all settlements are in cash and gain or loss
depends on changes in the index in question (and thus on price movements in the
securities market or a particular market sector generally) rather than on price
movements in individual securities or futures contracts. When a Fund writes a
call on an index, it receives a premium and agrees that, prior to the expiration
date, the purchaser of the call, upon exercise of the call, will receive from
the Fund an amount of cash if the closing level of the index upon which the call
is based is greater than the exercise price of the call. The amount of cash is
equal to the difference between the closing price of the index and the exercise
price of the call times a specified multiple (the "multiplier"), which
determines the total dollar value for each point of such difference. When a Fund
buys a call on an index, it pays a premium and has the same rights as to such
call as are indicated above. When a Fund buys a put on an index, it pays a
premium and has the right, prior to the expiration date, to require the seller
of the put, upon the Fund's exercise of the put, to deliver to the Fund an
amount of cash if the closing level of the index upon which the put is based is
less than the exercise price of the put, which amount of cash is determined by
the multiplier, as described above for calls. When a Fund writes a put on an
index, it receives a premium and the purchaser has the right, prior to the
expiration date, to require the Fund to deliver to it an amount of cash equal to
the difference between the closing level of the index and the exercise price
times the multiplier, if the closing level is less than the exercise price.
The risks of investment in index options may be greater than options on
securities. Because index options are settled in cash, when a Fund writes a call
on an index it cannot provide in advance for its potential settlement
obligations by acquiring and holding the underlying securities. A Fund can
offset some of the risk of writing a call index option position by holding a
diversified portfolio of securities similar to those on which the underlying
index is based. However, a Fund cannot, as a practical matter, acquire and hold
a portfolio containing exactly the same securities as underlie the index and, as
a result, bears a risk that the value of the securities held will vary from the
value of the index.
Even if a Fund could assemble a securities portfolio that exactly reproduced
the composition of the underlying index, it still would not be fully covered
from a risk standpoint because of the "timing risk" inherent in writing index
options. When an index option is exercised, the amount of cash that the holder
is entitled to receive is determined by the difference between the exercise
price and the closing index level on the date when the option is exercised. As
with other kinds of options, a Fund, as the call writer, will not know that it
has been assigned until the next business day at the earliest. The time lag
between exercise and notice of assignment poses no risk for the writer of a
covered call on a specific underlying security, such as common stock, because
there the writer's obligation is to deliver the underlying security, not to pay
its value as of a fixed time in the past. So long as the writer already owns the
underlying security, it can satisfy its settlement obligations by simply
delivering it, and the risk that its value may have declined since the exercise
date is borne by the exercising holder. In contrast, even if the writer of an
index call holds securities that exactly match the composition of the underlying
index, it will not be able to satisfy its assignment obligations by delivering
those securities against payment of the exercise price. Instead, it will be
required to pay cash in an amount based on the closing index value on the
exercise date; and by the time it learns that it has been assigned, the index
may have declined, with a corresponding decline in the value of its securities
portfolio. This "timing risk" is an inherent limitation on the ability of index
call writers to cover their risk exposure by holding securities positions.
If a Fund purchases an index option and exercises it before the closing index
value for that day is available, it runs the risk that the level of the
underlying index may subsequently change. If such a change causes the exercised
option to fall out-of-the-money, the Fund will be required to pay the difference
between the closing index value and the exercise price of the option (times the
applicable multiplier) to the assigned writer.
INTEREST RATE, CURRENCY AND STOCK INDEX FUTURES
Each Fund may enter into interest rate or currency futures contracts, and may
enter into stock index futures contracts (collectively, "Futures" or "Futures
Contracts"), as a hedge against changes in prevailing levels of interest rates,
currency exchange rates or stock prices in order to establish more definitely
the effective return on securities or currencies held or intended to be acquired
by the Fund. A Fund's transactions may include sales of Futures as an offset
against the effect of expected increases in interest rates, and decreases in
currency exchange rates and stock prices, and purchases of Futures
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<PAGE> 582
as an offset against the effect of expected declines in interest rates, and
increases in currency exchange rates and stock prices.
A Fund will only enter into Futures Contracts that are traded on futures
exchanges and are standardized as to maturity date and underlying financial
instrument. Futures exchanges and trading thereon in the United States are
regulated under the Commodity Exchange Act by the Commodity Futures Trading
Commission ("CFTC"). Futures are exchanged in London at the London International
Financial Futures Exchange.
Although techniques other than sales and purchases of Futures Contracts could
be used to reduce a Fund's exposure to interest rate, currency exchange rate and
stock market fluctuations, a Fund may be able to hedge its exposure more
effectively and at a lower cost through using Futures Contracts.
A Futures Contract provides for the future sale by one party and purchase by
another party of a specified amount of a specific financial instrument (security
or currency) for a specified price at a designated date, time and place. An
index Futures Contract provides for the delivery, at a designated date, time and
place, of an amount of cash equal to a specified dollar amount times the
difference between the index value at the close of trading on the contract and
the price at which the Futures Contract is originally struck; no physical
delivery of the securities comprising the index is made. Brokerage fees are
incurred when a Futures Contract is bought or sold, and margin deposits must be
maintained at all times the Futures Contract is outstanding.
Although Futures Contracts typically require future delivery of and payment
for financial instruments or currencies, Futures Contracts are usually closed
out before the delivery date. Closing out an open Futures Contract sale or
purchase is effected by entering into an offsetting Futures Contract purchase or
sale, respectively, for the same aggregate amount of the identical financial
instrument or currency and the same delivery date. If the offsetting purchase
price is less than the original sale price, a Fund realizes a gain; if it is
more, a Fund realizes a loss. Conversely, if the offsetting sale price is more
than the original purchase price, a Fund realizes a gain; if it is less, the
Fund realizes a loss. The transaction costs must also be included in these
calculations. There can be no assurance, however, that a Fund will be able to
enter into an offsetting transaction with respect to a particular Futures
Contract at a particular time. If a Fund is not able to enter into an offsetting
transaction, the Fund will continue to be required to maintain the margin
deposits on the Futures Contract.
As an example of an offsetting transaction, the contractual obligations
arising from the sale of one Futures Contract of September Deutschemarks on an
exchange may be fulfilled at any time before delivery under the Futures Contract
is required (i.e., on a specified date in September, the "delivery month") by
the purchase of another Futures Contract of September Deutschemarks on the same
exchange. In such instance the difference between the price at which the Futures
Contract was sold and the price paid for the offsetting purchase, after
allowance for transaction costs, represents the profit or loss to the Fund.
Each Fund's Futures transactions will be entered into for hedging purposes
only; that is, Futures Contracts will be sold to protect against a decline in
the price of securities or currencies that the Fund owns, or Futures Contracts
will be purchased to protect the Fund against an increase in the price of
securities or currencies it has committed to purchase or expects to purchase.
"Margin" with respect to Futures Contracts is the amount of funds that must be
deposited by a Fund in order to initiate Futures trading and to maintain the
Fund's open positions in Futures Contracts. A margin deposit made when the
Futures Contract is entered into ("initial margin") is intended to assure a
Fund's performance under the Futures Contract. The margin required for a
particular Futures Contract is set by the exchange on which the Futures Contract
is traded and may be modified significantly from time to time by the exchange
during the term of the Futures Contract.
Subsequent payments, called "variation margin," to and from the futures
commission merchant through which a Fund entered into the Futures Contract will
be made on a daily basis as the price of the underlying security, currency or
index fluctuates making the Futures Contract more or less valuable, a process
known as marking-to-market.
Risks of Using Futures Contracts. The prices of Futures Contracts are volatile
and are influenced by, among other things, actual and anticipated changes in
interest rates and currency exchange rates, and in stock market movements, which
in turn are affected by fiscal and monetary policies and national and
international political and economic events.
There is a risk of imperfect correlation between changes in prices of Futures
Contracts and prices of the securities or currencies in a Fund's portfolio being
hedged. The degree of imperfection of correlation depends upon circumstances
such as: variations in speculative market demand for Futures and for securities
or currencies, including technical influences in Futures trading; and
differences between the financial instruments being hedged and the instruments
underlying the standard Futures Contracts available for trading. A decision of
whether, when, and how to hedge involves skill and
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judgment, and even a well-conceived hedge may be unsuccessful to some degree
because of unexpected market behavior or interest or currency rate trends.
Because of the low margin deposits required, Futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a Futures Contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the Futures Contract is deposited as margin, a subsequent 10%
decrease in the value of the Futures Contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the Futures Contract were closed out.
Thus, a purchase or sale of a Futures Contract may result in losses in excess of
the amount invested in the Futures Contract.
Most U.S. Futures exchanges limit the amount of fluctuation permitted in
Futures Contract and options on Futures Contract prices during a single trading
day. The daily limit establishes the maximum amount that the price of a Futures
Contract or option may vary either up or down from the previous day's settlement
price at the end of a trading session. Once the daily limit has been reached in
a particular type of Futures Contract or option, no trades may be made on that
day at a price beyond that limit. The daily limit governs only price movement
during a particular trading day and therefore does not limit potential losses,
because the limit may prevent the liquidation of unfavorable positions. Futures
Contract and option prices have occasionally moved to the daily limit for
several consecutive trading days with little or no trading, thereby preventing
prompt liquidation of positions and subjecting some traders to substantial
losses.
If a Fund were unable to liquidate a Futures or option on Futures position due
to the absence of a liquid secondary market or the imposition of price limits,
it could incur substantial losses. The Fund would continue to be subject to
market risk with respect to the position. In addition, except in the case of
purchased options, the Fund would continue to be required to make daily
variation margin payments and might be required to maintain the position being
hedged by the Future or option or to maintain cash or securities in a segregated
account.
Certain characteristics of the Futures market might increase the risk that
movements in the prices of Futures Contracts or options on Futures might not
correlate perfectly with movements in the prices of the investments being
hedged. For example, all participants in the Futures and options on Futures
markets are subject to daily variation margin calls and might be compelled to
liquidate Futures or options on Futures positions whose prices are moving
unfavorably to avoid being subject to further calls. These liquidations could
increase price volatility of the instruments and distort the normal price
relationship between the Futures or options and the investments being hedged.
Also, because initial margin deposit requirements in the Futures market are less
onerous than margin requirements in the securities markets, there might be
increased participation by speculators in the Futures markets. This
participation also might cause temporary price distortions. In addition,
activities of large traders in both the Futures and securities markets involving
arbitrage, "program trading" and other investment strategies might result in
temporary price distortions.
OPTIONS ON FUTURES CONTRACTS
Options on Futures Contracts are similar to options on securities or
currencies except that options on Futures Contracts give 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 period of
the option. Upon exercise of the option, the delivery of the Futures position by
the writer of the option to the holder of the option will be accompanied by
delivery of the accumulated 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 is
exercised on the last trading day 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 level of the securities, currencies
or index upon which the Futures Contract is based on the expiration date.
Purchasers of options who fail to exercise their options prior to the exercise
date suffer a loss of the premium paid.
The purchase of call options on Futures can serve as a long hedge, and the
purchase of put options on Futures can serve as a short hedge. Writing call
options on Futures can serve as a limited short hedge, and writing put options
on Futures can serve as a limited long hedge, using a strategy similar to that
used for writing options on securities, foreign currencies or indices.
If a Fund writes an option on a Futures Contract, it will be required to
deposit initial and variation margin pursuant to requirements similar to those
applicable to Futures Contracts. Premiums received from the writing of an option
on a Futures Contract are included in the initial margin deposit.
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<PAGE> 584
A Fund may seek to close out an option position by selling an option covering
the same Futures Contract and having the same exercise price and expiration
date. The ability to establish and close out positions on such options is
subject to the maintenance of a liquid secondary market.
LIMITATIONS ON USE OF FUTURES, OPTIONS ON FUTURES AND CERTAIN OPTIONS ON
CURRENCIES
To the extent that a Fund enters into Futures Contracts, options on Futures
Contracts, and options on foreign currencies traded on a CFTC-regulated
exchange, in each case other than for bona fide hedging purposes (as defined by
the CFTC), the aggregate initial margin and premiums required to establish those
positions (excluding the amount by which options are "in-the-money") will not
exceed 5% of the liquidation value of the Fund's portfolio, after taking into
account unrealized profits and unrealized losses on any contracts the Fund has
entered into. In general, a call option on a Futures Contract is "in-the-money"
if the value of the underlying Futures Contract exceeds the strike, i.e.,
exercise, price of the call; a put option on a Futures Contract is
"in-the-money" if the value of the underlying Futures Contract is exceeded by
the strike price of the put. This guideline may be modified by the Trust's Board
of Trustees without a shareholder vote. This limitation does not limit the
percentage of the Fund's assets at risk to 5%.
FORWARD CONTRACTS
To attempt to hedge against adverse movements in exchange rates between
currencies, each Fund may enter into forward currency contracts for the purchase
or sale of a specified currency at a specified future date. Such contracts may
involve the purchase or sale of a foreign currency against the U.S. dollar or
may involve two foreign currencies. A Fund may enter into forward currency
contracts either with respect to specific transactions or with respect to its
portfolio positions. Each Fund may also purchase and sell put and call options
on equity and debt securities to hedge against the risk of fluctuations in the
prices of securities held by a Fund or that the Sub-advisor intends to include
in a Fund's portfolio. Each Fund may also purchase and sell put and call options
on stock indices to hedge against overall fluctuations in the securities markets
or in a specific market sector.
A Forward Contract is an obligation, usually arranged with a commercial bank
or other currency dealer, to purchase or sell a currency against another
currency at a future date and price as agreed upon by the parties. A Fund either
may accept or make delivery of the currency at the maturity of the Forward
Contract. The Fund may also, if its contra party agrees, prior to maturity,
enter into a closing transaction involving the purchase or sale of an offsetting
contract.
A Fund engages in forward currency transactions in anticipation of, or to
protect itself against, fluctuations in exchange rates. A Fund might sell a
particular foreign currency forward, for example, when it holds bonds
denominated in a foreign currency but anticipates, and seeks to be protected
against, a decline in the currency against the U.S. dollar. Similarly, the Fund
might sell the U.S. dollar forward when it holds bonds denominated in U.S.
dollars but anticipates, and seeks to be protected against, a decline in the
U.S. dollar relative to other currencies. Further, the Fund might purchase a
currency forward to "lock in" the price of securities denominated in that
currency that it anticipates purchasing.
Forward Contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers. A
Forward Contract generally has no deposit requirement and no commissions are
charged at any stage for trades. Each Fund will enter into such Forward
Contracts with major U.S. or foreign banks and securities or currency dealers in
accordance with the guidelines approved by the Trust's Board of Trustees.
Each Fund may enter into Forward Contracts either with respect to specific
transactions or with respect to the Fund's portfolio positions. The precise
matching of the Forward Contract amounts and the value of specific securities
generally will not be possible because the future value of such securities in
foreign currencies will change as a consequence of market movements in the value
of those securities between the date the Forward Contract is entered into and
the date it matures. Accordingly, it may be necessary for a Fund to purchase
additional foreign currency on the spot (i.e., cash) market (and bear the
expense of such purchase) if the market value of the security is less than the
amount of foreign currency the Fund is obligated to deliver and if a decision is
made to sell the security and make delivery of the foreign currency. Conversely,
it may be necessary to sell on the spot market some of the foreign currency the
Fund is obligated to deliver. The projection of short-term currency market
movements is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain. Forward Contracts involve the risk that
anticipated currency movements will not be predicted accurately, causing a Fund
to sustain losses on these contracts and transaction costs.
At or before the maturity of a Forward Contract requiring a Fund to sell a
currency, the Fund either may sell a portfolio security and use the sale
proceeds to make delivery of the currency or retain the security and offset its
contractual obligation to deliver the currency by purchasing a second contract
pursuant to which the Fund will obtain, on the same maturity date, the same
amount of the currency that it is obligated to deliver. Similarly, a Fund may
close out a Forward Contract requiring it to purchase a specified currency by
entering into a second contract, if its contra party agrees,
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<PAGE> 585
entitling it to sell the same amount of the same currency on the maturity date
of the first contract. The Fund would realize a gain or loss as a result of
entering into such an offsetting Forward Contract under either circumstance to
the extent the exchange rate or rates between the currencies involved moved
between the execution dates of the first contract and the offsetting contract.
The cost to a Fund of engaging in Forward Contracts varies with factors such
as the currencies involved, the length of the contract period and the market
conditions then prevailing. Because Forward Contracts usually are entered into
on a principal basis, no fees or commissions are involved. The use of Forward
Contracts does not eliminate fluctuations in the prices of the underlying
securities a Fund owns or intends to acquire, but it does establish a rate of
exchange in advance. In addition, while Forward Contract sales limit the risk of
loss due to a decline in the value of the hedged currencies, they also limit any
potential gain that might result should the value of the currencies increase.
FOREIGN CURRENCY STRATEGIES -- SPECIAL CONSIDERATIONS
Each Fund may use options on foreign currencies, Futures on foreign
currencies, options on Futures on foreign currencies and Forward Contracts to
hedge against movements in the values of the foreign currencies in which the
Fund's securities are denominated. Such currency hedges can protect against
price movements in a security that a Fund owns or intends to acquire that are
attributable to changes in the value of the currency in which it is denominated.
Such hedges do not, however, protect against price movements in the securities
that are attributable to other causes.
A Fund might seek to hedge against changes in the value of a particular
currency when no Futures Contract, Forward Contract or option involving that
currency is available or one of such contracts is more expensive than certain
other contracts. In such cases, a Fund may hedge against price movements in that
currency by entering into a contract on another currency or basket of
currencies, the values of which the Sub-advisor believes will have a positive
correlation to the value of the currency being hedged. The risk that movements
in the price of the contract will not correlate perfectly with movements in the
price of the currency being hedged is magnified when this strategy is used.
The value of Futures Contracts, options on Futures Contracts, Forward
Contracts, and options on foreign currencies depends on the value of the
underlying currency relative to the U.S. dollar. Because foreign currency
transactions occurring in the interbank market might involve substantially
larger amounts than those involved in the use of Futures Contracts, Forward
Contracts or options, a Fund could be disadvantaged by dealing in the odd lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirements that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options or Futures markets are
closed while the markets for the underlying currencies remain open, significant
price and rate movements might take place in the underlying markets that cannot
be reflected in the markets for the Futures contracts or options until they
reopen.
Settlement of Futures Contracts, Forward Contracts and options involving
foreign currencies might be required to take place within the country issuing
the underlying currency. Thus, a Fund might be required to accept or make
delivery of the underlying foreign currency in accordance with any U.S. or
foreign regulations regarding the maintenance of foreign banking arrangements by
U.S. residents and might be required to pay any fees, taxes and charges
associated with such delivery assessed in the issuing country.
COVER
Transactions using Forward Contracts, Futures Contracts and options (other
than options purchased by a Fund) expose the Fund to an obligation to another
party. No Fund will enter into any such transactions unless it owns either (1)
an offsetting ("covered") position in securities, currencies, or other options,
Forward Contracts or Futures Contracts, or (2) cash, receivables and short-term
debt securities with a value sufficient at all times to cover its potential
obligations not covered as provided in (1) above. The Funds will comply with SEC
guidelines regarding cover for these instruments and, if the guidelines so
require, set aside cash or liquid securities.
Assets used as cover or held in a segregated account cannot be sold while the
position in the corresponding Forward Contract, Futures Contract or option is
open, unless they are replaced with other appropriate assets. If a large portion
of a Fund's assets are used for cover or otherwise set aside, it could affect
portfolio management or the Fund's ability to meet redemption requests or other
current obligations.
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RISK FACTORS
GENERAL
There is no assurance that a Fund will achieve its investment objectives.
Investing in a Fund entails a substantial degree of risk, and an investment in a
Fund should be considered speculative. Investors are strongly advised to
consider carefully the special risks involved in investing in emerging markets,
and specifically Latin America, which are in addition to the usual risks of
investing in developed markets around the world.
A Fund's net asset value will fluctuate, reflecting fluctuations in the market
value of its portfolio positions and its net currency exposure. Equity
securities, particularly common stocks, generally represent the most junior
position in an issuer's capital structure and entitle holders to an interest in
the assets of an issuer, if any, remaining after all more senior claims have
been satisfied. The value of equity securities held by a Fund will fluctuate in
response to general market and economic developments, as well as developments
affecting the particular issuers of such securities.
In addition, the value of debt securities by each Fund generally will
fluctuate with the perceived creditworthiness of the issuers of such securities
and interest rates.
NON-DIVERSIFIED CLASSIFICATION
Developing Markets Fund and Latin American Fund are classified under the 1940
Act as "non-diversified" funds. As a result, these Funds will be able to invest
in a smaller number of issuers than if it was classified under the 1940 Act as
"diversified" funds. To the extent that a Fund invests in a smaller number of
issuers, the net asset value of its shares may fluctuate more widely and it may
be subject to greater investment and credit risk with respect to its portfolio.
ILLIQUID SECURITIES
Developing Markets Fund [and Emerging Markets Fund] each may invest up to 15%
of its net assets, and Latin American Fund up to 10% of its net assets, in
illiquid securities. Securities may be considered illiquid if a Fund cannot
reasonably expect within seven days to sell the security for approximately the
amount at which the Fund values such securities. The sale of illiquid
securities, if they can be sold at all, generally will require more time and
result in higher brokerage charges or dealer discounts and other selling
expenses than the sale of liquid securities, such as securities eligible for
trading on U.S. securities exchanges or in the over-the-counter markets.
Moreover, restricted securities which may be illiquid for purposes of this
limitation, often sell, if at all, at a price lower than similar securities that
are not subject to restrictions on resale.
Latin American Fund may invest in joint ventures, cooperatives, partnerships
and state enterprises and other similar vehicles which are illiquid
(collectively, "Special Situations"). The Sub-advisor believes that carefully
selected investments in Special Situations could enable Latin American Fund to
achieve capital appreciation substantially exceeding the appreciation Latin
American Fund would realize if it did not make such investments. However, in
order to limit investment risk, Latin American Fund will invest no more than 5%
of its total assets in Special Situations.
Illiquid securities include those that are subject to restrictions contained
in the securities laws of other countries. However, securities that are freely
marketable in the country where they are principally traded, but would not be
freely marketable in the United States, will not be considered illiquid. Where
registration is required, a Fund may be obligated to pay all or part of the
registration expenses and a considerable period may elapse between the time of
the decision to sell and the time the Fund may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, the Fund might obtain a less favorable price
than prevailed when it decided to sell.
Not all restricted securities are illiquid. In recent years a large
institutional market has developed for certain securities that are not
registered under the Securities Act of 1933, as amended ("1933 Act"), including
private placements, repurchase agreements, commercial paper, foreign securities
and corporate bonds and notes. These instruments are often restricted securities
because the securities are sold in transactions not requiring registration.
Institutional investors generally will not seek to sell these instruments to the
general public, but instead will often depend either on an efficient
institutional market in which such unregistered securities can be readily resold
or on an issuer's ability to honor a demand for repayment. Therefore, the fact
that there are contractual or legal restrictions on resale to the general public
or certain institutions is not dispositive of the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the registration
requirements of the 1933 Act for resales of certain securities to qualified
institutional buyers. Institutional markets for restricted securities have
developed
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<PAGE> 587
as a result of Rule 144A, providing both readily ascertainable values for
restricted securities and the ability to liquidate an investment to satisfy
share redemption orders. Such markets include automated systems for the trading,
clearance and settlement of unregistered securities of domestic and foreign
issuers, such as the PORTAL System sponsored by the National Association of
Securities Dealers, Inc. An insufficient number of qualified institutional
buyers interested in purchasing Rule 144A-eligible restricted securities held by
a Fund, however, could affect adversely the marketability of such portfolio
securities and the Fund might be unable to dispose of such securities promptly
or at favorable prices.
With respect to liquidity determinations generally, the Trust's Board of
Trustees has the ultimate responsibility for determining whether specific
securities, including restricted securities pursuant to Rule 144A under the 1933
Act, are liquid or illiquid. The Board has delegated the function of making
day-to-day determinations of liquidity to the Sub-advisor in accordance with
procedures approved by the Board. The Sub-advisor takes into account a number of
factors in reaching liquidity decisions, including (i) the frequency of trading
in the security, (ii) the number of dealers who make quotes for the security,
(iii) the number of dealers who have undertaken to make a market in the
security, (iv) the number of other potential purchasers and (v) the nature of
the security and how trading is effected (e.g., the time needed to sell the
security, how offers are solicited and the mechanics of transfer). The
Sub-advisor monitors the liquidity of securities in each Fund's portfolio and
periodically reports such determinations to the Board. If the liquidity
percentage restriction of a Fund is satisfied at the time of investment, a later
increase in the percentage of illiquid securities held by the Fund resulting
from a change in market value or assets will not constitute a violation of that
restriction. If as a result of a change in market value or assets, the
percentage of illiquid securities held by a Fund increases above the applicable
limit, the Sub-advisor will take appropriate steps to bring the aggregate amount
of illiquid assets back within the prescribed limitations as soon as reasonably
practicable, taking into account the effect of any disposition on the Fund.
DEBT SECURITIES
The value of the debt securities held by a Fund generally will vary inversely
with market interest rates. If interest rates in a market fall, a Fund's debt
securities issued by governments or companies in that market ordinarily will
increase in value. If market interest rates increase, however, the debt
securities owned by a Fund in that market will likely decrease in value. Latin
American Fund may invest up to 50% of its total assets in debt securities of any
rating. Developing Markets Fund may invest up to 50% of its total assets [and
Emerging Markets Fund may invest up to 20% of its total assets] in debt
securities rated below investment grade. Such investments involve a high degree
of risk.
Debt rated Baa by Moody's is considered by Moody's to have speculative
characteristics. Debt rated BB, B, CCC, CC or C by S&P, and debt rated Ba, B,
Caa, Ca or C by Moody's is regarded, on balance, as predominantly speculative
with respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. While such lower quality debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions. Debt rated C
by Moody's or S&P is the lowest rated debt that is not in default as to
principal or interest and such issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing. Lower
quality debt securities are also generally considered to be subject to greater
risk than securities with higher ratings with regard to a deterioration of
general economic conditions. These foreign debt securities are the equivalent of
high yield, high risk bonds, commonly known as "junk bonds."
Ratings of debt securities represent the rating agency's opinion regarding
their quality and are not a guarantee of quality. Rating agencies attempt to
evaluate the safety of principal and interest payments and do not evaluate the
risks of fluctuations in market value. Also, rating agencies may fail to make
timely changes in credit ratings in response to subsequent events, so that an
issuer's current financial condition may be better or worse than a rating
indicates.
The market values of lower quality debt securities tend to reflect individual
developments of the issuer to a greater extent than do higher quality
securities, which react primarily to fluctuations in the general level of
interest rates. In addition, lower quality debt securities tend to be more
sensitive to economic conditions and generally have more volatile prices than
higher quality securities. Issuers of lower quality securities are often highly
leveraged and may not have available to them more traditional methods of
financing. For example, during an economic downturn or a sustained period of
rising interest rates, highly leveraged issuers of lower quality securities may
experience financial stress. During such periods, such issuers may not have
sufficient revenues to meet their interest payment obligations. The issuer's
ability to service its debt obligations may also be adversely affected by
specific developments affecting the issuer, such as the issuer's inability to
meet specific projected business forecasts or the unavailability of additional
financing. Similarly, certain emerging market governments that issue lower
quality debt securities are among the largest debtors to commercial banks,
foreign governments and supranational organizations such as the World Bank, and
may not be able or willing to make principal and/or interest repayments as they
come due. The risk of loss due to default by the issuer is significantly greater
for the holders of lower quality securities because such securities are
generally unsecured and may be subordinated to the claims of other creditors of
the issuer.
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<PAGE> 588
Lower quality debt securities frequently have call or buy-back features which
would permit an issuer to call or repurchase the security from a Fund. In
addition, a Fund may have difficulty disposing of lower quality securities
because they may have a thin trading market. There may be no established retail
secondary market for many of these securities, and the Funds anticipate that
such securities could be sold only to a limited number of dealers or
institutional investors. The lack of a liquid secondary market also may have an
adverse impact on market prices of such instruments and may make it more
difficult for a Fund to obtain accurate market quotations for purposes of
valuing a Fund's portfolio. Each Fund may also acquire lower quality debt
securities during an initial underwriting or which are sold without registration
under applicable securities laws. Such securities involve special considerations
and risks.
In addition to the foregoing, factors that could have an adverse effect on the
market value of lower quality debt securities in which a Fund may invest
include: (i) potential adverse publicity; (ii) heightened sensitivity to general
economic or political conditions; and (iii) the likely adverse impact of a major
economic recession.
Each Fund may invest in debt securities, including Brady Bonds, issued as part
of debt restructurings and such debt is to be considered speculative. There is a
history of defaults with respect to commercial bank loans by public and private
entities issuing Brady Bonds.
Each Fund may also incur additional expenses to the extent it is required to
seek recovery upon a default in the payment of principal or interest on its
portfolio holdings, and a Fund may have limited legal recourse in the event of a
default. Debt securities issued by governments in emerging markets can differ
from debt obligations issued by private entities in that remedies from defaults
generally must be pursued in the courts of the defaulting government, and legal
recourse is therefore somewhat diminished. Political conditions, in terms of a
government's willingness to meet the terms of its debt obligations, also are of
considerable significance. There can be no assurance that the holders of
commercial bank debt may not contest payments to the holders of debt securities
issued by governments in emerging markets in the event of default by the
governments under commercial bank loan agreements.
LOAN PARTICIPATIONS AND ASSIGNMENTS
Developing Markets Fund may have difficulty disposing of Assignments and
Participations. The liquidity of such securities is limited, and the Fund
anticipates that such securities could be sold only to a limited number of
institutional investors. The lack of a liquid secondary market could have an
adverse impact on the value of such securities and on a Fund's ability to
dispose of particular Assignments or Participations when necessary to meet its
liquidity needs or in response to a specific economic event, such as a
deterioration in the creditworthiness of the borrower. The lack of a liquid
secondary market for Assignments and Participations also may make it more
difficult for a Fund to assign a value to those securities for purposes of
valuing its portfolio and calculating it net asset value.
FOREIGN SECURITIES
Political, Social and Economic Risks. Investing in securities of non-U.S.
companies may entail additional risks due to the potential political, social and
economic instability of certain countries and the risks of expropriation,
nationalization, confiscation or the imposition of restrictions on foreign
investment, convertibility of currencies into U.S. dollars and on repatriation
of capital invested. In the event of such expropriation, nationalization or
other confiscation by any country, a Fund could lose its entire investment in
any such country.
In addition, even though opportunities for investment may exist in emerging
markets, any change in the leadership or policies of the governments of those
countries or in the leadership or policies of any other government which
exercises a significant influence over those countries, may halt the expansion
of or reverse the liberalization of foreign investment policies now occurring
and thereby eliminate any investment opportunities which may currently exist.
Investors should note that upon the accession to power of authoritarian
regimes, the governments of a number of Latin American countries previously
expropriated large quantities of real and personal property similar to the
property which will be represented by the securities purchased by the Funds. The
claims of property owners against those governments were never finally settled.
There can be no assurance that any property represented by securities purchased
by the Funds will not also be expropriated, nationalized, or otherwise
confiscated. If such confiscation were to occur, the Funds could lose their
entire investment in such countries. The Funds' investments would similarly be
adversely affected by exchange control regulation in any of those countries.
Economies in individual emerging markets may differ favorably or unfavorably
from the U.S. economy in such respects as growth of gross domestic product,
rates of inflation, currency depreciation, capital reinvestment, resource self-
sufficiency and balance of payments positions. Many emerging market countries
have experienced high rates of inflation
28
<PAGE> 589
for many years. Inflation and rapid fluctuations in inflation rates have had and
may continue to have negative effects on the economies and securities markets of
certain countries with emerging markets.
Emerging markets generally are dependent heavily upon international trade and,
accordingly, have been and may continue to be affected adversely by trade
barriers, exchange controls, managed adjustments in relative currency values and
other protectionist measures imposed or negotiated by the countries with which
they trade.
Moreover, individual foreign economies may differ favorably or unfavorably
from the U.S. economy in such respects as growth of gross national product, rate
of inflation, rate of savings and capital reinvestment, currency depreciation,
resource self-sufficiency and balance of payments positions. Investments in
foreign government securities involve special risks, including the risk that the
government issuers may be unable or unwilling to repay principal or interest
when due.
Religious and Ethnic Stability. Certain countries in which the Funds may
invest may have groups that advocate radical religious or revolutionary
philosophies or support ethnic independence. Any disturbance on the part of such
individuals could carry the potential for widespread destruction or confiscation
of property owned by individuals and entities foreign to such country and could
cause the loss of a Fund's investment in those countries. Instability may also
result from, among other things, (i) authoritarian governments or military
involvement in political and economic decision-making, including changes in
government through extra-constitutional means, (ii) popular unrest associated
with demands for improved political, economic and social conditions and (iii)
hostile relations with neighboring or other countries. Such political, social
and economic instability could disrupt the principal financial markets in which
the Funds invest and adversely affect the value of the Funds' assets.
Foreign Investment Restrictions. Certain countries prohibit or impose
substantial restrictions on investments in their capital markets, particularly
their equity markets, by foreign entities such as the Funds. These restrictions
or controls may at times limit or preclude investment in certain securities and
may increase the cost and expenses of the Funds. For example, certain countries
require prior governmental approval before investments by foreign persons may be
made or may limit the amount of investment by foreign persons in a particular
company, or limit the investment by foreign persons to only a specific class of
securities of a company that may have less advantageous terms than securities of
the company available for purchase by nationals. Moreover, the national policies
of certain countries may restrict investment opportunities in issuers or
industries deemed sensitive to national interests. In addition, some countries
require governmental approval for the repatriation of investment income, capital
or the proceeds of securities sales by foreign investors. If there is a
deterioration in a country's balance of payments or for other reasons, a country
may impose restrictions on foreign capital remittances abroad. The Funds could
be adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation, as well as by the application to it of
other restrictions on investments.
Non-Uniform Corporate Disclosure Standards and Governmental Regulation.
Disclosure and regulatory standards in many respects are less stringent than in
the U.S. and other major markets. There also may be a lower level of monitoring
and regulation of emerging markets and the activities of investors in such
markets, and enforcement of existing regulations has been extremely limited.
Foreign companies are subject to accounting, auditing and financial standards
and requirements that differ in some cases significantly from those applicable
to U.S. companies. In particular, the assets, liabilities and profits appearing
on the financial statements of such a company may not reflect its financial
position or results of operations in the way they would be reflected had such
financial statements been prepared in accordance with U.S. generally accepted
accounting principles. Most of the securities held by the Funds will not be
registered with the SEC or regulators of any foreign country, nor will the
issuers thereof be subject to the SEC's reporting requirements. Thus, there will
be less available information concerning most foreign issuers of securities held
by the Funds than is available concerning U.S. issuers. In instances where the
financial statements of an issuer are not deemed to reflect accurately the
financial situation of the issuer, the Sub-advisor will take appropriate steps
to evaluate the proposed investment, which may include on-site inspection of the
issuer, interviews with its management and consultations with accountants,
bankers and other specialists. There is substantially less publicly available
information about foreign companies than there are reports and ratings published
about U.S. companies and the U.S. government. In addition, where public
information is available, it may be less reliable than such information
regarding U.S. issuers. Issuers of securities on foreign jurisdictions are
generally not subject to the same degree of regulation as are U.S. issuers with
respect to such matters as restrictions on market manipulation, insider trading
rules, shareholder proxy requirements and timely disclosure of information. In
addition, for companies that keep accounting records in local currency,
inflation accounting rules in some Latin American countries require, for both
tax and accounting purposes, that certain assets and liabilities be restated on
the company's balance sheet in order to express items in terms of currency of
constant purchasing power. Inflation accounting may indirectly generate losses
or profits.
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<PAGE> 590
Currency Fluctuations. Because the Funds, under normal circumstances, each
will invest a substantial portion of its total assets in the securities of
foreign issuers which are denominated in foreign currencies, the strength or
weakness of the U.S. dollar against such foreign currencies will account for
part of each Fund's investment performance. Changes in currency exchange rates
will influence the value of a Fund's shares, and also may affect the value of
dividends and interest earned by a Fund and gains and losses realized by a Fund.
A decline in the value of any particular currency against the U.S. dollar will
cause a decline in the U.S. dollar value of a Fund's holdings of securities and
cash denominated in such currency and, therefore, will cause an overall decline
in the Fund's net asset value and any net investment income and capital gains
derived from such securities to be distributed in U.S. dollars to shareholders
of that Fund. Moreover, if the value of the foreign currencies in which a Fund
receives its income falls relative to the U.S. dollar between receipt of the
income and the making of Fund distributions, the Fund may be required to
liquidate securities in order to make distributions if the Fund has insufficient
cash in U.S. dollars to meet distribution requirements.
Currencies generally are evaluated on the basis of fundamental economic
criteria (e.g., relative inflation and interest rate levels and trends, growth
rate forecasts, balance of payments status and economic policies) as well as
technical and political data. The rate of exchange between the U.S. dollar and
other currencies is determined by several factors including the supply and
demand for particular currencies, central bank efforts to support particular
currencies, the movement of interest rates, the pace of business activity in
certain other countries and the United States, the international balance of
payments and other economic and financial conditions, government intervention,
speculation and other factors affecting the world economy. If the currency in
which a security is denominated appreciates against the U.S. dollar, the dollar
value of the security will increase. Conversely, a decline in the exchange rate
of the currency would adversely affect the value of the security expressed in
dollars.
Some countries also may have fixed currencies where values against the U.S.
dollar are not independently determined. In addition, there is a risk that
certain countries may restrict the free conversion of their currencies into
other currencies. Further, certain currencies may not be internationally traded.
Although the Funds value their assets daily in terms of U.S. dollars, they do
not intend to convert their holdings of foreign currencies into U.S. dollars on
a daily basis. The Funds will do so from time to time, and investors should be
aware of the costs of currency conversion. Although foreign exchange dealers do
not charge a fee for conversion, they do realize a profit based on the
difference ("spread") between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to a
Fund at one rate, while offering a lesser rate of exchange should a Fund desire
to sell that currency to the dealer.
Many of the currencies of emerging market countries including Latin American
countries, have experienced steady devaluations relative to the U.S. dollar, and
major devaluations have historically occurred in certain countries. Any
devaluations in the currencies in which a Fund's portfolio securities are
denominated may have a detrimental impact on the Fund.
Certain Latin American countries may have managed currencies which are
maintained at artificial levels to the U.S. dollar rather than at levels
determined by the market. This type of system can lead to sudden and large
adjustments in the currency which, in turn, can have a disruptive and negative
effect on foreign investors. For example, in late 1994 the value of the Mexican
peso lost more than one-third of its value relative to the dollar. Certain Latin
American countries also may restrict the free conversion of their currency into
foreign currencies, including the U.S. dollar. There is no significant foreign
exchange market for certain currencies and it would, as a result, be difficult
for the Funds to engage in foreign currency transactions designed to protect the
value of the Funds' interests in securities denominated in such currencies.
Some countries also may have fixed currencies whose values against the U.S.
dollar are not independently determined. In addition, there is a risk that
certain countries may restrict the free conversion of their currencies into
other currencies. Further, certain currencies may not be internationally traded.
Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the
Netherlands, Portugal, and Spain are members of the European Economic and
Monetary Union (the "EMU"). The EMU has established a common European currency
for participating countries which will be known as the "euro." Each
participating country has supplemented its existing currency with the euro on
January 1, 1999, and will replace its existing 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 after January 1,
1999.
The expected introduction of the euro presents unique risks and uncertainties,
including how outstanding financial contracts will be treated after January 1,
1999; the establishment of exchange rates for existing currencies and the euro;
and the creation of suitable clearing and settlement systems for the euro. These
and other factors could cause market disruptions after the introduction of the
euro and could adversely affect the value of securities held by a Fund.
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<PAGE> 591
Adverse Market Characteristics. Securities of many foreign issuers may be less
liquid and their prices more volatile than securities of comparable U.S.
issuers. In addition, foreign securities markets and brokers generally are
subject to less governmental supervision and regulation than in the United
States and foreign securities transactions usually are subject to fixed
commissions, which generally are higher than negotiated commissions on U.S.
transactions. In addition, foreign securities transactions may be subject to
difficulties associated with the settlement of such transactions. Delays in
settlement could result in temporary periods when assets of the Funds are
uninvested and no return is earned thereon. The inability of a Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive opportunities. Inability to dispose of a portfolio security due
to settlement problems either could result in losses to a Fund due to subsequent
declines in value of the portfolio security or, if the Fund has entered into a
contract to sell the security, could result in possible liability to the
purchaser. The Sub-advisor will consider such difficulties when determining the
allocation of the Funds' assets, although the Sub-advisor does not believe that
such difficulties will have a material adverse effect on the Funds' portfolio
trading activities.
Each Fund may use foreign custodians, which are generally more expensive than
those in the U.S. and may involve risks in addition to those related to the use
of U.S. custodians. Such risks include uncertainties relating to (i) determining
and monitoring the financial strength, reputation and standing of the foreign
custodian, (ii) maintaining appropriate safeguards to protect a Fund's
investments, (iii) possible difficulties in obtaining and enforcing judgments
against such custodians and (iv) different settlement and clearance procedures
which may be unable to keep pace with the volume of securities transactions,
making it difficult to conduct such transactions. The inability of a Fund to
make intended securities purchases due to settlement problems could cause a Fund
to miss attractive investment opportunities. Inability to dispose of a portfolio
security caused by settlement problems could result either in losses to a Fund
due to subsequent declines in value of the portfolio security or, if a Fund has
entered into a contract to sell the security, could result in possible liability
to the purchaser.
A high proportion of the shares of many Latin American companies may be held
by a limited number of persons, which may further limit the number of shares
available for investment by the Funds, particularly Latin American Fund. A
limited number of issuers in most, if not all, Latin American securities markets
may represent a disproportionately large percentage of market capitalization and
trading value. The limited liquidity of Latin American securities markets also
may affect a Fund's ability to acquire or dispose of securities at the price and
time it wishes to do so. In addition, certain Latin American securities markets,
including those of Argentina, Brazil, Chile and Mexico, are susceptible to being
influenced by large investors trading significant blocks of securities or by
large dispositions of securities resulting from the failure to meet margin calls
when due.
The high volatility of certain Latin American securities markets is evidenced
by dramatic movements in the Brazilian and Mexican markets in recent years. This
market volatility may result in greater volatility in a Fund's net asset value
than would be the case for companies investing in domestic securities. If a Fund
were to experience unexpected net redemptions, it could be forced to sell
securities in its portfolio without regard to investment merit, thereby
decreasing the asset base over which Fund expenses can be spread and possibly
reducing the Fund's rate of return.
Withholding Taxes. Each Fund's net investment income from securities of
foreign issuers may be subject to withholding taxes by the foreign issuer's
country, thereby reducing that income or delaying the receipt of income where
those taxes may be recaptured. See "Taxes."
Concentration. To the extent a Fund invests a significant portion of its
assets in securities of issuers located in a particular country or region of the
world, it may be subject to greater risks and may experience greater volatility
than a fund that is more broadly diversified geographically.
Special Considerations Affecting Emerging Markets. Investing in equity
securities of companies in emerging markets may entail greater risks than
investing in equity securities in developed countries. These risks include (i)
less social, political and economic stability; (ii) the small current size of
the markets for such securities and the currently low or nonexistent volume of
trading, which result in a lack of liquidity and in greater price volatility;
(iii) certain national policies which may restrict a Fund's investment
opportunities, including restrictions on investment in issuers or industries
deemed sensitive to national interests; (iv) foreign taxation; and (v) the
absence of developed structures governing private or foreign investment or
allowing for judicial redress for injury to private property.
Investing in the securities of companies in emerging markets, including the
markets of Latin America and certain Asian markets such as Taiwan, Malaysia and
Indonesia, may entail special risks relating to potential political and economic
instability and the risks of expropriation, nationalization, confiscation or the
imposition of restrictions on foreign investment, convertibility into U.S.
dollars and on repatriation of capital invested. In the event of such
expropriation, nationalization or other confiscation by any country, a Fund
could lose its entire investment in any such country.
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<PAGE> 592
Emerging securities markets such as the markets of Latin America are
substantially smaller, less developed, less liquid and more volatile than the
major securities markets. The limited size of emerging securities markets and
limited trading value in issuers compared to the volume of trading in U.S.
securities could cause prices to be erratic for reasons apart from factors that
affect the quality of the securities. For example, limited market size may cause
prices to be unduly influenced by traders who control large positions. Adverse
publicity and investors' perceptions, whether or not based on fundamental
analysis, may decrease the value and liquidity of portfolio securities,
especially in these markets. In addition, securities traded in certain emerging
markets may be subject to risks due to the inexperience of financial
intermediaries, a lack of modern technology, the lack of a sufficient capital
base to expand business operations, and the possibility of permanent or
temporary termination of trading.
In addition, brokerage commissions, custodial services and other costs
relating to investment in foreign markets generally are more expensive than in
the United States, particularly with respect to emerging markets. Such markets
have different settlement and clearance procedures. In certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
The inability of a Fund to make intended securities purchases due to settlement
problems could cause it to miss attractive investment opportunities. Inability
to dispose of a portfolio security caused by settlement problems could result
either in losses to the Fund due to subsequent declines in value of the
portfolio security or, if the Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser.
The securities markets of emerging countries including Latin American
countries are substantially smaller, less developed, less liquid and more
volatile than the securities markets of the developed countries. The risk also
exists that an emergency situation may arise in one or more emerging markets as
a result of which trading of securities may cease or may be substantially
curtailed and prices for a Fund's portfolio securities in such markets may not
be readily available. Section 22(e) of the 1940 Act permits registered
investment companies, such as the Funds, to suspend redemption of its shares for
any period during which an emergency exists, as determined by the SEC.
Accordingly, when a Fund believes that circumstances dictate, it will promptly
apply to the SEC for a determination that such an emergency exists within the
meaning of Section 22(e) of the 1940 Act. During the period commencing from a
Fund's identification of such conditions until the date of any SEC action, a
Fund's portfolio securities in the affected markets will be valued at fair value
determined in good faith by or under the direction of the Trust's Board of
Trustees.
Settlement mechanisms in emerging securities markets may be less efficient and
reliable than in more developed markets. In such emerging securities there may
be share registration and delivery delays or failures.
Many emerging market countries including countries in Latin America have
experienced substantial, and in some periods extremely high, rates of inflation
for many years. This has, in turn lead to high interest rates, extreme measures
by governments to keep inflation in check and a generally debilitating effect on
economic growth. Inflation and rapid fluctuations in inflation rates and
corresponding currency devaluations have had and may continue to have negative
effects on the economies and securities markets of certain emerging market
countries including countries in Latin America.
Special Considerations Affecting Russia and Eastern European Countries.
Investing in Russia and Eastern European countries involves a high degree of
risk and special considerations not typically associated with investing in the
U.S. securities markets and should be considered highly speculative. Such risks
include the following: (1) delays in settling portfolio transactions and risk of
loss arising out of the system of share registration and custody; (2) the risk
that it may be impossible or more difficult than in other countries to obtain
and/or enforce a judgement; (3) pervasiveness of corruption and crime in the
economic system; (4) currency exchange rate volatility and the lack of available
currency hedging instruments; (5) higher rates of inflation (including the risk
of social unrest associated with periods of hyper-inflation) and high
unemployment; (6) controls on foreign investment and local practices disfavoring
foreign investors and limitations on repatriation of invested capital, profits
and dividends, and on the ability of Developing Markets Fund [and Emerging
Markets Fund] to exchange local currencies for U.S. dollars; (7) political
instability and social unrest and violence; (8) the risk that the governments of
Russia and Eastern European countries may decide not to continue to support the
economic reform programs implemented recently and could follow radically
different political and/or economic policies to the detriment of investors,
including non-market-oriented policies such as the support of certain industries
at the expense of other sectors or investors, or a return to the centrally
planned economy that existed when such countries had a communist form of
government; (9) the financial condition of companies in these countries,
including large amounts of inter-company debt which may create a payments crisis
on a national scale; (10) dependency on exports and the corresponding importance
of international trade; (11) the risk that the tax system in these countries
will not be reformed to prevent inconsistent, retroactive and/or exorbitant
taxation; and (12) the underdeveloped nature of the securities markets.
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Special Considerations Affecting Pacific Region Countries. Certain of the
risks associated with international investments are heightened for investments
in Pacific region countries. For example, some of the currencies of Pacific
region countries have experienced steady devaluations relative to the U.S.
dollar, and major adjustments have been made periodically in certain of such
currencies. Certain countries, such as India, face serious exchange constraints.
Many of the Asia Pacific region countries may be subject to a greater degree
of social, political and economic instability than is the case in the United
States. Such instability may result from, among other things, the following: (i)
authoritarian governments or military involvement in political and economic
decision making, and changes in government through extra-constitutional means;
(ii) popular unrest associated with demands for improved political, economic and
social conditions; (iii) internal insurgencies; (iv) hostile relations with
neighboring countries; and (v) ethnic, religious and racial disaffection. Such
social, political and economic instability could significantly disrupt the
principal financial markets in which Developing Markets Fund and Emerging
Markets Fund invest and adversely affect the value of such Funds' assets. In
addition, asset expropriations or future confiscatory levels of taxation
possibly may affect the Funds.
Several of the Asia Pacific region countries have, or in the past have had,
hostile relationships with neighboring nations or have experienced internal
insurgency. Thailand has experienced border conflicts with Laos and Cambodia,
and India is engaged in border disputes with several of its neighbors, including
China and Pakistan. An uneasy truce exists between North Korea and South Korea,
and the recurrence of hostilities remains possible. Reunification of North Korea
and South Korea could have a detrimental effect on the economy of South Korea.
Also, China continues to claim sovereignty over Taiwan and recently has
conducted military maneuvers near Taiwan.
The economies of most of the Asia Pacific region countries are heavily
dependent upon international trade and are accordingly affected by protective
trade barriers and the economic conditions of their trading partners,
principally the United States, Japan, China and the European Community. The
enactment by the United States or other principal trading partners of
protectionist trade legislation, reduction of foreign investment in the local
economies and general declines in the international securities markets could
have a significant adverse effect upon the securities markets of the Asia
Pacific region countries. In addition, the economies of some of the Asia Pacific
region countries, Australia and Indonesia, for example, are vulnerable to
weakness in world prices for their commodity exports, including crude oil.
China recently assumed sovereignty over Hong Kong in July 1997. Although China
has committed by treaty to preserve the economic and social freedoms enjoyed in
Hong Kong for fifty years, the continuation of the current form of the economic
system in Hong Kong will depend on the actions of the government of China. In
addition, such assumption of sovereignty has increased sensitivity in Hong Kong
to political developments and statements by public figures in China. Business
confidence in Hong Kong, therefore, can be significantly affected by such
developments and statements, which in turn can affect markets and business
performance.
In addition, there is a continuing risk that the Hong Kong dollar will be
devalued and a risk of possible loss of investor confidence in the Hong Kong
markets and dollar. However, factors exist that are likely to mitigate this
risk. First, China has stated its intention to implement a "one country, two
systems" policy, which would preserve monetary sovereignty and leave control in
the hands of the Hong Kong Monetary Authority ("HKMA").
Second, fixed rate parity with the U.S. dollar is seen as critical to
maintaining investors' confidence in the transition to Chinese rule, and,
therefore, it is anticipated that, if international investors lose confidence in
Hong Kong dollar assets, the HKMA would intervene to support the currency,
though such intervention cannot be assured. Third, Hong Kong's and China's
sizable combined foreign exchange reserve may be used to support the value of
the Hong Kong dollar, provided that China does not appropriate such reserves for
other uses, which is not anticipated but cannot be assured. Finally, China would
be likely to experience significant adverse political and economic consequences
if confidence in the Hong Kong dollar and the territory assets were to be
endangered.
Special Considerations Affecting Latin American Countries. Most Latin American
countries have experienced substantial, and in some periods extremely high,
rates of inflation for many years. Inflation and rapid fluctuations in inflation
rates have had and may continue to have very negative effects on the economies
and securities markets of certain Latin American countries. Certain Latin
American countries are also among the largest debtors to commercial banks and
foreign governments. At times certain Latin American countries have declared
moratoria on the payment of principal and/or interest on external debt. The
Funds, particularly Latin American Fund, may invest in debt securities,
including Brady Bonds, issued as part of debt restructurings and such debt is to
be considered speculative. There is a history of defaults with respect to
commercial bank loans by public and private entities issuing Brady Bonds. In
addition, certain Latin American securities markets have experienced high
volatility in recent years.
The securities of Latin American countries are substantially smaller, less
developed, less liquid and more volatile than the major securities markets in
the United States. Latin American countries may also close certain sectors of
their
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economies to equity investments by foreigners. The limited size of many Latin
American securities markets and limited trading volume in issuers compared to
volume of trading in U.S. securities could cause prices to be erratic for
reasons apart from factors that affect the quality of the securities. For
example, limited market size may cause prices to be unduly influenced by traders
who control large positions. Adverse publicity and investors' perceptions,
whether or not based on fundamental analysis, may decrease the value and
liquidity of portfolio securities, especially in these markets. Further due to
the absence of securities markets and publicly owned corporations and due to
restrictions on direct investment by foreign entities, investments may only be
made in certain Latin American countries solely or primarily through
governmentally approved investment vehicles or companies.
Certain Latin American countries may have managed currencies that are
maintained at artificial levels to the U.S. dollar rather than at levels
determined by the market. This type of system can lead to sudden and large
adjustments in the currency which, in turn, can have a disruptive and negative
effect on foreign investors. For example, in late 1994, the value of the Mexican
peso lost more than one-third of its value relative to the U.S. dollar.
It should be noted that some Latin American countries require governmental
approval for the repatriation of investment income, capital or the proceeds of
securities sales by foreign investors. For instance, at present, capital
invested directly in Chile cannot under most circumstances be repatriated for at
least one year. The Funds, particularly Latin American Fund, could be adversely
affected by delays in, or a refusal to grant, any required governmental approval
for repatriation, as well as by the application to it of other restrictions on
investments.
Sovereign Debt. Each Fund may invest in sovereign debt securities of emerging
market governments. Investments in such securities involve special risks. The
issuer of the debt or the governmental authorities that control the repayment of
the debt may be unable to unwilling to repay principal or interest when due in
accordance with the terms of such debt. Periods of economic uncertainty may
result in the volatility of market prices of sovereign debt obligations and in
turn a Fund's net asset value, to a greater extent than the volatility inherent
in domestic fixed income securities. Sovereign Debt generally offers high
yields, reflecting not only perceived credit risk, but also the need to compete
with other local investments in domestic financial markets. Certain Latin
American countries are among the largest debtors to commercial banks and foreign
governments. A sovereign debtor's willingness or ability to repay principal and
interest due in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign reserves, the availability of
sufficient foreign exchange on the date a payment is due, the relative size of
the debt service burden to the economy as a whole, the sovereign debtor's policy
towards the International Monetary Fund and the political constraints to which a
sovereign debtor may be subject. Sovereign debtors may default on their
Sovereign Debt. Sovereign debtors may also be dependent on expected
disbursements from foreign governments, multilateral agencies and others abroad
to reduce principal and interest arrearages on their debt. The commitment on the
part of these governments, agencies and others to make such disbursements may be
conditioned on a sovereign debtor's implementation of economic reforms and/or
economic performance and the timely service of such debtor's obligations.
Failure to implement such reforms, achieve such levels of economic performance
or repay principal or interest when due, may result in the cancellation of such
third parties' commitments to lend funds to the sovereign debtor, which may
further impair such debtor's ability or willingness to timely service its debts.
In recent years, some of the Latin American countries in which the Funds
expect to invest have encountered difficulties in servicing their Sovereign
Debt. Some of these countries have withheld payments of interest and/or
principal of Sovereign Debt. These difficulties have also led to agreements to
restructure external debt obligations -- in particular, commercial bank loans,
typically by rescheduling principal payments, reducing interest rates and
extending new credits to finance interest payments on existing debt. In the
future, holders of Sovereign Debt may be requested to participate in similar
reschedulings of such debt. Certain emerging markets countries are among the
largest debtors to commercial banks and foreign governments. Currently, Brazil,
Mexico and Argentina are the largest debtors among developing countries. At
times, certain emerging markets countries have declared [????] on the payment of
principal and interest on external debt; such a [moratorium] is currently in
effect for certain emerging market countries. There is no bankruptcy proceeding
by which a creditor may collect in whole or in part sovereign debt on which an
emerging market government has defaulted.
The ability of Latin American governments to make timely payments on their
Sovereign Debt is likely to be influenced strongly by a country's balance of
trade and its access to trade and other international credits. A country whose
exports are concentrated in a few commodities could be vulnerable to a decline
in the international prices of one or more of such commodities. Increased
protectionism on the part of a country's trading partners could also adversely
affect its exports. Such events could diminish a country's trade account
surplus, if any. To the extent that a country receives payment for its exports
in currencies other than hard currencies, its ability to make hard currency
payments could be affected.
The occurrence of political, social or diplomatic changes in one or more of
the countries issuing Sovereign Debt could adversely affect a Fund's
investments. The countries issuing such instruments are faced with social and
political issues and
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<PAGE> 595
some of them have experienced high rates of inflation in recent years and have
extensive internal debt. Among other effects, high inflation and internal debt
service requirements may adversely affect the cost and availability of future
domestic sovereign borrowing to finance governmental programs, and may have
other adverse social, political and economic consequences. Political changes or
a deterioration of a country's domestic economy or balance of trade may affect
the willingness of countries to service their Sovereign Debt. While the
Sub-advisor intends to manage each Fund's portfolio in a manner that will
minimize the exposure to such risks, there can be no assurance that adverse
political changes will not cause the Funds to suffer losses of interest or
principal on any of their holdings.
Sovereign debt obligations issued by emerging market governments generally are
deemed to be the equivalent in terms of quality to securities rated below
investment grade by Moody's and S&P. Such securities are regarded as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligations and involve
major risk exposure to adverse conditions. Some of such securities, with respect
to which the issuer currently may not be paying interest or may be in payment
default, may be comparable to securities rated D by S&P or C by Moody's. The
Funds may have difficulty disposing of and valuing certain sovereign debt
obligations because there may be a limited trading market for such securities.
Because there is no liquid secondary market for many of these securities, the
Funds anticipate that such securities could be sold only to a limited number of
dealers or institutional investors.
Periods of economic uncertainty may result in the volatility of market prices
of Sovereign Debt and in turn, a Fund's net asset value, to a greater extent
than the volatility inherent in domestic securities. The value of Sovereign Debt
will likely vary inversely with changes in prevailing interest rates, which are
subject to considerable variance in the international market. If a Fund were to
experience unexpected net redemptions, it may be forced to sell Sovereign Debt
in its portfolio without regard to investment merit, thereby decreasing its
asset base over which Fund expenses can be spread and possibly reducing its rate
of return.
INVESTMENT LIMITATIONS
DEVELOPING MARKETS FUND
Developing Markets Fund has adopted the following investment limitations as
fundamental policies which (unless otherwise noted) may not be changed without
approval of a majority of the Fund's outstanding shares.
Developing Markets Fund may not:
(1) issue senior securities or borrow money, except as permitted under
the 1940 Act and then not in excess of 33 1/3% of Developing Markets Fund's
total assets (including the amount borrowed but reduced by any liabilities
not constituting borrowings) at the time of the borrowing, except that the
Fund may borrow up to an additional 5% of its total assets (not including
the amount borrowed) for temporary or emergency purposes;
(2) purchase any security if, as a result of that purchase, 25% or
more of Developing Markets Fund's total assets would be invested in
securities of issuers having their principal business activities in the
same industry, except that this limitation does not apply to securities
issued or guaranteed by the U.S. government, its agencies or
instrumentalities;
(3) engage in the business of underwriting securities of other
issuers, except to the extent that Developing Markets Fund might be
considered an underwriter under the federal securities laws in connection
with its disposition of portfolio securities;
(4) purchase or sell real estate, except that investments in
securities of issuers that invest in real estate and investments in
mortgage-backed securities, mortgage participations or other instruments
supported by interests in real estate are not subject to this limitation,
and except that Developing Markets Fund may exercise rights under
agreements relating to such securities, including the right to enforce
security interests and to hold real estate acquired by reason of such
enforcement until that real estate can be liquidated in an orderly manner;
(5) purchase or sell physical commodities, but Developing Markets Fund
may purchase, sell or enter into financial options and futures, forward and
spot currency contracts, swap transactions and other financial contracts or
derivative instruments; or
(6) make loans, except through loans of portfolio securities or
through repurchase agreements, provided that for purposes of this
limitation, the acquisition of bonds, debentures, other debt securities or
instruments, or
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<PAGE> 596
participations or other interests therein and investments in government
obligations, commercial paper, certificates of deposit, bankers'
acceptances or similar instruments will not be considered the making of a
loan.
Notwithstanding any other investment policy, Developing Markets Fund may
invest all of its investable assets (cash, securities and receivables related to
securities) in an open-end management investment company having substantially
the same investment objective, policies and limitations as the Fund.
For purposes of the concentration policy of Developing Markets Fund contained
in limitation (2) above, the Fund intends to comply with the SEC staff position
that securities issued or guaranteed as to principal and interest by any one
single foreign government, or by all supranational organizations in the
aggregate, are considered to be securities of issuers in the same industry.
In addition, to comply with federal tax requirements for qualification as a
"regulated investment company" ("RIC"), Developing Markets Fund's investments
will be limited so that, at the close of each quarter of its taxable year, (a)
not more than 25% of the value of its total assets is invested in the securities
(other than U.S. government securities or the securities of other RICs) of any
one issuer and (b) at least 50% of the value of its total assets is represented
by cash and cash items, U.S. government securities, securities of other RICs and
other securities, with these other securities limited, in respect of any one
issuer, to an amount that does not exceed 5% of the value of its total assets
and that does not represent more than 10% of the issuer's outstanding voting
securities ("Diversification Requirements"). These tax-related limitations may
be changed by the Trust's Board of Trustees to the extent necessary to comply
with changes to applicable tax requirements.
The following investment policy of Developing Markets Fund is not a
fundamental policy and may be changed by vote of the Trust's Board of Trustees
without shareholder approval: Developing Markets Fund will not purchase
securities on margin, provided that the Fund may obtain short-term credits as
may be necessary for the clearance of purchases and sales of securities, and
further provided that the Fund may make margin deposits in connection with its
use of financial options and futures, forward and spot currency contracts, swap
transactions and other financial contracts or derivative instruments.
Investors should refer to the Developing Markets Fund's Prospectus for further
information with respect to the Developing Markets Fund's investment objective,
which may not be changed without the approval of its shareholders, and other
investment policies, techniques and limitations, which may be changed without
shareholder approval.
[EMERGING MARKETS FUND]
[Emerging Markets Fund has adopted the following investment limitations as
fundamental policies which (unless otherwise noted) may not be changed without
approval of a majority of the Fund's outstanding shares.
Emerging Markets Fund may not:
(1) Purchase any security if, as a result of that purchase, 25% or
more of Emerging Markets Fund's total assets would be invested in
securities of issuers having their principal business activities in the
same industry, except that this limitation does not apply to securities
issued or guaranteed by the U.S. government, its agencies or
instrumentalities;
(2) Purchase or sell real estate, except that investments in
securities of issuers that invest in real estate and investments in
mortgage-backed securities, mortgage participations or other instruments
supported by interests in real estate are not subject to this limitation,
and except that Emerging Markets Fund may exercise rights under agreements
relating to such securities, including the right to enforce security
interests and to hold real estate acquired by reason of such enforcement
until that real estate can be liquidated in an orderly manner;
(3) Purchase or sell physical commodities, but Emerging Markets Fund
may purchase, sell or enter into financial options and futures, forward and
spot currency contracts, swap transactions and other financial contracts or
derivative instruments;
(4) Engage in the business of underwriting securities of other
issuers, except to the extent that Emerging Markets Fund might be
considered an underwriter under the federal securities laws in connection
with its disposition of portfolio securities;
(5) Make loans, except through loans of portfolio securities or
through repurchase agreements, provided that for purposes of this
limitation, the acquisition of bonds, debentures, other debt securities or
instruments, or
36
<PAGE> 597
participations or other interests therein and investments in government
obligations, commercial paper, certificates of deposit, bankers'
acceptances or similar instruments will not be considered the making of a
loan;
(6) Issue senior securities or borrow money, except as permitted under
the 1940 Act and then not in excess of 33 1/3% of Emerging Markets Fund's
total assets (including the amount borrowed but reduced by any liabilities
not constituting borrowings) at the time of the borrowing, except that the
Fund may borrow up to an additional 5% of its total assets (not including
the amount borrowed) for temporary or emergency purposes; or
(7) Purchase securities of any one issuer if, as a result, more than
5% of Emerging Markets Fund's total assets would be invested in securities
of that issuer or the Fund would own or hold more than 10% of the
outstanding voting securities of that issuer, except that up to 25% of the
Fund's total assets may be invested without regard to this limitation, and
except that this limitation does not apply to securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities or to
securities issued by other investment companies.
Notwithstanding any other investment policy, Emerging Markets Fund may invest
all of its investable assets (cash, securities and receivables related to
securities) in an open-end management investment company having substantially
the same investment objective, policies and limitations as the Fund.
For purposes of Emerging Markets Fund's concentration policy contained in
limitation (1) above, the Fund intends to comply with the SEC staff position
that securities issued or guaranteed as to principal and interest by any single
foreign government or any supranational organizations in the aggregate are
considered to be securities of issuers in the same industry.
The following operating policies of Emerging Markets Fund are not fundamental
policies and may be changed by vote of the Trust's Board of Trustees without
shareholder approval. Emerging Markets Fund may not:
(1) Invest in securities of an issuer if the investment would cause
Emerging Markets Fund to own more than 10% of any class of securities of
any one issuer;
(2) Invest in companies for the purpose of exercising control or
management;
(3) Enter into a futures contract, an option on a futures contract, or
an option on foreign currency traded on a CFTC-regulated exchange, in each
case other than for bona fide hedging purposes (as defined by the CFTC), if
the aggregate initial margin and premiums required to establish all of
those positions (excluding the amount by which options are "in-the-money")
exceeds 5% of the liquidation value of Emerging Markets Fund's portfolio,
after taking into account unrealized profits and unrealized losses on any
contracts the Fund has entered into;
(4) Borrow money except for temporary or emergency purposes (not for
leveraging) not in excess of 33 1/3% of the value of Emerging Markets
Fund's total assets, except that the Fund may purchase securities when
outstanding borrowings represent less than 5% of the Fund's assets;
(5) Purchase securities on margin, provided that Emerging Markets Fund
may obtain short-term credits as may be necessary for the clearance of
purchases and sales of securities, and further provided that the Fund may
make margin deposits in connection with its use of financial options and
futures, forward and spot currency contracts, swap transactions and other
financial contracts or derivative instruments; or
(6) Mortgage, pledge, or hypothecate any of its assets, provided that
this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.
Investors should refer to the Emerging Markets Fund's Prospectus for further
information with respect to the Emerging Markets Fund's investment objective,
which may not be changed without the approval of its shareholders, and other
investment policies, techniques and limitations, which may be changed without
shareholder approval.]
LATIN AMERICAN FUND
Latin American Fund has adopted the following investment limitations as
fundamental policies which (unless otherwise noted) may not be changed without
approval of a majority of the Fund's outstanding shares.
Latin American Fund may not:
(1) Purchase any security if, as a result of that purchase, 25% or
more of Latin American Fund's total assets would be invested in securities
of issuers having their principal business activities in the same industry,
except that
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<PAGE> 598
this limitation does not apply to securities issued or guaranteed by the
U.S. government, its agencies or instrumentalities;
(2) Purchase or sell real estate, except that investments in
securities of issuers that invest in real estate and investments in
mortgage-backed securities, mortgage participations or other instruments
supported by interests in real estate are not subject to this limitation,
and except that Latin American Fund may exercise rights under agreements
relating to such securities, including the right to enforce security
interests and to hold real estate acquired by reason of such enforcement
until that real estate can be liquidated in an orderly manner;
(3) Engage in the business of underwriting securities of other
issuers, except to the extent that Latin American Fund might be considered
an underwriter under the federal securities laws in connection with its
disposition of portfolio securities;
(4) Make loans, except through loans of portfolio securities or
through repurchase agreements, provided that for purposes of this
limitation, the acquisition of bonds, debentures, other debt securities or
instruments, or participations or other interests therein and investments
in government obligations, commercial paper, certificates of deposit,
bankers' acceptances or similar instruments will not be considered the
making of a loan;
(5) Issue senior securities or borrow money, except as permitted under
the 1940 Act and then not in excess of 33 1/3% of Latin American Fund's
total assets (including the amount borrowed but reduced by any liabilities
not constituting borrowings) at the time of the borrowing, except that the
Fund may borrow up to an additional 5% of its total assets (not including
the amount borrowed) for temporary or emergency purposes; or
(6) Purchase or sell physical commodities, but Latin American Fund may
purchase, sell or enter into financial options and futures, forward and
spot currency contracts, swap transactions and other financial contracts or
derivative instruments.
Notwithstanding any other investment policy, Latin American Fund may invest
all of its investable assets (cash, securities and receivables related to
securities) in an open-end management investment company having substantially
the same investment objective, policies and limitations as the Fund.
For purposes of Latin American Fund's concentration policy contained in
limitation (1), above, the Fund intends to comply with the SEC staff position
that securities issued or guaranteed as to principal and interest by any single
foreign government are considered to be securities of issuers in the same
industry.
The following operating policies of Latin American Fund are not fundamental
policies and may be changed by vote of the Trust's Board of Trustees without
shareholder approval. Latin American Fund may not:
(1) Invest in securities of an issuer if the investment would cause
Latin American Fund to own more than 10% of any class of securities of any
one issuer;
(2) Invest in companies for the purpose of exercising control or
management;
(3) Invest more than 10% of its net assets in illiquid securities,
including securities that are illiquid by virtue of the absence of a
readily available market;
(4) Enter into a futures contract, an option on a futures contract, or
an option on foreign currency traded on a CFTC-regulated exchange, in each
case other than for bona fide hedging purposes (as defined by the CFTC), if
the aggregate initial margin and premiums required to establish all of
those positions (excluding the amount by which options are "in-the-money")
exceeds 5% of the liquidation value of Latin American Fund's portfolio,
after taking into account unrealized profits and unrealized losses on any
contracts the Fund has entered into;
(5) Make any additional investments while borrowings exceed 5% of
Latin American Fund's total assets;
(6) Purchase securities on margin, provided that Latin American Fund
may obtain short-term credits as may be necessary for the clearance of
purchases and sales of securities, and further provided that the Fund may
make margin deposits in connection with its use of financial options and
futures, forward and spot currency contracts, swap transactions and other
financial contracts or derivative instruments; or
(7) Mortgage, pledge, or hypothecate any of its assets, provided that
this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.
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Latin American Fund has the authority to invest up to 10% of its total assets
in shares of other investment companies pursuant to the 1940 Act. The Fund may
not invest more than 5% of its total assets in any one investment company or
acquire more than 3% of the outstanding voting securities of any one investment
company.
Investors should refer to the Latin American Fund's Prospectus for further
information with respect to the Latin American Fund's investment objective,
which may not be changed without the approval of its shareholders, and other
investment policies, techniques and limitations, which may be changed without
shareholder approval.
EXECUTION OF PORTFOLIO TRANSACTIONS
Subject to policies established by the Trust's Board of Trustees, the
Sub-advisor is responsible for the execution of each Fund's portfolio
transactions and the selection of broker/dealers who execute such transactions
on behalf of the Funds. In executing portfolio transactions, the Sub-advisor
seeks the best net results for each Fund, taking into account such factors as
the price (including the applicable brokerage commission or dealer spread), size
of the order, difficulty of execution and operational facilities of the firm
involved. Although the Sub-advisor generally seeks reasonably competitive
commission rates and spreads, payment of the lowest commission or spread is not
necessarily consistent with the best net results. While the Funds may engage in
soft dollar arrangements for research services, as described below, the Funds
have no obligation to deal with any broker/dealer or group of broker/dealers in
the execution of portfolio transactions.
Debt securities generally are traded on a "net" basis with a dealer acting as
principal for its own account without a stated commission, although the price of
the security usually includes a profit to the dealer. U.S. and foreign
government securities and money market instruments generally are traded in the
OTC markets. In underwritten offerings, securities usually are purchased at a
fixed price which includes an amount of compensation to the underwriter. On
occasion, securities may be purchased directly from an issuer, in which case no
commissions or discounts are paid. Broker/dealers may receive commissions on
futures, currency and options transactions.
Consistent with the interests of each Fund, the Sub-advisor may select brokers
to execute a Fund's portfolio transactions, on the basis of the research and
brokerage services they provide to the Sub-advisor for its use in managing the
Fund and its other advisory accounts. Such services may include furnishing
analyses, reports and information concerning issuers, industries, securities,
geographic regions, economic factors and trends, portfolio strategy, and
performance of accounts; and effecting securities transactions and performing
functions incidental thereto (such as clearance and settlement). Research and
brokerage services received from such brokers are in addition to, and not in
lieu of, the services required to be performed by the Sub-advisor under the
investment management and administration contracts. A commission paid to such
brokers may be higher than that which another qualified broker would have
charged for effecting the same transaction, provided that the Sub-advisor
determines in good faith that such commission is reasonable in terms either of
that particular transaction or the overall responsibility of the Sub-advisor to
a Fund and its other clients and that the total commissions paid by the Fund
will be reasonable in relation to the benefits it received over the long term.
Research services may also be received from dealers who execute Fund
transactions in OTC markets.
The Sub-advisor may allocate brokerage transactions to broker/dealers who have
entered into arrangements under which the broker/dealer allocates a portion of
the commissions paid by a Fund toward payment of the Fund's expenses, such as
transfer agent and custodian fees.
Investment decisions for each Fund and for other investment accounts managed
by the Sub-advisor are made independently of each other in light of differing
conditions. However, the same investment decision occasionally may be made for
two or more of such accounts including the Funds. In such cases, simultaneous
transactions may occur. Purchases or sales are then allocated as to price or
amount in a manner deemed fair and equitable to all accounts involved. While in
some cases this practice could have a detrimental effect upon the price or value
of the security as far as a Fund is concerned, in other cases, the Sub-advisor
believes that coordination and the ability to participate in volume transactions
will be beneficial to that Fund.
Under a policy adopted by the Trust's Board of Trustees, and subject to the
policy of obtaining the best net results, the Sub-advisor may consider a
broker/dealer's sale of the shares of a Fund and the other funds for which AIM
or the Sub-advisor serves as investment manager in selecting brokers and dealers
for the execution of portfolio transactions. This policy does not imply a
commitment to execute portfolio transactions through all broker/dealers that
sell shares of the Funds and such other funds.
Each Fund contemplates purchasing most foreign equity securities in
over-the-counter markets or stock exchanges located in the countries in which
the respective principal offices of the issuers of the various securities are
located, if that is the best available market. The fixed commissions paid in
connection with most such foreign stock transactions generally are higher than
negotiated commissions on U.S. transactions. There generally is less government
supervision and
39
<PAGE> 600
regulation of foreign stock exchanges and brokers than in the United States.
Foreign security settlements may in some instances be subject to delays and
related administrative uncertainties.
Foreign equity securities may be held by each Fund in the form of ADRs, ADSs,
EDRs, GDRs, CDRs or securities convertible into foreign equity securities. ADRs,
ADSs, EDRs, GDRs and CDRs may be listed on stock exchanges, or traded in the OTC
markets in the United States or Europe, as the case may be. ADRs, like other
securities traded in the United States, will be subject to negotiated commission
rates. The foreign and domestic debt securities and money market instruments in
which a Fund may invest generally are traded in the OTC markets.
Each Fund contemplates that, consistent with the policy of obtaining the best
net results, brokerage transactions may be conducted through certain companies
affiliated with AIM or the Sub-advisor. The Trust's Board of Trustees has
adopted procedures in conformity with Rule 17e-1 under the 1940 Act to ensure
that all brokerage commissions paid to such affiliates are reasonable and fair
in the context of the market in which they are operating. Any such transactions
will be effected and related compensation paid only in accordance with
applicable SEC regulations.
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 Boards of
Directors/Trustees of the various AIM Funds, including the Trust. These inter-
fund transactions do not generate brokerage commissions but may result in
custodial fees or taxes or other related expenses.
For the fiscal year ended October 31, 1998, Developing Markets Fund paid
aggregate brokerage commissions of $ , and for the fiscal years ended
October 31, 1997 and 1996, the Predecessor Fund paid aggregate brokerage
commissions of $2,212,022 and $1,580,879, respectively. [For the fiscal years
ended October 31, 1998, 1997 and 1996, Emerging Markets Fund paid aggregate
brokerage commissions of $ , $3,274,528 and $3,648,347, respectively.] For
the fiscal years ended October 31, 1998, 1997 and 1996, Latin American Fund paid
aggregate brokerage commissions of $ , $2,719,660 and $2,094,634,
respectively.
PORTFOLIO TRADING AND TURNOVER
Each Fund engages in portfolio trading when the Sub-advisor has concluded that
the sale of a security owned by the Fund and/or the purchase of another security
of better value can enhance principal and/or increase income. A security may be
sold to avoid any prospective decline in market value, or a security may be
purchased in anticipation of a market rise. Consistent with each Fund's
investment objective, a security also may be sold and a comparable security
purchased coincidentally in order to take advantage of what is believed to be a
disparity in the normal yield and price relationship between the two securities.
Although none of the Funds generally intends to trade for short-term profits,
the securities in a Fund's portfolio will be sold whenever management believes
it is appropriate to do so, without regard to the length of time a particular
security may have been held. Portfolio turnover rate is calculated by dividing
the lesser of sales or purchases of portfolio securities by a Fund's average
month-end portfolio values, excluding short-term investments. The portfolio
turnover rate will not be a limiting factor when the Sub-advisor deems portfolio
changes appropriate. Higher portfolio turnover involves correspondingly greater
brokerage commissions and other transaction costs that a Fund will bear directly
and may result in the realization of net capital gains that are taxable when
distributed to that Fund's shareholders. For the fiscal year ended October 31,
1998 Developing Markets Fund's portfolio turnover rate was %, and for the
fiscal years ended October 31, 1997 and 1996, the Predecessor Fund's portfolio
turnover rates were 184% and 138%, respectively. [For the fiscal years ended
October 31, 1998, 1997 and 1996, Emerging Markets Fund's portfolio turnover
rates were %, 150% and 104%, respectively.] Latin American Fund's portfolio
turnover rates for the fiscal years ended October 31, 1998, 1997 and 1996 were
%, 130% and 101%, respectively.
40
<PAGE> 601
MANAGEMENT
The Trust's Board of Trustees has overall responsibility for the operation of
the Funds. The Trust's Board of Trustees has approved all significant agreements
between the Trust on the one side and persons or companies furnishing services
to the Fund on the other, including the investment management and administration
agreement with AIM, the investment sub-advisory and sub-administration agreement
between AIM and the Sub-advisor, the agreements with AIM Distributors regarding
distribution of the Fund's shares, the custody agreement and the transfer agency
agreement. The day-to-day operations of the Fund are delegated to the officers
of the Trust, subject always to the investment objectives and policies of the
Fund and to the general supervision of the Trust's Board of Trustees.
TRUSTEES AND EXECUTIVE OFFICERS
The Trust's Trustees and Executive Officers are listed below. Unless otherwise
indicated, the address of each Executive Officer is 11 Greenway Plaza, Suite
100, Houston, Texas 77046.
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITIONS HELD WITH REGISTRANT PRINCIPAL OCCUPATION WITH REGISTRANT
--------------------- ------------------------------ ------------------------------------
<S> <C> <C>
*ROBERT H. GRAHAM (51) Trustee, Chairman of the Board Director, President and Chief Executive
and 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; and Director, AMVESCAP PLC.
C. DEREK ANDERSON (57) Trustee President, Plantagenet Capital
220 Sansome Street Management, LLC (an investment
Suite 400 partnership); Chief Executive Officer,
San Francisco, CA 94104 Plantagenet Holdings, Ltd. (an
investment banking firm); Director,
Anderson Capital Management, Inc. since
1988; Director, PremiumWear, Inc.
(formerly Munsingwear, Inc.) (a casual
apparel company); Director, "R" Homes,
Inc. and various other companies; and
Trustee, each of the other investment
companies registered under the 1940 Act
that is sub-advised or sub-
administered by the Sub-advisor.
FRANK S. BAYLEY (59) Trustee Partner, law firm of Baker & McKenzie;
Two Embarcadero Center Director and Chairman, C.D. Stimson
Suite 2400 Company (a private investment company);
San Francisco, CA 94111 and Trustee, each of the other
investment companies registered under
the 1940 Act that is sub-advised or
sub-administered by the Sub-advisor.
ARTHUR C. PATTERSON (54) Trustee Managing Partner, Accel Partners (a
428 University Avenue venture capital firm); Director,
Palo Alto, CA 94301 Viasoft and PageMart, Inc. (both public
software companies) and several other
privately held software and
communications companies; and Trustee,
each of the other investment companies
registered under the 1940 Act that is
sub-advised or sub-administered by the
Sub-advisor.
</TABLE>
- ---------------
<TABLE>
<S> <C> <C>
*A Trustee who is an "interested person" of the Trust and A I M Advisors, Inc., as defined in the
1940 Act.
</TABLE>
41
<PAGE> 602
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITIONS HELD WITH REGISTRANT PRINCIPAL OCCUPATION WITH REGISTRANT
--------------------- ------------------------------ ------------------------------------
<S> <C> <C>
RUTH H. QUIGLEY (63) Trustee Private investor; President, Quigley
1055 California Street Friedlander & Co., Inc. (a financial
San Francisco, CA 94108 advisory services firm) from 1984 to
1986; and Trustee, each of the other
investment companies registered under
the 1940 Act that is sub-advised or
sub-administered by the Sub-advisor.
+JOHN J. ARTHUR (53) Vice President Director and Senior Vice President,
A I M Advisors, Inc.; Vice President
and Treasurer, A I M Management Group
Inc.
KENNETH W. CHANCEY (53) Vice President and Principal Senior Vice President -- Mutual Fund
50 California Street Accounting Officer Accounting, the Sub-advisor since 1997;
San Francisco, CA 94111 Vice President -- Mutual Fund
Accounting, the Sub-advisor from 1992
to 1997.
MELVILLE B. COX (54) Vice President Vice President and Chief Compliance
Officer, A I M Advisors, Inc., A I M
Capital Management, Inc., A I M
Distributors, Inc., A I M Fund
Services, Inc. and Fund Management
Company.
GARY T. CRUM (50) Vice President Director and President, A I M Capital
Management, Inc.; Director and Senior
Vice President, A I M Management Group
Inc. and A I M Advisors, Inc.; and
Director, A I M Distributors, Inc. and
AMVESCAP PLC.
+CAROL F. RELIHAN (43) Vice President Director, Senior Vice President,
General Counsel and Secretary, A I M
Advisors, Inc.; Senior Vice President,
General Counsel and Secretary, A I M
Management Group Inc.; Director, Vice
President and General Counsel, Fund
Management Company; Vice President and
General Counsel, A I M Fund Services,
Inc.; and Vice President, A I M Capital
Management, Inc. and A I M
Distributors, Inc.
DANA R. SUTTON (39) Vice President and Assistant Vice President and Fund Controller,
Treasurer A I M Advisors, Inc.; and Assistant
Vice President and Assistant Treasurer,
Fund Management Company.
</TABLE>
- ---------------
+Mr. Arthur and Ms. Relihan are married to each other.
The Board of Trustees has a Nominating and Audit Committee, comprised of Miss
Quigley (Chairman) and Messrs. Anderson, Bayley and Patterson, which is
responsible for nominating persons to serve as Trustees, reviewing audits of the
Trust and its funds and recommending firms to serve as independent auditors for
the Trust. All of the Trust's Trustees also serve as directors or trustees of
some or all of the other investment companies managed, administered or advised
by AIM. All of the Trust's executive officers hold similar offices with some or
all of the other investment companies managed, administered or advised by AIM.
Each Trustee who is not a director, officer or employee of the Sub-advisor or
any affiliated company is paid aggregate fees of $5,000 a year plus $300 per
Fund for each meeting of the Board attended, and reimbursed travel and other
expenses incurred in connection with attendance at such meetings. Other Trustees
and
- ---------------
<TABLE>
<S> <C> <C>
+Mr. Arthur and Ms. Relihan are married to each other.
</TABLE>
42
<PAGE> 603
Officers receive no compensation or expense reimbursement from the Trust. For
the fiscal year ended October 31, 1998, Mr. Anderson, Mr. Bayley, Mr. Patterson
and Miss Quigley, who are not directors, officers or employees of the
Sub-advisor or any affiliated company, received total compensation of $ ,
$ , $ and $ , respectively, from the Trust for their services
as Trustees. For the fiscal year ended October 31, 1998, Mr. Anderson, Mr.
Bayley, Mr. Patterson and Miss Quigley, who are not directors, officers or
employees of the Sub-advisor or any other affiliated company, received total
compensation of $ , $ , $ and $ , respectively, from the
investment companies managed or administered by AIM and sub-advised or
sub-administered by the Sub-advisor for which he or she serves as a Director or
Trustee. Fees and expenses disbursed to the Trustees contained no accrued or
payable pension or retirement benefits. As of , 1998, the
Officers and Trustees and their families as a group owned in the aggregate
beneficially or of record less than 1% of the outstanding shares of the Funds or
of all the Trust's series in the aggregate.
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES
AIM serves as each Fund's investment manager and administrator under an
investment management and administration contract ("Management Contract")
between the Trust and AIM. The Sub-advisor serves as the sub-advisor and sub-
administrator to each Fund under a sub-advisory and sub-administration contract
between AIM and the Sub-advisor ("Sub-Management Contract," and together with
the Management Contract, the "Management Contracts"). As investment managers and
administrators, AIM and the Sub-advisor make all investment decisions for the
Funds and administer each Fund's affairs. AIM and the Sub-advisor also determine
the composition of each Fund's portfolio, places orders to buy, sell or hold
particular securities and supervise all matters relating to each Fund's
operation. Among other things, AIM and the Sub-advisor furnish the services and
pay the compensation and travel expenses of persons who perform the executive,
administrative, clerical and bookkeeping functions of the Trust and the Funds,
and provide suitable office space, necessary small office equipment and
utilities.
The Management Contracts for each Fund may be renewed for one-year terms,
provided that any such renewal has been specifically approved at least annually
by (i) the Trust's Board of Trustees, or by the vote of a majority of a Fund's
outstanding voting securities (as defined in the 1940 Act) and (ii) a majority
of Trustees who are not parties to the Management Contracts or "interested
persons" of any such party (as defined in the 1940 Act), cast in person at a
meeting called for the specific purpose of voting on such approval. The
Management Contracts provide that with respect to each Fund, the Trust or each
of AIM or the Sub-advisor may terminate the Management Contracts without penalty
upon sixty days' written notice. The Management Contracts terminate
automatically in the event of their assignment (as defined in the 1940 Act).
For these services, each Fund pays AIM investment management and
administration fees, computed daily and paid monthly, based on its average daily
net assets, at the annualized rate of 0.975% on the first $500 million, 0.95% on
the next $500 million, 0.925% on the next $500 million and 0.90% on the amounts
thereafter. Out of the aggregate fees payable by each Fund, AIM pays the
Sub-advisor sub-advisory and sub-administration fees equal to 40% of the
aggregate fees AIM receives from each Fund. The investment management and
administration fees paid by the Funds are higher than those paid by most mutual
funds. The Funds pay all expenses not assumed by AIM, the Sub-advisor, AIM
Distributors or other agents. AIM has undertaken to limit each Fund's expenses
(exclusive of brokerage commissions, taxes, interest and extraordinary expenses)
to the annual rate of 2.00% and 2.50% of the average daily net assets of each
Fund's Class A and Class B shares, respectively.
AIM also serves as the Funds' pricing and accounting agent. For these
services, AIM receives a fee based on the aggregate net assets of the funds
which comprise the following investment companies: AIM Growth Series, AIM
Investment Funds, AIM Investment Portfolios, AIM Series Trust, G.T. Global
Variable Investment Series and G.T. Global Variable Investment Trust. The fee is
calculated at the rate of 0.03% of the first $5 billion of assets, and 0.02% of
the assets in excess of $5 billion. An amount is allocated to and paid by each
such fund based on its relative average daily net assets.
AIM, 11 Greenway Plaza, Suite 100, Houston, Texas 77046, serves as the
investment manager to the Fund pursuant to a master investment management and
administrative services agreement (the "Advisory Agreement"). AIM was organized
in 1976 and, together with its subsidiaries, manages or advises approximately 90
investment company portfolios encompassing a broad range of investment
objectives. The Sub-advisor, 11 Devonshire Square, London, EC2M 4YR, England
serves as the sub-advisor to the Fund pursuant to an investment sub-advisory and
sub-administration agreement.
AIM and the Sub-advisor and their worldwide asset management affiliates
provide investment management and/or administrative services to institutional,
corporate and individual clients around the world. AIM Management, AIM and the
Sub-advisor are both indirect wholly owned subsidiaries of AMVESCAP PLC, 11
Devonshire Square, London, EC2M 4YR, England. AMVESCAP PLC and its subsidiaries
are an independent investment management group that has a significant
43
<PAGE> 604
presence in the institutional and retail segment of the investment management
industry in North America and Europe, and a growing presence in Asia.
In addition to the investment resources of their Houston, [San Francisco] and
New York offices, AIM and the Sub-advisor draw upon the expertise, personnel,
data and systems of other offices in Atlanta, Boston, Dallas, Denver,
Louisville, Miami, Portland (Oregon), Frankfurt, Hong Kong, London, Singapore,
Sydney, Tokyo and Toronto. In managing the Funds, the Sub-advisor employs a team
approach, taking advantage of its investment resources around the world.
In placing securities for a Fund's portfolio transactions, the Sub-advisor
seeks to obtain the best net results. Consistent with its obligation to obtain
the best net results, the Sub-advisor may consider a broker/dealer's sale of
shares of the AIM Funds as a factor in considering through whom portfolio
transactions will be effected. Brokerage transactions may be executed through
affiliates of AIM or the Sub-advisor. High portfolio turnover (over 100%)
involves correspondingly greater brokerage commissions and other transaction
costs that the Fund will bear directly and could result in the realization of
net capital gains which would be taxable when distributed to shareholders. See
"Dividends, Distributions and Tax Matters."
AIM is a direct, wholly owned subsidiary of A I M Management Group Inc. ("AIM
Management"), a holding company that has been engaged in the financial services
business since 1976. AIM is also the sole shareholder of the Funds' principal
underwriter, AIM Distributors.
For the fiscal years ended October 31, 1998, 1997 and 1996, each Fund paid the
Sub-advisor the following investment management and administration fees:
<TABLE>
<CAPTION>
1998 1997 1996
-------- ---------- ----------
<S> <C> <C> <C>
Developing Markets Fund*........................... $ $7,383,823 $7,864,840
[Emerging Markets Fund............................. 3,907,922 4,883,626]
Latin American Fund................................ 3,538,586 3,365,375
</TABLE>
- ---------------
[* The Predecessor Fund of Developing Markets Fund paid the investment
management and administration fees to the Sub-advisor for the fiscal years
ended [October 31, 1998, 1997 and 1996.]
THE DISTRIBUTION PLANS
THE CLASS A AND C PLAN
The Trust has adopted Master Distribution Plan 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 the Class A shares of each
Fund pays 0.50% per annum of its daily average net assets as compensation to AIM
Distributors for the purpose of financing any activity which is primarily
intended to result in the sale of Class A shares. Under the Class A and C Plan,
Class C shares of Developing Markets Fund and Latin American Fund pay
compensation to AIM Distributors at an annual rate of 1.00% of the average daily
net assets attributable to Class C shares. The Class A and C Plan is designed to
compensate AIM Distributors, on a quarterly basis, for certain promotional and
other sales-related costs, and to implement a dealer incentive program which
provides for periodic payments to selected dealers who furnish continuing
personal shareholder services to their customers who purchase and own Class A or
Class C shares of a Fund. Payments can also be directed by AIM Distributors to
selected institutions who have entered into service agreements with respect to
Class A and Class C shares of each Fund and who provide continuing personal
services to their customers who own Class A and Class C shares of the Fund. The
service fees payable to selected institutions are calculated at the annual rate
of 0.25% of the average daily net asset value of those Fund shares that are held
in such institution's customers' accounts which were purchased on or after a
prescribed date set forth in the Plan. Activities appropriate for financing
under the Class A and C Plan include, but are not limited to, the following:
printing of prospectuses and statements of additional information and reports
for other than existing shareholders; overhead; preparation and distribution of
advertising material and sales literature; expenses of organizing and conducting
sales seminars; supplemental payments to dealers and other institutions such as
asset-based sales charges or as payments of service fees under shareholder
service arrangements; and costs of administering the Class A and C Plan.
Of the aggregate amount payable under the Class A and C Plan, payments to
dealers and other financial institutions that provide continuing personal
shareholder services to their customers who purchase and own shares of the Fund,
in amounts of up to 0.25% of the average net assets of the Fund attributable to
the customers of such dealers or financial institutions are characterized as a
service fee, and payments to dealers and other financial institutions in excess
of such amount and
44
<PAGE> 605
payments to AIM Distributors would be characterized as an asset-based sales
charge pursuant to the Class A and C Plan. The Class A and C Plan also imposes a
cap on the total amount of sales charges, including asset-based sales charges,
that may be paid by the Company with respect to the Fund. The Class A and C Plan
does not obligate the Fund to reimburse AIM Distributors for the actual expenses
AIM Distributors may incur in fulfilling its obligations under the Class A and C
Plan on behalf of the Fund. Thus, under the Class A and C Plan, even if AIM
Distributors' actual expenses exceed the fee payable to AIM Distributors
thereunder at any given time, the Fund will not be obligated to pay more than
that fee. If AIM Distributors' expenses are less than the fee it receives, AIM
Distributors will retain the full amount of the fee.
THE CLASS B PLAN
The Trust has also adopted a Master Distribution Plan pursuant to Rule 12b-1
under the 1940 Act relating to Class B shares of the Funds (the "Class B Plan",
and collectively with the Class A and C Plan, the "Plans"). Under the Class B
Plan, each Fund pays compensation to AIM Distributors at an annual rate of 1.00%
of the average daily net assets attributable to Class B shares. Of such amount,
each Fund pays a service fee of 0.25% of the average daily net assets
attributable to Class B shares to selected dealers and other institutions which
furnish continuing personal shareholder services to their customers who purchase
and own Class B shares. Any amounts not paid as a service fee would constitute
an asset-based sales charge. Amounts paid in accordance with the Class B Plan
may be used to finance any activity primarily intended to result in the sale of
Class B shares, including but not limited to printing of prospectuses and
statements of additional information and reports for other than existing
shareholders; overhead; preparation and distribution of advertising material and
sales literature; expenses of organizing and conducting sales seminars;
supplemental payments to dealers and other institutions such as asset-based
sales charges or as payments of service fees under shareholder service
arrangements; and costs of administering the Class B Plan. AIM Distributors may
transfer and sell its rights to payments under the Class B Plan in order to
finance distribution expenditures in respect of Class B shares.
BOTH PLANS
Pursuant to an incentive program, AIM Distributors may enter into agreements
("Shareholder Service Agreements") with investment dealers selected from time to
time by AIM Distributors for the provision of distribution assistance in
connection with the sale of the Funds' shares to such dealers' customers, and
for the provision of continuing personal shareholder services to customers who
may from time to time directly or beneficially own shares of the Funds. The
distribution assistance and continuing personal shareholder services to be
rendered by dealers under the Shareholder Service Agreements may include, but
shall not be limited to, the following: distributing sales literature; answering
routine customer inquiries concerning the Funds; assisting customers in changing
dividend options, account designations and addresses, and in enrolling in any of
the several special investment plans offered in connection with the purchase of
the Funds' shares; assisting in the establishment and maintenance of customer
accounts and records and in the processing of purchase and redemption
transactions; investing dividends and any capital gains distributions
automatically in the Funds' shares; and providing such other information and
services as the Funds or the customer may reasonably request.
Under the Plans, in addition to the Shareholder Service Agreements authorizing
payments to selected dealers, banks may enter into Shareholder Service
Agreements authorizing payments under the Plans to be made to banks which
provide services to their customers who have purchased shares. Services provided
pursuant to Shareholder Service Agreements with banks may include some or all of
the following: answering shareholder inquiries regarding the Funds; performing
sub-accounting; establishing and maintaining shareholder accounts and records;
processing customer purchase and redemption transactions; providing periodic
statements showing a shareholder's account balance and the integration of such
statements with those of other transactions and balances in the shareholder's
other accounts serviced by the bank; forwarding applicable prospectuses, proxy
statements, reports and notices to bank clients who hold Fund shares; and such
other administrative services as 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.
Financial intermediaries and any other person entitled to receive compensation
for selling Fund shares may receive different compensation for selling shares of
one particular class over another.
Under a Shareholder Service Agreement, each Fund agrees to pay periodically
fees to selected dealers and other institutions who render the foregoing
services to their customers. The fees payable under a Shareholder Service
Agreement 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 each Fund's shares are held.
45
<PAGE> 606
Payments pursuant to the Plans are subject to any applicable limitations
imposed by rules of the National Association of Securities Dealers, Inc.
("NASD"). The Plans conform to rules of the NASD by limiting payments made to
dealers and other financial institutions who provide continuing personal
shareholder services to their customers who purchase and own shares of the Funds
to no more than 0.25% per annum of the average daily net assets of the Funds
attributable to the customers of such dealers or financial institutions, and by
imposing a cap on the total sales charges, including asset based sales charges,
that may be paid by the Funds and their respective classes.
Under the Plans, certain financial institutions which have entered into
service agreements and with sale shares of the Fund on an agency basis, may
receive payments from the Funds pursuant to the respective Plans. AIM
Distributors does not act as principal, but rather as agent for the Funds, in
making dealer incentive and shareholder servicing payments under the Plans.
These payments are an obligation of the Funds and not of AIM Distributors. The
Funds will obtain a representation from such financial institutions that they
will either be licensed as dealers as required under applicable state law, or
that they will not engage in activities which would constitute acting as a
"dealer" as defined under applicable state law. Financial intermediaries and any
other person entitled to receive compensation for selling Fund shares may
receive different compensation for selling shares of one class over another.
Prior to June 1, 1998, the Trust had adopted a different Rule 12b-1 plan, that
operated as a "reimbursement-type" plan (the "Prior Plan"). The information
provided below relates to payments made under the Prior Plan, which provided for
payments to GT Global Inc., the distributor of the Funds at the time the Prior
Plan was in effect.
For the fiscal years ended October 31, 1998, each Fund paid the following
amounts under the Prior Plan:
<TABLE>
<CAPTION>
% OF CLASS
AVERAGE DAILY
1998 NET ASSETS
----------------------- -----------------
CLASS A CLASS B
---------- ----------
<S> <C> <C> <C> <C>
Developing Markets Fund(1)...................... $ $ .50% 1.00%
[Emerging Markets Fund.......................... $ $ .50% 1.00%]
Latin American Growth Fund...................... $ $ .50% 1.00%
</TABLE>
For the fiscal year ended October 31, 1998, each Fund paid the following
amounts under the current Plans.
<TABLE>
<CAPTION>
1998
-----------------------
CLASS A CLASS B CLASS A CLASS B
---------- ---------- ------- -------
<S> <C> <C> <C> <C>
Developing Markets Fund...................... .50% 1.00%
[Emerging Markets Fund....................... .50% 1.00%]
Latin American Fund.......................... .50% 1.00%
</TABLE>
An estimate by category of actual fees paid by each Fund with regard to the
Class A shares during the year ended October 31, 1998 follows:
<TABLE>
<CAPTION>
DEVELOPING [EMERGING LATIN AMERICAN
MARKETS FUND MARKETS FUND] GROWTH FUND
------------ ------------- --------------
<S> <C> <C> <C>
CLASS A
Compensation to Underwriters to partially
offset other marketing expenses............. $ $ [] $
Compensation to Dealers including finder's
fees........................................ $ $ [] $
</TABLE>
An estimate by category of actual fees paid by each Fund with regard to the
Class B shares during the year ended October 31, 1998 as follows:
<TABLE>
<CAPTION>
DEVELOPING [EMERGING LATIN AMERICAN
MARKETS FUND MARKETS FUND] GROWTH FUND
------------ ------------- --------------
<S> <C> <C> <C>
CLASS B
Compensation to underwriters to partially
offset upfront dealer commissions and other
marketing expenses.......................... $ $ [] $
Compensation to dealers........................ $ $ [] $
</TABLE>
The Plans require AIM Distributors to provide the Board of Trustees at least
quarterly with a written report of the amounts expended pursuant to the Plans
and the purposes for which such expenditures were made. The Board of Trustees
reviews these reports in connection with their decisions with respect to the
Plans.
46
<PAGE> 607
As required by Rule 12b-1, the Plans and related forms of Shareholder Service
Agreements were approved by the Board of Trustees, including a majority of the
Trustees who are not "interested persons" (as defined in the 1940 Act) of the
Trust and who have no direct or indirect financial interest in the operation of
the Plans or in any agreements related to the Plans ("Qualified Trustees"). In
approving the Plans in accordance with the requirements of Rule 12b-1, the
Trustees considered various factors and determined that there is a reasonable
likelihood that the Plans would benefit each class of each Fund and their
respective shareholders.
The Plans do not obligate the Funds to reimburse AIM Distributors for the
actual expenses AIM Distributors may incur in fulfilling its obligations under
the Plans. Thus, even if AIM Distributors' actual expenses exceed the fee
payable to AIM Distributors thereunder at any given time, the Funds will not be
obligated to pay more than that fee. If AIM Distributors' expenses are less than
the fee it receives, AIM Distributors will retain the full amount of the fee.
Unless terminated earlier in accordance with their terms, the Plans continue
in effect until May 29, 1999 and each year thereafter, as long as such
continuance is specifically approved at least annually by the Board of Trustees,
including a majority of the Qualified Trustees.
The Plans may be terminated by the vote of a majority of the Qualified
Trustees, or, with respect to a particular class, by the vote of a majority of
the outstanding voting securities of that class.
Any change in the Plans that would increase materially the distribution
expenses paid by the applicable class requires shareholder approval; otherwise,
it may be amended by the Trustees, including a majority of the Qualified
Trustees, by votes cast in person at a meeting called for the purpose of voting
upon such amendment. As long as the Plans are in effect, the selection or
nomination of the Qualified Trustees is committed to the discretion of the
Qualified Trustees. In the event the Class A and C Plan is amended in a manner
which the Board of Trustees determines would materially increase the charges
paid under the Class A Plan, the Class B shares of the Funds will no longer
convert into Class A shares of the same Funds unless the Class B shares, voting
separately, approve such amendment. If the Class B shareholders do not approve
such amendment, the Board of Trustees will (i) create a new class of shares of
the Funds which is identical in all material respects to the Class A shares as
they existed prior to the implementation of the amendment and (ii) ensure that
the existing Class B shares of the Funds will be exchanged or converted into
such new class of shares no later than the date the Class B shares were
scheduled to convert into Class A shares.
The principal differences between the Class A and C Plan and the Class B Plan
are: (i) the Class A and C Plan allows payment to AIM Distributors or to dealers
or financial institutions of up to 0.50% of average daily net assets of the
Class A shares of each Fund, as compared to 1.00% of such assets of each Fund's
Class B shares; (ii) the Class B Plan obligates the Class B shares to continue
to make payments to AIM Distributors following termination of the Class B shares
Distribution Agreement with respect to Class B shares sold by or attributable to
the distribution efforts of AIM Distributors or its predecessor, GT Global, Inc.
unless there has been a complete termination of the Class B Plan (as defined in
such Plan) and (iii) the Class B Plan expressly authorizes AIM Distributors to
assign, transfer or pledge its rights to payments pursuant to the Class B Plan.
THE DISTRIBUTOR
Master Distribution Agreements with AIM Distributors relating to the Class A
and Class B shares of the Funds were approved by the Board of Trustees on May 7,
1998. [Master Distribution Agreement with AIM Distributors relating to Class A
and C shares of the Funds was approved by the Board on December , 1998.] Such
Master Distribution Agreements are hereinafter collectively referred to as the
"Distribution Agreements."
The Distribution Agreements provide that AIM Distributors will bear the
expenses of printing from the final proof and distributing the Funds'
prospectuses and statements of additional information relating to public
offerings made by AIM Distributors pursuant to the Distribution Agreements
(other than those prospectuses and statements of additional information
distributed to existing shareholders of the Fund), 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 Fund's 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.
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 of the Funds 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
47
<PAGE> 608
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.
AIM Distributors expects to pay sales commissions from its own resources to
dealers and institutions who sell Class B shares of the Funds at the time of
such sales. Payments with respect to Class B shares will equal 4.0% of the
purchase price of the Class B shares sold by the dealer or institution, and will
consist of a sales commission equal to 3.75% of the purchase price of the Class
B shares sold plus an advance of the first year service fee 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 anticipates that it will
require a number of years to recoup from Class B Plan payments the sales
commissions paid to dealers and institutions in connection with sales of Class B
shares. In the future, if multiple distributors serve a Fund, each such
distributor (or its assignee or transferee) would receive a share of the
payments under the Class B Plan based on the portion of the Fund's Class B
shares sold by or attributable to the distribution efforts of that distributor.
The Trust (on behalf of any class of any Fund) or AIM Distributors may
terminate the Distribution Agreements on sixty (60) days' written notice without
penalty. The Distribution Agreements will terminate automatically in the event
of their assignment. In the event the Class B shares Distribution Agreement is
terminated, AIM Distributors would continue to receive payments of asset based
distribution fees in respect of the outstanding Class B shares attributable to
the distribution efforts of AIM Distributors and its predecessor; provided,
however, that a complete termination of the Class B Plan (as defined in such
Plan) would terminate all payments by the Fund of asset based distribution fees
and service fees to AIM Distributors. Termination of the Class B Plan or
Distribution Agreement does not affect the obligation of Class B shareholders to
pay contingent deferred sales charges.
The following chart reflects the total sales charges paid in connection with
the sale of Class A shares of each Fund and the amount retained by GT Global,
Inc., the Trust's distributor prior to June 1, 1998, for the fiscal year ended
October 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
1998 1997 1996
------------------- ------------------- -------------------
SALES AMOUNT SALES AMOUNT SALES AMOUNT
CHARGES RETAINED CHARGES RETAINED CHARGES RETAINED
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Developing Markets Fund(1)... $ $ $ N/A $ N/A $ $
[Emerging Markets Fund....... $ $ $181,914 $39,500 $ $ ]
Latin American Fund.......... $ $ $168,598 $50,871 $ $
</TABLE>
- ---------------
(1) Developing Markets Fund pays AIM Distributors sales charges on sales of
Class A shares of the Fund, retains certain amounts of such charges and
reallows other amounts of such charges to brokers/dealers who sell 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 period of June 1, 1998 to October 31, 1998.
<TABLE>
<CAPTION>
JUNE 1 1998 TO
OCTOBER 31, 1998
--------------------
SALES AMOUNT
CHARGES RETAINED
-------- --------
<S> <C> <C>
Developing Markets Fund..................................... $ $
[Emerging Markets Fund...................................... $ $ ]
Latin American Fund......................................... $ $
</TABLE>
The following chart reflects the contingent deferred sales charges paid by
Class A and Class B shareholders for the fiscal years ended October 31, 1998,
1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Developing Markets Fund(1)...................... $ $ N/A $ N/A
[Emerging Markets Fund.......................... $ $1,594,794 $1,287,272]
Latin American Fund............................. $ $ 923,769 $ 843,024
</TABLE>
- ---------------
(1) Developing Markets Fund pays AIM Distributors a contingent deferred sales
charge with respect to redemptions of Class B shares and certain Class A
shares.
48
<PAGE> 609
EXPENSES OF THE FUNDS
Each Fund pays all expenses not assumed by AIM, the Sub-advisor, AIM
Distributors and other agents. These expenses include, in addition to the
advisory, distribution, transfer agency, pricing and accounting agency and
brokerage fees discussed above, legal and audit expenses, custodian fees,
trustees' fees, organizational fees, fidelity bond and other insurance premiums,
taxes, extraordinary expenses and the expenses of reports and prospectuses sent
to existing investors. The allocation of general Trust expenses and expenses
shared among the Funds and other funds organized as series of the Trust are
allocated on a basis deemed fair and equitable, which may be based on the
relative net assets of the Funds or the nature of the services performed and
relative applicability to the Funds. Expenditures, including costs incurred in
connection with the purchase or sale of portfolio 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. The ratio of each Fund's expenses to its relative net assets can be
expected to be higher than the expense ratios of funds investing solely in
domestic securities, since the cost of maintaining the custody of foreign
securities and the rate of investment management fees paid by each Fund
generally are higher than the comparable expenses of such other funds.
Generally, trading in foreign securities, corporate bonds, U.S. Government
securities and money market instruments is substantially completed each day at
various times prior to the close of the NYSE. The values of such securities used
in computing the net asset value of each Fund's shares are determined at such
times. Foreign currency exchange rates are also generally determined prior to
the close of the NYSE. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the time at which such
values are determined and the close of the NYSE which will not be reflected in
the computation of a Fund's net asset value. If events materially affecting the
value of such securities occur during such period, then these securities will be
valued at their fair value as determined in good faith by or under the
supervision of the Board of Trustees of the Funds.
NET ASSET VALUE DETERMINATION
The net asset value per share of each Fund is normally determined daily as of
the close of trading of the New York Stock Exchange ("NYSE") (generally 4:00
p.m. Eastern time) of each business day of the Funds. In the event the NYSE
closes early ( i.e., before 4:00 p.m. Eastern time) on a particular day, the net
asset value of a Fund is determined as of the close of the NYSE on such day. Net
asset value per share is determined by dividing the value of a Fund's
securities, cash and other assets (including interest accrued but not collected)
attributable to a particular class, less all its liabilities (including accrued
expenses and dividends payable) attributable to that class, by the total number
of shares outstanding of that class. Determination of each Fund's net asset
value per share is made in accordance with generally accepted accounting
principles.
Each equity security held by a Fund is valued at its last sales price on the
exchange where the security is principally traded or, lacking any sales on a
particular day, the security is valued at the last available bid. Each security
traded in the over-the-counter market (but not including securities reported on
the NASDAQ National Market System) is valued at the mean between the last bid
and asked prices based upon quotes furnished by market makers for such
securities. Each security reported on the NASDAQ National Market System is
valued at the last sales price on the valuation date or absent a last sales
price, at the mean between the closing bid and asked prices on that day. Debt
securities are valued on the basis of prices provided by an independent pricing
service. Prices provided by the pricing service may be determined without
exclusive reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments related
to special securities, yield, quality, coupon rate, maturity, type of issue,
individual trading characteristics and other market data. Securities for which
market quotations are not readily available or are questionable are valued at
fair value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of Trustees.
Short-term obligations having 60 days or less to maturity are valued on the
basis of amortized cost. For purposes of determining net asset value per share,
futures and options contracts generally will be valued 15 minutes after the
close of trading of the NYSE.
Generally, trading in foreign securities, corporate bonds, U.S. Government
securities and money market instruments is substantially completed each day at
various times prior to the close of the NYSE. The values of such securities used
in computing the net asset value of each Fund's shares are determined at such
times. Foreign currency exchange rates are also generally determined prior to
the close of the NYSE. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times at which such
values are determined and the close of the NYSE which will not be reflected in
the computation of a Fund's net asset value. If events materially affecting the
value of such securities occur during such period, then these securities will be
valued at their fair value as determined in good faith by or under the
supervision of the Board of Trustees.
49
<PAGE> 610
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 Advisor
MultiFlex 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 European Development Fund, AIM Europe Growth Fund,
AIM Global Utilities Fund, AIM Global Growth & Income Fund, AIM International
Equity Fund, AIM International Growth Fund, AIM Japan Growth Fund, AIM Large Cap
Growth Fund, AIM Mid Cap Equity Fund, AIM Money Market Fund, AIM New Pacific
Growth Fund, AIM Select Growth Fund, AIM Small Cap Growth Fund, AIM Small Cap
Opportunities Fund, AIM Value Fund, AIM Weingarten Fund and AIM Worldwide Growth
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>
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 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 Fund, AIM Global Trends Fund, AIM
High Income Municipal Fund, AIM High Yield Fund, AIM High Yield Fund II, 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>
50
<PAGE> 611
There is no sales charge on purchases of $1,000,000 or more; however, AIM
Distributors may pay a dealer concession and/or advance a service fee on such
transactions 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. In some instances, these incentives may
be offered only to certain dealers who have sold or may sell significant amounts
of shares. At the option of the dealer, such incentives may take the form of
payment for travel expenses, including lodging, incurred in connection with
trips taken by qualifying registered representatives and their families to
places within or outside the United States. The total amount of such additional
bonus payments or other consideration shall not exceed 0.25% of the public
offering price of the shares sold. Any such bonus or incentive programs will not
change the price paid by investors for the purchase of the applicable AIM Fund's
shares or the amount that any particular AIM Fund will receive as proceeds from
such sales. Dealers may not use sales of the AIM Funds' shares to qualify for
any incentives to the extent that such incentives may be prohibited by the laws
of any state.
AIM Distributors may make payments to dealers and institutions who are dealers
of record for purchases of $1 million or more of Class A shares (or shares which
normally involve payment of initial sales charges), which are sold at net asset
value and are subject to a contingent deferred sales charge, for all AIM Funds
other than Class A shares of each of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund as follows: 1% of the first $2 million of such
purchases, plus 0.80% of the next $1 million of such purchases, plus 0.50% of
the next $17 million of such purchases, plus 0.25% of amounts in excess of $20
million of such purchases. AIM Distributors may make payments to dealers and
institutions who are dealers of record for purchases of $1 million or more of
Class A shares (or shares which normally involve payment of initial sales
charges), and which are sold at net asset value and are not subject to a
contingent deferred sales charge, in an amount up to 0.10% of such purchases of
Class A shares of AIM Limited Maturity Treasury Fund, and in an amount up to
0.25% of such purchases of Class A shares of AIM Tax-Free Intermediate Fund.
AIM Distributors may pay sales commissions to dealers and institutions who
sell Class B shares of the AIM Funds at the time of such sales. Payments with
respect to Class B shares will equal 4.00% of the purchase price of the Class B
shares sold by the dealer or institution, and will consist of a sales commission
equal to 3.75% of the purchase price of the Class B shares sold plus an advance
of the first year service fee of 0.25% with respect to such shares. The portion
of the payments to AIM Distributors under the Class B Plan which constitutes an
asset-based sales charge (0.75%) is intended in part to permit AIM Distributors
to recoup a portion of such sales commissions plus financing costs.
AIM Distributors may pay sales commissions to dealers and institutions who
sell Class C shares of the AIM Funds at the time of such sales. Payments with
respect to Class C shares will equal 1.00% of the purchase price of the Class C
shares sold by the dealer or institution, and will consist of a sales commission
of 0.75% of the purchase price of the Class C shares sold plus an advance of the
first year service fee of 0.25% with respect to such shares. AIM Distributors
will retain all payments received by it relating to Class C shares for the first
year after they are purchased. The portion of the payments to AIM Distributors
under the Class A and C Plan attributable to Class C shares which constitutes an
asset-based sales charge, (0.75%) is intended in part to permit AIM Distributors
to recoup a portion of on-going sales commissions to dealers plus financing
costs, if any. After the first full year, AIM Distributors will make such
payments quarterly to dealers and institutions based on the average net asset
value of Class C shares which are attributable to shareholders for whom the
dealers and institutions are designated as dealers of record. These commissions
are not paid on sales to investors exempt from the CDSC, including shareholders
of record on April 30, 1995, who purchase additional shares in any of the Funds
on or after May 1, 1995, and in circumstances where AIM Distributors grants an
exemption on particular transactions.
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 Small Cap Opportunities
Funds, 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.
51
<PAGE> 612
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:
- an individual and his or her spouse and children, including any trust
established exclusively for the benefit of any such person; or a pension,
profit-sharing, or other benefit plan established exclusively for the
benefit of any such person, such as an IRA, Roth IRA, a single-participant
money-purchase/profit-sharing plan or an individual participant in a 403(b)
Plan (unless such 403(b) plan qualifies as the purchaser as defined below);
- a 403(b) plan, the employer/sponsor of which is an organization described
under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended
(the "Code"), 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;
- a trustee or fiduciary purchasing for a single trust, estate or single
fiduciary account (including a pension, profit-sharing or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Code) and 457 plans, although more than one beneficiary or participant is
involved;
- a Simplified Employee Pension (SEP), Salary Reduction and other Elective
Simplified Employee Pension account (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
- 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 and (ii) Class B and Class C shares of the AIM Funds) within the
following 13 consecutive months. By marking the LOI section on the account
application and by signing the account application, the purchaser indicates that
he understands and agrees to the terms of the LOI and is bound by the provisions
described below.
Each purchase of fund shares normally subject to an initial sales charge made
during the 13-month period will be made at the public offering price applicable
to a single transaction of the total dollar amount indicated by the LOI, as
described under "Sales Charges and Dealer Concessions." It is the purchaser's
responsibility at the time of purchase to specify the account numbers that
should be considered in determining the appropriate sales charge. The offering
price may be further reduced as described under "Rights of Accumulation" if the
Transfer Agent is advised of all other accounts at the time of the investment.
Shares acquired through reinvestment of dividends and capital gains
distributions will not be applied to the LOI. At any time during the 13-month
period after meeting the original obligation, a purchaser may revise his
intended investment amount upward by submitting a written and signed request.
Such a revision will not change the original expiration date. By signing an LOI,
a purchaser is not making a binding commitment to purchase additional shares,
but if
52
<PAGE> 613
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 and (ii) Class B and Class C shares of the AIM
Funds) owned by such purchaser, calculated at their then current public offering
price. If a purchaser so qualifies for a reduced sales charge, the reduced sales
charge applies to the total amount of money then being invested by such
purchaser and not just to the portion that exceeds the breakpoint above which a
reduced sales charge applies. For example, if a purchaser already owns
qualifying shares of any AIM Fund with a value of $20,000 and wishes to invest
an additional $20,000 in a fund, with a maximum initial sales charge of 5.50%,
the reduced initial sales charge of 5.25% will apply to the full $20,000
purchase and not just to the $15,000 in excess of the $25,000 breakpoint. To
qualify for obtaining the discount applicable to a particular purchase, the
purchaser or his dealer must furnish AFS with a list of the account numbers and
the names in which such accounts of the purchaser are registered at the time the
purchase is made.
PURCHASES AT NET ASSET VALUE. Purchases of shares of any of the AIM Funds at
net asset value (without payment of an initial sales charge) may be made in
connection with: (a) the reinvestment of dividends and distributions from a
fund; (b) exchanges of shares of certain other 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:
- AIM Management and its affiliates, or their clients;
- 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--Registered Trademark--, and any foundation, trust or employee benefit
plan established exclusively for the benefit of, or by, such persons;
- 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;
- 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;
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- Purchases through approve fee-based programs;
- Employee benefit plans designated as qualified purchasers as defined above,
provided the initial investment in the Fund(s) is at least $1 million; the
sponsor signs a $1 million LOI; the employer-sponsored plan 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 agreement 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;
- Shareholders of record or discretionary advised clients of any investment
advisor holding shares of Weingarten or Constellation on September 8, 1996,
or of Charter 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;
- Unitholders of G/SET series unit investment trusts investing proceeds from
such trusts in shares of Weingarten or Constellation; 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 Weingarten and Constellation is effected within 30
days of the redemption or repurchase;
- 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;
- 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
- 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
CDSCs will not apply to the following:
- Additional purchases of Class C shares of AIM Advisor Flex Fund, AIM Advisor
International Value Fund, AIM Advisor Large Cap Value Fund, AIM Advisor
MultiFlex Fund and AIM Advisor Real Estate Fund by shareholders of record on
April 30, 1995, of these Funds, 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;
- 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;
- 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 beneficiaries 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;
- 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;
- Liquidation by the Fund when the account value falls below the minimum
required account size of $500;
- Investment account(s) of AIM; and
- 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.
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Upon the redemption of shares in Categories I and II purchased in amounts of
$1 million or more, no CDSC will be applied in the following situations:
- Shares held more than 18 months;
- 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;
- Private foundations or endowment funds;
- 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
- Shares acquired by exchange from Class A shares in 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 Prospectus 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 shown in the Prospectus.
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 Prospectus under the caption "Exchanging Shares."
Information concerning redemption of the Funds' shares is set forth in the
Prospectus 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 obligation of the Funds to redeem shares, AIM Distributors also
repurchases shares. AIM intends to redeem all shares of the Funds in cash. 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 the 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.
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 the
Fund not reasonably practicable.
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 be subject to backup withholding.
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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:
- a corporation
- an organization exempt from tax under Section 501(a), an individual
retirement plan (IRA), or a custodial account under Section 403(b)(7)
- the United States or any of its agencies or instrumentalities
- a state, the District of Columbia, a possession of the United States, or any
of their political subdivisions or instrumentalities
- a foreign government or any of its political subdivisions, agencies or
instrumentalities
- an international organization or any of its agencies or instrumentalities
- a foreign central bank of issue
- a dealer in securities or commodities required to register in the U.S. or a
possession of the U.S.
- a futures commission merchant registered with the Commodity Futures Trading
Commission
- a real estate investment trust
- an entity registered at all times during the tax year under the 1940 Act
- a common trust fund operated by a bank under Section 584(a)
- a financial institution
- a middleman known in the investment community as a nominee or listed in the
most recent publication of the American Society of Corporate Secretaries,
Inc., Nominee List
- a trust exempt from tax under Section 664 or described in Section 4947
Investors should contact the IRS if they have any questions concerning
entitlement to an exemption from backup withholding.
NOTE: Section references are to sections of the Code.
IRS PENALTIES -- Investors who do not supply the AIM Funds with a correct TIN
will be subject to a $50 penalty imposed by the IRS unless such failure is due
to reasonable cause and not willful neglect. If an investor falsifies
information on this form or makes any other false statement resulting in no
backup withholding on an account which
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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.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
GENERAL
Each Fund is treated as a separate corporation for federal income tax
purposes. To continue to qualify for treatment as a RIC under the Code, each
Fund must distribute to its shareholders for each taxable year at least 90% of
its investment company taxable income (consisting generally of net investment
income, net short-term capital gain and net gains from certain foreign currency
transactions) ("Distribution Requirement") and must meet several additional
requirements. These requirements include the following: (1) the Fund must derive
at least 90% of its gross income each taxable year from dividends, interest,
payments with respect to securities loans and gains from the sale or other
disposition of securities or foreign currencies, or other income (including
gains from options, Futures or Forward Contracts) derived with respect to its
business of investing in securities or those currencies ("Income Requirement");
and (2) the Diversification Requirements.
Dividends and other distributions declared by a Fund in, and payable to
shareholders of record as of a date in, October, November or December of any
year will be deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if the distributions are paid by the
Fund during the following January. Accordingly, those distributions will be
taxed to shareholders for the year in which that December 31 falls.
If Fund shares are sold at a loss after being held for six months or less, the
loss will be treated as long-term, instead of short-term, capital loss to the
extent of any capital gain distributions received on those shares. Investors
also should be aware that if shares are purchased shortly before the record date
for any dividend or other distribution, the shareholder will pay full price for
the shares and receive some portion of the price back as a taxable distribution.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to
the extent it fails to distribute by the end of any calendar year substantially
all of its ordinary income for that year and capital gain net income for the
one-year period ending on October 31 of that year, plus certain other amounts.
FOREIGN TAXES
Dividends and interest received by each Fund, and gains realized thereby, may
be subject to income, withholding or other taxes imposed by foreign countries
and U.S. possessions ("foreign taxes") that would reduce the yield and/or total
return on its securities. Tax conventions between certain countries and the
United States may reduce or eliminate foreign taxes, however, and many foreign
countries do not impose taxes on capital gains in respect of investments by
foreign investors. If more than 50% of the value of a Fund's total assets at the
close of its taxable year consists of securities of foreign corporations, the
Fund will be eligible to, and may, file an election with the Internal Revenue
Service that will enable its shareholders, in effect, to receive the benefit of
the foreign tax credit with respect to any foreign taxes paid by it. Pursuant to
the election, the Fund would treat those taxes as dividends paid to its
shareholders and each shareholder would be required to (1) include in gross
income, and treat as paid by him, his share of those taxes, (2) treat his share
of those taxes and of any dividend paid by the Fund that represents income from
foreign and U.S. possessions sources as his own income from those sources and
(3) either deduct the taxes deemed paid by him in computing his taxable income
or, alternatively, use the foregoing information in calculating the foreign tax
credit against his federal income tax. Each Fund will report to its shareholders
shortly after each taxable year their respective shares of the Fund's foreign
taxes and income from sources within, and taxes paid to, foreign countries and
U.S. possessions if it makes this election. Pursuant to the Taxpayer Relief Act
of 1997 ("Tax Act"), individuals who have no more than $300 ($600 for married
persons filing jointly) of creditable foreign taxes included on Form 1099 and
all of whose foreign source income is "qualified passive income" may elect each
year to be exempt from the extremely complicated foreign tax credit limitation
and will be able to claim a foreign tax credit without having to file the
detailed Form 1116 that otherwise is required.
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PASSIVE FOREIGN INVESTMENT COMPANIES
Each Fund may invest in the stock of "passive foreign investment companies"
("PFICs"). A PFIC is a foreign corporation -- other than a "controlled foreign
corporation" (i.e., a foreign corporation in which, on any day during its
taxable year, more than 50% of the total voting power of all voting stock
therein or the total value of all stock therein is owned, directly, indirectly
or constructively, by "U.S. shareholders," defined as U.S. persons that
individually own, directly, indirectly or constructively, at least 10% of that
voting power) as to which a Fund is a U.S. shareholder (effective with respect
to each Fund for its taxable year beginning November 1, 1998) -- that, in
general, meets either of the following tests: (1) at least 75% of its gross
income is passive or (2) an average of at least 50% of its assets produce, or
are held for the production of, passive income. Under certain circumstances, a
Fund will be subject to federal income tax on a portion of any "excess
distribution" received on, or of any gain from the disposition of, stock of a
PFIC (collectively "PFIC income"), plus interest thereon, even if the Fund
distributes the PFIC income as a taxable dividend to its shareholders. The
balance of the PFIC income will be included in the Fund's investment company
taxable income and, accordingly, will not be taxable to it to the extent it
distributes that income to its shareholders.
If a Fund invests in a PFIC and elects to treat the PFIC as a "qualified
electing fund" ("QEF"), then in lieu of the foregoing tax and interest
obligation, the Fund would be required to include in income each year its pro
rata share of the QEF's ordinary earnings and net capital gain (i.e., the excess
of net long-term capital gain over net short-term capital loss) -- which most
likely would have to be distributed by the Fund to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax -- even if those earnings and
gain were not received by the Fund from the QEF. In most instances it will be
very difficult, if not impossible, to make this election because of certain
requirements thereof.
Effective for its taxable year beginning November 1, 1998, each Fund may elect
to "mark to market" its stock in any PFIC. "Marking-to-market," in this context,
means including in ordinary income each taxable year the excess, if any, of the
fair market value of the stock over a Fund's adjusted basis therein as of the
end of that year. Pursuant to the election, a Fund also will be allowed to
deduct (as an ordinary, not capital, loss) the excess, if any, of its adjusted
basis in PFIC stock over the fair market value thereof as of the taxable
year-end, but only to the extent of any net mark-to-market gains with respect to
that stock included in income by the Fund for prior taxable years. A Fund's
adjusted basis in each PFIC's stock subject to the election will be adjusted to
reflect the amounts of income included and deductions taken thereunder.
Regulations proposed in 1992 provided a similar election with respect to the
stock of certain PFICs.
NON-U.S. SHAREHOLDERS
Dividends paid by a Fund to a shareholder who, as to the United States, is a
nonresident alien individual, nonresident alien fiduciary of a trust or estate,
foreign corporation or foreign partnership ("foreign shareholder") generally
will be subject to U.S. withholding tax (at a rate of 30% or lower treaty rate).
Withholding will not apply, however, to a dividend paid by a Fund to a foreign
shareholder that is "effectively connected with the conduct of a U.S. trade or
business," in which case the reporting and withholding requirements applicable
to domestic shareholders will apply. A distribution of net capital gain by a
Fund to a foreign shareholder generally will be subject to U.S. federal income
tax (at the rates applicable to domestic persons) only if the distribution is
"effectively connected" or the foreign shareholder is treated as a resident
alien individual for federal income tax purposes.
OPTIONS, FUTURES AND FOREIGN CURRENCY TRANSACTIONS
Each Fund's use of hedging transactions, such as selling (writing) and
purchasing options and Futures and entering into Forward Contracts, involves
complex rules that will determine, for federal income tax purposes, the amount,
character and timing of recognition of the gains and losses a Fund realizes in
connection therewith. Gains from the disposition of foreign currencies (except
certain gains that may be excluded by future regulations), and gains from
options, Futures and Forward Contracts derived by a Fund with respect to its
business of investing in securities or foreign currencies, will qualify as
permissible income under the Income Requirement.
Futures and Forward Contracts that are subject to section 1256 of the Code
(other than those that are part of a "mixed straddle") ("Section 1256
Contracts") and that are held by a Fund at the end of its taxable year generally
will be deemed to have been sold at that time at market value for federal income
tax purposes. Sixty percent of any net gain or loss recognized on these deemed
sales, and 60% of any net gain or loss realized from any actual sales of Section
1256 Contracts, will be treated as long-term capital gain or loss, and the
balance will be treated as short-term capital gain or loss. That 60% portion
will qualify for the reduced maximum tax rates on noncorporate taxpayers' net
capital gain enacted by the Tax Act -- 20% (10% for taxpayers in the 15%
marginal tax bracket) for gain recognized on capital assets held for more than
18 months -- instead of the 28% rate in effect before that legislation, which
now applies to gain recognized on capital assets held for more than one year but
not more than 18 months.
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Section 988 of the Code also may apply to gains and losses from transactions
in foreign currencies, foreign-currency-denominated debt securities and options,
Futures and Forward Contracts on foreign currencies ("Section 988" gains and
losses). Each Section 988 gain or loss generally is computed separately and
treated as ordinary income or loss. In the case of overlap between sections 1256
and 988, special provisions determine the character and timing of any income,
gain or loss. The Funds attempt to monitor section 988 transactions to minimize
any adverse tax impact.
If a Fund has an "appreciated financial position" -- generally, an interest
(including an interest through an option, Futures or Forward Contract or short
sale) with respect to any stock, debt instrument (other than "straight debt") or
partnership interest the fair market value of which exceeds its adjusted
basis -- and enters into a "constructive sale" of the same or substantially
similar property, the Fund will be treated as having made an actual sale
thereof, with the result that gain will be recognized at that time. A
constructive sale generally consists of a short sale, an offsetting notional
principal contract or Futures or Forward Contract entered into by a Fund or a
related person with respect to the same or substantially similar property. In
addition, if the appreciated financial position is itself a short sale or such a
contract, acquisition of the underlying property or substantially similar
property will be deemed a constructive sale.
The foregoing is a general and abbreviated summary of certain federal tax
considerations affecting each Fund and its shareholders. Investors are urged to
consult their own tax advisors for more detailed information and for information
regarding any foreign, state and local taxes applicable to distributions
received from the Funds.
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. 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.
SHARES CERTIFICATES. 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. 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. 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),
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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. 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 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. Then any
redemptions must be effected in writing by the investor.
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 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.
REINSTATEMENT PRIVILEGE (CLASS A SHARES ONLY). A shareholder may realize a
gain or a loss on a redemption made in connection with the exercise of the
reinstatement privilege. A realized gain on the redemption is taxable, and
reinvestment may alter any capital gains payable. If there has been a loss on
the redemption and shares of the same fund are repurchased, all of the loss may
not be tax deductible, depending on the timing and amount reinvested. Under the
Code, if the redemption proceeds of fund shares on which a sales charge was paid
are reinvested in (or exchanged for)
60
<PAGE> 621
shares of another AIM Fund at a reduced sales charge within 90 days of the
payment of the sales charge, the shareholder's basis in the fund shares redeemed
may not include the amount of the sales charge paid, thereby reducing the loss
or increasing the gain recognized from the redemption; however, the
shareholder's basis in the fund shares purchased will Include the sales charge.
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 in 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.
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., a wholly owned
subsidiary of AIM, 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173, 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 purchases of the AIM Funds.
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") has entered Into
an agreement with the Trust (and certain other AIM Funds), First Data Investor
Service Group (formerly The Shareholder Services Group, Inc.) 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).
INDEPENDENT ACCOUNTANTS
The Funds' independent accountants are PricewaterhouseCoopers LLP.
PricewaterhouseCoopers LLP conducts an annual audit of each Fund, assists in the
preparation of the Funds' federal and state income tax returns and consults with
the Trust and the Funds as to matters of accounting, regulatory filings, and
federal and state income taxation.
The audited financial statements of the Trust included in this Statement of
Additional Information have been examined by PricewaterhouseCoopers LLP, as
stated in their opinion appearing herein and are included in reliance upon such
opinion given upon the authority of that firm as experts in accounting and
auditing.
61
<PAGE> 622
LEGAL MATTERS
The law firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue N.W.,
Washington, D.C. 20036-1800, acts as counsel to the Trust and the Fund.
SHAREHOLDER LIABILITY
Under Delaware law, the shareholders of the Trust enjoy the same limitations
extended to shareholders of private, for-profit corporations. There is a remote
possibility, however, that under certain circumstances shareholders of the Trust
may be held personally liable for the Trust's obligations. However, the Trust
Agreement disclaims shareholder liability for acts or obligations of the Trust
and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Trust or a trustee. If
a shareholder is held personally liable for the obligations of the Trust, the
Trust Agreement provides that the shareholder shall be entitled out of the
assets belonging to the applicable Fund (or allocable to the applicable Class),
to be held harmless from and indemnified against all loss and expense arising
from such liability in accordance with the Trust's Bylaws and applicable law.
Thus, the risk of a shareholder incurring financial loss on account of such
liability is limited to circumstances in which the Trust itself would be unable
to meet its obligations and where the other party was held not to be bound by
the disclaimer.
[NAME
Prior to May 29, 1998, Developing Markets Fund, Emerging Markets Fund and
Latin American Fund operated under the names GT Global Developing Markets Fund,
GT Global Emerging Markets Fund, and GT Global Latin America Growth Fund,
respectively.]
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To the best knowledge of the Trust, the names and addresses of the holders of
5% or more of the outstanding shares of any class of each Fund's equity
securities as of , 1998, and the percentage of the
outstanding shares held by such holders are set forth below:
<TABLE>
<CAPTION>
PERCENT
PERCENT OWNED OF
OWNED OF RECORD AND
FUND NAME AND ADDRESS OF OWNER RECORD* BENEFICIALLY
---- ------------------------- -------- ------------
<S> <C> <C> <C>
Developing Markets Olde Discount % -0-
Fund -- Class B FBO 05012322
751 Griswold Street
Detroit, Michigan 48226-3224
Raymond James & Assoc. Inc. CSDN % -0-
Mary Lynn James IRA
1215 W. Los Angeles Circle
Broken Arrow, Oklahoma 74011-4215
Smith Barney Inc. % -0-
150926032
388 Greenwich Street
New York, New York 10013-2339
PaineWebber FBO % -0-
Joseph McDonald & Mildred McDonald JJWRO
379 Quarry Pond Court
Moriches, New York 11955-1706
Developing Markets G.T. Capital Holdings, Inc. 401(k) FBO % -0-
Fund -- Advisor Class Account 041-66-4510
Attn: Human Resources
50 California St. 27th Floor
San Francisco, CA 94111-4624
</TABLE>
- ---------------
<TABLE>
<S> <C> <C> <C>
* The Trust has no knowledge as to whether all or any portion of the shares owned of record are also owned
beneficially.
</TABLE>
62
<PAGE> 623
<TABLE>
<CAPTION>
PERCENT
PERCENT OWNED OF
OWNED OF RECORD AND
FUND NAME AND ADDRESS OF OWNER RECORD* BENEFICIALLY
---- ------------------------- -------- ------------
<S> <C> <C> <C>
G.T. Capital Holdings, Inc. 401(k) FBO % -0-
Account 556-33-9792
Attn: Human Resources
50 California St. 27th Floor
San Francisco, California 94111-4624
G.T. Capital Holdings, Inc. 401(k) FBO % -0-
Account 561-49-0015
50 California Street, 27th Floor
San Francisco, California 94111-4624
Attn: Human Resources
[Emerging Markets Fund -- Wells Fargo Bank NA TTEE FBO % -0-]
Advisor Class LGT Asset Management AC 5000201000
Serp Prft Shr Pln ###-##-####
P O Box 9800 MAC 9137-027
Calabasas, CA 91372-0800
[Emerging Markets Fund -- MLPF&S for the Sold Benefit of its % -0-]
Class A Customers, Security #970E1
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Latin American G.T. Capital Holdings, Inc. 401(k) FBO % -0-
Fund -- Advisor Class Account 102505451
50 California Street, 27th Floor
San Francisco, California 94111-4624
Attn: Human Resources
G.T. Capital Holdings, Inc. 401(k)FBO % -0-
Acct ####-##-####
50 California Street, 27th Floor
San Francisco, California 94111-4624
Attn: Human Resources
Wells Fargo Bank NA TTEE FBO % -0-
LGT Asset Management AC 5000201000
Serp Prft Shr Pln ###-##-####
P O Box 9800 MAC 9137-027
Calabasas, CA 91372-0800
Latin American Fund -- MLPF&S for the Sold Benefit of its % -0-
Class A Customers, Security #970E1
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
</TABLE>
- ---------------
* The Trust has no knowledge as to whether all or any portion of the shares
owned of record are also owned beneficially.
63
<PAGE> 624
INVESTMENT RESULTS
TOTAL RETURN QUOTATIONS
The standard formula for calculating total return, as described in each
Prospectus, is as follows:
n
P(1+T) = ERV
<TABLE>
<S> <C> <C> <C>
Where P = a hypothetical initial payment of $1,000.
T = average annual total return (assuming the applicable maximum
sales load is deducted at the beginning of the 1, 5, or 10
year periods).
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment at
the end of the 1, 5, or 10 year periods (or fractional
portion of such period).
</TABLE>
The standard total returns of Developing Market's Predecessor Fund (recomputed
for Class A shares to reflect the deduction of the maximum sales charge of 4.75%
for Class A shares), stated as average annualized total returns for the periods
shown, were:
<TABLE>
<CAPTION>
DEVELOPING DEVELOPING
MARKETS FUND MARKETS FUND
PERIOD (CLASS A) (CLASS B)
------ ------------ ------------
<S> <C> <C>
Fiscal year ended Oct. 31, 1998............................. -40.09% %
Jan. 11, 1994 (commencement of operations) through Oct. 31,
1998...................................................... -10.98% -42.89%
</TABLE>
Class B shares of Developing Markets Fund have not been in operation for a
full year since the Fund's conversion from a closed-end to an open-end fund.
[The standard total returns for the Class A and Class B shares of Emerging
Markets Fund, stated as average annualized total returns for the periods shown,
were:]
<TABLE>
<CAPTION>
EMERGING MARKETS EMERGING MARKETS
[PERIOD FUND (CLASS A) FUND (CLASS B)
------- ---------------- ----------------
<S> <C> <C>
Fiscal year ended Oct. 31, 1998....................... -42.50% -42.90%
Oct. 31, 1992 through Oct. 31, 1998................... -12.35% n/a
April 1, 1993 (commencement of operations) through
Oct. 31, 1998....................................... n/a -7.22%
May 18, 1992 (commencement of operations) through Oct.
31, 1998............................................ -6.29% n/a
</TABLE>
The standard total returns for the Class A and Class B shares of Latin
American Fund, stated as average annualized total returns for the periods shown,
were:
<TABLE>
<CAPTION>
LATIN AMERICAN LATIN AMERICAN
PERIOD FUND (CLASS A) FUND (CLASS B)
------ -------------- --------------
<S> <C> <C>
Fiscal year ended Oct. 31, 1998.......................... -42.71% -43.18%
Oct. 31, 1993 through Oct. 31, 1998...................... -9.25% n/a
April 1, 1993 (commencement of operations) through Oct.
31, 1998............................................... n/a -4.81%
Aug. 13, 1991 (commencement of operations) through Oct.
31, 1998............................................... -1.03% n/a
</TABLE>
64
<PAGE> 625
Standard total return quotes may be accompanied by total return figures
calculated by alternative methods. For example, average annual total return may
be calculated without assuming payment of the full sales load according to the
following formula:
n
P(1+U) = ERV
<TABLE>
<S> <C> <C> <C>
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.
</TABLE>
The average annual non-standard total returns of Developing Markets Fund's
Predecessor Fund, stated as average annualized total returns for the periods
shown, were:
<TABLE>
<CAPTION>
PERIOD
------
<S> <C>
Fiscal year ended Oct. 31, 1998............................. -37.09%
Jan. 11, 1994 (commencement of operations) through Oct. 31,
1998...................................................... -10.07%
</TABLE>
[The average annual non-standard total returns for the Class A and Class B
shares of Emerging Markets Fund, stated as average annualized total returns for
the periods shown, were:
<TABLE>
<CAPTION>
EMERGING MARKETS EMERGING MARKETS
PERIOD FUND (CLASS A) FUND (CLASS B)
------ ---------------- ----------------
<S> <C> <C>
Fiscal year ended Oct. 31, 1998....................... -39.62% -39.90%
Oct. 31, 1992 through Oct. 31, 1998................... -11.49% n/a
April 1, 1993 (commencement of operations) through
Oct. 31, 1998....................................... n/a -7.06%
May 18, 1992 (commencement of operations) through Oct.
31, 1998............................................ -5.58% n/a]
</TABLE>
The average annual non-standard total returns for the Class A and Class B
shares of Latin American Fund, stated as average annualized total returns for
the periods shown, were:
<TABLE>
<CAPTION>
LATIN AMERICAN LATIN AMERICAN
PERIOD FUND (CLASS A) FUND (CLASS B)
------ -------------- ---------------
<S> <C> <C>
Fiscal year ended Oct. 31, 1998.......................... -39.86% -40.19%
Oct. 31, 1991 through Oct. 31, 1998...................... -8.35% n/a
April 1, 1993 (commencement of operations) through Oct.
31, 1998............................................... n/a -4.65%
Aug. 13, 1991 (commencement of operations) through Oct.
31, 1998............................................... -.36% n/a
</TABLE>
Cumulative total return across a stated period may be calculated as follows:
n
P(1+V) = ERV
<TABLE>
<S> <C> <C> <C>
Where P = a hypothetical initial payment of $1,000.
V = cumulative total return assuming payment of all of, a stated
portion of, or none of, the applicable maximum sales load at
the beginning of the stated period.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment at
the end of the stated period.
</TABLE>
The cumulative total return of Developing Markets Fund's Predecessor Fund (not
recomputed to take sales charges into account) for the period January 11, 1994
(commencement of operations) through October 31, 1998 was %.
65
<PAGE> 626
The cumulative total return of Developing Market's Predecessor Fund
(recomputed for Class A shares to reflect the deduction of the maximum sales
charge of 4.75% for Class A shares), stated as aggregate total returns for the
periods shown, were:
<TABLE>
<CAPTION>
DEVELOPING DEVELOPING
MARKETS FUND MARKETS FUND
PERIOD (CLASS A) (CLASS B)
------ ------------ ------------
<S> <C> <C>
Jan. 11, 1994 (commencement of operations) through Oct.
31, 1998................................................ -42.80% n/a
Nov. 3, 1997 (commencement of operations) through Oct. 31,
1998.................................................... n/a -42.63%
</TABLE>
Class B shares of Developing Markets Fund have not been in operation for a
full year since the Fund's conversion from a closed-end to an open-end fund.
[The cumulative total returns (not taking sales charges into account) for the
Class A and Class B shares of Emerging Markets Fund, stated as aggregate total
returns for the periods shown, were:
<TABLE>
<CAPTION>
EMERGING MARKETS EMERGING MARKETS
PERIOD FUND (CLASS A) FUND (CLASS B)
------ ---------------- ----------------
<S> <C> <C>
April 1, 1993 (commencement of operations) through
Oct. 31, 1998....................................... n/a -33.56%
May 18, 1992 (commencement of operations)through Oct.
31, 1998............................................ -30.98% n/a]
</TABLE>
[The aggregate cumulative total returns (taking sales charges into account)
for the Class A and B shares of Emerging Markets Fund, stated as aggregate total
returns for the periods shown, were:
<TABLE>
<CAPTION>
EMERGING MARKETS EMERGING MARKETS
PERIOD FUND (CLASS A) FUND (CLASS B)
------ ---------------- ----------------
<S> <C> <C>
April 1, 1993 (commencement of operations) through
Oct. 31, 1998....................................... n/a 34.18%
May 18, 1992 (commencement of operations) through Oct.
31, 1998............................................ -34.26% n/a]
</TABLE>
The cumulative total returns (not taking sales charges into account) for the
Class A and Class B shares of Latin American Fund, stated as aggregate total
returns for the periods shown, were:
<TABLE>
<CAPTION>
LATIN AMERICAN LATIN AMERICAN
PERIOD FUND (CLASS A) FUND (CLASS B)
------ -------------- --------------
<S> <C> <C>
April 1, 1993 (commencement of operations) through Oct.
31, 1998................................................ n/a -23.36%
Aug. 13, 1991 (commencement of operations) through Oct.
31, 1998................................................ -2.58% n/a
</TABLE>
The aggregate cumulative total returns (taking sales charges into account) for
the Class A and B shares of Latin American Fund, stated as aggregate total
returns for the periods shown, were:
<TABLE>
<CAPTION>
LATIN AMERICAN LATIN AMERICAN
PERIOD FUND (CLASS A) FUND (CLASS B)
------ -------------- --------------
<S> <C> <C>
April 1, 1993 (commencement of operations) through Oct.
31, 1998................................................ n/a -24.06%
Aug. 13, 1991 (commencement of operations) through Oct.
31, 1998................................................ -7.19% n/a
</TABLE>
OTHER INFORMATION REGARDING STANDARD TOTAL AND NON-STANDARD TOTAL RETURNS FOR
DEVELOPING MARKETS FUND
The standard total and non-standard total return data of Developing Markets
Fund are based on the performance of the Predecessor Fund as a closed-end
investment company. The standard total return data, however, have been
recomputed to reflect the deduction of the current maximum sales charge of 4.75%
for Class A shares which went into effect on November 1, 1997. Future
performance of Developing Markets Fund will be effected by expenses that it will
incur as a series of an open-end investment company.
PERFORMANCE INFORMATION
Total return and yield figures for the Funds are neither fixed nor guaranteed,
and no Fund's principal is insured. Performance quotations reflect historical
information and should not be considered representative of a Fund's performance
for any period in the future. Performance is a function of a number of factors
which can be expected to fluctuate. The Funds may provide performance
information in reports, sales literature and advertisements. The Funds may also,
from time to time, quote information about the Funds published or aired by
publications or other media entities
66
<PAGE> 627
which contain articles or segments relating to investment results or other data
about one or more of the Funds. Such publications or media entities may include
the following, among others:
Advertising Age
Barron's
Best's Review
Broker World
Business Week
Changing Times
Christian Science Monitor
Consumer Reports
Economist
EuroMoney
FACS of the Week
Financial Planning
Financial Product News
Financial World
Forbes
Fortune
Global Finance
Hartford Courant Inc.
Institutional Investor
Insurance Forum
Insurance Week
Investor's Daily
Journal of the American
Society of CLU & ChFC
Kiplinger Letter
Money
Mutual Fund Forecaster
Mutual Fund Magazine
Nation's Business
New York Times
Pension World
Pensions & Investments
Personal Investor
Financial Services Week
Philadelphia Inquirer
Smart Money
USA Today
U.S. News & World Report
Wall Street Journal
Washington Post
CNN
CNBC
PBS
The Funds and AIM Distributors may from time to time, in advertisements, sales
literature and reports furnished to present or prospective shareholders, compare
each Fund with the following, or compare each Fund's performance to performance
data of similar mutual funds as published in the following, among others:
Bank Rate National Monitor Index
Bear Stearns Foreign Bond Index
Bond Buyer Index
CDA/Wiesenberger Investment Company Services
(data and mutual fund rankings and
comparisons)
CNBC/Financial News Composite Index
COFI
Consumer Price Index
Datastream
Donoghue's
Dow Jones Industrial Average
EAFE Index
First Boston High Yield Index
Fitch (publications)
Ibbotson Associates International Bond Index
International Bank for Reconstruction and
Development (publications)
International Finance Corporation Emerging
Markets Database
International Financial Statistics
Lehman Bond Indices
Lipper Analytical Data Services, Inc. (data and
mutual fund rankings and comparisons)
Micropal, Inc. (data and mutual fund rankings
and comparisons)
Moody's Investors Service (publications)
Morgan Stanley Capital International All
Country (AC) World Index
Morgan Stanley Capital International World
Indices
Morningstar, Inc. (data and mutual fund rankings
and comparisons)
NASDAQ
Organization for Economic Cooperation and
Development (publications)
Salomon Brothers Global Telecommunications
Index
Salomon Brothers World Government Bond
Index -- Non-U.S.
Salomon Brothers World Government Bond
Index
Standard & Poor's (publications)
Standard & Poor's 500 Composite Stock Price
Index
Stangar
Wilshire Associates
World Bank (publications and reports)
The World Bank Publication of Trends in
Developing Countries
Worldscope
Each Fund may also compare its performance to rates on Certificates of Deposit
and other fixed rate investments such as the following:
10-year Treasuries
30-year Treasuries
30-day Treasury Bills
Information relating to foreign market performance, capitalization and
diversification is based on sources believed to be reliable but may be subject
to revision and has not been independently verified by the Funds or AIM
Distributors.
67
<PAGE> 628
Advertising for the Funds may from time to time include discussions of general
economic conditions and interest rates. Advertising for the Funds may also
include reference to the use of those Funds as part of an individual's overall
retirement investment program. From time to time, sales literature and/or
advertisements for any of the Funds may disclose (i) the largest holdings in the
Fund's portfolio, (ii) certain selling group members and/or (iii) certain
institutional shareholders.
From time to time, the Funds' sales literature and/or advertisements may
discuss generic topics pertaining to the mutual fund industry. This includes,
but is not limited to, literature addressing general information about mutual
funds, variable annuities, dollar-cost averaging, stocks, bonds, money markets,
certificates of deposit, retirement, retirement plans, asset allocation,
tax-free investing, college planning, and inflation.
Although performance data may be useful to prospective investors when
comparing a Fund's performance with other funds and other potential investments,
investors should note that the methods of computing performance of other
potential investments are not necessarily comparable to the methods employed by
a Fund.
68
<PAGE> 629
APPENDIX
DESCRIPTION OF BOND RATINGS
Moody's Investors Service, Inc. ("Moody's") rates the debt securities issued
by various entities from "Aaa" to "C." Investment grade ratings are the first
four categories: 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 edged." 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 bond because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than the Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa -- Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. Ba -- Bonds which are rated Ba
are judged to have speculative elements; their future cannot be considered as
well-assured. Often the protection of interest and principal payments may be
very moderate, and thereby not well safeguarded during other good and bad times
over the future. Uncertainty of position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest. Ca -- Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings. C -- Bonds which are rated C are the lowest rated class of
bonds, and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"),
rates the securities debt of various entities in categories ranging from "AAA"
to "D" according to quality. Investment grade ratings are the first four
categories: AAA -- An obligation rated "AAA" has the highest rating assigned by
S&P. The obligor's capacity to meet its financial commitment on the obligation
is extremely strong. AA -- An obligation rated "AA" differs from the highest
rated obligations only in a small degree. The obligor's capacity to meet its
financial commitment on the obligation is very strong. A -- An obligation rated
"A" is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in higher rated
categories. BBB -- An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation. BB, B, CCC, CC, C -- Obligations rated "BB," "B,"
"CCC," "CC," and "C" are regarded as having significant speculative
characteristics. "BB" indicates the least degree of speculation and "C" the
highest. While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions. BB -- An obligation rated "BB" is less
vulnerable to nonpayment than other speculative issues. However, it faces major
ongoing uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation. B -- An obligation rated "B" is more
vulnerable to nonpayment than obligations rated "BB," but the obligor currently
has the capacity to meet its financial commitment on the obligation. Adverse
business, financial, or economic conditions will likely impair the obligor's
capacity or willingness to meet its financial commitment on the obligation.
CCC -- An obligation rated "CCC" is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC -- An obligation rated "CC" is currently highly vulnerable to nonpayment.
C -- The "C" rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued. D -- An obligation rated "D" is in payment default. The "D"
rating category is used when payments on an obligation are not made on the date
due even if the applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period. The "D" rating also
will be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
69
<PAGE> 630
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR: Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's employs the designation "Prime-1" to indicate commercial paper having
a superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources of
alternate liquidity. Issues rated Prime-2 have a strong ability for repayment of
senior short-term debt obligations. This normally will be evidenced by many of
the characteristics cited above but to a lesser degree. Earnings trends and
coverage ratios, while sound, may be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
S&P ratings of commercial paper are graded into several categories ranging
from "A-1" for the highest quality obligations to "D" for the lowest. Issues in
the "A" category are delineated with numbers 1, 2, and 3 to indicate the
relative degree of safety. A-1 -- This highest category indicates that the
degree of safety regarding timely payment is strong. Those issues determined to
possess extremely strong safety characteristics will be denoted with a plus sign
(+) designation. A-2 -- Capacity for timely payments on issues with this
designation is satisfactory; however, the relative degree of safety is not as
high as for issues designated "A-1."
ABSENCE OF RATING
Where no rating has been assigned or where a rating has been suspended or
withdrawn, it may be for reasons unrelated to the quality of the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies
that are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or
issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa to Caa. The modifier 1 indicates that the Company ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the Company ranks in the
lower end of its generic rating category.
70
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FINANCIAL STATEMENTS
FS
<PAGE> 632
STATEMENT OF
ADDITIONAL INFORMATION
ADVISOR CLASS SHARES OF
AIM DEVELOPING MARKETS FUND
[AIM EMERGING MARKETS FUND]
AIM LATIN AMERICAN GROWTH FUND
(SERIES PORTFOLIOS OF
AIM INVESTMENT FUNDS)
11 GREENWAY PLAZA
SUITE 100
HOUSTON, TX 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 FREE
OF CHARGE FROM AUTHORIZED DEALERS OR BY WRITING
A I M DISTRIBUTORS, INC.,
P.O. BOX 4739, HOUSTON, TX 77210-4739
OR BY CALLING (800) 347-4246
---------------------
STATEMENT OF ADDITIONAL INFORMATION DATED MARCH 1, 1999
RELATING TO THE AIM DEVELOPING MARKETS FUND: ADVISOR CLASS PROSPECTUS DATED
MARCH 1, 1999,
THE AIM EMERGING MARKETS FUND: ADVISOR CLASS PROSPECTUS DATED MARCH 1, 1999 AND
THE AIM LATIN
AMERICAN GROWTH FUND: ADVISOR CLASS PROSPECTUS DATED MARCH 1, 1999
<PAGE> 633
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
INTRODUCTION................................................ 4
GENERAL INFORMATION ABOUT THE FUNDS......................... 4
The Trust and Its Shares.................................. 4
INVESTMENT STRATEGIES AND RISKS............................. 5
Investment Objectives..................................... 5
Selection of Investments and Asset Allocation............. 7
Investments in Other Investment Companies................. 8
When-Issued and Forward Commitment Securities............. 9
Depositary Receipts....................................... 9
Warrants or Rights........................................ 9
Lending of Portfolio Securities........................... 10
Commercial Bank Obligations............................... 10
Repurchase Agreements..................................... 10
Borrowing, Reverse Repurchase Agreements and "Roll"
Transactions........................................... 11
Short Sales............................................... 11
Temporary Defensive Strategies............................ 12
Samurai and Yankee Bonds.................................. 12
Debt Conversions.......................................... 12
Premium Securities........................................ 13
Indexed Debt Securities................................... 13
Structured Investments.................................... 14
Stripped Income Securities................................ 14
Floating and Variable Rate Income Securities.............. 14
Zero Coupon Securities.................................... 14
Indexed Commercial Paper.................................. 15
Other Indexed Securities.................................. 15
Swaps, Caps, Floors and Collars........................... 15
Loan Participations and Assignments....................... 15
OPTIONS, FUTURES AND CURRENCY STRATEGIES.................... 16
Special Risks of Options, Futures and Currency
Strategies............................................. 16
Writing Call Options...................................... 17
Writing Put Options....................................... 18
Purchasing Put Options.................................... 18
Purchasing Call Options................................... 19
Index Options............................................. 20
Interest Rate, Currency and Stock Index Futures
Contracts.............................................. 21
Options on Futures Contracts.............................. 22
Limitations on Use of Futures, Options on Futures and
Certain Options on Currencies.......................... 23
Forward Contracts......................................... 23
Foreign Currency Strategies -- Special Considerations..... 24
Cover..................................................... 24
RISK FACTORS................................................ 25
General................................................... 25
Non-Diversified Classifications........................... 25
Illiquid Securities....................................... 25
Debt Securities........................................... 26
Loan Participations and Assignments....................... 27
Foreign Securities........................................ 27
</TABLE>
2
<PAGE> 634
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
INVESTMENT LIMITATIONS...................................... 34
Developing Markets Fund................................... 34
[Emerging Markets Fund.................................... 35]
Latin American Fund....................................... 36
EXECUTION OF PORTFOLIO TRANSACTIONS......................... 38
Portfolio Trading and Turnover............................ 39
MANAGEMENT.................................................. 40
Trustees and Executive Officers........................... 40
Investment Management and Administration Services......... 42
Distribution Services..................................... 44
Expenses of the Funds..................................... 44
NET ASSET VALUE DETERMINATION............................... 44
HOW TO PURCHASE AND REDEEM SHARES........................... 45
Backup Withholding........................................ 45
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS.................... 47
General................................................... 47
Foreign Taxes............................................. 47
Passive Foreign Investment Companies...................... 48
Non-U.S. Shareholders..................................... 48
Options, Futures and Foreign Currency Transactions........ 48
SHAREHOLDER INFORMATION..................................... 49
[Timing of Purchase Orders................................ 49]
[Share Certificates....................................... 49]
[Special Plans............................................ 49]
Terms and Conditions of Exchanges......................... 50
[Exchanges by Mail........................................ 51]
[Exchanges by Telephone................................... 51]
[Redemptions by Mail...................................... 52]
[Redemptions by Telephone................................. 52]
[Timing and Pricing of Redemption Orders.................. 52]
Signature Guarantees...................................... 53
Dividends and Distributions............................... 53
[Minimum Account Balance.................................. 54]
MISCELLANEOUS INFORMATION................................... 54
Changes for Certain Account Information................... 54
Custodian and Transfer Agent.............................. 54
Independent Accountants................................... 54
Legal Matters............................................. 55
Shareholder Liability..................................... 55
[Name..................................................... 55]
Control Persons and Principal Holders of Securities....... 56
INVESTMENT RESULTS.......................................... 57
Total Return Quotations................................... 57
Other Information Regarding Standard Total and Cumulative
Total Returns for Developing Markets Fund.............. 58
Performance Information................................... 59
APPENDIX.................................................... 61
Description of Bond Ratings............................... 61
Description of Commercial Paper Ratings................... 62
Absence of Rating......................................... 62
FINANCIAL STATEMENTS........................................ FS
</TABLE>
3
<PAGE> 635
INTRODUCTION
This Statement of Additional Information relates to the Advisor Class shares
of AIM Developing Markets Fund ("Developing Markets Fund"), [AIM Emerging
Markets Fund ("Emerging Markets Fund"),] and AIM Latin American Growth Fund
("Latin American Fund") (each, a "Fund," and collectively, the "Funds").
Developing Markets Fund and Latin American Fund each is a non-diversified[, and
Emerging Markets Fund is a diversified,] series of AIM Investment Funds (the
"Trust"), a registered open-end management investment company organized as a
Delaware business trust. On October 31, 1997, the Developing Markets Fund, which
had no prior operating history, acquired the assets and assumed the liabilities
of G.T. Global Developing Markets Fund, Inc. (the "Predecessor Fund"), a
closed-end investment company.
A I M Advisors, Inc. ("AIM") serves as the investment manager of and
administrator for, and INVESCO Asset Management Ltd. (the "Sub-advisor") serves
as the investment sub-advisor and sub-administrator for the Funds.
The Trust is a series mutual fund. The rules and regulations of the Securities
and Exchange Commission (the "SEC") require all mutual funds to furnish
prospective investors certain information concerning the activities of the fund
being considered for investment. This information for Developing Markets Fund is
included in a separate Prospectus dated March 1, 1999, [for Emerging Markets
Fund is included in a separate Prospectus dated March 1, 1999] and for Latin
American Fund is included in a separate Prospectus dated March 1, 1999.
Additional copies of the Prospectuses and this Statement of Additional
Information may be obtained without charge by writing the principal distributor
of the Funds' shares, A I M Distributors, Inc. ("AIM Distributors"), P.O. Box
4739, Houston, TX 77210-4739 or by calling (800) 347-4246. Investors must
receive a Prospectus before they invest.
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
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 FUNDS
THE TRUST AND ITS SHARES
The Trust was organized as a Delaware business trust on May 7, 1998 and
previously operated under the name G.T. Investment Funds, Inc., which was
organized as a Maryland corporation on October 29, 1987 and later renamed AIM
Investment Funds, Inc. On September 8, 1998, the Trust acquired the assets of
and assumed the liabilities of AIM Investment Funds, Inc. The Trust was
reorganized on September 8, 1998 as a Delaware business trust, and is registered
with the SEC as a diversified open-end series management investment company. The
Trust currently consists of the following portfolios: AIM Developing Markets
Fund, [AIM Emerging Markets Fund,] AIM Global Consumer Products and Services
Fund, AIM Global Financial Services Fund, AIM Global Government Income Fund, AIM
Global Growth and Income Fund, AIM Global Healthcare Fund, AIM Global High
Income Fund, AIM Global Infrastructure Fund, AIM Global Resources Fund, AIM
Global Telecommunications Fund, AIM Latin American Growth Fund and AIM Strategic
Income Fund. Each of these funds has three separate classes: Class A, Class B,
Class C and Advisor Class shares. From time to time, the Trust may establish
other funds, each corresponding to a distinct investment portfolio and a
distinct series of the Trust's shares of beneficial interest. All historical
financial and other information contained in this Statement of Additional
Information for periods prior to September 8, 1998, is that of the series of
G.T. Investment Funds, Inc. (renamed AIM Investment Funds, Inc.).
The term "majority of the outstanding shares" of the Trust, a particular Fund
or a particular class of a Fund means, respectively, the vote of the lesser of
(a) 67% or more of the shares of the Trust, such Fund or such class present at a
meeting of the Trust's shareholders, if the holders of more than 50% of the
outstanding shares of the Trust, such Fund or such class are present or
represented by proxy, or (b) more than 50% of the outstanding shares of the
Trust, such Fund or such class.
Class A, Class B, Class C and Advisor Class shares of Developing Markets Fund
and Latin American Fund [and Class A, Class B and Advisor class shares of
Emerging Markets Fund] have equal rights and privileges. Each share of a
particular class is entitled to one vote, to participate equally in dividends
and distributions declared by the Trust's Board of Trustees with respect to the
class of such Fund and, upon liquidation of the Fund, to participate
proportionately in the net assets of the Fund allocable to such class remaining
after satisfaction of 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
4
<PAGE> 636
conversion and exchange rights as set forth in the Prospectus and this Statement
of Additional Information. Fractional shares have proportionately the same
rights, including voting rights, as are provided for a full share. Other than
the automatic conversion of Class B shares to Class A shares, there are no
conversion rights.
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 trustees may elect all of the members of the Board of
Trustees of the Trust. In such event, the remaining holders cannot elect any
trustees of the Trust.
On any matter submitted to a vote of shareholders, shares of each Fund will be
voted by each Fund's shareholders individually when the matter affects the
specific interest of a Fund only, such as approval of its investment management
arrangements. In addition, shares of a particular class of a Fund may vote on
matters affecting only that class. The shares of each Fund will be voted in the
aggregate on other matters, such as the election of Trustees and ratification of
the selection of the Trust's independent accountants.
Normally there will be no annual meeting of shareholders for any of the Funds
in any year, except as required under the 1940 Act. A Trustee may be removed at
any meeting of the shareholders of the Trust by a vote of the shareholders
owning at least two-thirds of the outstanding shares [of a Fund]. Any Trustee
may call a special meeting of shareholders for any purpose. Furthermore,
Trustees shall promptly call a meeting of shareholders solely for the purpose of
removing one or more Trustees when requested in writing to do so by shareholders
holding 10% of the Trust's outstanding shares.
Pursuant to the Trust's Agreement and Declaration of Trust, the Trust may
issue an unlimited number of shares of each Fund. Each share of a Fund
represents an interest in the Fund only, has a par value of $0.01 per share,
represents an equal proportionate interest in the Fund with other shares of the
Fund and is entitled to such dividends and distributions out of the income
earned and gain realized on the assets belonging to the Fund as may be declared
by the Board of Trustees. Each share of a Fund is equal in earnings, assets and
voting privileges except that each class normally has exclusive voting rights
with respect to its distribution plan and bears the expenses, if any, related to
the distribution of its shares. Shares of a Fund, when issued, are fully paid
and nonassessable.
INVESTMENT STRATEGIES AND RISKS
The following discussion of investment strategies and risks supplements the
discussion of investment objectives and risks set forth in the Prospectuses
under the headings "Investment Objectives and Strategies" and "Principal Risks
of Investing in the Fund."
INVESTMENT OBJECTIVES
The Funds' investment objectives may not be changed without the approval of a
majority of the Funds' outstanding voting securities.
Developing Markets Fund. The primary investment objective of Developing
Markets Fund is long-term capital appreciation. Its secondary investment
objective is income, to the extent consistent with seeking capital appreciation.
The Fund normally invests substantially all of its assets in issuers in the
developing (or "emerging") markets of Asia, Europe, Latin America and elsewhere.
A majority of Developing Markets Fund's assets normally are invested in emerging
market equity securities. The Developing Markets Fund may invest in the
following types of equity securities common stock, preferred stock, securities
convertible into common stock, American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs"), rights and warrants to acquire such securities and
substantially similar forms of equity with comparable risk characteristics.
Developing Markets Fund may also invest in emerging market debt securities that
will be selected based on their potential to provide a combination of capital
appreciation and current income. There can be no assurance Developing Markets
Fund will achieve its investment objectives.
For purposes of Developing Markets Fund's operations, emerging markets consist
of all countries determined by the Sub-advisor to have developing or emerging
economies and markets. These countries generally include every country in the
world except the United States, Canada, Japan, Australia, New Zealand and most
countries located in Western Europe.
[Emerging Markets Fund. The investment objective of Emerging Markets Fund is
long-term growth of capital. The Fund seeks this objective by investing, under
normal circumstances, at least 65% of its total assets in equity securities of
companies in emerging markets. The Fund does not consider the following
countries to be emerging markets: Australia, Austria, Belgium, Canada, Denmark,
England, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, New
Zealand, Norway, Spain, Sweden, Switzerland and United States. The Fund normally
may invest up to 35% of its assets in a combination of (i) debt securities of
government or corporate issuers in emerging markets; (ii) equity and debt
securities of issuers in developed countries, including the United States; (iii)
securities of issuers in emerging markets not included
5
<PAGE> 637
in the list of emerging markets set forth in the Fund's current Prospectus, if
investing therein becomes feasible and desirable subsequent to the date of the
Fund's current Prospectus; and (iv) cash and money market instruments.]
[Emerging Markets Fund invests in those emerging markets that the Sub-advisor
believes have strongly developing economies and in which the markets are
becoming more sophisticated. In selecting investments, the Sub-advisor seeks to
identify those countries and industries where economic and political factors,
including currency movements, are likely to produce above-average growth rates.
The Sub-advisor then invests in those companies in such countries and industries
that are best positioned and managed to take advantage of these economic and
political factors. Emerging Markets Fund ordinarily will be invested in the
securities of issuers in at least three different emerging markets. In
evaluating investments in securities of issuers in developed markets, the
Sub-advisor will consider, among other things, the business activities of the
issuer in emerging markets and the impact that developments in emerging markets
are likely to have on the issuer.]
[The Sub-advisor believes that the issuers of securities in emerging markets
often have sales and earnings growth rates that exceed those in developed
countries and that such growth rates may in turn be reflected in more rapid
share price appreciation. Accordingly, the Sub-advisor believes that Emerging
Markets Fund's policy of investing in equity securities of companies in emerging
markets may enable Emerging Markets Fund to achieve results superior to those
produced by mutual funds with similar objectives that invest solely in equity
securities of issuers domiciled in the United States and/or in other developed
markets.]
In determining what countries constitute emerging markets with respect to
Developing Market Fund [and Emerging Markets Fund], the Sub-advisor will
consider, among other things, data, analysis, and classification of countries
published or disseminated by the International Bank for Reconstruction and
Development (commonly known as the World Bank) and the International Finance
Corporation ("IFC").
The Developing Markets Fund [and Emerging Markets Fund] will consider
investments in the following emerging markets:
Algeria
Argentina
Bolivia
Botswana
Brazil
Bulgaria
Chile
China
Colombia
Costa Rica
Cyprus
Czech Republic
Dominican Republic
Ecuador
Egypt
El Salvador
Finland
Ghana
Greece
Hong Kong
Hungary
India
Indonesia
Israel
Ivory Coast
Jamaica
Jordan
Kazakhstan
Kenya
Lebanon
Malaysia
Mauritius
Morocco
Nicaragua
Nigeria
Oman
Pakistan
Panama
Paraguay
Peru
Philippines
Poland
Portugal
Republic of Slovakia
Russia
Singapore
Slovenia
South Africa
South Korea
Sri Lanka
Swaziland
Taiwan
Thailand
Turkey
Ukraine
Uruguay
Venezuela
Zambia
Zimbabwe
Although the Developing Markets Fund and Emerging Markets Fund consider each
of the above-listed countries eligible for investment, it will not be invested
in all such markets at all times. Moreover, investing in some of those markets
currently may not be desirable or feasible, due to the lack of adequate custody
arrangements for the Fund's assets, overly burdensome repatriation and similar
restrictions, the lack of organized and liquid securities markets, unacceptable
political risks or for other reasons.
As used in the Developing Markets Fund and Emerging Markets Fund Prospectuses
and this SAI, an issuer in an emerging market is an entity (1) for which the
principal securities trading market is an emerging market, as defined above, (2)
that (alone or on a consolidated basis) derives 50% or more of its total
revenues from business in emerging markets, provided that, in the Sub-advisor's
view, the value of such issuer's securities will tend to reflect emerging market
6
<PAGE> 638
developments to a greater extent than developments elsewhere, or (3) organized
under the laws of, or with a principal office in, an emerging market.
Latin American Fund. The investment objective of Latin American Fund is
capital appreciation. The Fund will normally invest at least 65% of its total
assets in securities of a broad range of Latin American issuers. Under current
market conditions, the Fund expects to invest primarily in equity and debt
securities issued by companies and governments in Mexico, Chile, Brazil and
Argentina. The Fund may invest in common stock, preferred stock, rights,
warrants and securities convertible into common stock, and other substantially
similar forms of equity securities with comparable risk characteristics, as well
as bonds, notes, debentures or other forms of indebtedness that may be developed
in the future. The receipt of income from debt securities owned by the fund is
incidental to its objective of capital appreciation. Though the Fund can
normally invest up to 35% of its total assets in U.S. securities, the Fund
reserves the right to be primarily invested in U.S. securities for temporary
defensive purposes or pending investment of the proceeds of the offering made
hereby.
Unless otherwise indicated, the Fund defines Latin America to include the
following countries: Argentina, the Bahamas, Barbados, Belize, Bolivia, Brazil,
Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, French
Guiana, Guatemala, Guyana, Haiti, Honduras, Jamaica, Mexico, the Netherlands
Antilles, Nicaragua, Panama, Paraguay, Peru, Suriname, Trinidad and Tobago,
Uruguay and Venezuela. Under current market conditions, Latin American Fund
expects to invest primarily in securities issued by companies and governments in
Mexico, Chile, Brazil and Argentina. Latin American Fund may invest more than
25% of its total assets in any of these four countries but does not expect to
invest more than 60% of its total assets in any one country.
Latin American Fund defines securities of Latin American issuers to include:
(a) securities of companies organized under the laws of, or having a principal
office located in, a Latin American country; (b) securities of companies that
derive 50% or more of their total revenues from business in Latin America,
provided that, in the Sub-advisor's view, the value of such issuers' securities
reflect Latin American developments to a greater extent than developments
elsewhere; (c) securities issued or guaranteed by the government of a country in
Latin America, its agencies or instrumentalities, or municipalities, or the
central bank of such country; (d) U.S. dollar-denominated securities or
securities denominated to a Latin American currency issued by companies to
finance operations in Latin America; and (e) securities of Latin American
issuers, as defined herein, in the form of depositary shares. For purposes of
the foregoing definition, the Fund's purchases of securities issued by companies
outside of Latin America to finance their Latin American operations will be
limited to securities, the performance of which is materially related to such
company's Latin American activities.
Certain sectors of the economies of certain Latin American countries are
closed to equity investments by foreigners. Further, due to the absence of
securities markets and publicly owned corporations and due to restrictions on
direct investment by foreign entities in certain Latin American countries, the
Fund may be able to invest in such countries solely or primarily through
governmentally approved investment vehicles or companies. In addition, the
portion of Latin American Fund's assets invested directly in Chile may be less
than the portion invested in other Latin American countries because, at present,
capital directly invested in Chile normally cannot be repatriated for at least
one year. As a result, Latin American Fund currently intends to limit most of
its Chilean investments to indirect investments through ADRs and established
Chilean investment companies, the shares of which are not subject to
repatriation restrictions.
SELECTION OF INVESTMENTS AND ASSET ALLOCATION
In determining the appropriate distribution of investments among various
countries and geographic regions for the Funds, the Sub-advisor ordinarily
considers the following factors: prospects for relative economic growth among
the different countries in which a Fund may invest; expected levels of
inflation; government policies influencing business conditions; the outlook for
currency relationships; and the range of the individual investment opportunities
available to international investors.
In analyzing companies for investment by each Fund, the Sub-advisor ordinarily
looks for one or more of the following characteristics: an above-average
earnings growth per share; high return on invested capital; healthy balance
sheet; sound financial and accounting policies and overall financial strength;
strong competitive advantages; effective research and product development and
marketing; efficient service; pricing flexibility; strength of management; and
general operating characteristics which will enable the companies to compete
successfully in their respective marketplaces. In allocating Latin American
Fund's assets between debt and equity securities, the Sub-advisor considers, in
addition to the factors listed in the Prospectus, changes in Latin American
governmental policy including regulation governing industry, trade, financial
markets, and foreign and domestic investment, as well as the substance and
likely development of government finances. In certain countries, governmental
restrictions and other limitations on investment may affect the maximum
percentage of equity ownership in any one company by the Funds. In addition, in
some instances only special classes of securities may
7
<PAGE> 639
be purchased by foreigners and the market prices, liquidity and rights with
respect to those securities may vary from shares owned by nationals.
Although the Funds value their assets daily in terms of U.S. dollars, the
Funds do not intend to convert their holdings of foreign currencies into U.S.
dollars on a daily basis. The Funds will do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference ("spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to the Funds at one rate, while offering a lesser rate of exchange should a Fund
desire to sell that currency to the dealer.
There may be times when, in the opinion of the Sub-advisor, prevailing market,
economic or political conditions warrant reducing the proportion of each Fund's
assets invested in equity securities and increasing the proportion held in cash
or short-term obligations denominated in U.S. dollars or other currencies. A
portion of each Fund's assets may be held in U.S. dollars or short-term
interest-bearing dollar-denominated securities to provide for ongoing expenses
and redemptions. The Latin American Fund may invest up to 35% of its total
assets in a combination of equity and debt securities of U.S. issues. In
evaluating investments in securities of U.S. issues, the Sub-advisor will
consider, among other factors, the issuer's Latin American business activities
and the impact that development in Latin America may have on the issuer's
operations and financial condition.
The Funds may be prohibited under the Investment Company Act of 1940, as
amended ("1940 Act"), from purchasing the securities of any foreign company
that, in its most recent fiscal year, derived more than 15% of its gross
revenues from securities-related activities ("securities-related companies"). In
a number of countries, including those in Latin America, commercial banks act as
securities broker/dealers, investment advisors and underwriters or otherwise
engage in securities-related activities, which may limit the Fund's ability to
hold securities issued by such banks. The Fund has obtained an exemption from
the SEC to permit it to invest in certain of these securities subject to certain
restrictions.
For investment purposes, an issuer is typically considered as located in a
particular country if it (a) is incorporated under the laws of or has its
principal office in that country, or (b) it normally derives 50% or more of its
total revenue from business in that country. However, these are not absolute
requirements, and certain companies incorporated in a particular country and
considered by the Sub-advisor to be located in that country may have substantial
off-shore operations or subsidiaries and/or export sales exceeding in size the
assets or sales in that country.
In selecting investments for Developing Markets Fund, the Sub-advisor seeks to
identify those countries and industries where economic and political factors,
including currency movements, are likely to produce above-average growth rates
over the long term. The Sub-advisor seeks those emerging markets that have
strongly developing economies and in which the markets are becoming more
sophisticated. The Sub-advisor then invests in those companies in such countries
and industries that it believes are best positioned and managed to take
advantage of these economic and political factors. The Sub-advisor believes that
the issuers of securities in emerging markets often have sales and earnings
growth rates that exceed those in developed countries and that such growth rates
may in turn be reflected in more rapid share price appreciation.
In allocating investments among the various Latin American countries for Latin
American Fund, the Sub-advisor looks principally at the stage of
industrialization, potential for productivity gains through economic
deregulation, the impact of financial liberalization and monetary conditions and
the political outlook in each country. In allocating assets between equity and
debt securities, the Sub-advisor will consider, among other factors: the level
and anticipated direction of interest rates; expected rates of economic growth
and corporate profits growth; changes in Latin American government policy
including regulation governing industry, trade, financial markets, and foreign
and domestic investment; substance and likely development of government
finances; and the condition of the balance of payments and changes in the terms
of trade. In evaluating investments in securities of U.S. issuers, the
Sub-advisor will consider, among other factors, the issuer's Latin American
business activities and the impact that development in Latin America may have on
the issuer's operations and financial condition.
INVESTMENTS IN OTHER INVESTMENT COMPANIES
Developing Markets Fund and Latin American Fund may be able to invest in
certain countries solely or primarily through governmentally authorized
investment vehicles or companies, some of which may be investment vehicles or
companies that are advised by the Sub-advisor or its affiliates. These
investments are subject to the limitations imposed by the 1940 Act, which these
limitations currently provide that, in general, each Fund may purchase shares of
a closed-end investment company unless (a) such a purchase would cause a Fund to
own in the aggregate more than 3% of the total outstanding voting stock of the
investment company or (b) such a purchase would cause a Fund to have more than
5% of its total assets invested in the investment company or more than 10% of
its total assets invested in an aggregate of all
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<PAGE> 640
such investment companies. Investment in other investment companies may also
involve the payment of substantial premiums above the value of such companies'
portfolio securities. The Funds do not intend to invest in other investment
companies unless, in the judgment of the Sub-advisor, the potential benefits of
such investments justify the payment of any applicable premiums. The return on
such securities will be reduced by operating expenses of such companies
including payments to the investment managers of those investment companies.
With respect to investments in Affiliated Funds, the Sub-advisor waives its
advisory fee to the extent that such fees are based on assets of a Fund invested
in Affiliated Funds.
Certain countries in which the Funds invest presently may be made only by
acquiring shares of other investment companies with local governmental approval
to invest in those countries. At such time as direct investment in those
countries is allowed, the Funds anticipate investing directly in those markets.
PRIVATIZATIONS
The governments in some emerging markets have been engaged in programs of
selling part or all of their stakes in government owned or controlled
enterprises ("privatizations"). The Sub-advisor believes that privatizations may
offer opportunities for significant capital appreciation and intends to invest
assets of each Fund in privatizations in appropriate circumstances. In certain
Latin American and emerging markets, the ability of foreign entities such as the
Fund to participate in privatizations may be limited by local law or the terms
on which the Funds may be permitted to participate may be less advantageous than
those afforded local investors. There can be no assurance that governments in
emerging markets will continue to sell companies currently owned or controlled
by them or that privatization programs will be successful.
WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES
Each Fund may purchase debt securities on a "when-issued" basis and may
purchase or sell such securities on a "forward commitment" basis in order to
hedge against anticipated changes in interest rates and prices. The price, which
is generally expressed in yield terms, is fixed at the time the commitment is
made, but delivery and payment for the securities take place at a later date.
When-issued securities and forward commitments may be sold prior to the
settlement date, but the Funds will purchase or sell when-issued securities and
forward commitments only with the intention of actually receiving or delivering
the securities, as the case may be. No income accrues on securities that have
been purchased pursuant to a forward commitment or on a when-issued basis prior
to delivery to the Fund. If a Fund disposes of the right to acquire a
when-issued security prior to its acquisition or disposes of its right to
deliver or receive against a forward commitment, it may incur a gain or loss. At
the time a Fund enters into a transaction on a when-issued or forward commitment
basis, the Fund will segregate cash or liquid securities equal to the value of
the when-issued or forward commitment securities with its custodian bank and
will mark to market daily such assets. There is a risk that the securities may
not be delivered and that the Fund may incur a loss.
DEPOSITARY RECEIPTS
Each Fund may hold equity securities of foreign issuers in the form of ADRs,
American Depositary Shares ("ADSs"), GDRs and European Depositary Receipts
("EDRs"), or other securities convertible into securities of eligible issuers.
These securities may not necessarily be denominated in the same currency as the
securities for which they may be exchanged. ADRs and ADSs typically are issued
by an American bank or trust company and evidence ownership of underlying
securities issued by a foreign corporation. EDRs, which are sometimes referred
to as Continental Depositary Receipts ("CDRs"), are issued in Europe typically
by foreign banks and trust companies and evidence ownership of either foreign or
domestic securities. GDRs are similar to EDRs and are designed for use in
several international financial markets. Generally, ADRs and ADSs in registered
form are designed for use in United States securities markets and EDRs in bearer
form are designed for use in European securities markets. For purposes of each
Fund's investment policies, a Fund's investments in ADRs, ADSs, GDRs and EDRs
will be deemed to be investments in the equity securities representing
securities of foreign issuers into which they may be converted.
ADR facilities may be established as either "unsponsored" or "sponsored."
While ADRs issued under these two types of facilities are in some respects
similar, there are distinctions between them relating to the rights and
obligations of ADR holders and the practices of market participants. A
depository may establish an unsponsored facility without participation by (or
even necessarily the acquiescence of) the issuer of the deposited securities,
although typically the depository requests a letter of non-objection from such
issuer prior to the establishment of the facility. Holders of unsponsored ADRs
generally bear all the costs of such facilities. The depository usually charges
fees upon the deposit and withdrawal of the deposited securities, the conversion
of dividends into U.S. dollars, the disposition of non-cash distributions, and
the performance of other services. The depository of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited securities or to pass-through voting
rights to ADR
9
<PAGE> 641
holders in respect of the deposited securities. Sponsored ADR facilities are
created in generally the same manner as unsponsored facilities, except that the
issuer of the deposited securities enters into a deposit agreement with the
depository. The deposit agreement sets out the rights and responsibilities of
the issuer, the depository and the ADR holders. With sponsored facilities, the
issuer of the deposited securities generally will bear some of the costs
relating to the facility (such as dividend payment fees of the depository),
although ADR holders continue to bear certain other costs (such as deposit and
withdrawal fees). Under the terms of most sponsored arrangements, depositories
agree to distribute notices of shareholder meetings and voting instructions, and
to provide shareholder communications and other information to the ADR holders
at the request of the issuer of the deposited securities. The Fund may invest in
both sponsored and unsponsored ADRs.
WARRANTS OR RIGHTS
Warrants or rights may be acquired by each Fund in connection with other
securities or separately and provide a Fund with the right to purchase at a
later date other securities of the issuer. Warrants are securities permitting,
but not obligating, their holder to subscribe for other securities or
commodities. Warrants do not carry with them the right to dividends or voting
rights with respect to the securities that they entitle their holder to
purchase, and they do not represent any rights in the assets of the issuer. As a
result, warrants may be considered more speculative than certain other types of
investments. In addition, the value of a warrant does not necessarily change
with the value of the underlying securities and a warrant ceases to have value
if it is not exercised prior to its expiration date.
LENDING OF PORTFOLIO SECURITIES
For the purpose of realizing additional income, the Funds may make secured
loans of portfolio securities amounting to not more than 30% of its total
assets. Securities loans are made to broker/dealers or institutional investors
pursuant to agreements requiring that the loans continuously be secured by
collateral consisting of cash, U.S. government securities or certain irrevocable
letters of credit (or such other collateral as permitted by a Fund's investment
program and regulatory agencies and as approved by the Board) at least equal at
all times to the value of the securities lent plus any accrued interest, "marked
to market" on a daily basis. The Funds may pay reasonable administrative and
custodial fees in connection with loans of its securities. While the securities
loan is outstanding with respect to a Fund, the Fund will continue to receive
the equivalent of the interest or dividends paid by the issuer on the
securities, as well as interest on the investment of the collateral or a fee
from the borrower. The Fund will have a right to call each loan and obtain the
securities within the stated settlement period. The Fund will not have the right
to vote equity securities while they are lent, but it may call in a loan in
anticipation of any important vote. Loans will be made only to firms deemed by
the Sub-advisor to be of good standing and will not be made unless, in the
judgment of the Sub-advisor, the consideration to be earned from such loans
would justify the risk. The risks in lending portfolio securities, as with other
extensions of secured credit, consist of possible delays in receiving additional
collateral or in recovery of the securities and possible loss of rights in the
collateral if the borrower fails financially.
COMMERCIAL BANK OBLIGATIONS
For the purposes of each Fund's investment policies with respect to bank
obligations, obligations of foreign branches of U.S. banks and of foreign banks
are obligations of the issuing bank and may be general obligations of the parent
bank. Such obligations, however, may be limited by the terms of a specific
obligation and by government regulation. As with investment in non-U.S.
securities in general, investments in the obligations of foreign branches of
U.S. banks and of foreign banks may subject a Fund to investment risks that are
different in some respects from those of investments in obligations of domestic
issuers. Although a Fund typically will acquire obligations issued and supported
by the credit of U.S. or foreign banks having total assets at the time of
purchase in excess of $1 billion, this $1 billion figure is not an investment
policy or restriction of any Fund. For the purposes of calculation with respect
to the $1 billion figure, the assets of a bank will be deemed to include the
assets of its U.S. and non-U.S. branches.
REPURCHASE AGREEMENTS
A repurchase agreement is a transaction in which a Fund purchases a security
from a bank or recognized securities dealer and simultaneously commits to resell
that security to the bank or dealer at an agreed upon price, date, and market
rate of interest unrelated to the coupon rate or maturity of the purchased
security. Although repurchase agreements carry certain risks not associated with
direct investments in securities, including possible decline in the market value
of the underlying securities and delays and costs to a Fund if the other party
to the repurchase agreement becomes bankrupt, the Funds intend to enter into
repurchase agreements only with banks and dealers believed by the Sub-advisor to
present
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<PAGE> 642
minimum credit risks in accordance with guidelines established by the Trust's
Board of Trustees. The Sub-advisor will review and monitor the creditworthiness
of such institutions under the Board's general supervision.
The Funds will invest only in repurchase agreements collateralized at all
times in an amount at least equal to the repurchase price plus accrued interest.
To the extent that the proceeds from any sale of such collateral upon a default
in the obligation to repurchase were less than the repurchase price, a Fund
would suffer a loss. If the financial institution which is party to the
repurchase agreement petitions for bankruptcy or otherwise becomes subject to
bankruptcy or other liquidation proceedings, there may be restrictions on a
Fund's ability to sell the collateral and the Fund could suffer a loss. However,
with respect to financial institutions whose bankruptcy or liquidation
proceedings are subject to the U.S. Bankruptcy Code, each Fund intends to comply
with provisions under the U.S. Bankruptcy Code that would allow it immediately
to resell the collateral. There is no limitation on the amount of a Fund's
assets that may be subject to repurchase agreements at any given time. The Funds
will not enter into a repurchase agreement with a maturity of more than seven
days if, as a result, more than 15% (for Emerging Markets Fund and Developing
Markets Fund) or 10% (for Latin American Fund) of the value of its net assets
would be invested in such repurchase agreements and other illiquid investments.
BORROWING, REVERSE REPURCHASE AGREEMENTS AND "ROLL" TRANSACTIONS
No Fund's borrowings will exceed 33 1/3% of the Fund's total assets, i.e.,
each Fund's total assets at all times will equal at least 300% of the amount of
outstanding borrowings. If market fluctuations in the value of a Fund's
portfolio holdings or other factors cause the ratio of the Fund's total assets
to outstanding borrowings to fall below 300%, within three days (excluding
Sundays and holidays) of such event the Fund may be required to sell portfolio
securities to restore the 300% asset coverage, even though from an investment
standpoint such sales might be disadvantageous. Each Fund also may borrow up to
5% of its total assets for temporary or emergency purposes other than to meet
redemptions. Any borrowing by a Fund may cause greater fluctuation in the value
of its shares than would be the case if the Fund did not borrow.
The Funds' fundamental investment limitations permit them to borrow money for
leveraging purposes. Developing Markets Fund, however, currently is prohibited,
pursuant to a non-fundamental investment policy, from borrowing money in order
to purchase securities. Latin American Fund and Developing Markets Fund may
borrow only in order to meet redemption requests. In addition, each Fund
currently is prohibited, pursuant to a non-fundamental investment policy, from
purchasing securities during times when outstanding borrowings represent more
than 5% of its assets. Nevertheless, this policy may be changed in the future by
a vote of a majority of the Trust's Board of Trustees. If a Fund employs
leverage in the future, it would be subject to certain additional risks. Use of
leverage creates an opportunity for greater growth of capital but would
exaggerate any increases or decreases in the Fund's net asset value. When the
income and gains on securities purchased with the proceeds of borrowings exceed
the costs of such borrowings, the Fund's earnings or net asset value will
increase faster than otherwise would be the case; conversely, if such income and
gains fail to exceed such costs, the Fund's earnings or net asset value would
decline faster than would otherwise be the case.
Each Fund may enter into reverse repurchase agreements. A reverse repurchase
agreement is a borrowing transaction in which a Fund transfers possession of a
security to another party, such as a bank or broker/dealer in return for cash,
and agrees to repurchase the security in the future at an agreed upon price,
which includes an interest component. Emerging Markets Fund also may engage in
"roll" borrowing transactions which involve the Fund's sale of Government
National Mortgage Association certificates or other securities together with a
commitment (for which the Fund may receive a fee) to purchase similar, but not
identical, securities at a future date. Each Fund will segregate with a
custodian liquid assets in an amount sufficient to cover its obligations [under
"roll" transactions (for Emerging Markets Fund)] and reverse repurchase
agreements with broker/dealers. No segregation is required for reverse
repurchase agreements with banks.
SHORT SALES
The Fund may make short sales of securities, although it has no current
intention of doing so. A short sale is a transaction in which the Fund sells a
security in anticipation that the market price of that security will decline.
The Fund may make short sales (i) as a form of hedging to offset potential
declines in long positions in securities it owns, or anticipates acquiring, and
(ii) in order to maintain portfolio flexibility.
When a Fund makes a short sale of a security it does not own, it must borrow
the security sold short and deliver it to the broker-dealer or other
intermediary through which it made the short sale. The Fund may have to pay a
fee to borrow particular securities and will often be obligated to pay over any
payments received on such borrowed securities.
A Fund's obligation to replace the borrowed security when the borrowing is
called or expires will be secured by collateral deposited with the intermediary.
The Fund will also be required to deposit collateral with its custodian to the
extent, if any, necessary so that the value of both collateral deposits in the
aggregate is at all times equal to at least 100%
11
<PAGE> 643
of the current market value of the security sold short. Depending on
arrangements made with the intermediary from which it borrowed the security
regarding payment of any amounts received by the Fund on such security, the Fund
may not receive any payments (including interest) on its collateral deposited
with such intermediary.
If the price of the security sold short increases between the time of the
short sale and the time the Fund replaces the borrowed security, the Fund will
incur a loss; conversely, if the price declines, the Fund will realize a gain.
Any gain will be decreased, and any loss increased, by the transaction costs
associated with the transaction. Although the Fund's gain is limited by the
price at which it sold the security short, its potential loss is theoretically
unlimited.
Neither Emerging Markets Fund nor Latin American Fund will make a short sale
if, after giving effect to such sale, the market value of the securities sold
short exceeds 25% of the value of its total assets or the Fund's aggregate short
sales of the securities of any one issuer exceed the lesser of 2% of the Fund's
net assets or 2% of the securities of any class of the issuer. Moreover, these
Funds may engage in short sales only with respect to securities listed on a
national securities exchange. These Funds may make short sales "against the box"
without respect to such limitations. In this type of short sale, at the time of
the sale the Fund owns the security it has sold short or has the immediate and
unconditional right to acquire at no additional cost the identical security.
Developing Markets Fund may only make short sales "against the box." The Fund
might make a short sale "against the box" in order to hedge against market risks
when the Sub-advisor believes that the price of a security may decline, causing
a decline in the value of a security owned by the Fund or a security convertible
into or exchangeable for such security. In such case, any future losses in the
Fund's long position should be reduced by a gain in the short position.
Conversely, any gain in the long position should be reduced by a loss in the
short position. The extent to which such gains or losses in the long position
are reduced will depend upon the amount of the securities sold short relative to
the amount of the securities the Fund owns, either directly or indirectly, and,
in the case where the Fund owns convertible securities, changes in the
investment values or conversion premiums of such securities. There will be
certain additional transaction costs associated with short sales "against the
box," but the Fund will endeavor to offset these costs with income from the
investment of the cash proceeds of short sales.
TEMPORARY DEFENSIVE STRATEGIES
In the interest of preserving shareholders' capital, the Sub-advisor may
employ a temporary defensive investment strategy if it determines such a
strategy to be warranted due to market, economic, or political conditions. Under
a defensive strategy, each Fund temporarily may invest up to 100% of its assets
in cash (U.S. dollars, foreign currencies, multinational currency units such as
Euros) and/or high quality debt securities or money market instruments of U.S.
or foreign issuers. In addition, for temporary defensive purposes, most or all
of its investments may be made in the United States and denominated in U.S.
dollars. To the extent a Fund employs a temporary defensive strategy, it will
not be invested so as to achieve directly its investment objective. In addition,
pending investment of proceeds from new sales of Fund shares or to meet ordinary
daily cash needs, each Fund temporarily may hold cash (U.S. dollars, foreign
currencies or multinational currency units) and may invest any portion of its
assets in money market instruments.
In addition, the Latin American Fund may be primarily invested in U.S.
securities for temporary defensive purposes or pending investment of the
proceeds of sales of new Fund shares. The Latin American Fund may assume a
temporary defensive position when, due to political, market or other factors
broadly affecting Latin American markets, the Sub-advisor determines that
opportunities for capital appreciation in those markets would be significantly
limited over an extended period or that investing in those markets presents
undue risk of loss.
The Funds may invest in the following types of money market instruments (i.e.,
debt instruments with less than 12 months remaining until maturity) denominated
in U.S. dollars or other currencies (in the case of Latin American Fund, the
currency of any Latin American country): (a) obligations issued or guaranteed by
the U.S. or foreign governments (in the case of Latin American Fund, the
government of any Latin American country), their agencies, instrumentalities or
municipalities; (b) obligations of international organizations designed or
supported by multiple foreign governmental entities to promote economic
reconstruction or development; (c) finance company obligations, corporate
commercial paper and other short-term commercial obligations; (d) bank
obligations (including certificates of deposit, time deposits, demand deposits
and bankers' acceptances); (e) repurchase agreements with respect to the
foregoing; and (f) other substantially similar short-term debt securities with
comparable characteristics.
The Funds may invest in commercial paper rated as low as A-3 by Standard &
Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P") or P-3 by Moody's
Investors Service, Inc. ("Moody's") or, if not rated, determined by the Manager
to be of comparable quality. Obligations rated A-3 and P-3 are considered by S&P
and Moody's, respectively, to have an acceptable capacity for timely repayment.
However, these securities may be more vulnerable to adverse effects of changes
in circumstances than obligations carrying higher designations.
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<PAGE> 644
SAMURAI AND YANKEE BONDS
Subject to its fundamental investment restrictions, Developing Markets Fund
[and Emerging Markets Fund] may invest in yen-denominated bonds sold in Japan by
non-Japanese issuers ("Samurai bonds"), and may invest in dollar-denominated
bonds sold in the United States by non-U.S. issuers ("Yankee bonds"). As
compared with bonds issued in their countries of domicile, such bond issues
normally carry a higher interest rate but are less actively traded. It is the
policy of [each of these Funds] to invest in Samurai or Yankee bond issues only
after taking into account considerations of quality and liquidity, as well as
yield. [In the case of Emerging Markets Fund, these bonds would be issued by
governments which are members of the Organization for Economic Cooperation and
Development or have AAA ratings.]
DEBT CONVERSIONS
Several Latin American countries have adopted debt conversion programs,
pursuant to which investors may use external debt of a country, directly or
indirectly, to make investments in local companies. The terms of the various
programs vary from country to country, although each program includes
significant restrictions on the application of the proceeds received in the
conversion and on the remittance of profits on the investment and of the
invested capital. Latin American Fund intends to acquire Sovereign Debt, as
defined in the Prospectus, to hold and trade in appropriate circumstances as
described in the Prospectus, as well as to participate in Latin American debt
conversion programs. The Sub-advisor will evaluate opportunities to enter into
debt conversion transactions as they arise but does not currently intend to
invest more than 5% of the Fund's assets in such programs.
DEBT SECURITIES
Developing Markets Fund and Latin American Fund each may invest up to 50% of
its total assets in the following types of emerging market debt securities: (1)
debt securities issued or guaranteed by governments, their agencies,
instrumentalities or political subdivisions, or by government owned, controlled
or sponsored entities, including central banks (collectively, "Sovereign Debt"),
including Brady Bonds; (2) interests in issuers organized and operated for the
purpose of restructuring the investment characteristics of Sovereign Debt; (3)
debt securities issued by banks and other business entities; and (4) debt
securities denominated in or indexed to the currencies of emerging markets. Debt
securities held by those Funds may take the form of bonds, notes, bills,
debentures, bank debt obligations, short-term paper, loan participations,
assignments and interests issued by entities organized and operated for the
purpose of restructuring the investment characteristics of any of the foregoing.
There is no requirement with respect to the maturity or duration of debt
securities in which either Fund may invest.
[Emerging Markets Fund may invest in debt securities of governmental and
corporate issuers in emerging markets. Emerging market debt securities often are
rated below investment grade or not rated by U.S. rating agencies. Emerging
Markets Fund may invest up to 20% of its total assets in debt securities rated
below investment grade. Investment in below investment grade debt securities
involves a high degree of risk and can be speculative. If the rating of a debt
security held by the Emerging Markets Fund drops below a minimum rating
considered acceptable by the Sub-advisor, the Fund will dispose of any such
security as soon as practicable and consistent with the best interests of the
Fund and its shareholders. These debt securities are the equivalent of high
yield, high risk bonds, commonly known as "junk bonds." Debt securities in which
the Fund will invest may not be rated. If rated, it is expected that such
ratings will be below investment grade. See "Risk Factors -- Risks Associated
with Debt Securities" and "Risks Associated with Below Investment Grade Debt
Securities."]
Developing Markets Fund and Latin American Fund may invest in "Brady Bonds,"
which are debt restructurings that provide for the exchange of cash and loans
for newly issued bonds. Brady Bonds have been issued by the countries of
Albania, Argentina, Brazil, Bulgaria, Costa Rica, Dominican Republic, Ecuador,
Ivory Coast, Jordan, Mexico, Nigeria, Panama, Peru, Philippines, Poland,
Uruguay, Venezuela and Vietnam, and are expected to be issued by other emerging
market countries. As of the date of this Prospectus, the Fund is not aware of
the occurrence of any payment defaults on Brady Bonds. Investors should
recognize, however, that Brady Bonds do not have a long payment history. In
addition, Brady Bonds are often rated below investment grade.
Developing Markets Fund and Latin American Fund may invest in either
collateralized or uncollateralized Brady Bonds. U.S. dollar-denominated
collateralized Brady Bonds, which may be fixed rate par bonds or floating rate
discount bonds, are collateralized in full as to principal by U.S. Treasury zero
coupon bonds having the same maturity as the bonds. Interest payments on such
bonds generally are collateralized by cash or securities in an amount that, in
the case of fixed rate bonds, is equal to at least one year of rolling interest
payments or, in the case of floating rate bonds, initially is equal to at least
one year's rolling interest payments based on the applicable interest rate at
the time of issuance and is adjusted at regular intervals thereafter.
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<PAGE> 645
Capital appreciation in debt securities may arise as a result of a favorable
change in relative foreign exchange rates, in relative interest rate levels
and/or in the creditworthiness of issuers. The receipt of income from debt
securities owned by a Fund is incidental to its objective of capital
appreciation.
PREMIUM SECURITIES
Developing Markets Fund may invest in income securities bearing coupon rates
higher than prevailing market rates. Such "premium" securities are typically
purchased at prices greater than the principal amounts payable on maturity. The
Fund will not amortize the premium paid for such securities in calculating its
net investment income. As a result, in such cases the purchase of such
securities provides the Fund a higher level of investment income distributable
to shareholders on a current basis than if the Fund purchased securities bearing
current market rates of interest. If securities purchased by the Fund at a
premium are called or sold prior to maturity, the Fund will realize a loss to
the extent the call or sale price is less than the purchase price. Additionally,
the Fund will realize a loss if it holds such securities to maturity.
INDEXED DEBT SECURITIES
Developing Markets Fund may invest in debt securities issued by banks and
other business entities not located in developing market countries that are
indexed to certain specific foreign currency exchange rates, interest rates or
other reference rates. The terms of such securities provide that their principal
amount is adjusted upwards or downwards (but ordinarily not below zero) at
maturity to reflect changes in the exchange rate between two currencies (or
other rates) while the obligations are outstanding. While such securities offer
the potential for an attractive rate of return, they also entail the risk of
loss of principal. New forms of such securities continue to be developed. The
Fund may invest in such securities to the extent consistent with its investment
objectives.
STRUCTURED INVESTMENTS
Developing Markets Fund may invest a portion of its assets in interests in
entities organized and operated solely for the purpose of restructuring the
investment characteristics of Sovereign Debt. This type of restructuring
involves the deposit with or purchase by an entity, such as a corporation or
trust, of specified instruments (such as commercial bank loans or Brady Bonds)
and the issuance by that entity of one or more classes of securities
("Structured Investments") backed by, or representing interests in, the
underlying instruments. The cash flow on the underlying instruments may be
apportioned among the newly issued Structured Investments to create securities
with different investment characteristics such as varying maturities, payment
priorities and interest rate provisions, and the extent of the payments made
with respect to Structured Investments is dependent on the extent of the cash
flow on the underlying instruments. Because Structured Investments of the type
in which the Fund anticipates it will invest typically involve no credit
enhancement, their credit risk generally will be equivalent to that of the
underlying instruments.
Developing Markets Fund is permitted to invest in a class of Structured
Investments that is either subordinated or not subordinated to the right of
payment of another class. Subordinated Structured Investments typically have
higher yields and present greater risks than unsubordinated Structured
Investments.
Certain issuers of Structured Investments may be deemed to be "investment
companies" as defined in the 1940 Act. As a result, Developing Markets Fund's
investment in these Structured Investments may be limited by the restrictions
contained in the 1940 Act described above under "Investment Strategies and
Risks -- Investments in Other Investment Companies." Structured Investments are
typically sold in private placement transactions, and there currently is no
active trading market for Structured Investments.
STRIPPED INCOME SECURITIES
Developing Markets Fund may invest a portion of its assets in stripped income
securities, which are obligations representing an interest in all or a portion
of the income or principal components of an underlying or related security, a
pool of securities or other assets. In the most extreme case, one class will
receive all of the interest (the "interest only class" or the "IO class"), while
the other class will receive all of the principal (the "principal-only class" or
the "PO class"). The market values of stripped income securities tend to be more
volatile in response to changes in interest rates than are conventional income
securities.
FLOATING AND VARIABLE RATE INCOME SECURITIES
Developing Markets Fund may invest a portion of its assets in floating or
variable rate income securities. Income securities may provide for floating or
variable rate interest or dividend payments. The floating or variable rate may
be determined by reference to a known lending rate, such as a bank's prime rate,
a certificate of deposit rate or the London Inter Bank Offered Rate (LIBOR).
Alternatively, the rate may be determined through an auction or remarketing
process.
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The rate also may be indexed to changes in the values of interest rate or
securities indexes, currency exchange rates or other commodities. The amount by
which the rate paid on an income security may increase or decrease may be
subject to periodic or lifetime caps. Floating and variable rate income
securities include securities whose rates vary inversely with changes in market
rates of interest. Such securities may also pay a rate of interest determined by
applying a multiple to the variable rate. The extent of increases and decreases
in the value of securities whose rates vary inversely with changes in market
rates of interest generally will be larger than comparable changes in the value
of an equal principal amount of a fixed rate security having similar credit
quality, redemption provisions and maturity.
ZERO COUPON SECURITIES
Developing Markets Fund may invest in certain zero coupon securities that are
"stripped" U.S. Treasury notes and bonds. Developing Markets Fund also may
invest in zero coupon and other deep discount securities issued by foreign
governments and domestic and foreign corporations, including certain Brady Bonds
and other foreign debt, and in payment-in-kind securities. Zero coupon
securities pay no interest to holders prior to maturity, and payment-in-kind
securities pay "interest" in the form of additional securities. However, a
portion of the original issue discount on zero coupon securities and the
interest on payment-in-kind securities will be included in Developing Markets
Fund's income. Accordingly, for Developing Markets Fund to continue to qualify
for tax treatment as a regulated investment company and to avoid a certain
excise tax (see "Dividends, Distributions and Tax Matters"), it may be required
to distribute an amount that is greater than the total amount of cash it
actually receives. These distributions may be made from Developing Markets
Fund's cash assets or, if necessary, from the proceeds of sales of portfolio
securities. Developing Markets Fund will not be able to purchase additional
income-producing securities with cash used to make such distributions, and its
current income ultimately may be reduced as a result. Zero coupon and
payment-in-kind securities usually trade at a deep discount from their face or
par value and will be subject to greater fluctuations of market value in
response to changing interest rates than debt obligations of comparable
maturities that make current distributions of interest in cash.
INDEXED COMMERCIAL PAPER
Developing Markets Fund may invest without limitation in commercial paper that
is indexed to certain specific foreign currency exchange rates. The terms of
such commercial paper provide that its principal amount is adjusted upwards or
downwards (but not below zero) at maturity to reflect changes in the exchange
rate between two currencies while the obligation is outstanding. Developing
Markets Fund will purchase such commercial paper with the currency in which it
is denominated and, at maturity, will receive interest and principal payments
thereon in that currency, but the amount of principal payable by the issuer at
maturity will change in proportion to the change (if any) in the exchange rate
between the two specified currencies between the date the instrument is issued
and the date the instrument matures. While such commercial paper entails the
risk of loss of principal, the potential for realizing gains as a result of
changes in foreign currency exchange rates enables Developing Markets Fund to
hedge against a decline in the U.S. dollar value of investments denominated in
foreign currencies while seeking to provide an attractive money market rate of
return. Developing Markets Fund will not purchase such commercial paper for
speculation.
OTHER INDEXED SECURITIES
Developing Markets Fund may invest in certain other indexed securities, which
are securities whose prices are indexed to the prices of other securities,
securities indices, currencies, precious metals or other commodities or other
financial indicators. Indexed securities typically, but not always, are debt
securities or deposits whose value at maturity or coupon rate is determined by
reference to a specific instrument or statistic. The performance of indexed
securities depends to a great extent on the performance of the security,
currency or other instrument to which they are indexed and also may be
influenced by interest rate changes in the United States and abroad. At the same
time, indexed securities are subject to the credit risks associated with the
issuer of the security, and their values may decline substantially if the
issuer's creditworthiness deteriorates. Indexed securities may be more volatile
than the underlying instruments. New forms of indexed securities continue to be
developed. Developing Markets Fund may invest in such securities to the extent
consistent with its investment objectives.
SWAPS, CAPS, FLOORS AND COLLARS
Developing Markets Fund may enter into interest rate, currency and index swaps
and may purchase or sell related caps, floors and collars and other derivative
instruments. The Fund expects to enter into these transactions primarily to
preserve a return or spread on a particular investment or portion of its
portfolio, to protect against currency fluctuations, as a technique for managing
the portfolio's duration (i.e., the price sensitivity to changes in interest
rates) or to protect against any increase in the price of securities the Fund
anticipates purchasing at a later date. The Fund intends to use
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these transactions as hedges and will not sell interest rate caps, floors or
collars if it does not own securities or other instruments providing an income
stream roughly equivalent to what the Fund may be obligated to pay.
Interest rate swaps involve the exchange by Developing Markets Fund with
another party of their respective commitments to pay or receive interest (for
example, an exchange of floating rate payments for fixed rate payments) with
respect to a notional amount of principal. A currency swap is an agreement to
exchange cash flows on a notional amount based on changes in the values of the
reference indices.
The purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling the cap to the extent that a specified
index exceeds a predetermined interest rate. The purchase of an interest rate
floor entitles the purchaser to receive payments on a notional principal amount
from the party selling the floor to the extent that a specified index falls
below a predetermined interest rate or amount. A collar is a combination of a
cap and a floor that preserves a certain return within a predetermined range of
interest rates or values.
LOAN PARTICIPATIONS AND ASSIGNMENTS
Developing Markets Fund may invest in fixed and floating rate loans ("Loans")
arranged through private negotiations between a foreign entity and one or more
financial institutions ("Lenders"). The majority of Developing Markets Fund's
investments in Loans in emerging markets is expected to be in the form of
participations in Loans ("Participations") and assignments of portions of Loans
from third parties ("Assignments"). Participations typically will result in
Developing Markets Fund having a contractual relationship only with the Lender,
not with the borrower. Developing Markets Fund will have the right to receive
payments of principal, interest and any fees to which it is entitled only from
the Lender selling the Participation and only upon receipt by the Lender of the
payments from the borrower. In connection with purchasing Participations,
Developing Markets Fund generally will have no right to enforce compliance by
the borrower with the terms of the loan agreement relating to the loan, nor any
rights of set-off against the borrower, and Developing Markets Fund may not
directly benefit from any collateral supporting the Loan in which it has
purchased the Participation. As a result, Developing Markets Fund will assume
the credit risk of both the borrower and the Lender that is selling the
Participation.
In the event of the insolvency of the Lender selling a Participation,
Developing Markets Fund may be treated as a general creditor of the Lender and
may not benefit from any set-off between the Lender and the borrower. Developing
Markets Fund will acquire Participations only if the Lender interpositioned
between Developing Markets Fund and the borrower is determined by the
Sub-advisor to be creditworthy. When the Fund purchases Assignments from
Lenders, the Developing Markets Fund will acquire direct rights against the
borrower on the Loan. However, because Assignments are arranged through private
negotiations between potential assignees and assignors, the rights and
obligations acquired by Developing Markets Fund as the purchaser of an
Assignment may differ from, and be more limited than, those held by the
assigning Lender.
OPTIONS, FUTURES AND CURRENCY STRATEGIES
SPECIAL RISKS OF OPTIONS, FUTURES AND CURRENCY STRATEGIES
To attempt to increase return, Developing Markets Fund may write call options
on securities. This strategy will be employed only when, in the opinion of the
Sub-advisor, the size of the premium Developing Markets Fund receives for
writing the option is adequate to compensate it against the risk that
appreciation in the underlying security may not be fully realized if the option
is exercised. Developing Markets Fund also is authorized to write put options to
attempt to enhance return, although it does not currently intend to do so.
Each Fund may use forward currency contracts, futures contracts, options on
securities, options on currencies, options on indices and options on futures
contracts to attempt to hedge against the overall level of investment and
currency risk (i.e. fluctuations in exchange rates) normally associated with its
investments. These instruments are often referred to as "derivatives," which may
be defined as financial instruments whose performance is derived, at least in
part, from the performance of another asset (such as a security, currency or an
index of securities). Each Fund may enter into such instruments up to the full
value of its portfolio assets.
To attempt to hedge against adverse movements in exchange rates between
currencies, the Fund may enter into forward currency contracts for the purchase
or sale of a specified currency at a specified future date. Such contracts may
involve the purchase or sale of a foreign currency against the U.S. dollar or
may involve two foreign currencies. The Fund may enter into forward currency
contracts either with respect to specific transactions or with respect to its
portfolio positions.
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The Fund also may purchase and sell put and call options on currencies, futures
contracts on currencies and options on such futures contracts to hedge its
portfolio against movements in exchange rates. Only a limited market, if any,
currently exists for options and futures transactions relating to currencies of
most emerging markets including Latin American Markets, to securities
denominated in such currencies or to securities of issuers domiciled or
principally engaged in business in such emerging markets. To the extent that
such a market does not exist, the Sub-advisor may not be able to effectively
hedge its investment in such markets.
Each Fund may also purchase and sell put and call options on equity and debt
securities to hedge against the risk of fluctuations in the prices of securities
held by a Fund or that the Sub-advisor intends to include in a Fund's portfolio.
Each Fund may also purchase and sell put and call options on stock indices to
hedge against overall fluctuations in the securities markets or in a specific
market sector.
Further, each Fund may sell stock index futures contracts and may purchase put
options or write call options on such futures contracts to protect against a
general stock market decline or a decline in a specific market sector that could
adversely affect a Fund's portfolio. Each Fund may also purchase stock index
futures contracts and purchase call options or write put options on such
contracts to hedge against a general stock market or market sector advance and
thereby attempt to lessen the cost of future securities acquisitions. A Fund may
use interest rate futures contracts and options thereon to hedge the debt
portion of its portfolios against changes in the general level of interest
rates.
The use of options, futures contracts and forward currency contracts ("Forward
Contracts") involves special considerations and risks, as described below. Risks
pertaining to particular instruments are described in the sections that follow.
(1) Successful use of most of these instruments depends upon the
Sub-advisor's ability to predict movements of the overall securities and
currency markets, which requires different skills than predicting changes
in the prices of individual securities. While the Sub-advisor is
experienced in the use of these instruments, there can be no assurance that
any particular strategy adopted will succeed. Skills and techniques needed
to trade options, futures contracts and options thereon or to use forward
currency contracts are different from those needed to select the securities
in which the Funds invest.
(2) There might be imperfect correlation, or even no correlation,
between price movements of an instrument and price movements of the
currency or the investments being hedged. For example, if the value of an
instrument used in a short hedge increased by less than the decline in
value of the hedged investment, the hedge would not be fully successful.
Such a lack of correlation might occur due to factors unrelated to the
value of the investments being hedged, such as speculative or other
pressures on the markets in which the hedging instrument is traded. The
effectiveness of hedges using hedging instruments on indices will depend on
the degree of correlation between price movements in the index and price
movements in the investments being hedged.
(3) Hedging strategies, if successful, can reduce risk of loss by
wholly or partially offsetting the negative effect of unfavorable price
movements in the investments being hedged. However, hedging strategies can
also reduce opportunity for gain by offsetting the positive effect of
favorable price movements in the hedged investments. For example, if a Fund
entered into a short hedge because the Sub-advisor projected a decline in
the price of a security in the Fund's portfolio, and the price of that
security increased instead, the gain from that increase might be wholly or
partially offset by a decline in the price of the hedging instrument.
Moreover, if the price of the hedging instrument declined by more than the
increase in the price of the security, the Fund could suffer a loss
including the possible loss of principal under certain conditions. In
either such case, the Fund would have been in a better position had it not
hedged at all.
(4) As described below, a Fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it takes
positions in instruments involving obligations to third parties (i.e.,
instruments other than purchased options). If the Fund were unable to close
out its positions in such instruments, it might be required to continue to
maintain such assets or accounts or make such payments until the position
expired or matured. The requirements might impair the Fund's ability to
sell a portfolio security or make an investment at a time when it would
otherwise be favorable to do so, or require that the Fund sell a portfolio
security at a disadvantageous time. A Fund's ability to close out a
position in an instrument prior to expiration or maturity depends on the
existence of a liquid secondary market of which there is no assurance at
any particular time, or, in the absence of such a market, the ability and
willingness of the other party to the transaction ("contra party") to enter
into a transaction closing out the position. Therefore, there is no
assurance that any position can be closed out at a time and price that is
favorable to the Funds. In addition, a Fund may be unable to purchase or
sell a portfolio security at a time when it would otherwise be favorable
for it to do so. A Fund may also need to sell a security at a
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disadvantageous time, due to the need for the Fund to maintain "cover" or
to set aside securities in connection with hedging transactions.
WRITING CALL OPTIONS
Each Fund may write (sell) call options on securities, indices and currencies.
This strategy will be employed only when, in the opinion of the Sub-advisor, the
size of the premium a Fund receives for writing the option is adequate to
compensate it against the risk that appreciation in the underlying security may
not be fully realized if the option is exercised. Call options generally will be
written on securities and currencies that, in the opinion of the Sub-advisor are
not expected to make any major price moves in the near future but that, over the
long term, are deemed to be attractive investments for a Fund.
A call option gives the holder (buyer) the right to purchase a security or
currency at a specified price (the exercise price) at any time until (American
Style) or on (European Style) a certain date (the expiration date). So long as
the obligation of the writer of a call option continues, he may be assigned an
exercise notice, requiring him to deliver the underlying security or currency
against payment of the exercise price. This obligation terminates upon the
expiration of the call option, or such earlier time at which the writer effects
a closing purchase transaction by purchasing an option identical to that
previously sold.
Portfolio securities or currencies on which call options may be written will
be purchased solely on the basis of investment considerations consistent with
each Fund's investment objective. When writing a call option, a Fund, in return
for the premium, gives up the opportunity for profit from a price increase in
the underlying security or currency above the exercise price, and retains the
risk of loss should the price of the security or currency decline. Unlike one
who owns securities or currencies not subject to an option, a Fund has no
control over when it may be required to sell the underlying securities or
currencies, since most options may be exercised at any time prior to the
option's expiration. If a call option that a Fund has written expires, the Fund
will realize a gain in the amount of the premium; however, such gain may be
offset by a decline in the market value of the underlying security or currency
during the option period. If the call option is exercised, the Fund will realize
a gain or loss from the sale of the underlying security or currency, which will
be increased or offset by the premium received. The Funds do not consider a
security or currency covered by a call option to be "pledged" as that term is
used in the Funds' policies that limit the pledging or mortgaging of their
assets.
Writing call options can serve as a limited short hedge because declines in
the value of the hedged investment would be offset to the extent of the premium
received for writing the option. However, if the security or currency
appreciates to a price higher than the exercise price of the call option, it can
be expected that the option will be exercised and a Fund will be obligated to
sell the security or currency at less than its market value.
The premium that a Fund receives for writing a call option is deemed to
constitute the market value of an option. The premium a Fund will receive from
writing a call option will reflect, among other things, the current market price
of the underlying investment, the relationship of the exercise price to such
market price, the historical price volatility of the underlying investment, and
the length of the option period. In determining whether a particular call option
should be written, the Sub-advisor will consider the reasonableness of the
anticipated premium and the likelihood that a liquid secondary market will exist
for those options.
Closing transactions will be effected in order to realize a profit on an
outstanding call option, to prevent an underlying security or currency from
being called, or to permit the sale of the underlying security or currency.
Furthermore, effecting a closing transaction will permit a Fund to write another
call option on the underlying security or currency with either a different
exercise price, expiration date or both.
Each Fund will pay transaction costs in connection with the writing of options
and in entering into closing purchase contracts. Transaction costs relating to
options activity normally are higher than those applicable to purchases and
sales of portfolio securities.
The exercise price of the options may be below, equal to or above the current
market values of the underlying securities or currencies at the time the options
are written. From time to time, a Fund may purchase an underlying security or
currency for delivery in accordance with the exercise of an option, rather than
delivering such security or currency from its portfolio. In such cases,
additional costs will be incurred.
A Fund will realize a profit or loss from a closing purchase transaction if
the cost of the transaction is less or more, respectively, than the premium
received from writing the option. Because increases in the market price of a
call option generally will reflect increases in the market price of the
underlying security or currency, any loss resulting from the repurchase of a
call option is likely to be offset in whole or in part by appreciation of the
underlying security or currency owned by the Fund.
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WRITING PUT OPTIONS
Each Fund may write put options on securities, indices and currencies. A put
option gives the purchaser of the option the right to sell, and the writer
(seller) the obligation to buy, the underlying security or currency at the
exercise price at any time until (American style) or on (European style) the
expiration date. The operation of put options in other respects, including their
related risks and rewards, is identical substantially to that of call options.
A Fund generally would write put options in circumstances where the
Sub-advisor wishes to purchase the underlying security or currency for the
Fund's portfolio at a price lower than the current market price of the security
or currency. In such event, the Fund would write a put option at an exercise
price that, reduced by the premium received on the option, reflects the lower
price it is willing to pay. Since the Fund would also receive interest on debt
securities or currencies maintained to cover the exercise price of the option,
this technique could be used to enhance current return during periods of market
uncertainty. The risk in such a transaction would be that the market price of
the underlying security or currency would decline below the exercise price less
the premium received.
Writing put options can serve as a limited long hedge because increases in the
value of the hedged investment would be offset to the extent of the premium
received for writing the option. However, if the security or currency
depreciates to a price lower than the exercise price of the put option, it can
be expected that the put option will be exercised and the Fund will be obligated
to sell the security or currency at more than its market value.
PURCHASING PUT OPTIONS
Each Fund may purchase put options on securities, indices and currencies. As
the holder of a put option, a Fund would have the right to sell the underlying
security or currency at the exercise price at any time until (American style) or
on (European style) the expiration date. A Fund may enter into closing sale
transactions with respect to such options, exercise them or permit them to
expire.
A Fund may purchase a put option on an underlying security or currency
("protective put") owned by the Fund to protect against an anticipated decline
in the value of the security or currency. Such protection is provided only
during the life of the put option when the Fund, as the holder of the put
option, is able to sell the underlying security or currency at the put exercise
price regardless of any decline in the underlying security's market price or
currency's exchange value. The premium paid for the put option and any
transaction costs would reduce any profit otherwise available for distribution
when the security or currency is eventually sold.
A Fund also may purchase put options at a time when the Fund does not own the
underlying security or currency. By purchasing put options on a security or
currency it does not own, the Fund seeks to benefit from a decline in the market
price of the underlying security or currency. If the put option is not sold when
it has remaining value, and if the market price of the underlying security or
currency remains equal to or greater than the exercise price during the life of
the put option, the Fund will lose its entire investment in the put option. In
order for the purchase of a put option to be profitable, the market price of the
underlying security or currency must decline sufficiently below the exercise
price to cover the premium and transaction costs, unless the put option is sold
in a closing sale transaction.
PURCHASING CALL OPTIONS
Each Fund may purchase call options on securities, indices and currencies. As
the holder of a call option, a Fund would have the right to purchase the
underlying security or currency at the exercise price at any time until
(American style) or on (European style) the expiration date. A Fund may enter
into closing sale transactions with respect to such options, exercise them or
permit them to expire.
Call options may be purchased by a Fund for the purpose of acquiring the
underlying security or currency for its portfolio. Utilized in this fashion, the
purchase of call options would enable the Fund to acquire the security or
currency at the exercise price of the call option plus the premium paid. At
times, the net cost of acquiring the security or currency in this manner may be
less than the cost of acquiring the security or currency directly. This
technique also may be useful to a Fund in purchasing a large block of securities
that would be more difficult to acquire by direct market purchases. So long as
it holds such a call option, rather than the underlying security or currency
itself, the Fund is partially protected from any unexpected decline in the
market price of the underlying security or currency and, in such event, could
allow the call option to expire, incurring a loss only to the extent of the
premium paid for the option.
A Fund also may purchase call options on underlying securities or currencies
it owns to avoid realizing losses that would result in a reduction of its
current return. For example, where a Fund has written a call option on an
underlying security or currency having a current market value below the price at
which it purchased the security or currency, an
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increase in the market price could result in the exercise of the call option
written by the Fund and the realization of a loss on the underlying security or
currency. Accordingly, the Fund could purchase a call option on the same
underlying security or currency, which could be exercised to fulfill the Fund's
delivery obligations under its written call (if it is exercised). This strategy
could allow the Fund to avoid selling the portfolio security or currency at a
time when it has an unrealized loss; however, the Fund would have to pay a
premium to purchase the call option plus transaction costs.
Aggregate premiums paid for put and call options will not exceed 5% of a
Fund's total assets at the time of purchase.
Each Fund may attempt to accomplish objectives similar to those involved in
its use of Forward Contracts by purchasing put or call options on currencies. A
put option gives a Fund as purchaser the right (but not the obligation) to sell
a specified amount of currency at the exercise price at any time until (American
style) or on (European style) the expiration date. A call option gives a Fund as
purchaser the right (but not the obligation) to purchase a specified amount of
currency at the exercise price at any time until (American style) or on
(European style) the expiration date. A Fund might purchase a currency put
option, for example, to protect itself against a decline in the dollar value of
a currency in which it holds or anticipates holding securities. If the
currency's value should decline against the dollar, the loss in currency value
should be offset, in whole or in part, by an increase in the value of the put.
If the value of the currency instead should rise against the dollar, any gain to
the Fund would be reduced by the premium it had paid for the put option. A
currency call option might be purchased, for example, in anticipation of, or to
protect against, a rise in the value against the dollar of a currency in which a
Fund anticipates purchasing securities.
Options may be either listed on an exchange or traded in over-the-counter
("OTC") markets. Listed options are third-party contracts (i.e., performance of
the obligations of the purchaser and seller is guaranteed by the exchange or
clearing corporation), and have standardized strike prices and expiration dates.
OTC options are two-party contracts with negotiated strike prices and expiration
dates. A Fund will not purchase an OTC option unless it believes that daily
valuations for such options are readily obtainable. OTC options differ from
exchange-traded options in that OTC options are transacted with dealers directly
and not through a clearing corporation (which guarantees performance).
Consequently, there is a risk of non-performance by the dealer. Since no
exchange is involved, OTC options are valued on the basis of an average of the
last bid prices obtained from dealers, unless a quotation from only one dealer
is available, in which case only that dealer's price will be used. In the case
of OTC options, there can be no assurance that a liquid secondary market will
exist for any particular option at any specific time.
The staff of the SEC considers purchased OTC options to be illiquid
securities. A Fund may also sell OTC options and, in connection therewith,
segregate assets or cover its obligations with respect to OTC options written by
the Fund. The assets used as cover for OTC options written by the Fund will be
considered illiquid unless the OTC options are sold to qualified dealers who
agree that the Fund may repurchase any OTC option it writes at a maximum price
to be calculated by a formula set forth in the option agreement. The cover for
an OTC option written subject to this procedure would be considered illiquid
only to the extent that the maximum repurchase price under the formula exceeds
the intrinsic value of the option.
A Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. Each Fund intends to
purchase or write only those exchange-traded options for which there appears to
be a liquid secondary market. However, there can be no assurance that such a
market will exist at any particular time. Closing transactions can be made for
OTC options only by negotiating directly with the contra party or by a
transaction in the secondary market if any such market exists. Although each
Fund will enter into OTC options only with contra parties that are expected to
be capable of entering into closing transactions with the Fund, there is no
assurance that the Funds will in fact be able to close out an OTC option
position at a favorable price prior to expiration. In the event of insolvency of
the contra party, a Fund might be unable to close out an OTC option position at
any time prior to its expiration.
INDEX OPTIONS
Puts and calls on indices are similar to puts and calls on securities or
futures contracts except that all settlements are in cash and gain or loss
depends on changes in the index in question (and thus on price movements in the
securities market or a particular market sector generally) rather than on price
movements in individual securities or futures contracts. When a Fund writes a
call on an index, it receives a premium and agrees that, prior to the expiration
date, the purchaser of the call, upon exercise of the call, will receive from
the Fund an amount of cash if the closing level of the index upon which the call
is based is greater than the exercise price of the call. The amount of cash is
equal to the difference between the closing price of the index and the exercise
price of the call times a specified multiple (the "multiplier"), which
determines the total dollar value for each point of such difference. When a Fund
buys a call on an index, it pays a premium and has the same rights as to such
call as are indicated above. When a Fund buys a put on an index, it pays a
premium and has the right, prior to the expiration date, to require the seller
of the put, upon the Fund's exercise of the put, to deliver to
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<PAGE> 652
the Fund an amount of cash if the closing level of the index upon which the put
is based is less than the exercise price of the put, which amount of cash is
determined by the multiplier, as described above for calls. When a Fund writes a
put on an index, it receives a premium and the purchaser has the right, prior to
the expiration date, to require the Fund to deliver to it an amount of cash
equal to the difference between the closing level of the index and the exercise
price times the multiplier, if the closing level is less than the exercise
price.
The risks of investment in index options may be greater than options on
securities. Because index options are settled in cash, when a Fund writes a call
on an index it cannot provide in advance for its potential settlement
obligations by acquiring and holding the underlying securities. A Fund can
offset some of the risk of writing a call index option position by holding a
diversified portfolio of securities similar to those on which the underlying
index is based. However, a Fund cannot, as a practical matter, acquire and hold
a portfolio containing exactly the same securities as underlie the index and, as
a result, bears a risk that the value of the securities held will vary from the
value of the index.
Even if a Fund could assemble a securities portfolio that exactly reproduced
the composition of the underlying index, it still would not be fully covered
from a risk standpoint because of the "timing risk" inherent in writing index
options. When an index option is exercised, the amount of cash that the holder
is entitled to receive is determined by the difference between the exercise
price and the closing index level on the date when the option is exercised. As
with other kinds of options, a Fund, as the call writer, will not know that it
has been assigned until the next business day at the earliest. The time lag
between exercise and notice of assignment poses no risk for the writer of a
covered call on a specific underlying security, such as common stock, because
there the writer's obligation is to deliver the underlying security, not to pay
its value as of a fixed time in the past. So long as the writer already owns the
underlying security, it can satisfy its settlement obligations by simply
delivering it, and the risk that its value may have declined since the exercise
date is borne by the exercising holder. In contrast, even if the writer of an
index call holds securities that exactly match the composition of the underlying
index, it will not be able to satisfy its assignment obligations by delivering
those securities against payment of the exercise price. Instead, it will be
required to pay cash in an amount based on the closing index value on the
exercise date; and by the time it learns that it has been assigned, the index
may have declined, with a corresponding decline in the value of its securities
portfolio. This "timing risk" is an inherent limitation on the ability of index
call writers to cover their risk exposure by holding securities positions.
If a Fund purchases an index option and exercises it before the closing index
value for that day is available, it runs the risk that the level of the
underlying index may subsequently change. If such a change causes the exercised
option to fall out-of-the-money, the Fund will be required to pay the difference
between the closing index value and the exercise price of the option (times the
applicable multiplier) to the assigned writer.
INTEREST RATE, CURRENCY AND STOCK INDEX FUTURES CONTRACTS
Each Fund may enter into interest rate or currency futures contracts, and may
enter into stock index futures contracts (collectively, "Futures" or "Futures
Contracts"), as a hedge against changes in prevailing levels of interest rates,
currency exchange rates or stock prices in order to establish more definitely
the effective return on securities or currencies held or intended to be acquired
by the Fund. A Fund's transactions may include sales of Futures as an offset
against the effect of expected increases in interest rates, and decreases in
currency exchange rates and stock prices, and purchases of Futures as an offset
against the effect of expected declines in interest rates, and increases in
currency exchange rates and stock prices.
A Fund will only enter into Futures Contracts that are traded on futures
exchanges and are standardized as to maturity date and underlying financial
instrument. Futures exchanges and trading thereon in the United States are
regulated under the Commodity Exchange Act by the Commodity Futures Trading
Commission ("CFTC"). Futures are exchanged in London at the London International
Financial Futures Exchange.
Although techniques other than sales and purchases of Futures Contracts could
be used to reduce a Fund's exposure to interest rate, currency exchange rate and
stock market fluctuations, a Fund may be able to hedge its exposure more
effectively and at a lower cost through using Futures Contracts.
A Futures Contract provides for the future sale by one party and purchase by
another party of a specified amount of a specific financial instrument (security
or currency) for a specified price at a designated date, time and place. An
index Futures Contract provides for the delivery, at a designated date, time and
place, of an amount of cash equal to a specified dollar amount times the
difference between the index value at the close of trading on the contract and
the price at which the Futures Contract is originally struck; no physical
delivery of the securities comprising the index is made. Brokerage fees are
incurred when a Futures Contract is bought or sold, and margin deposits must be
maintained at all times the Futures Contract is outstanding.
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<PAGE> 653
Although Futures Contracts typically require future delivery of and payment
for financial instruments or currencies, Futures Contracts are usually closed
out before the delivery date. Closing out an open Futures Contract sale or
purchase is effected by entering into an offsetting Futures Contract purchase or
sale, respectively, for the same aggregate amount of the identical financial
instrument or currency and the same delivery date. If the offsetting purchase
price is less than the original sale price, a Fund realizes a gain; if it is
more, a Fund realizes a loss. Conversely, if the offsetting sale price is more
than the original purchase price, a Fund realizes a gain; if it is less, the
Fund realizes a loss. The transaction costs must also be included in these
calculations. There can be no assurance, however, that a Fund will be able to
enter into an offsetting transaction with respect to a particular Futures
Contract at a particular time. If a Fund is not able to enter into an offsetting
transaction, the Fund will continue to be required to maintain the margin
deposits on the Futures Contract.
As an example of an offsetting transaction, the contractual obligations
arising from the sale of one Futures Contract of September Deutschemarks on an
exchange may be fulfilled at any time before delivery under the Futures Contract
is required (i.e., on a specified date in September, the "delivery month") by
the purchase of another Futures Contract of September Deutschemarks on the same
exchange. In such instance the difference between the price at which the Futures
Contract was sold and the price paid for the offsetting purchase, after
allowance for transaction costs, represents the profit or loss to the Fund.
Each Fund's Futures transactions will be entered into for hedging purposes
only; that is, Futures Contracts will be sold to protect against a decline in
the price of securities or currencies that the Fund owns, or Futures Contracts
will be purchased to protect the Fund against an increase in the price of
securities or currencies it has committed to purchase or expects to purchase.
"Margin" with respect to Futures Contracts is the amount of funds that must be
deposited by a Fund in order to initiate Futures trading and to maintain the
Fund's open positions in Futures Contracts. A margin deposit made when the
Futures Contract is entered into ("initial margin") is intended to assure a
Fund's performance under the Futures Contract. The margin required for a
particular Futures Contract is set by the exchange on which the Futures Contract
is traded and may be modified significantly from time to time by the exchange
during the term of the Futures Contract.
Subsequent payments, called "variation margin," to and from the futures
commission merchant through which a Fund entered into the Futures Contract will
be made on a daily basis as the price of the underlying security, currency or
index fluctuates making the Futures Contract more or less valuable, a process
known as marking-to-market.
Risks of Using Futures Contracts. The prices of Futures Contracts are volatile
and are influenced by, among other things, actual and anticipated changes in
interest rates and currency exchange rates, and in stock market movements, which
in turn are affected by fiscal and monetary policies and national and
international political and economic events.
There is a risk of imperfect correlation between changes in prices of Futures
Contracts and prices of the securities or currencies in a Fund's portfolio being
hedged. The degree of imperfection of correlation depends upon circumstances
such as: variations in speculative market demand for Futures and for securities
or currencies, including technical influences in Futures trading; and
differences between the financial instruments being hedged and the instruments
underlying the standard Futures Contracts available for trading. A decision of
whether, when, and how to hedge involves skill and judgment, and even a
well-conceived hedge may be unsuccessful to some degree because of unexpected
market behavior or interest or currency rate trends.
Because of the low margin deposits required, Futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a Futures Contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the Futures Contract is deposited as margin, a subsequent 10%
decrease in the value of the Futures Contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the Futures Contract were closed out.
Thus, a purchase or sale of a Futures Contract may result in losses in excess of
the amount invested in the Futures Contract.
Most U.S. Futures exchanges limit the amount of fluctuation permitted in
Futures Contract and options on Futures Contract prices during a single trading
day. The daily limit establishes the maximum amount that the price of a Futures
Contract or option may vary either up or down from the previous day's settlement
price at the end of a trading session. Once the daily limit has been reached in
a particular type of Futures Contract or option, no trades may be made on that
day at a price beyond that limit. The daily limit governs only price movement
during a particular trading day and therefore does not limit potential losses,
because the limit may prevent the liquidation of unfavorable positions. Futures
Contract and option prices have occasionally moved to the daily limit for
several consecutive trading days with little or no trading, thereby preventing
prompt liquidation of positions and subjecting some traders to substantial
losses.
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If a Fund were unable to liquidate a Futures or option on Futures position due
to the absence of a liquid secondary market or the imposition of price limits,
it could incur substantial losses. The Fund would continue to be subject to
market risk with respect to the position. In addition, except in the case of
purchased options, the Fund would continue to be required to make daily
variation margin payments and might be required to maintain the position being
hedged by the Future or option or to maintain cash or securities in a segregated
account.
Certain characteristics of the Futures market might increase the risk that
movements in the prices of Futures Contracts or options on Futures might not
correlate perfectly with movements in the prices of the investments being
hedged. For example, all participants in the Futures and options on Futures
markets are subject to daily variation margin calls and might be compelled to
liquidate Futures or options on Futures positions whose prices are moving
unfavorably to avoid being subject to further calls. These liquidations could
increase price volatility of the instruments and distort the normal price
relationship between the Futures or options and the investments being hedged.
Also, because initial margin deposit requirements in the Futures market are less
onerous than margin requirements in the securities markets, there might be
increased participation by speculators in the Futures markets. This
participation also might cause temporary price distortions. In addition,
activities of large traders in both the Futures and securities markets involving
arbitrage, "program trading" and other investment strategies might result in
temporary price distortions.
OPTIONS ON FUTURES CONTRACTS
Options on Futures Contracts are similar to options on securities or
currencies except that options on Futures Contracts give 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 period of
the option. Upon exercise of the option, the delivery of the Futures position by
the writer of the option to the holder of the option will be accompanied by
delivery of the accumulated 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 is
exercised on the last trading day 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 level of the securities, currencies
or index upon which the Futures Contract is based on the expiration date.
Purchasers of options who fail to exercise their options prior to the exercise
date suffer a loss of the premium paid.
The purchase of call options on Futures can serve as a long hedge, and the
purchase of put options on Futures can serve as a short hedge. Writing call
options on Futures can serve as a limited short hedge, and writing put options
on Futures can serve as a limited long hedge, using a strategy similar to that
used for writing options on securities, foreign currencies or indices.
If a Fund writes an option on a Futures Contract, it will be required to
deposit initial and variation margin pursuant to requirements similar to those
applicable to Futures Contracts. Premiums received from the writing of an option
on a Futures Contract are included in the initial margin deposit.
A Fund may seek to close out an option position by selling an option covering
the same Futures Contract and having the same exercise price and expiration
date. The ability to establish and close out positions on such options is
subject to the maintenance of a liquid secondary market.
LIMITATIONS ON USE OF FUTURES, OPTIONS ON FUTURES AND CERTAIN OPTIONS ON
CURRENCIES
To the extent that a Fund enters into Futures Contracts, options on Futures
Contracts, and options on foreign currencies traded on a CFTC-regulated
exchange, in each case other than for bona fide hedging purposes (as defined by
the CFTC), the aggregate initial margin and premiums required to establish those
positions (excluding the amount by which options are "in-the-money") will not
exceed 5% of the liquidation value of the Fund's portfolio, after taking into
account unrealized profits and unrealized losses on any contracts the Fund has
entered into. In general, a call option on a Futures Contract is
"in-the-money"if the value of the underlying Futures Contract exceeds the
strike, i.e., exercise, price of the call; a put option on a Futures Contract is
"in-the-money" if the value of the underlying Futures Contract is exceeded by
the strike price of the put. This guideline may be modified by the Trust's Board
of Trustees without a shareholder vote. This limitation does not limit the
percentage of the Fund's assets at risk to 5%.
FORWARD CONTRACTS
To attempt to hedge against adverse movements in exchange rates between
currencies, each Fund may enter into forward currency contracts for the purchase
or sale of a specified currency at a specified future date. Such contracts may
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involve the purchase or sale of a foreign currency against the U.S. dollar or
may involve two foreign currencies. A Fund may enter into forward currency
contracts either with respect to specific transactions or with respect to its
portfolio positions. Each Fund may also purchase and sell put and call options
on equity and debt securities to hedge against the risk of fluctuations in the
prices of securities held by a Fund or that the Sub-advisor intends to include
in a Fund's portfolio. Each Fund may also purchase and sell put and call options
on stock indices to hedge against overall fluctuations in the securities markets
or in a specific market sector.
A Forward Contract is an obligation, usually arranged with a commercial bank
or other currency dealer, to purchase or sell a currency against another
currency at a future date and price as agreed upon by the parties. A Fund either
may accept or make delivery of the currency at the maturity of the Forward
Contract. The Fund may also, if its contra party agrees, prior to maturity,
enter into a closing transaction involving the purchase or sale of an offsetting
contract.
A Fund engages in forward currency transactions in anticipation of, or to
protect itself against, fluctuations in exchange rates. A Fund might sell a
particular foreign currency forward, for example, when it holds bonds
denominated in a foreign currency but anticipates, and seeks to be protected
against, a decline in the currency against the U.S. dollar. Similarly, the Fund
might sell the U.S. dollar forward when it holds bonds denominated in U.S.
dollars but anticipates, and seeks to be protected against, a decline in the
U.S. dollar relative to other currencies. Further, the Fund might purchase a
currency forward to "lock in" the price of securities denominated in that
currency that it anticipates purchasing.
Forward Contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers. A
Forward Contract generally has no deposit requirement and no commissions are
charged at any stage for trades. Each Fund will enter into such Forward
Contracts with major U.S. or foreign banks and securities or currency dealers in
accordance with the guidelines approved by the Trust's Board of Trustees.
Each Fund may enter into Forward Contracts either with respect to specific
transactions or with respect to the Fund's portfolio positions. The precise
matching of the Forward Contract amounts and the value of specific securities
generally will not be possible because the future value of such securities in
foreign currencies will change as a consequence of market movements in the value
of those securities between the date the Forward Contract is entered into and
the date it matures. Accordingly, it may be necessary for a Fund to purchase
additional foreign currency on the spot (i.e., cash) market (and bear the
expense of such purchase) if the market value of the security is less than the
amount of foreign currency the Fund is obligated to deliver and if a decision is
made to sell the security and make delivery of the foreign currency. Conversely,
it may be necessary to sell on the spot market some of the foreign currency the
Fund is obligated to deliver. The projection of short-term currency market
movements is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain. Forward Contracts involve the risk that
anticipated currency movements will not be predicted accurately, causing a Fund
to sustain losses on these contracts and transaction costs.
At or before the maturity of a Forward Contract requiring a Fund to sell a
currency, the Fund either may sell a portfolio security and use the sale
proceeds to make delivery of the currency or retain the security and offset its
contractual obligation to deliver the currency by purchasing a second contract
pursuant to which the Fund will obtain, on the same maturity date, the same
amount of the currency that it is obligated to deliver. Similarly, a Fund may
close out a Forward Contract requiring it to purchase a specified currency by
entering into a second contract, if its contra party agrees, entitling it to
sell the same amount of the same currency on the maturity date of the first
contract. The Fund would realize a gain or loss as a result of entering into
such an offsetting Forward Contract under either circumstance to the extent the
exchange rate or rates between the currencies involved moved between the
execution dates of the first contract and the offsetting contract.
The cost to a Fund of engaging in Forward Contracts varies with factors such
as the currencies involved, the length of the contract period and the market
conditions then prevailing. Because Forward Contracts usually are entered into
on a principal basis, no fees or commissions are involved. The use of Forward
Contracts does not eliminate fluctuations in the prices of the underlying
securities a Fund owns or intends to acquire, but it does establish a rate of
exchange in advance. In addition, while Forward Contract sales limit the risk of
loss due to a decline in the value of the hedged currencies, they also limit any
potential gain that might result should the value of the currencies increase.
FOREIGN CURRENCY STRATEGIES -- SPECIAL CONSIDERATIONS
Each Fund may use options on foreign currencies, Futures on foreign
currencies, options on Futures on foreign currencies and Forward Contracts to
hedge against movements in the values of the foreign currencies in which the
Fund's securities are denominated. Such currency hedges can protect against
price movements in a security that a Fund owns or intends to acquire that are
attributable to changes in the value of the currency in which it is denominated.
Such hedges do not, however, protect against price movements in the securities
that are attributable to other causes.
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<PAGE> 656
A Fund might seek to hedge against changes in the value of a particular
currency when no Futures Contract, Forward Contract or option involving that
currency is available or one of such contracts is more expensive than certain
other contracts. In such cases, a Fund may hedge against price movements in that
currency by entering into a contract on another currency or basket of
currencies, the values of which the Sub-advisor believes will have a positive
correlation to the value of the currency being hedged. The risk that movements
in the price of the contract will not correlate perfectly with movements in the
price of the currency being hedged is magnified when this strategy is used.
The value of Futures Contracts, options on Futures Contracts, Forward
Contracts, and options on foreign currencies depends on the value of the
underlying currency relative to the U.S. dollar. Because foreign currency
transactions occurring in the interbank market might involve substantially
larger amounts than those involved in the use of Futures Contracts, Forward
Contracts or options, a Fund could be disadvantaged by dealing in the odd lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirements that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options or Futures markets are
closed while the markets for the underlying currencies remain open, significant
price and rate movements might take place in the underlying markets that cannot
be reflected in the markets for the Futures contracts or options until they
reopen.
Settlement of Futures Contracts, Forward Contracts and options involving
foreign currencies might be required to take place within the country issuing
the underlying currency. Thus, a Fund might be required to accept or make
delivery of the underlying foreign currency in accordance with any U.S. or
foreign regulations regarding the maintenance of foreign banking arrangements by
U.S. residents and might be required to pay any fees, taxes and charges
associated with such delivery assessed in the issuing country.
COVER
Transactions using Forward Contracts, Futures Contracts and options (other
than options purchased by a Fund) expose the Fund to an obligation to another
party. No Fund will enter into any such transactions unless it owns either (1)
an offsetting ("covered") position in securities, currencies, or other options,
Forward Contracts or Futures Contracts, or (2) cash, receivables and short-term
debt securities with a value sufficient at all times to cover its potential
obligations not covered as provided in (1) above. The Funds will comply with SEC
guidelines regarding cover for these instruments and, if the guidelines so
require, set aside cash or liquid securities.
Assets used as cover or held in a segregated account cannot be sold while the
position in the corresponding Forward Contract, Futures Contract or option is
open, unless they are replaced with other appropriate assets. If a large portion
of a Fund's assets are used for cover or otherwise set aside, it could affect
portfolio management or the Fund's ability to meet redemption requests or other
current obligations.
RISK FACTORS
GENERAL
There is no assurance that a Fund will achieve its investment objectives.
Investing in a Fund entails a substantial degree of risk, and an investment in a
Fund should be considered speculative. Investors are strongly advised to
consider carefully the special risks involved in investing in emerging markets,
and specifically Latin America, which are in addition to the usual risks of
investing in developed markets around the world.
A Fund's net asset value will fluctuate, reflecting fluctuations in the market
value of its portfolio positions and its net currency exposure. Equity
securities, particularly common stocks, generally represent the most junior
position in an issuer's capital structure and entitle holders to an interest in
the assets of an issuer, if any, remaining after all more senior claims have
been satisfied. The value of equity securities held by a Fund will fluctuate in
response to general market and economic developments, as well as developments
affecting the particular issuers of such securities.
In addition, the value of debt securities by each Fund generally will
fluctuate with the perceived creditworthiness of the issuers of such securities
and interest rates.
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NON-DIVERSIFIED CLASSIFICATION
Developing Markets Fund and Latin American Fund are classified under the 1940
Act as "non-diversified" funds. As a result, these Funds will be able to invest
in a smaller number of issuers than if it was classified under the 1940 Act as
"diversified" funds. To the extent that a Fund invests in a smaller number of
issuers, the net asset value of its shares may fluctuate more widely and it may
be subject to greater investment and credit risk with respect to its portfolio.
ILLIQUID SECURITIES
Developing Markets Fund and Emerging Markets Fund each may invest up to 15% of
its net assets, and Latin American Fund up to 10% of its net assets, in illiquid
securities. Securities may be considered illiquid if a Fund cannot reasonably
expect within seven days to sell the security for approximately the amount at
which the Fund values such securities. The sale of illiquid securities, if they
can be sold at all, generally will require more time and result in higher
brokerage charges or dealer discounts and other selling expenses than the sale
of liquid securities, such as securities eligible for trading on U.S. securities
exchanges or in the over-the-counter markets. Moreover, restricted securities
which may be illiquid for purposes of this limitation, often sell, if at all, at
a price lower than similar securities that are not subject to restrictions on
resale.
Latin American Fund may invest in joint ventures, cooperatives, partnerships
and state enterprises and other similar vehicles which are illiquid
(collectively, "Special Situations"). The Sub-advisor believes that carefully
selected investments in Special Situations could enable the Fund to achieve
capital appreciation substantially exceeding the appreciation Latin American
Fund would realize if it did not make such investments. However, in order to
limit investment risk, Latin American Fund will invest no more than 5% of its
total assets in Special Situations.
Illiquid securities include those that are subject to restrictions contained
in the securities laws of other countries. However, securities that are freely
marketable in the country where they are principally traded, but would not be
freely marketable in the United States, will not be considered illiquid. Where
registration is required, a Fund may be obligated to pay all or part of the
registration expenses and a considerable period may elapse between the time of
the decision to sell and the time the Fund may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, the Fund might obtain a less favorable price
than prevailed when it decided to sell.
Not all restricted securities are illiquid. In recent years a large
institutional market has developed for certain securities that are not
registered under the Securities Act of 1933, as amended ("1933 Act"), including
private placements, repurchase agreements, commercial paper, foreign securities
and corporate bonds and notes. These instruments are often restricted securities
because the securities are sold in transactions not requiring registration.
Institutional investors generally will not seek to sell these instruments to the
general public, but instead will often depend either on an efficient
institutional market in which such unregistered securities can be readily resold
or on an issuer's ability to honor a demand for repayment. Therefore, the fact
that there are contractual or legal restrictions on resale to the general public
or certain institutions is not dispositive of the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the registration
requirements of the 1933 Act for resales of certain securities to qualified
institutional buyers. Institutional markets for restricted securities have
developed as a result of Rule 144A, providing both readily ascertainable values
for restricted securities and the ability to liquidate an investment to satisfy
share redemption orders. Such markets include automated systems for the trading,
clearance and settlement of unregistered securities of domestic and foreign
issuers, such as the PORTAL System sponsored by the National Association of
Securities Dealers, Inc. An insufficient number of qualified institutional
buyers interested in purchasing Rule 144A-eligible restricted securities held by
a Fund, however, could affect adversely the marketability of such portfolio
securities and the Fund might be unable to dispose of such securities promptly
or at favorable prices.
With respect to liquidity determinations generally, the Trust's Board of
Trustees has the ultimate responsibility for determining whether specific
securities, including restricted securities pursuant to Rule 144A under the 1933
Act, are liquid or illiquid. The Board has delegated the function of making
day-to-day determinations of liquidity to the Sub-advisor in accordance with
procedures approved by the Board. The Sub-advisor takes into account a number of
factors in reaching liquidity decisions, including (i) the frequency of trading
in the security, (ii) the number of dealers who make quotes for the security,
(iii) the number of dealers who have undertaken to make a market in the
security, (iv) the number of other potential purchasers and (v) the nature of
the security and how trading is effected (e.g., the time needed to sell the
security, how offers are solicited and the mechanics of transfer). The
Sub-advisor monitors the liquidity of securities in each Fund's portfolio and
periodically reports such determinations to the Board. If the liquidity
percentage restriction of a Fund is satisfied at the time of investment, a later
increase in the percentage of illiquid securities held by the Fund resulting
from a change in market value or assets will not constitute a violation of that
restriction. If as a result of a
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change in market value or assets, the percentage of illiquid securities held by
a Fund increases above the applicable limit, the Sub-advisor will take
appropriate steps to bring the aggregate amount of illiquid assets back within
the prescribed limitations as soon as reasonably practicable, taking into
account the effect of any disposition on the Fund.
DEBT SECURITIES
The value of the debt securities held by a Fund generally will vary inversely
with market interest rates. If interest rates in a market fall, a Fund's debt
securities issued by governments or companies in that market ordinarily will
increase in value. If market interest rates increase, however, the debt
securities owned by a Fund in that market will likely decrease in value. Latin
American Fund may invest up to 50% of its total assets in debt securities of any
rating. Developing Markets Fund may invest up to 50% of its total assets [and
Emerging Markets Fund may invest up to 20% of its total assets] in debt
securities rated below investment grade. Such investments involve a high degree
of risk.
Debt rated Baa by Moody's is considered by Moody's to have speculative
characteristics. Debt rated BB, B, CCC, CC or C by S&P, and debt rated Ba, B,
Caa, Ca or C by Moody's is regarded, on balance, as predominantly speculative
with respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. While such lower quality debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions. Debt rated C
by Moody's or S&P is the lowest rated debt that is not in default as to
principal or interest and such issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing. Lower
quality debt securities are also generally considered to be subject to greater
risk than securities with higher ratings with regard to a deterioration of
general economic conditions. These foreign debt securities are the equivalent of
high yield, high risk bonds, commonly known as "junk bonds."
Ratings of debt securities represent the rating agency's opinion regarding
their quality and are not a guarantee of quality. Rating agencies attempt to
evaluate the safety of principal and interest payments and do not evaluate the
risks of fluctuations in market value. Also, rating agencies may fail to make
timely changes in credit ratings in response to subsequent events, so that an
issuer's current financial condition may be better or worse than a rating
indicates.
The market values of lower quality debt securities tend to reflect individual
developments of the issuer to a greater extent than do higher quality
securities, which react primarily to fluctuations in the general level of
interest rates. In addition, lower quality debt securities tend to be more
sensitive to economic conditions and generally have more volatile prices than
higher quality securities. Issuers of lower quality securities are often highly
leveraged and may not have available to them more traditional methods of
financing. For example, during an economic downturn or a sustained period of
rising interest rates, highly leveraged issuers of lower quality securities may
experience financial stress. During such periods, such issuers may not have
sufficient revenues to meet their interest payment obligations. The issuer's
ability to service its debt obligations may also be adversely affected by
specific developments affecting the issuer, such as the issuer's inability to
meet specific projected business forecasts or the unavailability of additional
financing. Similarly, certain emerging market governments that issue lower
quality debt securities are among the largest debtors to commercial banks,
foreign governments and supranational organizations such as the World Bank, and
may not be able or willing to make principal and/or interest repayments as they
come due. The risk of loss due to default by the issuer is significantly greater
for the holders of lower quality securities because such securities are
generally unsecured and may be subordinated to the claims of other creditors of
the issuer.
Lower quality debt securities frequently have call or buy-back features which
would permit an issuer to call or repurchase the security from a Fund. In
addition, a Fund may have difficulty disposing of lower quality securities
because they may have a thin trading market. There may be no established retail
secondary market for many of these securities, and the Funds anticipate that
such securities could be sold only to a limited number of dealers or
institutional investors. The lack of a liquid secondary market also may have an
adverse impact on market prices of such instruments and may make it more
difficult for a Fund to obtain accurate market quotations for purposes of
valuing a Fund's portfolio. Each Fund may also acquire lower quality debt
securities during an initial underwriting or which are sold without registration
under applicable securities laws. Such securities involve special considerations
and risks.
In addition to the foregoing, factors that could have an adverse effect on the
market value of lower quality debt securities in which a Fund may invest
include: (i) potential adverse publicity; (ii) heightened sensitivity to general
economic or political conditions; and (iii) the likely adverse impact of a major
economic recession.
Each Fund may invest in debt securities, including Brady Bonds, issued as part
of debt restructurings and such debt is to be considered speculative. There is a
history of defaults with respect to commercial bank loans by public and private
entities issuing Brady Bonds.
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Each Fund may also incur additional expenses to the extent it is required to
seek recovery upon a default in the payment of principal or interest on its
portfolio holdings, and a Fund may have limited legal recourse in the event of a
default. Debt securities issued by governments in emerging markets can differ
from debt obligations issued by private entities in that remedies from defaults
generally must be pursued in the courts of the defaulting government, and legal
recourse is therefore somewhat diminished. Political conditions, in terms of a
government's willingness to meet the terms of its debt obligations, also are of
considerable significance. There can be no assurance that the holders of
commercial bank debt may not contest payments to the holders of debt securities
issued by governments in emerging markets in the event of default by the
governments under commercial bank loan agreements.
LOAN PARTICIPATIONS AND ASSIGNMENTS
Developing Markets Fund may have difficulty disposing of Assignments and
Participations. The liquidity of such securities is limited, and the Fund
anticipates that such securities could be sold only to a limited number of
institutional investors. The lack of a liquid secondary market could have an
adverse impact on the value of such securities and on a Fund's ability to
dispose of particular Assignments or Participations when necessary to meet its
liquidity needs or in response to a specific economic event, such as a
deterioration in the creditworthiness of the borrower. The lack of a liquid
secondary market for Assignments and Participations also may make it more
difficult for a Fund to assign a value to those securities for purposes of
valuing its portfolio and calculating it net asset value.
FOREIGN SECURITIES
Political, Social and Economic Risks. Investing in securities of non-U.S.
companies may entail additional risks due to the potential political, social and
economic instability of certain countries and the risks of expropriation,
nationalization, confiscation or the imposition of restrictions on foreign
investment, convertibility of currencies into U.S. dollars and on repatriation
of capital invested. In the event of such expropriation, nationalization or
other confiscation by any country, a Fund could lose its entire investment in
any such country.
In addition, even though opportunities for investment may exist in emerging
markets, any change in the leadership or policies of the governments of those
countries or in the leadership or policies of any other government which
exercises a significant influence over those countries, may halt the expansion
of or reverse the liberalization of foreign investment policies now occurring
and thereby eliminate any investment opportunities which may currently exist.
Investors should note that upon the accession to power of authoritarian
regimes, the governments of a number of Latin American countries previously
expropriated large quantities of real and personal property similar to the
property which will be represented by the securities purchased by the Funds. The
claims of property owners against those governments were never finally settled.
There can be no assurance that any property represented by securities purchased
by the Funds will not also be expropriated, nationalized, or otherwise
confiscated. If such confiscation were to occur, the Funds could lose their
entire investment in such countries. The Funds' investments would similarly be
adversely affected by exchange control regulation in any of those countries.
Economies in individual emerging markets may differ favorably or unfavorably
from the U.S. economy in such respects as growth of gross domestic product,
rates of inflation, currency depreciation, capital reinvestment, resource self-
sufficiency and balance of payments positions. Many emerging market countries
have experienced high rates of inflation for many years.
Emerging markets generally are dependent heavily upon international trade and,
accordingly, have been and may continue to be affected adversely by trade
barriers, exchange controls, managed adjustments in relative currency values and
other protectionist measures imposed or negotiated by the countries with which
they trade.
Moreover, individual foreign economies may differ favorably or unfavorably
from the U.S. economy in such respects as growth of gross national product, rate
of inflation, rate of savings and capital reinvestment, currency depreciation,
resource self-sufficiency and balance of payments positions. Investments in
foreign government securities involve special risks, including the risk that the
government issuers may be unable or unwilling to repay principal or interest
when due.
Religious and Ethnic Stability. Certain countries in which the Funds may
invest may have groups that advocate radical religious or revolutionary
philosophies or support ethnic independence. Any disturbance on the part of such
individuals could carry the potential for widespread destruction or confiscation
of property owned by individuals and entities foreign to such country and could
cause the loss of a Fund's investment in those countries. Instability may also
result from, among other things, (i) authoritarian governments or military
involvement in political and economic decision-making, including changes in
government through extra-constitutional means, (ii) popular unrest associated
with demands for improved political, economic and social conditions and (iii)
hostile relations with neighboring or other
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countries. Such political, social and economic instability could disrupt the
principal financial markets in which the Funds invest and adversely affect the
value of the Funds' assets.
Foreign Investment Restrictions. Certain countries prohibit or impose
substantial restrictions on investments in their capital markets, particularly
their equity markets, by foreign entities such as the Funds. These restrictions
or controls may at times limit or preclude investment in certain securities and
may increase the cost and expenses of the Funds. For example, certain countries
require prior governmental approval before investments by foreign persons may be
made or may limit the amount of investment by foreign persons in a particular
company, or limit the investment by foreign persons to only a specific class of
securities of a company that may have less advantageous terms than securities of
the company available for purchase by nationals. Moreover, the national policies
of certain countries may restrict investment opportunities in issuers or
industries deemed sensitive to national interests. In addition, some countries
require governmental approval for the repatriation of investment income, capital
or the proceeds of securities sales by foreign investors. If there is a
deterioration in a country's balance of payments or for other reasons, a country
may impose restrictions on foreign capital remittances abroad. The Funds could
be adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation, as well as by the application to it of
other restrictions on investments.
Non-Uniform Corporate Disclosure Standards and Governmental
Regulation. Disclosure and regulatory standards in many respects are less
stringent than in the U.S. and other major markets. There also may be a lower
level of monitoring and regulation of emerging markets and the activities of
investors in such markets, and enforcement of existing regulations has been
extremely limited. Foreign companies are subject to accounting, auditing and
financial standards and requirements that differ in some cases significantly
from those applicable to U.S. companies. In particular, the assets, liabilities
and profits appearing on the financial statements of such a company may not
reflect its financial position or results of operations in the way they would be
reflected had such financial statements been prepared in accordance with U.S.
generally accepted accounting principles. Most of the securities held by the
Funds will not be registered with the SEC or regulators of any foreign country,
nor will the issuers thereof be subject to the SEC's reporting requirements.
Thus, there will be less available information concerning most foreign issuers
of securities held by the Funds than is available concerning U.S. issuers. In
instances where the financial statements of an issuer are not deemed to reflect
accurately the financial situation of the issuer, the Sub-advisor will take
appropriate steps to evaluate the proposed investment, which may include on-site
inspection of the issuer, interviews with its management and consultations with
accountants, bankers and other specialists. There is substantially less publicly
available information about foreign companies than there are reports and ratings
published about U.S. companies and the U.S. government. In addition, where
public information is available, it may be less reliable than such information
regarding U.S. issuers. Issuers of securities on foreign jurisdictions are
generally not subject to the same degree of regulation as are U.S. issuers with
respect to such matters as restrictions on market manipulation, insider trading
rules, shareholder proxy requirements and timely disclosure of information. In
addition, for companies that keep accounting records in local currency,
inflation accounting rules in some Latin American countries require, for both
tax and accounting purposes, that certain assets and liabilities be restated on
the company's balance sheet in order to express items in terms of currency of
constant purchasing power. Inflation accounting may indirectly generate losses
or profits.
Currency Fluctuations. Because the Funds, under normal circumstances, each
will invest a substantial portion of its total assets in the securities of
foreign issuers which are denominated in foreign currencies, the strength or
weakness of the U.S. dollar against such foreign currencies will account for
part of each Fund's investment performance. A decline in the value of any
particular currency against the U.S. dollar will cause a decline in the U.S.
dollar value of a Fund's holdings of securities and cash denominated in such
currency and, therefore, will cause an overall decline in the Fund's net asset
value and any net investment income and capital gains derived from such
securities to be distributed in U.S. dollars to shareholders of that Fund.
Moreover, if the value of the foreign currencies in which a Fund receives its
income falls relative to the U.S. dollar between receipt of the income and the
making of Fund distributions, the Fund may be required to liquidate securities
in order to make distributions if the Fund has insufficient cash in U.S. dollars
to meet distribution requirements.
Currencies generally are evaluated on the basis of fundamental economic
criteria (e.g., relative inflation and interest rate levels and trends, growth
rate forecasts, balance of payments status and economic policies) as well as
technical and political data. The rate of exchange between the U.S. dollar and
other currencies is determined by several factors including the supply and
demand for particular currencies, central bank efforts to support particular
currencies, the movement of interest rates, the pace of business activity in
certain other countries and the United States, international balance of payments
and other economic and financial conditions, government intervention,
speculation and other factors affecting the world economy. If the currency in
which a security is denominated appreciates against the U.S. dollar, the dollar
value
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of the security will increase. Conversely, a decline in the exchange rate of the
currency would adversely affect the value of the security expressed in dollars.
Some countries also may have fixed currencies where values against the U.S.
dollar are not independently determined. In addition, there is a risk that
certain countries may restrict the free conversion of their currencies into
other currencies. Further, certain currencies may not be internationally traded.
Although the Funds value their assets daily in terms of U.S. dollars, they do
not intend to convert their holdings of foreign currencies into U.S. dollars on
a daily basis. The Funds will do so from time to time, and investors should be
aware of the costs of currency conversion. Although foreign exchange dealers do
not charge a fee for conversion, they do realize a profit based on the
difference ("spread") between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to a
Fund at one rate, while offering a lesser rate of exchange should a Fund desire
to sell that currency to the dealer.
Many of the currencies of emerging market countries including Latin American
countries, have experienced steady devaluations relative to the U.S. dollar, and
major devaluations have historically occurred in certain countries. Any
devaluations in the currencies in which a Fund's portfolio securities are
denominated may have a detrimental impact on the Fund.
Certain Latin American countries may have managed currencies which are
maintained at artificial levels to the U.S. dollar rather than at levels
determined by the market. This type of system can lead to sudden and large
adjustments in the currency which, in turn, can have a disruptive and negative
effect on foreign investors. For example, in late 1994 the value of the Mexican
peso lost more than one-third of its value relative to the dollar. Certain Latin
American countries also may restrict the free conversion of their currency into
foreign currencies, including the U.S. dollar. There is no significant foreign
exchange market for certain currencies and it would, as a result, be difficult
for the Funds to engage in foreign currency transactions designed to protect the
value of the Funds' interests in securities denominated in such currencies.
Some countries also may have fixed currencies whose values against the U.S.
dollar are not independently determined. In addition, there is a risk that
certain countries may restrict the free conversion of their currencies into
other currencies. Further, certain currencies may not be internationally traded.
Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the
Netherlands, Portugal, and Spain are members of the European Economic and
Monetary Union (the "EMU"). The EMU has established a common European currency
for participating countries which will be known as the "euro." Each
participating country has supplemented its existing currency with the euro on
January 1, 1999, and will replace its existing 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 after January 1,
1999.
The expected introduction of the euro presents unique risks and uncertainties,
including how outstanding financial contracts will be treated after January 1,
1999; the establishment of exchange rates for existing currencies and the euro;
and the creation of suitable clearing and settlement systems for the euro. These
and other factors could cause market disruptions after the introduction of the
euro and could adversely affect the value of securities held by a Fund.
Adverse Market Characteristics. Securities of many foreign issuers may be less
liquid and their prices more volatile than securities of comparable U.S.
issuers. In addition, foreign securities markets and brokers generally are
subject to less governmental supervision and regulation than in the United
States and foreign securities transactions usually are subject to fixed
commissions, which generally are higher than negotiated commissions on U.S.
transactions. In addition, foreign securities transactions may be subject to
difficulties associated with the settlement of such transactions. Delays in
settlement could result in temporary periods when assets of the Funds are
uninvested and no return is earned thereon. The inability of a Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive opportunities. Inability to dispose of a portfolio security due
to settlement problems either could result in losses to a Fund due to subsequent
declines in value of the portfolio security or, if the Fund has entered into a
contract to sell the security, could result in possible liability to the
purchaser. The Sub-advisor will consider such difficulties when determining the
allocation of the Funds' assets, although the Sub-advisor does not believe that
such difficulties will have a material adverse effect on the Funds' portfolio
trading activities.
Each Fund may use foreign custodians, which are generally more expensive than
those in the U.S. and may involve risks in addition to those related to the use
of U.S. custodians. Such risks include uncertainties relating to (i) determining
and monitoring the financial strength, reputation and standing of the foreign
custodian, (ii) maintaining appropriate safeguards to protect a Fund's
investments and (iii) possible difficulties in obtaining and enforcing judgments
against such custodians. and (iv) different settlement and clearance procedures
which may be unable to keep pace with the volume of securities transactions,
making it difficult to conduct such transactions. The inability of a Fund to
make intended securities
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<PAGE> 662
purchases due to settlement problems could cause a Fund to miss attractive
investment opportunities. Inability to dispose of a portfolio security caused by
settlement problems could result either in losses to a Fund due to subsequent
declines in value of the portfolio security or, if a Fund has entered into a
contract to sell the security, could result in possible liability to the
purchaser.
A high proportion of the shares of many Latin American companies may be held
by a limited number of persons, which may further limit the number of shares
available for investment by the Funds, particularly Latin American Fund. A
limited number of issuers in most, if not all, Latin American securities markets
may represent a disproportionately large percentage of market capitalization and
trading value. The limited liquidity of Latin American securities markets also
may affect a Fund's ability to acquire or dispose of securities at the price and
time it wishes to do so. In addition, certain Latin American securities markets,
including those of Argentina, Brazil, Chile and Mexico, are susceptible to being
influenced by large investors trading significant blocks of securities or by
large dispositions of securities resulting from the failure to meet margin calls
when due.
The high volatility of certain Latin American securities markets is evidenced
by dramatic movements in the Brazilian and Mexican markets in recent years. This
market volatility may result in greater volatility in a Fund's net asset value
than would be the case for companies investing in domestic securities. If a Fund
were to experience unexpected net redemptions, it could be forced to sell
securities in its portfolio without regard to investment merit, thereby
decreasing the asset base over which Fund expenses can be spread and possibly
reducing the Fund's rate of return.
Withholding Taxes. Each Fund's net investment income from securities of
foreign issuers may be subject to withholding taxes by the foreign issuer's
country, thereby reducing that income or delaying the receipt of income where
those taxes may be recaptured. See "Taxes."
Concentration. To the extent a Fund invests a significant portion of its
assets in securities of issuers located in a particular country or region of the
world, it may be subject to greater risks and may experience greater volatility
than a fund that is more broadly diversified geographically.
Special Considerations Affecting Emerging Markets. Investing in equity
securities of companies in emerging markets may entail greater risks than
investing in equity securities in developed countries. These risks include (i)
less social, political and economic stability; (ii) the small current size of
the markets for such securities and the currently low or nonexistent volume of
trading, which result in a lack of liquidity and in greater price volatility;
(iii) certain national policies which may restrict a Fund's investment
opportunities, including restrictions on investment in issuers or industries
deemed sensitive to national interests; (iv) foreign taxation; and (v) the
absence of developed structures governing private or foreign investment or
allowing for judicial redress for injury to private property.
Investing in the securities of companies in emerging markets, including the
markets of Latin America and certain Asian markets such as Taiwan, Malaysia and
Indonesia, may entail special risks relating to potential political and economic
instability and the risks of expropriation, nationalization, confiscation or the
imposition of restrictions on foreign investment, convertibility into U.S.
dollars and on repatriation of capital invested. In the event of such
expropriation, nationalization or other confiscation by any country, a Fund
could lose its entire investment in any such country.
Emerging securities markets, such as the markets of Latin America, are
substantially smaller, less developed, less liquid and more volatile than the
major securities markets. The limited size of emerging securities markets and
limited trading value in issuers compared to the volume of trading in U.S.
securities could cause prices to be erratic for reasons apart from factors that
affect the quality of the securities. For example, limited market size may cause
prices to be unduly influenced by traders who control large positions. Adverse
publicity and investors' perceptions, whether or not based on fundamental
analysis, may decrease the value and liquidity of portfolio securities,
especially in these markets. In addition, securities traded in certain emerging
markets may be subject to risks due to the inexperience of financial
intermediaries, a lack of modern technology, the lack of a sufficient capital
base to expand business operations, and the possibility of permanent or
temporary termination of trading.
In addition, brokerage commissions, custodial services and other costs
relating to investment in foreign markets generally are more expensive than in
the United States, particularly with respect to emerging markets. Such markets
have different settlement and clearance procedures. In certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
The inability of a Fund to make intended securities purchases due to settlement
problems could cause it to miss attractive investment opportunities. Inability
to dispose of a portfolio security caused by settlement problems could result
either in losses to the Fund due to subsequent declines in value of the
portfolio security or, if the Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser.
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The securities markets of emerging countries including Latin American
countries are substantially smaller, less developed, less liquid and more
volatile than the securities markets of the developed countries. The risk also
exists that an emergency situation may arise in one or more emerging markets as
a result of which trading of securities may cease or may be substantially
curtailed and prices for a Fund's portfolio securities in such markets may not
be readily available. Section 22(e) of the 1940 Act permits registered
investment companies, such as the Funds, to suspend redemption of its shares for
any period during which an emergency exists, as determined by the SEC.
Accordingly, when a Fund believes that circumstances dictate, it will promptly
apply to the SEC for a determination that such an emergency exists within the
meaning of Section 22(e) of the 1940 Act. During the period commencing from a
Fund's identification of such conditions until the date of any SEC action, a
Fund's portfolio securities in the affected markets will be valued at fair value
determined in good faith by or under the direction of the Trust's Board of
Trustees.
Settlement mechanisms in emerging securities markets may be less efficient and
reliable than in more developed markets. In such emerging securities there may
be share registration and delivery delays or failures.
Many emerging market countries, including markets in Latin America, have
experienced substantial, and in some periods extremely high, rates of inflation
for many years. This has, in turn, lead to high interest rates, extreme measures
by governments to keep inflation in check and a generally debilitating effect on
economic growth. Inflation and rapid fluctuations in inflation rates and
corresponding currency devaluations have had and may continue to have negative
effects on the economies and securities markets of certain emerging market
countries, including markets in Latin America.
Special Considerations Affecting Russia and Eastern European
Countries. Investing in Russia and Eastern European countries involves a high
degree of risk and special considerations not typically associated with
investing in the U.S. securities markets and should be considered highly
speculative. Such risks include the following: (1) delays in settling portfolio
transactions and risk of loss arising out of the system of share registration
and custody; (2) the risk that it may be impossible or more difficult than in
other countries to obtain and/or enforce a judgement; (3) pervasiveness of
corruption and crime in the economic system; (4) currency exchange rate
volatility and the lack of available currency hedging instruments; (5) higher
rates of inflation (including the risk of social unrest associated with periods
of hyper-inflation) and high unemployment; (6) controls on foreign investment
and local practices disfavoring foreign investors and limitations on
repatriation of invested capital, profits and dividends, and on the ability of
Developing Markets Fund [and Emerging Markets Fund] to exchange local currencies
for U.S. dollars; (7) political instability and social unrest and violence; (8)
the risk that the governments of Russia and Eastern European countries may
decide not to continue to support the economic reform programs implemented
recently and could follow radically different political and/or economic policies
to the detriment of investors, including non-market-oriented policies such as
the support of certain industries at the expense of other sectors or investors,
or a return to the centrally planned economy that existed when such countries
had a communist form of government; (9) the financial condition of companies in
these countries, including large amounts of inter-company debt which may create
a payments crisis on a national scale; (10) dependency on exports and the
corresponding importance of international trade; (11) the risk that the tax
system in these countries will not be reformed to prevent inconsistent,
retroactive and/or exorbitant taxation; and (12) the underdeveloped nature of
the securities markets.
Special Considerations Affecting Pacific Region Countries. Certain of the
risks associated with international investments are heightened for investments
in Pacific region countries. For example, some of the currencies of Pacific
region countries have experienced steady devaluations relative to the U.S.
dollar, and major adjustments have been made periodically in certain of such
currencies. Certain countries, such as India, face serious exchange constraints.
Many of the Asia Pacific region countries may be subject to a greater degree
of social, political and economic instability than is the case in the United
States. Such instability may result from, among other things, the following: (i)
authoritarian governments or military involvement in political and economic
decision making, and changes in government through extra-constitutional means;
(ii) popular unrest associated with demands for improved political, economic and
social conditions; (iii) internal insurgencies; (iv) hostile relations with
neighboring countries; and (v) ethnic, religious and racial disaffection. Such
social, political and economic instability could significantly disrupt the
principal financial markets in which Developing Markets Fund and Emerging
Markets Fund invest and adversely affect the value of such Funds' assets. In
addition, asset expropriations or future confiscatory levels of taxation
possibly may affect the Funds.
Several of the Asia Pacific region countries have, or in the past have had,
hostile relationships with neighboring nations or have experienced internal
insurgency. Thailand has experienced border conflicts with Laos and Cambodia,
and India is engaged in border disputes with several of its neighbors, including
China and Pakistan. An uneasy truce exists between North Korea and South Korea,
and the recurrence of hostilities remains possible. Reunification of North Korea
and South Korea could have a detrimental effect on the economy of South Korea.
Also, China continues to claim sovereignty over Taiwan and recently has
conducted military maneuvers near Taiwan.
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The economies of most of the Asia Pacific region countries are heavily
dependent upon international trade and are accordingly affected by protective
trade barriers and the economic conditions of their trading partners,
principally the United States, Japan, China and the European Community. The
enactment by the United States or other principal trading partners of
protectionist trade legislation, reduction of foreign investment in the local
economies and general declines in the international securities markets could
have a significant adverse effect upon the securities markets of the Asia
Pacific region countries. In addition, the economies of some of the Asia Pacific
region countries, Australia and Indonesia, for example, are vulnerable to
weakness in world prices for their commodity exports, including crude oil.
China recently assumed sovereignty over Hong Kong in July 1997. Although China
has committed by treaty to preserve the economic and social freedoms enjoyed in
Hong Kong for fifty years, the continuation of the current form of the economic
system in Hong Kong will depend on the actions of the government of China. In
addition, such assumption of sovereignty has increased sensitivity in Hong Kong
to political developments and statements by public figures in China. Business
confidence in Hong Kong, therefore, can be significantly affected by such
developments and statements, which in turn can affect markets and business
performance.
In addition, there is continuing risk that the Hong Kong dollar will be
devalued and a risk of possible loss of investor confidence in the Hong Kong
markets and dollar. However, factors exist that are likely to mitigate this
risk. First, China has stated its intention to implement a "one country, two
systems" policy, which would preserve monetary sovereignty and leave control in
the hands of the Hong Kong Monetary Authority ("HKMA").
Second, fixed rate parity with the U.S. dollar is seen as critical to
maintaining investors' confidence in the transition to Chinese rule, and,
therefore, it is anticipated that, if international investors lose confidence in
Hong Kong dollar assets, the HKMA would take steps to support the currency,
though such intervention cannot be assured. Third, Hong Kong's and China's
sizable combined foreign exchange reserve may be used to support the value of
the Hong Kong dollar, provided that China does not appropriate such reserves for
other uses, which is not anticipated but cannot be assured. Finally, China would
be likely to experience significant adverse political and economic consequences
if confidence in the Hong Kong dollar and the territory assets were to be
endangered.
Special Considerations Affecting Latin American Countries. Most Latin American
countries have experienced substantial, and in some periods extremely high,
rates of inflation for many years. Inflation and rapid fluctuations in inflation
rates have had and may continue to have very negative effects on the economies
and securities markets of certain Latin American countries. Certain Latin
American countries are also among the largest debtors to commercial banks and
foreign governments. At times certain Latin American countries have declared
moratoria on the payment of principal and/or interest on external debt. The
Funds, particularly the Latin American Fund, may invest in debt securities,
including Brady Bonds, issued as part of debt restructurings and such debt is to
be considered speculative. There is a history of defaults with respect to
commercial bank loans by public and private entities issuing Brady Bonds. In
addition, certain Latin American securities markets have experienced high
volatility in recent years.
The securities markets of Latin American countries are substantially smaller,
less developed, less liquid and more volatile than the major securities markets
in the United States. Latin American countries may also close certain sectors of
their economies to equity investments by foreigners. The limited size of many
Latin American securities markets and limited trading volume in issuers compared
to volume of trading in U.S. securities could cause prices to be erratic for
reasons apart from factors that affect the quality of the securities. For
example, limited market size may cause prices to be unduly influenced by traders
who control large positions. Adverse publicity and investors' perceptions,
whether or not based on fundamental analysis, may decrease the value and
liquidity of portfolio securities, especially in these markets. Further due to
the absence of securities markets and publicly owned corporations and due to
restrictions on direct investment by foreign entities, investments may only be
made in certain Latin American countries solely or primarily through
governmentally approved investment vehicles or companies.
Certain Latin American countries may have managed currencies that are
maintained at artificial levels to the U.S. dollar rather than at levels
determined by the market. This type of system can lead to sudden and large
adjustments in the currency which, in turn, can have a disruptive and negative
effect on foreign investors. For example, in late 1994, the value of the Mexican
peso lost more than one-third of its value relative to the U.S. dollar.
It should be noted that some Latin American countries require governmental
approval for the repatriation of investment income, capital or the proceeds of
securities sales by foreign investors. For instance, at present, capital
invested directly in Chile cannot under most circumstances be repatriated for at
least one year. The Funds, particularly Latin American Fund, could be adversely
affected by delays in, or a refusal to grant, any required governmental approval
for repatriation, as well as by the application to it of other restrictions on
investments.
33
<PAGE> 665
Sovereign Debt. Each Fund may invest in sovereign debt securities of emerging
market governments. Investments in such securities involve special risks. The
issuer of the debt or the governmental authorities that control the repayment of
the debt may be unable to unwilling to repay principal or interest when due in
accordance with the terms of such debt. Periods of economic uncertainty may
result in the volatility of market prices of sovereign debt obligations and in
turn a Fund's net asset value, to a greater extent than the volatility inherent
in domestic fixed income securities. Sovereign Debt generally offers high
yields, reflecting not only perceived credit risk, but also the need to compete
with other local investments in domestic financial markets. Certain Latin
American countries are among the largest debtors to commercial banks and foreign
governments. A sovereign debtor's willingness or ability to repay principal and
interest due in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign reserves, the availability of
sufficient foreign exchange on the date a payment is due, the relative size of
the debt service burden to the economy as a whole, the sovereign debtor's policy
towards the International Monetary Fund and the political constraints to which a
sovereign debtor may be subject. Sovereign debtors may default on their
Sovereign Debt. Sovereign debtors may also be dependent on expected
disbursements from foreign governments, multilateral agencies and others abroad
to reduce principal and interest arrearages on their debt. The commitment on the
part of these governments, agencies and others to make such disbursements may be
conditioned on a sovereign debtor's implementation of economic reforms and/or
economic performance and the timely service of such debtor's obligations.
Failure to implement such reforms, achieve such levels of economic performance
or repay principal or interest when due, may result in the cancellation of such
third parties' commitments to lend funds to the sovereign debtor, which may
further impair such debtor's ability or willingness to timely service its debts.
In recent years, some of the Latin American countries in which the Funds
expect to invest have encountered difficulties in servicing their Sovereign
Debt. Some of these countries have withheld payments of interest and/or
principal of Sovereign Debt. These difficulties have also led to agreements to
restructure external debt obligations -- in particular, commercial bank loans,
typically by rescheduling principal payments, reducing interest rates and
extending new credits to finance interest payments on existing debt. In the
future, holders of Sovereign Debt may be requested to participate in similar
reschedulings of such debt. Certain emerging markets countries are among the
largest debtors to commercial banks and foreign governments. Currently, Brazil,
Mexico and Argentina are the largest debtors among developing countries. At
times, certain emerging markets countries have declared [????] on the payment of
principal and interest on external debt; such a [moratorium] is currently in
effect for certain emerging market countries. There is no bankruptcy proceeding
by which a creditor may collect in whole or in part sovereign debt on which an
emerging market government has defaulted.
The ability of Latin American governments to make timely payments on their
Sovereign Debt is likely to be influenced strongly by a country's balance of
trade and its access to trade and other international credits. A country whose
exports are concentrated in a few commodities could be vulnerable to a decline
in the international prices of one or more of such commodities. Increased
protectionism on the part of a country's trading partners could also adversely
affect its exports. Such events could diminish a country's trade account
surplus, if any. To the extent that a country receives payment for its exports
in currencies other than hard currencies, its ability to make hard currency
payments could be affected.
The occurrence of political, social or diplomatic changes in one or more of
the countries issuing Sovereign Debt could adversely affect a Fund's
investments. The countries issuing such instruments are faced with social and
political issues and some of them have experienced high rates of inflation in
recent years and have extensive internal debt. Among other effects, high
inflation and internal debt service requirements may adversely affect the cost
and availability of future domestic sovereign borrowing to finance governmental
programs, and may have other adverse social, political and economic
consequences. Political changes or a deterioration of a country's domestic
economy or balance of trade may affect the willingness of countries to service
their Sovereign Debt. While the Sub-advisor intends to manage each Fund's
portfolio in a manner that will minimize the exposure to such risks, there can
be no assurance that adverse political changes will not cause the Funds to
suffer losses of interest or principal on any of their holdings.
Sovereign debt obligations issued by emerging market governments generally are
deemed to be the equivalent in terms of quality to securities rated below
investment grade by Moody's and S&P. Such securities are regarded as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligations and involve
major risk exposure to adverse conditions. Some of such securities, with respect
to which the issuer currently may not be paying interest or may be in payment
default, may be comparable to securities rated D by S&P or C by Moody's. The
Funds may have difficulty disposing of and valuing certain sovereign debt
obligations because there may be a limited trading market for such securities.
Because there is no liquid secondary market for many of these securities, the
Funds anticipate that such securities could be sold only to a limited number of
dealers or institutional investors.
34
<PAGE> 666
Periods of economic uncertainty may result in the volatility of market prices
of Sovereign Debt and in turn, a Fund's net asset value, to a greater extent
than the volatility inherent in domestic securities. The value of Sovereign Debt
will likely vary inversely with changes in prevailing interest rates, which are
subject to considerable variance in the international market. If a Fund were to
experience unexpected net redemptions, it may be forced to sell Sovereign Debt
in its portfolio without regard to investment merit, thereby decreasing its
asset base over which Fund expenses can be spread and possibly reducing its rate
of return.
INVESTMENT LIMITATIONS
DEVELOPING MARKETS FUND
Developing Markets Fund has adopted the following investment limitations as
fundamental policies which (unless otherwise noted) may not be changed without
approval of a majority of the Fund's outstanding shares.
Developing Markets Fund may not:
(1) issue senior securities or borrow money, except as permitted under
the 1940 Act and then not in excess of 33 1/3% of Developing Markets Fund's
total assets (including the amount borrowed but reduced by any liabilities
not constituting borrowings) at the time of the borrowing, except that the
Fund may borrow up to an additional 5% of its total assets (not including
the amount borrowed) for temporary or emergency purposes;
(2) purchase any security if, as a result of that purchase, 25% or
more of Developing Markets Fund's total assets would be invested in
securities of issuers having their principal business activities in the
same industry, except that this limitation does not apply to securities
issued or guaranteed by the U.S. government, its agencies or
instrumentalities;
(3) engage in the business of underwriting securities of other
issuers, except to the extent that Developing Markets Fund might be
considered an underwriter under the federal securities laws in connection
with its disposition of portfolio securities;
(4) purchase or sell real estate, except that investments in
securities of issuers that invest in real estate and investments in
mortgage-backed securities, mortgage participations or other instruments
supported by interests in real estate are not subject to this limitation,
and except that Developing Markets Fund may exercise rights under
agreements relating to such securities, including the right to enforce
security interests and to hold real estate acquired by reason of such
enforcement until that real estate can be liquidated in an orderly manner;
(5) purchase or sell physical commodities, but Developing Markets Fund
may purchase, sell or enter into financial options and futures, forward and
spot currency contracts, swap transactions and other financial contracts or
derivative instruments; or
(6) make loans, except through loans of portfolio securities or
through repurchase agreements, provided that for purposes of this
limitation, the acquisition of bonds, debentures, other debt securities or
instruments, or participations or other interests therein and investments
in government obligations, commercial paper, certificates of deposit,
bankers' acceptances or similar instruments will not be considered the
making of a loan.
Notwithstanding any other investment policy, Developing Markets Fund may
invest all of its investable assets (cash, securities and receivables related to
securities) in an open-end management investment company having substantially
the same investment objective, policies and limitations as the Fund.
For purposes of the concentration policy of Developing Markets Fund contained
in limitation (2) above, the Fund intends to comply with the SEC staff position
that securities issued or guaranteed as to principal and interest by any one
single foreign government, or by all supranational organizations in the
aggregate, are considered to be securities of issuers in the same industry.
In addition, to comply with federal tax requirements for qualification as a
"regulated investment company" ("RIC"), Developing Markets Fund's investments
will be limited so that, at the close of each quarter of its taxable year, (a)
not more than 25% of the value of its total assets is invested in the securities
(other than U.S. government securities or the securities of other RICs) of any
one issuer and (b) at least 50% of the value of its total assets is represented
by cash and cash items, U.S. government securities, securities of other RICs and
other securities, with these other securities limited, in respect of any one
issuer, to an amount that does not exceed 5% of the value of its total assets
and that does not represent more than 10% of the issuer's outstanding voting
securities ("Diversification Requirements"). These tax-related
35
<PAGE> 667
limitations may be changed by the Company's Board of Trustees to the extent
necessary to comply with changes to applicable tax requirements.
The following investment policy of Developing Markets Fund is not a
fundamental policy and may be changed by vote of the Trust's Board of Trustees
without shareholder approval: Developing Markets Fund will not purchase
securities on margin, provided that the Fund may obtain short-term credits as
may be necessary for the clearance of purchases and sales of securities, and
further provided that the Fund may make margin deposits in connection with its
use of financial options and futures, forward and spot currency contracts, swap
transactions and other financial contracts or derivative instruments.
Investors should refer to the Developing Markets Fund's prospectus for further
information with respect to the Developing Markets Funds investment objective,
which may not be changed without the approval of its shareholders, and other
investment policies, techniques and limitations, which may be changed without
shareholder approval.
[EMERGING MARKETS FUND]
[Emerging Markets Fund has adopted the following investment limitations as
fundamental policies which (unless otherwise noted) may not be changed without
approval of a majority of the outstanding shares of the Fund.
Emerging Markets Fund may not:
(1) Purchase any security if, as a result of that purchase, 25% or
more of Emerging Markets Fund's total assets would be invested in
securities of issuers having their principal business activities in the
same industry, except that this limitation does not apply to securities
issued or guaranteed by the U.S. government, its agencies or
instrumentalities;
(2) Purchase or sell real estate, except that investments in
securities of issuers that invest in real estate and investments in
mortgage-backed securities, mortgage participations or other instruments
supported by interests in real estate are not subject to this limitation,
and except that Emerging Markets Fund may exercise rights under agreements
relating to such securities, including the right to enforce security
interests and to hold real estate acquired by reason of such enforcement
until that real estate can be liquidated in an orderly manner;
(3) Purchase or sell physical commodities, but Emerging Markets Fund
may purchase, sell or enter into financial options and futures, forward and
spot currency contracts, swap transactions and other financial contracts or
derivative instruments;
(4) Engage in the business of underwriting securities of other
issuers, except to the extent that Emerging Markets Fund might be
considered an underwriter under the federal securities laws in connection
with its disposition of portfolio securities;
(5) Make loans, except through loans of portfolio securities or
through repurchase agreements, provided that for purposes of this
limitation, the acquisition of bonds, debentures, other debt securities or
instruments, or participations or other interests therein and investments
in government obligations, commercial paper, certificates of deposit,
bankers' acceptances or similar instruments will not be considered the
making of a loan;
(6) Issue senior securities or borrow money, except as permitted under
the 1940 Act and then not in excess of 33 1/3% of Emerging Markets Fund's
total assets (including the amount borrowed but reduced by any liabilities
not constituting borrowings) at the time of the borrowing, except that the
Fund may borrow up to an additional 5% of its total assets (not including
the amount borrowed) for temporary or emergency purposes; or
(7) Purchase securities of any one issuer if, as a result, more than
5% of Emerging Markets Fund's total assets would be invested in securities
of that issuer or the Fund would own or hold more than 10% of the
outstanding voting securities of that issuer, except that up to 25% of the
Fund's total assets may be invested without regard to this limitation, and
except that this limitation does not apply to securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities or to
securities issued by other investment companies.
Notwithstanding any other investment policy, Emerging Markets Fund may invest
all of its investable assets (cash, securities and receivables related to
securities) in an open-end management investment company having substantially
the same investment objective, policies and limitations as the Fund.
For purposes of Emerging Markets Fund's concentration policy contained in
limitation (1) above, the Fund intends to comply with the SEC staff position
that securities issued or guaranteed as to principal and interest by any single
foreign
36
<PAGE> 668
government or any supranational organizations in the aggregate are considered to
be securities of issuers in the same industry.
The following operating policies of Emerging Markets Fund are not fundamental
policies and may be changed by vote of the Trust's Board of Trustees without
shareholder approval. Emerging Markets Fund may not:
(1) Invest in securities of an issuer if the investment would cause
Emerging Markets Fund to own more than 10% of any class of securities of
any one issuer;
(2) Invest in companies for the purpose of exercising control or
management;
(3) Enter into a futures contract, an option on a futures contract, or
an option on foreign currency traded on a CFTC-regulated exchange, in each
case other than for bona fide hedging purposes (as defined by the CFTC), if
the aggregate initial margin and premiums required to establish all of
those positions (excluding the amount by which options are "in-the-money")
exceeds 5% of the liquidation value of Emerging Markets Fund's portfolio,
after taking into account unrealized profits and unrealized losses on any
contracts the Fund has entered into;
(4) Borrow money except for temporary or emergency purposes (not for
leveraging) not in excess of 33 1/3% of the value of Emerging Markets
Fund's total assets, except that the Fund may purchase securities when
outstanding borrowings represent less than 5% of the Fund's assets;
(5) Purchase securities on margin, provided that Emerging Markets Fund
may obtain short-term credits as may be necessary for the clearance of
purchases and sales of securities, and further provided that the Fund may
make margin deposits in connection with its use of financial options and
futures, forward and spot currency contracts, swap transactions and other
financial contracts or derivative instruments; or
(6) Mortgage, pledge, or hypothecate any of its assets, provided that
this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.
Investors should refer to the Emerging Markets Fund's Prospectus for further
information with respect to the Emerging Markets Fund's investment objective,
which may not be changed without the approval of its shareholders, and other
investment policies, techniques and limitations, which may be changed without
shareholder approval.]
LATIN AMERICAN FUND
Latin American Fund has adopted the following investment limitations as
fundamental policies which (unless otherwise noted) may not be changed without
approval a majority of the outstanding shares of the Fund.
Latin American Fund may not:
(1) Purchase any security if, as a result of that purchase, 25% or
more of Latin American Fund's total assets would be invested in securities
of issuers having their principal business activities in the same industry,
except that this limitation does not apply to securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities;
(2) Purchase or sell real estate, except that investments in
securities of issuers that invest in real estate and investments in
mortgage-backed securities, mortgage participations or other instruments
supported by interests in real estate are not subject to this limitation,
and except that Latin American Fund may exercise rights under agreements
relating to such securities, including the right to enforce security
interests and to hold real estate acquired by reason of such enforcement
until that real estate can be liquidated in an orderly manner;
(3) Engage in the business of underwriting securities of other
issuers, except to the extent that Latin American Fund might be considered
an underwriter under the federal securities laws in connection with its
disposition of portfolio securities;
(4) Make loans, except through loans of portfolio securities or
through repurchase agreements, provided that for purposes of this
limitation, the acquisition of bonds, debentures, other debt securities or
instruments, or participations or other interests therein and investments
in government obligations, commercial paper, certificates of deposit,
bankers' acceptances or similar instruments will not be considered the
making of a loan;
(5) Issue senior securities or borrow money, except as permitted under
the 1940 Act and then not in excess of 33 1/3% of Latin American Fund's
total assets (including the amount borrowed but reduced by any liabilities
not
37
<PAGE> 669
constituting borrowings) at the time of the borrowing, except that the Fund
may borrow up to an additional 5% of its total assets (not including the
amount borrowed) for temporary or emergency purposes; or
(6) Purchase or sell physical commodities, but Latin American Fund may
purchase, sell or enter into financial options and futures, forward and
spot currency contracts, swap transactions and other financial contracts or
derivative instruments.
Notwithstanding any other investment policy, Latin American Fund may invest
all of its investable assets (cash, securities and receivables related to
securities) in an open-end management investment company having substantially
the same investment objective, policies and limitations as the Fund.
For purposes of Latin American Fund's concentration policy contained in
limitation (1), above, the Fund intends to comply with the SEC staff position
that securities issued or guaranteed as to principal and interest by any single
foreign government are considered to be securities of issuers in the same
industry.
The following operating policies of Latin American Fund are not fundamental
policies and may be changed by vote of the Trust's Board of Trustees without
shareholder approval. Latin American Fund may not:
(1) Invest in securities of an issuer if the investment would cause
Latin American Fund to own more than 10% of any class of securities of any
one issuer;
(2) Invest in companies for the purpose of exercising control or
management;
(3) Invest more than 10% of its net assets in illiquid securities,
including securities that are illiquid by virtue of the absence of a
readily available market;
(4) Enter into a futures contract, an option on a futures contract, or
an option on foreign currency traded on a CFTC-regulated exchange, in each
case other than for bona fide hedging purposes (as defined by the CFTC), if
the aggregate initial margin and premiums required to establish all of
those positions (excluding the amount by which options are "in-the-money")
exceeds 5% of the liquidation value of Latin American Fund's portfolio,
after taking into account unrealized profits and unrealized losses on any
contracts the Fund has entered into;
(5) Make any additional investments while borrowings exceed 5% of
Latin American Fund's total assets;
(6) Purchase securities on margin, provided that Latin American Fund
may obtain short-term credits as may be necessary for the clearance of
purchases and sales of securities, and further provided that the Fund may
make margin deposits in connection with its use of financial options and
futures, forward and spot currency contracts, swap transactions and other
financial contracts or derivative instruments; or
(7) Mortgage, pledge, or hypothecate any of its assets, provided that
this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.
Latin American Fund has the authority to invest up to 10% of its total assets
in shares of other investment companies pursuant to the 1940 Act. The Fund may
not invest more than 5% of its total assets in any one investment company or
acquire more than 3% of the outstanding voting securities of any one investment
company.
Investors should refer to the Latin American Fund's Prospectus for further
information with respect to the Latin American Fund's investment objective,
which may not be changed without the approval of its shareholders, and other
investment policies, techniques and limitations, which may be changed without
shareholder approval.
EXECUTION OF PORTFOLIO TRANSACTIONS
Subject to policies established by the Trust's Board of Trustees, the
Sub-advisor is responsible for the execution of each Fund's portfolio
transactions and the selection of broker/dealers who execute such transactions
on behalf of the Funds. In executing portfolio transactions, the Sub-advisor
seeks the best net results for each Fund, taking into account such factors as
the price (including the applicable brokerage commission or dealer spread), size
of the order, difficulty of execution and operational facilities of the firm
involved. Although the Sub-advisor generally seeks reasonably competitive
commission rates and spreads, payment of the lowest commission or spread is not
necessarily consistent with the best net results. While the Funds may engage in
soft dollar arrangements for research services, as described below, the Funds
have no obligation to deal with any broker/dealer or group of broker/dealers in
the execution of portfolio transactions.
38
<PAGE> 670
Debt securities generally are traded on a "net" basis with a dealer acting as
principal for its own account without a stated commission, although the price of
the security usually includes a profit to the dealer. U.S. and foreign
government securities and money market instruments generally are traded in the
OTC markets. In underwritten offerings, securities usually are purchased at a
fixed price which includes an amount of compensation to the underwriter. On
occasion, securities may be purchased directly from an issuer, in which case no
commissions or discounts are paid. Broker/dealers may receive commissions on
futures, currency and options transactions.
Consistent with the interests of each Fund, the Sub-advisor may select brokers
to execute a Fund's portfolio transactions, on the basis of the research and
brokerage services they provide to the Sub-advisor for its use in managing the
Fund and its other advisory accounts. Such services may include furnishing
analyses, reports and information concerning issuers, industries, securities,
geographic regions, economic factors and trends, portfolio strategy, and
performance of accounts; and effecting securities transactions and performing
functions incidental thereto (such as clearance and settlement). Research and
brokerage services received from such brokers are in addition to, and not in
lieu of, the services required to be performed by the Sub-advisor under the
investment management and administration contracts. A commission paid to such
brokers may be higher than that which another qualified broker would have
charged for effecting the same transaction, provided that the Sub-advisor
determines in good faith that such commission is reasonable in terms either of
that particular transaction or the overall responsibility of the Sub-advisor to
a Fund and its other clients and that the total commissions paid by that Fund
will be reasonable in relation to the benefits it received over the long term.
Research services may also be received from dealers who execute Fund
transactions in OTC markets.
The Sub-advisor may allocate brokerage transactions to broker/dealers who have
entered into arrangements under which the broker/dealer allocates a portion of
the commissions paid by a Fund toward payment of the Fund's expenses, such as
transfer agent and custodian fees.
Investment decisions for each Fund and for other investment accounts managed
by the Sub-advisor are made independently of each other in light of differing
conditions. However, the same investment decision occasionally may be made for
two or more of such accounts including the Funds. In such cases, simultaneous
transactions may occur. Purchases or sales are then allocated as to price or
amount in a manner deemed fair and equitable to all accounts involved. While in
some cases this practice could have a detrimental effect upon the price or value
of the security as far as a Fund is concerned, in other cases, the Sub-advisor
believes that coordination and the ability to participate in volume transactions
will be beneficial to that Fund.
Under a policy adopted by the Trust's Board of Trustees, and subject to the
policy of obtaining the best net results, the Sub-advisor may consider a
broker/dealer's sale of the shares of a Fund and the other funds for which AIM
or the Sub-advisor serves as investment manager in selecting brokers and dealers
for the execution of portfolio transactions. This policy does not imply a
commitment to execute portfolio transactions through all broker/dealers that
sell shares of the Funds and such other funds.
Each Fund contemplates purchasing most foreign equity securities in
over-the-counter markets or stock exchanges located in the countries in which
the respective principal offices of the issuers of the various securities are
located, if that is the best available market. The fixed commissions paid in
connection with most such foreign stock transactions generally are higher than
negotiated commissions on U.S. transactions. There generally is less government
supervision and regulation of foreign stock exchanges and brokers than in the
United States. Foreign security settlements may in some instances be subject to
delays and related administrative uncertainties.
Foreign equity securities may be held by each Fund in the form of ADRs, ADSs,
EDRs, GDRs and CDRs or securities convertible into foreign equity securities.
ADRs, ADSs, EDRs, GDRs and CDRs may be listed on stock exchanges, or traded in
the OTC markets in the United States or Europe, as the case may be. ADRs, like
other securities traded in the United States, will be subject to negotiated
commission rates. The foreign and domestic debt securities and money market
instruments in which a Fund may invest generally are traded in the OTC markets.
Each Fund contemplates that, consistent with the policy of obtaining the best
net results, brokerage transactions may be conducted through certain companies
affiliated with AIM or the Sub-advisor. The Trust's Board of Trustees has
adopted procedures in conformity with Rule 17e-1 under the 1940 Act to ensure
that all brokerage commissions paid to such affiliates are reasonable and fair
in the context of the market in which they are operating. Any such transactions
will be effected and related compensation paid only in accordance with
applicable SEC regulations.
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 Boards of
Directors/Trustees of the various AIM Funds, including the Trust. These inter-
39
<PAGE> 671
fund transactions do not generate brokerage commissions but may result in
custodial fees or taxes or other related expenses.
For the fiscal year ended October 31, 1998, Developing Markets Fund paid
aggregate brokerage commissions of $ , and for the fiscal years ended
October 31, 1997 and 1996, the Predecessor Fund paid aggregate brokerage
commissions of $2,212,022 and $1,580,879, respectively. [For the fiscal years
ended October 31, 1998, 1997 and 1996, Emerging Markets Fund paid aggregate
brokerage commissions of $ , $3,274,528 and $3,648,347, respectively.]
For the fiscal years ended October 31, 1998, 1997 and 1996, Latin American Fund
paid aggregate brokerage commissions of $ , $2,719,660 and $2,094,634,
respectively.
PORTFOLIO TRADING AND TURNOVER
Each Fund engages in portfolio trading when the Sub-advisor has concluded that
the sale of a security owned by the Fund and/or the purchase of another security
of better value can enhance principal and/or increase income. A security may be
sold to avoid any prospective decline in market value, or a security may be
purchased in anticipation of a market rise. Consistent with each Fund's
investment objective, a security also may be sold and a comparable security
purchased coincidentally in order to take advantage of what is believed to be a
disparity in the normal yield and price relationship between the two securities.
Although none of the Funds generally intends to trade for short-term profits,
the securities in a Fund's portfolio will be sold whenever management believes
it is appropriate to do so, without regard to the length of time a particular
security may have been held. Portfolio turnover rate is calculated by dividing
the lesser of sales or purchases of portfolio securities by a Fund's average
month-end portfolio values, excluding short-term investments. The portfolio
turnover rate will not be a limiting factor when the Sub-advisor deems portfolio
changes appropriate. Higher portfolio turnover involves correspondingly greater
brokerage commissions and other transaction costs that a Fund will bear directly
and may result in the realization of net capital gains that are taxable when
distributed to that Fund's shareholders. For the fiscal year ended December 31,
1998, Developing Markets Fund's portfolio turnover rate was %, and for
the fiscal years ended October 31, 1997 and 1996, the Predecessor Fund's
portfolio turnover rates were 184% and 138%, respectively. [For the fiscal
years ended October 31, 1997 and 1996, Emerging Markets Fund's portfolio
turnover rates were 150% and 104%, respectively.] Latin American Fund's
portfolio turnover rates for the fiscal years ended October 31, 1997 and 1996
were 130% and 101%, respectively.
MANAGEMENT
The Trust's Board of Trustees has overall responsibility for the operation of
the Funds. The Trust's Board of Trustees has approved all significant agreements
between the Trust on the one side and persons or companies furnishing services
to the Fund on the other, including the investment management and administration
agreement with AIM, the investment sub-advisory and sub-administration agreement
between AIM and the Sub-advisor, the agreements with AIM Distributors regarding
distribution of the Fund's shares, the custody agreement and the transfer agency
agreement. The day-to-day operations of the Fund are delegated to the officers
of the Trust, subject always to the investment objectives and policies of the
Fund and to the general supervision of the Trust's Board of Trustees.
TRUSTEES AND EXECUTIVE OFFICERS
The Trust's Trustees and Executive Officers are listed below. Unless otherwise
indicated, the address of each Executive Officer is 11 Greenway Plaza, Suite
100, Houston, Texas 77046.
<TABLE>
<CAPTION>
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NAME, ADDRESS AND AGE POSITIONS HELD WITH REGISTRANT PRINCIPAL OCCUPATION WITH REGISTRANT
--------------------- ------------------------------ ------------------------------------
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<S> <C> <C>
*ROBERT H. GRAHAM (51) Trustee, Chairman of the Board Director, President and Chief Executive
and 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; and Director, AMVESCAP PLC.
- ----------------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE> 672
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
NAME, ADDRESS AND AGE POSITIONS HELD WITH REGISTRANT PRINCIPAL OCCUPATION WITH REGISTRANT
--------------------- ------------------------------ ------------------------------------
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
C. DEREK ANDERSON (57) Trustee Mr. Anderson is President, Plantagenet
220 Sansome Street Capital Management, LLC (an investment
Suite 400 partnership); Chief Executive Officer,
San Francisco, CA 94104 Plantagenet Holdings, Ltd. (an
investment banking firm); Director,
Anderson Capital Management, Inc. since
1988; Director, PremiumWear, Inc.
(formerly Munsingwear, Inc.) (a casual
apparel company) and Director, "R"
Homes, Inc. and various other
companies. Mr. Anderson is also a
trustee of each of the other investment
companies registered under the 1940 Act
that is sub-advised or sub-administered
by the Sub-advisor.
- ----------------------------------------------------------------------------------------------------
FRANK S. BAYLEY (59) Trustee Mr. Bayley is a partner of the law firm
Two Embarcadero Center of Baker & McKenzie, and serves as a
Suite 2400 Director and Chairman of C.D. Stimson
San Francisco, CA 94111 Company (a private investment company).
Mr. Bayley is also a trustee of each of
the other investment companies
registered under the 1940 Act that is
sub-advised or sub-administered by the
Sub-advisor.
- ----------------------------------------------------------------------------------------------------
ARTHUR C. PATTERSON (54) Trustee Mr. Patterson is Managing Partner of
428 University Avenue Accel Partners (a venture capital
Palo Alto, CA 94301 firm). He also serves as a director of
Viasoft and PageMart, Inc. (both public
software companies), as well as several
other privately held software and
communications companies. Mr. Patterson
is also a trustee of each of the other
investment companies registered under
the 1940 Act that is sub-advised or
sub-administered by the Sub-advisor.
- ----------------------------------------------------------------------------------------------------
RUTH H. QUIGLEY (63) Trustee Miss Quigley is a private investor.
1055 California Street From 1984 to 1986, she was President of
San Francisco, CA 94108 Quigley Friedlander & Co., Inc. (a
financial advisory services firm). Miss
Quigley is also a trustee of each of
the other investment companies
registered under the 1940 Act that is
sub-advised or sub-administered by the
Sub-advisor.
- ----------------------------------------------------------------------------------------------------
+JOHN J. ARTHUR (53) Vice President Director and Senior Vice President and
Treasurer, A I M Advisors, Inc.; Vice
President and Treasurer, A I M
Management Group Inc.
- ----------------------------------------------------------------------------------------------------
KENNETH W. CHANCEY (52) Vice President and Principal Senior Vice President -- Mutual Fund
50 California Street Accounting Officer Accounting, the Sub-advisor since 1997;
San Francisco, CA 94111 Vice President -- Mutual Fund
Accounting, the Sub-advisor from 1992
to 1997.
- ----------------------------------------------------------------------------------------------------
MELVILLE B. COX (54) Vice President Vice President and Chief Compliance
Officer, A I M Advisors, Inc., A I M
Capital Management, Inc., A I M
Distributors, Inc., A I M Fund
Services, Inc. and Fund Management
Company.
- ----------------------------------------------------------------------------------------------------
GARY T. CRUM (50) Vice President Director and President, A I M Capital
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.
- ----------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
<TABLE>
<S> <C> <C>
* A Trustee who is an "interested person" of the Trust and A I M Advisors, Inc., as defined in the
1940 Act.
</TABLE>
41
<PAGE> 673
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
NAME, ADDRESS AND AGE POSITIONS HELD WITH REGISTRANT PRINCIPAL OCCUPATION WITH REGISTRANT
--------------------- ------------------------------ ------------------------------------
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
+CAROL F. RELIHAN (44) Vice President Director, Senior Vice President,
General Counsel and Secretary, A I M
Advisors, Inc.; Senior Vice President,
General Counsel and Secretary, A I M
Management Group Inc.; Director, Vice
President and General Counsel, Fund
Management Company; Vice President and
General Counsel, A I M Fund Services,
Inc.; and Vice President, A I M Capital
Management, Inc. and A I M
Distributors, Inc.
- ----------------------------------------------------------------------------------------------------
DANA R. SUTTON (39) Vice President and Assistant Vice President and Fund Controller,
Treasurer A I M Advisors, Inc.; and Assistant
Vice President and Assistant Treasurer,
Fund Management Company.
- ----------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
+ Mr. Arthur and Ms. Relihan are married to each other.
The Board of Trustees has a Nominating and Audit Committee, comprised of Miss
Quigley (Chairman) and Messrs. Anderson, Bayley and Patterson, which is
responsible for nominating persons to serve as Trustees, reviewing audits of the
Trust and its funds and recommending firms to serve as independent auditors for
the Trust. All of the Trust's Trustees also serve as directors or trustees of
some or all of the other investment companies managed, administered or advised
by AIM. All of the Trust's Executive Officers hold similar offices with some or
all of the other investment companies managed, administered or advised by AIM.
Each Trustee who is not a director, officer or employee of the Sub-advisor or
any affiliated company is paid aggregate fees of $5,000 a year plus $300 per
Fund for each meeting of the Board attended, and reimbursed travel and other
expenses incurred in connection with attendance at such meetings. Other Trustees
and Officers receive no compensation or expense reimbursement from the Trust.
For the fiscal year ended October 31, 1998, Mr. Anderson, Mr. Bayley, Mr.
Patterson and Miss Quigley, who are not directors, officers or employees of the
Sub-advisor or any affiliated company, received total compensation of
$ , $ , $ and $ , respectively, from the
Trust for their services as Trustees. For the fiscal year ended October 31,
1998, Mr. Anderson, Mr. Bayley, Mr. Patterson and Miss Quigley, who are not
directors, officers or employees of the Sub-advisor or any other affiliated
company, received total compensation of $ , $ , $ and
$ , respectively, from the investment companies managed or administered
by AIM and sub-advised or sub-administered by the Sub-advisor for which he or
she serves as a Director or Trustee. Fees and expenses disbursed to the Trustees
contained no accrued or payable pension or retirement benefits. As of
, 1998, the Officers and Trustees and their families as a group owned
in the aggregate beneficially or of record less than 1% of the outstanding
shares of the Funds or of all the Trust's series in the aggregate.
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES
AIM serves as each Fund's investment manager and administrator under an
investment management and administration contract ("Management Contract")
between the Trust and AIM. The Sub-advisor serves as the sub-advisor and sub-
administrator to each Fund under a sub-advisory and sub-administration contract
between AIM and the Sub-advisor ("Sub-Management Contract," and together with
the Management Contract, the "Management Contracts"). As investment managers and
administrators, AIM and the Sub-advisor make all investment decisions for the
Funds and administer each Fund's affairs. AIM and the Sub-advisor also determine
the composition of each Fund's portfolio, places order to buy, sell or hold
particular securities and supervises all matters relating to the Fund's
operation. Among other things, AIM and the Sub-advisor furnish the services and
pay the compensation and travel expenses of persons who perform the executive,
administrative, clerical and bookkeeping functions of the Trust and the Funds,
and provide suitable office space, necessary small office equipment and
utilities.
The Management Contracts for each Fund may be renewed for one-year terms,
provided that any such renewal has been specifically approved at least annually
by (i) the Trust's Board of Trustees, or by the vote of a majority of a Fund's
outstanding voting securities (as defined in the 1940 Act) and (ii) a majority
of Trustees who are not parties to the Management Contracts or "interested
persons" of any such party (as defined in the 1940 Act), cast in person at a
meeting called for the specific purpose of voting on such approval. The
Management Contracts provide that with respect to each Fund, the Trust or each
of AIM or the Sub-advisor may terminate the Management Contracts without penalty
upon sixty days' written notice. The Management Contracts terminate
automatically in the event of their assignment (as defined in the 1940 Act).
42
<PAGE> 674
For these services, each Fund pays AIM investment management and
administration fees, computed daily and paid monthly, based on its average daily
net assets, at the annualized rate of 0.975% on the first $500 million, 0.95% on
the next $500 million, 0.925% on the next $500 million and 0.90% on the amounts
thereafter. Out of the aggregate fees payable by each Fund, AIM pays the
Sub-advisor sub-advisory and sub-administration fees equal to 40% of the
aggregate fees AIM receives from each Fund. The investment management and
administration fees paid by the Funds are higher than those paid by most mutual
funds. The Funds pay all expenses not assumed by AIM, the Sub-advisor, AIM
Distributors or other agents. AIM has undertaken to limit each Fund's expenses
(exclusive of brokerage commissions, taxes, interest and extraordinary expenses)
to the annual rate of 2.00% and 2.50% of the average daily net assets of each
Fund's Class A and Class B shares, respectively.
AIM also serves as the Funds' pricing and accounting agent. For these
services, AIM receives a fee based on the aggregate net assets of the funds
which comprise the following investment companies: AIM Growth Series, AIM
Investment Funds, AIM Investment Portfolios, AIM Series Trust, G.T. Global
Variable Investment Series and G.T. Global Variable Investment Trust. The fee is
calculated at the rate of 0.03% of the first $5 billion of assets, and 0.02% of
the assets in excess of $5 billion. An amount is allocated to and paid by each
such fund based on its relative average daily net assets.
AIM, 11 Greenway Plaza, Suite 100, Houston, Texas 77046, serves as the
investment manager to the Fund pursuant to a master investment management and
administrative services agreement (the "Advisory Agreement"). AIM was organized
in 1976 and, together with its subsidiaries, manages or advises approximately 90
investment company portfolios encompassing a broad range of investment
objectives. The Sub-advisor, 11 Devonshire Square, London, EC2M 4YR, England,
serves as the sub-advisor to the Fund pursuant to an investment sub-advisory and
sub-administration agreement.
AIM and the Sub-advisor and their worldwide asset management affiliates
provide investment management and/or administrative services to institutional,
corporate and individual clients around the world. AIM Management, AIM and the
Sub-advisor are both indirect wholly owned subsidiaries of AMVESCAP PLC, 11
Devonshire Square, London, EC2M 4YR, England. AMVESCAP PLC and its subsidiaries
are an independent investment management group that has a significant presence
in the institutional and retail segment of the investment management industry in
North America and Europe, and a growing presence in Asia.
In addition to the investment resources of their Houston, San Francisco and
New York offices, AIM and the Sub-advisor draw upon the expertise, personnel,
data and systems of other offices in Atlanta, Boston, Dallas, Denver,
Louisville, Miami, Portland (Oregon), Frankfurt, Hong Kong, London, Singapore,
Sydney, Tokyo and Toronto. In managing the Funds, the Sub-advisor employs a team
approach, taking advantage of its investment resources around the world.
In placing securities for a Fund's portfolio transactions, the Sub-advisor
seeks to obtain the best net results. Consistent with its obligation to obtain
the best net results, the Sub-advisor may consider a broker/dealer's sale of
shares of the AIM Funds as a factor in considering through whom portfolio
transactions will be effected. Brokerage transactions may be executed through
affiliates of AIM or the Sub-advisor. High portfolio turnover (over 100%)
involves correspondingly greater brokerage commissions and other transaction
costs that the Fund will bear directly and could result in the realization of
net capital gains which would be taxable when distributed to shareholders. See
"Dividends, Distributions and Tax Matters."
AIM is a direct, wholly owned subsidiary of A I M Management Group Inc. ("AIM
Management"), a holding company that has been engaged in the financial services
business since 1976. AIM is also the sole shareholder of the Funds' principal
underwriter, AIM Distributors.
For the fiscal years ended October 31, 1998, 1997 and 1996, each Fund paid the
Sub-advisor the following investment management and administration fees:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Developing Markets Fund*.......................... $ $7,383,823 $7,864,840
[Emerging Markets Fund............................ $ $3,907,922 $4,883,626]
Latin American Fund............................... $ $3,538,586 $3,365,375
</TABLE>
- ---------------
* The Predecessor Fund of Developing Markets Fund paid the investment management
and administration fees to the Sub-advisor for the fiscal years October 31,
1998, 1997 and December 31, 1996.
43
<PAGE> 675
DISTRIBUTION SERVICES
Each Fund's Advisor Class shares are offered continuously through the Funds'
principal underwriter and distributor, AIM Distributors, on a "best efforts"
basis pursuant to a distribution contract between the Trust and AIM Distributors
without a sales charge or a contingent deferred sales charge. [INSERT D27 TO
COME]
EXPENSES OF THE FUNDS
Each Fund pays all expenses not assumed by AIM, the Sub-advisor, AIM
Distributors and other agents. These expenses include, in addition to the
advisory, distribution, transfer agency, pricing and accounting agency and
brokerage fees discussed above, legal and audit expenses, custodian fees,
trustees' fees, organizational fees, fidelity bond and other insurance premiums,
taxes, extraordinary expenses and the expenses of reports and prospectuses sent
to existing investors. The allocation of general Trust expenses and expenses
shared among the Funds and other funds organized as series of the Trust are
allocated on a basis deemed fair and equitable, which may be based on the
relative net assets of the Funds or the nature of the services performed and
relative applicability to the Funds. Expenditures, including costs incurred in
connection with the purchase or sale of portfolio 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. The ratio of each Fund's expenses to its relative net assets can be
expected to be higher than the expense ratios of funds investing solely in
domestic securities, since the cost of maintaining the custody of foreign
securities and the rate of investment management fees paid by each Fund
generally are higher than the comparable expenses of such other funds.
NET ASSET VALUE DETERMINATION
The net asset value per share of each Fund is normally determined daily as of
the close of trading of the New York Stock Exchange ("NYSE") (generally 4:00
p.m. Eastern time) on each business day of the Funds. In the event the NYSE
closes early (i.e., before 4:00 p.m. Eastern time) on a particular day, the net
asset value of a Fund is determined as of the close of the NYSE on such day. Net
asset value per share is determined by dividing the value of a Fund's
securities, cash and other assets (including interest accrued but not collected)
attributable to a particular class, less all its liabilities (including accrued
expenses and dividends payable) attributable to that class, by the total number
of shares outstanding of that class. Determination of each Fund's net asset
value per share is made in accordance with generally accepted accounting
principles.
Each equity security held by a Fund is valued at its last sales price on the
exchange where the security is principally traded or, lacking any sales on a
particular day, the security is valued at the last available bid. Each security
traded in the over-the-counter market (but not including securities reported on
the NASDAQ National Market System) is valued at the mean between the last bid
and asked prices based upon quotes furnished by market makers for such
securities. Each security reported on the NASDAQ National Market System is
valued at the last sales price on the valuation date or absent a last sales
price, at the mean between the closing bid and asked prices on that day. Debt
securities are valued on the basis of prices provided by an independent pricing
service. Prices provided by the pricing service may be determined without
exclusive reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments related
to special securities, yield, quality, coupon rate, maturity, type of issue,
individual trading characteristics and other market data. Securities for which
market quotations are not readily available or are questionable are valued at
fair value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of Trustees.
Short-term obligations having 60 days or less to maturity are valued on the
basis of amortized cost. For purposes of determining net asset value per share,
futures and options contracts generally will be valued 15 minutes after the
close of trading of the NYSE.
Generally, trading in foreign securities, corporate bonds, U.S. Government
securities and money market instruments is substantially completed each day at
various times prior to the close of the NYSE. The values of such securities used
in computing the net asset value of each Fund's shares are determined at such
times. Foreign currency exchange rates are also generally determined prior to
the close of the NYSE. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times at which such
values are determined and the close of the NYSE which will not be reflected in
the computation of a Fund's net asset value. If events materially affecting the
value of such securities occur during such period, then these securities will be
valued at their fair value as determined in good faith by or under the
supervision of the Board of Trustees.
44
<PAGE> 676
HOW TO PURCHASE AND REDEEM SHARES
A complete description of the manner in which shares of the Funds may be
purchased appears in the Funds' Prospectuses under the headings "Purchasing
Shares -- How to Purchase Shares."
For purposes of a Letter of Intent entered into prior to June 1, 1998, any
registered investment advisor, trust company or bank trust department which
exercises investment discretion and which intends within thirteen months to
invest $500,000 or more can be treated as a single purchaser, provided further
that such entity places all purchases and redemption orders. Such entities
should be prepared to establish their qualifications for such treatment.
Complete information concerning the method of exchanging shares of the Funds
for shares of the other AIM Funds is set forth in the Prospectuses under the
heading "Exchanging Shares."
Information concerning redemption of the Funds' shares is set forth in the
Prospectuses under the heading "How to Redeem Shares." Shares of the AIM Funds
may be redeemed directly through AIM Distributors or through any
dealer/financial institution 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. No
redemption fee is imposed when Advisor Class shares are redeemed or repurchased;
however, dealers/financial institutions may charge service fees for handling
repurchase transactions. To effect a repurchase, those dealers who have executed
Selected Dealer Agreements with AIM Distributors must phone orders to the order
desk of the Funds at (800) 959-4246 and guarantee delivery of all required
documents in good order. A repurchase is effected at the net asset value per
share of the applicable Fund next determined after the repurchase order is
received. Such an arrangement is subject to timely receipt by A I M Fund
Services, Inc. ("AFS"), the Funds' transfer agent, of all required documents in
good order. If such documents are not received within a reasonable time after
the order is placed, the order is subject to cancellation. While there is no
charge imposed by a Fund or by AIM Distributors (other than any applicable
contingent deferred sales charge) when shares are redeemed or repurchased,
dealers may charge a fair service fee for handling the transaction.
The right of redemption may be suspended or the date of payment postponed when
(a) trading on the NYSE is restricted, as determined by applicable rules and
regulations of the SEC, (b) the NYSE is closed for other than customary weekend
and holiday closings, (c) the SEC has by order permitted such suspension, or (d)
an emergency as determined by the SEC exists making disposition of portfolio
securities or the valuation of the net assets of a Fund not reasonably
practicable.
A Fund's net asset value is calculated by dividing the number of outstanding
shares into the net assets of the Fund. Net assets are the excess of a Fund's
assets over its liabilities. A more detailed description of how each Fund's net
asset value is calculated appears in the Prospectuses under the heading "Net
Asset Value Determination."
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 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.
45
<PAGE> 677
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:
- a corporation
- an organization exempt from tax under Section 501(a), an individual
retirement plan (IRA), or a custodial account under Section 403(b)(7)
- the United States or any of its agencies or instrumentalities
- a state, the District of Columbia, a possession of the United States, or any
of their political subdivisions or instrumentalities
- a foreign government or any of its political subdivisions, agencies or
instrumentalities
- an international organization or any of its agencies or instrumentalities
- a foreign central bank of issue
- a dealer in securities or commodities required to register in the U.S. or a
possession of the U.S.
- a futures commission merchant registered with the Commodity Futures Trading
Commission
- a real estate investment trust
- an entity registered at all times during the tax year under the 1940 Act
- a common trust fund operated by a bank under Section 584(a)
- a financial institution
- a middleman known in the investment community as a nominee or listed in the
most recent publication of the American Society of Corporate Secretaries,
Inc., Nominee List
- a trust exempt from tax under Section 664 or described in Section 4947
Investors should contact the IRS if they have any questions concerning
entitlement to an exemption from backup withholding.
NOTE: Section references are to sections of the Code.
IRS PENALTIES -- Investors who do not supply the AIM Funds with a correct TIN
will be subject to a $50 penalty imposed by the IRS unless such failure is due
to reasonable cause and not willful neglect. If an investor falsifies
information on this form or makes any other false statement resulting in no
backup withholding on an account which should be subject to backup withholding,
such investor may be subject to a $500 penalty imposed by the IRS and to certain
criminal penalties including fines and/or imprisonment.
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.
46
<PAGE> 678
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
GENERAL
Each Fund is treated as a separate corporation for federal income tax
purposes. To continue to qualify for treatment as a RIC under the Code, each
Fund must distribute to its shareholders for each taxable year at least 90% of
its investment company taxable income (consisting generally of net investment
income, net short-term capital gain and net gains from certain foreign currency
transactions) ("Distribution Requirement") and must meet several additional
requirements. These requirements include the following: (1) the Fund must derive
at least 90% of its gross income each taxable year from dividends, interest,
payments with respect to securities loans and gains from the sale or other
disposition of securities or foreign currencies, or other income (including
gains from options, Futures or Forward Contracts) derived with respect to its
business of investing in securities or those currencies ("Income Requirement");
and (2) the Diversification Requirements.
Dividends and other distributions declared by a Fund in, and payable to
shareholders of record as of a date in, October, November or December of any
year will be deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if the distributions are paid by the
Fund during the following January. Accordingly, those distributions will be
taxed to shareholders for the year in which that December 31 falls.
If Fund shares are sold at a loss after being held for six months or less, the
loss will be treated as long-term, instead of short-term, capital loss to the
extent of any capital gain distributions received on those shares. Investors
also should be aware that if shares are purchased shortly before the record date
for any dividend or other distribution, the shareholder will pay full price for
the shares and receive some portion of the price back as a taxable distribution.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to
the extent it fails to distribute by the end of any calendar year substantially
all of its ordinary income for that year and capital gain net income for the
one-year period ending on October 31 of that year, plus certain other amounts.
FOREIGN TAXES
Dividends and interest received by each Fund, and gains realized thereby, may
be subject to income, withholding or other taxes imposed by foreign countries
and U.S. possessions ("foreign taxes") that would reduce the yield and/or total
return on its securities. Tax conventions between certain countries and the
United States may reduce or eliminate foreign taxes, however, and many foreign
countries do not impose taxes on capital gains in respect of investments by
foreign investors. If more than 50% of the value of a Fund's total assets at the
close of its taxable year consists of securities of foreign corporations, the
Fund will be eligible to, and may, file an election with the Internal Revenue
Service that will enable its shareholders, in effect, to receive the benefit of
the foreign tax credit with respect to any foreign taxes paid by it. Pursuant to
the election, the Fund would treat those taxes as dividends paid to its
shareholders and each shareholder would be required to (1) include in gross
income, and treat as paid by him, his share of those taxes, (2) treat his share
of those taxes and of any dividend paid by the Fund that represents income from
foreign and U.S. possessions sources as his own income from those sources and
(3) either deduct the taxes deemed paid by him in computing his taxable income
or, alternatively, use the foregoing information in calculating the foreign tax
credit against his federal income tax. Each Fund will report to its shareholders
shortly after each taxable year their respective shares of the Fund's foreign
taxes and income from sources within, and taxes paid to, foreign countries and
U.S. possessions if it makes this election. Pursuant to the Taxpayer Relief Act
of 1997 ("Tax Act"), individuals who have no more than $300 ($600 for married
persons filing jointly) of creditable foreign taxes included on Form 1099 and
all of whose foreign source income is "qualified passive income" may elect each
year to be exempt from the extremely complicated foreign tax credit limitation
and will be able to claim a foreign tax credit without having to file the
detailed Form 1116 that otherwise is required.
PASSIVE FOREIGN INVESTMENT COMPANIES
Each Fund may invest in the stock of "passive foreign investment companies"
("PFICs"). A PFIC is a foreign corporation -- other than a "controlled foreign
corporation" (i.e., a foreign corporation in which, on any day during its
taxable year, more than 50% of the total voting power of all voting stock
therein or the total value of all stock therein is owned, directly, indirectly
or constructively, by "U.S. shareholders," defined as U.S. persons that
individually own, directly, indirectly or constructively, at least 10% of that
voting power) as to which a Fund is a U.S. shareholder (effective with respect
to each Fund for its taxable year beginning November 1, 1998) -- that, in
general, meets either of the following tests: (1) at least 75% of its gross
income is passive or (2) an average of at least 50% of its assets produce, or
47
<PAGE> 679
are held for the production of, passive income. Under certain circumstances, a
Fund will be subject to federal income tax on a portion of any "excess
distribution" received on, or of any gain from the disposition of, stock of a
PFIC (collectively "PFIC income"), plus interest thereon, even if the Fund
distributes the PFIC income as a taxable dividend to its shareholders. The
balance of the PFIC income will be included in the Fund's investment company
taxable income and, accordingly, will not be taxable to it to the extent it
distributes that income to its shareholders.
If a Fund invests in a PFIC and elects to treat the PFIC as a "qualified
electing fund" ("QEF"), then in lieu of the foregoing tax and interest
obligation, the Fund would be required to include in income each year its pro
rata share of the QEF's ordinary earnings and net capital gain (i.e., the excess
of net long-term capital gain over net short-term capital loss) -- which most
likely would have to be distributed by the Fund to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax -- even if those earnings and
gain were not received by the Fund from the QEF. In most instances it will be
very difficult, if not impossible, to make this election because of certain
requirements thereof.
Effective for its taxable year beginning November 1, 1998, each Fund may elect
to "mark to market" its stock in any PFIC. "Marking-to-market," in this context,
means including in ordinary income each taxable year the excess, if any, of the
fair market value of the stock over a Fund's adjusted basis therein as of the
end of that year. Pursuant to the election, a Fund also will be allowed to
deduct (as an ordinary, not capital, loss) the excess, if any, of its adjusted
basis in PFIC stock over the fair market value thereof as of the taxable
year-end, but only to the extent of any net mark-to-market gains with respect to
that stock included in income by the Fund for prior taxable years. A Fund's
adjusted basis in each PFIC's stock subject to the election will be adjusted to
reflect the amounts of income included and deductions taken thereunder.
Regulations proposed in 1992 provided a similar election with respect to the
stock of certain PFICs.
NON-U.S. SHAREHOLDERS
Dividends paid by a Fund to a shareholder who, as to the United States, is a
nonresident alien individual, nonresident alien fiduciary of a trust or estate,
foreign corporation or foreign partnership ("foreign shareholder") generally
will be subject to U.S. withholding tax (at a rate of 30% or lower treaty rate).
Withholding will not apply, however, to a dividend paid by a Fund to a foreign
shareholder that is "effectively connected with the conduct of a U.S. trade or
business," in which case the reporting and withholding requirements applicable
to domestic shareholders will apply. A distribution of net capital gain by a
Fund to a foreign shareholder generally will be subject to U.S. federal income
tax (at the rates applicable to domestic persons) only if the distribution is
"effectively connected" or the foreign shareholder is treated as a resident
alien individual for federal income tax purposes.
OPTIONS, FUTURES AND FOREIGN CURRENCY TRANSACTIONS
Each Fund's use of hedging transactions, such as selling (writing) and
purchasing options and Futures and entering into Forward Contracts, involves
complex rules that will determine, for federal income tax purposes, the amount,
character and timing of recognition of the gains and losses a Fund realizes in
connection therewith. Gains from the disposition of foreign currencies (except
certain gains that may be excluded by future regulations), and gains from
options, Futures and Forward Contracts derived by a Fund with respect to its
business of investing in securities or foreign currencies, will qualify as
permissible income under the Income Requirement.
Futures and Forward Contracts that are subject to section 1256 of the Code
(other than those that are part of a "mixed straddle") ("Section 1256
Contracts") and that are held by a Fund at the end of its taxable year generally
will be deemed to have been sold at that time at market value for federal income
tax purposes. Sixty percent of any net gain or loss recognized on these deemed
sales, and 60% of any net gain or loss realized from any actual sales of Section
1256 Contracts, will be treated as long-term capital gain or loss, and the
balance will be treated as short-term capital gain or loss. That 60% portion
will qualify for the reduced maximum tax rates on noncorporate taxpayers' net
capital gain enacted by the Tax Act -- 20% (10% for taxpayers in the 15%
marginal tax bracket) for gain recognized on capital assets held for more than
18 months -- instead of the 28% rate in effect before that legislation, which
now applies to gain recognized on capital assets held for more than one year but
not more than 18 months.
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<PAGE> 680
Section 988 of the Code also may apply to gains and losses from transactions
in foreign currencies, foreign-currency-denominated debt securities and options,
Futures and Forward Contracts on foreign currencies ("Section 988" gains and
losses). Each Section 988 gain or loss generally is computed separately and
treated as ordinary income or loss. In the case of overlap between sections 1256
and 988, special provisions determine the character and timing of any income,
gain or loss. The Funds attempt to monitor section 988 transactions to minimize
any adverse tax impact.
If a Fund has an "appreciated financial position" -- generally, an interest
(including an interest through an option, Futures or Forward Contract or short
sale) with respect to any stock, debt instrument (other than "straight debt") or
partnership interest the fair market value of which exceeds its adjusted
basis -- and enters into a "constructive sale" of the same or substantially
similar property, the Fund will be treated as having made an actual sale
thereof, with the result that gain will be recognized at that time. A
constructive sale generally consists of a short sale, an offsetting notional
principal contract or Futures or Forward Contract entered into by a Fund or a
related person with respect to the same or substantially similar property. In
addition, if the appreciated financial position is itself a short sale or such a
contract, acquisition of the underlying property or substantially similar
property will be deemed a constructive sale.
The foregoing is a general and abbreviated summary of certain federal tax
considerations affecting each Fund and its shareholders. Investors are urged to
consult their own tax advisors for more detailed information and for information
regarding any foreign, state and local taxes applicable to distributions
received from the Funds.
SHAREHOLDER INFORMATION
This information supplements the discussion in each Fund's Prospectus under
the title "Shareholder Information."
[TIMING OF PURCHASE ORDERS
Orders for the purchase of Advisor Class shares received prior to the close of
regular trading on the New York Stock Exchange ("NYSE"), which is generally 4:00
p.m. Eastern Time (and which is hereinafter referred to as "NYSE Close"), on any
business day of an AIM Fund will be confirmed at the price next determined.
Orders received after NYSE Close will be confirmed at the price determined on
the next business day of the AIM Fund. Certain financial institutions (or their
designees) may be authorized to accept purchase orders on behalf of the AIM
Funds. Orders received by authorized institutions (or their designees) before
NYSE Close will be deemed to have been received by an AIM Fund on such day and
will be effected that day, provided that such orders are transmitted to the
Transfer Agent prior to the time set for receipt of such orders. It is the
responsibility of the dealer/financial institution to ensure that all orders are
transmitted on a timely basis to the Transfer Agent. Any loss resulting from the
dealer/financial institution's failure to submit an order within the prescribed
time frame will be borne by that dealer/financial institution. A "business day"
of an AIM Fund is any day on which the NYSE is open for business. It is expected
that the NYSE will be closed during the next twelve months on Saturdays and
Sundays and on the days on which New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day are observed by the NYSE.
An investor who uses a check to purchase shares will be credited with the full
number of shares purchased at the time of receipt of the purchase order, as
previously described. However, in the event of a redemption or exchange of such
shares, the investor may be required to wait up to ten business days before the
redemption proceeds are sent. This delay is necessary in order to ensure that
the check has cleared. If the check does not clear, or if any investment order
must be cancelled due to nonpayment, the investor will be responsible for any
resulting loss to an AIM Fund or to AIM Distributors.]
[SHARE CERTIFICATES
Share certificates for all AIM Funds will be issued upon written request by a
shareholder to AIM Distributors or the Transfer Agent. Otherwise, such shares
will be held on the shareholder's behalf by the applicable AIM Fund(s) and be
recorded on the books of such fund(s).]
[SPECIAL PLANS
Except as noted below, each Advisor Class Fund provides the special plans
described below for the convenience of its Advisor Class shareholders. Once
established, there is no obligation to continue to invest through a plan, and a
shareholder may terminate a plan at any time.
Special plan applications and further information, including details of any
fees which are charged to a shareholder investing through a plan, may be
obtained by written request, directed to AFS at the address provided under "How
to Purchase Shares," or by calling the Client Services Department of AFS at
(800) 959-4246. It is recommended that a
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<PAGE> 681
shareholder considering any of the plans described herein consult a tax advisor
before commencing participation in such a plan.
Automatic Dividend Investment Plan
Advisor Class shareholders may elect to have all dividends and distributions
declared by an Advisor Class Fund paid in cash or invested at net asset value
either in Advisor Class shares of the same Advisor Class Fund or invested in
shares of another Advisor Class Fund. See "Dividends, Distributions and Tax
Matters -- Dividends and Distributions" for a description of payment dates for
these options. In order to qualify to have dividends and distributions of one
Advisor Class Fund invested in shares of another Advisor Class Fund, the
following conditions must be satisfied: (a) the shareholder must have an account
balance in the dividend paying fund of at least $5,000; (b) the account must be
held in the name of the shareholder (i.e., the account may not be held in
nominee name); and (c) the shareholder must have requested and completed an
authorization relating to the reinvestment of dividends into another Advisor
Class Fund. An authorization may be given on the account application or on an
authorization form available from AIM Distributors. An Advisor Class Fund will
waive the $5,000 minimum account value requirement if the shareholder has an
account in the fund selected to receive the dividends and distributions with a
value of at least $500.
Portfolio Rebalancing Program
The Portfolio Rebalancing Program ("Program") permits eligible shareholders
with a minimum account balance of $5,000 to establish and maintain an allocation
across a range of Advisor Class Funds. The Program automatically rebalances
holdings of Advisor Class Funds to the established allocation on a periodic
basis. Under the Program, a shareholder may predesignate, on a percentage basis,
how the total value of his or her holdings in a minimum of two, and a maximum of
ten, Advisor Class Funds ("Personal Portfolio") is to be rebalanced on a
quarterly, semiannual, or annual basis.
Rebalancing under the Program will be effected through the exchange of shares
of one or more Advisor Class Funds in the shareholder's Personal Portfolio for
shares of the same class(es) of one or more other Advisor Class Funds in the
shareholder's Personal Portfolio. See "Exchange Privilege." If shares of the
Advisor Class Fund(s) in a shareholder's Personal Portfolio have appreciated
during a rebalancing period, the Program will result in shares of Advisor Class
Fund(s) that have appreciated most during the period being exchanged for shares
of Advisor Class Fund(s) that have appreciated least. Such exchanges are not
tax-free and may result in a shareholder's realizing a gain or loss, as the case
may be, for federal income tax purposes. See "Dividends, Distributions and Tax
Matters -- Dividends and Distributions." Participation in the Program does not
assure that a shareholder will profit from purchases under the Program nor does
it prevent or lessen losses in a declining market.
The Program will automatically rebalance the shareholder's Personal Portfolio
on the 28th day of the last month of the period chosen (or the immediately
preceding business day if the 28th is not a business day), subject to any
limitations below. The Program will not execute an exchange if the variance in a
shareholder's Personal Portfolio for a particular Advisor Class Fund would be 2%
or less. In predesignating percentages, shareholders must use whole percentages
and totals must equal 100%. Shareholders participating in the Program may not
request issuance of physical certificates representing an Advisor Class Fund's
shares. The AIM Funds and AIM Distributors reserve the right to modify, suspend,
or terminate the Program at any time on sixty (60) days' prior written notice to
shareholders. A request to participate in the Program must be received in good
order at least five business days prior to the next rebalancing date. Once a
shareholder establishes the Program for his or her Personal Portfolio, a
shareholder cannot cancel or change which rebalancing frequency, which Advisor
Class Funds or what allocation percentages are assigned to the Program, unless
canceled or changed in writing and received by the Transfer Agent in good order
at least five business days prior to the rebalancing date. Certain
dealers/financial institutions may charge a fee for establishing accounts
relating to the Program. Investors should contact their dealers/financial
institutions or AIM Distributors for more information.]
TERMS AND CONDITIONS OF EXCHANGES
Advisor Class shareholders of the Advisor Class Funds may participate in an
exchange privilege as described below. AIM Distributors acts as distributor for
the Advisor Class Funds which represent a range of different investment
objectives and policies.
Advisor Class shares of any Advisor Class Fund may be exchanged only for
Advisor Class shares of any other Advisor Class Fund.
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<PAGE> 682
Investors in wrap fee programs and advisory accounts interested in making an
exchange should contact their Financial Advisers to request the prospectus of an
Advisor Class Fund being considered. Other investors should contact AIM
Distributors for the appropriate prospectus.
An exchange is permitted only in the following circumstances: (a) the dollar
amount of the exchange must be at least equal to the minimum investment
applicable to the shares of the Advisor Class Fund acquired through such
exchange; (b) the shares of the Advisor Class Fund acquired through exchange
must be qualified for sale in the state in which the shareholder resides; (c)
the exchange must be made between accounts having identical registrations and
addresses; (d) the full amount of the purchase price for the shares being
exchanged must have already been received by the fund; (e) the account from
which shares have been exchanged must be coded as having a certified taxpayer
identification number on file or, in the alternative, an appropriate IRS Form
W-8 (certificate of foreign status) or Form W-9 (certifying exempt status) must
have been received by the fund; (f) newly acquired shares (through either an
initial or subsequent investment) are held in an account for at least ten
business days, and all other shares are held in an account for at least one day,
prior to the exchange; and (g) certificates representing shares must be returned
before shares can be exchanged. There is no fee for exchanges among the Advisor
Class Funds.
The current prospectus of each of the Advisor Class Funds and current
information concerning the operation of the exchange privilege are available
through AIM Distributors or through any dealer who has executed an applicable
agreement with AIM Distributors. Before exchanging shares, investors should
review the prospectuses of the funds whose shares will be acquired through
exchange. Exchanges of shares are considered to be sales for federal and state
income tax purposes and may result in a taxable gain or loss to a shareholder.
The exchange privilege is not an option or right to purchase shares but is
permitted under the respective policies of the participating funds, and may be
modified or discontinued by any of such funds or by AIM Distributors at any
time, and to the extent permitted by applicable law, without notice.
Shares of any Advisor Class Fund to be exchanged are redeemed at their net
asset value as determined at NYSE Close on the day that an exchange request in
proper form (described below) is received. Exchange requests received after NYSE
Close will result in the redemption of shares at their net asset value at NYSE
Close on the next business day. Normally, Advisor Class shares of an Advisor
Class Fund to be acquired by exchange are purchased at their net asset value
determined on the date that such request is received, but under unusual market
conditions such purchases may be delayed for up to five business days if it is
determined that an Advisor Class Fund would be materially disadvantaged by an
immediate transfer of the proceeds of the exchange. If a shareholder is
exchanging into an Advisor Class Fund that declares daily dividends ("Dividends,
Distributions and Tax Matters -- Dividends and Distributions," below), and the
release of the exchange proceeds is delayed for the foregoing five-day period,
such shareholder will not begin to accrue dividends until the sixth business day
after the exchange. Advisor Class shares purchased by check may not be exchanged
until it is determined that the check has cleared, which may take up to ten
business days from the date that the check is received. See "Timing of Purchase
Orders."
In the event of unusual market conditions, AIM Distributors reserves the right
to reject any exchange request, if, in the judgment of AIM Distributors, the
number of requests or the total value of the shares that are the subject of the
exchange places a material burden on a fund. For example, the number of
exchanges by investment managers making market timing exchanges may be limited.]
[EXCHANGES BY MAIL
Investors exchanging their Advisor Class shares by mail should send a written
request to AFS. The request should contain the account registration and account
number, the dollar amount or number of Advisor Class shares to be exchanged, and
the names of the Advisor Class Funds from which and into which the exchange is
to be made. The request should comply with all of the requirements for
redemption by mail. See "How to Redeem Shares."]
[EXCHANGES BY TELEPHONE
Shareholders or their agents may request an exchange by telephone. A
shareholder may give exchange information to his Financial Adviser. If a
shareholder does not wish to allow telephone exchanges by any person in his
account, he should decline that option on the account application. AIM
Distributors has made arrangements with certain dealers and investment advisory
firms to accept telephone instructions to exchange shares between any of the
Advisor Class Funds. AIM Distributors reserves the right to impose conditions on
dealers or investment advisors who make telephone exchanges of shares of the
Advisor Class 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 Financial Adviser, shareholder or dealer who has satisfied the
foregoing conditions must call AFS at
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<PAGE> 683
(800) 959-4246. If a Financial Adviser, shareholder or dealer is unable to reach
AFS by telephone, he may also request exchanges by telegraph or use overnight
courier services to expedite exchanges by mail, which will be effective on the
business day received by the Transfer Agent as long as such request is received
prior to NYSE Close. The Transfer Agent and AIM Distributors will not be liable
for any loss, expense or cost arising out of any telephone exchange request that
they reasonably believe to be genuine, but may in certain cases be liable for
losses due to unauthorized or fraudulent transactions if they do not follow
reasonable procedures for verification of telephone transactions. Such
reasonable procedures may include recordings of telephone transactions
(maintained for six months), requests for confirmation of the shareholder's
Social Security Number and current address, and mailings of confirmations
promptly after the transaction.]
[REDEMPTIONS BY MAIL
Redemption requests must be in writing and sent to the Transfer Agent. Upon
receipt of a redemption request in proper form, payment will be made as soon as
practicable, but in any event will normally be made within seven days after
receipt. However, in the event of a redemption of shares purchased by check, the
investor may be required to wait up to ten business days before the redemption
proceeds are sent. See "Terms and Conditions of Purchase of the AIM Funds --
Timing of Purchase Orders."
Requests for redemption must include: (a) original signatures of each
registered owner exactly as the shares are registered; (b) the fund and the
account number of shares to be redeemed; (c) share certificates, either properly
endorsed or accompanied by a duly executed stock power, for the shares to be
redeemed if such certificates have been issued and the shares are not in the
custody of the Transfer Agent; (d) signature guarantees, as described below; and
(e) any additional documents that may be required for redemption by
corporations, partnership, trusts or other entities. The burden is on the
shareholder to inquire as to whether any additional documentation is required.
Any request not in proper form may be rejected and in such case must be renewed
in writing.]
[REDEMPTIONS BY TELEPHONE
Shareholders may request a redemption by telephone. If a shareholder does not
wish to allow telephone redemptions by any person in his account, he should
decline that option on the account application. The telephone redemption feature
can be used only if: (a) the redemption proceeds are to be mailed to the address
of record or transferred electronically or wired to the pre-authorized bank
account; (b) there has been no change of address of record on the account within
the preceding 30 days; (c) the shares to be redeemed are not in certificate
form; (d) the person requesting the redemption can provide proper identification
information, and (e) the proceeds of the redemption do not exceed $50,000. AIM
Distributors has made arrangements with certain dealers and investment advisors
to accept telephone instructions for the redemption of shares. AIM Distributors
reserves the right to impose conditions on these dealers and investment
advisors, including the condition that they enter into agreements (which contain
additional conditions with respect to the redemption of shares) with AIM
Distributors. The Transfer Agent and AIM Distributors will not be liable for any
loss, expense or cost arising out of any telephone redemption request effected
in accordance with the authorization set forth in the appropriate form if they
reasonably believe such request to be genuine, but may in certain cases be
liable for losses due to unauthorized or fraudulent transactions if they do not
follow reasonable procedures for verification of telephone transactions. Such
reasonable procedures may include recordings of telephone transactions
(maintained for six months), requests for confirmation of the shareholder's
taxpayer identification number and current address, and mailings of
confirmations promptly after the transaction.]
[TIMING AND PRICING OF REDEMPTION ORDERS
Advisor Class shares of the Advisor Class Funds are redeemed at their net
asset value next computed after a request for redemption in proper form
(including signature guarantees and other required documentation for written
redemptions) is received by the Transfer Agent or certain financial institutions
(or their designees) who are authorized to accept redemption orders on behalf of
the AIM Funds, provided that such orders are transmitted to the Transfer Agent
prior to the time set for receipt of such orders. Orders for the redemption of
Advisor Class shares received on any business day of an AIM Fund will be
confirmed at the price determined as of the close of that day. Orders received
after NYSE Close will be confirmed at the price determined on the next business
day of an AIM Fund. It is the responsibility of the dealer/financial institution
to ensure that all orders are transmitted on a timely basis. Any resulting loss
from the dealer/financial institution's failure to submit a request for
redemption within the prescribed time frame will be borne by that
dealer/financial institution. Telephone redemption requests must be made by NYSE
Close on any business day of an AIM Fund and will be confirmed at the price
determined as of the close of that day. No AIM Fund will accept requests which
specify a particular date for redemption or which specify any special
conditions.
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<PAGE> 684
Payment of the proceeds of redeemed shares is normally made within seven days
following the redemption date. However, in the event of a redemption of shares
purchased by check, the investor may be required to wait up to ten business days
before the redemption proceeds are sent. A charge for special handling (such as
wiring of funds or expedited delivery services) may be made by the Transfer
Agent. The right of redemption may not be suspended or the date of payment upon
redemption postponed except under unusual circumstances such as when trading on
the NYSE is restricted or suspended. Payment of the proceeds of redemptions
relating to shares for which checks sent in payment have not yet cleared will be
delayed until it is determined that the check has cleared, which may take up to
ten business days from the date that the check is received.]
SIGNATURE GUARANTEES
A signature guarantee is designed to protect the investor, the AIM Funds, AIM
Distributors, and their agents by verifying the signature of each investor
seeking to redeem, transfer, or exchange shares of an AIM Fund. Examples of when
signature guarantees are required are: (1) redemptions by mail in excess of
$50,000; (2) redemptions by mail if the proceeds are to be paid to someone other
than the name(s) in which the account is registered; (3) written redemptions
requesting proceeds to be sent to other than the bank of record for the account;
(4) redemptions requesting proceeds to be sent to a new address or an address
that has been changed within the past 30 days; (5) requests to transfer the
registration of shares to another owner, (6) telephone exchange and telephone
redemption authorization forms; (7) changes in previously designated wiring or
electronic funds transfer instructions, and (8) written redemptions or exchanges
of shares previously reported as lost, whether or not the redemption amount is
under $50,000 or the proceeds are to be sent to the address of record. 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 in 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. Each Advisor Class Fund
may make additional distributions, if necessary, to avoid a non-deductible 4%
federal excise tax on certain undistributed income and capital gain (the "Excise
Tax").
All dividends and distributions of an AIM Fund are automatically reinvested on
the payment date in full and fractional shares of such fund, unless the
shareholder has made an alternate election as to the method of payment.
Dividends and distributions attributable to Advisor Class shares of an Advisor
Class Fund are reinvested in additional Advisor Class shares of that fund,
absent an election by a shareholder to receive cash or to have such dividends
and distributions reinvested in Advisor Class shares of another Advisor Class
Fund, to the extent permitted. For funds that do not declare a dividend daily,
such dividends and distributions will be reinvested at the net asset value per
share determined on the ex-dividend date. For funds that declare a dividend
daily, such dividends and distributions will be reinvested at the net asset
value per share determined on the payable date. Shareholders may elect, by
written notice to the Transfer Agent, to receive such distributions, or only the
dividend portion thereof, in cash, or to invest such dividends and distributions
in Advisor Class shares of another Advisor Class Fund. Investors who have not
previously selected such a reinvestment option on the account application form
may contact the Transfer Agent at any time to obtain a form to authorize such
reinvestments in another Advisor Class Fund.
Dividends on Advisor Class shares of an Advisor Class Fund are expected to be
higher than dividends on shares of other classes of that fund because of the
service and distribution fees paid by those other classes of 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.
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<PAGE> 685
Any dividend or distribution paid by a fund which does not declare dividends
daily has the effect of reducing the net asset value per share on the
ex-dividend date by the amount of the dividend or distribution. Therefore, a
dividend or distribution declared shortly after a purchase of shares by an
investor would represent, in substance, a return of capital to the shareholder
with respect to such shares even though it would be subject to income taxes, as
discussed below.]
[MINIMUM ACCOUNT BALANCE
If (1) an account opened in a fund has been in effect for at least one year
and the shareholder has not made an additional purchase in that account within
the preceding six calendar months and (2) the value of such account drops below
$500 for three consecutive months as a result of redemptions or exchanges, the
fund has the right to redeem the account, after giving the shareholder 60 days'
prior written notice, unless the shareholder makes additional investments within
the notice period to bring the account value up to $500. If a fund determines
that a shareholder has provided incorrect information in opening an account with
a fund or in the course of conducting subsequent transactions with the fund
related to such account, the fund may, in its discretion, redeem the account and
distribute the proceeds of such redemption to the shareholder.
AIM Distributors and its agents reserve the right at any time (1) to withdraw
all or any part of the offering made by the Fund's Prospectus; (2) to reject any
purchase or exchange order or to cancel any purchase due to nonpayment of the
purchase price; (3) to increase, waive or lower the minimum investment
requirements; or (4) to modify any of the terms or conditions of purchase of
shares of such fund. For any fund named on the cover page, AIM Distributors and
its agents will use their best efforts to provide notice of any such actions
through correspondence with broker-dealers and existing shareholders,
supplements to the AIM Funds' prospectuses, or other appropriate means, and will
provide sixty (60) days' notice in the case of termination or material
modification to the exchange privilege discussed under the caption "Exchange
Privilege."]
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.
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., a wholly owned
subsidiary of AIM, 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173, 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 purchases of the AIM Funds.
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") has entered Into
an agreement with the Trust (and certain other AIM Funds), First Data Investor
Service Group (formerly The Shareholder Services Group, Inc.) 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).
INDEPENDENT ACCOUNTANTS
The Funds' independent accountants are PricewaterhouseCoopers LLP.
PricewaterhouseCoopers LLP conducts an annual audit of each Fund, assists in the
preparation of the Funds' federal and state income tax returns and consults with
the Trust and the Funds as to matters of accounting, regulatory filings, and
federal and state income taxation.
The audited financial statements of the Company included in this Statement of
Additional Information have been examined by PricewaterhouseCoopers LLP, as
stated in their opinion appearing herein and are included in reliance upon such
opinion given upon the authority of that firm as experts in accounting and
auditing.
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LEGAL MATTERS
The law firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue N.W.,
Washington, D.C. 20036-1800, acts as counsel to the Trust and the Fund.
SHAREHOLDER LIABILITY
Under Delaware law, the shareholders of the Trust enjoy the same limitations
extended to shareholders of private, for-profit corporations. There is a remote
possibility, however, that under certain circumstances shareholders of the Trust
may be held personally liable for the Trust's obligations. However, the Trust
Agreement disclaims shareholder liability for acts or obligations of the Trust
and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Trust or a trustee. If
a shareholder is held personally liable for the obligations of the Trust, the
Trust Agreement provides that the shareholder shall be entitled out of the
assets belonging to the applicable Fund (or allocable to the applicable Class),
to be held harmless from and indemnified against all loss and expense arising
from such liability in accordance with the Trust's Bylaws and applicable law.
Thus, the risk of a shareholder incurring financial loss on account of such
liability is limited to circumstances in which the Trust itself would be unable
to meet its obligations and where the other party was held not to be bound by
the disclaimer.
[NAME]
[Prior to May 29, 1998, Developing Markets Fund, Emerging Markets Fund and
Latin American Fund operated under the names GT Global Developing Markets Fund,
GT Global Emerging Markets Fund, and GT Global Latin America Growth Fund,
respectively.]
55
<PAGE> 687
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To the best knowledge of the Trust, the names and addresses of the holders of
5% or more of the outstanding shares of any class of each Fund's equity
securities as of , 1998, and the percentage of the outstanding shares
held by such holders are set forth below.
<TABLE>
<CAPTION>
PERCENT
PERCENT OWNED OF
OWNED OF RECORD AND
FUND NAME AND ADDRESS OF OWNER RECORD* BENEFICIALLY
- ---- ------------------------- -------- ------------
<S> <C> <C> <C>
Developing Markets Fund -- Class B Olde Discount % -0-
FBO 05012322
751 Griswold Street
Detroit, Michigan 48226-3224
Raymond James & Assoc. Inc. CSDN % -0-
Mary Lynn James IRA
1215 W. Los Angeles Circle
Broken Arrow, Oklahoma 74011-4215
Smith Barney Inc. % -0-
150926032
388 Greenwich Street
New York, New York 10013-2339
PaineWebber FBO % -0-
Joseph McDonald & Mildred McDonald
JJWRO
379 Quarry Pond Court
Moriches, New York 11955-1706
Developing Markets Fund -- Advisor G.T. Capital Holdings, Inc. 401(k) % -0-
Class FBO
Account 041-66-4510
Attn: Human Resources
50 California Street, 27th Floor
San Francisco, California 94111-4624
G.T. Capital Holdings, Inc. 401(k) % -0-
FBO
Account 556-33-9792
Attn: Human Resources
50 California Street, 27th Floor
San Francisco, California 94111-4624
G.T. Capital Holdings, Inc. 401(k) % -0-
FBO
Account 561-49-0015
50 California Street, 27th Floor
San Francisco, California 94111-4624
Attn: Human Resources
[Emerging Markets Fund -- Advisor Wells Fargo Bank NA TTEE FBO % -0-]
Class
LGT Asset Management AC 5000201000
Serp Prft Shr Pln ###-##-####
P O Box 9800 MAC 9137-027
Calabasas, CA 91372-0800
[Emerging Markets Fund -- Class A MLPF& S for the Sole Benefit of Its % -0-]
Customers, Security #97OEL
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
</TABLE>
- ---------------
* The Trust has no knowledge as to whether all or any portion of the shares
owned are also owned beneficially.
56
<PAGE> 688
<TABLE>
<CAPTION>
PERCENT
PERCENT OWNED OF
OWNED OF RECORD AND
FUND NAME AND ADDRESS OF OWNER RECORD* BENEFICIALLY
- ---- ------------------------- -------- ------------
<S> <C> <C> <C>
Latin American Fund -- Advisor Class G.T. Capital Holdings, Inc. 401(k) % -0-
FBO
Account 102505451
50 California Street, 27th Floor
San Francisco, California 94111-4624
Attn: Human Resources
G.T. Capital Holdings, Inc. 401(k) % -0-
FBO
Acct # ###-##-####
50 California Street, 27th Floor
San Francisco, California 94111-4624
Attn: Human Resources
Wells Fargo Bank NA TTEE FBO % -0-
LGT Asset Management AC 5000201000
Serp Prft Shr Pln ###-##-####
P O Box 9800 MAC 9137-027
Calabasas, CA 91372-0800
Latin American Growth Fund -- Class MLPF& S for the Sole Benefit of Its % -0-
A
Customers, Security #977S6
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
</TABLE>
- ---------------
* The Trust has no knowledge as to whether all or any portion of the shares
owned are also owned beneficially.
INVESTMENT RESULTS
TOTAL RETURN QUOTATIONS
The standard formula for calculating total return is as follows:
n
P(1+T) = ERV
<TABLE>
<S> <C> <C> <C>
Where P = a hypothetical initial payment of $1,000.
T = average annual total return (assuming the applicable maximum
sales load is deducted at the beginning of the 5, or 10 year
periods).
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment at
the end of the 1, 5, or 10 year periods (or fractional
portion of such period).
</TABLE>
The standard total returns of Developing Markets Fund's Predecessor Fund
(recomputed for Class A shares to reflect the deduction of the maximum sales
charge of 4.75% for Class A shares), stated as average annualized total returns
for the periods shown, were:
<TABLE>
<CAPTION>
DEVELOPING
MARKETS FUND
PERIOD (CLASS A)
------ ------------
<S> <C>
Fiscal year ended Oct. 31, 1998............................. %
Jan. 11, 1994 (commencement of operations) through Oct. 31,
1998...................................................... %
</TABLE>
Advisor Class shares of Developing Markets Fund have not been in operation for
a full year since the Fund's conversion from a closed-end to an open-end fund.
57
<PAGE> 689
[The standard total returns for the Advisor Class shares of Emerging Markets
Fund, stated as average annualized total returns for the periods shown, were:
<TABLE>
<CAPTION>
EMERGING MARKETS
PERIOD FUND (ADVISOR CLASS)
------ --------------------
<S> <C>
Fiscal year ended Oct. 31, 1998............................. %
June 1, 1995 (commencement of operations) through Oct. 31,
1998...................................................... %
Oct. 31, 1992 through Oct. 31, 1998......................... n/a]
</TABLE>
The standard total returns for the Advisor Class shares of Latin American
Fund, stated as average annualized total returns for the periods shown, were:
<TABLE>
<CAPTION>
LATIN AMERICAN
PERIOD FUND (ADVISOR CLASS)
------ --------------------
<S> <C>
Fiscal year ended Oct. 31, 1998............................. %
Oct. 31, 1992 through Oct. 31, 1998......................... n/a
June 1, 1995 (commencement of operations) through Oct. 31,
1998...................................................... %
Aug. 13, 1991 (commencement of operations) through Oct. 31,
1998...................................................... n/a
</TABLE>
Cumulative total return across a stated period may be calculated as follows:
n
P(1+V) = ERV
<TABLE>
<S> <C> <C> <C>
Where P = a hypothetical initial payment of $1,000.
V = cumulative total return assuming payment of all of, a stated
portion of, or none 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.
</TABLE>
The cumulative total return of Developing Markets Fund's Predecessor Fund (not
recomputed to take sales charges into account) for the period January 11, 1994
(commencement of operations) through October 31, 1998 was %.
[The cumulative total return (not taking sales charges into account) for the
Advisor Class shares of Emerging Markets Fund, stated as aggregate total returns
for the periods shown, were:
<TABLE>
<CAPTION>
EMERGING MARKETS
PERIOD FUND (ADVISOR CLASS)
------ --------------------
<S> <C>
April 1, 1993 (commencement of operations) through Oct 31,
1998...................................................... n/a
May 18, 1992 (commencement of operations) through Oct. 31,
1998...................................................... n/a
June 1, 1995 (commencement of operations) through Oct. 31,
1998...................................................... %]
</TABLE>
The cumulative total return (not taking sales charges into account) for the
Advisor Class shares of Latin American Fund, stated as aggregate total returns
for the periods shown, were:
<TABLE>
<CAPTION>
LATIN AMERICAN
PERIOD FUND (ADVISOR CLASS)
------ --------------------
<S> <C>
June 1, 1995 (commencement of operations) through Oct. 31,
1998...................................................... %
Aug. 13, 1991 (commencement of operations) through Oct. 31,
1998...................................................... n/a
</TABLE>
OTHER INFORMATION REGARDING STANDARD TOTAL AND CUMULATIVE TOTAL RETURNS FOR
DEVELOPING MARKETS FUND
The standard total and cumulative total return data of Developing Markets Fund
are based on the performance of the Predecessor Fund as a closed-end investment
company. The standard total return data, however, have been recomputed to
reflect the deduction of the current maximum sales charge of 4.75% for Class A
shares, which went into effect on November 1, 1997. Future performance of
Developing Markets Fund will be effected by expenses that it will incur as a
series of an open-end investment company.
58
<PAGE> 690
PERFORMANCE INFORMATION
Total return and yield figures for the Funds are neither fixed nor guaranteed,
and no Fund's principal is insured. Performance quotations reflect historical
information and should not be considered representative of a Fund's performance
for any period in the future. Performance is a function of a number of factors
which can be expected to fluctuate. The Funds may provide performance
information in reports, sales literature and advertisements. The Funds may also,
from time to time, quote information about the Funds published or aired by
publications or other media entities which contain articles or segments relating
to investment results or other data about one or more of the Funds. Such
publications or media entities may include the following, among others:
Advertising Age
Barron's
Best's Review
Broker World
Business Week
Changing Times
Christian Science Monitor
Consumer Reports
Economist
EuroMoney
FACS of the Week
Financial Planning
Financial Product News
Financial World
Forbes
Fortune
Global Finance
Hartford Courant Inc.
Institutional Investor
Insurance Forum
Insurance Week
Investor's Daily
Journal of the American
Society of CLU & ChFC
Kiplinger Letter
Money
Mutual Fund Forecaster
Mutual Fund Magazine
Nation's Business
New York Times
Pension World
Pensions & Investments
Personal Investor
Financial Services Week
Philadelphia Inquirer
Smart Money
USA Today
U.S. News & World Report
Wall Street Journal
Washington Post
CNN
CNBC
PBS
The Funds and AIM Distributors may from time to time, in advertisements, sales
literature and reports furnished to present or prospective shareholders, compare
each Fund with the following, or compare each Fund's performance to performance
data of similar mutual funds as published in the following, among others:
Bank Rate National Monitor Index
Bear Stearns Foreign Bond Index
Bond Buyer Index
CDA/Wiesenberger Investment Company Services
(data and mutual fund rankings and
comparisons)
CNBC/Financial News Composite Index
COFI
Consumer Price Index
Datastream
Donoghue's
Dow Jones Industrial Average
EAFE Index
First Boston High Yield Index
Fitch (publications)
Ibbotson Associates International Bond Index
International Bank for Reconstruction and
Development (publications)
International Finance Corporation Emerging
Markets Database
International Financial Statistics
Lehman Bond Indices
Lipper Analytical Data Services, Inc. (data and
mutual fund rankings and comparisons)
Micropal, Inc. (data and mutual fund rankings
and comparisons)
Moody's Investors Service (publications)
Morgan Stanley Capital International All Country
(AC) World Index
Morgan Stanley Capital International World
Indices
Morningstar, Inc. (data and mutual fund rankings
and comparisons)
NASDAQ
Organization for Economic Cooperation and
Development (publications)
Salomon Brothers Global Telecommunications
Index
Salomon Brothers World Government Bond
Index-Non-U.S.
Salomon Brothers World Government Bond
Index
Standard & Poor's (publications)
Standard & Poor's 500 Composite Stock Price
Index
Stangar
Wilshire Associates
World Bank (publications and reports)
The World Bank Publication of Trends in
Developing Countries
Worldscope
59
<PAGE> 691
Each Fund may also compare its performance to rates on Certificates of Deposit
and other fixed rate investments such as the following:
10-year Treasuries
30-year Treasuries
30-day Treasury Bills
Information relating to foreign market performance, capitalization and
diversification is based on sources believed to be reliable but may be subject
to revision and has not been independently verified by the Funds or AIM
Distributors. Advertising for the Funds may from time to time include
discussions of general economic conditions and interest rates. Advertising for
the Funds may also include reference to the use of those Funds as part of an
individual's overall retirement investment program. From time to time, sales
literature and/or advertisements for any of the Funds may disclose (i) the
largest holdings in the Fund's portfolio, (ii) certain selling group members
and/or (iii) certain institutional shareholders.
From time to time, the Funds' sales literature and/or advertisements may
discuss generic topics pertaining to the mutual fund industry. This includes,
but is not limited to, literature addressing general information about mutual
funds, variable annuities, dollar-cost averaging, stocks, bonds, money markets,
certificates of deposit, retirement, retirement plans, asset allocation,
tax-free investing, college planning, and inflation.
Although performance data may be useful to prospective investors when
comparing a Fund's performance with other funds and other potential investments,
investors should note that the methods of computing performance of other
potential investments are not necessarily comparable to the methods employed by
a Fund.
60
<PAGE> 692
APPENDIX
DESCRIPTION OF BOND RATINGS
Moody's Investors Service, Inc. ("Moody's") rates the debt securities issued
by various entities from "Aaa" to "C." Investment grade ratings are the first
four categories: 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 edged." 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 bond because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than the Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa -- Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. Ba -- Bonds which are rated Ba
are judged to have speculative elements; their future cannot be considered as
well-assured. Often the protection of interest and principal payments may be
very moderate, and thereby not well safeguarded during other good and bad times
over the future. Uncertainty of position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest. Ca -- Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings. C -- Bonds which are rated C are the lowest rated class of
bonds, and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"),
rates the securities debt of various entities in categories ranging from "AAA"
to "D" according to quality. Investment grade ratings are the first four
categories: AAA -- An obligation rated "AAA" has the highest rating assigned by
S&P. The obligor's capacity to meet its financial commitment on the obligation
is extremely strong. AA -- An obligation rated "AA" differs from the highest
rated obligations only in a small degree. The obligor's capacity to meet its
financial commitment on the obligation is very strong. A -- An obligation rated
"A" is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in higher rated
categories. BBB -- An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation. BB, B, CCC, CC, C -- Obligations rated "BB," "B,"
"CCC," "CC," and "C" are regarded as having significant speculative
characteristics. "BB" indicates the least degree of speculation and "C" the
highest. While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions. BB -- An obligation rated "BB" is less
vulnerable to nonpayment than other speculative issues. However, it faces major
ongoing uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation. B -- An obligation rated "B" is more
vulnerable to nonpayment than obligations rated "BB," but the obligor currently
has the capacity to meet its financial commitment on the obligation. Adverse
business, financial, or economic conditions will likely impair the obligor's
capacity or willingness to meet its financial commitment on the obligation.
CCC -- An obligation rated "CCC" is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC -- An obligation rated "CC" is currently highly vulnerable to nonpayment.
C -- The "C" rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued. D -- An obligation rated "D" is in payment default. The "D"
rating category is used when payments on an obligation are not made on the date
due even if the applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period. The "D" rating also
will be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
61
<PAGE> 693
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR: Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's employs the designation "Prime-1" to indicate commercial paper having
a superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources of
alternate liquidity. Issues rated Prime-2 have a strong ability for repayment of
senior short-term debt obligations. This normally will be evidenced by many of
the characteristics cited above but to a lesser degree. Earnings trends and
coverage ratios, while sound, may be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
S&P ratings of commercial paper are graded into several categories ranging
from "A1" for the highest quality obligations to "D" for the lowest. Issues in
the "A" category are delineated with numbers 1, 2, and 3 to indicate the
relative degree of safety. A-1 -- This highest category indicates that the
degree of safety regarding timely payment is strong. Those issues determined to
possess extremely strong safety characteristics will be denoted with a plus sign
(+) designation. A-2 -- Capacity for timely payments on issues with this
designation is satisfactory; however, the relative degree of safety is not as
high as for issues designated "A-1."
ABSENCE OF RATING
Where no rating has been assigned or where a rating has been suspended or
withdrawn, it may be for reasons unrelated to the quality of the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies
that are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or
issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa to Caa. The modifier 1 indicates that the Company ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the Company ranks in the
lower end of its generic rating category.
62
<PAGE> 694
FINANCIAL STATEMENTS
FS
<PAGE> 695
STATEMENT OF
ADDITIONAL INFORMATION
CLASS A, CLASS B AND CLASS C SHARES OF
AIM EMERGING MARKETS DEBT FUND
AIM GLOBAL GOVERNMENT INCOME FUND
AIM GLOBAL GROWTH & INCOME FUND
AIM STRATEGIC INCOME FUND
(SERIES PORTFOLIOS OF
AIM INVESTMENT FUNDS)
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 FREE
OF CHARGE FROM AUTHORIZED DEALERS OR BY WRITING
A I M DISTRIBUTORS, INC.,
P.O. BOX 4739, HOUSTON, TEXAS 77210-4739
OR BY CALLING (800) 347-4246
---------------------
STATEMENT OF ADDITIONAL INFORMATION DATED MARCH 1, 1999
RELATING TO AIM EMERGING MARKETS DEBT FUND PROSPECTUS DATED MARCH 1, 1999,
RELATING TO AIM GLOBAL GOVERNMENT INCOME FUND PROSPECTUS DATED MARCH 1, 1999,
RELATING TO AIM GLOBAL GROWTH & INCOME FUND PROSPECTUS DATED MARCH 1, 1999
AND RELATING TO AIM STRATEGIC INCOME FUND PROSPECTUS DATED MARCH 1, 1999
<PAGE> 696
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
INTRODUCTION................................................ 4
GENERAL INFORMATION ABOUT THE FUNDS......................... 4
The Trust and Its Shares.................................. 4
INVESTMENT STRATEGIES AND RISKS............................. 6
Investment Objectives..................................... 6
Selection of Investments and Asset Allocation............. 8
Investment In Emerging Markets............................ 10
Sovereign Debt............................................ 11
Brady Bonds............................................... 12
Loan Participants and Assignments......................... 12
Mortgage-Backed and Asset-Backed Securities............... 13
When-Issued and Forward Commitment Securities............. 13
Temporary Defensive Strategies............................ 14
Investments in Other Investment Companies................. 14
Depositary Receipts....................................... 14
Samurai and Yankee Bonds.................................. 15
Warrants or Rights........................................ 15
Lending of Portfolio Securities........................... 15
Commercial Bank Obligations............................... 15
Repurchase Agreements..................................... 16
Borrowing, Reverse Repurchase Agreements and "Roll"
Transactions........................................... 16
Zero Coupon Securities.................................... 17
Synthetic Security Positions.............................. 17
Swaps, Caps, Floors, and Collars.......................... 18
Indexed Commercial Paper.................................. 18
Other Indexed Securities.................................. 18
Short Sales............................................... 19
OPTIONS, FUTURES AND CURRENCY STRATEGIES.................... 20
Options, Futures, and Forward Currency Transactions....... 20
Special Risks of Options, Futures and Currency
Strategies............................................. 20
Writing Call Options...................................... 21
Writing Put Options....................................... 22
Purchasing Put Options.................................... 23
Purchasing Call Options................................... 23
Index Options............................................. 24
Interest Rate, Currency and Stock Index Futures
Contracts.............................................. 25
Options on Futures Contracts.............................. 27
Limitations on Use of Futures, Options on Futures and
Certain Options on Currencies.......................... 27
Forward Contracts......................................... 28
Foreign Currency Strategies -- Special Considerations..... 28
Cover..................................................... 29
Interest Rate and Currency Swaps.......................... 29
RISK FACTORS................................................ 30
Non-Diversified Classification............................ 30
</TABLE>
2
<PAGE> 697
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Illiquid Securities....................................... 30
Foreign Securities........................................ 31
Mortgage-Backed and Asset-Backed Securities............... 35
Lower Quality Debt Securities............................. 35
INVESTMENT LIMITATIONS...................................... 36
Government Income Fund.................................... 36
Strategic Income Fund..................................... 37
Emerging Markets Debt Fund and the Portfolio.............. 38
Growth & Income Fund...................................... 40
EXECUTION OF PORTFOLIO TRANSACTIONS......................... 41
Portfolio Trading and Turnover............................ 42
MANAGEMENT.................................................. 43
Trustees and Executive Officers........................... 43
Investment Management and Administration Services......... 45
Expenses of the Funds and the Portfolio................... 47
THE DISTRIBUTION PLANS...................................... 48
The Class A Plan.......................................... 48
The Class B Plan.......................................... 48
Both Plans................................................ 48
THE DISTRIBUTOR............................................. 51
Expenses of the Funds..................................... 52
NET ASSET VALUE DETERMINATION............................... 53
HOW TO PURCHASE AND REDEEM SHARES........................... 59
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS.................... 61
Taxation of the Funds..................................... 61
Taxation of the Portfolio -- General...................... 61
Taxation of Certain Investment Activities................. 61
Taxation of the Funds' Shareholders....................... 63
SHAREHOLDER INFORMATION..................................... 64
MISCELLANEOUS INFORMATION................................... 66
Charges for Certain Account Information................... 66
Custodian and Transfer Agent.............................. 66
Independent Accountants................................... 66
Shareholder Liability..................................... 67
Legal Matters............................................. 67
Names..................................................... 67
Control Persons and Principal Holders of Securities....... 67
INVESTMENT RESULTS.......................................... 68
Total Return Quotations................................... 68
Non-Standardized Returns.................................. 69
Yield Quotations.......................................... 71
Performance Information................................... 72
APPENDIX.................................................... 74
Description of Bond Ratings............................... 74
Description of Commercial Paper Ratings................... 75
Absence of Rating......................................... 75
FINANCIAL STATEMENTS........................................ FS
</TABLE>
3
<PAGE> 698
INTRODUCTION
This Statement of Additional Information relates to the Class A, Class B and
Class C shares of AIM Global Government Income Fund ("Government Income Fund"),
AIM Strategic Income Fund ("Strategic Income Fund"), AIM Emerging Markets Debt
Fund (formerly known as AIM Global High Income Fund) ("Emerging Markets Debt
Fund"), and AIM Global Growth & Income Fund ("Growth & Income Fund") (each, a
"Fund," and collectively, the "Funds"). Each Fund is a non-diversified series of
AIM Investment Funds (the "Trust"), a registered open-end management investment
company organized as a Delaware business trust.
A I M Advisors, Inc. ("AIM") serves as the investment manager of and
administrator for Government Income Fund, Strategic Income Fund, Growth & Income
Fund, Emerging Markets Debt Fund and Emerging Markets Debt Portfolio (formerly
known as the Global High Income Portfolio) (the "Portfolio"). INVESCO (NY), Inc.
serves as the investment sub-advisor and sub-administrator for Strategic Income
Fund. INVESCO Asset Management Limited serves as the investment sub-advisor and
sub-administrator for Government Income Fund, Growth & Income Fund, Emerging
Markets Debt Fund and Emerging Markets Debt Portfolio. INVESCO (NY), Inc. and
INVESCO Asset Management Limited will be referred to individually as the
"Sub-Advisor" or collectively as the "Sub-Advisors" in this Statement of
Additional Information.
The Trust is a series mutual fund. The rules and regulations of the Securities
and Exchange Commission (the "SEC") require all mutual funds to furnish
prospective investors certain information concerning the activities of the fund
being considered for investment. This information for Government Income Fund is
included in a Prospectus dated March 1, 1999, for Strategic Income Fund is
included in a separate Prospectus dated March 1, 1999, for Emerging Markets Debt
Fund is included in a separate Prospectus dated March 1, 1999, and for Growth &
Income Fund is included in a separate Prospectus dated March 1, 1999. Additional
copies of the Prospectuses and this Statement of Additional Information may be
obtained without charge by writing the principal distributor of the Funds'
shares, A I M Distributors, Inc. ("AIM Distributors"), P.O. Box 4739, Houston,
TX 77210-4739 or by calling (800) 347-4246. Investors must receive a Prospectus
before they invest.
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
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 FUNDS
THE TRUST AND ITS SHARES
The Trust previously operated under the name G.T. Investment Funds, Inc.,
which was organized as a Maryland corporation on October 29, 1987. The Trust was
reorganized on September 8, 1998 as a Delaware business trust, and is registered
with the SEC as a diversified open-end series management investment company. The
Trust currently consists of the following portfolios: AIM Developing Markets
Fund, AIM Emerging Markets Debt Fund, [AIM Emerging Markets Fund,] AIM Global
Consumer Products and Services Fund, AIM Global Financial Services Fund, AIM
Global Government Income Fund, AIM Global Growth and Income Fund, AIM Global
Health Care Fund, AIM Global Infrastructure Fund, AIM Global Resources Fund, AIM
Global Telecommunications Fund, AIM Latin American Growth Fund, and AIM
Strategic Income Fund. [Each] of these funds has four separate classes: Class A,
Class B, Class C and Advisor Class shares. All historical financial and other
information contained in this Statement of Additional Information for periods
prior to September 8, 1998, is that of the series of G.T. Investment Funds, Inc.
(renamed AIM Investment Funds, Inc.).
This Statement of Additional Information relates solely to the Class A, Class
B and Class C shares of the Funds.
The term "majority of the outstanding shares" of the Trust, of a particular
Fund or of a particular class of a Fund means, respectively, the vote of the
lesser of (a) 67% or more of the shares of the Trust, such Fund or such class
present at a meeting of the Trust's shareholders, if the holders of more than
50% of the outstanding shares of the Trust, such Fund or such class are present
or represented by proxy, or (b) more than 50% of the outstanding shares of the
Trust, such Fund or such class.
Class A, Class B, Class C and Advisor Class shares of each Fund have equal
rights and privileges. Each share of a particular class is entitled to one vote,
to participate equally in dividends and distributions declared by the Trust's
Board of Trustees with respect to the class of such Fund and, upon liquidation
of the Fund, to participate proportionately in the net assets of the Fund
allocable to such class remaining after satisfaction of outstanding liabilities
of the Fund allocable to
4
<PAGE> 699
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 Prospectus and this Statement of Additional
Information. Fractional shares have proportionately the same rights, including
voting rights, as are provided for a full share.
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 trustees may elect all of the members of the Board of
Trustees of the Trust. In such event, the remaining holders cannot elect any
trustees of the Trust.
From time to time, the Trust may establish other funds, each corresponding to
a distinct investment portfolio and a distinct series of the Trust's shares of
beneficial interest. Shares of each fund are entitled to one vote per share
(with proportional voting for fractional shares) and are freely transferable.
Shareholders have no preemptive rights. Other than the automatic conversion of
Class B shares to Class A shares, there are no conversion rights.
On any matter submitted to a vote of shareholders, shares of the Funds will be
voted by the Fund's shareholders individually when the matter affects the
specific interest of the Funds only, such as approval of its investment
management arrangements. In addition, shares of particular classes of the Funds
may vote on matters affecting only those Classes. The shares of the Funds and of
the Trust's other series will be voted in the aggregate on other matters, such
as the election of Trustees and ratification of the selection of the Trust's
independent accountants.
Normally there will be no annual meeting of shareholders in any year, except
as required under the Investment Company Act of 1940, as amended ("1940 Act").
Shares of the Funds and the Trust's other series do not have cumulative voting
rights, which means that the holders of a majority of the shares voting for the
election of Trustees can elect all the Trustees. A Trustee may be removed at any
meeting of the shareholders of the Trust by a vote of the shareholders owning at
least two-thirds of the outstanding shares. Any Trustee may call a special
meeting of shareholders for any purpose. Furthermore, Trustees shall promptly
call a meeting of shareholders solely for the purpose of removing one or more
Trustees when requested in writing to do so by shareholders holding 10% of the
Trust's outstanding shares.
Pursuant to the Trust's Agreement and Declaration of Trust, the Trust may
issue an unlimited number of shares of the Funds. Each share of a Fund
represents an interest in that Fund only, has a par value of $0.01 per share,
represents an equal proportionate interest in that Fund with other shares of
that Fund and is entitled to such dividends and distributions out of the income
earned and gain realized on the assets belonging to that Fund as may be declared
by the Board of Trustees. Each share of a Fund is equal in earnings, assets and
voting privileges except that each class normally has exclusive voting rights
with respect to its distribution plan and bears the expenses, if any, related to
the distribution of its shares. Shares of a Fund, when issued, are fully paid
and nonassessable.
ORGANIZATION OF THE PORTFOLIO. The Portfolio is organized as a Delaware
business trust. Under Delaware law, the Emerging Markets Debt Fund and other
entities that invest in the Portfolio enjoy the same limitations of liability
extended to shareholders of private, for-profit corporations. There is a remote
possibility, however, that under certain circumstances an investor in the
Portfolio may be held liable for the Portfolio's obligations. However, the
Agreement and Declaration of Trust of the Portfolio disclaims shareholder
liability for acts or obligations of the Portfolio and requires that notice of
such disclaimer be given in each agreement, obligation or instrument entered
into or executed by the Portfolio or a trustee. The Agreement and Declaration of
Trust also provides for indemnification from the Portfolio property for all
losses and expenses of any shareholder held personally liable for the
Portfolio's obligations. Thus, the risk of an investor incurring financial loss
on account of such liability is limited to circumstances in which the Portfolio
itself would be unable to meet its obligations and where the other party was
held not to be bound by the disclaimer.
Whenever the Emerging Markets Debt Fund is requested to vote on any proposal
of the Portfolio, the Emerging Markets Debt Fund will hold a meeting of Emerging
Markets Debt Fund shareholders and will cast its vote as instructed by Emerging
Markets Debt Fund shareholders. Shares for which no voting instructions are
received will be voted in the same proportion as the shares for which voting
instructions are received.
5
<PAGE> 700
INVESTMENT STRATEGIES AND RISKS
The following discussion of investment policies supplements the discussion of
the investment objectives and policies set forth in the applicable Prospectus
under the heading "Investment Objective and Strategies" and "Principal Risks
Investing in the Fund."
INVESTMENT OBJECTIVES
The Funds' investment objectives may not be changed without the approval of a
majority of the Funds' outstanding voting securities. If a percentage
restriction on investment or utilization of assets in an investment policy or
restriction is adhered to at the time an investment is made, a later change in
percentage ownership of a security or kind of securities resulting from changing
market values or a similar type of event will not be considered a violation of
the Fund's investment policies or restrictions.
The Government Income Fund primarily seeks high current income and secondarily
seeks capital appreciation and protection of principal. The Strategic Income
Fund and the Emerging Markets Debt Fund primarily seek high current income and
secondarily seek capital appreciation. The Emerging Markets Debt Fund seeks to
achieve its investment objectives by investing all of its investable assets in
the Portfolio, which is a non-diversified open-end management investment company
with investment objectives identical to those of the Fund. Whenever the phrase
"all of the Emerging Markets Debt Fund's investable assets" is used herein and
in the Prospectus, it means that the only investment securities held by the
Emerging Markets Debt Fund will be its interest in the Portfolio. The Emerging
Markets Debt Fund may withdraw its investment in the Portfolio at any time, if
the Board of Trustees of the Trust determines that it is in the best interests
of the Fund and its shareholders to do so. Upon any such withdrawal, the
Emerging Markets Debt Fund's assets would be invested in accordance with the
investment policies of the Portfolio described below and in the Prospectus. The
investment objective of the Growth & Income Fund is long-term capital
appreciation together with current income.
In addition to the primary investment policies set forth in such Fund's
Prospectus, the Strategic Income Fund, the Government Income Fund, the
Portfolio, and the Growth & Income Fund may engage in other types of
investments, as described below.
INVESTMENT STRATEGIES
Strategic Income Fund
Strategic Income Fund's investments in debt securities of issuers in: (1) the
United States; (2) developed foreign countries; and (3) emerging markets. The
Strategic Income Fund selects debt securities from those issued by governments,
their agencies and instrumentalities; central banks; and commercial banks and
other corporate entities. Debt securities in which the Fund may invest include
bonds, notes, debentures, and other similar instruments including
mortgage-backed and asset-backed securities of foreign issuers as well as
domestic issuers. Under normal market conditions, Strategic Income Fund will
invest at least 35% of its total assets in U.S. and foreign debt and other fixed
income securities that, at the time of purchase, are either rated at least
investment grade by Moody's or S&P or, if not rated, are determined by the
Sub-advisor to be of comparable quality. Up to 65% of Strategic Income Fund's
total assets may be invested in debt securities that, at the time of purchase
are either rated below investment grade by Moody's or S&P, or, if not rated, are
determined by the Sub-advisor to be of comparable quality. Such securities
involve a high degree of risk and are predominantly speculative. They are the
equivalent of high yield, high risk bonds, commonly known as "junk bonds."
Strategic Income Fund may also invest in securities that are in default as to
payment of principal and/or interest. Strategic Income Fund may invest up to 35%
of its total assets in equity securities (including convertible securities). The
Sub-advisor anticipates investing in equity securities when market conditions
appear to present opportunities favorable for capital appreciation due to such
factors as improved corporate earnings or favorable interest rates.
Strategic Income Fund's investments in emerging market securities may consist
substantially of Brady Bonds and other sovereign debt securities issued by
emerging market governments that are traded in the markets of developed
countries or groups of developed countries. The Sub-advisor may invest in debt
securities of emerging market issuers that it determines to be suitable
investments for Strategic Income Fund without regard to ratings. Currently, the
substantial majority of emerging market debt securities are considered to have a
credit quality below investment grade. Strategic Income Fund also may invest in
below-investment grade debt securities of corporate issuers in the United States
and in developed foreign countries, subject to the overall 65% limitation.
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<PAGE> 701
Government Income Fund
At least 65% of the Fund's total assets normally are invested in debt
obligations issued or guaranteed by the U.S. or foreign governments (including
foreign states, provinces or municipalities) or their agencies, authorities or
instrumentalities including mortgage-backed securities issued by agencies or
instrumentalities of the U.S. Government or by foreign governments. For purposes
of this policy, the Fund considers debt obligations of supranational entities
organized or supported by several national governments, such as the World Bank
and the Asian Development Bank, to be "government securities."
The Fund invests primarily in high quality government debt securities. "High
quality" debt securities are those rated in the top two ratings categories of
Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's, a division of
The McGraw-Hill Companies, Inc. ("S&P"), or, if not rated, determined to be of
comparable quality by the Sub-advisor. A description of Moody's and S&P ratings
is included in the Appendix to this Prospectus.
Government Income Fund currently contemplates that it will invest principally
in obligations of the United States, Canada, Japan, the Western European
nations, New Zealand and Australia, as well as in multinational currency units.
Under normal market conditions, Government Income Fund invests in issues of not
less than three different countries; investments in the securities of any one
country, other than the United States, normally represent no more than 40% of
Government Income Fund's total assets. Government Income Fund will not invest in
a foreign currency or in securities denominated in a foreign currency if such
currency is not at the time of investment considered by the Sub-advisor to be
fully exchangeable into U.S. dollars (or a multinational currency unit) without
legal restriction.
Government Income Fund may also invest up to 35% of its total assets in: (1)
foreign government securities that are not high quality but are rated at least
"investment grade," (i.e., rated within the four highest ratings categories of
Moody's or S&P or, if not rated, determined by the Sub-advisor to be of
comparable quality); (2) corporate debt obligations of U.S. or foreign issuers
rated at least investment grade by Moody's or S&P, including debt obligations
convertible into equity securities or having attached warrants or rights to
purchase equity securities; (3) privately issued mortgage-backed and
asset-backed securities that are rated at least investment grade by Moody's or
S&P, or if unrated, determined by the Sub-advisor to be of comparable quality;
and (4) common stocks, preferred stocks and warrants to acquire such securities,
provided that Government Income Fund will not invest more than 20% of its total
assets in such securities.
Emerging Markets Debt Fund
The Portfolio intends to invest in the following types of debt securities:
bonds, notes and debentures of emerging market governments; securities issued or
guaranteed by such governments' agencies or instrumentalities; securities issued
or guaranteed by the central banks of emerging market countries; and securities
issued by other banks and companies in such countries and securities denominated
in or indexed to the currencies of emerging markets. Under current market
conditions, the Portfolio expects its investments in emerging market securities
to consist substantially of Brady Bonds (see "General Policies -- Brady Bonds,"
below) and other sovereign debt securities.
The Portfolio may invest up to 35% of its total assets in (1) equity
securities of issuers in emerging markets included in the list below under the
caption "Investing in Emerging Markets"; (2) equity and debt securities of
issuers in developed countries, including the United States; (3) securities of
issuers in emerging markets not included in the emerging markets list, if
investing therein becomes feasible and desirable subsequent to the date of this
Prospectus; and (4) cash and money market instruments. In evaluating investments
in securities of issuers in developed markets, the Sub-advisor will consider,
among other things, the business activities of the issuer in emerging markets
and the impact that developments in emerging markets are likely to have on the
issuer's financial condition.
Under normal circumstances, substantially all of the Portfolio's assets will
be invested in debt securities of both governmental and corporate issuers in
emerging markets. Emerging markets debt securities generally are considered to
have a credit quality below investment grade, as defined above. Lower quality
securities involve a high degree of risk and are predominantly speculative.
These debt securities are the equivalent of high yield, high risk bonds,
commonly known as "junk bonds." See "Risk Factors." Many emerging market debt
securities are not rated by U.S. ratings agencies such as Moody's and S&P. The
Portfolio's ability to achieve its investment objectives is thus more dependent
on the Sub-advisor's credit analysis. The Portfolio may invest in securities
that are in default as to payment of principal and/or interest.
As previously described, investors should be aware that the Fund, unlike
mutual funds that directly acquire and manage their own portfolios of
securities, seeks to achieve its investment objectives by investing all of its
investable assets in the Portfolio, which is a separate investment company.
Because the Fund will invest only in the Portfolio, the Fund's shareholders will
acquire only an indirect interest in the investments of the Portfolio.
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<PAGE> 702
The Fund may redeem its investment from the Portfolio at any time, if the
Board of Trustees of the Trust determines that it is in the best interests of
the Fund and its shareholders to do so.
A change in the Portfolio's investment objectives, policies or limitations
that is not approved by the Board or the shareholders of Emerging Markets Debt
Fund could require Emerging Markets Debt Fund to redeem its interest in the
Portfolio. Any such redemption could result in a distribution in kind of
portfolio securities (as opposed to a cash distribution) by the Portfolio. In
addition, a distribution in kind could result in a less diversified portfolio of
investments for the Emerging Markets Debt Fund and could adversely affect its
liquidity. Upon redemption, the Board would consider what action might be taken,
including the investment of all the investable assets of Emerging Markets Debt
Fund in another pooled investment entity having substantially the same
investment objectives as Emerging Markets Debt Fund or the retention by Emerging
Markets Debt Fund of its own investment advisor to manage its assets in
accordance with its investment objectives, policies and limitations discussed
herein.
In addition to selling an interest therein to Emerging Markets Debt Fund, the
Portfolio may sell interests therein to other non-affiliated investment
companies and/or other institutional investors. All institutional investors in
the Portfolio will pay a proportionate share of the Portfolio's expenses and
will invest in the Portfolio on the same terms and conditions. However, if
another investment company invests any or all of its assets in the Portfolio, it
would not be required to sell its shares at the same public offering price as
Emerging Markets Debt Fund and may charge different sales commissions.
Therefore, investors in Emerging Markets Debt Fund may experience different
returns than investors in another investment company that invests exclusively in
the Portfolio. As of the date of this Statement of Additional Information,
Emerging Markets Debt Fund is the only institutional investor in the Portfolio.
Investors in the Fund should be aware that Emerging Markets Debt Fund's
investment in the Portfolio may be materially affected by the actions of other
large investors, if any, in the Portfolio. For example, as with all open-end
investment companies, if a large investor were to redeem its interest in the
Portfolio, (1) the Portfolio's remaining investors could experience higher pro
rata operating expenses, thereby producing lower returns and (2) the Portfolio's
security holdings may become less diverse, resulting in increased risk.
Institutional investors in the Portfolio that have a greater pro rata ownership
interest in the Portfolio than Emerging Markets Debt Fund could have effective
voting control over the operation of the Portfolio.
Growth & Income Fund
The Fund seeks its objective by investing in a global portfolio of both equity
and debt securities, allocated among diverse international markets. There is no
assurance that the Fund will achieve its investment objective.
At least 65% of the Fund's total assets normally will be invested in a
combination of blue-chip equity securities and high quality government bonds.
The Fund considers an equity security to be "blue chip" if: (i) during the
issuer's most recent fiscal year the security offered an above average dividend
yield relative to the latest reported dividend yield on the Morgan Stanley
Capital International World Index; and (ii) the total equity market
capitalization of the issuer is at least $1 billion. Government bonds are deemed
to be high quality if at the time of the Fund's investment they are rated within
one of the two highest ratings categories of Moody's Investors Service, Inc.
("Moody's") or by Standard & Poor's, a division of The McGraw-Hill Companies,
Inc. ("S&P"), or, if not rated, are deemed to be of equivalent quality in the
judgment of the Sub-advisor.
Up to 35% of Growth & Income Fund's assets may be invested in other equity
securities and investment grade government and corporate debt obligations which
the Sub-advisor believes will assist Growth & Income Fund in achieving its
objective. "Investment grade" debt securities are those rated within one of the
four highest ratings categories of Moody's or S&P, or, if not rated, deemed to
be of equivalent quality in the judgment of the Sub-advisor.
Equity securities that Growth & Income Fund may purchase include common
stocks, preferred stocks, and warrants to acquire stocks and other equity
securities. Government bonds that Growth & Income Fund may purchase include debt
obligations issued or guaranteed by the United States or foreign governments
(including foreign states, provinces, or municipalities) or their agencies,
authorities or instrumentalities and debt obligations of supranational entities
organized or supported by several national governments, such as the World Bank
and the Asian Development Bank. The debt obligations held by the Growth & Income
Fund may include debt obligations convertible into equity securities or having
attached warrants or rights to purchase equity securities. Growth & Income Fund
may purchase securities that are issued by the government or a corporation or
financial institution of one nation but denominated in the currency of another
nation (or a multinational currency unit).
8
<PAGE> 703
SELECTION OF DEBT INVESTMENTS
In determining the appropriate distribution of investments among various
countries and geographic regions for Government Income Fund, Strategic Income
Fund, Growth & Income Fund, and the Portfolio, the Sub-advisor ordinarily
considers the following factors: prospects for relative economic growth among
the different countries in which Government Income Fund, Strategic Income Fund,
Growth & Income Fund, and the Portfolio may invest; expected levels of
inflation; government policies influencing business conditions; the outlook for
currency relationships; and the range of the individual investment opportunities
available to international investors.
In evaluating debt securities considered for Strategic Income Fund, the
Sub-advisor analyzes their yield, maturity, issue classification and quality
characteristics, coupled with expectations regarding local and world economies,
movements in the general level and term of interest rates, currency values,
political developments, and variations in the supply of funds available for
investment in the world bond market relative to the demands placed upon it.
There are no limitations on the maximum or minimum maturities of the debt
securities considered by Growth & Income Fund and Strategic Income Fund or on
the average weighted maturity of the debt portion of Growth & Income Fund and
Strategic Income Fund's portfolio. Should the rating of a debt security be
revised while such security is owned by Growth & Income Fund and Strategic
Income Fund, the Sub-advisor will evaluate what action, if any, is appropriate
with respect to such security.
Government Income Fund, Strategic Income Fund and the Portfolio may invest in
the following types of money market instruments (i.e., debt instruments with
less than 12 months remaining until maturity) denominated in U.S. dollars or
other currencies: (a) obligations issued or guaranteed by the U.S. or foreign
governments, their agencies, instrumentalities or municipalities; (b)
obligations of international organizations designed or supported by multiple
foreign governmental entities to promote economic reconstruction or development;
(c) finance company obligations, corporate commercial paper and other short-term
commercial obligations: (d) bank obligations (including certificates of deposit,
time deposits, demand deposits and bankers' acceptances), subject to the
restriction that Government Income Fund, Strategic Income Fund and the Portfolio
may not invest more than 25% of their respective total assets in bank
securities; (e) repurchase agreements with respect to the foregoing; and (f)
other substantially similar short-term debt securities with comparable
characteristics. Money market instruments in which the Growth & Income Fund may
invest include U.S. government securities, high-grade commercial paper, bank
certificates of deposit, bankers' acceptances and repurchase agreements related
to any of the foregoing. "High-grade commercial paper" refers to commercial
paper rated A-1 by Standard & Poor's, a division of The McGraw-Hill Companies,
Inc. ("S&P"), or P-1 by Moody's Investors Service, Inc. ("Moody's") or, if not
rated, determined by the Sub-advisor to be of comparable quality.
SELECTION OF EQUITY INVESTMENTS
With respect to Growth & Income Fund [and Strategic Income Fund], for
investment purposes, an issuer is typically considered as located in a
particular country if it (a) is incorporated under the laws of or has its
principal office in that country, or (b) it normally derives 50% or more of its
total revenue from business in that country. However, these are not absolute
requirements, and certain companies incorporated in a particular country and
considered by the Sub-advisor to be located in that country may have substantial
off-shore operations or subsidiaries and/or export sales exceeding in size the
assets or sales in that country.
SELECTION OF INVESTMENTS AND ASSET ALLOCATION
The Sub-advisor allocates the assets of Government Income Fund, Strategic
Income Fund, and the Portfolio in securities of issuers in countries and in
currency denominations where the combination of fixed income market returns, the
price appreciation potential of fixed income securities and currency exchange
rate movements will present opportunities primarily for high current income and
secondarily for capital appreciation. In so doing, the Sub-advisor intends to
take full advantage of the different yield, risk and return characteristics that
investment in the fixed income markets of different countries can provide for
U.S. investors. The Fund invests in debt obligations allocated among diverse
markets and denominated in various currencies, including U.S. dollars, or in
multinational currency units such as Euros. The Fund is designed for investors
who wish to accept the risks entailed in such investments, which are different
from those associated with a portfolio consisting entirely of securities of U.S.
issuers denominated in U.S. dollars. The Fund may purchase securities that are
issued by the government or a company or financial institution of one country
but denominated in the currency of another country (or a multinational currency
unit). Fundamental economic strength, credit quality and currency and interest
rate trends are the principal determinants of the emphasis given to various
country, geographic and industry sectors within Government Income Fund,
Strategic Income Fund, and the Portfolio. Securities held by Government Income
Fund, Strategic Income Fund, and the Portfolio may be invested in without
limitation as to maturity.
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<PAGE> 704
The Sub-advisor selects securities of particular issuers on the basis of the
views as to the best values then currently available in the marketplace. Such
values are a function of yield, maturity, issue classification and quality
characteristics, coupled with expectations regarding the local and world
economies, movements in the general level and term of interest rates, currency
values, political developments and variations in the supply of funds available
for investment in the world bond market relative to the demands placed upon it.
The Sub-advisor generally evaluates currencies on the basis of fundamental
economic criteria (e.g., relative inflation, interest rate levels and trends,
growth rate forecasts, balance of payments status and economic policies) as well
as technical and political data. The Sub-advisor may seek to protect Government
Income Fund, Strategic Income Fund, and the Portfolio against such negative
currency movements through the use of sophisticated investment techniques.
According to the Sub-advisor, as of the date of this Prospectus, more than 50%
of the value of all outstanding government debt obligations throughout the world
is represented by obligations denominated in currencies other than the U.S.
dollar. Moreover, from time to time, the debt securities of issuers located
outside the United States have substantially outperformed the debt obligations
of U.S. issuers. Accordingly, the Sub-advisor believes that the Government
Income Fund's, the Strategic Income Fund's, and the Portfolio's policy of
investing in debt securities throughout the World may enable the achievement of
results superior to those produced by mutual funds with similar objectives to
those of the Funds and the Portfolio that invest solely in debt securities of
U.S. Issuers.
In addition to the factors listed in the Prospectus, the Sub-advisor's views
on what securities constitute the best values are also a function of
expectations regarding the local and world economies, movements in the general
level and term of interest rates, currency values, political developments, and
variations in the supply of funds available for investment in the world bond
market relative to the demands placed upon it.
Growth & Income Fund
The relative proportions of equity and debt securities held by Growth & Income
Fund at any one time will vary, depending upon the Sub-advisor's assessment of
global political and economic conditions and the relative strengths and
weaknesses of the world equity and debt markets. To enable Growth & Income Fund
to respond to general economic changes and market conditions around the world,
Growth & Income Fund is authorized to invest up to 100% of its total assets in
either equity securities or debt securities.
In selecting equity securities for investment, the Sub-advisor attempts to
identify and acquire only securities it deems to represent high or improving
investment quality. Securities representing high investment quality generally
will include those of well-known, established and successful issuers that the
Sub-advisor believes will continue to be successful in the future. Securities
representing improving investment quality may include those of an issuer that
has improved its sales or earnings or of an issuer the balance sheet and
financial condition of which is improving. The Sub-advisor seeks to avoid
investing in equity securities that appear overly speculative or risky, even if
they have attractive features or investment potential.
The Fund currently contemplates that it will invest principally in securities
of issuers in the United States, Canada, Japan, Western Europe, New Zealand and
Australia. The Fund may invest substantially in securities denominated in one or
more currencies. Under normal conditions, the Fund invests in issuers of not
less than three different countries and issuers of any one country, other than
the United States, will represent no more than 40% of the Fund's total assets.
INVESTMENT IN EMERGING MARKETS
The Portfolio seeks its objectives by investing, under normal circumstances,
at least 65% of its total assets in debt securities of issuers in emerging
markets. Strategic Income Fund may invest up to [65%] of its assets in debt
securities of issuers in emerging markets. Strategic Income Fund and the
Portfolio do not consider the following countries to be emerging markets:
Australia, Austria, Belgium, Canada, Denmark, France, Germany, Ireland, Italy,
Japan, the Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland, United
Kingdom, and United States.
Emerging markets debt securities generally are considered to have a credit
quality below investment grade. Lower quality securities involve a high degree
of risk and are predominantly speculative. These debt securities are the
equivalent of high yield, high risk bonds, commonly known as "junk bonds." Many
emerging market debt securities are not rated by U.S. ratings agencies such as
Moody's and S&P. Strategic Income Fund and the Portfolio's ability to achieve
their respective investment objectives are thus more dependent on the
Sub-advisor's credit analysis. Strategic Income Fund and the Portfolio may
invest in securities that are in default as to payment of principal and/or
interest.
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<PAGE> 705
Strategic Income Fund and the Portfolio consider "emerging markets" to consist
of all countries determined by the Sub-advisor to have developing or emerging
economies and markets. These countries generally include every country in the
world except the United States, Canada, Japan, Australia, New Zealand and most
countries located in Western Europe. Strategic Income Fund and the Portfolio
each will consider investment in the following emerging markets:
Algeria
Argentina
Bolivia
Botswana
Brazil
Bulgaria
Chile
China
Columbia
Costa Rica
Cyprus
Czech Republic
Dominican Republic
Ecuador
Egypt
El Salvador
Finland
Ghana
Greece
Hong Kong
Hungary
India
Indonesia
Israel
Ivory Coast
Jamaica
Jordan
Kazakhstan
Kenya
Lebanon
Malaysia
Mauritius
Mexico
Morocco
Nicaragua
Nigeria
Oman
Pakistan
Panama
Paraguay
Peru
Philippines
Poland
Portugal
Republic of Slovakia
Russia
Singapore
Slovenia
South Africa
South Korea
Sri Lanka
Swaziland
Taiwan
Thailand
Turkey
Ukraine
Uruguay
Venezuela
Zambia
Zimbabwe
Neither Strategic Income Fund nor the Portfolio will be invested in all such
markets at all times. Moreover, investing in some of those markets currently may
not be desirable or feasible, due to the lack of adequate custody arrangements,
overly burdensome repatriation requirements and similar restrictions, the lack
of organized and liquid securities markets, unacceptable political risks or for
other reasons.
As used in the Prospectuses and the Statement of Additional Information, an
issuer in an emerging market is an entity: (i) for which the principal
securities trading market is an emerging market, as defined above; (ii) that
(alone or on a consolidated basis) derives 50% or more of its total revenue from
either goods produced, sales made or services performed in emerging markets; or
(iii) organized under the laws of, or with a principal office in, an emerging
market.
When determining what countries constitute emerging markets, the Sub-advisor
will consider data, analysis, and classification of countries published or
disseminated by the International Bank for Reconstruction and Development
(commonly known as the World Bank) and the International Finance Corporation.
SOVEREIGN DEBT
Government Income Fund, Strategic Income Fund, and the Portfolio may invest in
sovereign debt securities of emerging market governments, including Brady Bonds.
Investments in such securities involve special risks. The issuer of the debt or
the governmental authorities that control the repayment of the debt may be
unable or unwilling to repay principal or interest when due in accordance with
the terms of such debt. Periods of economic uncertainty may result in the
volatility of market prices of sovereign debt obligations and in turn a Fund's
net asset value, to a greater extent than the volatility inherent in domestic
fixed income securities.
A sovereign debtor's willingness or ability to repay principal and pay
interest in a timely manner may be affected by, among other factors, its cash
flow situation, the extent of its foreign reserves, the availability of
sufficient foreign exchange on the date a payment is due, the relative size of
the debt service burden to the economy as a whole, the sovereign debtor's policy
toward principal international lenders and the political constraints to which a
sovereign debtor may be subject. Emerging market governments could default on
their sovereign debt. Such sovereign debtors also may be dependent on expected
disbursements from foreign governments, multilateral agencies and other entities
abroad to reduce principal and interest arrearages on their debt. The commitment
on the part of these governments, agencies and others to make such disbursements
may be conditioned on a sovereign debtor's implementation of economic reforms
and/or economic performance and the timely service of such debtor's obligations.
Failure to implement such reforms, achieve such levels of economic performance
or repay principal or interest when due, may result in the cancellation of such
third
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<PAGE> 706
parties' commitments to lend funds to the sovereign debtor, which may further
impair such debtor's ability or willingness to timely service its debts.
The occurrence of political, social or diplomatic changes in one or more of
the countries issuing sovereign debt could adversely affect the Fund's
investments. Emerging markets are faced with social and political issues and
some of them have experienced high rates of inflation in recent years and have
extensive internal debt. Among other effects, high inflation and internal debt
service requirements may adversely affect the cost and availability of future
domestic sovereign borrowing to finance governmental programs, and may have
other adverse social, political and economic consequences. Political changes or
a deterioration of a country's domestic economy or balance of trade may affect
the willingness of countries to service their sovereign debt. Although the
Sub-advisor intends to manage the Funds in a manner that will minimize the
exposure to such risks, there can be no assurance that adverse political changes
will not cause a Fund to suffer a loss of interest or principal on any of its
holdings.
In recent years, some of the emerging market countries in which the Funds
expect to invest have encountered difficulties in servicing their sovereign debt
obligations. Some of these countries have withheld payments of interest and/or
principal of sovereign debt. These difficulties have also led to agreements to
restructure external debt obligations -- in particular, commercial bank loans,
typically by rescheduling principal payments, reducing interest rates and
extending new credits to finance interest payments on existing debt. In the
future, holders of emerging market sovereign debt securities may be requested to
participate in similar rescheduling of such debt. Certain emerging market
countries are among the largest debtors in commercial banks and foreign
governments. Currently, Brazil, Mexico and Argentina are the largest debtors
among developing countries. At times certain emerging market countries have
declared moratoria on the payment of principal and interest on external debt;
such a moratorium is currently in effect in certain emerging market countries.
There is no bankruptcy proceeding by which a creditor may collect in whole or in
part sovereign debt on which an emerging market government has defaulted.
The ability of emerging market governments to make timely payments on their
sovereign debt securities is likely to be influenced strongly by a country's
balance of trade and its access to trade and other international credits. A
country whose exports are concentrated in a few commodities could be vulnerable
to a decline in the international prices of one or more of such commodities.
Increased protectionism on the part of a country's trading partners could also
adversely affect its exports. Such events could diminish a country's trade
account surplus, if any. To the extent that a country receives payment for its
exports in currencies other than hard currencies, its ability to make hard
currency payments could be affected.
Investors should also be aware that certain sovereign debt instruments in
which a Fund may invest involve great risk. As noted above, sovereign debt
obligations issued by emerging market governments generally are deemed to be the
equivalent in terms of quality to securities rated below investment grade by
Moody's and S&P. Such securities are regarded as predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligations and involve major risk exposure to
adverse conditions. Some of such securities, with respect to which the issuer
currently may not be paying interest or may be in payment default, may be
comparable to securities rated D by S&P or C by Moody's. The Funds may have
difficulty disposing of and valuing certain sovereign debt obligations because
there may be a limited trading market for such securities. Because there is no
liquid secondary market for many of these securities, the Funds anticipate that
such securities could be sold only to a limited number of dealers or
institutional investors.
BRADY BONDS
Government Income Fund, Strategic Income Fund, and the Portfolio may invest in
"Brady Bonds," which are debt restructurings that provide for the exchange of
cash and loans for newly issued bonds. Brady Bonds have been issued by the
countries of Albania, Argentina, Brazil, Bulgaria, Costa Rica, Dominican
Republic, Ecuador, Ivory Coast, Jordan, Mexico, Nigeria, Panama, Peru,
Philippines, Poland, Uruguay, Venezuela and Vietnam and are expected to be
issued by other emerging market countries. As of the date of this Statement of
Additional Information, Government Income Fund, Strategic Income Fund, and the
Portfolio are not aware of the occurrence of any payment defaults on Brady
Bonds. Investors should recognize, however, that Brady Bonds do not have a long
payment history. In addition, Brady Bonds are often rated below investment
grade.
Government Income Fund, Strategic Income Fund, and the Portfolio may invest in
either collateralized or uncollateralized Brady Bonds. U.S. dollar-denominated,
collateralized Brady Bonds, which may be fixed rate per bonds or floating rate
discount bonds, are collateralized in full as to principal by U.S. Treasury zero
coupon bonds having the same maturity as the bonds. Interest payments on such
bonds generally are collateralized by cash or securities in an amount that, in
the case of fixed rate bonds, is equal to at least one year of rolling interest
payments or, in the case of floating
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<PAGE> 707
rate bonds, initially is equal to at least one year's rolling interest payments
based on the applicable interest rate at the time of issuance and is adjusted at
regular intervals thereafter.
LOAN PARTICIPATIONS AND ASSIGNMENTS
Strategic Income Fund and the Portfolio may invest in fixed and floating rate
loans ("Loans") arranged through private negotiations between a foreign entity
and one or more financial institutions ("Lenders"). The majority of the Funds'
investments in Loans in emerging markets is expected to be in the form of
participations in Loans ("Participations") and assignment of portions of Loans
from third parties ("Assignments"). Participations typically will result in
Strategic Income Fund and the Portfolio having a contractual relationship only
with the Lender, not with the borrower government. Strategic Income Fund and the
Portfolio will have the right to receive payments of principal, interest and any
fees to which it is entitled only from the Lender selling the Participation and
only upon receipt by the Lender of the payments from the borrower. In connection
with purchasing Participations, Strategic Income Fund and the Portfolio
generally will have no right to enforce compliance by the borrower with the
terms of the loan agreement relating to the loan ("Loan Agreement"), nor any
rights or set off against the borrowers, and Strategic Income Fund and the
Portfolio may not directly benefit from any collateral supporting the Loan in
which they have purchased any Participations. As a result, Strategic Income Fund
and the Portfolio will assume the credit risk of both the borrower and the
Lender that is selling the Participation.
In the event of the insolvency of the Lender selling a Participation,
Strategic Income Fund and the Portfolio may be treated as a general creditor of
the Lender and may not benefit from any set off between the Lender and the
borrower. Strategic Income Fund and the Portfolio will acquire Participations
only if the Lender interpositioned between the Funds and the borrower is
determined by the Sub-advisor to be creditworthy. When a Fund purchases
Assignments from Lenders, the Fund will acquire direct rights against the
borrower on the Loan. However, since Assignments are arranged through private
negotiations between potential assignees and assignors, the rights and
obligations acquired by Strategic Income Fund and the Portfolio as the purchaser
of an Assignment may differ from, and be more limited than, those held by the
assigning Lender.
The liquidity of Assignments and Participations is limited and, the Funds
anticipate that such securities could be sold only to a limited number of
institutional investors. The lack of a liquid secondary market could have an
adverse impact on the value of such securities and on the Funds' ability to
dispose of particular Assignments or Participations when necessary to meet the
Funds' respective liquidity needs or in response to a specific economic event,
such as a deterioration in the creditworthiness of the borrower. The lack of a
liquid secondary market for Assignments and Participations also may make it more
difficult for the Funds to assign a value to those securities for purposes of
valuing the Funds' respective portfolios and calculating each portfolio's net
asset value.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
Government Income Fund and Strategic Income Fund may invest in mortgage-backed
and asset-backed securities of U.S. and foreign issuers, including privately
issued mortgage-backed and asset-backed securities. Mortgage-backed securities
represent direct or indirect interests in pools of underlying mortgage loans
that are secured by real property. Investors typically receive payments out of
the interest on and principal of the underlying mortgages. Asset-backed
securities are similar to mortgage-backed securities, except that the underlying
assets are other financial assets or financial receivables, such as motor
vehicle installment sales contracts, home equity loans, leases of various types
of real and personal property, and receivables from credit cards. Any
mortgage-backed and asset-backed securities purchased by the Fund will be
subject to the same rating requirements that apply to its other investments.
WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES
Government Income Fund, Strategic Income Fund, and the Portfolio may purchase
debt securities on a "when-issued" basis and may purchase or sell such
securities on a "forward commitment" basis in order to hedge against anticipated
changes in interest rates and prices. The price, which is generally expressed in
yield terms, is fixed at the time the commitment is made, but delivery and
payment for the securities take place at a later date. When-issued securities
and forward commitments may be sold prior to the settlement date, but Government
Income Fund, Strategic Income Fund, and the Portfolio will purchase or sell when
issued securities and forward commitments only with the intention of actually
receiving or delivering the securities, as the case may be. No income accrues on
securities that have been purchased pursuant to a forward commitment or on a
when-issued basis prior to delivery of the securities. If Government Income
Fund, Strategic Income Fund, and the Portfolio dispose of the right to acquire a
when-issued security prior to its acquisition or disposes of its right to
deliver or receive against a forward commitment, it may incur a gain or loss. At
the time Government Income Fund, Strategic Income Fund, and the Portfolio enter
into a transaction on a when-issued or
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<PAGE> 708
forward commitment basis, the Funds will each segregate cash or liquid
securities equal to the value of the when issued or forward commitment
securities with its custodian and will each mark to market daily such assets.
There is a risk that the securities may not be delivered and that Government
Income Fund, Strategic Income Fund, and the Portfolio may incur a loss.
Government Income Fund may invest up to 5% of its total assets in a
combination of securities purchased on a when-issued basis or with respect to
which it has entered into forward commitment arrangements.
Strategic Income Fund and the Portfolio may also sell securities on a "when,
as and if issued" basis for hedging purposes. Under such a transaction,
Strategic Income Fund and the Portfolio are each required to deliver at a future
date a security it does not presently hold, but which it has a right to receive
if the security is issued. Issuance of the security may not occur, in which case
Strategic Income Fund and the Portfolio would have no obligation to the other
party, and would not receive payment for the sale. Selling securities on a
"when, as and if issued" basis may reduce risk of loss to the extent that such a
sale wholly or partially offsets unfavorable price movements on the investments
being hedged. However, such sales also limit the amount Strategic Income Fund
and the Portfolio can receive if the "when, as and if issued" security is in
fact issued.
TEMPORARY DEFENSIVE STRATEGIES
The Sub-advisor may employ a temporary defensive investment strategy if it
determines such a strategy to be warranted due to market, economic or political
conditions. Pursuant to such a defensive strategy, a Fund temporarily may hold
cash (U.S. dollars, and for the Growth & Income Fund, the Strategic Income Fund,
and Government Income Fund also includes foreign currencies or multinational
currency units such as euros) and/or invest up to 100% of its assets in high
quality debt securities or money market instruments of U.S. or foreign issuers.
In addition, for temporary defensive purposes, most or all of each Fund's
investments may be made in the United States and denominated in U.S. dollars. To
the extent a Fund employs a temporary defensive strategy, it will not be
invested so as to achieve directly its investment objectives. In addition,
pending investment of proceeds from new sales of Fund shares or to meet ordinary
daily cash needs, a Fund may hold cash (U.S. dollars, foreign currencies or
multinational currency units) and may invest in high quality foreign or domestic
money market instruments.
INVESTMENTS IN OTHER INVESTMENT COMPANIES
With respect to certain countries, investments by Government Income Fund,
Strategic Income Fund, Growth & Income Fund and the Portfolio presently may be
made only by acquiring shares of other investment companies (including
investment vehicles or companies advised by the Sub-advisor or its affiliates
("Affiliated Funds")) with local governmental approval to invest in those
countries. At such time as direct investment in these countries is allowed,
Government Income Fund, Strategic Income Fund, Growth & Income Fund and the
Portfolio anticipate investing directly in these markets. Government Income
Fund, Strategic Income Fund, Growth & Income Fund and the Portfolio may also
invest in the securities of closed-end investment companies within the limits of
the 1940 Act. These limitations currently provide that, in part, a Fund or the
Portfolio may purchase shares of another investment company unless (a) such a
purchase would cause Government Income Fund, Strategic Income Fund, Growth &
Income Fund or the Portfolio to own in the aggregate more than 3% of the total
outstanding voting securities of the investment company or (b) such a purchase
would cause Government Income Fund, Strategic Income Fund, Growth & Income Fund
or the Portfolio to have more than 5% of its total assets invested in the
investment company or more than 10% of its aggregate assets invested in an
aggregate of all such investment companies. The foregoing limitations do not
apply to the investment by Emerging Markets Debt Fund in the Portfolio.
Investment in investment companies may involve the payment of substantial
premiums above the value of such companies' portfolio securities. Government
Income Fund, Strategic Income Fund, Growth & Income Fund and the Portfolio do
not intend to invest in such investment companies unless, in the judgment of the
Sub-advisor, the potential benefits of such investments justify the payment of
any applicable premiums. The return on such securities will be reduced by
operating expenses of such companies including payments to the investment
managers of those investment companies. With respect to investments in
Affiliated Funds, the Sub-advisor waives its advisory fee to the extent that
such fees are based on assets of a Fund invested in Affiliated Funds.
DEPOSITARY RECEIPTS
Growth & Income Fund may hold equity securities of foreign issuers in the form
of American Depositary Receipts ("ADRs"), American Depositary Shares ("ADSs"),
Global Depositary Receipts ("GDRs") and European Depositary Receipts ("EDRs"),
or other securities convertible into securities of eligible issuers. These
securities may not necessarily be denominated in the same currency as the
securities for which they may be exchanged. ADRs and ADSs typically are issued
by an American bank or trust company and evidence ownership of underlying
securities issued by a foreign
14
<PAGE> 709
corporation. EDRs, which are sometimes referred to as Continental Depositary
Receipts ("CDRs"), are issued in Europe typically by foreign banks and trust
companies and evidence ownership of either foreign or domestic securities. GDRs
are similar to EDRs and are designed for use in several international financial
markets. Generally, ADRs and ADSs in registered form are designed for use in
United States securities markets and EDRs in bearer form are designed for use in
European securities markets. For purposes of the Fund's investment policies, the
Fund's investments in ADRs, ADSs, GDRs and EDRs will be deemed to be investments
in the equity securities representing securities of foreign issuers into which
they may be converted.
ADR facilities may be established as either "unsponsored" or "sponsored."
While ADRs issued under these two types of facilities are in some respects
similar, there are distinctions between them relating to the rights and
obligations of ADR holders and the practices of market participants. A
depository may establish an unsponsored facility without participation by (or
even necessarily the acquiescence of) the issuer of the deposited securities,
although typically the depository requests a letter of non-objection from such
issuer prior to the establishment of the facility. Holders of unsponsored ADRs
generally bear all the costs of such facilities. The depository usually charges
fees upon the deposit and withdrawal of the deposited securities, the conversion
of dividends into U.S. dollars, the disposition of non-cash distributions, and
the performance of other services. The depository of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited securities or to pass-through voting
rights to ADR holders in respect of the deposited securities. Sponsored ADR
facilities are created in generally the same manner as unsponsored facilities,
except that the issuer of the deposited securities enters into a deposit
agreement with the depository. The deposit agreement sets out the rights and
responsibilities of the issuer, the depository and the ADR holders. With
sponsored facilities, the issuer of the deposited securities generally will bear
some of the costs relating to the facility (such as dividend payment fees of the
depository), although ADR holders continue to bear certain other costs (such as
deposit and withdrawal fees). Under the terms of most sponsored arrangements,
depositories agree to distribute notices of shareholder meetings and voting
instructions, and to provide shareholder communications and other information to
the ADR holders at the request of the issuer of the deposited securities. The
Fund may invest in both sponsored and unsponsored ADRs.
SAMURAI AND YANKEE BONDS
Government Income Fund, Strategic Income Fund and the Portfolio may invest in
yen-denominated bonds sold in Japan by non-Japanese issuers ("Samurai bonds"),
and may invest in dollar-denominated bonds sold in the United States by non-U.S.
issuers ("Yankee bonds"). It is the policy of the Government Income Fund, the
Strategic Income Fund and the Portfolio to invest in Samurai or Yankee bond
issues only after taking into account considerations of quality and liquidity,
as well as yield.
WARRANTS OR RIGHTS
Warrants or rights may be acquired by Government Income Fund, Strategic Income
Fund, Growth & Income Fund or the Portfolio in connection with other securities
or separately and provide a Fund or the Portfolio with the right to purchase at
a later date other securities of the issuer. Warrants are securities permitting,
but not obligating, their holder to subscribe for other securities or
commodities. Warrants do not carry with them the right to dividends or voting
rights with respect to the securities that they entitle their holder to
purchase, and they do not represent any rights in the assets of the issuer. As a
result, warrants may be considered more speculative than certain other types of
investments. In addition, the value of a warrant does not necessarily change
with the value of the underlying securities and a warrant ceases to have value
if it is not exercised prior to its expiration date.
LENDING OF PORTFOLIO SECURITIES
For the purpose of realizing additional income, Government Income Fund,
Strategic Income Fund, Growth & Income Fund or the Portfolio may make secured
loans of portfolio securities amounting to not more than 30% of its total
assets. Securities loans are made to broker/dealers or institutional investors
pursuant to agreements requiring that the loans continuously be secured by
collateral consisting of cash, U.S. government securities or certain irrevocable
letters of credit equal to at least the value of the borrowed securities, plus
any accrued interest or such other collateral as permitted by the Fund's
investment program and regulatory agencies, and as approved by the Board,
"marked to market" on a daily basis. Government Income Fund, Strategic Income
Fund, Growth & Income Fund and the Portfolio may pay reasonable administrative
and custodial fees in connection with loans of its securities. While the
securities loan is outstanding, Government Income Fund, Strategic Income Fund,
Growth & Income Fund and the Portfolio will continue to receive the equivalent
of the interest or dividends paid by the issuer on the securities, as well as
interest on the investment of the collateral or a fee from the borrower.
Government Income Fund, Strategic Income Fund, Growth & Income Fund and the
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Portfolio each will have a right to call each loan and obtain the securities
within the stated settlement period. Government Income Fund, Strategic Income
Fund, Growth & Income Fund and the Portfolio will not have the right to vote
equity securities while they are lent, but each may call in a loan in
anticipation of any important vote. Loans will be made only to firms deemed by
the Sub-advisor to be of good standing and will not be made unless, in the
judgment of the Sub-advisor, the consideration to be earned from such loans
would justify the risk. The risks in lending portfolio securities, as with other
extension of secured credit, consist of possible delays in receiving additional
collateral or in recovery of the loaned securities and possible loss of rights
in the collateral should the borrower fail financially.
COMMERCIAL BANK OBLIGATIONS
For the purposes of Strategic Income Fund's, Growth & Income Fund's and the
Portfolio's investment policies with respect to bank obligations, obligations of
foreign branches of U.S. banks and of foreign banks are obligations of the
issuing bank and may be general obligations of the parent bank. Such
obligations, however, may be limited by the terms of a specific obligation and
by government regulation. As with investment in non-U.S. securities in general,
investments in the obligations of foreign branches of U.S. banks and of foreign
banks may subject Strategic Income Fund, Growth & Income Fund and the Portfolio
to investment risks that are different in some respects from those of
investments in obligations of domestic issuers. Although Strategic Income Fund,
Growth & Income Fund and the Portfolio typically will acquire obligations issued
and supported by the credit of U.S. or foreign banks having total assets at the
time of purchase in excess of $1 billion, this $1 billion figure is not an
investment policy or restriction of Strategic Income Fund, Growth & Income Fund
or the Portfolio. For the purposes of calculation with respect to the $1 billion
figure, the assets of a bank will be deemed to include the assets of its U.S.
and non-U.S. branches.
REPURCHASE AGREEMENTS
A repurchase agreement is a transaction in which Government Income Fund,
Strategic Income Fund, Growth & Income Fund or the Portfolio buys a security
from a bank or recognized securities dealer and simultaneously commits to resell
that security to the bank or dealer at an agreed upon price, date and market
rate of interest unrelated to the coupon rate or maturity of the purchased
security. Although repurchase agreements carry certain risks not associated with
direct investments in securities, including possible decline in the market value
of the underlying securities and delays and costs to Government Income Fund,
Strategic Income Fund, Growth & Income Fund or Portfolio if the other party to
the repurchase agreement becomes bankrupt, Government Income Fund, Strategic
Income Fund, Growth & Income Fund and the Portfolio intend to enter into
repurchase agreements only with banks and broker/dealers believed by the
Sub-advisor to present minimal credit risks in accordance with guidelines
approved by the Trust's or the Portfolio's Board of Trustees. The Sub-advisor
reviews and monitors the creditworthiness of such institutions under the Board's
general supervision.
Government Income Fund, Strategic Income Fund, Growth & Income Fund and the
Portfolio will invest only in repurchase agreements collateralized at all times
in an amount at least equal to the repurchase price plus accrued interest. To
the extent that the proceeds from any sale of such collateral upon a default in
the obligation to repurchase were less than the repurchase price, Government
Income Fund, Strategic Income Fund, Growth & Income Fund or the Portfolio would
suffer a loss. If the financial institution which is party to the repurchase
agreement petitions for bankruptcy or otherwise becomes subject to bankruptcy or
other liquidation proceedings there may be restrictions on Government Income
Fund, Strategic Income Fund, Growth & Income Fund's or the Portfolio's ability
to sell the collateral and Government Income Fund, Strategic Income Fund, Growth
& Income Fund or the Portfolio could suffer a loss. However, with respect to
financial institutions whose bankruptcy or liquidation proceedings are subject
to the U.S. Bankruptcy Code, Government Income Fund, Strategic Income Fund,
Growth & Income Fund and the Portfolio intend to comply with provisions under
such Code that would allow the immediate resale of such collateral. Government
Income Fund and Growth & Income Fund will not enter into a repurchase agreement
with a maturity of more than seven days if, as a result, more than 10% of the
value of each Fund's total assets would be invested in such repurchase
agreements and other illiquid investments and securities for which no readily
available market exists. There is no limitation on the amount of the Growth &
Income Fund's assets that may be subject to repurchase agreements at any time.
BORROWING, REVERSE REPURCHASE AGREEMENTS AND "ROLL" TRANSACTIONS
Government Income Fund's, Strategic Income Fund's, Growth & Income Fund's and
the Portfolio's borrowings will not exceed 33 1/3% of the Fund's or the
Portfolio's respective total assets, i.e., Government Income Fund, Strategic
Income Fund, Growth & Income Fund's or the Portfolio's respective total assets
at all times will equal at least 300% of the amount of outstanding borrowings.
If market fluctuations in the value of Government Income Fund's, Strategic
Income Fund's, Growth & Income Fund's or the Portfolio's holdings or other
factors cause the ratio of Government Income Fund's, Strategic Income Fund's,
Growth & Income Fund's or the Portfolio's total assets to outstanding borrowings
to fall below
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<PAGE> 711
300%, within three days (excluding Sundays and holidays) of such event the
respective Fund or the Portfolio may be required to sell portfolio securities to
restore the 300% asset coverage, even though from an investment standpoint such
sales might be disadvantageous. Government Income Fund, Strategic Income Fund,
Growth & Income Fund and the Portfolio each may borrow up to 5% of its
respective total assets for temporary or emergency purposes other than to meet
redemptions. Any borrowing by Government Income Fund, Strategic Income Fund,
Growth & Income Fund or the Portfolio may cause greater fluctuation in the value
of its shares than would be the case if the Fund or the Portfolio did not
borrow. Government Income Fund and Growth & Income Fund will not purchase
securities while borrowings in excess of 5% are outstanding.
Government Income Fund's, Strategic Income Fund's, Growth & Income Fund's and
the Portfolio's fundamental investment limitations permit them to borrow money
for leveraging purposes. Government Income Fund and Growth & Income Fund,
however, currently are prohibited, pursuant to a non-fundamental investment
policy, from borrowing money in order to purchase securities. Nevertheless, this
policy may be changed in the future by a vote of a majority of the Trust's Board
of Trustees. A Fund will borrow for investment purposes only when the
Sub-advisor believes that such borrowings will benefit the Fund after taking
into account considerations such as the costs of the borrowing and the likely
investment returns on the securities purchased with the borrowed monies. If the
Strategic Income Fund or the Portfolio employs leverage, it would be subject to
certain additional risks. Use of leverage creates an opportunity for greater
growth of capital but would exaggerate any increases or decreases in the
Strategic Income Fund's or the Portfolio's net asset value. When the income and
gains on securities purchased with the proceeds of borrowings exceed the costs
of such borrowings, Government Income Fund's, Strategic Income Fund's, Growth &
Income Fund's or the Portfolio's earnings or net asset value will increase
faster than otherwise would be the case; conversely, if such income and gains
fail to exceed such costs, the Fund's or the Portfolio's earnings or net asset
value would decline faster than would otherwise be the case. Each Fund and the
Portfolio expects that some of its borrowings may be made on a secured basis.
Government Income Fund, Strategic Income Fund, Growth & Income Fund and the
Portfolio may enter into reverse repurchase agreements. A reverse repurchase
agreement is a borrowing transaction in which Government Income Fund, Strategic
Income Fund, Growth & Income Fund or the Portfolio transfers possession of a
security to another party, such as a bank or broker/dealer, in return for cash,
and agrees to repurchase the security in the future at an agreed upon price,
which includes an interest component. Government Income Fund, Strategic Income
Fund, Growth & Income Fund and the Portfolio also may engage in "roll" borrowing
transactions which involve Government Income Fund's, Strategic Income Fund's,
Growth & Income Fund's or the Portfolio's sale of Government National Mortgage
Association certificates or other securities together with a commitment (for
which Government Income Fund, Strategic Income Fund, Growth & Income Fund or the
Portfolio may receive a fee) to purchase similar, but not identical, securities
at a future date. Government Income Fund, Strategic Income Fund, Growth & Income
Fund and the Portfolio will segregate with a custodian, liquid assets in an
amount sufficient to cover its obligations under "roll" transactions and reverse
repurchase agreements with broker/dealers. No segregation is required for
reverse repurchase agreements with banks.
Reverse repurchase agreements involve the risk that the market value of the
securities regained in lieu of sale by the Portfolio may decline below the price
of the securities Government Income Fund, Strategic Income Fund, Growth & Income
Fund, or the Portfolio has sold but is obligated to repurchase. In the event the
buyer of securities under a reverse repurchase agreement files for bankruptcy or
becomes insolvent, such buyer or its trustee or receiver may receive an
extension of time to determine whether to enforce the Portfolio's obligation to
repurchase the securities, and the Portfolio's use of the proceeds of the
reverse repurchase agreement may effectively be restricted pending such
decision.
The Growth & Income Fund, the Strategic Income Fund, and Government Income
Fund, and the Portfolios also may enter into "dollar rolls," in which the Fund
sells fixed income securities for delivery in the current month and
simultaneously contracts to repurchase substantially similar (same type, coupon
and maturity) securities on a specified future date. During the roll period, the
Growth & Income Fund, the Strategic Income Fund, and Government Income Fund, and
the Portfolios would forego principal and interest paid on such securities. The
Growth & Income Fund, the Strategic Income Fund, and Government Income Fund, and
the Portfolios would be compensated by the difference between the current sales
price and the forward price for the future purchase, as well as by the interest
earned on the cash proceeds of the initial sale.
Reverse repurchase agreements and dollar rolls will be treated as borrowings
and will be deducted from Government Income Fund, Strategic Income Fund, Growth
& Income Fund, and the Portfolio's respective assets for purposes of calculating
compliance with the Funds' respective borrowing limitations.
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ZERO COUPON SECURITIES
Government Income Fund, Strategic Income Fund, and the Portfolio may invest in
certain zero coupon securities that are "stopped" U.S. Treasury notes and bonds.
Government Income Fund, Strategic Income Fund and the Portfolio also may invest
in zero coupon and other deep discount securities issued by foreign governments
and domestic and foreign corporations, including certain Brady Bonds and other
foreign debt and in payment-in-kind securities. Zero coupon securities pay no
interest to holders prior to maturity, and payment-in-kind securities pay
interest in the form of additional securities. However, a portion of the
original issue discount on zero coupon securities and the "interest" on
payment-in-kind securities will be included in the Funds' incomes. Accordingly,
for a Fund to continue to qualify for tax treatment as a regulated investment
company and to avoid a certain excise tax (see "Dividends, Distributions and Tax
Matters" below), it may be required to distribute an amount that is greater than
its share of the total amount of cash it actually receives. These distributions
must be made from the Funds' cash assets or, if necessary, from the proceeds of
sales of portfolio securities. Government Income Fund, Strategic Income Fund and
the Portfolio will not be able to purchase additional income-producing
securities with cash used to make such distributions, and their respective
current incomes ultimately may be reduced as a result. Zero coupon and
payment-in-kind securities usually trade at a deep discount from their face or
par value and will be subject to greater fluctuations of market value in
response to changing interest rates than debt obligations of comparable
maturities that make current distributions of interest in cash.
SYNTHETIC SECURITY POSITIONS
Government Income Fund, Strategic Income Fund, and the Portfolio may utilize
combinations of futures on bonds and forward currency contracts to create
investment positions that have substantially the same characteristics as bonds
of the same type as those on which the futures contracts are written. Investment
positions of this type are generally referred to as "synthetic securities." For
example, in order to establish a synthetic security position for the Funds that
is comparable to owning a Japanese government bond, the Sub-advisor might
purchase futures contracts on Japanese governmental bonds in the desired
principal amount and purchase forward currency contracts for Japanese Yen in an
amount equal to the then current purchase price for such bonds in the Japanese
cash market, with each contract having approximately the same delivery date. The
Sub-advisor might roll over the futures and forward currency contract positions
before taking delivery in order to continue the Funds' investment position, or
the Sub-advisor might close out those positions, thus effectively selling the
synthetic security. Further, the amount of each contract might be adjusted in
response to market conditions and the forward currency contract might be changed
in amount or eliminated in order to hedge against currency fluctuations.
The Sub-advisor would create synthetic security positions for the Funds when
it believes that it can obtain a better yield or achieve cost savings in
comparison to purchasing actual bonds or when comparable bonds are not readily
available in the market. Synthetic security positions are subject to the risk
that changes in the value of purchased futures contracts may differ from changes
in the value of the bonds that might otherwise have been purchased in the cash
market. Also, while the Sub-advisor believes that the cost of creating synthetic
security positions generally will be materially lower than the cost of acquiring
comparable bonds in the cash market, the Funds will incur transaction costs in
connection with each purchase of a futures or forward currency contract. The use
of futures contracts and forward currency contracts to create synthetic security
positions also is subject to substantially the same risks as those that exist
when these instruments are used in connection with hedging strategies. See
"Options, Futures and Currency Strategies," below.
SWAPS, CAPS, FLOORS, AND COLLARS
Strategic Income Fund and the Portfolio may enter into interest rate, currency
and index swaps, and purchase or sell related caps, floors and collars and other
derivative instruments. Strategic Income Fund and the Portfolio expect to enter
into these transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a technique for managing their respective portfolios' duration
(i.e., price sensitivity to changes in interest rates) or to protect against any
increase in the price of securities the Funds anticipate purchasing at a later
date. Strategic Income Fund and the Portfolio intend to use these transactions
as hedges, and neither will sell interest rate caps or floors if it does not own
securities or other instruments providing an income stream roughly equivalent to
what the Funds may be obligated to pay.
Interest rate swaps involve the exchange by either of the Funds with another
party of their respective commitments to pay or receive interest (for example,
an exchange of floating rate payments for fixed rate payments) with respect to a
notional amount of principal. A currency swap is an agreement to exchange cash
flows on a notional amount leased on changes in the values of the reference
indices.
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The purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling the cap to the extent that a specified
index exceeds a predetermined interest rate. The purchase of an interest rate
floor entitles the purchaser to receive payments on a notional principal amount
from the party selling the floor to the extent that a specified index falls
below a predetermined interest rate or amount. A collar is a combination of a
cap and a floor that preserves a certain return within a predetermined range of
interest rates or values.
INDEXED COMMERCIAL PAPER
Strategic Income Fund and the Portfolio may invest without limitation in
commercial paper which is indexed to certain specific foreign currency exchange
rates. The terms of such commercial paper provide that its principal amount is
adjusted upwards or downwards (but not below zero) at maturity to reflect
changes in the exchange rate between two currencies while the obligation is
outstanding. Strategic Income Fund and the Portfolio will purchase such
commercial paper with the currency in which it is denominated and, at maturity,
will receive interest and principal payments thereon in that currency, but the
amount of principal payable by the issuer at maturity will change in proportion
to the change (if any) in the exchange rate between the two specified currencies
between the date the instrument is issued and the date the instrument matures.
While such commercial paper entails the risk of loss of principal, the potential
for realizing gains as a result of changes in foreign currency exchange rates
enables the Funds to hedge against a decline in the U.S. dollar value of
investments denominated in foreign currencies while seeking to provide an
attractive money market rate of return. Strategic Income Fund and the Portfolio
will not purchase such commercial paper for speculation.
OTHER INDEXED SECURITIES
Government Income Fund, Strategic Income Fund and the Portfolio may invest in
certain other indexed securities, which are securities whose prices are indexed
to the prices of other securities, securities indices, currencies, precious
metals or other commodities, or other financial indicators. Indexed securities
typically, but not always, are debt securities or deposits whose value at
maturity or coupon rate is determined by reference to a specific instrument or
statistic. The performance of indexed securities depends to a great extent on
the performance of the security, currency, or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the United
States and abroad. At the same time, indexed securities are subject to the
credit risks associated with the issuer of the security, and their values may
decline substantially if the issuer's creditworthiness deteriorates. Indexed
securities may be more volatile than the underlying instruments. New forms of
indexed securities continue to be developed. Government Income Fund, Strategic
Income Fund and the Portfolio may invest in such securities to the extent
consistent with their respective investment objectives.
SHORT SALES
Government Income Fund, Strategic Income Fund, Growth & Income Fund and the
Portfolio may make short sales of securities, although they have no current
intention of doing so. A short sale is a transaction in which a Fund or the
Portfolio sells a security in anticipation that the market price of that
security will decline. Government Income Fund, Strategic Income Fund, Growth &
Income Fund and the Portfolio may make short sales as a form of hedging to
offset potential declines in long positions in securities it owns, or
anticipates acquiring, and in order to maintain portfolio flexibility.
Government Income Fund, Strategic Income Fund, Growth & Income Fund and the
Portfolio only may make short sales "against the box." In this type of short
sale, at the time of the sale, the Fund or the Portfolio owns the security it
has sold short or has the immediate and unconditional right to acquire the
identical security at no additional cost.
In a short sale, the seller does not immediately deliver the securities sold
and does not receive the proceeds from the sale. To make delivery to the
purchaser, the executing broker borrows the securities being sold short on
behalf of the seller. The seller is said to have a short position in the
securities sold until it delivers the securities sold, at which time it receives
the proceeds of the sale. To secure its obligation to deliver securities sold
short, Government Income Fund, Strategic Income Fund, Growth & Income Fund or
the Portfolio will deposit in a separate account with its custodian an equal
amount of the securities sold short or securities convertible into or
exchangeable for such securities at no cost. Government Income Fund, Strategic
Income Fund, Growth & Income Fund or the Portfolio could close out a short
position by purchasing and delivering an equal amount of the securities sold
short, rather than by delivering securities already held by the Fund or the
Portfolio, because the Fund or the Portfolio might want to continue to receive
interest and dividend payments on securities in its portfolio that are
convertible into the securities sold short.
Government Income Fund, Strategic Income Fund, Growth & Income Fund and the
Portfolio might make a short sale "against the box" in order to hedge against
market risks when the Sub-advisor believes that the price of a security may
decline, causing a decline in the value of a security owned by Government Income
Fund, Strategic Income Fund, Growth & Income Fund or the Portfolio or a security
convertible into or exchangeable for such security. In such case, any future
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losses in Government Income Fund's, Strategic Income Fund's, Growth & Income
Fund's or the Portfolio's long position should be reduced by a gain in the short
position. Conversely, any gain in the long position should be reduced by a loss
in the short position. The extent to which such gains or losses in the long
position are reduced will depend upon the amount of the securities sold short
relative to the amount of the securities the Fund or the Portfolio owns, either
directly or indirectly, and, in the case where a Fund or the Portfolio owns
convertible securities, changes in the investment values or conversion premiums
of such securities. There will be certain additional transaction costs
associated with short sales "against the box," but a Fund or the Portfolio will
endeavor to offset these costs with income from the investment of the cash
proceeds of short sales.
OPTIONS, FUTURES AND CURRENCY STRATEGIES
OPTIONS, FUTURES, AND FORWARD CURRENCY TRANSACTIONS
Each Fund and the Portfolio may use forward currency contracts, futures
contracts, options on securities, options on currencies, options on indices and
options on futures contracts to attempt to hedge against the overall level of
investment and currency risk normally associated with the Fund's investments.
These instruments are often referred to as "derivatives," which may be defined
as financial instruments whose performance is derived, at least in part, from
the performance of another asset (such as a security, currency, or an index of
securities). Each Fund and the Portfolio may enter into such instruments up to
the full value of its portfolio assets.
To attempt to hedge against adverse movements in exchange rates between
currencies, a Fund or the Portfolio may enter into forward currency contracts
for the purchase or sale of a specified currency at a specified future date.
Such contracts may involve the purchase or sale of a foreign currency against
the U.S. dollar, or may involve two foreign currencies. A Fund or a Portfolio
may enter into forward currency contracts either with respect to specific
transactions or with respect to a Fund's or a Portfolio's portfolio positions.
Each Fund and the Portfolio also may purchase and sell put and call options on
currencies, futures contracts on currencies and options on such futures
contracts to hedge a Fund's or Portfolio's portfolio against movements in
exchange rates.
In addition, Each Fund and the Portfolio may purchase and sell put and call
options on equity and debt securities to hedge against the risk of fluctuations
in the prices of securities held by the Fund or that the Sub-advisor intends to
include in a Fund's or a Portfolio's portfolio. Each Fund and the Portfolio also
may purchase and sell put and call options on stock indices to hedge against
overall fluctuations in the securities markets or in a specific market sector.
To attempt to increase return, Growth & Income Fund may write call options on
securities. This strategy will be employed only when, in the opinion of the
Sub-advisor, the size of the premium Growth & Income Fund receives for writing
the option is adequate to compensate Growth & Income Fund against the risk that
appreciation in the underlying security may not be fully realized if the option
is exercised. Growth & Income Fund also is authorized to write put options to
attempt to enhance return, although it does not have the current intention of so
doing.
Further, each Fund and the Portfolio may sell index futures contracts and may
purchase put options or write call options on such futures contracts to protect
against a general market or a specific market sector decline that could
adversely affect a Fund's or a Portfolio's portfolio. Each Fund and the
Portfolio also may purchase index futures contracts and purchase call options or
write put options on such contracts to hedge against a general market or market
sector advance and thereby attempt to lessen the cost of future securities
acquisitions. Similarly, a Fund or a Portfolio may use interest rate futures
contracts and options thereon to hedge the debt portion of its portfolio against
changes in the general level of interest rates.
SPECIAL RISKS OF OPTIONS, FUTURES AND CURRENCY STRATEGIES
Although a Fund or the Portfolio is authorized to enter into options, futures
and forward currency transactions, it might not enter into any such
transactions. The use of options, futures contracts and forward currency
contracts ("Forward Contracts") involves special considerations and risks, as
described below. Risks pertaining to particular instruments are described in the
sections that follow.
(1) Successful use of most of these instruments depends upon the
Sub-advisor's ability to predict movements of the overall securities and
currency markets, which requires different skills than predicting changes
in the prices of individual securities. While the Sub-advisor is
experienced in the use of these instruments, there can be no assurance that
any particular strategy adopted will succeed.
(2) There might be imperfect correlation, or even no correlation,
between price movements of an instrument and price movements of the
investments being hedged. For example, if the value of an instrument used
in a short
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hedge increased by less than the decline in value of the hedged investment,
the hedge would not be fully successful. Such a lack of correlation might
occur due to factors unrelated to the value of the investments being
hedged, such as speculative or other pressures on the markets in which the
hedging instrument is traded. The effectiveness of hedges using hedging
instruments on indices will depend on the degree of correlation between
price movements in the index and price movements in the investments being
hedged.
(3) Hedging strategies, if successful, can reduce risk of loss by
wholly or partially offsetting the negative effect of unfavorable price
movements in the investments being hedged. However, hedging strategies can
also reduce opportunity for gain by offsetting the positive effect of
favorable price movements in the hedged investments. For example, if
Government Income Fund, Strategic Income Fund, Growth & Income Fund or the
Portfolio entered into a short hedge because the Sub-advisor projected a
decline in the price of a security in the Fund's or the Portfolio's
portfolio, and the price of that security increased instead, the gain from
that increase might be wholly or partially offset by a decline in the price
of the hedging instrument. Moreover, if the price of the hedging instrument
declined by more than the increase in the price of the security, Government
Income Fund, Strategic Income Fund, Growth & Income Fund or the Portfolio
could suffer a loss. In either such case, Government Income Fund, Strategic
Income Fund, Growth & Income Fund or the Portfolio would have been in a
better position had it not hedged at all.
(4) There is no assurance that a liquid secondary market will exist
for any particular option, futures contract or option thereon at any
particular time.
(5) As described below, Government Income Fund, Strategic Income Fund,
Growth & Income Fund or the Portfolio might be required to maintain assets
as "cover," maintain segregated accounts or make margin payments when it
takes positions in instruments involving obligations to third parties
(i.e., instruments other than purchased options). If a Fund or the
Portfolio were unable to close out its positions in such instruments, it
might be required to continue to maintain such assets or accounts or make
such payments until the position expired or matured. The requirements might
impair the Fund's ability or the Portfolio's ability to sell a portfolio
security or make an investment at a time when it would otherwise be
favorable to do so, or require that the Fund or the Portfolio sell a
portfolio security at a disadvantageous time. The Fund's or the Portfolio's
ability to close out a position in an instrument prior to expiration or
maturity depends on the existence of a liquid secondary market or, in the
absence of such a market, the ability and willingness of the other party to
the transaction ("contra party") to enter into a transaction closing out
the position. Therefore, there is no assurance that any position can be
closed out at a time and price that is favorable to the Fund or the
Portfolio.
WRITING CALL OPTIONS
Government Income Fund, Strategic Income Fund, Growth & Income Fund and the
Portfolio may write (sell) call options on securities, indices and currencies.
Call options generally will be written on securities and currencies that, in the
opinion of the Sub-advisor are not expected to make any major price moves in the
near future but that, over the long term, are deemed to be attractive
investments for Government Income Fund, Strategic Income Fund, Growth & Income
Fund and the Portfolio.
A call option gives the holder (buyer) the right to purchase a security or
currency at a specified price (the exercise price) at any time until (American
Style) or on (European Style) a certain date (the expiration date). So long as
the obligation of the writer of a call option continues, he may be assigned an
exercise notice, requiring him to deliver the underlying security or currency
against payment of the exercise price. This obligation terminates upon the
expiration of the call option, or such earlier time at which the writer effects
a closing purchase transaction by purchasing an option identical to that
previously sold.
Portfolio securities or currencies on which call options may be written will
be purchased solely on the basis of investment considerations consistent with a
Fund's or the Portfolio's investment objectives. When writing a call option,
Government Income Fund, Strategic Income Fund, Growth & Income Fund or the
Portfolio, in return for the premium, gives up the opportunity for profit from a
price increase in the underlying security or currency above the exercise price,
and retains the risk of loss should the price of the security or currency
decline. Unlike one who owns securities or currencies not subject to an option,
a Fund or the Portfolio has no control over when it may be required to sell the
underlying securities or currencies, since most options may be exercised at any
time prior to the option's expiration. If a call option that a Fund or the
Portfolio has written expires, the Fund or the Portfolio will realize a gain in
the amount of the premium; however, such gain may be offset by a decline in the
market value of the underlying security or currency during the option period. If
the call option is exercised, the Fund or the Portfolio will realize a gain or
loss from the sale of the underlying security or currency, which will be
increased or offset by the premium received. Government Income Fund, Strategic
Income Fund, Growth & Income Fund and the Portfolio do not consider a security
or currency covered by a
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call option to be "pledged" as that term is used in Government Income Fund's,
Strategic Income Fund's, Growth & Income Fund's and the Portfolio's fundamental
investment policies that limit the pledging or mortgaging of their assets.
Writing call options can serve as a limited short hedge because declines in
the value of the hedged investment would be offset to the extent of the premium
received for writing the option. However, if the security or currency
appreciates to a price higher than the exercise price of the call option, it can
be expected that the option will be exercised and a Fund or the Portfolio will
be obligated to sell the security or currency at less than its market value.
The premium that Government Income Fund, Strategic Income Fund, Growth &
Income Fund or the Portfolio receives for writing a call option is deemed to
constitute the market value of an option. The premium a Fund or the Portfolio
will receive from writing a call option will reflect, among other things, the
current market price of the underlying investment, the relationship of the
exercise price to such market price, the historical price volatility of the
underlying investment, and the length of the option period. In determining
whether a particular call option should be written, the Sub-advisor will
consider the reasonableness of the anticipated premium and the likelihood that a
liquid secondary market will exist for those options.
Closing transactions will be effected in order to realize a profit on an
outstanding call option, to prevent an underlying security or currency from
being called, or to permit the sale of the underlying security or currency.
Furthermore, effecting a closing transaction will permit the Government Income
Fund, the Strategic Income Fund, the Growth & Income Fund or the Portfolio to
write another call option on the underlying security or currency with either a
different exercise price, expiration date or both.
Government Income Fund, Strategic Income Fund, Growth & Income Fund and the
Portfolio will pay transaction costs in connection with the writing of options
and in entering into closing purchase contracts. Transaction costs relating to
options activity normally are higher than those applicable to purchases and
sales of portfolio securities.
The exercise price of the options may be below, equal to or above the current
market values of the underlying securities or currencies at the time the options
are written. From time to time, a Fund or the Portfolio may purchase an
underlying security or currency for delivery in accordance with the exercise of
an option, rather than delivering such security or currency from its portfolio.
In such cases, additional costs will be incurred.
A Fund or the Portfolio will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more, respectively, than
the premium received from writing the option. Because increases in the market
price of a call option generally will reflect increases in the market price of
the underlying security or currency, any loss resulting from the repurchase of a
call option is likely to be offset in whole or in part by appreciation of the
underlying security or currency owned by a Fund or the Portfolio.
WRITING PUT OPTIONS
Government Income Fund, Strategic Income Fund, Growth & Income Fund and the
Portfolio may write put options on securities, indices and currencies. A put
option gives the purchaser of the option the right to sell, and the writer
(seller) the obligation to buy, the underlying security or currency at the
exercise price at anytime until (American Style) or on (European Style) the
expiration date. The operation of put options in other respects, including their
related risks and rewards, is substantially identical to that of call options.
A Fund or the Portfolio generally would write put options in circumstances
where the Sub-advisor wishes to purchase the underlying security or currency for
the Fund's or the Portfolio's portfolio at a price lower than the current market
price of the security or currency. In such event, the Fund or the Portfolio
would write a put option at an exercise price that, reduced by the premium
received on the option, reflects the lower price it is willing to pay. Since the
Fund or the Portfolio also would receive interest on debt securities or
currencies maintained to cover the exercise price of the option, this technique
could be used to enhance current return during periods of market uncertainty.
The risk in such a transaction would be that the market price of the underlying
security or currency would decline below the exercise price less the premium
received.
Writing put options can serve as a limited long hedge because increases in the
value of the hedged investment would be offset to the extent of the premium
received for writing the option. However, if the security or currency
depreciates to a price lower than the exercise price of the put option, it can
be expected that the put option will be exercised and a Fund or the Portfolio
will be obligated to purchase the security or currency at greater than its
market value.
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PURCHASING PUT OPTIONS
Government Income Fund, Strategic Income Fund, Growth & Income Fund and the
Portfolio may purchase put options on securities, indices and currencies. As the
holder of a put option, Government Income Fund, Strategic Income Fund, Growth &
Income Fund or the Portfolio would have the right to sell the underlying
security or currency at the exercise price at any time until (American Style) or
on (European Style) the expiration date. Government Income Fund, Strategic
Income Fund, Growth & Income Fund or the Portfolio may enter into closing sale
transactions with respect to such options, exercise them or permit them to
expire.
A Fund or the Portfolio may purchase a put option on an underlying security or
currency ("protective put") owned by the Fund or the Portfolio as a hedging
technique in order to protect against an anticipated decline in the value of the
security or currency. Such hedge protection is provided only during the life of
the put option when the Fund or the Portfolio, as the holder of the put option,
is able to sell the underlying security or currency at the put exercise price
regardless of any decline in the underlying security's market price or
currency's exchange value. The premium paid for the put option and any
transaction costs would reduce any profit otherwise available for distribution
when the security or currency eventually is sold.
Government Income Fund, Strategic Income Fund, Growth & Income Fund and the
Portfolio also may purchase put options at a time when that Fund or the
Portfolio does not own the underlying security or currency. By purchasing put
options on a security or currency it does not own, a Fund or the Portfolio seeks
to benefit from a decline in the market price of the underlying security or
currency. If the put option is not sold when it has remaining value, and if the
market price of the underlying security or currency remains equal to or greater
than the exercise price during the life of the put option, the Fund or the
Portfolio will lose its entire investment in the put option. In order for the
purchase of a put option to be profitable, the market price of the underlying
security or currency must decline sufficiently below the exercise price to cover
the premium and transaction costs, unless the put option is sold in a closing
sale transaction.
PURCHASING CALL OPTIONS
Government Income Fund, Strategic Income Fund, Growth & Income Fund or the
Portfolio may purchase call options on securities, indices and currencies. As
the holder of a call option, a Fund or the Portfolio would have the right to
purchase the underlying security or currency at the exercise price at any time
until (American Style) or on (European Style) the expiration date. A Fund or the
Portfolio may enter into closing sale transactions with respect to such options,
exercise them or permit them to expire.
Call options may be purchased by a Fund or the Portfolio for the purpose of
acquiring the underlying security or currency for its portfolio. Utilized in
this fashion, the purchase of call options would enable the Fund or the
Portfolio to acquire the security or currency at the exercise price of the call
option plus the premium paid. At times, the net cost of acquiring the security
or currency in this manner may be less than the cost of acquiring the security
or currency directly. This technique also may be useful to a Fund or the
Portfolio in purchasing a large block of securities that would be more difficult
to acquire by direct market purchases. So long as it holds such a call option,
rather than the underlying security or currency itself, a Fund or the Portfolio
is partially protected from any unexpected decline in the market price of the
underlying security or currency and, in such event, could allow the call option
to expire, incurring a loss only to the extent of the premium paid for the
option.
Government Income Fund, Strategic Income Fund, Growth & Income Fund and the
Portfolio also may purchase call options on underlying securities or currencies
it owns to avoid realizing losses that would result in a reduction of a Fund's
or the Portfolio's current return. For example, where a Fund or the Portfolio
has written a call option on an underlying security or currency having a current
market value below the price at which it purchased the security or currency, an
increase in the market price could result in the exercise of the call option
written by the Fund or the Portfolio and the realization of a loss on the
underlying security or currency. Accordingly, the Fund or the Portfolio could
purchase a call option on the same underlying security or currency, which could
be exercised to fulfill the Fund's or the Portfolio's delivery obligations under
its written call (if it is exercised). This strategy could allow the Fund or the
Portfolio to avoid selling the portfolio security or currency at a time when it
has an unrealized loss; however, the Fund or the Portfolio would have to pay a
premium to purchase the call option plus transaction costs.
Aggregate premiums paid for put and call options will not exceed 5% of
Government Income Fund's, Strategic Income Fund's, Growth & Income Fund's or the
Portfolio's total assets at the time of purchase.
Government Income Fund, Strategic Income Fund, Growth & Income Fund or the
Portfolio may attempt to accomplish objectives similar to those involved in
using Forward Contracts by purchasing put or call options on currencies. A put
option gives a Fund or the Portfolio as purchaser the right (but not the
obligation) to sell a specified amount of currency
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at the exercise price at any time until (American Style) or on (European Style)
the expiration of the option. A call option gives a Fund or the Portfolio as
purchaser the right (but not the obligation) to purchase a specified amount of
currency at the exercise price at any time until (American Style) or on
(European Style) the expiration of the option. A Fund or the Portfolio might
purchase a currency put option, for example, to protect itself against a decline
in the dollar value of a currency in which it holds or anticipates holding
securities. If the currency's value should decline against the dollar, the loss
in currency value should be offset, in whole or in part, by an increase in the
value of the put. If the value of the currency instead should rise against the
dollar, any gain to the Fund or the Portfolio would be reduced by the premium it
had paid for the put option. A currency call option might be purchased, for
example, in anticipation of, or to protect against, a rise in the value against
the dollar of a currency in which the Fund or the Portfolio anticipates
purchasing securities.
Options may be either listed on an exchange or traded in over-the-counter
("OTC") markets. Listed options are third-party contracts (i.e., performance of
the obligations of the purchaser and seller is guaranteed by the exchange or
clearing corporation), and have standardized strike prices and expiration dates.
OTC options are two-party contracts with negotiated strike prices and expiration
dates. The Funds and the Portfolio will not purchase an OTC option unless the
Fund or the Portfolio believes that daily valuations for such options are
readily obtainable. OTC options differ from exchange-traded options in that OTC
options are transacted with dealers directly and not through a clearing
corporation (which guarantees performance). Consequently, there is a risk of
non-performance by the dealer. Since no exchange is involved, OTC options are
valued on the basis of the average of the last bid prices obtained from dealers,
unless a quotation from only one dealer is available, in which case only that
dealer's price will be used. In the case of OTC options, there can be no
assurance that a liquid secondary market will exist for any particular option at
any specific time.
The staff of the SEC considers purchased OTC options to be illiquid
securities. A Fund or the Portfolio may also sell OTC options and, in connection
therewith, segregate assets or cover its obligations with respect to OTC options
written by the Fund or the Portfolio. The assets used as cover for OTC options
written by a Fund or the Portfolio will be considered illiquid unless the OTC
options are sold to qualified dealers who agree that the Fund or the Portfolio
may repurchase any OTC option it writes at a maximum price to be calculated by a
formula set forth in the option agreement. The cover for an OTC option written
subject to this procedure would be considered illiquid only to the extent that
the maximum repurchase price under the formula exceeds the intrinsic value of
the option.
A Fund's or the Portfolio's ability to establish and close out positions in
exchange-listed options depends on the existence of a liquid market. Each Fund
and the Portfolio intends to purchase or write only those exchange-traded
options for which there appears to be a liquid secondary market. However, there
can be no assurance that such a market will exist at any particular time.
Closing transactions can be made for OTC options only by negotiating directly
with the contra party or by a transaction in the secondary market if any such
market exists. Although each Fund and the Portfolio will enter into OTC options
only with contra parties that are expected to be capable of entering into
closing transactions with the Fund or the Portfolio, there is no assurance that
the Fund or the Portfolio will in fact be able to close out an OTC option
position at a favorable price prior to expiration. In the extent of insolvency
of the contra party, the Fund or the Portfolio might be unable to close out an
OTC option position at any time prior to its expiration.
INDEX OPTIONS
Puts and calls on indices are similar to puts and calls on securities or
futures contracts except that all settlements are in cash and gain or loss
depends on changes in the index in question (and thus on price movements in the
securities market or a particular market sector generally) rather than on price
movements in individual securities or futures contracts. When a Fund or the
Portfolio writes a call on an index, it receives a premium and agrees that,
prior to the expiration date, the purchaser of the call, upon exercise of the
call, will receive from the Fund or the Portfolio an amount of cash if the
closing level of the index upon which the call is based is greater than the
exercise price of the call. The amount of cash is equal to the difference
between the closing price of the index and the exercise price of the call times
a specified multiple (the "multiplier"), which determines the total dollar value
for each point of such difference. When a Fund or the Portfolio buys a call on
an index, it pays a premium and has the same rights as to such call as are
indicated above. When a Fund or the Portfolio buys a put on an index, it pays a
premium and has the right, prior to the expiration date, to require the seller
of the put, upon the Fund's or the Portfolio's exercise of the put, to deliver
to the Fund or the Portfolio an amount of cash if the closing level of the index
upon which the put is based is less than the exercise price of the put, which
amount of cash is determined by the multiplier, as described above for calls.
When a Fund or the Portfolio writes a put on an index, it receives a premium and
the purchaser has the right, prior to the expiration date, to require the Fund
or the Portfolio to deliver to it an amount of cash equal to the difference
between the closing level of the index and the exercise price times the
multiplier, if the closing level is less than the exercise price.
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<PAGE> 719
The risks of investment in index options may be greater than options on
securities. Because index options are settled in cash, when a Fund or the
Portfolio writes a call on an index it cannot provide in advance for its
potential settlement obligations by acquiring and holding the underlying
securities. A Fund or the Portfolio can offset some of the risk of writing a
call index option position by holding a diversified portfolio of securities
similar to those on which the underlying index is based. However, a Fund or the
Portfolio cannot, as a practical matter, acquire and hold a portfolio containing
exactly the same securities as underlie the index and, as a result, bears a risk
that the value of the securities held will vary from the value of the index.
Even if a Fund or the Portfolio could assemble a securities portfolio that
exactly reproduced the composition of the underlying index, it still would not
be fully covered from a risk standpoint because of the "timing risk" inherent in
writing index options. When an index option is exercised, the amount of cash
that the holder is entitled to receive is determined by the difference between
the exercise price and the closing index level on the date when the option is
exercised. As with other kinds of options, the Fund or the Portfolio, as the
call writer, will not know that it has been assigned until the next business day
at the earliest. The time lag between exercise and notice of assignment poses no
risk for the writer of a covered call on a specific underlying security, such as
common stock, because there the writer's obligation is to deliver the underlying
security, not to pay its value as of a fixed time in the past. So long as the
writer already owns the underlying security, it can satisfy its settlement
obligations by simply delivering it, and the risk that its value may have
declined since the exercise date is borne by the exercising holder. In contrast,
even if the writer of an index call holds securities that exactly match the
composition of the underlying index, it will not be able to satisfy its
assignment obligations by delivering those securities against payment of the
exercise price. Instead, it will be required to pay cash in an amount based on
the closing index value on the exercise date; and by the time it learns that it
has been assigned, the index may have declined, with a corresponding decline in
the value of its securities portfolio. This "timing risk" is an inherent
limitation on the ability of index call writers to cover their risk exposure by
holding securities positions.
If a Fund or the Portfolio purchases an index option and exercises it before
the closing index value for that day is available, it runs the risk that the
level of the underlying index may subsequently change. If such a change causes
the exercised option to fall out-of-the-money, the Fund or the Portfolio will be
required to pay the difference between the closing index value and the exercise
price of the option (times the applicable multiplier) to the assigned writer.
INTEREST RATE, CURRENCY AND STOCK INDEX FUTURES CONTRACTS
Government Income Fund, Strategic Income Fund, Growth & Income Fund or the
Portfolio may enter into interest rate or currency futures contracts ("Futures"
or "Futures Contracts") as a hedge against changes in prevailing levels of
interest rates or currency exchange rates in order to establish more definitely
the effective return on securities or currencies held or intended to be acquired
by the Fund or the Portfolio. Government Income Fund's, Strategic Income Fund's,
Growth & Income Fund's or the Portfolio's hedging may include sales of Futures
as an offset against the effect of expected increases in interest rates or
decreases in currency exchange rates, and purchases of Futures as an offset
against the effect of expected declines in interest rates or increases in
currency exchange rates. Growth & Income Fund may also enter into stock index
Futures Contracts as a hedge against changes in stock prices and Government
Income Fund, Strategic Income Fund and the Portfolio may enter into Futures
Contracts on indices of debt securities.
Government Income Fund, Strategic Income Fund, Growth & Income Fund and the
Portfolio only will enter into Futures Contracts that are traded on futures
exchanges and are standardized as to maturity date and underlying financial
instrument. Futures exchanges and trading thereon in the United States are
regulated under the Commodity Exchange Act by the Commodity Futures Trading
Commission ("CFTC"). Futures are exchanged in London at the London International
Financial Futures Exchange.
Although techniques other than sales and purchases of Futures Contracts could
be used to reduce a Fund's or the Portfolio's exposure to interest rate and
currency exchange rate fluctuations, a Fund or the Portfolio may be able to
hedge exposure more effectively and at a lower cost through using Futures
Contracts.
A Futures Contract provides for the future sale by one party and purchase by
another party of a specified amount of a specific financial instrument (debt
security or currency) for a specified price at a designated date, time and
place. An index Futures Contract provides for the delivery, at a designated
date, time and place, of an amount of cash equal to a specified dollar amount
times the difference between the index value at the close of trading on the
contract and the price at which the Futures Contract is originally struck; no
physical delivery of the securities comprising the index is made. Brokerage fees
are incurred when a Futures Contract is bought or sold, and margin deposits must
be maintained at all times the Futures Contract is outstanding.
Although Futures Contracts typically require future delivery of and payment
for financial instruments or currencies, Futures Contracts usually are closed
out before the delivery date. Closing out an open Futures Contract sale or
purchase is
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<PAGE> 720
effected by entering into an offsetting Futures Contract purchase or sale,
respectively, for the same aggregate amount of the identical financial
instrument or currency and the same delivery date. If the offsetting purchase
price is less than the original sale price, the Government Income Fund, the
Strategic Income Fund, the Growth & Income Fund or the Portfolio realizes a
gain; if it is more, the Government Income Fund, the Strategic Income Fund, the
Growth & Income Fund or the Portfolio realizes a loss. Conversely, if the
offsetting sale price is more than the original purchase price, Government
Income Fund, Strategic Income Fund, Growth & Income Fund or the Portfolio
realizes a gain; if it is less, Government Income Fund, Strategic Income Fund,
Growth & Income Fund or the Portfolio realizes a loss. The transaction costs
also must be included in these calculations. There can be no assurance, however,
that a Fund or the Portfolio will be able to enter into an offsetting
transaction with respect to a particular Futures Contract at a particular time.
If a Fund or the Portfolio is not able to enter into an offsetting transaction,
the Fund or the Portfolio will continue to be required to maintain the margin
deposits on the Futures Contract.
As an example of an offsetting transaction, the contractual obligations
arising from the sale of one Futures Contract of September Deutschemarks on an
exchange may be fulfilled at any time before delivery under the Futures Contract
is required (i.e., on a specified date in September, the "delivery month") by
the purchase of another Futures Contract of September Deutschemarks on the same
exchange. In such instance, the difference between the price at which the
Futures Contract was sold and the price paid for the offsetting purchase, after
allowance for transaction costs, represents the profit or loss to Government
Income Fund, Strategic Income Fund, Growth & Income Fund or the Portfolio.
Government Income Fund's, Strategic Income Fund's, Growth & Income Fund's and
the Portfolio's Futures transactions will be entered into for hedging purposes
only; that is, Futures Contracts will be sold to protect against a decline in
the price of securities or currencies that the Fund or the Portfolio owns, or
Futures Contracts will be purchased to protect the Fund or the Portfolio against
an increase in the price of securities or currencies it has committed to
purchase or expects to purchase.
"Margin" with respect to Futures Contracts is the amount of funds that must be
deposited by Government Income Fund, Strategic Income Fund, Growth & Income Fund
or the Portfolio in order to initiate futures trading and to maintain the Fund's
or the Portfolio's open positions in Futures Contracts. A margin deposit made
when the Futures Contract is entered into ("initial margin") is intended to
assure a Fund's or the Portfolio's performance under the Futures Contract. The
margin required for a particular Futures Contract is set by the exchange on
which the Futures Contract is traded, and may be modified significantly from
time to time by the exchange during the term of the Futures Contract.
Subsequent payments, called "variation margin," to and from the futures
commission merchant through which the Fund or the Portfolio entered into the
Futures Contract will be made on a daily basis as the price of the underlying
security, currency or index fluctuates making the Futures Contract more or less
valuable, a process known as marking-to-market.
Risks of Using Futures Contracts. The prices of Futures Contracts are volatile
and are influenced, among other things, by actual and anticipated changes in
interest and currency rates, which in turn are affected by fiscal and monetary
policies and national and international political and economic events.
There is a risk of imperfect correlation between changes in prices of Futures
Contracts and prices of the securities or currencies in a Fund's or the
Portfolio's portfolio being hedged. The degree of imperfection of correlation
depends upon circumstances such as: variations in speculative market demand for
Futures and for securities or currencies, including technical influences in
Futures trading; and differences between the financial instruments being hedged
and the instruments underlying the standard Futures Contracts available for
trading. A decision of whether, when, and how to hedge involves skill and
judgment, and even a well-conceived hedge may be unsuccessful to some degree
because of unexpected market behavior or interest or currency rate trends.
Because of the low margin deposits required, Futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a Futures Contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the Futures Contract is deposited as margin, a subsequent 10%
decrease in the value of the Futures Contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the Futures Contract were closed out.
Thus, a purchase or sale of a Futures Contract may result in losses in excess of
the amount invested in the Futures Contract.
Most U.S. Futures exchanges limit the amount of fluctuation permitted in
Futures Contract and option on Futures Contract prices during a single trading
day. The daily limit establishes the maximum amount that the price of a Futures
Contract or option may vary either up or down from the previous day's settlement
price at the end of a trading session. Once the daily limit has been reached in
a particular type of Futures Contract or option, no trades may be made on that
day at a price beyond that limit. The daily limit governs only price movement
during a particular trading day and therefore
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<PAGE> 721
does not limit potential losses, because the limit may prevent the liquidation
of unfavorable positions. Futures Contract and option prices occasionally have
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of positions and subjecting some
traders to substantial losses.
If a Fund or the Portfolio were unable to liquidate a Futures or option on
Futures position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses. The Fund or the
Portfolio would continue to be subject to market risk with respect to the
position. In addition, except in the case of purchased options, the Fund or the
Portfolio would continue to be required to make daily variation margin payments
and might be required to maintain the position being hedged by the Future or
option or to maintain cash or securities in a segregated account.
Certain characteristics of the Futures market might increase the risk that
movements in the prices of Futures Contracts or options on Futures might not
correlate perfectly with movements in the prices of the investments being
hedged. For example, all participants in the Futures and options on Futures
markets are subject to daily variation margin calls and might be compelled to
liquidate Futures or options on Futures positions whose prices are moving
unfavorably to avoid being subject to further calls. These liquidations could
increase price volatility of the instruments and distort the normal price
relationship between the Futures or options and the investments being hedged.
Also, because initial margin deposit requirements in the Futures market are less
onerous than margin requirements in the securities markets, there might be
increased participation by speculators in the Futures markets. This
participation also might cause temporary price distortions. In addition,
activities of large traders in both the Futures and securities markets involving
arbitrage, "program trading" and other investment strategies might result in
temporary price distortions.
OPTIONS ON FUTURES CONTRACTS
Options on Futures Contracts are similar to options on securities or
currencies except that options on Futures Contracts give 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 period of
the option. Upon exercise of the option, the delivery of the Futures position by
the writer of the option to the holder of the option will be accompanied by
delivery of the accumulated 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 is
exercised on the last trading day 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 level of the securities, currencies
or index upon which the Futures Contract is based on the expiration date.
Purchasers of options who fail to exercise their options prior to the exercise
date suffer a loss of the premium paid.
The purchase of call options on Futures can serve as a long hedge, and the
purchase of put options on Futures can serve as a short hedge. Writing call
options on Futures can serve as a limited short hedge, and writing put options
on Futures can serve as a limited long hedge, using a strategy similar to that
used for writing options on securities, foreign currencies or indices.
If a Fund or the Portfolio writes an option on a Futures Contract, it will be
required to deposit initial and variation margin pursuant to requirements
similar to those applicable to Futures Contracts. Premiums received from the
writing of an option on a Futures Contract are included in the initial margin
deposit.
A Fund or the Portfolio may seek to close out an option position by selling an
option covering the same Futures Contract and having the same exercise price and
expiration date. The ability to establish and close out positions on such
options is subject to the maintenance of a liquid secondary market.
LIMITATIONS ON USE OF FUTURES, OPTIONS ON FUTURES AND CERTAIN OPTIONS ON
CURRENCIES
To the extent that a Fund or the Portfolio enters into Futures Contracts,
options on Futures Contracts and options on foreign currencies traded on a
CFTC-regulated exchange, in each case other than for bona fide hedging purposes
(as defined by the CFTC), the aggregate initial margin and premiums required to
establish those positions (excluding the amount by which options are
"in-the-money") will not exceed 5% of the liquidation value of a Fund's or the
Portfolio's portfolio, after taking into account unrealized profits and
unrealized losses on any contracts the Fund or the Portfolio has entered into.
In general, a call option on a Futures Contract is "in-the-money" if the value
of the underlying Futures Contract exceeds the strike, i.e., exercise, price of
the call; a put option on a Futures Contract is "in-the-money" if the value of
the underlying Futures Contract is exceeded by the strike price of the put. This
guideline may be modified by the Trust's or the Portfolio's Board of Trustees,
as applicable, without a shareholder vote. This limitation does not limit the
percentage of a Fund's or the Portfolio's assets at risk to 5%.
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<PAGE> 722
FORWARD CONTRACTS
A Forward Contract is an obligation, generally arranged with a commercial bank
or other currency dealer, to purchase or sell a currency against another
currency at a future date and price as agreed upon by the parties. The
Government Income Fund, the Strategic Income Fund, the Growth & Income Fund and
the Portfolio either may accept or make delivery of the currency at the maturity
of the Forward Contract. A Fund or the Portfolio may also, if its contra party
agrees, prior to maturity, enter into a closing transaction involving the
purchase or sale of an offsetting contract.
A Fund or the Portfolio engages in forward currency transactions in
anticipation of, or to protect itself against, fluctuations in exchange rates. A
Fund or the Portfolio might sell a particular foreign currency forward, for
example, when it holds bonds denominated in a foreign currency but anticipates,
and seeks to be protected against, a decline in the currency against the U.S.
dollar. Similarly, a Fund or the Portfolio might sell the U.S. dollar forward
when it holds bonds denominated in U.S. dollars but anticipates, and seeks to be
protected against, a decline in the U.S. dollar relative to other currencies.
Further, the Funds or the Portfolio might purchase a currency forward to "lock
in" the price of securities denominated in that currency that it anticipates
purchasing.
Forward Contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers. A
Forward Contract generally has no deposit requirement, and no commissions are
charged at any stage for trades. The Government Income Fund, the Strategic
Income Fund, the Growth & Income Fund or the Portfolio will enter into such
Forward Contracts with major U.S. or foreign banks and securities or currency
dealers in accordance with guidelines approved by the Trust's or the Portfolio's
Board of Trustees, as applicable.
The Government Income Fund, the Strategic Income Fund, the Growth & Income
Fund or the Portfolio may enter into Forward Contracts either with respect to
specific transactions or with respect to the overall investment of the Fund or
the Portfolio. The precise matching of the Forward Contract amounts and the
value of specific securities generally will not be possible because the future
value of such securities in foreign currencies will change as a consequence of
market movements in the value of those securities between the date the Forward
Contract is entered into and the date it matures. Accordingly, it may be
necessary for the Fund or the Portfolio to purchase additional foreign currency
on the spot (i.e., cash) market (and bear the expense of such purchase) if the
market value of the security is less than the amount of foreign currency the
Fund or the Portfolio is obligated to deliver and if a decision is made to sell
the security and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency the Fund or
the Portfolio is obligated to deliver. The projection of short-term currency
market movements is extremely difficult, and the successful execution of a
short-term hedging strategy is highly uncertain. Forward Contracts involve the
risk that anticipated currency movements will not be predicted accurately,
causing the Fund or the Portfolio to sustain losses on these contracts and
transaction costs.
At or before the maturity of a Forward Contract requiring the Fund or the
Portfolio to sell a currency, the Fund or the Portfolio either may sell a
portfolio security and use the sale proceeds to make delivery of the currency or
retain the security and offset its contractual obligation to deliver the
currency by purchasing a second contract pursuant to which the Fund or the
Portfolio will obtain, on the same maturity date, the same amount of the
currency that it is obligated to deliver. Similarly, the Fund or the Portfolio
may close out a Forward Contract requiring it to purchase a specified currency
by entering into a second contract, if its contra party agrees, entitling it to
sell the same amount of the same currency on the maturity date of the first
contract. The Fund or the Portfolio would realize a gain or loss as a result of
entering into such an offsetting Forward Contract under either circumstance to
the extent the exchange rate or rates between the currencies involved moved
between the execution dates of the first contract and the offsetting contract.
The cost to a Fund or the Portfolio of engaging in Forward Contracts varies
with factors such as the currencies involved, the length of the contract period
and the market conditions then prevailing. Because Forward Contracts usually are
entered into on a principal basis, no fees or commissions are involved. The use
of Forward Contracts does not eliminate fluctuations in the prices of the
underlying securities the Fund or the Portfolio owns or intends to acquire, but
it does establish a rate of exchange in advance. In addition, while Forward
Contracts limit the risk of loss due to a decline in the value of the hedged
currencies, they also limit any potential gain that might result should the
value of the currencies increase.
FOREIGN CURRENCY STRATEGIES -- SPECIAL CONSIDERATIONS
A Fund or the Portfolio may use options on foreign currencies, Futures on
foreign currencies, options on Futures on foreign currencies and Forward
Contracts to hedge against movements in the values of the foreign currencies in
which the Fund's or the Portfolio's securities are denominated. Such currency
hedges can protect against price movements in a security that a Fund or the
Portfolio owns or intends to acquire that are attributable to changes in the
value of the
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<PAGE> 723
currency in which it is denominated. Such hedges do not, however, protect
against price movements in the securities that are attributable to other causes.
A Fund or the Portfolio might seek to hedge against changes in the value of a
particular currency when no Futures Contract, Forward Contract or option
involving that currency is available or one of such contracts is more expensive
than certain other contracts. In such cases, the Fund or the Portfolio may hedge
against price movements in that currency by entering into a contract on another
currency or basket of currencies, the values of which the Sub-advisor believes
will have a positive correlation to the value of the currency being hedged. The
risk that movements in the price of the contract will not correlate perfectly
with movements in the price of the currency being hedged is magnified when this
strategy is used.
The value of Futures Contracts, options on Futures Contracts, Forward
Contracts and options on foreign currencies depends on the value of the
underlying currency relative to the U.S. dollar. Because foreign currency
transactions occurring in the interbank market might involve substantially
larger amounts than those involved in the use of Futures Contracts, Forward
Contracts or options, a Fund or the Portfolio could be disadvantaged by dealing
in the odd lot market (generally consisting of transactions of less than $1
million) for the underlying foreign currencies at prices that are less favorable
than for round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirements that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options or Futures markets are
closed while the markets for the underlying currencies remain open, significant
price and rate movements might take place in the underlying markets that cannot
be reflected in the markets for the Futures contracts or options until they
reopen.
Settlement of Futures Contracts, Forward Contracts and options involving
foreign currencies might be required to take place within the country issuing
the underlying currency. Thus, a Fund or the Portfolio might be required to
accept or make delivery of the underlying foreign currency in accordance with
any U.S. or foreign regulations regarding the maintenance of foreign banking
arrangements by U.S. residents and might be required to pay any fees, taxes and
charges associated with such delivery assessed in the issuing country.
COVER
Transactions using Forward Contracts, Futures Contracts and options (other
than options purchased by a Fund or the Portfolio) expose the Fund or the
Portfolio to an obligation to another party. A Fund or the Portfolio will not
enter into any such transactions unless it owns either (1) an offsetting
("covered") position in securities, currencies, or other options, Forward
Contracts or Futures Contracts, or (2) cash, receivables and short-term debt
securities with a value sufficient at all times to cover its potential
obligations not covered as provided in (1) above. Each Fund and the Portfolio
will comply with SEC guidelines regarding cover for these instruments and, if
the guidelines so require, set aside cash or liquid securities.
Assets used as cover or held in a segregated account cannot be sold while the
position in the corresponding Forward Contract, Futures Contract or option is
open, unless they are replaced with other appropriate assets. If a large portion
of a Fund's or the Portfolio's assets are used for cover or segregated accounts,
it could affect portfolio management or the Fund's or the Portfolio's ability to
meet redemption requests or other current obligations.
INTEREST RATE AND CURRENCY SWAPS
The Strategic Income Fund and the Portfolio usually will enter into interest
rate swaps on a net basis, that is, the two payment streams are netted out in a
cash settlement on the payment date or dates specified in the instrument, with
the Strategic Income Fund or the Portfolio receiving or paying, as the case may
be, only the net amount of the two payments. The net amount of the excess, if
any, of each of the Strategic Income Fund's and the Portfolio's obligations over
its entitlements with respect to each swap will be accrued on a daily basis and
an amount of cash or liquid securities having an aggregate net asset value at
least equal to the accrued excess will be maintained in an account by a
custodian that satisfies the requirements of the 1940 Act. The Strategic Income
Fund and the Portfolio will also establish and maintain such segregated accounts
with respect to its total obligations under any swaps that are not entered into
on a net basis and with respect to any caps or floors that are written by that
Fund or the Portfolio. The Sub-advisor, the Strategic Income Fund and the
Portfolio believe that swaps, caps and floors do not constitute senior
securities under the 1940 Act and, accordingly, will not treat them as being
subject to the Fund's and the Portfolio's borrowing restrictions. The Strategic
Income Fund and the Portfolio will not enter into any swap, cap, floor, collar
or other derivative transaction unless, at the time of entering into the
transaction, the unsecured long-term debt rating of the counterparty combined
with any credit enhancements is rated at least A by Moody's or S&P, or has an
equivalent rating from a nationally recognized statistical
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<PAGE> 724
rating organization or is determined to be of equivalent credit quality by the
Sub-advisor. If a counterparty defaults, the Strategic Income Fund or the
Portfolio may have contractual remedies pursuant to the agreements related to
the transactions. The swap market has grown substantially in recent years, with
a large number of banks and investment banking firms acting both as principals
and as agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid. Caps, floors and collars are more recent
innovations for which standardized documentation has not yet been fully
developed and, for that reason, they are less liquid than swaps.
RISK FACTORS
NON-DIVERSIFIED CLASSIFICATION
The Funds and the Portfolio are classified as "non-diversified" funds under
the 1940 Act. As a result, the Funds and the Portfolio will be able to invest in
a fewer number of issuers than if they were classified as "diversified" funds
under the 1940 Act. To the extent that the Funds and the Portfolio invest in a
smaller number of issuers, the value of the Funds' and the Portfolio's shares
may fluctuate more widely and the Funds and the Portfolio may be subject to
greater investment and credit risk with respect to the portfolio.
ILLIQUID SECURITIES
Government Income Fund, Strategic Income Fund, Growth & Income Fund and the
Portfolio each may invest up to 15% of net assets in illiquid securities.
Securities may be considered illiquid if a Fund or the Portfolio cannot
reasonably expect within seven days to receive approximately the amount at which
the Fund or the Portfolio values such securities. The sale of illiquid
securities, if they can be sold at all, generally will require more time and
result in higher brokerage charges or dealer discounts and other selling
expenses than will the sale of liquid securities, such as securities eligible
for trading on U.S. securities exchanges or in the over-the-counter markets.
Moreover, restricted securities, which may be illiquid for purposes of this
limitation often sell, if at all, at a price lower than similar securities that
are not subject to restrictions on resale.
Illiquid securities include those that are subject to restrictions contained
in the securities laws of other countries. However, securities that are freely
marketable in the country where they are principally traded, but would not be
freely marketable in the United States, will not be considered illiquid. Where
registration is required, each Fund and the Portfolio may be obligated to pay
all or part of the registration expenses and a considerable period may elapse
between the time of the decision to sell and the time a Fund or the Portfolio
may be permitted to sell a security under an effective registration statement.
If, during such a period, adverse market conditions were to develop, a Fund or
the Portfolio might obtain a less favorable price than prevailed when it decided
to sell.
Not all restricted securities are illiquid. In recent years a large
institutional market has developed for certain securities that are not
registered under the Securities Act of 1933, as amended ("1933 Act"), including
private placements, repurchase agreements, commercial paper, foreign securities
and corporate bonds and notes. These instruments are often restricted securities
because the securities are sold in transactions not requiring registration.
Institutional investors generally will not seek to sell these instruments to the
general public, but instead will often depend either on an efficient
institutional market in which such unregistered securities can be readily resold
or on an issuer's ability to honor a demand for repayment. Therefore, the fact
that there are contractual or legal restrictions on resale to the general public
or certain institutions is not dispositive of the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the registration
requirements of the 1933 Act for resales of certain securities to qualified
institutional buyers. Institutional markets for restricted securities have
developed as a result of Rule 144A, providing both readily ascertainable values
for restricted securities and the ability to liquidate an investment to satisfy
share redemption orders. Such markets include automated systems for the trading,
clearance and settlement of unregistered securities of domestic and foreign
issuers, such as the PORTAL System sponsored by the National Association of
Securities Dealers, Inc. An insufficient number of qualified institutional
buyers interested in purchasing Rule 144A-eligible restricted securities held by
a Fund or the Portfolio, however, could affect adversely the marketability of
such portfolio securities and a Fund or the Portfolio might be unable to dispose
of such securities promptly or at favorable prices.
With respect to liquidity determinations generally, the Trust's or the
Portfolio's Board of Trustees has the ultimate responsibility for determining
whether specific securities, including restricted securities eligible for resale
to qualified institutional buyers pursuant to Rule 144A under the 1933 Act, are
liquid or illiquid. The Board has delegated the function of making day-to-day
determinations of liquidity to the Sub-advisor in accordance with procedures
approved by the Board.
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<PAGE> 725
The Sub-advisor takes into account a number of factors in reaching liquidity
decisions, including: (i) the frequency of trading in the security; (ii) the
number of dealers that make quotes for the security; (iii) the number of dealers
that have undertaken to make a market in the security; (iv) the number of other
potential purchasers; and (v) the nature of the security and how trading is
effected (e.g., the time needed to sell the security, how offers are solicited
and the mechanics of transfer). The Sub-advisor will monitor the liquidity of
securities held by each Fund and the Portfolio and report periodically on such
decisions to the Trust's or the Portfolio's Board of Trustees. Moreover, as
noted in the Prospectus, certain securities, such as those subject to
registration restrictions of more than seven days, will generally be treated as
illiquid. If the liquidity percentage restriction of a Fund or the Portfolio is
satisfied at the time of investment, a later increase in the percentage of
illiquid securities held by a Fund or the Portfolio resulting from a change in
market value or assets will not constitute a violation of that restriction. If
as a result of a change in market value or assets, the percentage of illiquid
securities held by the Fund or Portfolio increases above the applicable limit,
the Sub-advisor will take appropriate steps to bring the aggregate amount of
illiquid assets back within the prescribed limitations as soon as reasonably
practicable, taking into account the effect of any disposition on the Fund or
the Portfolio.
FOREIGN SECURITIES
Political, Social and Economic Risks. Investing in securities of non-U.S.
companies may entail additional risks due to the potential political, social and
economic instability of certain countries and the risks of expropriation,
nationalization, confiscation or the imposition of restrictions on foreign
investment, convertibility of currencies into U.S. dollars and on repatriation
of capital invested. In the event of such expropriation, nationalization,
confiscatory taxation or other confiscation by any country, either a Fund or the
Portfolio could lose its entire investment in any such country. Economies in
emerging markets are dependent heavily upon international trade and,
accordingly, have been and may continue to be affected adversely by trade
barriers, exchange controls, managed adjustments in relative currency values and
other protectionist measures imposed or negotiated by the countries with which
they trade. These economies also have been and may continue to be affected
adversely by economic conditions in the countries in which they trade.
Religious, Political and Ethnic Instability. Certain countries in which a Fund
or the Portfolio may invest may have groups that advocate radical religious or
revolutionary philosophies or support ethnic independence. Any disturbance on
the part of such individuals could carry the potential for widespread
destruction or confiscation of property owned by individuals and entities
foreign to such country and could cause the loss of a Fund's or the Portfolio's
investment in those countries. Instability may also result from, among other
things: (i) authoritarian governments or military involvement in political and
economic decision-making, including changes in government through
extra-constitutional means; (ii) popular unrest associated with demands for
improved political, economic and social conditions; and (iii) hostile relations
with neighboring or other countries. Such political, social and economic
instability could disrupt the principal financial markets in which a Fund or the
Portfolio invests and adversely affect the value of the Fund's or the
Portfolio's assets.
Foreign Investment Restrictions. Certain countries prohibit or impose
substantial restrictions on investments in their capital markets, particularly
their equity markets, by foreign entities such as the Government Income Fund,
the Strategic Income Fund, the Growth & Income Fund or the Portfolio. These
restrictions or controls may at times limit or preclude investment in certain
securities and may increase the cost and expenses of a Fund or the Portfolio.
For example, certain countries require prior governmental approval before
investments by foreign persons may be made, or may limit the amount of
investment by foreign persons in a particular company, or limit the investment
by foreign persons to only a specific class of securities of a company that may
have less advantageous terms than securities of the company available for
purchase by nationals. Moreover, the national policies of certain countries may
restrict investment opportunities in issuers or industries deemed sensitive to
national interests. In addition, some countries require governmental approval
for the repatriation of investment income, capital or the proceeds of securities
sales by foreign investors. In addition, if there is a deterioration in a
country's balance of payments or for other reasons, a country may impose
restrictions on foreign capital remittances abroad. The Government Income Fund,
the Strategic Income Fund, the Growth & Income Fund or the Portfolio could be
adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation, as well as by the application to it of
other restrictions on investments.
Non-Uniform Corporate Disclosure Standards and Governmental
Regulation. Foreign companies are subject to accounting, auditing and financial
standards and requirements that differ, in some cases significantly, from those
applicable to U.S. companies. In particular, the assets, liabilities and profits
appearing on the financial statements of such a company may not reflect its
financial position or results of operations in the way they would be reflected
had such financial statements been prepared in accordance with U.S. generally
accepted accounting principles. Most of the foreign securities held by the
Government Income Fund, the Strategic Income Fund, the Growth & Income Fund or
the Portfolio will not be registered with the SEC or regulators of any foreign
country, nor will the issuers thereof be subject to the SEC's
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<PAGE> 726
reporting requirements. Thus, there will be less available information
concerning most foreign issuers of securities held by the Government Income
Fund, the Strategic Income Fund, the Growth & Income Fund and the Portfolio than
is available concerning U.S. issuers. In instances where the financial
statements of an issuer are not deemed to reflect accurately the financial
situation of the issuer, the Sub-advisor will take appropriate steps to evaluate
the proposed investment, which may include on-site inspection of the issuer,
interviews with its management and consultations with accountants, bankers and
other specialists. There is substantially less publicly available information
about foreign companies than there are reports and ratings published about U.S.
companies and the U.S. Government. In addition, where public information is
available, it may be less reliable than such information regarding U.S. issuers.
Issuers of securities in foreign jurisdictions are generally not subject to the
same degree of regulation as are U.S. issuers with respect to such matters as
restrictions on market manipulation, insider trading rules, shareholder proxy
requirements and timely disclosure of information.
Currency Fluctuations. Because the Funds and the Portfolio, under normal
circumstances, will invest substantial portions of their total assets in the
securities of foreign issuers which are denominated in foreign currencies, the
strength or weakness of the U.S. dollar against such foreign currencies will
account for part of each Fund's and the Portfolio's investment performance. A
decline in the value of any particular currency against the U.S. dollar will
cause a decline in the U.S. dollar value of each Fund's and the Portfolio's
holdings of securities and cash denominated in such currency and, therefore,
will cause an overall decline in their respective net asset values and any net
investment income and capital gains derived from such securities to be
distributed in U.S. dollars to shareholders of the Funds. Moreover, if the value
of the foreign currencies in which a Fund or the Portfolio receives its income
declines relative to the U.S. dollar between the receipt of the income and the
making of Fund distributions, the Fund or the Portfolio may be required to
liquidate securities in order to make distributions if the Fund or the Portfolio
has insufficient cash in U.S. dollars to meet distribution requirements.
Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the
Netherlands, Portugal, and Spain are members of the European Economic and
Monetary Union (the "EMU"). The EMU has established a common European currency
for participating countries which will be known as the "euro." Each
participating country has supplemented the existing currency with the euro on
January 1, 1999, and will replace its existing 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 after January 1,
1999.
The expected introduction of the euro presents unique risks and uncertainties,
including whether the payment and operational systems of banks and other
financial institutions will be ready by January 1, 1999; how outstanding
financial contracts will be treated after January 1, 1999; the establishment of
exchange rates for existing currencies and the euro; and the creation of
suitable clearing and settlement systems for the euro. These and other factors
could cause market disruptions before or after the introduction of the euro and
could adversely affect the value of securities held by the Funds.
The rate of exchange between the U.S. dollar and other currencies is
determined by several factors including the supply and demand for particular
currencies, central bank efforts to support particular currencies, the relative
movement of interest rates and the pace of business activity in the other
countries, and the United States, and other economic and financial conditions
affecting the world economy. Many of the currencies in emerging markets
countries have experienced steady devaluations relative to the U.S. dollar and
major devaluations have historically occurred in certain countries.
Although the Funds and the Portfolio value their assets daily in terms of U.S.
dollars, they do not intend to convert holdings of foreign currencies into U.S.
dollars on a daily basis. The Funds and the Portfolio will do so from time to
time, and investors should be aware of the costs of currency conversion.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference ("spread") between the prices at which
they are buying and selling various currencies. Thus, a dealer may offer to sell
a foreign currency to a Fund at one rate, while offering a lesser rate of
exchange should the Fund desire to sell that currency to the dealer.
Adverse Market Characteristics. Securities of many foreign issuers may be less
liquid and their prices more volatile than securities of comparable U.S.
issuers. In addition, foreign securities markets and brokers generally are
subject to less governmental supervision and regulation than in the U.S., and
foreign securities transactions usually are subject to fixed commissions, which
generally are higher than negotiated commissions on U.S. transactions. In
addition, foreign securities transactions may be subject to difficulties
associated with the settlement of such transactions. Delays in settlement could
result in temporary periods when assets of a Fund or the Portfolio are
uninvested and no return is earned thereon. The inability of a Fund or the
Portfolio to make intended security purchases due to settlement problems could
cause it to miss attractive opportunities. Inability to dispose of a portfolio
security due to settlement problems either could result in losses to a Fund or
the Portfolio due to subsequent declines in value of the portfolio security or,
if the Fund or the Portfolio has entered into a contract to sell the security,
could result in possible liability to the purchaser. The Sub-advisor will
consider such difficulties when determining the allocation of each Fund's or the
Portfolio's assets, although the Sub-advisor does
32
<PAGE> 727
not believe that such difficulties will have a material adverse effect on the
Funds' or the Portfolio's portfolio trading activities.
The Funds and the Portfolio may use foreign custodians, which may charge
higher custody fees than those attributable to domestic investing and may
involve risks in addition to those related to the use of U.S. custodians. Such
risks include uncertainties relating to: (i) determining and monitoring the
financial strength, reputation and standing of the foreign custodian; (ii)
maintaining appropriate safeguards to protect the Funds' and the Portfolio's
investments and (iii) possible difficulties in obtaining and enforcing judgments
against such custodians.
The risk exists than an emergency situation may arise in one or more emerging
markets as a result of which trading of securities may cease or may be
substantially curtailed and prices for the Fund's portfolio securities in such
markets may not be readily available. Section 22(e) of the 1940 Act permits a
registered investment company to suspend redemption of its shares for any period
during which an emergency exists, as determined by the SEC. Accordingly, if the
Fund believes that appropriate circumstances warrant, it will promptly apply to
the SEC for a determination that an emergency exists within the meaning of
Section 22(e) of the 1940 Act. During the period commencing from the Fund's
identification of such conditions until the date of SEC action, the portfolio
securities of the Fund in the affected markets will be valued at fair value as
determined in good faith by or under the direction of the Trust's Board of
Trustees or Company's Board of Directors.
Withholding Taxes. Each Fund's and the Portfolio's net investment income from
foreign issuers may be subject to withholding taxes by the foreign issuer's
country, thereby reducing the Fund's and the Portfolio's income or delaying the
receipt of income where those taxes may be recaptured. See "Dividends,
Distributions and Tax Matters" herein.
Concentration. To the extent a Fund invests a significant portion of its
assets in securities of issuers located in a particular country or region of the
world, such Portfolio may be subject to greater risks and may experience greater
volatility than a fund that is more broadly diversified geographically.
Special Considerations Affecting Western European Countries. The countries
that are members of the European Economic Community ("Common Market") (Austria,
Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,
Netherlands, Portugal, Spain, Sweden and the United Kingdom) eliminated certain
import tariffs and quotas and other trade barriers with respect to one another
over the past several years. The Sub-advisor believes that this deregulation
should improve the prospects for economic growth in many Western European
countries. Among other things, the deregulation could enable companies domiciled
in one country to avail themselves of lower labor costs existing in other
countries. In addition, this deregulation could benefit companies domiciled in
one country by opening additional markets for their goods and services in other
countries. Since, however, it is not clear what the exact form or effect of
these Common Market reforms will be on business in Western Europe, it is
impossible to predict the long-term impact of the implementation of these
programs on the securities owned by a Fund.
Special Considerations Affecting Russia and Eastern European
Countries. Investing in Russia and Eastern European countries involves a high
degree of risk and special considerations not typically associated with
investing in the United States securities markets, and should be considered
highly speculative. Such risks include: (1) delays in settling portfolio
transactions and risk of loss arising out of the system of share registration
and custody; (2) the risk that it may be impossible or more difficult than in
other countries to obtain and/or enforce a judgement; (3) pervasiveness of
corruption and crime in the economic system; (4) currency exchange rate
volatility and the lack of available currency hedging instruments; (5) higher
rates of inflation (including the risk of social unrest associated with periods
of hyper-inflation) and high unemployment; (6) controls on foreign investment
and local practices disfavoring foreign investors and limitations on
repatriation of invested capital, profits and dividends, and on a fund's ability
to exchange local currencies for U.S. dollars; (7) political instability and
social unrest and violence; (8) the risk that the governments of Russia and
Eastern European countries may decide not to continue to support the economic
reform programs implemented recently and could follow radically different
political and/or economic policies to the detriment of investors, including
non-market-oriented policies such as the support of certain industries at the
expense of other sectors or investors, or a return to the centrally planned
economy that existed when such countries had a communist form of government; (9)
the financial condition of companies in these countries, including large amounts
of inter-company debt which may create a payments crisis on a national scale;
(10) dependency on exports and the corresponding importance of international
trade; (11) the risk that the tax system in these countries will not be reformed
to prevent inconsistent, retroactive and/or exorbitant taxation; and (12) the
underdeveloped nature of the securities markets.
Special Considerations Affecting Japan. Japan's economic growth has declined
significantly since 1990. The general government position has deteriorated as a
result of weakening economic growth and stimulative measures taken to support
economic activity and to restore financial stability. Although the decline in
interest rates and fiscal stimulation packages have helped to contain
recessionary forces, uncertainties remain. Japan is also heavily dependent upon
33
<PAGE> 728
international trade, so its economy is especially sensitive to trade barriers
and disputes. Japan has had difficult relations with its trading partners,
particularly the United States, where the trade imbalance is the greatest. It is
possible that trade sanctions and other protectionist measures could impact
Japan adversely in both the short and the long term.
The common stocks of many Japanese companies trade at high price-earnings
ratios. Differences in accounting methods make it difficult to compare the
earnings of Japanese companies with those of companies in other countries,
especially in the U.S. In general, however, reported net income in Japan is
understated relative to U.S. accounting standards and this is one reason why
price-earnings ratios of the stocks of Japanese companies have tended
historically to be higher than those for U.S. stocks. In addition, Japanese
companies have tended to have higher growth rates than U.S. companies and
Japanese interest rates have generally been lower than in the U.S., both of
which factors tend to result in lower discount rates and higher price-earnings
ratios in Japan than in the U.S.
The Japanese securities markets are less regulated than those in the United
States. Evidence has emerged from time to time of distortion of market prices to
serve political or other purposes. Shareholders' rights are not always equally
enforced. In addition, Japan's banking industry is undergoing problems related
to bad loans and declining values in real estate.
Special Considerations Affecting Pacific Region Countries. Certain of the
risks associated with international investments are heightened for investments
in Pacific region countries. For example, some of the currencies of Pacific
region countries have experienced steady devaluations relative to the U.S.
dollar, and major adjustments have been made periodically in certain of such
currencies. Certain countries, such as India, face serious exchange constraints.
Jurisdictional disputes also exist between South Korea and North Korea. In
addition, the Funds may invest in Hong Kong, which reverted to Chinese
Administration on July 1, 1997. Investments in Hong Kong may be subject to
expropriation, national, nationalization or confiscation, in which case a Fund
could lose its entire investment in Hong Kong. In addition, the reversion of
Hong Kong also presents a risk that the Hong Kong dollar will be devalued and a
risk of possible loss of investor confidence in Hong Kong's currency, stock
market and assets.
Special Considerations Affecting Latin American Countries. Most Latin American
countries have experienced substantial, and in some periods extremely high,
rates of inflation for many years. Inflation and rapid fluctuations in inflation
rates have had and may continue to have very negative effects on the economies
and securities markets of certain Latin American countries. Certain Latin
American countries are also among the largest debtors to commercial banks and
foreign governments. At times certain Latin American countries have declared
moratoria on the payment of principal and/ or interest on external debt. In
addition, certain Latin American securities markets have experienced high
volatility in recent years.
Latin American countries may also close certain sectors of their economies to
equity investments by foreigners. Further due to the absence of securities
markets and publicly owned corporations and due to restrictions on direct
investment by foreign entities, investments may only be made in certain Latin
American countries solely or primarily through governmentally approved
investment vehicles or companies.
Certain Latin American countries may have managed currencies that are
maintained at artificial levels to the U.S. dollar rather than at levels
determined by the market. This type of system can lead to sudden and large
adjustments in the currency which, in turn, can have a disruptive and negative
effect on foreign investors. For example, in late 1994, the value of the Mexican
peso lost more than one-third of its value relative to the U.S. dollar.
Special Considerations Affecting Emerging Markets. Strategic Income Fund,
Growth & Income Fund, Government Income Fund and the Portfolio may invest in
debt securities in emerging markets. Investing in securities in emerging
countries may entail greater risks than investing in debt securities in
developed countries. Similarly, for Growth & Income Fund, investing in the
equity securities of companies in emerging markets entails additional risks.
These risks affecting debt and equity investments in emerging markets include
(i) less social, political and economic stability; (ii) the small current size
of the markets for such securities and the currently low or nonexistent volume
of trading, which result in a lack of liquidity and in greater price volatility;
(iii) certain national policies which may restrict the Funds' and the
Portfolio's investment opportunities, including restrictions on investment in
issuers or industries deemed sensitive to national interests; (iv) foreign
taxation; and (v) the absence of developed structures governing private or
foreign investment or allowing for judicial redress for injury to private
property. Because of the special risks associated with investing in emerging
markets, an investment in the Fund should be considered speculative.
Settlement mechanisms in emerging securities markets may be less efficient and
reliable than in more developed markets. In such emerging securities markets
there may be share registration and delivery delays or failures.
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<PAGE> 729
Many emerging market countries have experienced substantial, and in some
periods extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates and corresponding currency devaluations have had
and may continue to have negative effects on the economies and securities
markets of certain emerging market countries.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
Government Income Fund and Strategic Income Fund may invest in mortgage-backed
and asset-backed securities. The yield characteristics of mortgage-backed and
asset-backed securities differ from those of traditional bonds. Among the major
differences are that interest and principal payments are made more frequently
(usually monthly) and that principal may be prepaid at any time because the
underlying mortgage loans or other assets generally may be prepaid at any time.
Generally, prepayments on fixed-rate mortgage loans will increase during a
period of falling interest rates and decrease during a period of rising interest
rates. Mortgage-backed and asset-backed securities may also decrease in value as
a result of increasing market interest rates and, because of prepayments, may
benefit less than other bonds from declining interest rates. Reinvestments of
prepayments may occur at lower interest rates than the original investment, thus
adversely affecting the yield of the Fund. Actual prepayment experience may
cause the yield of a mortgage-backed security to differ from what was assumed
when the Fund purchased the security. The market for privately issued
mortgage-backed and asset-backed securities is smaller and less liquid than the
market for U.S. government mortgage-backed securities.
Foreign mortgage-backed securities markets are substantially smaller than U.S.
markets, but have been established in several countries, including Germany,
Denmark, Sweden, Canada and Australia, and may be developed elsewhere. Foreign
mortgage-backed securities generally are structured similar to domestic
mortgage-backed securities, and they normally present substantially similar
investment risks as well as the other risks normally associated with foreign
securities.
LOWER QUALITY DEBT SECURITIES
Under normal market conditions the Strategic Income Fund may invest up to 65%,
and the Portfolio may invest up to 100 percent, of their respective total assets
in debt securities rated below investment grade. Such investments involve a high
degree of risk.
Debt rated Baa by Moody's is considered by Moody's to have speculative
characteristics. Debt rated BB, B, CCC, CC or C by S&P and debt rated Ba, D,
Caa, Ca or C by Moody's is regarded, on balance, as predominantly speculative
with respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. While such lower quality debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions. Debt rated C
by Moody's or S&P is the lowest quality debt that is not in default as to
principal or interest and such issue so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing. Lower
quality debt securities are also generally considered to be subject to greater
risk than higher quality securities with regard to a deterioration of general
economic conditions. These securities are the equivalent of high yield, high
risk bonds, commonly known as "junk bonds." As noted above, Strategic Income
Fund and the Portfolio may invest in debt securities rated below C, which are in
default as to principal and/or interest.
Ratings of debt securities represent the rating agency's opinion regarding
their quality and are not a guarantee of quality. Rating agencies attempt to
evaluate the safety of principal and interest payments and do not evaluate the
risks of fluctuations in market value. Also, rating agencies may fail to make
timely changes in credit quality in response to subsequent events, so that an
issuer's current financial conditions may be better or worse than a rating
indicates.
The marked values of lower quality debt securities tend to reflect individual
developments of the issuer to a greater extent than do higher quality
securities, which react primarily to fluctuations in the general level of
interest rates. In addition, lower quality debt securities tend to be more
sensitive to economic conditions and generally have more volatile prices than
higher quality securities. Issuers of lower quality securities are often highly
leveraged and may not have available to them more traditional methods of
financing. For example, during an economic downturn or a sustained period of
rising interest rates, highly leveraged issuers of lower quality securities may
experience financial stress. During such periods, such issuers may not have
sufficient revenues to meet their interest payment obligations. The issuer's
ability to service its debt obligations may also be adversely affected by
specific developments affecting the issuer, such as the issuer's inability to
meet specific projected business forecasts or the unavailability of additional
financing. The risk of loss due to default by the issuer is significantly
greater for the holders of lower quality securities because such securities are
generally unsecured and may be subordinated to the claims of other creditors of
the issuer.
Lower quality debt securities of corporate issuers frequently have call or
buy-back features which would permit an issuer to call or repurchase the
security from Strategic Income Fund and the Portfolio. If an issuer exercises
these provisions in a declining interest rate market, Strategic Income Fund and
the Portfolio may have to replace the security with a lower yielding security,
resulting in a decreased return for investors. In addition, Strategic Income
Fund and the Portfolio may
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<PAGE> 730
have difficulty disposing of lower quality securities because there may be a
thin trading market for such securities. There may be no established retail
secondary market for many of these securities, and Strategic Income Fund and the
Portfolio anticipate that such securities could be sold only to a limited number
of dealers or institutional investors. The lack of a liquid secondary market
also may have an adverse impact on market prices of such instruments and may
make it more difficult for Strategic Income Fund and the Portfolio to obtain
accurate market quotations for purposes of valuing the securities in the
portfolios of Strategic Income Fund and the Portfolio. Adverse publicity and
investor perceptions, whether or not based on fundamental analysis, may also
decrease the values and liquidity of lower quality securities, especially in a
thinly traded market. Strategic Income Fund and the Portfolio also may acquire
lower quality debt securities during an initial underwriting or may acquire
lower quality debt securities which are sold without registration under
applicable securities laws. Such securities involve special considerations and
risks.
Factors having an adverse effect on the market value of lower rated securities
or their equivalents purchased by the Strategic Income Fund and the Portfolio
will adversely impact the respective net asset values of the Funds. In addition
to the foregoing, such factors may include: (i) potential adverse publicity;
(ii) heightened sensitivity to general economic or political conditions; and
(iii) the likely adverse impact of a major economic recession. Strategic Income
Fund and the Portfolio also may incur additional expenses to the extent they are
required to seek recovery upon a default in the payment of principal or interest
on its portfolio holdings, and Strategic Income Fund and the Portfolio may have
limited legal recourse in the event of a default. Debt securities issued by
governments in emerging markets can differ from debt obligations issued by
private entities in that remedies from defaults generally must be pursued in the
courts of the defaulting government, and legal recourse is therefore somewhat
diminished. Political conditions, in terms of a government's willingness to meet
the terms of its debt obligations, also are of considerable significance. There
can be no assurance that the holders of commercial bank debt may not contest
payments to the holders of debt securities issued by governments in emerging
markets in the event of default by the governments under commercial bank loan
agreements.
As of October 31, 1998, the Strategic Income Fund and the Portfolio had %
and %, respectively, of their total net assets in debt securities that
received a rating from Moody's and % of its total net assets in debt
securities that were not so rated. In addition, the Strategic Income Fund and
the Portfolio had % and %, respectively, of their total net assets in
cash and net receivables. The Strategic Income Fund and the Portfolio had %
and %, respectively, of their total net assets invested in rated
securities; Aaa -- % and %; Aa -- % and %; A -- % and
%; Baa -- % and %; Ba -- % and %; B -- % and
%; Caa -- % and %; Ca -- % and %; C -- % and
%. Included under the unrated category are securities held by the Strategic
Income Fund or the Portfolio which, while unrated, have been determined by the
Sub-advisor to be of comparable quality to securities in the following rating
categories: Ba -- % and %; and B -- % and %. It should be
noted that the allocation of the investments of the Strategic Income Fund or the
Portfolio by rating on any given date will vary and should not be considered
representative of their future portfolio composition.
INVESTMENT LIMITATIONS
Each Fund and the Portfolio has adopted the following investment limitations
as fundamental policies which may not be changed without approval by a majority
of the outstanding shares of the Fund or Portfolio, as applicable. Whenever
Emerging Markets Debt Fund is requested to vote on a change in the investment
limitations of the Portfolio, the Fund will hold a meeting of its shareholders
and will cast its votes as instructed by its shareholders.
GOVERNMENT INCOME FUND
Government Income Fund may not:
(1) Purchase any security if, as a result of that purchase, 25% or
more of the Fund's total assets would be invested in securities of issuers
having their principal business activities in the same industry, except
that this limitation does not apply to securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities;
(2) Purchase or sell real estate, except that investments in
securities of issuers that invest in real estate and investments in
mortgage-based securities, mortgage participations or other instruments
supported by interests in real estate are not subject to this limitation,
and except that the Fund may exercise rights under agreements relating to
such securities, including the right to enforce security interests and to
hold real estate acquired by reason of such enforcement until that real
estate can be liquidated in an orderly manner;
(3) Engage in the business of underwriting securities of other
issuers, except to the extent that the Fund might be considered an
underwriter under the federal securities laws in connection with its
disposition of portfolio securities;
36
<PAGE> 731
(4) Make loans, except through loans of portfolio securities or
through repurchase agreements, provided that for purposes of this
limitation, the acquisition of bonds, debentures, other debt securities or
instruments, or participations or other interests therein and investments
in government obligations, commercial paper, certificates of deposit,
bankers' acceptances or similar instruments will not be considered the
making of a loan;
(5) Issue senior securities or borrow money, except as permitted under
the 1940 Act and then not in excess of 33 1/3% of the Fund's total assets
(including the amount borrowed but reduced by any liabilities not
constituting borrowings) at the time of the borrowing, except that the Fund
may borrow up to an additional 5% of its total assets (not including the
amount borrowed) for temporary or emergency purposes; or
(6) Purchase or sell physical commodities, but the Fund may purchase,
sell or enter into financial options and futures, forward and spot currency
contracts, swap transactions and other financial contracts or derivative
instruments.
Notwithstanding any other investment policy of the Fund, the Fund may invest
all of its investable assets (cash, securities and receivables related to
securities) in an open-end management investment company having substantially
the same investment objective, policies and limitations as the Fund.
For purposes of the Fund's concentration policy contained in limitation (1)
above, the Fund intends to comply with the SEC staff positions that securities
issued or guaranteed as to principal and interest by any single foreign
government or any supranational organizations in the aggregate are considered to
be securities of issuers in the same industry.
The following investment policies of Government Income Fund are not
fundamental policies and may be changed by vote of the Trust's Board of Trustees
without shareholder approval. The Fund may not:
(1) Borrow money to purchase securities or borrow money except for
temporary or emergency purposes. While borrowings exceed 5% of the Fund's
total assets, the Fund will not make any additional investments;
(2) Invest in securities of an issuer if the investment would cause
the Fund to own more than 10% of any class of securities of any one issuer;
(3) Purchase securities on margin, provided that the Fund may obtain
short-term credits as may be necessary for the clearance of purchases and
sales of securities, and further provided that the Fund may make margin
deposits in connection with its use of financial options and futures,
forward and spot currency contracts, swap transactions and other financial
contracts or derivative instruments;
(4) Enter into a futures contract, if, as a result thereof, more than
5% of the Fund's total assets (taken at market value at the time of
entering into the contract) would be committed to margin on such futures
contracts;
(5) Purchase securities for which there is no readily available
market, or enter into repurchase agreements or purchase time deposits
maturing in more than seven days, or purchase OTC options or hold assets
set aside to cover OTC options written by the Fund, if immediately after
and as a result, the value of such securities would exceed, in the
aggregate, 15% of the Fund's net assets; or
(6) Mortgage, pledge, or hypothecate any of its assets, provided that
this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.
STRATEGIC INCOME FUND
Strategic Income Fund may not:
(1) Purchase any security if, as a result of that purchase, 25% or
more of the Fund's total assets would be invested in securities of issuers
having their principal business activities in the same industry, except
that this limitation does not apply to securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities;
(2) Purchase or sell real estate, except that investments in
securities of issuers that invest in real estate and investments in
mortgage-based securities, mortgage participations or other instruments
supported by interests in real estate are not subject to this limitation,
and except that the Fund may exercise rights under agreements relating to
such securities, including the right to enforce security interests and to
hold real estate acquired by reason of such enforcement until that real
estate can be liquidated in an orderly manner;
37
<PAGE> 732
(3) Engage in the business of underwriting securities of other
issuers, except to the extent that the Fund might be considered an
underwriter under the federal securities laws in connection with its
disposition of portfolio securities;
(4) Make loans, except through loans of portfolio securities or
through repurchase agreements, provided that for purposes of this
limitation, the acquisition of bonds, debentures, other debt securities or
instruments, or participations or other interests therein and investments
in government obligations, commercial paper, certificates of deposit,
bankers' acceptances or similar instruments will not be considered the
making of a loan;
(5) Issue senior securities or borrow money, except as permitted under
the 1940 Act and then not in excess of 33 1/3% of the Fund's total assets
(including the amount borrowed but reduced by any liabilities not
constituting borrowings) at the time of the borrowing, except that the Fund
may borrow up to an additional 5% of its total assets (not including the
amount borrowed) for temporary or emergency purposes; or
(6) Purchase or sell physical commodities, but the Fund may purchase,
sell or enter into financial options and futures, forward and spot currency
contracts, swap transactions and other financial contracts or derivative
instruments.
Notwithstanding any other investment policy of the Fund, the Fund may invest
all of its investable assets (cash, securities and receivables related to
securities) in an open-end management investment company having substantially
the same investment objective, policies and limitations as the Fund.
For purposes of the Fund's concentration policy contained in limitation (1)
above, the Fund intends to comply with the SEC staff positions that securities
issued or guaranteed as to principal and interest by any single foreign
government or any supranational organizations in the aggregate are considered to
be securities of issuers in the same industry.
The following investment policies of Strategic Income Fund are not fundamental
policies and may be changed by vote of the Trust's Board of Trustees without
shareholder approval. The Fund may not:
(1) Invest more than 15% of its total assets in illiquid securities;
(2) Borrow money to purchase securities and will not invest in
securities of an issuer if the investment would cause the Fund to own more
than 10% of any class of securities of any one issuer (provided, however,
that the Fund may invest all of its investable assets in an open-end
management investment company with substantially the same investment
objectives, policies, and limitations as the Fund.);
(3) Invest more than 10% of its total assets in shares of other
investment companies and invest more than 5% of its total assets in any one
investment company or acquire more than 3% of the outstanding voting
securities of any one investment company (provided, however, that the Fund
may invest all of its investable assets in an open-end management
investment company with substantially the same investment objectives,
policies, and limitations as the Fund);
(4) Purchase securities on margin, provided that the Fund may obtain
short-term credits as may be necessary for the clearance of purchases and
sales of securities, and further provided that the Fund may make margin
deposits in connection with its use of financial options and futures,
forward and spot currency contracts, swap transactions and other financial
contracts or derivative instruments;
(5) Enter into a futures contract, if, as a result thereof, more than
5% of the Fund's total assets (taken at market value at the time of
entering into the contract) would be committed to margin on such futures
contracts; or
(6) Mortgage, pledge, or hypothecate any of its assets, provided that
this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.
EMERGING MARKETS DEBT FUND AND THE PORTFOLIO
Emerging Markets Debt Fund and the Portfolio each may not:
(1) Purchase any security if, as a result of that purchase, 25% or
more of the Fund's total assets would be invested in securities of issuers
having their principal business activities in the same industry, except
that this limitation does not apply to securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities;
(2) Purchase or sell real estate, except that investments in
securities of issuers that invest in real estate and investments in
mortgage-based securities, mortgage participations or other instruments
supported by interests in real
38
<PAGE> 733
estate are not subject to this limitation, and except that the Fund may
exercise rights under agreements relating to such securities, including the
right to enforce security interests and to hold real estate acquired by
reason of such enforcement until that real estate can be liquidated in an
orderly manner;
(3) Purchase or sell physical commodities, but the Fund may purchase,
sell or enter into financial options and futures, forward and spot currency
contracts, swap transactions and other financial contracts or derivative
instruments;
(4) Engage in the business of underwriting securities of other
issuers, except to the extent that the Fund might be considered an
underwriter under the federal securities laws in connection with its
disposition of portfolio securities;
(5) Make loans, except through loans of portfolio securities or
through repurchase agreements, provided that for purposes of this
limitation, the acquisition of bonds, debentures, other debt securities or
instruments, or participations or other interests therein and investments
in government obligations, commercial paper, certificates of deposit,
bankers' acceptances or similar instruments will not be considered the
making of a loan; or
(6) Issue senior securities or borrow money, except as permitted under
the 1940 Act and then not in excess of 33 1/3% of the Fund's total assets
(including the amount borrowed but reduced by any liabilities not
constituting borrowings) at the time of the borrowing, except that the Fund
may borrow up to an additional 5% of its total assets (not including the
amount borrowed) for temporary or emergency purposes.
For purposes of the Fund's and the Portfolio's concentration policy contained
in limitation (1) above, they intend to comply with the SEC staff positions that
securities issued or guaranteed as to principal and interest by any single
foreign government or any supranational organizations in the aggregate are
considered to be securities of issuers in the same industry.
The following investment policies of Emerging Markets Debt Fund and the
Portfolio are not fundamental policies and may be changed by vote of the Trust's
Board of Trustees or the Portfolio's Board of Trustees without shareholder
approval. The Fund and the Portfolio each may not:
(1) Invest in securities of an issuer if the investment would cause
the Fund or the Portfolio to own more than 10% of any class of securities
of any one issuer (provided, however, that the Fund may invest all of its
investable assets in an open-end management investment company with
substantially the same investment objectives as the Fund);
(2) Invest in companies for the purpose of exercising control or
management (provided, however, that the Fund may invest all of its
investable assets in an open-end management investment company with
substantially the same investment objectives as the Fund);
(3) Enter into a futures contract, an option on a futures contract or
an option on foreign currency traded on a CFTC-regulated exchange, in each
case other than for bona fide hedging purposes (as defined by the CFTC), if
the aggregate initial margin and premiums required to establish all of
those positions (excluding the amount by which options are "in-the-money")
exceeds 5% of the liquidation value of the Fund's or the Portfolio's
portfolio, after taking into account unrealized profits and unrealized
losses on any contracts the Fund or the Portfolio has entered into;
(4) Invest more than 10% of its total assets in shares of other
investment companies and invest more than 5% of its total assets in any one
investment company or acquire more than 3% of the outstanding voting
securities of any one investment company (provided, however, that the Fund
may invest all of its investable assets in an open-end management
investment company with substantially the same investment objectives as the
Fund);
(5) Purchase securities on margin, provided that the Fund may obtain
short-term credits as may be necessary for the clearance of purchases and
sales of securities, and further provided that the Fund may make margin
deposits in connection with its use of financial options and futures,
forward and spot currency contracts, swap transactions and other financial
contracts or derivative instruments; or
(6) Mortgage, pledge, or hypothecate any of its assets, provided that
this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.
39
<PAGE> 734
GROWTH & INCOME FUND
Growth & Income Fund may not:
(1) Purchase any security if, as a result of that purchase, 25% or
more of the Fund's total assets would be invested in securities of issuers
having their principal business activities in the same industry, except
that this limitation does not apply to securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities;
(2) Purchase or sell real estate, except that investments in
securities of issuers that invest in real estate and investments in
mortgage-based securities, mortgage participations or other instruments
supported by interests in real estate are not subject to this limitation,
and except that the Fund may exercise rights under agreements relating to
such securities, including the right to enforce security interests and to
hold real estate acquired by reason of such enforcement until that real
estate can be liquidated in an orderly manner;
(3) Engage in the business of underwriting securities of other
issuers, except to the extent that the Fund might be considered an
underwriter under the federal securities laws in connection with its
disposition of portfolio securities;
(4) Make loans, except through loans of portfolio securities or
through repurchase agreements, provided that for purposes of this
limitation, the acquisition of bonds, debentures, other debt securities or
instruments, or participations or other interests therein and investments
in government obligations, commercial paper, certificates of deposit,
bankers' acceptances or similar instruments will not be considered the
making of a loan;
(5) Issue senior securities or borrow money, except as permitted under
the 1940 Act and then not in excess of 33 1/3% of the Fund's total assets
(including the amount borrowed but reduced by any liabilities not
constituting borrowings) at the time of the borrowing, except that the Fund
may borrow up to an additional 5% of its total assets (not including the
amount borrowed) for temporary or emergency purposes; or
(6) Purchase or sell physical commodities, but the Fund may purchase,
sell or enter into financial operations and futures, forward and spot
currency contracts, swap transactions and other financial contracts or
derivative instruments.
Notwithstanding any other investment policy of Growth & Income Fund, Growth &
Income Fund may invest all of its investable assets (cash, securities and
receivables related to securities) in an open-end management investment company
having substantially the same investment objective, policies and limitations as
the Fund.
For purposes of the Fund's concentration policy contained in limitation (1)
above, the Fund intends to comply with the SEC staff position that securities
issued or guaranteed as to principal and interest by any single foreign
government or any supranational organizations in the aggregate are considered to
be securities of issuers in the same industry.
The following operating policies of the Growth & Income Fund are not
fundamental policies and may be changed by vote of the Trust's Board of Trustees
without shareholder approval. The Fund may not:
(1) Invest in securities of an issuer if the investment would cause
the Fund to own more than 10% of any class of securities of any one issuer;
(2) Sell securities short, except to the extent that the Fund
contemporaneously owns or has the right to acquire at no additional cost
securities identical to those sold short;
(3) Enter into a futures contract, an option on a futures contract, or
an option on foreign currency traded on a CFTC-regulated exchange, in each
case other than for bona fide hedging purposes (as defined by the CFTC), if
the aggregate initial margin and premiums required to establish all of
those positions (excluding the amount by which options are "in-the-money")
exceeds 5% of the liquidation value of the Fund's portfolio, after taking
into account unrealized profits and unrealized losses on any contracts the
Fund has entered into;
(4) Borrow money except for temporary or emergency purposes (other
than to meet redemptions). While borrowings exceed 5% of the Fund's total
assets, the Fund will not make any additional investments;
(5) Purchase securities on margin, provided that the Fund may obtain
short-term credits as may be necessary for the clearance of purchases and
sales of securities, and further provided that the Fund may make margin
deposits in connection with its use of financial options and futures,
forward and spot currency contracts, swap transactions and other financial
contracts or derivative instruments;
40
<PAGE> 735
(6) Purchase securities for which there is no readily available
market, or enter into repurchase agreements or purchase time deposits
maturing in more than seven days, or purchase OTC options or hold assets
set aside to cover OTC options written by the Fund, if immediately after
and as a result, the value of such securities would exceed, in the
aggregate, 15% of the Fund's net assets; or
(7) Mortgage, pledge, or hypothecate any of its assets, provided that
this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.
Investors should refer to each Fund's Prospectus for further information about
each Fund's respective investment objectives, which may not be changed without
the approval of the Fund's shareholders and its corresponding Portfolio's
investment objectives, which may be changed without the approval of the
Portfolio's shareholders, and other investment policies and techniques, which
may be changed without shareholder approval.
EXECUTION OF PORTFOLIO TRANSACTIONS
Subject to policies established by the Trust's and the Portfolio's Board of
Trustees, the Sub-advisor is responsible for the execution of Government Income
Fund's, Strategic Income Fund's, Growth & Income Fund's and the Portfolio's
portfolio transactions and the selection of broker/dealers that execute such
transactions on behalf of these Funds and the Portfolio. In executing
transactions, the Sub-advisor seeks the best net results for Government Income
Fund, Strategic Income Fund, Growth & Income Fund and the Portfolio, taking into
account such factors as the price (including the applicable brokerage commission
or dealer spread), size of the order, difficulty of execution and operational
facilities of the firm involved. Although the Sub-advisor generally seeks
reasonably competitive commission rates and spreads, payment of the lowest
commission or spread is not necessarily consistent with the best net results.
While the Funds and the Portfolio may engage in soft dollar arrangements for
research services, as described below, neither the Funds nor the Portfolio has
any obligation to deal with any broker/dealer or group of broker/dealers in the
execution of portfolio transactions.
Debt securities generally are traded on a "net" basis with a dealer acting as
principal for its own account without a stated commission, although the price of
the security usually includes a profit to the dealer. U.S. and foreign
government securities and money market instruments generally are traded in the
OTC markets. In underwritten offerings, securities usually are purchased at a
fixed price which includes an amount of compensation to the underwriter. On
occasion, securities may be purchased directly from an issuer, in which case no
commissions or discounts are paid. Broker/dealers may receive commissions on
futures, currency and options transactions.
Consistent with the interests of the Funds and the Portfolio, the Sub-advisor
may select brokers to execute the Funds' and the Portfolio's portfolio
transactions on the basis of the research and brokerage services they provide to
the Sub-advisor for its use in managing the Funds and the Portfolio and its
other advisory accounts. Such services may include furnishing analyses, reports
and information concerning issuers, industries, securities, geographic regions,
economic factors and trends, portfolio strategy, and performance of accounts;
and effecting securities transactions and performing functions incidental
thereto (such as clearance and settlement). Research and brokerage services
received from such brokers are in addition to, and not in lieu of, the services
required to be performed by the Sub-advisor under investment management and
administration contracts. A commission paid to such brokers may be higher than
that which another qualified broker would have charged for effecting the same
transaction, provided that the Sub-advisor determines in good faith that such
commission is reasonable in terms either of that particular transaction or the
overall responsibility of the Sub-advisor to the Funds and the Portfolio and its
other clients and that the total commissions paid by the Funds and the Portfolio
will be reasonable in relation to the benefits received by the Funds and the
Portfolio over the long term. Research services may also be received from
dealers who execute Fund transactions in OTC markets.
The Sub-advisor may allocate brokerage transactions to broker/dealers who have
entered into arrangements under which the broker/dealer allocates a portion of
the commissions paid by the Funds or the Portfolio toward payment of the Funds'
or the Portfolio's expenses, such as transfer agent and custodian fees.
Investment decisions for each Fund and the Portfolio and for other investment
accounts managed by the Sub-advisor are made independently of each other in
light of differing conditions. However, the same investment decision
occasionally may be made for two or more of such accounts, including one or both
Funds and the Portfolio. In such cases, simultaneous transactions may occur.
Purchases or sales are then allocated as to price or amount in a manner deemed
fair and equitable to all accounts involved. While in some cases this practice
could have a detrimental effect upon the price or value of the security as far
as the Funds and the Portfolio are concerned, in other cases the Sub-advisor
believes that coordination and the ability to participate in volume transactions
will be beneficial to the Funds and the Portfolio.
41
<PAGE> 736
Under a policy adopted by the Trust's and the Portfolio's Board of Trustees,
and subject to the policy of obtaining the best net results, the Sub-advisor may
consider a broker/dealer's sale of the shares of the Funds and the other funds
for which AIM or the Sub-advisor serves as investment manager in selecting
brokers and dealers for the execution of portfolio transactions. This policy
does not imply a commitment to execute portfolio transactions through all
broker/dealers that sell shares of the Funds and such other funds.
Each Fund and the Portfolio contemplates purchasing most foreign equity
securities in over-the-counter markets or stock exchanges located in the
countries in which the respective principal offices of the issuers of the
various securities are located, if that is the best available market. The fixed
commissions paid in connection with most such foreign stock transactions
generally are higher than negotiated commissions on United States transactions.
There generally is less government supervision and regulation of foreign stock
exchanges and brokers than in the United States. Foreign security settlements
may in some instances be subject to delays and related administrative
uncertainties.
Foreign equity securities may be held by a Fund and the Portfolio in the form
of ADRs, ADSs, CDRs, GDRs or EDRs or securities convertible into foreign equity
securities. ADRs, ADSs, CDRs, GDRs and EDRs may be listed on stock exchanges, or
traded in the OTC markets in the United States or Europe, as the case may be.
ADRs, like other securities traded in the United States, will be subject to
negotiated commission rates. The foreign and domestic debt securities and money
market instruments in which the Funds and the Portfolio may invest generally are
traded in the OTC markets.
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 Boards of
Directors/Trustees of the various AIM Funds, including the Trust. These inter-
fund transactions do not generate brokerage commissions but may result in
custodial fees or taxes or other related expenses.
The Funds and the Portfolio contemplate that, consistent with the policy of
obtaining the best net results, brokerage transactions may be conducted through
certain companies that are affiliates of AIM and the Sub-advisor. The Trust's
Board of Trustees has adopted procedures in conformity with Rule 17e-1 under the
1940 Act to ensure that all brokerage commissions paid to such affiliates are
reasonable and fair in the context of the market in which they are operating.
Any such transactions will be effected and related compensation paid only in
accordance with applicable SEC regulations. For the fiscal years ended October
31, 1998, 1997 and 1996, the Portfolio paid aggregate brokerage commissions of
$ , $0, $86,600, respectively. For the fiscal years ended October 31, 1998,
1997 and 1996, Government Income Fund paid aggregate brokerage commissions of
$ , $4,987 and $24,663, respectively. For the fiscal years ended October
31, 1998, 1997 and 1996, Strategic Income Fund paid aggregate brokerage
commissions of $ , $6,177 and $85,404, respectively. For the fiscal years
ended October 31, 1998, 1997 and 1996, Growth & Income Fund paid aggregate
brokerage commissions of $ , $463,307 and $257,953, respectively. For
the fiscal years ended October 31, 1996 and 1997, Growth & Income Fund paid to
LGT Bank in Liechtenstein, AG, which was an "affiliated" broker, aggregate
brokerage commissions of $16,898 and $12,262, respectively, for transactions
involving purchases and sales of portfolio securities which represented 6.55%
and 2.65%, respectively, of the total brokerage commissions paid by the Fund and
5.69% and 2.94%, respectively, of the aggregate dollar amount of transactions
involving payment of commissions by the Fund.
PORTFOLIO TRADING AND TURNOVER
Each Fund and the Portfolio engages in portfolio trading when the Sub-advisor
concludes that the sale of a security owned by a Fund and the Portfolio and/or
the purchase of another security of better value can enhance principal and/or
increase income. A security may be sold to avoid any prospective decline in
market value, or a security may be purchased in anticipation of a market rise.
Consistent with each Fund's and the Portfolio's investment objectives, a
security also may be sold and a comparable security purchased coincidentally in
order to take advantage of what is believed to be a disparity in the normal
yield and price relationship between the two securities. Although the Funds and
the Portfolio generally do not intend to trade for short-term profits, the
securities in each Fund's and the Portfolio's portfolio will be sold whenever
the Sub-advisor believes it is appropriate to do so, without regard to the
length of time a particular security may have been held. Portfolio turnover is
calculated by dividing the lesser of sales or purchases of portfolio securities
by each Fund's or the Portfolio's average month-end portfolio value, excluding
short-term investments. Higher portfolio turnover involves correspondingly
greater brokerage commissions and other transaction costs that a Fund or the
Portfolio will bear directly, and could result in the realization of net capital
gains that would be taxable when distributed to shareholders. The
42
<PAGE> 737
portfolio turnover rates for the Government Income Fund, Growth & Income Fund,
Strategic Income Fund and the Portfolio the last three fiscal years were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
OCT. 31, 1998 OCT. 31, 1997 OCT. 31, 1996
------------- ------------- -------------
<S> <C> <C> <C>
Emerging Markets Debt Portfolio................. % 214% 290%
Government Income Fund.......................... % 241% 268%
Growth & Income Fund............................ % 50% 39%
Strategic Income Fund........................... % 149% 177%
</TABLE>
MANAGEMENT
The Trust's Board of Trustees has overall responsibility for the operation of
the Funds. The Trust's Board of Trustees has approved all significant agreements
between the Trust on the one side and persons or companies furnishing services
to the Fund on the other, including the investment management and administration
agreement with AIM, the investment sub-advisory and sub-administration agreement
between AIM and the Sub-advisors, the agreements with AIM Distributors regarding
distribution of the Fund's shares, the custody agreement and the transfer agency
agreement. The day-to-day operations of the Fund are delegated to the officers
of the Trust, subject always to the investment objectives and policies of the
Fund and to the general supervision of the Trust's Board of Trustees.
TRUSTEES AND EXECUTIVE OFFICERS
The Trust's and the Portfolio's Trustees and Executive Officers are listed
below. Unless otherwise indicated, the address of each Executive Officer is 11
Greenway Plaza, Suite 100, Houston, Texas 77046.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
NAME, ADDRESS AND AGE POSITIONS HELD WITH REGISTRANT PRINCIPAL OCCUPATION WITH REGISTRANT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
*ROBERT H. GRAHAM (51) Trustee, Chairman of the Board Director, President and Chief Executive
and 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; and
Director, AMVESCAP PLC.
- ---------------------------------------------------------------------------------------------------------
C. DEREK ANDERSON (57) Trustee President, Plantagenet Capital Management,
220 Sansome Street LLC (an investment partnership); Chief
Suite 400 Executive Officer, Plantagenet Holdings,
San Francisco, CA 94104 Ltd. (an investment banking firm);
Director, Anderson Capital Management, Inc.
since 1988; Director, PremiumWear, Inc.
(formerly Munsingwear, Inc.) (a casual
apparel company); Director, "R" Homes, Inc.
and various other companies; and Trustee,
each of the other investment companies
registered under the 1940 Act that is sub-
advised or sub-administered by the
Sub-advisor.
- ---------------------------------------------------------------------------------------------------------
FRANK S. BAYLEY (59) Trustee Partner, law firm of Baker & McKenzie;
Two Embarcadero Center Director and Chairman, C.D. Stimson Company
Suite 2400 (a private investment company); and
San Francisco, CA 94111 Trustee, each of the other investment
companies registered under the 1940 Act
that is sub-advised or sub-administered by
the Sub-advisor.
- ---------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
* A Trustee who is an interested person of the Trust and A I M Advisors, Inc.,
as defined in the 1940 Act.
43
<PAGE> 738
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
NAME, ADDRESS AND AGE POSITIONS HELD WITH REGISTRANT PRINCIPAL OCCUPATION WITH REGISTRANT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
ARTHUR C. PATTERSON (54) Trustee Managing Partner, Accel Partners (a venture
428 University Avenue capital firm); Director, Viasoft and
Palo Alto, CA 94301 PageMart, Inc. (both public software
companies) and several other privately held
software and communications companies; and
Trustee, each of the other investment
companies registered under the 1940 Act
that is sub-advised or sub-administered by
the Sub-advisor.
- ---------------------------------------------------------------------------------------------------------
RUTH H. QUIGLEY (63) Trustee Private investor; President, Quigley
1055 California Street Friedlander & Co., Inc. (a financial
San Francisco, CA 94108 advisory services firm) from 1984 to 1986;
and Trustee, each of the other investment
companies registered under the 1940 Act
that is sub-advised or sub-administered by
the Sub-advisor.
- ---------------------------------------------------------------------------------------------------------
+JOHN J. ARTHUR (53) Vice President Director and Senior Vice President, A I M
Advisors, Inc.; Vice President and
Treasurer, A I M Management Group Inc.
- ---------------------------------------------------------------------------------------------------------
KENNETH W. CHANCEY (53) Vice President and Principal Senior Vice President -- Mutual Fund
50 California Street Accounting Officer Accounting, the Sub-advisor since 1997;
San Francisco, CA 94111 Vice President -- Mutual Fund Accounting,
the Sub-advisor from 1992 to 1997.
- ---------------------------------------------------------------------------------------------------------
MELVILLE B. COX (54) Vice President Vice President and Chief Compliance
Officer, A I M Advisors, Inc., A I M
Capital Management, Inc., A I M
Distributors, Inc., A I M Fund Services,
Inc. and Fund Management Company.
- ---------------------------------------------------------------------------------------------------------
GARY T. CRUM (50) Vice President Director and President, A I M Capital
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) Vice President Director, Senior Vice President, General
Counsel and Secretary, A I M Advisors,
Inc.; Senior Vice President, General
Counsel and Secretary, A I M Management
Group Inc.; Director, Vice President and
General Counsel, Fund Management Company;
Vice President and General Counsel, A I M
Fund Services, Inc.; and Vice President,
A I M Capital Management, Inc. and A I M
Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------
DANA R. SUTTON (39) Vice President and Assistant Vice President and Fund Controller, A I M
Treasurer Advisors, Inc.; and Assistant Vice
President and Assistant Treasurer, Fund
Management Company.
- ---------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
+ Mr. Arthur and Ms. Relihan are married to each other.
The Board of Trustees has a Nominating and Audit Committee, composed of Miss
Quigley (Chairman) and Messrs. Anderson, Bayley and Patterson, which is
responsible for nominating persons to serve as Trustees, reviewing audits of the
Trust and its funds and recommending firms to serve as independent auditors of
the Trust. All of the Trust's Trustees also serve as directors or trustees of
some or all of the other investment companies managed, administered or advised
by AIM. All of the Trust's Executive Officers hold similar offices with some or
all of the other investment companies managed, administered or advised by AIM.
Each Trustee who is not a trustee, officer or employee of the Sub-advisor or any
affiliated company is paid aggregate fees of $5,000 a year, plus $300 per Fund
for each meeting of the Board attended, and reimbursed travel and other expenses
incurred in connection with attendance at such meetings. Other Trustees and
Officers receive no compensation or expense reimbursement from the Trust. For
the fiscal year ended October 31, 1998, Mr. Anderson, Mr. Bayley, Mr. Patterson
and Miss Quigley, who are not trustees, officers, or employees of the
Sub-advisor or any affiliated company, received total compensation of $ ,
$ , $ and $ , respectively, from the Trust for their services
as Trustees. For the fiscal year ended October 31, 1998, Mr. Anderson,
44
<PAGE> 739
Mr. Bayley, Mr. Patterson and Miss Quigley, who are not trustees, officers or
employees of the Sub-advisor or any other affiliated company, received total
compensation of $ , $ , $ and $ , respectively, from
the investment companies managed or administered by AIM and sub-advised or
sub-advised by the Sub-advisors for which he or she serves as a Trustee. Fees
and expenses disbursed to the Trustees contained no accrued or payable pension
or retirement benefits. As of , 1998, the Officers and Trustees and
their families as a group owned in the aggregate beneficially or of record less
than 1% of the outstanding shares of the Funds or of all the Trust's series in
the aggregate.
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES
AIM serves as Government Income Fund's, Strategic Income Fund's and Growth &
Income Fund's investment manager and administrator under an investment
management and administration contract between the Trust and AIM ("Trust
Management Contract"). INVESCO Asset Management Limited serves as the
Portfolio's sub-advisor and sub-administrator under a sub-advisory and
sub-administration Agreement between AIM and the Sub-advisor ("Portfolio
Management Sub-Contract," and together with the Portfolio Management Contract,
the "Portfolio Management Contracts"). AIM serves as the Portfolio's investment
manager and administrator under an Investment Management and Administration
Contract between the Portfolio and AIM ("Portfolio Management Contract")
(collectively, "Management Contracts"). [The Sub-advisor serves as
sub-administrator to each Feeder Fund under a sub-administration contract
between AIM and the Sub-advisor ("Administration Sub-Contract," and together
with the Administration Contract, the "Administration Contracts").] AIM serves
as Emerging Markets Debt Fund's administrator under an Administration Contract
("Administration Contract") between the Trust and AIM. The Sub-advisor serves as
the sub-advisor and sub-administrator to Government Income Fund and Growth &
Income Fund and INVESCO (NY), Inc. serves as sub-advisor and sub-administrator
to Strategic Income Fund under a sub-advisory and sub-administration contract
between AIM and each Sub-advisor ("Sub-Management Contract," and together with
the Management Contract, the "Management Contracts"). The Administration
Contracts will not be deemed advisory contracts, as defined under the 1940 Act.
As investment managers and administrators, AIM and the Sub-advisors make all
investment decisions for Government Income Fund, Strategic Income Fund, Growth &
Income Fund and the Portfolio and as administrators, AIM and the Sub-advisor
administer each Fund's and the Portfolio's affairs. Among other things, AIM and
the Sub-advisors furnish the services and pay the compensation and travel
expenses of persons who perform the executive, administrative, clerical and
bookkeeping functions of the Trust, the Funds, and the Portfolio and provide
suitable office space, necessary small office equipment and utilities. AIM and
the Sub-advisors also determine the composition of each Fund's portfolio, places
order to buy, sell, or hold particular securities and supervise all matters
relating to each Fund's operation.
The Management Contracts may be renewed for one-year terms, provided that any
such renewal has been specifically approved at least annually by: (i) the
Trust's or the Portfolio's Board of Trustees, as applicable, or by the vote of a
majority of the Fund's or the Portfolio's outstanding voting securities (as
defined in the 1940 Act), and (ii) a majority of Trustees who are not parties to
the Management Contracts or the Administration Contracts or "interested persons"
of any such party (as defined in the 1940 Act), cast in person at a meeting
called for the specific purpose of voting on such approval. The Management
Contracts provide that with respect to Government Income Fund, Strategic Income
Fund, Growth & Income Fund and the Portfolio, and the Administration Contracts
provide that with respect to Emerging Markets Debt Fund, either the Trust, the
Portfolio or each of AIM or each of Sub-advisor may terminate the Contracts
without penalty upon sixty days' written notice to the other party. The
Management Contracts and the Administration Contracts terminate automatically in
the event of their assignment (as defined in the 1940 Act).
In each of the last three fiscal years Government Income Fund paid investment
management and administration fees to the Sub-advisor in the following amounts:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, AMOUNT PAID
- ---------------------- -----------
<S> <C>
1998........................................................ $
1997........................................................ $2,403,043
1996........................................................ 3,672,503
</TABLE>
In each of the last three fiscal years Strategic Income Fund paid investment
management and administration fees to the Sub-advisor in the following amounts:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, AMOUNT PAID
- ---------------------- -----------
<S> <C>
1998........................................................ $
1997........................................................ 3,474,804
1996........................................................ 3,807,689
</TABLE>
45
<PAGE> 740
In each of the last three fiscal years Growth & Income Fund paid investment
management and administration fees to the Sub-advisor in the following amounts:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, AMOUNT PAID
- ---------------------- -----------
<S> <C>
1998........................................................ $
1997........................................................ 6,900,695
1996........................................................ 6,282,438
</TABLE>
In each of the last three fiscal years Emerging Markets Debt Portfolio paid
investment management and administration fees to the Sub-advisor in the
following amounts:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, AMOUNT PAID
- ---------------------- -----------
<S> <C>
1998........................................................ $
1997........................................................ 2,971,167
1996........................................................ 3,014,924
</TABLE>
In each of the last three fiscal years Emerging Markets Debt Fund paid
administration fees to the Sub-advisor in the following amounts:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, AMOUNT PAID
- ---------------------- -----------
<S> <C>
1998........................................................ $
1997........................................................ 1,136,471
1996........................................................ 1,015,220
</TABLE>
For these services, each Fund pays AIM investment management and
administration fees, computed daily and paid monthly, based on its average daily
net assets, [at the annualized rate of 0.975% on the first $500 million, 0.95%
on the next $500 million, 0.925% on the next $500 million and 0.90% on the
amounts thereafter.] Out of the aggregate fees payable by each Fund, AIM pays
each Sub-advisor sub-advisory and sub-administration fees equal to 40% of the
aggregate fees AIM receives from each Fund. The investment management and
administration fees paid by the Funds are higher than those paid by most mutual
funds. The Funds pay all expenses not assumed by AIM, the Sub-advisors, AIM
Distributors or other agents. AIM has undertaken to limit each Fund's expenses
(exclusive of brokerage commissions, taxes, interest and extraordinary expenses)
to the annual rate of 2.00% and 2.50% of the average daily net assets of each
Fund's Class A and Class B and Class C shares, respectively.
AIM also serves as the Funds' pricing and accounting agent. For these
services, AIM receives a fee based on the aggregate net assets of the funds
which comprise the following investment companies: AIM Growth Series, AIM
Investment Funds, AIM Investment Portfolios, AIM Series Trust, G.T. Global
Variable Investment Series and G.T. Global Variable Investment Trust. The fee is
calculated at the rate of 0.03% of the first $5 billion of assets, and 0.02% of
the assets in excess of $5 billion. An amount is allocated to and paid by each
such fund based on its relative average daily net assets.
AIM, 11 Greenway Plaza, Suite 100, Houston, Texas 77046, serves as the
investment manager to the Fund pursuant to a master investment management and
administrative services agreement (the "Advisory Agreement"). AIM was organized
in 1976 and, together with its subsidiaries, manages or advises approximately 90
investment company portfolios encompassing a broad range of investment
objectives. INVESCO (NY), Inc., 1166 Avenue of the Americas, New York, New York
10036, serves as the sub-advisor to Strategic Income Fund pursuant to an
investment sub-advisory and sub-administration agreement. Prior to May 29, 1998,
the Sub-advisor was known as Chancellor LGT Asset Management, Inc. On May 29,
1998, Liechtenstein Global Trust AG ("LGT"), the former indirect parent
organization of INVESCO (NY), Inc., consummated a purchase agreement with
AMVESCAP PLC pursuant to which AMVESCAP PLC acquired LGT's Asset Management
Division, which included INVESCO (NY), Inc. and certain other affiliates. As a
result of this transaction, the INVESCO (NY), Inc. is now an indirect wholly
owned subsidiary of AMVESCAP PLC. Prior to the sale, INVESCO (NY), Inc. and its
worldwide asset management affiliates provided investment management and/or
administrative services to institutional, corporate and individual clients
around the world since 1969.
[INVESCO Asset Management Ltd., 11 Devonshire Square, London, EC2M 4YR, England,
serves as the sub-advisor and sub-administrator to Strategic Income Fund.]
AIM, the Sub-advisors and their worldwide asset management affiliates provide
investment management and/or administrative services to institutional, corporate
and individual clients around the world. A I M Management Group Inc. ("AIM
Management"), AIM and the Sub-advisors are both indirect wholly owned
subsidiaries of AMVESCAP PLC, 11 Devonshire Square, London, EC2M 4YR, England.
AMVESCAP PLC and its subsidiaries are an independent investment
46
<PAGE> 741
management group that has a significant presence in the institutional and retail
segment of the investment management industry in North America and Europe, and a
growing presence in Asia.
In addition to the investment resources of their Houston, San Francisco and
New York offices, AIM and the Sub-advisors draw upon the expertise, personnel,
data and systems of other offices in Atlanta, Boston, Dallas, Denver,
Louisville, Miami, Portland (Oregon), Frankfurt, Hong Kong, London, Singapore,
Sydney, Tokyo and Toronto. In managing the Funds, the Sub-advisors employ a team
approach, taking advantage of its investment resources around the world.
In placing securities for a Fund's portfolio transactions, the Sub-advisors
seek to obtain the best net results. Consistent with its obligation to obtain
the best net results, the Sub-advisors may consider a broker/dealer's sale of
shares of the AIM Funds as a factor in considering through whom portfolio
transactions will be effected. Brokerage transactions may be executed through
affiliates of AIM or the Sub-advisors. High portfolio turnover (over 100%)
involves correspondingly greater brokerage commissions and other transaction
costs that the Fund will bear directly and could result in the realization of
net capital gains which would be taxable when distributed to shareholders. See
"Dividends, Distributions and Tax Matters."
AIM is a direct, wholly owned subsidiary of AIM Management, a holding company
that has been engaged in the financial services business since 1976. AIM is also
the sole shareholder of the Funds' principal underwriter, AIM Distributors.
EXPENSES OF THE FUNDS AND THE PORTFOLIO
Each Fund and the Portfolio pays all expenses not assumed by AIM, the
Sub-advisors, AIM Distributors and other agents. These expenses include, in
addition to the advisory, distribution, transfer agency, pricing and accounting
agent and brokerage fees discussed above, legal and audit expenses, custodian
fees, trustees' fees, organizational fees, fidelity bond and other insurance
premiums, taxes, extraordinary expenses and the expenses of reports and
prospectuses sent to existing investors. The allocation of general Trust
expenses and expenses shared by the Funds and other funds organized as series of
the Trust are allocated on a basis deemed fair and equitable, which may be based
on the relative net assets of the Funds or the nature of the services performed
and relative applicability to each Fund. Expenditures, including costs incurred
in connection with the purchase or sale of portfolio 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. The ratio of each Fund's and the Portfolio's expenses to its
relative net assets can be expected to be higher than the expense ratios of
funds investing solely in domestic securities, since the cost of maintaining the
custody of foreign securities and the rate of investment management fees paid by
each Fund and the Portfolio generally are higher than the comparable expenses of
such other funds.
THE DISTRIBUTION PLANS
THE CLASS A AND C PLAN
The Trust has adopted [an Amended and Restated] Master Distribution Plan
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 the Class A shares of each Fund pays 0.35% per annum of its daily average
net assets as compensation to AIM Distributors for the purpose of financing any
activity which is primarily intended to result in the sale of Class A shares.
Under the Class A and C Plan, Class C shares of the Funds pay compensation to
AIM Distributors at an annual rate of 1.00% of the average daily net assets
attributable to Class C shares. The Class A and C Plan is designed to compensate
AIM Distributors, on a quarterly basis, for certain promotional and other
sales-related costs, and to implement a dealer incentive program which provides
for periodic payments to selected dealers who furnish continuing personal
shareholder services to their customers who purchase and own Class A or Class C
shares of a Fund. Payments can also be directed by AIM Distributors to selected
institutions who have entered into service agreements with respect to Class A
and Class C shares of each Fund and who provide continuing personal services to
their customers who own Class A and Class C shares of the Fund. The service fees
payable to selected institutions are calculated at the annual rate of 0.25% of
the average daily net asset value of those Fund shares that are held in such
institution's customers' accounts which were purchased on or after a prescribed
date set forth in the Class A and C Plan. Activities appropriate for financing
under the Class A and C Plan include, but are not limited to, the following:
printing of prospectuses and statements of additional information and reports
for other than existing shareholders; overhead; preparation and distribution of
advertising material and sales literature; expenses of organizing and conducting
sales seminars; supplemental payments to dealers and other institutions such as
asset-based sales charges or as payments of service fees under shareholder
service arrangements; and costs of administering the Class A and C Plan.
47
<PAGE> 742
Of the aggregate amount payable under the Class A and C Plan, payments to
dealers and other financial institutions that provide continuing personal
shareholder services to their customers who purchase and own shares of the Fund,
in amounts of up to 0.25% of the average net assets of the Fund attributable to
the customers of such dealers or financial institutions are characterized as a
service fee, and payments to dealers and other financial institutions in excess
of such amount and payments to AIM Distributors would be characterized as an
asset-based sales charge pursuant to the Class A and C Plan. The Class A and C
Plan also imposes a cap on the total amount of sales charges, including
asset-based sales charges, that may be paid by the Company with respect to the
Fund. The Class A and C Plan does not obligate the Fund to reimburse AIM
Distributors for the actual expenses AIM Distributors may incur in fulfilling
its obligations under the Class A and C Plan on behalf of the Fund. Thus, under
the Class A and C Plan, even if AIM Distributors' actual expenses exceed the fee
payable to AIM Distributors thereunder at any given time, the Fund will not be
obligated to pay more than that fee. If AIM Distributors' expenses are less than
the fee it receives, AIM Distributors will retain the full amount of the fee.
THE CLASS B PLAN
The Trust has also adopted a Master Distribution Plan pursuant to Rule 12b-1
under the 1940 Act relating to Class B shares of the Funds (the "Class B Plan",
and collectively with the Class A Plan, the "Plans"). Under the Class B Plan,
each Fund pays compensation to AIM Distributors at an annual rate of 1.00% of
the average daily net assets attributable to Class B shares. Of such amount,
each Fund pays a service fee of 0.25% of the average daily net assets
attributable to Class B shares to selected dealers and other institutions which
furnish continuing personal shareholder services to their customers who purchase
and own Class B shares. Amounts paid in accordance with the Class B Plan may be
used to finance any activity primarily intended to result in the sale of Class B
shares, including but not limited to printing of prospectuses and statements of
additional information and reports for other than existing shareholders;
overhead; preparation and distribution of advertising material and sales
literature; expenses of organizing and conducting sales seminars; supplemental
payments to dealers and other institutions such as asset-based sales charges or
as payments of service fees under shareholder service arrangements; and costs of
administering the Class B Plan. AIM Distributors may transfer and sell its
rights to payments under the Class B Plan in order to finance distribution
expenditures in respect of Class B shares.
BOTH PLANS
Pursuant to an incentive program, AIM Distributors may enter into agreements
("Shareholder Service Agreements") with investment dealers selected from time to
time by AIM Distributors for the provision of distribution assistance in
connection with the sale of the Funds' shares to such dealers' customers, and
for the provision of continuing personal shareholder services to customers who
may from time to time directly or beneficially own shares of the Funds. The
distribution assistance and continuing personal shareholder services to be
rendered by dealers under the Shareholder Service Agreements may include, but
shall not be limited to, the following: distributing sales literature; answering
routine customer inquiries concerning the Funds; assisting customers in changing
dividend options, account designations and addresses, and in enrolling in any of
the several special investment plans offered in connection with the purchase of
the Funds' shares; assisting in the establishment and maintenance of customer
accounts and records and in the processing of purchase and redemption
transactions; investing dividends and any capital gains distributions
automatically in the Funds' shares; and providing such other information and
services as the Funds or the customer may reasonably request.
Under the Plans, in addition to the Shareholder Service Agreements authorizing
payments to selected dealers, banks may enter into Shareholder Service
Agreements authorizing payments under the Plans to be made to banks which
provide services to their customers who have purchased shares. Services provided
pursuant to Shareholder Service Agreements with banks may include some or all of
the following: answering shareholder inquiries regarding the Funds; performing
sub-accounting; establishing and maintaining shareholder accounts and records;
processing customer purchase and redemption transactions; providing periodic
statements showing a shareholder's account balance and the integration of such
statements with those of other transactions and balances in the shareholder's
other accounts serviced by the bank; forwarding applicable prospectuses, proxy
statements, reports and notices to bank clients who hold Fund shares; and such
other administrative services as 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.
Financial intermediaries and any other person entitled to receive compensation
for selling Fund shares may receive different compensation for selling shares of
one particular class over another.
Under a Shareholder Service Agreement, each Fund agrees to pay periodically
fees to selected dealers and other institutions who render the foregoing
services to their customers. The fees payable under a Shareholder Service
Agreement generally will be calculated at the end of each payment period for
each business day of the Funds during such period at the
48
<PAGE> 743
annual rate of 0.25% of the average daily net asset value of the Funds' shares
purchased or acquired through exchange. Fees calculated in this manner shall be
paid only to those selected dealers or other institutions who are dealers or
institutions of record at the close of business on the last business day of the
applicable payment period for the account in which such Fund's shares are held.
Payments pursuant to the Plans are subject to any applicable limitations
imposed by rules of the National Association of Securities Dealers, Inc.
("NASD"). The Plans conform to rules of the NASD by limiting payments made to
dealers and other financial institutions who provide continuing personal
shareholder services to their customers who purchase and own shares of the Funds
to no more than 0.25% per annum of the average daily net assets of the Funds
attributable to the customers of such dealers or financial institutions, and by
imposing a cap on the total sales charges, including asset based sales charges,
that may be paid by the Funds and their respective classes.
Under the Plans, certain financial institutions which have entered into
service agreements and with sale shares of the Fund on an agency basis, may
receive payments from the Funds pursuant to the respective Plans. AIM
Distributors does not act as principal, but rather as agent for the Funds, in
making dealer incentive and shareholder servicing payments under the Plans.
These payments are an obligation of the Funds and not of AIM Distributors. The
Funds will obtain a representation from such financial institutions that they
will either be licensed as dealers as required under applicable state law, or
that they will not engage in activities which would constitute acting as a
"dealer" as defined under applicable state law. Financial intermediaries and any
other person entitled to receive compensation for selling Fund shares may
receive different compensation for selling shares of one class over another.
Prior to June 1, 1998, the Trust had adopted a different Rule 12b-1 plan, that
operated as a "reimbursement-type" plan (the "Prior Plan"). The information
provided below relates to payments made under the Prior Plan, which provided for
payments to GT Global Inc., the distributor of the Funds at the time the Prior
Plan was in effect.
For the fiscal year ended October 31, 1998, each Fund paid the following
amounts under the Prior Plans:
<TABLE>
<CAPTION>
% OF CLASS
AVERAGE DAILY
NET ASSETS
-----------------
CLASS A CLASS B CLASS A CLASS B
-------- ---------- ------- -------
<S> <C> <C> <C> <C>
Government Income Fund....................... $ $ 0.35% 1.00%
Strategic Income Fund........................ $ $ 0.35% 1.00%
Emerging Markets Debt Fund................... $ $ 0.35% 1.00%
Growth & Income Fund......................... $ $ 0.35% 1.00%
</TABLE>
For the fiscal year ended October 31, 1998, each Fund paid the following
amounts under the current Plans:
<TABLE>
<CAPTION>
% OF CLASS
AVERAGE DAILY
NET ASSETS
-----------------
CLASS A CLASS B CLASS A CLASS B
-------- ---------- ------- -------
<S> <C> <C> <C> <C>
Government Income Fund....................... $ $ 0.35% 1.00%
Strategic Income Fund........................ $ $ 0.35% 1.00%
Emerging Markets Debt Fund................... $ $ 0.35% 1.00%
Growth & Income Fund......................... $ $ 0.35% 1.00%
</TABLE>
Actual fees by category paid by each Fund with regard to the Class A shares
during the year ended October 31, 1998 follows:
<TABLE>
<CAPTION>
EMERGING
GOVERNMENT STRATEGIC MARKETS GROWTH &
INCOME FUND INCOME FUND DEBT FUND INCOME FUND
----------- ----------- ---------------- -----------
<S> <C> <C> <C> <C>
CLASS A
Compensation to Underwriters to
partially offset other marketing
expenses........................ $ $ $ $
Compensation to Dealers including
finder's fees................... $ $ $ $
</TABLE>
49
<PAGE> 744
Actual fees by category paid by each Fund with regard to the Class B Shares
during the year ended October 31, 1998 as follows:
<TABLE>
<CAPTION>
GOVERNMENT STRATEGIC EMERGING MARKETS GROWTH &
INCOME FUND INCOME FUND DEBT FUND INCOME FUND
----------- ----------- ---------------- -----------
<S> <C> <C> <C> <C>
CLASS B
Compensation to Underwriters to
partially offset upfront dealer
commissions and other marketing
costs........................... $ $ $ $
Compensation to Dealers............ $ $ $ $
</TABLE>
The Plans require AIM Distributors to provide the Board of Trustees at least
quarterly with a written report of the amounts expended pursuant to the Plans
and the purposes for which such expenditures were made. The Board of Trustees
reviews these reports in connection with their decisions with respect to the
Plans.
As required by Rule 12b-1, the Plans and related forms of Shareholder Service
Agreements were approved by the Board of Trustees, including a majority of the
Trustees who are not "interested persons" (as defined in the 1940 Act) of the
Trust and who have no direct or indirect financial interest in the operation of
the Plans or in any agreements related to the Plans ("Qualified Trustees"). In
approving the Plans in accordance with the requirements of Rule 12b-1, the
Trustees considered various factors and determined that there is a reasonable
likelihood that the Plans would benefit each class of each Fund and their
respective shareholders.
The Plans do not obligate the Funds to reimburse AIM Distributors for the
actual expenses AIM Distributors may incur in fulfilling its obligations under
the Plans. Thus, even if AIM Distributors' actual expenses exceed the fee
payable to AIM Distributors thereunder at any given time, the Funds will not be
obligated to pay more than that fee. If AIM Distributors' expenses are less than
the fee it receives, AIM Distributors will retain the full amount of the fee.
Unless terminated earlier in accordance with their terms, the Plans continue
in effect until May 29, 1999 and each year thereafter, as long as such
continuance is specifically approved at least annually by the Board of Trustees,
including a majority of the Qualified Trustees.
The Plans may be terminated by the vote of a majority of the Qualified
Trustees, or, with respect to a particular class, by the vote of a majority of
the outstanding voting securities of that class.
Any change in the Plans that would increase materially the distribution
expenses paid by the applicable class requires shareholder approval; otherwise,
it may be amended by the Trustees, including a majority of the Qualified
Trustees, by votes cast in person at a meeting called for the purpose of voting
upon such amendment. As long as the Plans are in effect, the selection or
nomination of the Qualified Trustees is committed to the discretion of the
Qualified Trustees. In the event the Class A Plan is amended in a manner which
the Board of Trustees determines would materially increase the charges paid
under the Class A Plan, the Class B shares of the Funds will no longer convert
into Class A shares of the same Funds unless the Class B shares, voting
separately, approve such amendment. If the Class B shareholders do not approve
such amendment, the Board of Trustees will (i) create a new class of shares of
the Funds which is identical in all material respects to the Class A shares as
they existed prior to the implementation of the amendment and (ii) ensure that
the existing Class B shares of the Funds will be exchanged or converted into
such new class of shares no later than the date the Class B shares were
scheduled to convert into Class A shares.
The principal differences between the Class A and C Plan, on the one hand, and
the Class B Plan, on the other hand, are: (i) the Class A and C Plan allows
payment to AIM Distributors or to dealers or financial institutions of up to
0.35% of average daily net assets of the Class A shares of each Fund, as
compared to 1.00% of such assets of each Fund's Class B shares; (ii) the Class B
Plan obligates the Class B shares to continue to make payments to AIM
Distributors following termination of the Class B shares Distribution Agreement
with respect to Class B shares sold by or attributable to the distribution
efforts of AIM Distributors or its predecessor GT Global, Inc. unless there has
been a complete termination of the Class B Plan (as defined in such Plan) and
(iii) the Class B Plan expressly authorizes AIM Distributors to assign, transfer
or pledge its rights to payments pursuant to the Class B Plan.
50
<PAGE> 745
THE DISTRIBUTOR
Master Distribution Agreements with AIM Distributors relating to the Class A
and Class B shares of the Funds were approved by the Board of Directors on
Trustees May 7, 1998. [An Amended and Restated Master Distribution Agreement
with AIM Distributors relating to Class A and C shares of the Funds was approved
by the Board on December , 1998.] Such Master Distribution Agreements are
hereinafter collectively referred to as the "Distribution Agreements."
The Distribution Agreements provide that AIM Distributors will bear the
expenses of printing from the final proof and distributing the Funds'
prospectuses and statements of additional information relating to public
offerings made by AIM Distributors pursuant to the Distribution Agreements
(other than those prospectuses and statements of additional information
distributed to existing shareholders of the Fund), 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 Fund's 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.
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 of the Funds 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.
AIM Distributors expects to pay sales commissions from its own resources to
dealers and institutions who sell Class B shares of the Funds at the time of
such sales. Payments with respect to Class B shares will equal 4.0% of the
purchase price of the Class B shares sold by the dealer or institution, and will
consist of a sales commission equal to 3.75% of the purchase price of the Class
B shares sold plus an advance of the first year service fee 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 anticipates that it will
require a number of years to recoup from Class B Plan payments the sales
commissions paid to dealers and institutions in connection with sales of Class B
shares. In the future, if multiple distributors serve a Fund, each such
distributor (or its assignee or transferee) would receive a share of the
payments under the Class B Plan based on the portion of the Fund's Class B
shares sold by or attributable to the distribution efforts of that distributor.
The Trust (on behalf of any class of any Fund) or AIM Distributors may
terminate the Distribution Agreements on sixty (60) days' written notice without
penalty. The Distribution Agreements will terminate automatically in the event
of their assignment. In the event the Class B shares Distribution Agreement is
terminated, AIM Distributors would continue to receive payments of asset based
distribution fees in respect of the outstanding Class B shares attributable to
the distribution efforts of AIM Distributors and its predecessor; provided,
however, that a complete termination of the Class B Plan (as defined in such
Plan) would terminate all payments by the Fund of asset based distribution fees
and service fees to AIM Distributors. Termination of the Class B Plan or
Distribution Agreement does not affect the obligation of Class B shareholders to
pay contingent deferred sales charges.
The following chart reflects the total sales charges paid in connection with
the sale of Class A shares of each Fund and the amount retained by GT Global,
Inc., the Trust's distributor prior to June 1, 1998, for the fiscal year ended
October 31, 1997 and 1998.
<TABLE>
<CAPTION>
1998 1997
-------------------- --------------------
SALES AMOUNT SALES AMOUNT
CHARGES RETAINED CHARGES RETAINED
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Emerging Markets Debt Fund................. $ $ $199,201 $65,982
Government Income Fund..................... $ $ $ 67,477 $10,240
Growth & Income Fund....................... $ $ $208,844 $52,850
Strategic Income Fund...................... $ $ $111,949 $29,451
</TABLE>
51
<PAGE> 746
For the fiscal year ended October 31, 1998, the total sales charges paid in
connection with the Sale of Class A Shares of each Fund and the amount retained
by AIM Distributors are as follows:
<TABLE>
<CAPTION>
1998
--------------------
SALES AMOUNT
CHARGES RETAINED
-------- --------
<S> <C> <C>
Emerging Markets Debt Fund.................................. $ $
Government Income Fund...................................... $ $
Growth & Income Fund........................................ $ $
Strategic Income Fund....................................... $ $
</TABLE>
The following chart reflects the contingent deferred sales charges paid by
Class A and Class B shareholders for the fiscal years ended October 31, 1998,
1997 and 1996, for Class A and Class B shares:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Emerging Markets Debt Fund........................ $ $1,617,145 $1,739,271
Government Income Fund............................ $ $1,123,616 $1,467,051
Growth & Income Fund.............................. $ $1,199,637 $1,485,113
Strategic Income Fund............................. $ $1,750,253 $1,925,586
</TABLE>
NET ASSET VALUE DETERMINATION
The net asset value per share of each Fund or Portfolio is normally determined
daily as of the close of trading of the New York Stock Exchange ("NYSE")
(generally 4:00 p.m. Eastern time) on each business day of the Fund or
Portfolio. 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 or Portfolio is
determined as of the close of the NYSE on such day. Net asset value per share is
determined by dividing the value of the equity securities, cash and other assets
(including interest accrued but not collected) attributable to a particular
class, less all its liabilities (including accrued expenses and dividends
payable) attributable to that class, by the total number of shares outstanding
of that class. Determination of each Fund's or Portfolio's net asset value per
share is made in accordance with generally accepted accounting principles.
Each equity security held 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 last available bid. Each security traded in
the over-the-counter market (but not including securities reported on the NASDAQ
National Market System) is valued at the mean between the last bid and asked
prices based upon quotes furnished by market makers for such securities. Each
security reported on the NASDAQ National Market System is valued at the last
sales price on the valuation date or absent a last sales price, at the mean
between the closing bid and asked prices on that day. Debt securities are valued
on the basis of prices provided by an independent pricing service. Prices
provided by the pricing service may be determined without exclusive reliance on
quoted prices, and may reflect appropriate factors such as institution-size
trading in similar groups of securities, developments related to special
securities, yield, quality, coupon rate, maturity, type of issue, individual
trading characteristics and other market data. Securities for which market
quotations are not readily available or are questionable are valued at fair
market value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of Trustees.
Short-term obligations having 60 days or less to maturity are valued on the
basis of amortized cost. For purposes of determining net asset value per share,
futures and options contracts generally will be valued 15 minutes after the
close of trading of the NYSE.
Generally, trading in foreign securities, corporate bonds, U.S. Government
securities and money market instruments is substantially completed each day at
various times prior to the close of the NYSE. The values of such securities used
in computing the net asset value of each Fund's or Portfolio's shares are
determined at such times. Foreign currency exchange rates are also generally
determined prior to the close of the NYSE. Occasionally, events affecting the
values of such securities and such exchange rates may occur between the times at
which such values are determined and the close of the NYSE which will not be
reflected in the computation of a Fund's or Portfolio's net asset value. If
events materially affecting the value of such securities occur during such
period, then these securities will be valued at their fair value as determined
in good faith by or under the supervision of the Board of Trustees of the Funds
and the Portfolio.
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,
52
<PAGE> 747
AIM Advisor International Value Fund, AIM Advisor Large Cap Value Fund, AIM
Advisor MultiFlex 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 European Development Fund, AIM Europe Growth
Fund, AIM Global Utilities Fund, AIM Global Growth & Income Fund, AIM
International Equity Fund, AIM International Growth Fund, AIM Japan Growth Fund,
AIM Large Cap Growth Fund, AIM Mid Cap Equity Fund, AIM Money Market Fund, AIM
New Pacific Growth Fund, AIM Select Growth Fund, AIM Small Cap Growth Fund, AIM
Small Cap Opportunities Fund, AIM Value Fund, AIM Weingarten Fund and AIM
Worldwide Growth 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>
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 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 Fund, AIM Global Trends Fund, AIM
High Income Municipal Fund, AIM High Yield Fund, AIM High Yield Fund II, 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>
53
<PAGE> 748
There is no sales charge on purchases of $1,000,000 or more; however, AIM
Distributors may pay a dealer concession and/or advance a service fee on such
transactions 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. In some instances, these incentives may
be offered only to certain dealers who have sold or may sell significant amounts
of shares. At the option of the dealer, such incentives may take the form of
payment for travel expenses, including lodging, incurred in connection with
trips taken by qualifying registered representatives and their families to
places within or outside the United States. The total amount of such additional
bonus payments or other consideration shall not exceed 0.25% of the public
offering price of the shares sold. Any such bonus or incentive programs will not
change the price paid by investors for the purchase of the applicable AIM Fund's
shares or the amount that any particular AIM Fund will receive as proceeds from
such sales. Dealers may not use sales of the AIM Funds' shares to qualify for
any incentives to the extent that such incentives may be prohibited by the laws
of any state.
AIM Distributors may make payments to dealers and institutions who are dealers
of record for purchases of $1 million or more of Class A shares (or shares which
normally involve payment of initial sales charges), which are sold at net asset
value and are subject to a contingent deferred sales charge, for all AIM Funds
other than Class A shares of each of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund as follows: 1% of the first $2 million of such
purchases, plus 0.80% of the next $1 million of such purchases, plus 0.50% of
the next $17 million of such purchases, plus 0.25% of amounts in excess of $20
million of such purchases. AIM Distributors may make payments to dealers and
institutions who are dealers of record for purchases of $1 million or more of
Class A shares (or shares which normally involve payment of initial sales
charges), and which are sold at net asset value and are not subject to a
contingent deferred sales charge, in an amount up to 0.10% of such purchases of
Class A shares of AIM Limited Maturity Treasury Fund, and in an amount up to
0.25% of such purchases of Class A shares of AIM Tax-Free Intermediate Fund.
AIM Distributors may pay sales commissions to dealers and institutions who
sell Class B shares of the AIM Funds at the time of such sales. Payments with
respect to Class B shares will equal 4.00% of the purchase price of the Class B
shares sold by the dealer or institution, and will consist of a sales commission
equal to 3.75% of the purchase price of the Class B shares sold plus an advance
of the first year service fee of 0.25% with respect to such shares. The portion
of the payments to AIM Distributors under the Class B Plan which constitutes an
asset-based sales charge (0.75%) is intended in part to permit AIM Distributors
to recoup a portion of such sales commissions plus financing costs.
AIM Distributors may pay sales commissions to dealers and institutions who
sell Class C shares of the AIM Funds at the time of such sales. Payments with
respect to Class C shares will equal 1.00% of the purchase price of the Class C
shares sold by the dealer or institution, and will consist of a sales commission
of 0.75% of the purchase price of the Class C shares sold plus an advance of the
first year service fee of 0.25% with respect to such shares. AIM Distributors
will retain all payments received by it relating to Class C shares for the first
year after they are purchased. The portion of the payments to AIM Distributors
under the Class A and C Plan attributable to Class C shares which constitutes an
asset-based sales charge, (0.75%) is intended in part to permit AIM Distributors
to recoup a portion of on-going sales commissions to dealers plus financing
costs, if any. After the first full year, AIM Distributors will make such
payments quarterly to dealers and institutions based on the average net asset
value of Class C shares which are attributable to shareholders for whom the
dealers and institutions are designated as dealers of record. These commissions
are not paid on sales to investors exempt from the CDSC, including shareholders
of record on April 30, 1995, who purchase additional shares in any of the Funds
on or after May 1, 1995, and in circumstances where AIM Distributors grants an
exemption on particular transactions.
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 Small Cap Opportunities
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.
54
<PAGE> 749
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:
- an individual and his or her spouse and children, including any trust
established exclusively for the benefit of any such person; or a pension,
profit-sharing, or other benefit plan established exclusively for the
benefit of any such person, such as an IRA, Roth IRA, a single-participant
money-purchase/profit-sharing plan or an individual participant in a 403(b)
Plan (unless such 403(b) plan qualifies as the purchaser as defined below);
- a 403(b) plan, the employer/sponsor of which is an organization described
under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended
(the "Code"), 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;
- a trustee or fiduciary purchasing for a single trust, estate or single
fiduciary account (including a pension, profit-sharing or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Code) and 457 plans, although more than one beneficiary or participant is
involved;
- a Simplified Employee Pension (SEP), Salary Reduction and other Elective
Simplified Employee Pension account (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
- 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 and (ii) Class B and Class C shares of the AIM Funds) within the
following 13 consecutive months. By marking the LOI section on the account
application and by signing the account application, the purchaser indicates that
he understands and agrees to the terms of the LOI and is bound by the provisions
described below.
Each purchase of fund shares normally subject to an initial sales charge made
during the 13-month period will be made at the public offering price applicable
to a single transaction of the total dollar amount indicated by the LOI, as
described under "Sales Charges and Dealer Concessions." It is the purchaser's
responsibility at the time of purchase to specify the account numbers that
should be considered in determining the appropriate sales charge. The offering
price may be further reduced as described under "Rights of Accumulation" if the
Transfer Agent is advised of all other accounts at the time of the investment.
Shares acquired through reinvestment of dividends and capital gains
distributions will not be applied to the LOI. At any time during the 13-month
period after meeting the original obligation, a purchaser may revise his
intended investment amount upward by submitting a written and signed request.
Such a revision will not change the original expiration date. By signing an LOI,
a purchaser is not making a binding commitment to purchase additional shares,
but if
55
<PAGE> 750
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 and (ii) Class B and Class C shares of the AIM
Funds) owned by such purchaser, calculated at their then current public offering
price. If a purchaser so qualifies for a reduced sales charge, the reduced sales
charge applies to the total amount of money then being invested by such
purchaser and not just to the portion that exceeds the breakpoint above which a
reduced sales charge applies. For example, if a purchaser already owns
qualifying shares of any AIM Fund with a value of $20,000 and wishes to invest
an additional $20,000 in a fund, with a maximum initial sales charge of 5.50%,
the reduced initial sales charge of 5.25% will apply to the full $20,000
purchase and not just to the $15,000 in excess of the $25,000 breakpoint. To
qualify for obtaining the discount applicable to a particular purchase, the
purchaser or his dealer must furnish AFS with a list of the account numbers and
the names in which such accounts of the purchaser are registered at the time the
purchase is made.
PURCHASES AT NET ASSET VALUE. Purchases of shares of any of the AIM Funds at
net asset value (without payment of an initial sales charge) may be made in
connection with: (a) the reinvestment of dividends and distributions from a
fund; (b) exchanges of shares of certain other 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:
- AIM Management and its affiliates, or their clients;
- 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--Registered Trademark--, and any foundation, trust or employee benefit
plan established exclusively for the benefit of, or by, such persons;
- 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;
- 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;
56
<PAGE> 751
- Purchases through approve fee-based programs;
- Employee benefit plans designated as qualified purchasers as defined above,
provided the initial investment in the Fund(s) is at least $1 million; the
sponsor signs a $1 million LOI; the employer-sponsored plan 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 agreement 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;
- Shareholders of record or discretionary advised clients of any investment
advisor holding shares of Weingarten or Constellation on September 8, 1996,
or of Charter 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;
- Unitholders of G/SET series unit investment trusts investing proceeds from
such trusts in shares of Weingarten or Constellation; 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 Weingarten and Constellation is effected within 30
days of the redemption or repurchase;
- 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;
- 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
- 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
CDSCs will not apply to the following:
- Additional purchases of Class C shares of AIM Advisor Flex Fund, AIM Advisor
International Value Fund, AIM Advisor Large Cap Value Fund, AIM Advisor
MultiFlex Fund and AIM Advisor Real Estate Fund by shareholders of record on
April 30, 1995, of these Funds, 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;
- 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;
- 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 beneficiaries 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;
- 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;
- Liquidation by the Fund when the account value falls below the minimum
required account size of $500;
- Investment account(s) of AIM; and
- 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.
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Upon the redemption of shares in Categories I and II purchased in amounts of
$1 million or more, no CDSC will be applied in the following situations:
- Shares held more than 18 months;
- 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;
- Private foundations or endowment funds;
- 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
- Shares acquired by exchange from Class A shares in 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 Prospectus 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 shown in the Prospectus.
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 Prospectus under the caption "Exchanging Shares."
Information concerning redemption of the Funds' shares is set forth in the
Prospectus 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 obligation of the Funds to redeem shares, AIM Distributors also
repurchases shares. AIM intends to redeem all shares of the Funds in cash. 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 the 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.
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 the
Fund not reasonably practicable.
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 be subject to backup withholding.
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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:
- a corporation
- an organization exempt from tax under Section 501(a), an individual
retirement plan (IRA), or a custodial account under Section 403(b)(7)
- the United States or any of its agencies or instrumentalities
- a state, the District of Columbia, a possession of the United States, or any
of their political subdivisions or instrumentalities
- a foreign government or any of its political subdivisions, agencies or
instrumentalities
- an international organization or any of its agencies or instrumentalities
- a foreign central bank of issue
- a dealer in securities or commodities required to register in the U.S. or a
possession of the U.S.
- a futures commission merchant registered with the Commodity Futures Trading
Commission
- a real estate investment trust
- an entity registered at all times during the tax year under the 1940 Act
- a common trust fund operated by a bank under Section 584(a)
- a financial institution
- a middleman known in the investment community as a nominee or listed in the
most recent publication of the American Society of Corporate Secretaries,
Inc., Nominee List
- a trust exempt from tax under Section 664 or described in Section 4947
Investors should contact the IRS if they have any questions concerning
entitlement to an exemption from backup withholding.
NOTE: Section references are to sections of the Code.
IRS PENALTIES -- Investors who do not supply the AIM Funds with a correct TIN
will be subject to a $50 penalty imposed by the IRS unless such failure is due
to reasonable cause and not willful neglect. If an investor falsifies
information on this form or makes any other false statement resulting in no
backup withholding on an account which
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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.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
TAXATION OF THE FUNDS
Each Fund is treated as a separate corporation for federal income tax
purposes. To continue to qualify for treatment as a regulated investment company
("RIC") under the Code, each Fund must distribute to its shareholders for each
taxable year at least 90% of its investment company taxable income (consisting
generally of net investment income, net short-term capital gain and net gains
from certain foreign currency transactions) ("Distribution Requirement") and
must meet several additional requirements. With respect to each Fund, these
requirements include the following: (1) the Fund must derive at least 90% of its
gross income each taxable year from dividends, interest, payments with respect
to securities loans and gains from the sale or other disposition of securities
or foreign currencies, or other income (including gains from options, Futures or
Forward Contracts) derived with respect to its business of investing in
securities or those currencies ("Income Requirement"); (2) at the close of each
quarter of the Fund's taxable year, at least 50% of the value of its total
assets must be represented by cash and cash items, U.S. government securities,
securities of other RICs and other securities, with these other securities
limited, in respect of any one issuer, to an amount that does not exceed 5% of
the value of the Fund's total assets and that does not represent more than 10%
of the issuer's outstanding voting securities; and (3) at the close of each
quarter of the Fund's taxable year, not more than 25% of the value of its total
assets may be invested in securities (other than U.S. government securities or
the securities of other RICs) of any one issuer. The Emerging Markets Debt Fund,
as an investor in the Portfolio, is deemed to own a proportionate share of the
Portfolio's assets, and to earn a proportionate share of the Portfolio's income,
for purposes of determining whether that Fund satisfies the requirements
described above to qualify as a RIC.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to
the extent it fails to distribute by the end of any calendar year substantially
all of its ordinary income for that year and capital gain net income for the
one-year period ending on October 31 of that year, plus certain other amounts.
See "Taxation of Certain Investment Activities" below for a discussion of the
tax consequences to the Emerging Markets Debt Fund of hedging transactions
engaged in, and investments in passive foreign investment companies ("PFICs")
and other foreign securities by, the Portfolio.
TAXATION OF THE PORTFOLIO -- GENERAL
The Portfolio is treated as a partnership for federal income tax purposes and
is not a "publicly traded partnership." As a result, the Portfolio is not
subject to federal income tax; instead, the Emerging Markets Debt Fund, as an
investor in the Portfolio, is required to take into account in determining its
federal income tax liability its share of the Portfolio's income, gains, losses,
deductions and credits, without regard to whether it has received any cash
distributions from the Portfolio. The Portfolio also is not subject to Delaware
income or franchise tax.
Because, as noted above, the Emerging Markets Debt Fund is deemed to own a
proportionate share of the Portfolio's assets, and to earn a proportionate share
of the Portfolio's income, for purposes of determining whether that Fund
satisfies the requirements to qualify as a RIC, the Portfolio intends to conduct
its operations so that the Emerging Markets Debt Fund will be able to continue
to satisfy all those requirements.
Distributions to the Emerging Markets Debt Fund from the Portfolio (whether
pursuant to a partial or complete withdrawal or otherwise) will not result in
that Fund's recognition of any gain or loss for federal income tax purposes,
except that (1) gain will be recognized to the extent any cash that is
distributed exceeds that Fund's basis for its interest in the Portfolio before
the distribution, (2) income or gain will be recognized if the distribution is
in liquidation of that Fund's entire interest in the Portfolio and includes a
disproportionate share of any unrealized receivables held by the Portfolio, and
(3) loss will be recognized if a liquidation distribution consists solely of
cash and/or unrealized receivables. The Emerging Markets Debt Fund's basis for
its interest in the Portfolio generally will equal the amount of cash and the
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basis of any property that Fund invests in the Portfolio, increased by that
Fund's share of the Portfolio's net income and gains and decreased by (a) the
amount of cash and the basis of any property the Portfolio distributes to that
Fund and (b) that Fund's share of the Portfolio's losses.
TAXATION OF CERTAIN INVESTMENT ACTIVITIES
For purposes of the following discussion, "Investor Funds" means the
Government Income Fund, the Strategic Income Fund, the Growth & Income Fund and
the Portfolio.
Foreign Taxes. Interest and dividends received by an Investor Fund, and gains
realized thereby, may be subject to income, withholding or other taxes imposed
by foreign countries and U.S. possessions ("foreign taxes") that would reduce
the yield and/or total return on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate foreign taxes, however,
and many foreign countries do not impose taxes on capital gains in respect of
investments by foreign investors. If more than 50% of the value of an Investor
Fund's total assets (taking into account, in the case of the Emerging Markets
Debt Fund, its proportionate share of the Portfolio's assets) at the close of
its taxable year consists of securities of foreign corporations, the Fund will
be eligible to, and may, file an election with the Internal Revenue Service that
will enable its shareholders, in effect, to receive the benefit of the foreign
tax credit with respect to any foreign taxes paid by it (taking into account, in
the case of the Emerging Markets Debt Fund, its proportionate share of any
foreign taxes paid by the Portfolio) (a "Fund's foreign taxes"). Pursuant to the
election, an Investor Fund would treat those taxes as dividends paid to its
shareholders and each shareholder would be required to (1) include in gross
income, and treat as paid by him, his proportionate share of the Fund's foreign
taxes, (2) treat his share of those taxes and of any dividend paid by the Fund
that represents its income from foreign and U.S. possessions sources (taking
into account, in the case of the Emerging Markets Debt Fund, its proportionate
share of the Portfolio's income from those sources) as his own income from those
sources and (3) either deduct the taxes deemed paid by him in computing his
taxable income or, alternatively, use the foregoing information in calculating
the foreign tax credit against his federal income tax. Each Investor Fund will
report to its shareholders shortly after each taxable year their respective
shares of the Fund's foreign taxes and income (taking into account, in the case
of the Emerging Markets Debt Fund, its proportionate share of the Portfolio's
income) from sources within foreign countries and U.S. possessions if it makes
this election. Pursuant to the Taxpayer Relief Act of 1997 ("Tax Act"),
individuals who have no more than $300 ($600 for married persons filing jointly)
of creditable foreign taxes included on Form 1099 and all of whose foreign
source income is "qualified passive income" may elect each year to be exempt
from the extremely complicated foreign tax credit limitation and will be able to
claim a foreign tax credit without having to file the detailed Form 1116 that
otherwise is required.
Passive Foreign Investment Companies. Each Investor Fund may invest in the
stock of PFICs. A PFIC is a foreign corporation -- other than a "controlled
foreign corporation" (i.e., a foreign corporation in which, on any day during
its taxable year, more than 50% of the total voting power of all voting stock
therein or the total value of all stock therein is owned, directly, indirectly
or constructively, by "U.S. shareholders," defined as U.S. persons that
individually own, directly, indirectly or constructively, at least 10% of that
voting power) as to which the Investor Fund is a U.S. shareholder (effective
with respect to each Investor Fund for its taxable year beginning November 1,
1998) -- that, in general, meets either of the following tests: (1) at least 75%
of its gross income is passive or (2) an average of at least 50% of its assets
produce, or are held for the production of, passive income. Under certain
circumstances, an Investor Fund will be subject to federal income tax on a part
(or, in the case of the Emerging Markets Debt Fund, its proportionate share of a
part) of any "excess distribution" received by it (or, in the case of the
Emerging Markets Debt Fund, by the Portfolio) on the stock of a PFIC or of any
gain on the Fund's (or, in the case of the Emerging Markets Debt Fund, the
Portfolio's) disposition of that stock (collectively "PFIC income"), plus
interest thereon, even if the Fund distributes the PFIC income as a taxable
dividend to its shareholders. The balance of the PFIC income will be included in
the Fund's investment company taxable income and, accordingly, will not be
taxable to it to the extent it distributes that income to its shareholders.
If an Investor Fund invests in a PFIC and elects to treat the PFIC as a
"qualified electing fund" ("QEF"), then in lieu of the foregoing tax and
interest obligation, the Investor Fund (or, in the case of the Portfolio, the
Emerging Markets Debt Fund) would be required to include in income each year its
pro rata share (taking into account, in the case of the Emerging Markets Debt
Fund, its proportionate share of the Portfolio's pro rata share) of the QEF's
ordinary earnings and net capital gain (i.e., the excess of net long-term
capital gain over net short-term capital loss) -- which most likely would have
to be distributed by the Investor Fund (or, in the case of the Portfolio, the
Emerging Markets Debt Fund) to satisfy the Distribution Requirement and avoid
imposition of the Excise Tax -- even if those earnings and gain were not
received thereby from the QEF. In most instances it will be very difficult, if
not impossible, to make this election because of certain requirements thereof.
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Effective for its taxable year beginning November 1, 1998, each Investor Fund
may elect to "mark to market" its stock in any PFIC. "Marking-to-market," in
this context, means including in ordinary income each taxable year the excess,
if any, of the fair market value of the stock over an Investor Fund's adjusted
basis therein as of the end of that year. Pursuant to the election, an Investor
Fund also will be allowed to deduct (as an ordinary, not capital, loss) the
excess, if any, of its adjusted basis in PFIC stock over the fair market value
thereof as of the taxable year-end, but only to the extent of any net
mark-to-market gains with respect to that stock included in income by the Fund
for prior taxable years. An Investor Fund's adjusted basis in each PFIC's stock
subject to the election will be adjusted to reflect the amounts of income
included and deductions taken thereunder. Regulations proposed in 1992 provided
a similar election with respect to the stock of certain PFICs.
Options, Futures and Foreign Currency Transactions. The Investors Funds' use
of hedging transactions, such as selling (writing) and purchasing options and
Futures Contracts and entering into Forward Contracts, involves complex rules
that will determine, for federal income tax purposes, the amount, character and
timing of recognition of the gains and losses an Investor Fund realizes in
connection therewith. Gains from the disposition of foreign currencies (except
certain gains that may be excluded by future regulations), and gains from
options, Futures and Forward Contracts derived by an Investor Fund with respect
to its business of investing in securities or foreign currencies, will qualify
as permissible income under the Income Requirement for that Investor Fund (or,
in the case of the Portfolio, the Emerging Markets Debt Fund).
Futures and Forward Contracts that are subject to Section 1256 of the Code
(other than those that are part of a "mixed straddle") ("Section 1256
Contracts") and that are held by an Investor Fund at the end of its taxable year
generally will be deemed to have been sold at that time at market value for
federal income tax purposes. Sixty percent of any net gain or loss recognized on
these deemed sales, and 60% of any net gain or loss realized from any actual
sales of Section 1256 Contracts, will be treated as long-term capital gain or
loss, and the balance will be treated as short-term capital gain or loss. That
60% portion will qualify for the reduced maximum tax rates on noncorporate
taxpayers' net capital gain enacted by the Tax Act -- 20% (10% for taxpayers in
the 15% marginal tax bracket) for gain recognized on capital assets held for
more than 18 months -- instead of the 28% rate in effect before that
legislation, which now applies to gain recognized on capital assets held for
more than one year but not more than 18 months.
Section 988 of the Code also may apply to gains and losses from transactions
in foreign currencies, foreign-currency-denominated debt securities and options,
Futures and Forward Contracts on foreign currencies ("Section 988" gains and
losses). Each Section 988 gain or loss generally is computed separately and
treated as ordinary income or loss. In the case of overlap between sections 1256
and 988, special provisions determine the character and timing of any income,
gain or loss. Each Investor Fund attempts to monitor section 988 transactions to
minimize any adverse tax impact.
If an Investor Fund has an "appreciated financial position" -- generally, an
interest (including an interest through an option, Futures or Forward Contract
or short sale) with respect to any stock, debt instrument (other than "straight
debt") or partnership interest the fair market value of which exceeds its
adjusted basis -- and enters into a "constructive sale" of the same or
substantially similar property, the Fund will be treated as having made an
actual sale thereof, with the result that gain will be recognized at that time.
A constructive sale generally consists of a short sale, an offsetting notional
principal contract or Futures or Forward Contract entered into by an Investor
Fund or a related person with respect to the same or substantially similar
property. In addition, if the appreciated financial position is itself a short
sale or such a contract, acquisition of the underlying property or substantially
similar property will be deemed a constructive sale.
The Strategic Income Fund and the Portfolio each may acquire zero coupon or
other securities issued with original issue discount ("OID"). As a holder of
those securities, that Fund and the Portfolio (and, through it, the Emerging
Markets Debt Fund) each must include in its income the portion of the OID that
accrues on the securities during the taxable year, even if no corresponding
payment on them is received during the year. Similarly, the Strategic Income
Fund and the Portfolio each must include in its gross income securities it
receives as "interest" on payment-in-kind securities. Because each Fund annually
must distribute substantially all of its investment company taxable income,
including any OID and other non-cash income, to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax, the Strategic Income Fund or
the Emerging Markets Debt Fund, or both, may be required in a particular year to
distribute as a dividend an amount that is greater than the total amount of cash
it actually receives (or, in the case of the Emerging Markets Debt Fund, its
share of the total amount of cash the Portfolio actually receives). Those
distributions will be made from the Fund's (or, in the case of the Emerging
Markets Debt Fund, its, or its share of the Portfolio's) cash assets or, if
necessary, from the proceeds of sales of portfolio securities. Such Fund may
(directly or through the Portfolio) realize capital gains or losses from those
sales, which would increase or decrease its investment company taxable income
and/or net capital gain.
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TAXATION OF THE FUNDS' SHAREHOLDERS
Dividends and other distributions declared by a Fund in, and payable to
shareholders of record as of a date in, October, November or December of any
year will be deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if the distributions are paid by the
Fund during the following January. Accordingly, those distributions will be
taxed to shareholders for the year in which that December 31 falls.
A portion of the dividends from the Growth & Income Fund's investment company
taxable income (whether paid in cash or reinvested in additional shares) may be
eligible for the dividends-received deduction allowed to corporations. The
eligible portion may not exceed the aggregate dividends received by that Fund
from U.S. corporations. However, dividends received by a corporate shareholder
and deducted by it pursuant to the dividends-received deduction are subject
indirectly to the federal alternative minimum tax. The Funds other than the
Growth & Income Fund are not expected to pay dividends eligible for that
deduction.
If Fund shares are sold at a loss after being held for six months or less, the
loss will be treated as long-term, instead of short-term, capital loss to the
extent of any capital gain distributions received on those shares. Investors
also should be aware that if shares are purchased shortly before the record date
for any dividend or other distribution, the shareholder will pay full price for
the shares and receive some portion of the price back as a taxable distribution.
Dividends paid by a Fund to a shareholder who, as to the United States, is a
nonresident alien individual, nonresident alien fiduciary of a trust or estate,
foreign corporation or foreign partnership ("foreign shareholder") generally
will be subject to U.S. withholding tax (at a rate of 30% or lower treaty rate).
Withholding will not apply, however, to a dividend paid by a Fund to a foreign
shareholder that is "effectively connected with the conduct of a U.S. trade or
business," in which case the reporting and withholding requirements applicable
to domestic shareholders will apply. A distribution of net capital gain by a
Fund to a foreign shareholder generally will be subject to U.S. federal income
tax (at the rates applicable to domestic persons) only if the distribution is
"effectively connected" or the foreign shareholder is treated as a resident
alien individual for federal income tax purposes.
The foregoing is a general and abbreviated summary of certain federal tax
considerations affecting the Funds, their shareholders and the Portfolio.
Investors are urged to consult their own tax advisors for more detailed
information and for information regarding any foreign, state and local taxes
applicable to distributions received from a Fund.
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. 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.
SHARES CERTIFICATES. 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. 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. 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.
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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. 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 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. Then any
redemptions must be effected in writing by the investor.
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 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
64
<PAGE> 759
certain domestic banks, credit unions, securities dealers, or securities
exchanges. The Transfer Agent will also accept signatures with either: (1) a
signature guaranteed with a medallion stamp of the STAMP Program, or (2) a
signature guaranteed with a medallion stamp of the NYSE Medallion Signature
Program, provided that in either event, the amount of the transaction involved
does not exceed the surety coverage amount indicated on the medallion. For
information regarding whether a particular institution or organization qualifies
as an "eligible guarantor institution," an investor should contact the Client
Services Department of AFS.
REINSTATEMENT PRIVILEGE (CLASS A SHARES ONLY). A shareholder may realize a
gain or a loss on a redemption made in connection with the exercise of the
reinstatement privilege. A realized gain on the redemption is taxable, and
reinvestment may alter any capital gains payable. If there has been a loss on
the redemption and shares of the same fund are repurchased, all of the loss may
not be tax deductible, depending on the timing and amount reinvested. Under the
Code, if the redemption proceeds of fund shares on which a sales charge was paid
are reinvested in (or exchanged for) shares of another AIM Fund at a reduced
sales charge within 90 days of the payment of the sales charge, the
shareholder's basis in the fund shares redeemed may not include the amount of
the sales charge paid, thereby reducing the loss or increasing the gain
recognized from the redemption; however, the shareholder's basis in the fund
shares purchased will Include the sales charge.
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 in 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.
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., a wholly owned
subsidiary of AIM, 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173, 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 purchases of the AIM Funds.
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") has entered Into
an agreement with the Trust (and certain other AIM Funds), First Data Investor
Service Group (formerly The Shareholder Services Group, Inc.) and
65
<PAGE> 760
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).
INDEPENDENT ACCOUNTANTS
The Funds' and the Portfolio's independent accountants are
PricewaterhouseCoopers LLP. PricewaterhouseCoopers LLP conducts audits of each
Fund's and the Portfolio's financial statements, assists in the preparation of
the Funds' and the Portfolio's federal and state income tax returns and consults
with the Trust, the Funds and the Portfolio as to matters of accounting,
regulatory filings, and federal and state income taxation.
The audited financial statements of the Funds and the Portfolio included in
this Statement of Additional Information have been examined by
PricewaterhouseCoopers LLP, as stated in their opinion appearing herein and are
included in reliance upon such opinion given upon the authority of that firm as
experts in accounting and auditing.
LEGAL MATTERS
The law firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue N.W.,
Washington, D.C. 20036-1800, acts as counsel to the Trust and the Fund.
SHAREHOLDER LIABILITY
Under Delaware law, the shareholders of the Trust enjoy the same limitations
extended to shareholders of private, for-profit corporations. There is a remote
possibility, however, that under certain circumstances shareholders of the Trust
may be held personally liable for the Trust's obligations. However, the Trust
Agreement disclaims shareholder liability for acts or obligations of the Trust
and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Trust or a trustee. If
a shareholder is held personally liable for the obligations of the Trust, the
Trust Agreement provides that the shareholder shall be entitled out of the
assets belonging to the applicable Fund (or allocable to the applicable Class),
to be held harmless from and indemnified against all loss and expense arising
from such liability in accordance with the Trust's Bylaws and applicable law.
Thus, the risk of a shareholder incurring financial loss on account of such
liability is limited to circumstances in which the Trust itself would be unable
to meet its obligations and where the other party was held not to be bound by
the disclaimer.
[NAMES
Prior to May 29, 1998, AIM Emerging Markets Debt Fund, formerly known as AIM
Global High Income Fund, operated under the name of GT Global High Income Fund;
AIM Strategic Income Fund operated under the name of GT Global Strategic Income
Fund; AIM Global Government Income Fund operated under the name of GT Global
Government Income Fund; and AIM Global Growth & Income Fund operated under the
name of GT Global Growth & Income Fund.]
66
<PAGE> 761
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To the best knowledge of the Trust, the names and addresses of the holders of
5% or more of the outstanding shares of any class of each Fund's equity
securities as of , 1998, and the percentage of the outstanding
shares held by such holders are set forth below.
<TABLE>
<CAPTION>
PERCENT
PERCENT OWNED OF
OWNED OF RECORD AND
FUND NAME AND ADDRESS OF OWNER RECORD* BENEFICIALLY
- ---- ------------------------- -------- ------------
<S> <C> <C> <C>
Government Income Fund -- Advisor NFSC FEBO #179-514144 % -0-
Class FMT CO Cust IRA
FBO Thomas Stanley Lipscomb
Cook-Fort Worth Children's Med C
801 7th Ave.
Fort Worth, TX 76104-2733
Government Income Fund -- Class A MLPF&S for the Sole Benefit of Its % -0-
Customers, Security #
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd
Floor
Jacksonville, FL 32246-6484
Government Income Fund -- Class B MLPF&S for the Sole Benefit of Its % -0-
Customers, Security #97AM9
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd
Floor
Jacksonville, FL 32246-6484
Strategic Income Fund -- Advisor FTC & Co. % -0-
Class Attn: Datalynx #089
P.O. Box 173736
Denver, CO 80217-3736
Strategic Income Fund -- Class A MLPF&S for the Sole Benefit of Its % -0-
Customers, Security #974T1
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd
Floor
Jacksonville, FL 32246-6484
Emerging Markets Debt Charles Schwab & Co., Inc. % -0-
Fund -- Advisor Class For the Exclusive Benefit of our
Customers
Reinvest Account
101 Montgomery St.
San Francisco, California
94104-4122
Attn: Mutual Funds
Wells Fargo Bank NA TTEE FBO % -0-
LGT Asset Management AC 5000201000
Serp Prft Shr Pln ###-##-####
26610 West Agoura Road
P.O. Box 9800 MAC 9139-027
Calabasas, CA 91372-0800
Emerging Markets Debt Fund -- Class MLPF&S for the Sole Benefit of Its % -0-
B Customers, Security #97AMB
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd
Floor
Jacksonville, FL 32246-6484
Growth & Income Fund -- Advisor Wells Fargo Bank NA TTEE FBO % -0-
Class LGT Asset Management AC 5000201000
Serp Prft Shr Pln ###-##-####
P O Box 9800 MAC 9137-027
Calabasas, CA 91372-0800
</TABLE>
* The Trust has no knowledge as to whether all or any portion of the shares
owned of record are also owned beneficially.
67
<PAGE> 762
INVESTMENT RESULTS
TOTAL RETURN QUOTATIONS
The standard formula for calculating total return, as described in the
Prospectus, is as follows:
n
P(1+T) = ERV
<TABLE>
<S> <C> <C> <C>
Where P = a hypothetical initial payment of $1,000.
T = average annual total return (assuming the applicable maximum
sales load is deducted at the beginning of the 1, 5, or 10
year periods).
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment at
the end of the 1, 5, or 10 year periods (or fractional
portion of such period).
</TABLE>
The standardized returns for the Class A and Class B shares of Strategic
Income Fund, Government Income Fund, Emerging Markets Debt Fund and Growth &
Income Fund, stated as average annualized total returns for the periods shown,
were:
<TABLE>
<CAPTION>
EMERGING EMERGING
STRATEGIC STRATEGIC GOVERNMENT GOVERNMENT MARKETS MARKETS
INCOME INCOME INCOME INCOME DEBT DEBT
FUND FUND FUND FUND FUND FUND
PERIOD (CLASS A) (CLASS B) (CLASS A) (CLASS B) (CLASS A) (CLASS B)
------ --------- --------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Fiscal year ended Oct. 31,
1998....................... -8.01% -8.54% 4.97% 4.65% -33.41% -33.02%
Oct. 31, 1993 through Oct.
31, 1998................... 2.70% 2.76% 3.24% 3.28% .39% .54%
Oct. 22, 1992 (commencement
of operations) through Oct.
31, 1998................... n/a 7.74% n/a 6.22% 6.54% 6.72%
March 29, 1988 (commencement
of operations) through Oct.
31, 1998................... 7.77% n/a 6.87% n/a n/a n/a
</TABLE>
<TABLE>
<CAPTION>
GROWTH AND GROWTH AND
INCOME FUND INCOME FUND
PERIOD (CLASS A) (CLASS B)
------ ----------- -----------
<S> <C> <C>
Fiscal year ended Oct. 31, 1998............................. 11.25% 11.93%
Oct. 31, 1992 through Oct. 31, 1998......................... 11.12% 11.41%
Oct. 22, 1992 (commencement of operations) through Oct. 31,
1998...................................................... n/a 13.63%
Sept. 25, 1990 (commencement of operations) through Oct. 31,
1998...................................................... 12.53% n/a
</TABLE>
NON-STANDARDIZED RETURNS
Standard total return quotes may be accompanied by total return figures
calculated by alternative methods. For example, average annual total return may
be calculated without assuming payment of the full sales load according to the
following formula:
n
P(1+U) = ERV
<TABLE>
<S> <C> <C> <C>
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.
</TABLE>
68
<PAGE> 763
The average annual non-standardized returns for the Class A and Class B shares
of Strategic Income Fund, Government Income Fund, Emerging Markets Debt Fund and
Growth & Income Fund, stated as average annualized total returns for the periods
shown, were:
<TABLE>
<CAPTION>
EMERGING EMERGING
STRATEGIC STRATEGIC GOVERNMENT GOVERNMENT MARKETS MARKETS
INCOME INCOME INCOME INCOME DEBT DEBT
FUND FUND FUND FUND FUND FUND
PERIOD (CLASS A) (CLASS B) (CLASS A) (CLASS B) (CLASS A) (CLASS B)
- ------ --------- --------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Fiscal year ended Oct. 31,
1998...................... -3.41% -4.04% 10.20% 9.65% -30.07% -30.49%
Oct. 31, 1993 through Oct.
31, 1998.................. 3.71% 3.05% 4.24% 3.56% 1.37% .74%
Oct. 22, 1992 (commencement
of operations) through
Oct. 31, 1998............. n/a 7.74% n/a 6.22% 7.40% 6.72%
March 29, 1988 (commencement
of operations) through
Oct. 31, 1998............. 7.77% n/a 7.36% n/a n/a n/a
</TABLE>
<TABLE>
<CAPTION>
GROWTH AND GROWTH AND
INCOME FUND INCOME FUND
PERIOD (CLASS A) (CLASS B)
- ------ ----------- -----------
<S> <C> <C>
Fiscal year ended Oct. 31, 1998............................. 17.76% 16.93%
Oct. 31, 1992 through Oct. 31, 1998......................... 12.40% 11.67%
Oct. 22, 1992 (commencement of operations) through Oct. 31,
1998...................................................... n/a 13.63%
Sept. 25, 1990 (commencement of operations) through Oct. 31,
1998...................................................... 13.33% n/a
</TABLE>
Cumulative total return across a stated period may be calculated as follows:
n
P(1+V) = ERV
<TABLE>
<S> <C> <C> <C>
Where P = a hypothetical initial payment of $1,000.
V = cumulative total return assuming payment of all of, a stated
portion of, or none of, the applicable maximum sales load at
the beginning of the stated period.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment at
the end of the stated period.
</TABLE>
The aggregate non-standardized returns (not taking sales charges into account)
for the Class A and Class B shares of Strategic Income Fund, Government Income
Fund, Emerging Markets Debt Fund and Growth & Income Fund, stated as aggregate
total returns for the periods shown, were:
<TABLE>
<CAPTION>
EMERGING EMERGING
STRATEGIC STRATEGIC GOVERNMENT GOVERNMENT MARKETS MARKETS
INCOME INCOME INCOME INCOME DEBT DEBT
FUND FUND FUND FUND FUND FUND
PERIOD (CLASS A) (CLASS B) (CLASS A) (CLASS B) (CLASS A) (CLASS B)
- ------ --------- --------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Oct. 22, 1992 (commencement
of operations) through Oct.
31, 1998................... n/a 56.68% n/a 43.85% 53.76% 47.96%
March 29, 1988 (commencement
of operations) through Oct.
31, 1998................... 131.88% n/a 112.12% n/a n/a n/a
</TABLE>
<TABLE>
<CAPTION>
GROWTH AND GROWTH AND
INCOME FUND INCOME FUND
PERIOD (CLASS A) (CLASS B)
- ------ ----------- -----------
<S> <C> <C>
Oct. 22, 1992 (commencement of operations) through Oct. 31,
1998...................................................... n/a 115.97%
Sept. 25, 1990 (commencement of operations) through Oct. 31,
1998...................................................... 175.49% n/a
</TABLE>
69
<PAGE> 764
The aggregate non-standardized returns (taking sales charges into account) for
the Class A and Class B shares of Strategic Income Fund, Government Income Fund,
Emerging Markets Debt Fund and Growth & Income Fund, stated as aggregate total
returns for the periods shown, were:
<TABLE>
<CAPTION>
EMERGING EMERGING
STRATEGIC STRATEGIC GOVERNMENT GOVERNMENT MARKETS MARKETS
INCOME INCOME INCOME INCOME DEBT DEBT
FUND FUND FUND FUND FUND FUND
PERIOD (CLASS A) (CLASS B) (CLASS A) (CLASS B) (CLASS A) (CLASS B)
- ------ --------- --------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Oct. 22, 1992 (commencement
of operations) through Oct.
31, 1998................... n/a 56.68% n/a 43.85% 46.45% 47.96%
March 29, 1988 (commencement
of operations) through Oct.
31, 1998................... 120.87% n/a 102.04% n/a n/a n/a
</TABLE>
<TABLE>
<CAPTION>
GROWTH AND GROWTH AND
INCOME FUND INCOME FUND
PERIOD (CLASS A) (CLASS B)
- ------ ----------- -----------
<S> <C> <C>
Oct. 22, 1992 (commencement of operations) through Oct. 31,
1998...................................................... n/a 160.19%
Sept. 25, 1990 (commencement of operations) through Oct. 31,
1998...................................................... 115.97% n/a
</TABLE>
YIELD QUOTATIONS
The standard formula for calculating yield for each Fund, as described in the
Prospectus, is as follows:
6
YIELD = 2[((a-b)/(c x d) + 1) -1]
<TABLE>
<S> <C> <C> <C>
Where a = dividends and interest earned during a stated 30-day period.
For purposes of this calculation, dividends are accrued
rather than recorded on the ex-dividend date. Interest
earned under this formula must generally be calculated based
on the yield to maturity of each obligation (or, if more
appropriate, based on yield to call date).
b = expenses accrued during period (net of reimbursement).
c = the average daily number of shares outstanding during the
period.
d = the maximum offering price per share on the last day of the
period.
</TABLE>
The Yields of the Class A shares of Strategic Income Fund, Government Income
Fund and Emerging Markets Debt Fund for the one-month period ended October 31,
1996 were 6.58%, 6.23% and 7.29%, respectively. The current yields of the Class
B shares of Strategic Income Fund, Government Income Fund and Emerging Markets
Debt Fund for the one-month period ended October 31, 1996 were 6.23%, 5.87% and
7.00%, respectively.
PERFORMANCE INFORMATION
Total return and yield figures for the Funds are neither fixed nor guaranteed,
and no Fund's principal is insured. Performance quotations reflect historical
information and should not be considered representative of a Fund's performance
for any period in the future. Performance is a function of a number of factors
which can be expected to fluctuate. The Funds may provide performance
information in reports, sales literature and advertisements. The Funds may also,
from time to time, quote information about the Funds published or aired by
publications or other media entities which contain articles or segments relating
to investment results or other data about one or more of the Funds. Such
publications or media entities may include the following, among others:
Advertising Age
Barron's
Best's Review
Broker World
Business Week
Changing Times
Christian Science Monitor
Consumer Reports
Economist
EuroMoney
FACS of the Week
Financial Planning
Financial Product News
Financial World
Forbes
Fortune
Global Finance
Hartford Courant Inc.
Institutional Investor
Insurance Forum
Insurance Week
Investor's Daily
Journal of the American
Society of CLU & ChFC
Kiplinger Letter
Money
Mutual Fund Forecaster
70
<PAGE> 765
Mutual Fund Magazine
Nation's Business
New York Times
Pension World
Pensions & Investments
Personal Investor
Financial Services Week
Philadelphia Inquirer
Smart Money
USA Today
U.S. News & World Report
Wall Street Journal
Washington Post
CNN
CNBC
PBS
The Funds and AIM Distributors may from time to time, in advertisements, sales
literature and reports furnished to present or prospective shareholders, compare
each Fund with the following, or compare each Fund's performance to performance
data of similar mutual funds as published in the following, among others:
Bank Rate National Monitor Index
Bear Stearns Foreign Bond Index
Bond Buyer Index
CDA/Wiesenberger Investment Company Services
(data and mutual fund rankings and comparisons)
CNBC/Financial News Composite Index
COFI
Consumer Price Index
Datastream
Donoghue's
Dow Jones Industrial Average
EAFE Index
First Boston High Yield Index
Fitch (publications)
Ibbotson Associates International Bond Index
International Bank for Reconstruction and
Development (publications)
International Finance Corporation Emerging
Markets Database
International Financial Statistics
Lehman Bond Indices
Lipper Analytical Data Services, Inc. (data and
mutual fund rankings and comparisons)
Micropal, Inc. (data and mutual fund rankings
and comparisons)
Moody's Investors Service (publications)
Morgan Stanley Capital International All Country
(AC) World Index
Morgan Stanley Capital International World Indices
Morningstar, Inc. (data and mutual fund rankings
and comparisons)
NASDAQ
Organization for Economic Cooperation and
Development (publications)
Salomon Brothers Global Telecommunications Index
Salomon Brothers World Government Bond
Index-Non-U.S.
Salomon Brothers World Government Bond Index
Standard & Poor's (publications)
Standard & Poor's 500 Composite Stock Price Index
Stangar
Wilshire Associates
World Bank (publications and reports)
The World Bank Publication of Trends in
Developing Countries
Worldscope
Each Fund may also compare its performance to rates on Certificates of Deposit
and other fixed rate investments such as the following:
10-year Treasuries
30-year Treasuries
30-day Treasury Bills
Information relating to foreign market performance, capitalization and
diversification is based on sources believed to be reliable but may be subject
to revision and has not been independently verified by the Funds or AIM
Distributors. Advertising for the Funds may from time to time include
discussions of general economic conditions and interest rates. Advertising for
the Funds may also include reference to the use of those Funds as part of an
individual's overall retirement investment program. From time to time, sales
literature and/or advertisements for any of the Funds may disclose (i) the
largest holdings in the Fund's portfolio, (ii) certain selling group members
and/or (iii) certain institutional shareholders.
From time to time, the Funds' sales literature and/or advertisements may
discuss generic topics pertaining to the mutual fund industry. This includes,
but is not limited to, literature addressing general information about mutual
funds, variable annuities, dollar-cost averaging, stocks, bonds, money markets,
certificates of deposit, retirement, retirement plans, asset allocation,
tax-free investing, college planning, and inflation.
Although performance data may be useful to prospective investors when
comparing a Fund's performance with other funds and other potential investments,
investors should note that the methods of computing performance of other
potential investments are not necessarily comparable to the methods employed by
a Fund.
71
<PAGE> 766
APPENDIX
DESCRIPTION OF BOND RATINGS
Moody's Investors Service, Inc. ("Moody's") rates the debt securities issued
by various entities from "Aaa" to "C". Investment grade ratings are the first
four categories: 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 edged." 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 risk appear somewhat larger than the Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa -- Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. Ba -- Bonds which are rated Ba
are judged to have speculative elements; their future cannot be considered as
well-assured. Often the protection of interest and principal payments may be
very moderate, and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest. Ca -- Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings. C -- Bonds which are rated C are the lowest rated class of
bonds, and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Standard & Poor's, a division of The McGraw-Hill Companies, Inc., ("S&P")
rates the securities debt of various entities in categories ranging from "AAA"
to "D" according to quality. Investment grade ratings are the first four
categories:
AAA -- An obligation rated "AAA" has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong. AA -- An obligation rated "AA" differs from the highest rated
obligations only in a small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong. A -- An obligation rated "A" is
somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than obligations in higher rated categories. BBB -- An
obligation rated "BBB" exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on the
obligation. BB, B, CCC, CC, C -- Obligations rated "BB," "B," "CCC," "CC," and
"C" are regarded as having significant speculative characteristics. "BB"
indicates the least degree of speculation and "C" the highest. While such
obligations will likely have some quality and protective characteristics, these
may be outweighed by large uncertainties or major exposures to adverse
conditions. BB -- An obligation rated "BB" is less vulnerable to nonpayment than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to the obligor's inadequate capacity to meet its financial commitment on the
obligation. B -- An obligation rated "B" is more vulnerable to nonpayment than
obligations rated "BB," but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation. CCC -- An obligation rated "CCC" is
currently vulnerable to nonpayment, and is dependent upon favorable business,
financial, and economic conditions for the obligor to meet its financial
commitment on the obligation. In the event of adverse business, financial, or
economic conditions, the obligor is not likely to have the capacity to meet its
financial commitment on the obligation. CC -- An obligation rated "CC" is
currently highly vulnerable to nonpayment. C -- The "C" rating may be used to
cover a situation where a bankruptcy petition has been filed or similar action
has been taken, but payments on this obligation are being continued. D -- An
obligation rated "D" is in payment default. The "D" rating category is used when
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such payments will be
made during such grace period. The "D" rating also will be used upon the filing
of a bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
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PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR: Indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's employs the designation "Prime-1" to indicate commercial paper having
a superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources of
alternate liquidity. Issues rated Prime-2 have a strong ability for repayment of
senior short-term debt obligations. This normally will be evidenced by many of
the characteristics cited above but to a lesser degree. Earnings trends and
coverage ratios, while sound, may be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
S&P ratings of commercial paper are graded into several categories ranging
from "A-1" for the highest quality obligations to "D" for the lowest. Issues in
the "A" category are delineated with numbers 1, 2, and 3 to indicate the
relative degree of safety. A-1 -- This highest category indicates that the
degree of safety regarding timely payment is strong. Those issues determined to
possess extremely strong safety characteristics will be denoted with a plus sign
(+) designation. A-2 -- Capacity for timely payments on issues with this
designation is satisfactory; however, the relative degree of safety is not as
high as for issues designated "A-1."
ABSENCE OF RATING
Where no rating has been assigned or where a rating has been suspended or
withdrawn, it may be for reasons unrelated to the quality of the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies
that are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or
issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa to Caa. The modifier 1 indicates that the Company ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the Company ranks in the
lower end of its generic rating category.
73
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FINANCIAL STATEMENTS
FS
<PAGE> 769
STATEMENT OF
ADDITIONAL INFORMATION
ADVISOR CLASS SHARES OF
AIM EMERGING MARKETS DEBT FUND
AIM GLOBAL GOVERNMENT INCOME FUND
AIM GLOBAL GROWTH & INCOME FUND
AIM STRATEGIC INCOME FUND
(SERIES PORTFOLIOS OF
AIM INVESTMENT FUNDS)
11 GREENWAY PLAZA
SUITE 100
HOUSTON, TX 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 FREE
OF CHARGE FROM AUTHORIZED DEALERS OR BY WRITING
A I M DISTRIBUTORS, INC.,
P.O. BOX 4739, HOUSTON TX 77210-4739
OR BY CALLING (800) 347-4246.
---------------------
STATEMENT OF ADDITIONAL INFORMATION DATED MARCH 1, 1999
RELATING TO AIM EMERGING MARKETS DEBT FUND PROSPECTUS DATED MARCH 1, 1999,
RELATING TO AIM GLOBAL GOVERNMENT INCOME FUND PROSPECTUS DATED MARCH 1, 1999,
RELATING TO AIM GLOBAL GROWTH & INCOME FUND PROSPECTUS DATED MARCH 1, 1999
AND RELATING TO AIM STRATEGIC INCOME FUND PROSPECTUS DATED MARCH 1, 1999
<PAGE> 770
TABLE OF CONTENTS
<TABLE>
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INTRODUCTION................................................ 4
GENERAL INFORMATION ABOUT THE FUNDS......................... 4
The Trust and Its Shares.................................. 4
INVESTMENT OBJECTIVES AND POLICIES.......................... 5
Investment Objectives..................................... 5
Investment in Emerging Markets............................ 5
Selection of Debt Investments............................. 5
Selection of Equity Investments........................... 6
Investments in Other Investment Companies................. 6
Depositary Receipts....................................... 6
Samurai and Yankee Bonds.................................. 7
Warrants or Rights........................................ 7
Lending of Portfolio Securities........................... 7
Commercial Bank Obligations............................... 7
Repurchase Agreements..................................... 8
Borrowing, Reverse Repurchase Agreements and "Roll"
Transactions........................................... 8
Short Sales............................................... 9
OPTIONS, FUTURES AND CURRENCY STRATEGIES.................... 9
Special Risks of Options, Futures and Currency
Strategies............................................. 9
Writing Call Options...................................... 10
Writing Put Options....................................... 11
Purchasing Put Options.................................... 12
Purchasing Call Options................................... 12
Index Options............................................. 13
Interest Rate, Currency and Stock Index Futures
Contracts.............................................. 14
Options on Futures Contracts.............................. 16
Limitations on Use of Futures, Options on Futures and
Certain Options on Currencies.......................... 16
Forward Contracts......................................... 17
Foreign Currency Strategies -- Special Considerations..... 17
Cover..................................................... 18
Interest Rate and Currency Swaps.......................... 18
RISK FACTORS................................................ 19
Illiquid Securities....................................... 19
Foreign Securities........................................ 20
INVESTMENT LIMITATIONS...................................... 23
Government Income Fund.................................... 23
Strategic Income Fund..................................... 24
Emerging Markets Debt Fund and the Portfolio.............. 25
Growth and Income Fund.................................... 26
EXECUTION OF PORTFOLIO TRANSACTIONS......................... 28
Portfolio Trading and Turnover............................ 29
MANAGEMENT.................................................. 30
Trustees and Executive Officers........................... 30
Investment Management and Administration Services......... 32
Distribution Services..................................... 33
Expenses of the Funds and the Portfolio................... 33
NET ASSET VALUE DETERMINATION............................... 34
</TABLE>
2
<PAGE> 771
<TABLE>
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PAGE
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<S> <C>
HOW TO PURCHASE AND REDEEM SHARES........................... 34
Programs and Services for Shareholders.................... 35
Dividend Order............................................ 35
TAXES....................................................... 35
Taxation of the Funds..................................... 35
Taxation of the Portfolio -- General...................... 35
Taxation of Certain Investment Activities................. 36
Taxation of the Funds' Shareholders....................... 38
MISCELLANEOUS INFORMATION................................... 38
Custodian................................................. 38
Transfer Agency and Accounting Agency Services............ 39
Independent Accountants................................... 39
Shareholders Liability.................................... 39
Names..................................................... 39
Control Persons and Principal Holders of Securities....... 40
INVESTMENT RESULTS.......................................... 41
Total Return Quotations................................... 41
Non-Standardized Returns.................................. 42
Yield Quotations.......................................... 43
Performance Information................................... 43
APPENDIX.................................................... 45
Description of Bond Ratings............................... 45
Description of Commercial Paper Ratings................... 46
Absence of Rating......................................... 46
FINANCIAL STATEMENTS........................................ FS
</TABLE>
3
<PAGE> 772
INTRODUCTION
This Statement of Additional Information relates to the Advisor Class shares
of AIM Global Government Income Fund ("Government Income Fund"), AIM Strategic
Income Fund ("Strategic Income Fund"), AIM Emerging Markets Debt Fund (formerly
known as AIM Global High Income Fund) ("Emerging Markets Debt Fund"), and AIM
Global Growth & Income Fund ("Growth & Income Fund") (each, a "Fund," and
collectively, the "Funds"). Each Fund is a non-diversified series of AIM
Investment Funds (the "Trust"), a registered open-end management investment
company organized as a Delaware business trust.
A I M Advisors, Inc. ("AIM") serves as the investment manager of and
administrator for Government Income Fund, Strategic Income Fund, Growth & Income
Fund, Emerging Markets Debt Fund and Emerging Markets Debt Portfolio (formerly
known as the Global High Income Portfolio) (the "Portfolio"). INVESCO (NY), Inc.
serves as the investment sub-advisor and sub-administrator for Strategic Income
Fund. INVESCO Asset Management Limited serves as the investment sub-advisor and
sub-administrator for Government Income Fund, Growth & Income Fund, Emerging
Markets Debt Fund and Emerging Markets Debt Portfolio. INVESCO (NY), Inc. and
INVESCO Asset Management Limited will be referred to individually as the
"Sub-Advisor" or collectively as the "Sub-Advisors" in this Statement of
Additional Information.
The Trust is a series mutual fund. The rules and regulations of the Securities
and Exchange Commission (the "SEC") require all mutual funds to furnish
prospective investors certain information concerning the activities of the fund
being considered for investment. This information for Government Income Fund is
included in a Prospectus dated March 1, 1999, for Strategic Income Fund is
included in a separate Prospectus dated March 1, 1999, for Emerging Markets Debt
Fund is included in a separate Prospectus dated March 1, 1999, and for Growth &
Income Fund is included in a separate Prospectus dated March 1, 1999. Additional
copies of the Prospectuses and this Statement of Additional Information may be
obtained without charge by writing the principal distributor of the Funds'
shares, A I M Distributors, Inc. ("AIM Distributors"), P.O. Box 4739, Houston,
TX 77210-4739 or by calling (800) 347-4246. Investors must receive a Prospectus
before they invest.
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
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 FUNDS
THE TRUST AND ITS SHARES
The Trust previously operated under the name G.T. Investment Funds, Inc.,
which was organized as a Maryland corporation on October 29, 1987. The Trust was
reorganized on September 8, 1998 as a Delaware business trust, and is registered
with the SEC as a diversified open-end series management investment company. The
Trust currently consists of the following portfolios: AIM Developing Markets
Fund, AIM Emerging Markets Debt Fund, AIM Emerging Markets Fund, AIM Global
Consumer Products and Services Fund, AIM Global Financial Services Fund, AIM
Global Government Income Fund, AIM Global Growth and Income Fund, AIM Global
Health Care Fund, AIM Global Infrastructure Fund, AIM Global Resources Fund, AIM
Global Telecommunications Fund, AIM Latin American Growth Fund, and AIM
Strategic Income Fund. Each of these funds has four separate classes: Class A,
Class B, Class C and Advisor Class shares. All historical financial and other
information contained in this Statement of Additional Information for periods
prior to September 8, 1998, is that of the series G.T. Investment Funds, Inc.
This Statement of Additional Information relates solely to the Advisor Class
shares of the Funds.
The term "majority of the outstanding shares" of the Trust, a particular Fund,
or a particular class of a Fund means, respectively, the vote of the lesser of
(a) 67% or more of the shares of the Trust, such Fund or such class present at a
meeting of the Trust's shareholders, if the holders of more than 50% of the
outstanding shares of the Trust, such Fund or such class are present or
represented by proxy, or (b) more than 50% of the outstanding shares of the
Trust, such Fund or such class.
Class A, and Class B, Class C and Advisor Class shares of each Fund have equal
rights and privileges. Each share of a particular class is entitled to one vote,
to participate equally in dividends and distributions declared by the Trust's
Board of Trustees with respect to the class of such Fund and, upon liquidation
of the Fund, to participate proportionately in the net
4
<PAGE> 773
assets of the Fund allocable to such class remaining after satisfaction of
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 Prospectus and this Statement of Additional Information. Fractional shares
have proportionately the same rights, including voting rights, as are provided
for a full share.
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 trustees may elect all of the members of the Board of
Trustees of the Trust. In such event, the remaining holders cannot elect any
trustees of the Trust.
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 Prospectus and this Statement of Additional Information.
Fractional shares have proportionately the same rights, including voting rights,
as are provided for a full share.
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 trustees may elect all of the members of the Board of
Trustees of the Trust. In such event, the remaining holders cannot elect any
trustees of the Trust.
From time to time, the Trust may establish other funds, each corresponding to
a distinct investment portfolio and a distinct series of the Trust's shares of
beneficial interest. Shares of each fund are entitled to one vote per share
(with proportional voting for fractional shares) and are freely transferable.
Shareholders have no preemptive rights. Other than the automatic conversion of
Class B shares to Class A shares, there are no conversion rights.
On any matter submitted to a vote of shareholders, shares of the Funds will be
voted by the Fund's shareholders individually when the matter affects the
specific interest of the Funds only, such as approval of its investment
management arrangements. In addition, shares of particular classes of the Funds
may vote on matters affecting only those Classes. The shares of the Funds and of
the Trust's other series will be voted in the aggregate on other matters, such
as the election of Trustees and ratification of the selection of the Trust's
independent accountants.
Normally there will be no annual meeting of shareholders in any year, except
as required under the Investment Company Act of 1940, as amended ("1940 Act").
Shares of the Funds and the Trust's other series do not have cumulative voting
rights, which means that the holders of a majority of the shares voting for the
election of Trustees can elect all the Trustees. A Trustee may be removed at any
meeting of the shareholders of the Trust by a vote of the shareholders owning at
least two-thirds of the outstanding shares. Any Trustee may call a special
meeting of shareholders for any purpose. Furthermore, Trustees shall promptly
call a meeting of shareholders solely for the purpose of removing one or more
Trustees when requested in writing to do so by shareholders holding 10% of the
Trust's outstanding shares.
Pursuant to the Trust's Agreement and Declaration of Trust, the Trust may
issue an unlimited number of shares of the Funds. Each share of a Fund
represents an interest in that Fund only, has a par value of $0.01 per share,
represents an equal proportionate interest in that Fund with other shares of
that Fund and is entitled to such dividends and distributions out of the income
earned and gain realized on the assets belonging to that Fund as may be declared
by the Board of Trustees. Each share of a Fund is equal in earnings, assets and
voting privileges except that each class normally has exclusive voting rights
with respect to its distribution plan and bears the expenses, if any, related to
the distribution of its shares. Shares of a Fund, when issued, are fully paid
and nonassessable.
ORGANIZATION OF THE PORTFOLIO. The Portfolio is organized as a Delaware
business trust. Under Delaware law, the Emerging Markets Debt Fund and other
entities that invest in the Portfolio enjoy the same limitations of liability
extended to shareholders of private, for-profit corporations. There is a remote
possibility, however, that under certain circumstances an investor in the
Portfolio may be held liable for the Portfolio's obligations. However, the
Agreement and Declaration of Trust of the Portfolio disclaims shareholder
liability for acts or obligations of the Portfolio and requires that notice of
such disclaimer be given in each agreement, obligation or instrument entered
into or executed by the Portfolio or a trustee. The Agreement and Declaration of
Trust also provides for indemnification from the Portfolio property for all
losses and expenses of any shareholder held personally liable for the
Portfolio's obligations. Thus, the risk of an investor incurring financial loss
on account of such liability is limited to circumstances in which the Portfolio
itself would be unable to meet its obligations and where the other party was
held not to be bound by the disclaimer.
Whenever the Emerging Markets Debt Fund is requested to vote on any proposal
of the Portfolio, the Emerging Markets Debt Fund will hold a meeting of Emerging
Markets Debt Fund shareholders and will cast its vote as instructed by Emerging
Markets Debt Fund shareholders. Shares for which no voting instructions are
received will be voted in the same proportion as the shares for which voting
instructions are received.
5
<PAGE> 774
INVESTMENT STRATEGIES AND RISKS
The following discussion of investment policies supplements the discussion of
the investment objectives and policies set forth in the applicable Prospectus
under the heading "Investment Objectives and Strategies" and "Principal Risks of
Investing in the Fund."
INVESTMENT OBJECTIVES
The Funds' investment objectives may not be changed without the approval of a
majority of the Funds' outstanding voting securities. If a percentage
restriction on investment or utilization of assets in an investment policy or
restriction is adhered to at the time an investment is made, a later change in
percentage ownership of a security or kind of securities resulting from changing
market values or a similar type of event will not be considered a violation of
the Fund's investment policies or restrictions.
Government Income Fund
Government Income Fund primarily seeks high current income and secondarily
seeks capital appreciation and protection of principal through active management
of the maturity structure and currency exposure of its portfolio. Strategic
Income Fund and Emerging Markets Debt Fund primarily seek high current income
and secondarily seek capital appreciation. Emerging Markets Debt Fund seeks to
achieve its investment objectives by investing all of its investable assets in
the Portfolio, which is a non-diversified open-end management investment company
with investment objectives identical to those of the Fund. Whenever the phrase
"all of Emerging Markets Debt Fund's investable assets" is used herein and in
the Prospectus, it means that the only investment securities held by Emerging
Markets Debt Fund will be its interest in the Portfolio. Emerging Markets Debt
Fund may withdraw its investment in the Portfolio at any time, if the Board of
Trustees of the Trust determines that it is in the best interests of the Fund
and its shareholders to do so. Upon any such withdrawal, Emerging Markets Debt
Fund's assets would be invested in accordance with the investment policies of
the Portfolio described below and in the Prospectus. The investment objective of
Growth & Income Fund is long-term capital appreciation together with current
income. Growth & Income Fund seeks its objective by investing in a global
portfolio of both equity securities and debt obligations allocated among diverse
international markets.
In addition to the primary investment policies set forth in such Fund's
Prospectus, Strategic Income Fund, Government Income Fund, Portfolio, and Growth
& Income Fund may engage in other types of investments, as described below.
Strategic Income Fund
Strategic Income Fund's investments in "foreign securities" include the debt
securities of issuers in: (1) developed foreign countries; and (2) emerging
markets. The Strategic Income Fund selects debt securities from those issued by
governments, their agencies and instrumentalities; central banks; and commercial
banks and other corporate entities. Debt securities in which the Fund may invest
include bonds, notes, debentures, and other similar instruments including
mortgage-backed and asset-backed securities of foreign issuers as well as
domestic issuers. Under normal market conditions, Strategic Income Fund will
invest at least 35% of its total assets in U.S. and foreign debt and other fixed
income securities that, at the time of purchase, are either rated at least
investment grade by Moody's or S&P or, if not rated, are determined by the
Sub-advisor to be of comparable quality. Up to 65% of Strategic Income Fund's
total assets may be invested in debt securities that, at the time of purchase
are either rated below investment grade by Moody's or S&P, or, if not rated, are
determined by the Sub-advisor to be of comparable quality. Such securities
involve a high degree of risk and are predominantly speculative. They are the
equivalent of high yield, high risk bonds, commonly known as "junk bonds."
Strategic Income Fund may also invest in securities that are in default as to
payment of principal and/or interest. Strategic Income Fund may invest up to 35%
of its total assets in equity securities (including convertible securities). The
Sub-advisor anticipates investing in equity securities when market conditions
appear to present opportunities favorable for capital appreciation due to such
factors as improved corporate earnings or favorable interest rates.
Strategic Income Fund's investments in emerging market securities may consist
substantially of Brady Bonds and other sovereign debt securities issued by
emerging market governments that are traded in the markets of developed
countries or groups of developed countries. The Sub-advisor may invest in debt
securities of emerging market issuers that it determines to be suitable
investments for Strategic Income Fund without regard to ratings. Currently, the
substantial majority of emerging market debt securities are considered to have a
credit quality below investment grade. Strategic Income Fund also may invest in
below-investment grade debt securities of corporate issuers in the United States
and in developed foreign countries, subject to the overall 50% limitation.
6
<PAGE> 775
Government Income Fund
At least 65% of the Fund's total assets normally are invested in debt
obligations issued or guaranteed by the U.S. or foreign governments (including
foreign states, provinces or municipalities) or their agencies, authorities or
instrumentalities including mortgage-backed securities issued by agencies or
instrumentalities of the U.S. Government or by foreign governments. For purposes
of this policy, the Fund considers debt obligations of supranational entities
organized or supported by several national governments, such as the World Bank
and the Asian Development Bank, to be "government securities."
The Fund invests primarily in high quality government debt securities. "High
quality" debt securities are those rated in the top two ratings categories of
Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's, a division of
The McGraw-Hill Companies, Inc. ("S&P"), or, if not rated, determined to be of
comparable quality by the Sub-advisor. A description of Moody's and S&P ratings
is included in the Appendix to this Prospectus.
Government Income Fund currently contemplates that it will invest principally
in obligations of the United States, Canada, Japan, the Western European
nations, New Zealand and Australia, as well as in multinational currency units.
Under normal market conditions, Government Income Fund invests in issues of not
less than three different countries; investments in the securities of any one
country, other than the United States, normally represent no more than 40% of
Government Income Fund's total assets. Government Income Fund will not invest in
a foreign currency or in securities denominated in a foreign currency if such
currency is not at the time of investment considered by the Sub-advisor to be
fully exchangeable into U.S. dollars (or a multinational currency unit) without
legal restriction.
Government Income Fund may also invest up to 35% of its total assets in: (1)
foreign government securities that are not high quality but are rated at least
"investment grade," (i.e., rated within the four highest ratings categories of
Moody's or S&P or, if not rated, determined by the Sub-advisor to be of
comparable quality); (2) corporate debt obligations of U.S. or foreign issuers
rated at least investment grade by Moody's or S&P, including debt obligations
convertible into equity securities or having attached warrants or rights to
purchase equity securities; (3) privately issued mortgage-backed and
asset-backed securities that are rated at least investment grade by Moody's or
S&P, or if unrated, determined by the Sub-advisor to be of comparable quality;
and (4) common stocks, preferred stocks and warrants to acquire such securities,
provided that Government Income Fund will not invest more than 20% of its total
assets in such securities.
Emerging Markets Debt Fund
The Portfolio intends to invest in the following types of debt securities:
bonds, notes and debentures of emerging market governments; securities issued or
guaranteed by such governments' agencies or instrumentalities; securities issued
or guaranteed by the central banks of emerging market countries; and securities
issued by other banks and companies in such countries and securities denominated
in or indexed to the currencies of emerging markets. Under current market
conditions, the Portfolio expects its investments in emerging market securities
to consist substantially of Brady Bonds (see "General Policies -- Brady Bonds,"
below) and other sovereign debt securities.
The Portfolio may invest up to 35% of its total assets in (1) equity
securities of issuers in emerging markets included in the list below under the
caption "Investing in Emerging Markets"; (2) equity and debt securities of
issuers in developed countries, including the United States; (3) securities of
issuers in emerging markets not included in the emerging markets list, if
investing therein becomes feasible and desirable subsequent to the date of this
Prospectus; and (4) cash and money market instruments. In evaluating investments
in securities of issuers in developed markets, the Sub-advisor will consider,
among other things, the business activities of the issuer in emerging markets
and the impact that developments in emerging markets are likely to have on the
issuer's financial condition.
Under normal circumstances, substantially all of the Portfolio's assets will
be invested in debt securities of both governmental and corporate issuers in
emerging markets. Emerging markets debt securities generally are considered to
have a credit quality below investment grade, as defined above. Lower quality
securities involve a high degree of risk and are predominantly speculative.
These debt securities are the equivalent of high yield, high risk bonds,
commonly known as "junk bonds." See "Risk Factors." Many emerging market debt
securities are not rated by U.S. ratings agencies such as Moody's and S&P. The
Portfolio's ability to achieve its investment objectives is thus more dependent
on the Sub-advisor's credit analysis. The Portfolio may invest in securities
that are in default as to payment of principal and/or interest.
As previously described, investors should be aware that the Fund, unlike
mutual funds that directly acquire and manage their own portfolios of
securities, seeks to achieve its investment objectives by investing all of its
investable assets in the Portfolio, which is a separate investment company.
Because the Fund will invest only in the Portfolio, the Fund's shareholders will
acquire only an indirect interest in the investments of the Portfolio.
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The Fund may redeem its investment from the Portfolio at any time, if the
Board of Trustees of the Trust determines that it is in the best interests of
the Fund and its shareholders to do so.
A change in the Portfolio's investment objectives, policies or limitations
that is not approved by the Board or the shareholders of Emerging Markets Debt
Fund could require Emerging Markets Debt Fund to redeem its interest in the
Portfolio. Any such redemption could result in a distribution in kind of
portfolio securities (as opposed to a cash distribution) by the Portfolio. In
addition, a distribution in kind could result in a less diversified portfolio of
investments for the Emerging Markets Debt Fund and could adversely affect its
liquidity. Upon redemption, the Board would consider what action might be taken,
including the investment of all the investable assets of Emerging Markets Debt
Fund in another pooled investment entity having substantially the same
investment objectives as Emerging Markets Debt Fund or the retention by Emerging
Markets Debt Fund of its own investment advisor to manage its assets in
accordance with its investment objectives, policies and limitations discussed
herein.
In addition to selling an interest therein to Emerging Markets Debt Fund, the
Portfolio may sell interests therein to other non-affiliated investment
companies and/or other institutional investors. All institutional investors in
the Portfolio will pay a proportionate share of the Portfolio's expenses and
will invest in the Portfolio on the same terms and conditions. However, if
another investment company invests any or all of its assets in the Portfolio, it
would not be required to sell its shares at the same public offering price as
Emerging Markets Debt Fund and may charge different sales commissions.
Therefore, investors in Emerging Markets Debt Fund may experience different
returns than investors in another investment company that invests exclusively in
the Portfolio. As of the date of this Statement of Additional Information,
Emerging Markets Debt Fund is the only institutional investor in the Portfolio.
Investors in the Fund should be aware that Emerging Markets Debt Fund's
investment in the Portfolio may be materially affected by the actions of other
large investors, if any, in the Portfolio. For example, as with all open-end
investment companies, if a large investor were to redeem its interest in the
Portfolio, (1) the Portfolio's remaining investors could experience higher pro
rata operating expenses, thereby producing lower returns and (2) the Portfolio's
security holdings may become less diverse, resulting in increased risk.
Institutional investors in the Portfolio that have a greater pro rata ownership
interest in the Portfolio than Emerging Markets Debt Fund could have effective
voting control over the operation of the Portfolio.
Growth & Income Fund
The Fund seeks its objective by investing in a global portfolio of both equity
and debt securities, allocated among diverse international markets. There is no
assurance that the Fund will achieve its investment objective.
At least 65% of the Fund's total assets normally will be invested in a
combination of blue-chip equity securities and high quality government bonds.
The Fund considers an equity security to be "blue chip" if: (i) during the
issuer's most recent fiscal year the security offered an above average dividend
yield relative to the latest reported dividend yield on the Morgan Stanley
Capital International World Index; and (ii) the total equity market
capitalization of the issuer is at least $1 billion. Government bonds are deemed
to be high quality if at the time of the Fund's investment they are rated within
one of the two highest ratings categories of Moody's Investors Service, Inc.
("Moody's") or by Standard & Poor's, a division of The McGraw-Hill Companies,
Inc. ("S&P"), or, if not rated, are deemed to be of equivalent quality in the
judgment of the Sub-advisor.
Up to 35% of Growth & Income Fund's assets may be invested in other equity
securities and investment grade government and corporate debt obligations which
the Sub-advisor believes will assist Growth & Income Fund in achieving its
objective. "Investment grade" debt securities are those rated within one of the
four highest ratings categories of Moody's or S&P, or, if not rated, deemed to
be of equivalent quality in the judgment of the Sub-advisor.
Equity securities that Growth & Income Fund may purchase include common
stocks, preferred stocks, and warrants to acquire stocks and other equity
securities. Government bonds that Growth & Income Fund may purchase include debt
obligations issued or guaranteed by the United States or foreign governments
(including foreign states, provinces, or municipalities) or their agencies,
authorities or instrumentalities and debt obligations of supranational entities
organized or supported by several national governments, such as the World Bank
and the Asian Development Bank. The debt obligations held by the Growth & Income
Fund may include debt obligations convertible into equity securities or having
attached warrants or rights to purchase equity securities. Growth & Income Fund
may purchase securities that are issued by the government or a corporation or
financial institution of one nation but denominated in the currency of another
nation (or a multinational currency unit).
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SELECTION OF DEBT INVESTMENTS
In determining the appropriate distribution of investments among various
countries and geographic regions for Government Income Fund, Strategic Income
Fund, Growth & Income Fund, and the Portfolio, the Sub-advisor ordinarily
considers the following factors: prospects for relative economic growth among
the different countries in which Government Income Fund, Strategic Income Fund,
Growth & Income Fund, and the Portfolio may invest; expected levels of
inflation; government policies influencing business conditions; the outlook for
currency relationships; and the range of the individual investment opportunities
available to international investors.
In evaluating debt securities considered for Strategic Income Fund, the
Sub-advisor analyzes their yield, maturity, issue classification and quality
characteristics, coupled with expectations regarding local and world economies,
movements in the general level and term of interest rates, currency values,
political developments, and variations in the supply of funds available for
investment in the world bond market relative to the demands placed upon it.
There are no limitations on the maximum or minimum maturities of the debt
securities considered by Growth & Income Fund and Strategic Income Fund or on
the average weighted maturity of the debt portion of Growth & Income Fund and
Strategic Income Fund's portfolio. Should the rating of a debt security be
revised while such security is owned by Growth & Income Fund and Strategic
Income Fund, the Sub-advisor will evaluate what action, if any, is appropriate
with respect to such security.
Government Income Fund, Strategic Income Fund and the Portfolio may invest in
the following types of money market instruments (i.e., debt instruments with
less than 12 months remaining until maturity) denominated in U.S. dollars or
other currencies: (a) obligations issued or guaranteed by the U.S. or foreign
governments, their agencies, instrumentalities or municipalities; (b)
obligations of international organizations designed or supported by multiple
foreign governmental entities to promote economic reconstruction or development;
(c) finance company obligations, corporate commercial paper and other short-term
commercial obligations; (d) bank obligations (including certificates of deposit,
time deposits, demand deposits and bankers' acceptances), subject to the
restriction that Government Income Fund, Strategic Income Fund and the Portfolio
may not invest more than 25% of their respective total assets in bank
securities; (e) repurchase agreements with respect to the foregoing; and (f)
other substantially similar short-term debt securities with comparable
characteristics. Money market instruments in which Growth & Income Fund may
invest include U.S. government securities, high-grade commercial paper, bank
certificates of deposit, bankers' acceptances and repurchase agreements related
to any of the foregoing. "High-grade commercial paper" refers to commercial
paper rated A-1 by Standard & Poor's, a division of The McGraw-Hill Companies,
Inc. ("S&P"), or P-1 by Moody's Investors Service, Inc. ("Moody's") or, if not
rated, determined by the Sub-advisor to be of comparable quality.
SELECTION OF EQUITY INVESTMENTS
With respect to Growth & Income Fund [and Strategic Income Fund], for
investment purposes, an issuer is typically considered as located in a
particular country if it (a) is incorporated under the laws of or has its
principal office in that country, or (b) it normally derives 50% or more of its
total revenue from business in that country. However, these are not absolute
requirements, and certain companies incorporated in a particular country and
considered by the Sub-advisor to be located in that country may have substantial
off-shore operations or subsidiaries and/or export sales exceeding in size the
assets or sales in that country.
SELECTION OF INVESTMENTS AND ASSET ALLOCATION
The Sub-advisor allocates the assets of Government Income Fund, Strategic
Income Fund, and the Portfolio in securities of issuers in countries and in
currency denominations where the combination of fixed income market returns, the
price appreciation potential of fixed income securities and currency exchange
rate movements will present opportunities primarily for high current income and
secondarily for capital appreciation. In so doing, the Sub-advisor intends to
take full advantage of the different yield, risk and return characteristics that
investment in the fixed income markets of different countries can provide for
U.S. investors. The Fund invests in debt obligations allocated among diverse
markets and denominated in various currencies, including U.S. dollars, or in
multinational currency units such as Euros. The Fund is designed for investors
who wish to accept the risks entailed in such investments, which are different
from those associated with a portfolio consisting entirely of securities of U.S.
issuers denominated in U.S. dollars. The Fund may purchase securities that are
issued by the government or a company or financial institution of one country
but denominated in the currency of another country (or a multinational currency
unit). Fundamental economic strength, credit quality and currency and interest
rate trends are the principal determinants of the emphasis given to various
country, geographic and industry sectors within Government Income Fund,
Strategic Income Fund, and the Portfolio. Securities held by Government Income
Fund, Strategic Income Fund, and the Portfolio may be invested in without
limitation as to maturity.
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<PAGE> 778
The Sub-advisor selects securities of particular issuers on the basis of the
views as to the best values then currently available in the marketplace. Such
values are a function of yield, maturity, issue classification and quality
characteristics, coupled with expectations regarding the local and world
economies, movements in the general level and term of interest rates, currency
values, political developments and variations in the supply of funds available
for investment in the world bond market relative to the demands placed upon it.
The Sub-advisor generally evaluates currencies on the basis of fundamental
economic criteria (e.g., relative inflation, interest rate levels and trends,
growth rate forecasts, balance of payments status and economic policies) as well
as technical and political data. The Sub-advisor may seek to protect Government
Income Fund, Strategic Income Fund, and the Portfolio against such negative
currency movements through the use of sophisticated investment techniques.
According to the Sub-advisor, as of the date of this Prospectus, more than 50%
of the value of all outstanding government debt obligations throughout the world
is represented by obligations denominated in currencies other than the U.S.
dollar. Moreover, from time to time, the debt securities of issuers located
outside the United States have substantially outperformed the debt obligations
of U.S. issuers. Accordingly, the Sub-advisor believes that the Government
Income Fund's, the Strategic Income Fund's, and the Portfolio's policy of
investing in debt securities throughout the world may enable the achievement of
results superior to those produced by mutual funds with similar objectives to
those of the Funds and the Portfolio that invest solely in debt securities of
U.S. Issuers.
In addition to the factors listed in the Prospectus, the Sub-advisor's views
on what securities constitute the best values are also a function of
expectations regarding the local and world economies, movements in the general
level and term of interest rates, currency values, political developments, and
variations in the supply of funds available for investment in the world bond
market relative to the demands placed upon it.
Growth & Income Fund
The relative proportions of equity and debt securities held by Growth & Income
Fund at any one time will vary, depending upon the Sub-advisor's assessment of
global political and economic conditions and the relative strengths and
weaknesses of the world equity and debt markets. To enable Growth & Income Fund
to respond to general economic changes and market conditions around the world,
Growth & Income Fund is authorized to invest up to 100% of its total assets in
either equity securities or debt securities.
In selecting equity securities for investment, the Sub-advisor attempts to
identify and acquire only securities it deems to represent high or improving
investment quality. Securities representing high investment quality generally
will include those of well-known, established and successful issuers that the
Sub-advisor believes will continue to be successful in the future. Securities
representing improving investment quality may include those of an issuer that
has improved its sales or earnings or of an issuer the balance sheet and
financial condition of which is improving. The Sub-advisor seeks to avoid
investing in equity securities that appear overly speculative or risky, even if
they have attractive features or investment potential.
The Fund currently contemplates that it will invest principally in securities
of issuers in the United States, Canada, Japan, Western Europe, New Zealand and
Australia. The Fund may invest substantially in securities denominated in one or
more currencies. Under normal conditions, the Fund invests in issuers of not
less than three different countries and issuers of any one country, other than
the United States, will represent no more than 40% of the fund's total assets.
The Sub-advisor generally evaluates currencies on the basis of fundamental
economic criteria (e.g., relative inflation and interest rate levels and trends,
growth rate forecasts, balance of payments status and economic policies) as well
as technical and political data. Growth & Income Fund may seek to protect itself
against negative currency movements by engaging in hedging techniques through
the use of options, futures and forward currency contracts.
INVESTMENT IN EMERGING MARKETS
The Portfolio seeks its objectives by investing, under normal circumstances,
at least 65% of its total assets in debt securities of issuers in emerging
markets. Strategic Income Fund may invest up to [65%] of its assets in debt
securities of issuers in emerging markets. Strategic Income Fund and the
Portfolio do not consider the following countries to be emerging markets:
Australia, Austria, Belgium, Canada, Denmark, France, Germany, Ireland, Italy,
Japan, the Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland, United
Kingdom, and United States.
Emerging markets debt securities generally are considered to have a credit
quality below investment grade. Lower quality securities involve a high degree
of risk and are predominantly speculative. These debt securities are the
equivalent of high yield, high risk bonds, commonly known as "junk bonds." Many
emerging market debt securities are not rated by
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<PAGE> 779
U.S. ratings agencies such as Moody's and S&P. Strategic Income Fund and the
Portfolio's ability to achieve their respective investment objectives are thus
more dependent on the Sub-advisor's credit analysis. Strategic Income Fund and
the Portfolio may invest in securities that are in default as to payment of
principal and/or interest.
Strategic Income Fund and the Portfolio consider "emerging markets" to consist
of all countries determined by the Sub-advisor to have developing or emerging
economies and markets. These countries generally include every country in the
world except the United States, Canada, Japan, Australia, New Zealand and most
countries located in Western Europe. Strategic Income Fund and the Portfolio
each will consider investment in the following emerging markets:
Algeria
Argentina
Bolivia
Botswana
Brazil
Bulgaria
Chile
China
Columbia
Costa Rica
Cyprus
Czech Republic
Dominican Republic
Ecuador
Egypt
El Salvador
Finland
Ghana
Greece
Hong Kong
Hungary
India
Indonesia
Israel
Ivory Coast
Jamaica
Jordan
Kazakhstan
Kenya
Lebanon
Malaysia
Mauritius
Mexico
Morocco
Nicaragua
Nigeria
Oman
Pakistan
Panama
Paraguay
Peru
Philippines
Poland
Portugal
Republic of Slovakia
Russia
Singapore
Slovenia
South Africa
South Korea
Sri Lanka
Swaziland
Taiwan
Thailand
Turkey
Ukraine
Uruguay
Venezuela
Zambia
Zimbabwe
Neither Strategic Income Fund nor the Portfolio will be invested in all such
markets at all times. Moreover, investing in some of those markets currently may
not be desirable or feasible, due to the lack of adequate custody arrangements,
overly burdensome repatriation requirements and similar restrictions, the lack
of organized and liquid securities markets, unacceptable political risks or for
other reasons.
As used in the Prospectuses and the Statement of Additional Information, an
issuer in an emerging market is an entity: (i) for which the principal
securities trading market is an emerging market, as defined above; (ii) that
(alone or on a consolidated basis) derives 50% or more of its total revenue from
either goods produced, sales made or services performed in emerging markets; or
(iii) organized under the laws of, or with a principal office in, an emerging
market.
When determining what countries constitute emerging markets, the Sub-advisor
will consider data, analysis, and classification of countries published or
disseminated by the International Bank for Reconstruction and Development
(commonly known as the World Bank) and the International Finance Corporation.
SOVEREIGN DEBT
Government Income Fund, Strategic Income Fund, and the Portfolio may invest in
sovereign debt securities of emerging market governments, including Brady Bonds.
Investments in such securities involve special risks. The issuer of the debt or
the governmental authorities that control the repayment of the debt may be
unable or unwilling to repay principal or interest when due in accordance with
the terms of such debt. Periods of economic uncertainty may result in the
volatility of market prices of sovereign debt obligations and in turn a Fund's
net asset value, to a greater extent than the volatility inherent in domestic
fixed income securities.
A sovereign debtor's willingness or ability to repay principal and pay
interest in a timely manner may be affected by, among other factors, its cash
flow situation, the extent of its foreign reserves, the availability of
sufficient foreign exchange on the date a payment is due, the relative size of
the debt service burden to the economy as a whole, the sovereign debtor's policy
toward principal international lenders and the political constraints to which a
sovereign debtor may be subject. Emerging market governments could default on
their sovereign debt. Such sovereign debtors also may be dependent on expected
disbursements from foreign governments, multilateral agencies and other entities
abroad to reduce principal and interest arrearages on their debt. The commitment
on the part of these governments, agencies and others to make such disbursements
may be conditioned on a sovereign debtor's implementation of economic reforms
and/or
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<PAGE> 780
economic performance and the timely service of such debtor's obligations.
Failure to implement such reforms, achieve such levels of economic performance
or repay principal or interest when due, may result in the cancellation of such
third parties' commitments to lend funds to the sovereign debtor, which may
further impair such debtor's ability or willingness to timely service its debts.
The occurrence of political, social or diplomatic changes in one or more of
the countries issuing sovereign debt could adversely affect the Fund's
investments. Emerging markets are faced with social and political issues and
some of them have experienced high rates of inflation in recent years and have
extensive internal debt. Among other effects, high inflation and internal debt
service requirements may adversely affect the cost and availability of future
domestic sovereign borrowing to finance governmental programs, and may have
other adverse social, political and economic consequences. Political changes or
a deterioration of a country's domestic economy or balance of trade may affect
the willingness of countries to service their sovereign debt. Although the
Sub-advisor intends to manage the Funds in a manner that will minimize the
exposure to such risks, there can be no assurance that adverse political changes
will not cause a Fund to suffer a loss of interest or principal on any of its
holdings.
In recent years, some of the emerging market countries in which the Funds
expect to invest have encountered difficulties in servicing their sovereign debt
obligations. Some of these countries have withheld payments of interest and/or
principal of sovereign debt. These difficulties have also led to agreements to
restructure external debt obligations -- in particular, commercial bank loans,
typically by rescheduling principal payments, reducing interest rates and
extending new credits to finance interest payments on existing debt. In the
future, holders of emerging market sovereign debt securities may be requested to
participate in similar rescheduling of such debt. Certain emerging market
countries are among the largest debtors in commercial banks and foreign
governments. Currently, Brazil, Mexico and Argentina are the largest debtors
among developing countries. At times certain emerging market countries have
declared moratoria on the payment of principal and interest on external debt;
such a moratorium is currently in effect in certain emerging market countries.
There is no bankruptcy proceeding by which a creditor may collect in whole or in
part sovereign debt on which an emerging market government has defaulted.
The ability of emerging market governments to make timely payments on their
sovereign debt securities is likely to be influenced strongly by a country's
balance of trade and its access to trade and other international credits. A
country whose exports are concentrated in a few commodities could be vulnerable
to a decline in the international prices of one or more of such commodities.
Increased protectionism on the part of a country's trading partners could also
adversely affect its exports. Such events could diminish a country's trade
account surplus, if any. To the extent that a country receives payment for its
exports in currencies other than hard currencies, its ability to make hard
currency payments could be affected.
Investors should also be aware that certain sovereign debt instruments in
which a Fund may invest involve great risk. As noted above, sovereign debt
obligations issued by emerging market governments generally are deemed to be the
equivalent in terms of quality to securities rated below investment grade by
Moody's and S&P. Such securities are regarded as predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligations and involve major risk exposure to
adverse conditions. Some of such securities, with respect to which the issuer
currently may not be paying interest or may be in payment default, may be
comparable to securities rated D by S&P or C by Moody's. The Funds may have
difficulty disposing of and valuing certain sovereign debt obligations because
there may be a limited trading market for such securities. Because there is no
liquid secondary market for many of these securities, the Funds anticipate that
such securities could be sold only to a limited number of dealers or
institutional investors.
BRADY BONDS
Government Income Fund, Strategic Income Fund, and the Portfolio may invest in
"Brady Bonds," which are debt restructurings that provide for the exchange of
cash and loans for newly issued bonds. Brady Bonds have been issued by the
countries of Albania, Argentina, Brazil, Bulgaria, Costa Rica, Dominican
Republic, Ecuador, Ivory Coast, Jordan, Mexico, Nigeria, Panama, Peru,
Philippines, Poland, Uruguay, Venezuela and Vietnam and are expected to be
issued by other emerging market countries. As of the date of this Statement of
Additional Information, Government Income Fund, Strategic Income Fund, and the
Portfolio are not aware of the occurrence of any payment defaults on Brady
Bonds. Investors should recognize, however, that Brady Bonds do not have a long
payment history. In addition, Brady Bonds are often rated below investment
grade.
Government Income Fund, Strategic Income Fund, and the Portfolio may invest in
either collateralized or uncollateralized Brady Bonds. U.S. dollar-denominated,
collateralized Brady Bonds, which may be fixed rate per bonds or floating rate
discount bonds, are collateralized in full as to principal by U.S. Treasury zero
coupon bonds having the same
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<PAGE> 781
maturity as the bonds. Interest payments on such bonds generally are
collateralized by cash or securities in an amount that, in the case of fixed
rate bonds, is equal to at least one year of rolling interest payments or, in
the case of floating rate bonds, initially is equal to at least one year's
rolling interest payments based on the applicable interest rate at the time of
issuance and is adjusted at regular intervals thereafter.
LOAN PARTICIPATIONS AND ASSIGNMENTS
Strategic Income Fund and the Portfolio may invest in fixed and floating rate
loans ("Loans") arranged through private negotiations between a foreign entity
and one or more financial institutions ("Lenders"). The majority of the Funds'
investments in Loans in emerging markets is expected to be in the form of
participations in Loans ("Participations") and assignment of portions of Loans
from third parties ("Assignments"). Participations typically will result in
Strategic Income Fund and the Portfolio having a contractual relationship only
with the Lender, not with the borrower government. Strategic Income Fund and the
Portfolio will have the right to receive payments of principal, interest and any
fees to which it is entitled only from the Lender selling the Participation and
only upon receipt by the Lender of the payments from the borrower. In connection
with purchasing Participations, Strategic Income Fund and the Portfolio
generally will have no right to enforce compliance by the borrower with the
terms of the loan agreement relating to the loan ("Loan Agreement"), nor any
rights or set off against the borrowers, and Strategic Income Fund and the
Portfolio may not directly benefit from any collateral supporting the Loan in
which they have purchased any Participations. As a result, Strategic Income Fund
and the Portfolio will assume the credit risk of both the borrower and the
Lender that is selling the Participation.
In the event of the insolvency of the Lender selling a Participation,
Strategic Income Fund and the Portfolio may be treated as a general creditor of
the Lender and may not benefit from any set off between the Lender and the
borrower. Strategic Income Fund and the Portfolio will acquire Participations
only if the Lender interpositioned between the Funds and the borrower is
determined by the Sub-advisor to be creditworthy. When a Fund purchases
Assignments from Lenders, the Fund will acquire direct rights against the
borrower on the Loan. However, since Assignments are arranged through private
negotiations between potential assignees and assignors, the rights and
obligations acquired by Strategic Income Fund and the Portfolio as the purchaser
of an Assignment may differ from, and be more limited than, those held by the
assigning Lender.
The liquidity of Assignments and Participations is limited and, the Funds
anticipate that such securities could be sold only to a limited number of
institutional investors. The lack of a liquid secondary market could have an
adverse impact on the value of such securities and on the Funds' ability to
dispose of particular Assignments or Participations when necessary to meet the
Funds' respective liquidity needs or in response to a specific economic event,
such as a deterioration in the creditworthiness of the borrower. The lack of a
liquid secondary market for Assignments and Participations also may make it more
difficult for the Funds to assign a value to those securities for purposes of
valuing the Funds' respective portfolios and calculating each portfolio's net
asset value.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
Government Income Fund and Strategic Income Fund may invest in mortgage-backed
and asset-backed securities of U.S. and foreign issuers, including privately
issued mortgage-backed and asset-backed securities. Mortgage-backed securities
represent direct or indirect interests in pools of underlying mortgage loans
that are secured by real property. Investors typically receive payments out of
the interest on and principal of the underlying mortgages. Asset-backed
securities are similar to mortgage-backed securities, except that the underlying
assets are other financial assets or financial receivables, such as motor
vehicle installment sales contracts, home equity loans, leases of various types
of real and personal property, and receivables from credit cards. Any
mortgage-backed and asset-backed securities purchased by the Fund will be
subject to the same rating requirements that apply to its other investments.
WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES
Government Income Fund, Strategic Income Fund, and the Portfolio may purchase
debt securities on a "when-issued" basis and may purchase or sell such
securities on a "forward commitment" basis in order to hedge against anticipated
changes in interest rates and prices. The price, which is generally expressed in
yield terms, is fixed at the time the commitment is made, but delivery and
payment for the securities take place at a later date. When-issued securities
and forward commitments may be sold prior to the settlement date, but Government
Income Fund, Strategic Income Fund, and the Portfolio will purchase or sell when
issued securities and forward commitments only with the intention of actually
receiving or delivering the securities, as the case may be. No income accrues on
securities that have been purchased pursuant to a forward commitment or on a
when-issued basis prior to delivery of the securities. If Government Income
Fund, Strategic Income Fund, and the Portfolio dispose of the right to acquire a
when-issued security prior to its
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<PAGE> 782
acquisition or disposes of its right to deliver or receive against a forward
commitment, it may incur a gain or loss. At the time Government Income Fund,
Strategic Income Fund, and the Portfolio enter into a transaction on a
when-issued or forward commitment basis, the Funds will each segregate cash or
liquid securities equal to the value of the when issued or forward commitment
securities with its custodian and will each mark to market daily such assets.
There is a risk that the securities may not be delivered and that Government
Income Fund, Strategic Income Fund, and the Portfolio may incur a loss.
Government Income Fund may invest up to 5% of its total assets in a
combination of securities purchased on a when-issued basis or with respect to
which it has entered into forward commitment arrangements.
Strategic Income Fund and the Portfolio may also sell securities on a "when,
as and if issued" basis for hedging purposes. Under such a transaction,
Strategic Income Fund and the Portfolio are each required to deliver at a future
date a security it does not presently hold, but which it has a right to receive
if the security is issued. Issuance of the security may not occur, in which case
Strategic Income Fund and the Portfolio would have no obligation to the other
party, and would not receive payment for the sale. Selling securities on a
"when, as and if issued" basis may reduce risk of loss to the extent that such a
sale wholly or partially offsets unfavorable price movements on the investments
being hedged. However, such sales also limit the amount Strategic Income Fund
and the Portfolio can receive if the "when, as and if issued" security is in
fact issued.
TEMPORARY DEFENSIVE STRATEGIES
The Sub-advisor may employ a temporary defensive investment strategy if it
determines such a strategy to be warranted due to market, economic or political
conditions. Pursuant to such a defensive strategy, a Fund temporarily may hold
cash (U.S. dollars, and for the Growth & Income Fund, the Strategic Income Fund,
and Government Income Fund also includes foreign currencies or multinational
currency units such as euros) and/or invest up to 100% of its assets in high
quality debt securities or money market instruments of U.S. or foreign issuers.
In addition, for temporary defensive purposes, most or all of each Fund's
investments may be made in the United States and denominated in U.S. dollars. To
the extent a Fund employs a temporary defensive strategy, it will not be
invested so as to achieve directly its investment objectives. In addition,
pending investment of proceeds from new sales of Fund shares or to meet ordinary
daily cash needs, a Fund may hold cash (U.S. dollars, foreign currencies or
multinational currency units) and may invest in high quality foreign or domestic
money market instruments.
INVESTMENTS IN OTHER INVESTMENT COMPANIES
With respect to certain countries, investments by Government Income Fund,
Strategic Income Fund, Growth & Income Fund and the Portfolio presently may be
made only by acquiring shares of other investment companies (including
investment vehicles or companies advised by the Sub-advisor or its affiliates
("Affiliated Funds")) with local governmental approval to invest in those
countries. At such time as direct investment in these countries is allowed,
Government Income Fund, Strategic Income Fund, Growth & Income Fund and the
Portfolio anticipate investing directly in these markets. Government Income
Fund, Strategic Income Fund, Growth & Income Fund and the Portfolio may also
invest in the securities of closed-end investment companies within the limits of
the 1940 Act. These limitations currently provide that, in part, a Fund or the
Portfolio may purchase shares of another investment company unless (a) such a
purchase would cause Government Income Fund, Strategic Income Fund, Growth &
Income Fund or the Portfolio to own in the aggregate more than 3% of the total
outstanding voting securities of the investment company or (b) such a purchase
would cause Government Income Fund, Strategic Income Fund, Growth & Income Fund
or the Portfolio to have more than 5% of its total assets invested in the
investment company or more than 10% of its aggregate assets invested in an
aggregate of all such investment companies. The foregoing limitations do not
apply to the investment by Emerging Markets Debt Fund in the Portfolio.
Investment in investment companies may involve the payment of substantial
premiums above the value of such companies' portfolio securities. Government
Income Fund, Strategic Income Fund, Growth & Income Fund and the Portfolio do
not intend to invest in such investment companies unless, in the judgment of the
Sub-advisor, the potential benefits of such investments justify the payment of
any applicable premiums. The return on such securities will be reduced by
operating expenses of such companies including payments to the investment
managers of those investment companies. With respect to investments in
Affiliated Funds, the Sub-advisor waives its advisory fee to the extent that
such fees are based on assets of a Fund invested in Affiliated Funds.
DEPOSITARY RECEIPTS
Growth & Income Fund may hold equity securities of foreign issuers in the form
of American Depositary Receipts ("ADRs"), American Depositary Shares ("ADSs"),
Global Depositary Receipts ("GDRs") and European Depositary Receipts ("EDRs"),
or other securities convertible into securities of eligible issuers. These
securities may not necessarily be denominated in the same currency as the
securities for which they may be exchanged. ADRs and ADSs typically are
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issued by an American bank or trust company and evidence ownership of underlying
securities issued by a foreign corporation. EDRs, which are sometimes referred
to as Continental Depositary Receipts ("CDRs"), are issued in Europe typically
by foreign banks and trust companies and evidence ownership of either foreign or
domestic securities. GDRs are similar to EDRs and are designed for use in
several international financial markets. Generally, ADRs and ADSs in registered
form are designed for use in United States securities markets and EDRs in bearer
form are designed for use in European securities markets. For purposes of the
Fund's investment policies, the Fund's investments in ADRs, ADSs, GDRs and EDRs
will be deemed to be investments in the equity securities representing
securities of foreign issuers into which they may be converted.
ADR facilities may be established as either "unsponsored" or "sponsored."
While ADRs issued under these two types of facilities are in some respects
similar, there are distinctions between them relating to the rights and
obligations of ADR holders and the practices of market participants. A
depository may establish an unsponsored facility without participation by (or
even necessarily the acquiescence of) the issuer of the deposited securities,
although typically the depository requests a letter of non-objection from such
issuer prior to the establishment of the facility. Holders of unsponsored ADRs
generally bear all the costs of such facilities. The depository usually charges
fees upon the deposit and withdrawal of the deposited securities, the conversion
of dividends into U.S. dollars, the disposition of non-cash distributions, and
the performance of other services. The depository of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited securities or to pass-through voting
rights to ADR holders in respect of the deposited securities. Sponsored ADR
facilities are created in generally the same manner as unsponsored facilities,
except that the issuer of the deposited securities enters into a deposit
agreement with the depository. The deposit agreement sets out the rights and
responsibilities of the issuer, the depository and the ADR holders. With
sponsored facilities, the issuer of the deposited securities generally will bear
some of the costs relating to the facility (such as dividend payment fees of the
depository), although ADR holders continue to bear certain other costs (such as
deposit and withdrawal fees). Under the terms of most sponsored arrangements,
depositories agree to distribute notices of shareholder meetings and voting
instructions, and to provide shareholder communications and other information to
the ADR holders at the request of the issuer of the deposited securities. The
Fund may invest in both sponsored and unsponsored ADRs.
SAMURAI AND YANKEE BONDS
Government Income Fund, the Strategic Income Fund and the Portfolio may invest
in yen-denominated bonds sold in Japan by non-Japanese issuers ("Samurai
bonds"), and may invest in dollar-denominated bonds sold in the United States by
non-U.S. issuers ("Yankee bonds"). It is the policy of the Government Income
Fund, Strategic Income Fund and the Portfolio to invest in Samurai or Yankee
bond issues only after taking into account considerations of quality and
liquidity, as well as yield.
WARRANTS OR RIGHTS
Warrants or rights may be acquired by Government Income Fund, Strategic Income
Fund, Growth & Income Fund or the Portfolio in connection with other securities
or separately and provide a Fund or the Portfolio with the right to purchase at
a later date other securities of the issuer. Warrants are securities permitting,
but not obligating, their holder to subscribe for other securities or
commodities. Warrants do not carry with them the right to dividends or voting
rights with respect to the securities that they entitle their holder to
purchase, and they do not represent any rights in the assets of the issuer. As a
result, warrants may be considered more speculative than certain other types of
investments. In addition, the value of a warrant does not necessarily change
with the value of the underlying securities and a warrant ceases to have value
if it is not exercised prior to its expiration date.
LENDING OF PORTFOLIO SECURITIES
For the purpose of realizing additional income, Government Income Fund,
Strategic Income Fund, Growth & Income Fund or the Portfolio may make secured
loans of portfolio securities amounting to not more than 30% of its total
assets. Securities loans are made to broker/dealers or institutional investors
pursuant to agreements requiring that the loans continuously be secured by
collateral consisting of cash, U.S. government securities or certain irrevocable
letters of credit equal to at least the value of the borrowed securities, plus
any accrued interest or such other collateral as permitted by the Fund's
investment program and regulatory agencies, and as approved by the Board,
"marked to market" on a daily basis. Government Income Fund, Strategic Income
Fund, Growth & Income Fund, and the Portfolio may pay reasonable administrative
and custodial fees in connection with loans of its securities. While the
securities loan is outstanding, Government Income Fund, Strategic Income Fund,
Growth & Income Fund and the Portfolio will continue to receive the equivalent
of the interest or dividends paid by the issuer on the securities, as well as
interest on the investment of the
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collateral or a fee from the borrower. Government Income Fund, Strategic Income
Fund, Growth & Income Fund and the Portfolio each will have a right to call each
loan and obtain the securities within the stated settlement period. Government
Income Fund, Strategic Income Fund, Growth & Income Fund and the Portfolio will
not have the right to vote equity securities while they are lent, but each may
call in a loan in anticipation of any important vote. Loans will be made only to
firms deemed by the Sub-advisor to be of good standing and will not be made
unless, in the judgment of the Sub-advisor, the consideration to be earned from
such loans would justify the risk.
COMMERCIAL BANK OBLIGATIONS
For the purposes of the Strategic Income Fund's, Growth & Income Fund's and
the Portfolio's investment policies with respect to bank obligations,
obligations of foreign branches of U.S. banks and of foreign banks are
obligations of the issuing bank and may be general obligations of the parent
bank. Such obligations, however, may be limited by the terms of a specific
obligation and by government regulation. As with investment in non-U.S.
securities in general, investments in the obligations of foreign branches of
U.S. banks and of foreign banks may subject Strategic Income Fund, Growth &
Income Fund and the Portfolio to investment risks that are different in some
respects from those of investments in obligations of domestic issuers. Although
Strategic Income Fund, Growth & Income Fund and the Portfolio typically will
acquire obligations issued and supported by the credit of U.S. or foreign banks
having total assets at the time of purchase in excess of $1 billion, this $1
billion figure is not an investment policy or restriction of the Strategic
Income Fund, the Growth & Income Funds or the Portfolio. For the purposes of
calculation with respect to the $1 billion figure, the assets of a bank will be
deemed to include the assets of its U.S. and non-U.S. branches.
REPURCHASE AGREEMENTS
A repurchase agreement is a transaction in which Government Income Fund,
Strategic Income Fund, Growth & Income Fund, or the Portfolio buys a security
from a bank or recognized securities dealer and simultaneously commits to resell
that security to the bank or dealer at an agreed upon price, date and market
rate of interest unrelated to the coupon rate or maturity of the purchased
security. Although repurchase agreements carry certain risks not associated with
direct investments in securities, including possible decline in the market value
of the underlying securities and delays and costs to Government Income Fund,
Strategic Income Fund, Growth & Income Fund or Portfolio if the other party to
the repurchase agreement becomes bankrupt, Government Income Fund, Strategic
Income Fund, Growth & Income Fund and the Portfolio intend to enter into
repurchase agreements only with banks and broker/dealers believed by the
Sub-advisor to present minimal credit risks in accordance with guidelines
approved by the Board of Trustees. The Sub-advisor reviews and monitors the
creditworthiness of such institutions under the Board's general supervision.
Government Income Fund, Strategic Income Fund, Growth & Income Fund and the
Portfolio will invest only in repurchase agreements collateralized at all times
in an amount at least equal to the repurchase price plus accrued interest. There
is no limitation on the amount of the Growth & Income Fund's assets that may be
subject to repurchase agreements at any time. To the extent that the proceeds
from any sale of such collateral upon a default in the obligation to repurchase
were less than the repurchase price, Government Income Fund, Strategic Income
Fund, Growth & Income Fund or the Portfolio would suffer a loss. If the
financial institution which is party to the repurchase agreement petitions for
bankruptcy or otherwise becomes subject to bankruptcy or other liquidation
proceedings there may be restrictions on the Government Income Fund, the
Strategic Income Fund, Growth & Income Fund's or the Portfolio's ability to sell
the collateral and Government Income Fund, Strategic Income Fund, Growth &
Income Fund or the Portfolio could suffer a loss. However, with respect to
financial institutions whose bankruptcy or liquidation proceedings are subject
to the U.S. Bankruptcy Code, Government Income Fund, Strategic Income Fund
Growth & Income Fund and the Portfolio intend to comply with provisions under
such Code that would allow the immediate resale of such collateral. Government
Income Fund and Growth & Income Fund will not enter into a repurchase agreement
with a maturity of more than seven days if, as a result, more than 10% of the
value of each Fund's total assets would be invested in such repurchase
agreements and other illiquid investments and securities for which no readily
available market exists.
BORROWING, REVERSE REPURCHASE AGREEMENTS AND "ROLL" TRANSACTIONS
Government Income Fund's, Strategic Income Fund's, Growth & Income Fund's and
the Portfolio's borrowings will not exceed 33 1/3% of the Fund's or the
Portfolio's respective total assets, i.e., Government Income Fund's, Strategic
Income Fund's, Growth & Income Fund's and the Portfolio's respective total
assets at all times will equal at least 300% of the amount of its outstanding
borrowings. If market fluctuations in the value of the Government Income Fund's,
the Strategic Income Fund's, the Growth & Income Fund's or the Portfolio's total
assets to outstanding borrowings to fall below 300%, within three days
(excluding Sundays and holidays) of such event the respective Fund or the
Portfolio may be required to sell portfolio securities to restore the 300% asset
coverage, even though from an investment standpoint such sales might
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<PAGE> 785
be disadvantageous. Government Income Fund, Strategic Income Fund, Growth &
Income Fund and the Portfolio each may borrow up to 5% of its respective total
assets for temporary or emergency purposes other than to meet redemptions. Any
borrowing by Government Income Fund, Strategic Income Fund, Growth & Income Fund
or the Portfolio may cause greater fluctuation in the value of its shares than
would be the case if the Fund or the Portfolio did not borrow.
Government Income Fund's, Strategic Income Fund's, Growth & Income Fund's and
the Portfolio's fundamental investment limitations permit them to borrow money
for leveraging purposes. Government Income Fund and Growth & Income Fund,
however, currently are prohibited, pursuant to a non-fundamental investment
policy, from borrowing money in order to purchase securities. Nevertheless, this
policy may be changed in the future by a vote of a majority of the Trust's Board
of Trustees. A Fund will borrow for investment purposes only when the
Sub-advisor believes that such borrowings will benefit the Fund after taking
into account considerations such as the costs of the borrowing and the likely
investment returns on the securities purchased with the borrowed monies. If the
Strategic Income Fund or the Portfolio employs leverage, it would be subject to
certain additional risks. Use of leverage creates an opportunity for greater
growth of capital but would exaggerate any increases or decreases in Strategic
Income Fund's or the Portfolio's net asset value. When the income and gains on
securities purchased with the proceeds of borrowings exceed the costs of such
borrowings, Government Income Fund's, Strategic Income Fund's, Growth & Income
Fund's or the Portfolio's earnings or net asset value will increase faster than
otherwise would be the case; conversely, if such income and gains fail to exceed
such costs, the Fund's or the Portfolio's earnings or net asset value would
decline faster than would otherwise be the case. Each Fund and the Portfolio
expects that some of its borrowings may be made on a secured basis.
Government Income Fund, Strategic Income Fund, Growth & Income Fund and the
Portfolio may enter into reverse repurchase agreements. A reverse repurchase
agreement is a borrowing transaction in which a Fund or the Portfolio transfers
possession of a security to another party, such as a bank or broker/dealer, in
return for cash, and agrees to repurchase the security in the future at an
agreed upon price, which includes an interest component. Government Income Fund,
Strategic Income Fund, Growth & Income Fund and the Portfolio also may engage in
"roll" borrowing transactions which involve a Fund's or the Portfolio's sale of
Government National Mortgage Association certificates or other securities
together with a commitment (for which a Fund or the Portfolio may receive a fee)
to purchase similar, but not identical, securities at a future date. Government
Income Fund, Strategic Income Fund, Growth & Income Fund and the Portfolio will
segregate with a custodian liquid assets in an amount sufficient to cover its
obligations under "roll" transactions and reverse repurchase agreements with
broker/dealers. No segregation is required for reverse repurchase agreements
with banks.
Reverse repurchase agreements involve the risk that the market value of the
securities regained in lieu of sale by the Portfolio may decline below the price
of the securities Government Income Fund, Strategic Income Fund, Growth & Income
Fund, or the Portfolio has sold but is obligated to repurchase. In the event the
buyer of securities under a reverse repurchase agreement files for bankruptcy or
becomes insolvent, such buyer or its trustee or receiver may receive an
extension of time to determine whether to enforce the Portfolio's obligation to
repurchase the securities, and the Portfolio's use of the proceeds of the
reverse repurchase agreement may effectively be restricted pending such
decision.
The Growth & Income Fund, the Strategic Income Fund, and Government Income
Fund, and the Portfolios also may enter into "dollar rolls," in which the Fund
sells fixed income securities for delivery in the current month and
simultaneously contracts to repurchase substantially similar (same type, coupon
and maturity) securities on a specified future date. During the roll period, the
Growth & Income Fund, the Strategic Income Fund, and Government Income Fund, and
the Portfolios would forego principal and interest paid on such securities. The
Growth & Income Fund, the Strategic Income Fund, and Government Income Fund, and
the Portfolios would be compensated by the difference between the current sales
price and the forward price for the future purchase, as well as by the interest
earned on the cash proceeds of the initial sale.
Reverse repurchase agreements and dollar rolls will be treated as borrowings
and will be deducted from Government Income Fund, Strategic Income Fund, Growth
& Income Fund, and the Portfolio's respective assets for purposes of calculating
compliance with the Funds' respective borrowing limitations.
ZERO COUPON SECURITIES
Government Income Fund, Strategic Income Fund, and the Portfolio may invest in
certain zero coupon securities that are "stopped" U.S. Treasury notes and bonds.
Government Income Fund, Strategic Income Fund and the Portfolio also may invest
in zero coupon and other deep discount securities issued by foreign governments
and domestic and foreign corporations, including certain Brady Bonds and other
foreign debt and in payment-in-kind securities. Zero coupon securities pay no
interest to holders prior to maturity, and payment-in-kind securities pay
interest in the form of additional securities. However, a portion of the
original issue discount on zero coupon securities and the "interest" on
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payment-in-kind securities will be included in the Funds' incomes. Accordingly,
for a Fund to continue to qualify for tax treatment as a regulated investment
company and to avoid a certain excise tax (see "Dividends, Distributions and Tax
Matters" below), it may be required to distribute an amount that is greater than
its share of the total amount of cash it actually receives. These distributions
must be made from the Funds' cash assets or, if necessary, from the proceeds of
sales of portfolio securities. Government Income Fund, Strategic Income Fund and
the Portfolio will not be able to purchase additional income-producing
securities with cash used to make such distributions, and their respective
current incomes ultimately may be reduced as a result. Zero coupon and
payment-in-kind securities usually trade at a deep discount from their face or
par value and will be subject to greater fluctuations of market value in
response to changing interest rates than debt obligations of comparable
maturities that make current distributions of interest in cash.
SYNTHETIC SECURITY POSITIONS
Government Income Fund, Strategic Income Fund, and the Portfolio may utilize
combinations of futures on bonds and forward currency contracts to create
investment positions that have substantially the same characteristics as bonds
of the same type as those on which the futures contracts are written. Investment
positions of this type are generally referred to as "synthetic securities." For
example, in order to establish a synthetic security position for the Funds that
is comparable to owning a Japanese government bond, the Sub-advisor might
purchase futures contracts on Japanese governmental bonds in the desired
principal amount and purchase forward currency contracts for Japanese Yen in an
amount equal to the then current purchase price for such bonds in the Japanese
cash market, with each contract having approximately the same delivery date. The
Sub-advisor might roll over the futures and forward currency contract positions
before taking delivery in order to continue the Funds' investment position, or
the Sub-advisor might close out those positions, thus effectively selling the
synthetic security. Further, the amount of each contract might be adjusted in
response to market conditions and the forward currency contract might be changed
in amount or eliminated in order to hedge against currency fluctuations.
The Sub-advisor would create synthetic security positions for the Funds when
it believes that it can obtain a better yield or achieve cost savings in
comparison to purchasing actual bonds or when comparable bonds are not readily
available in the market. Synthetic security positions are subject to the risk
that changes in the value of purchased futures contracts may differ from changes
in the value of the bonds that might otherwise have been purchased in the cash
market. Also, while the Sub-advisor believes that the cost of creating synthetic
security positions generally will be materially lower than the cost of acquiring
comparable bonds in the cash market, the Funds will incur transaction costs in
connection with each purchase of a futures or forward currency contract. The use
of futures contracts and forward currency contracts to create synthetic security
positions also is subject to substantially the same risks as those that exist
when these instruments are used in connection with hedging strategies. See
"Options, Futures and Currency Strategies," below.
SWAPS, CAPS, FLOORS, AND COLLARS
Strategic Income Fund and the Portfolio may enter into interest rate, currency
and index swaps, and purchase or sell related caps, floors and collars and other
derivative instruments. Strategic Income Fund and the Portfolio expect to enter
into these transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a technique for managing their respective portfolios' duration
(i.e., price sensitivity to changes in interest rates) or to protect against any
increase in the price of securities the Funds anticipate purchasing at a later
date. Strategic Income Fund and the Portfolio intend to use these transactions
as hedges, and neither will sell interest rate caps or floors if it does not own
securities or other instruments providing an income stream roughly equivalent to
what the Funds may be obligated to pay.
Interest rate swaps involve the exchange by either of the Funds with another
party of their respective commitments to pay or receive interest (for example,
an exchange of floating rate payments for fixed rate payments) with respect to a
notional amount of principal. A currency swap is an agreement to exchange cash
flows on a notional amount leased on changes in the values of the reference
indices.
The purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling the cap to the extent that a specified
index exceeds a predetermined interest rate. The purchase of an interest rate
floor entitles the purchaser to receive payments on a notional principal amount
from the party selling the floor to the extent that a specified index falls
below a predetermined interest rate or amount. A collar is a combination of a
cap and a floor that preserves a certain return within a predetermined range of
interest rates or values.
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INDEXED COMMERCIAL PAPER
Strategic Income Fund and the Portfolio may invest without limitation in
commercial paper which is indexed to certain specific foreign currency exchange
rates. The terms of such commercial paper provide that its principal amount is
adjusted upwards or downwards (but not below zero) at maturity to reflect
changes in the exchange rate between two currencies while the obligation is
outstanding. Strategic Income Fund and the Portfolio will purchase such
commercial paper with the currency in which it is denominated and, at maturity,
will receive interest and principal payments thereon in that currency, but the
amount of principal payable by the issuer at maturity will change in proportion
to the change (if any) in the exchange rate between the two specified currencies
between the date the instrument is issued and the date the instrument matures.
While such commercial paper entails the risk of loss of principal, the potential
for realizing gains as a result of changes in foreign currency exchange rates
enables the Funds to hedge against a decline in the U.S. dollar value of
investments denominated in foreign currencies while seeking to provide an
attractive money market rate of return. Strategic Income Fund and the Portfolio
will not purchase such commercial paper for speculation.
OTHER INDEXED SECURITIES
Government Income Fund, Strategic Income Fund and the Portfolio may invest in
certain other indexed securities, which are securities whose prices are indexed
to the prices of other securities, securities indices, currencies, precious
metals or other commodities, or other financial indicators. Indexed securities
typically, but not always, are debt securities or deposits whose value at
maturity or coupon rate is determined by reference to a specific instrument or
statistic. The performance of indexed securities depends to a great extent on
the performance of the security, currency, or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the United
States and abroad. At the same time, indexed securities are subject to the
credit risks associated with the issuer of the security, and their values may
decline substantially if the issuer's creditworthiness deteriorates. Indexed
securities may be more volatile than the underlying instruments. New forms of
indexed securities continue to be developed. Government Income Fund, Strategic
Income Fund and the Portfolio may invest in such securities to the extent
consistent with their respective investment objectives.
SHORT SALES
Government Income Fund, Strategic Income Fund, Growth & Income Fund and the
Portfolio may make short sales of securities, although they have no current
intention of doing so. A short sale is a transaction in which a Fund or the
Portfolio sells a security in anticipation that the market price of that
security will decline. Government Income Fund, Strategic Income Fund, Growth &
Income Fund and the Portfolio may make short sales as a form of hedging to
offset potential declines in long positions in securities it owns, or
anticipates acquiring, and in order to maintain portfolio flexibility.
Government Income Fund, Strategic Income Fund, Growth & Income Fund and the
Portfolio only may make short sales "against the box." In this type of short
sale, at the time of the sale, the Fund or the Portfolio owns the security it
has sold short or has the immediate and unconditional right to acquire the
identical security at no additional cost.
In a short sale, the seller does not immediately deliver the securities sold
and does not receive the proceeds from the sale. To make delivery to the
purchaser, the executing broker borrows the securities being sold short on
behalf of the seller. The seller is said to have a short position in the
securities sold until it delivers the securities sold, at which time it receives
the proceeds of the sale. To secure its obligation to deliver securities sold
short, Government Income Fund, the Strategic Income Fund, the Growth & Income
Fund or the Portfolio will deposit in a separate account with its custodian an
equal amount of the securities sold short or securities convertible into or
exchangeable for such securities at no cost. Government Income Fund, Strategic
Income Fund, Growth & Income Fund or the Portfolio could close out a short
position by purchasing and delivering an equal amount of the securities sold
short, rather than by delivering securities already held by the Fund or the
Portfolio, because the Fund or the Portfolio might want to continue to receive
interest and dividend payments on securities in its portfolio that are
convertible into the securities sold short.
Government Income Fund, Strategic Income Fund, Growth & Income Fund and the
Portfolio might make a short sale "against the box" in order to hedge against
market risks when the Sub-advisor believes that the price of a security may
decline, causing a decline in the value of a security owned by Government Income
Fund, Strategic Income Fund, Growth & Income Fund or the Portfolio or a security
convertible into or exchangeable for such security. In such case, any future
losses in Government Income Fund's, Strategic Income Fund's, Growth & Income
Fund's or the Portfolio's long position should be reduced by a gain in the short
position. Conversely, any gain in the long position should be reduced by a loss
in the short position. The extent to which such gains or losses in the long
position are reduced will depend upon the amount of the securities sold short
relative to the amount of the securities the Fund or the Portfolio owns, either
directly or indirectly, and, in the case where a Fund or the Portfolio owns
convertible securities, changes in the investment values or conversion premiums
of such securities. There will be certain additional transaction costs
associated with short sales
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"against the box," but a Fund or the Portfolio will endeavor to offset these
costs with income from the investment of the cash proceeds of short sales.
OPTIONS, FUTURES AND CURRENCY STRATEGIES
OPTIONS, FUTURES, AND FORWARD CURRENCY TRANSACTIONS
Each Fund and the Portfolio may use forward currency contracts, futures
contracts, options on securities, options on currencies, options on indices and
options on futures contracts to attempt to hedge against the overall level of
investment and currency risk normally associated with the Fund's investments.
These instruments are often referred to as "derivatives," which may be defined
as financial instruments whose performance is derived, at least in part, from
the performance of another asset (such as a security, currency, or an index of
securities). Each Fund and the Portfolio may enter into such instruments up to
the full value of its portfolio assets.
To attempt to hedge against adverse movements in exchange rates between
currencies, a Fund or the Portfolio may enter into forward currency contracts
for the purchase or sale of a specified currency at a specified future date.
Such contracts may involve the purchase or sale of a foreign currency against
the U.S. dollar, or may involve two foreign currencies. A Fund or a Portfolio
may enter into forward currency contracts either with respect to specific
transactions or with respect to a Fund's or a Portfolio's portfolio positions.
Each Fund and the Portfolio also may purchase and sell put and call options on
currencies, futures contracts on currencies and options on such futures
contracts to hedge a Fund's or Portfolio's portfolio against movements in
exchange rates.
In addition, Each Fund and the Portfolio may purchase and sell put and call
options on equity and debt securities to hedge against the risk of fluctuations
in the prices of securities held by the Fund or that the Sub-advisor intends to
include in a Fund's or a Portfolio's portfolio. Each Fund and the Portfolio also
may purchase and sell put and call options on stock indices to hedge against
overall fluctuations in the securities markets or in a specific market sector.
To attempt to increase return, Growth & Income Fund may write call options on
securities. This strategy will be employed only when, in the opinion of the
Sub-advisor, the size of the premium Growth & Income Fund receives for writing
the option is adequate to compensate Growth & Income Fund against the risk that
appreciation in the underlying security may not be fully realized if the option
is exercised. Growth & Income Fund also is authorized to write put options to
attempt to enhance return, although it does not have the current intention of so
doing.
Further, each Fund and the Portfolio may sell index futures contracts and may
purchase put options or write call options on such futures contracts to protect
against a general market or a specific market sector decline that could
adversely affect a Fund's or a Portfolio's portfolio. Each Fund and the
Portfolio also may purchase index futures contracts and purchase call options or
write put options on such contracts to hedge against a general market or market
sector advance and thereby attempt to lessen the cost of future securities
acquisitions. Similarly, a Fund or a Portfolio may use interest rate futures
contracts and options thereon to hedge the debt portion of its portfolio against
changes in the general level of interest rates.
SPECIAL RISKS OF OPTIONS, FUTURES AND CURRENCY STRATEGIES
Although a Fund or the Portfolio is authorized to enter into options, futures
and forward currency transactions, it might not enter into any such
transactions. The use of options, futures contracts and forward currency
contracts ("Forward Contracts") involves special considerations and risks, as
described below. Risks pertaining to particular instruments are described in the
sections that follow.
(1) Successful use of most of these instruments depends upon the
Sub-advisor's ability to predict movements of the overall securities and
currency markets, which requires different skills than predicting changes
in the prices of individual securities. While the Sub-advisor is
experienced in the use of these instruments, there can be no assurance that
any particular strategy adopted will succeed.
(2) There might be imperfect correlation, or even no correlation,
between price movements of an instrument and price movements of the
investments being hedged. For example, if the value of an instrument used
in a short hedge increased by less than the decline in value of the hedged
investment, the hedge would not be fully successful. Such a lack of
correlation might occur due to factors unrelated to the value of the
investments being hedged, such as speculative or other pressures on the
markets in which the hedging instrument is traded. The effectiveness of
hedges using hedging instruments on indices will depend on the degree of
correlation between price movements in the index and price movements in the
investments being hedged.
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(3) Hedging strategies, if successful, can reduce risk of loss by
wholly or partially offsetting the negative effect of unfavorable price
movements in the investments being hedged. However, hedging strategies can
also reduce opportunity for gain by offsetting the positive effect of
favorable price movements in the hedged investments. For example, if
Government Income Fund, Strategic Income Fund, Growth & Income Fund or the
Portfolio entered into a short hedge because the Sub-advisor projected a
decline in the price of a security in the Fund's or the Portfolio's
portfolio, and the price of that security increased instead, the gain from
that increase might by wholly or partially offset by a decline in the price
of the hedging instrument. Moreover, if the price of the hedging instrument
declined by more than the increase in the price of the security, Government
Income Fund, Strategic Income Fund, Growth & Income Fund or the Portfolio
could suffer a loss. In either such case, Government Income Fund, Strategic
Income Fund, Growth & Income Fund or the Portfolio would have been in a
better position had it not hedged at all.
(4) There is no assurance that a liquid secondary market will exist
for any particular option, futures contract or option thereon at any
particular time.
(5) As described below, Government Income Fund, Strategic Income Fund,
Growth & Income Fund or the Portfolio might be required to maintain assets
as "cover," maintain segregated accounts or make margin payments when it
takes positions in instruments involving obligations to third parties
(i.e., instruments other than purchased options). If a Fund or the
Portfolio were unable to close out its positions in such instruments, it
might be required to continue to maintain such assets or accounts or make
such payments until the position expired or matured. The requirements might
impair the Fund's ability or the Portfolio's ability to sell a portfolio
security or make an investment at a time when it would otherwise be
favorable to do so, or require that the Fund or the Portfolio sell a
portfolio security at a disadvantageous time. The Fund's or the Portfolio's
ability to close out a position in an instrument prior to expiration or
maturity depends on the existence of a liquid secondary market or, in the
absence of such a market, the ability and willingness of the other party to
the transaction ("contra party") to enter into a transaction closing out
the position. Therefore, there is no assurance that any position can be
closed out at a time and price that is favorable to the Fund or the
Portfolio.
WRITING CALL OPTIONS
Government Income Fund, Strategic Income Fund, Growth & Income Fund and the
Portfolio may write (sell) call options on securities, indices and currencies.
Call options generally will be written on securities and currencies that, in the
opinion of the Sub-advisor are not expected to make any major price moves in the
near future but that, over the long term, are deemed to be attractive
investments for Government Income Fund, Strategic Income Fund, Growth & Income
Fund and the Portfolio.
A call option gives the holder (buyer) the right to purchase a security or
currency at a specified price (the exercise price) at any time until (American
Style) or on (European Style) a certain date (the expiration date). So long as
the obligation of the writer of a call option continues, he may be assigned an
exercise notice, requiring him to deliver the underlying security or currency
against payment of the exercise price. This obligation terminates upon the
expiration of the call option, or such earlier time at which the writer effects
a closing purchase transaction by purchasing an option identical to that
previously sold.
Portfolio securities or currencies on which call options may be written will
be purchased solely on the basis of investment considerations consistent with a
Fund's or the Portfolio's investment objectives. When writing a call option,
Government Income Fund, Strategic Income Fund, Growth & Income Fund or the
Portfolio, in return for the premium, gives up the opportunity for profit from a
price increase in the underlying security or currency above the exercise price,
and retains the risk of loss should the price of the security or currency
decline. Unlike one who owns securities or currencies not subject to an option,
a Fund or the Portfolio has no control over when it may be required to sell the
underlying securities or currencies, since most options may be exercised at any
time prior to the option's expiration. If a call option that a Fund or the
Portfolio has written expires, the Fund or the Portfolio will realize a gain in
the amount of the premium; however, such gain may be offset by a decline in the
market value of the underlying security or currency during the option period. If
the call option is exercised, the Fund or the Portfolio will realize a gain or
loss from the sale of the underlying security or currency, which will be
increased or offset by the premium received. Government Income Fund, Strategic
Income Fund, Growth & Income Fund and the Portfolio do not consider a security
or currency covered by a call option to be "pledged" as that term is used in
Government Income Fund's, Strategic Income Fund's, Growth & Income Fund's and
the Portfolio's fundamental investment policies that limit the pledging or
mortgaging of their assets.
Writing call options can serve as a limited short hedge because declines in
the value of the hedged investment would be offset to the extent of the premium
received for writing the option. However, if the security or currency
appreciates to a
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price higher than the exercise price of the call option, it can be expected that
the option will be exercised and a Fund or the Portfolio will be obligated to
sell the security or currency at less than its market value.
The premium that Government Income Fund, Strategic Income Fund, Growth &
Income Fund or the Portfolio receives for writing a call option is deemed to
constitute the market value of an option. The premium a Fund or the Portfolio
will receive from writing a call option will reflect, among other things, the
current market price of the underlying investment, the relationship of the
exercise price to such market price, the historical price volatility of the
underlying investment, and the length of the option period. In determining
whether a particular call option should be written, the Sub-advisor will
consider the reasonableness of the anticipated premium and the likelihood that a
liquid secondary market will exist for those options.
Closing transactions will be effected in order to realize a profit on an
outstanding call option, to prevent an underlying security or currency from
being called, or to permit the sale of the underlying security or currency.
Furthermore, effecting a closing transaction will permit Government Income Fund,
Strategic Income Fund, Growth & Income Fund or the Portfolio to write another
call option on the underlying security or currency with either a different
exercise price, expiration date or both.
Government Income Fund, Strategic Income Fund, Growth & Income Fund and the
Portfolio will pay transaction costs in connection with the writing of options
and in entering into closing purchase contracts. Transaction costs relating to
options activity normally are higher than those applicable to purchases and
sales of portfolio securities.
The exercise price of the options may be below, equal to or above the current
market values of the underlying securities or currencies at the time the options
are written. From time to time, a Fund or the Portfolio may purchase an
underlying security or currency for delivery in accordance with the exercise of
an option, rather than delivering such security or currency from its portfolio.
In such cases, additional costs will be incurred.
A Fund or the Portfolio will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more, respectively, than
the premium received from writing the option. Because increases in the market
price of a call option generally will reflect increases in the market price of
the underlying security or currency, any loss resulting from the repurchase of a
call option is likely to be offset in whole or in part by appreciation of the
underlying security or currency owned by a Fund or the Portfolio.
WRITING PUT OPTIONS
Government Income Fund, Strategic Income Fund, Growth & Income Fund and the
Portfolio may write put options on securities, indices and currencies. A put
option gives the purchaser of the option the right to sell, and the writer
(seller) the obligation to buy, the underlying security or currency at the
exercise price at anytime until (American Style) or on (European Style) the
expiration date. The operation of put options in other respects, including their
related risks and rewards, is substantially identical to that of call options.
A Fund or the Portfolio generally would write put options in circumstances
where the Sub-advisor wishes to purchase the underlying security or currency for
the Fund's or the Portfolio's portfolio at a price lower than the current market
price of the security or currency. In such event, the Fund or the Portfolio
would write a put option at an exercise price that, reduced by the premium
received on the option, reflects the lower price it is willing to pay. Since the
Fund or the Portfolio also would receive interest on debt securities or
currencies maintained to cover the exercise price of the option, this technique
could be used to enhance current return during periods of market uncertainty.
The risk in such a transaction would be that the market price of the underlying
security or currency would decline below the exercise price less the premium
received.
Writing put options can serve as a limited long hedge because increases in the
value of the hedged investment would be offset to the extent of the premium
received for writing the option. However, if the security or currency
depreciates to a price lower than the exercise price of the put option, it can
be expected that the put option will be exercised and a Fund or the Portfolio
will be obligated to purchase the security or currency at greater than its
market value.
PURCHASING PUT OPTIONS
Government Income Fund, Strategic Income Fund, Growth & Income Fund and the
Portfolio may purchase put options on securities, indices and currencies. As the
holder of a put option, Government Income Fund, Strategic Income Fund, Growth &
Income Fund or the Portfolio would have the right to sell the underlying
security or currency at the exercise price at any time until (American Style),
or on (European Style) the expiration date. The Government Income Fund, the
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<PAGE> 791
Strategic Income Fund, the Growth & Income Fund or the Portfolio may enter into
closing sale transactions with respect to such options, exercise them or permit
them to expire.
A Fund or the Portfolio may purchase a put option on an underlying security or
currency ("protective put") owned by the Fund or the Portfolio as a hedging
technique in order to protect against an anticipated decline in the value of the
security or currency. Such hedge protection is provided only during the life of
the put option when the Fund or the Portfolio, as the holder of the put option,
is able to sell the underlying security or currency at the put exercise price
regardless of any decline in the underlying security's market price or
currency's exchange value. The premium paid for the put option and any
transaction costs would reduce any profit otherwise available for distribution
when the security or currency eventually is sold.
Government Income Fund, Strategic Income Fund, Growth & Income Fund and the
Portfolio also may purchase put options at a time when that Fund or the
Portfolio does not own the underlying security or currency. By purchasing put
options on a security or currency it does not own, a Fund or the Portfolio seeks
to benefit from a decline in the market price of the underlying security or
currency. If the put option is not sold when it has remaining value, and if the
market price of the underlying security or currency remains equal to or greater
than the exercise price during the life of the put option, the Fund or the
Portfolio will lose its entire investment in the put option. In order for the
purchase of a put option to be profitable, the market price of the underlying
security or currency must decline sufficiently below the exercise price to cover
the premium and transaction costs, unless the put option is sold in a closing
sale transaction.
PURCHASING CALL OPTIONS
Government Income Fund, Strategic Income Fund, Growth & Income Fund or the
Portfolio may purchase call options on securities, indices and currencies. As
the holder of a call option, a Fund or the Portfolio would have the right to
purchase the underlying security or currency at the exercise price at any time
until (American Style) or on (European Style) the expiration date. A Fund or the
Portfolio may enter into closing sale transactions with respect to such options,
exercise them or permit them to expire.
Call options may be purchased by a Fund or the Portfolio for the purpose of
acquiring the underlying security or currency for its portfolio. Utilized in
this fashion, the purchase of call options would enable the Fund or the
Portfolio to acquire the security or currency at the exercise price of the call
option plus the premium paid. At times, the net cost of acquiring the security
or currency in this manner may be less than the cost of acquiring the security
or currency directly. This technique also may be useful to a Fund or the
Portfolio in purchasing a large block of securities that would be more difficult
to acquire by direct market purchases. So long as it holds such a call option,
rather than the underlying security or currency itself, a Fund or the Portfolio
is partially protected from any unexpected decline in the market price of the
underlying security or currency and, in such event, could allow the call option
to expire, incurring a loss only to the extent of the premium paid for the
option.
Government Income Fund, Strategic Income Fund, Growth & Income Fund and the
Portfolio also may purchase call options on underlying securities or currencies
it owns to avoid realizing losses that would result in a reduction of a Fund's
or the Portfolio's current return. For example, where a Fund or the Portfolio
has written a call option on an underlying security or currency having a current
market value below the price at which it purchased the security or currency, an
increase in the market price could result in the exercise of the call option
written by the Fund or the Portfolio and the realization of a loss on the
underlying security or currency. Accordingly, the Fund or the Portfolio could
purchase a call option on the same underlying security or currency, which could
be exercised to fulfill the Fund's or the Portfolio's delivery obligations under
its written call (if it is exercised). This strategy could allow the Fund or the
Portfolio to avoid selling the portfolio security or currency at a time when it
has an unrealized loss; however, the Fund or the Portfolio would have to pay a
premium to purchase the call option plus transaction costs.
Aggregate premiums paid for put and call options will not exceed 5% of
Government Income Fund, Strategic Income Fund, Growth & Income's Fund's or the
Portfolio's total assets at the time of purchase.
Government Income Fund, Strategic Income Fund, Growth & Income Fund or the
Portfolio may attempt to accomplish objectives similar to those involved in
using Forward Contracts by purchasing put or call options on currencies. A put
option gives a Fund or the Portfolio as purchaser the right (but not the
obligation) to sell a specified amount of currency at the exercise price at any
time until (American Style) or on (European Style) the expiration of the option.
A call option gives a Fund or the Portfolio as purchaser the right (but not the
obligation) to purchase a specified amount of currency at the exercise price at
any time until (American Style) or on (European Style) the expiration of the
option. A Fund or the Portfolio might purchase a currency put option, for
example, to protect itself against a decline in the dollar value of a currency
in which it holds or anticipates holding securities. If the currency's value
should decline against the dollar, the loss in currency value should be offset,
in whole or in part, by an increase in the value of the put. If the value of the
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currency instead should rise against the dollar, any gain to the Fund or the
Portfolio would be reduced by the premium it had paid for the put option. A
currency call option might be purchased, for example, in anticipation of, or to
protect against, a rise in the value against the dollar of a currency in which
the Fund or the Portfolio anticipates purchasing securities.
Options may be either listed on an exchange or traded in over-the-counter
("OTC") markets. Listed options are third-party contracts (i.e., performance of
the obligations of the purchaser and seller is guaranteed by the exchange or
clearing corporation), and have standardized strike prices and expiration dates.
OTC options are two-party contracts with negotiated strike prices and expiration
dates. The Funds and the Portfolio will not purchase an OTC option unless the
Fund or the Portfolio believes that daily valuations for such options are
readily obtainable. OTC options differ from exchange-traded options in that OTC
options are transacted with dealers directly and not through a clearing
corporation (which guarantees performance). Consequently, there is a risk of
non-performance by the dealer. Since no exchange is involved, OTC options are
valued on the basis of the average of the last bid prices obtained from dealers,
unless a quotation from only one dealer is available, in which case only that
dealer's price will be used. In the case of OTC options, there can be no
assurance that a liquid secondary market will exist for any particular option at
any specific time.
The staff of the SEC considers purchased OTC options to be illiquid
securities. A Fund or the Portfolio may also sell OTC options and, in connection
therewith, segregate assets or cover its obligations with respect to OTC options
written by the Fund or the Portfolio. The assets used as cover for OTC options
written by a Fund or the Portfolio will be considered illiquid unless the OTC
options are sold to qualified dealers who agree that the Fund or the Portfolio
may repurchase any OTC option it writes at a maximum price to be calculated by a
formula set forth in the option agreement. The cover for an OTC option written
subject to this procedure would be considered illiquid only to the extent that
the maximum repurchase price under the formula exceeds the intrinsic value of
the option.
A Fund's or the Portfolio's ability to establish and close out positions in
exchange-listed options depends on the existence of a liquid market. Each Fund
and the Portfolio intends to purchase or write only those exchange-traded
options for which there appears to be a liquid secondary market. However, there
can be no assurance that such a market will exist at any particular time.
Closing transactions can be made for OTC options only by negotiating directly
with the contra party or by a transaction in the secondary market if any such
market exists. Although each Fund and the Portfolio will enter into OTC options
only with contra parties that are expected to be capable of entering into
closing transactions with the Fund or the Portfolio, there is no assurance that
the Fund or the Portfolio will in fact be able to close out an OTC option
position at a favorable price prior to expiration. In the extent of insolvency
of the contra party, the Fund or the Portfolio might be unable to close out an
OTC option position at any time prior to its expiration.
INDEX OPTIONS
Puts and calls on indices are similar to puts and calls on securities or
futures contracts except that all settlements are in cash and gain or loss
depends on changes in the index in question (and thus on price movements in the
securities market or a particular market sector generally) rather than on price
movements in individual securities or futures contracts. When a Fund or the
Portfolio writes a call on an index, it receives a premium and agrees that,
prior to the expiration date, the purchaser of the call, upon exercise of the
call, will receive from the Fund or the Portfolio an amount of cash if the
closing level of the index upon which the call is based is greater than the
exercise price of the call. The amount of cash is equal to the difference
between the closing price of the index and the exercise price of the call times
a specified multiple (the "multiplier"), which determines the total dollar value
for each point of such difference. When a Fund or the Portfolio buys a call on
an index, it pays a premium and has the same rights as to such call as are
indicated above. When a Fund or the Portfolio buys a put on an index, it pays a
premium and has the right, prior to the expiration date, to require the seller
of the put, upon the Fund's or the Portfolio's exercise of the put, to deliver
to the Fund or the Portfolio an amount of cash if the closing level of the index
upon which the put is based is less than the exercise price of the put, which
amount of cash is determined by the multiplier, as described above for calls.
When a Fund or the Portfolio writes a put on an index, it receives a premium and
the purchaser has the right, prior to the expiration date, to require the Fund
or the Portfolio to deliver to it an amount of cash equal to the difference
between the closing level of the index and the exercise price times the
multiplier, if the closing level is less than the exercise price.
The risks of investment in index options may be greater than options on
securities. Because index options are settled in cash, when a Fund or the
Portfolio writes a call on an index it cannot provide in advance for its
potential settlement obligations by acquiring and holding the underlying
securities. A Fund or the Portfolio can offset some of the risk of writing a
call index option position by holding a diversified portfolio of securities
similar to those on which the underlying index is based. However, a Fund or the
Portfolio cannot, as a practical matter, acquire and hold a portfolio containing
exactly the same securities as underlie the index and, as a result, bears a risk
that the value of the securities held will vary from the value of the index.
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Even if a Fund or the Portfolio could assemble a securities portfolio that
exactly reproduced the composition of the underlying index, it still would not
be fully covered from a risk standpoint because of the "timing risk" inherent in
writing index options. When an index option is exercised, the amount of cash
that the holder is entitled to receive is determined by the difference between
the exercise price and the closing index level on the date when the option is
exercised. As with other kinds of options, the Fund or the Portfolio, as the
call writer, will not know that it has been assigned until the next business day
at the earliest. The time lag between exercise and notice of assignment poses no
risk for the writer of a covered call on a specific underlying security, such as
common stock, because there the writer's obligation is to deliver the underlying
security, not to pay its value as of a fixed time in the past. So long as the
writer already owns the underlying security, it can satisfy its settlement
obligations by simply delivering it, and the risk that its value may have
declined since the exercise date is borne by the exercising holder. In contrast,
even if the writer of an index call holds securities that exactly match the
composition of the underlying index, it will not be able to satisfy its
assignment obligations by delivering those securities against payment of the
exercise price. Instead, it will be required to pay cash in an amount based on
the closing index value on the exercise date; and by the time it learns that it
has been assigned, the index may have declined, with a corresponding decline in
the value of its securities portfolio. This "timing risk" is an inherent
limitation on the ability of index call writers to cover their risk exposure by
holding securities positions.
If a Fund or the Portfolio purchases an index option and exercises it before
the closing index value for that day is available, it runs the risk that the
level of the underlying index may subsequently change. If such a change causes
the exercised option to fall out-of-the-money, the Fund or the Portfolio will be
required to pay the difference between the closing index value and the exercise
price of the option (times the applicable multiplier) to the assigned writer.
INTEREST RATE, CURRENCY AND STOCK INDEX FUTURES CONTRACTS
Government Income Fund, Strategic Income Fund, Growth & Income Fund or the
Portfolio may enter into interest rate or currency futures contracts, including
futures contracts on indices of debt securities, ("Futures" or "Futures
Contracts"), as a hedge against changes in prevailing levels of interest rates
or currency exchange rates in order to establish more definitely the effective
return on securities or currencies held or intended to be acquired by the Fund
or the Portfolio. Government Income Fund's, Strategic Income Fund's, Growth &
Income Fund's or the Portfolio's hedging may include sales of Futures as an
offset against the effect of expected increases in interest rates or decreases
in currency exchange rates, and purchases of Futures as an offset against the
effect of expected declines in interest rates or increases in currency exchange
rates. Growth & Income Fund may also enter into stock index Futures Contracts as
a hedge against changes in stock prices.
Government Income Fund, Strategic Income Fund, Growth & Income Fund and the
Portfolio only will enter into Futures Contracts that are traded on futures
exchanges and are standardized as to maturity date and underlying financial
instrument. Futures exchanges and trading thereon in the United States are
regulated under the Commodity Exchange Act by the Commodity Futures Trading
Commission ("CFTC"). Futures are exchanged in London at the London International
Financial Futures Exchange.
Although techniques other than sales and purchases of Futures Contracts could
be used to reduce a Fund's or the Portfolio's exposure to interest rate and
currency exchange rate fluctuations, a Fund or the Portfolio may be able to
hedge exposure more effectively and at a lower cost through using Futures
Contracts.
A Futures Contract provides for the future sale by one party and purchase by
another party of a specified amount of a specific financial instrument (debt
security or currency) for a specified price at a designated date, time and
place. An index Futures Contract provides for the delivery, at a designated
date, time and place, of an amount of cash equal to a specified dollar amount
times the difference between the index value at the close of trading on the
contract and the price at which the Futures Contract is originally struck; no
physical delivery of the securities comprising the index is made. Brokerage fees
are incurred when a Futures Contract is bought or sold, and margin deposits must
be maintained at all times the Futures Contract is outstanding.
Although Futures Contracts typically require future delivery of and payment
for financial instruments or currencies, Futures Contracts usually are closed
out before the delivery date. Closing out an open Futures Contract sale or
purchase is effected by entering into an offsetting Futures Contract purchase or
sale, respectively, for the same aggregate amount of the identical financial
instrument or currency and the same delivery date. If the offsetting purchase
price is less than the original sale price, Government Income Fund, Strategic
Income Fund, Growth & Income Fund or the Portfolio realizes a gain; if it is
more, Government Income Fund, Strategic Income Fund, Growth & Income Fund or the
Portfolio realizes a loss. Conversely, if the offsetting sale price is more than
the original purchase price, Government Income Fund, Strategic Income Fund,
Growth & Income Fund or the Portfolio realizes a gain; if it is less, Government
Income Fund, Strategic Income Fund, Growth & Income Fund or the Portfolio
realizes a loss. The transaction costs also must be included in these
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calculations. There can be no assurance, however, that a Fund or the Portfolio
will be able to enter into an offsetting transaction with respect to a
particular Futures Contract at a particular time. If a Fund or the Portfolio is
not able to enter into an offsetting transaction, the Fund or the Portfolio will
continue to be required to maintain the margin deposits on the Futures Contract.
As an example of an offsetting transaction, the contractual obligations
arising from the sale of one Futures Contract of September Deutschemarks on an
exchange may be fulfilled at any time before delivery under the Futures Contract
is required (i.e., on a specified date in September, the "delivery month") by
the purchase of another Futures Contract of September Deutschemarks on the same
exchange. In such instance, the difference between the price at which the
Futures Contract was sold and the price paid for the offsetting purchase, after
allowance for transaction costs, represents the profit or loss to Government
Income Fund, Strategic Income Fund, Growth & Income Fund or the Portfolio.
Government Income Fund's, Strategic Income Fund's, Growth & Income Fund's and
the Portfolio's Futures transactions will be entered into for hedging purposes
only; that is, Futures Contracts will be sold to protect against a decline in
the price of securities or currencies that the Fund or the Portfolio owns, or
Futures Contracts will be purchased to protect the Fund or the Portfolio against
an increase in the price of securities or currencies it has committed to
purchase or expects to purchase.
"Margin" with respect to Futures Contracts is the amount of funds that must be
deposited by Government Income Fund, Strategic Income Fund, Growth & Income Fund
or the Portfolio in order to initiate Futures trading and to maintain the Fund's
or the Portfolio's open positions in Futures Contracts. A margin deposit made
when the Futures Contract is entered into ("initial margin") is intended to
assure a Fund's or the Portfolio's performance under the Futures Contract. The
margin required for a particular Futures Contract is set by the exchange on
which the Futures Contract is traded, and may be modified significantly from
time to time by the exchange during the term of the Futures Contract.
Subsequent payments, called "variation margin," to and from the futures
commission merchant through which the Fund or the Portfolio entered into the
Futures Contract will be made on a daily basis as the price of the underlying
security, currency or index fluctuates making the Futures Contract more or less
valuable, a process known as marking-to-market.
Risks of Using Futures Contracts. The prices of Futures Contracts are volatile
and are influenced, among other things, by actual and anticipated changes in
interest and currency rates, which in turn are affected by fiscal and monetary
policies and national and international political and economic events.
There is a risk of imperfect correlation between changes in prices of Futures
Contracts and prices of the securities or currencies in a Fund's or the
Portfolio's portfolio being hedged. The degree of imperfection of correlation
depends upon circumstances such as: variations in speculative market demand for
Futures and for securities or currencies, including technical influences in
Futures trading; and differences between the financial instruments being hedged
and the instruments underlying the standard Futures Contracts available for
trading. A decision of whether, when, and how to hedge involves skill and
judgment, and even a well-conceived hedge may be unsuccessful to some degree
because of unexpected market behavior or interest or currency rate trends.
Because of the low margin deposits required, Futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a Futures Contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the Futures Contract is deposited as margin, a subsequent 10%
decrease in the value of the Futures Contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the Futures Contract were closed out.
Thus, a purchase or sale of a Futures Contract may result in losses in excess of
the amount invested in the Futures Contract.
Most U.S. Futures exchanges limit the amount of fluctuation permitted in
Futures Contract and option on Futures Contract prices during a single trading
day. The daily limit establishes the maximum amount that the price of a Futures
Contract or option may vary either up or down from the previous day's settlement
price at the end of a trading session. Once the daily limit has been reached in
a particular type of Futures Contract or option, no trades may be made on that
day at a price beyond that limit. The daily limit governs only price movement
during a particular trading day and therefore does not limit potential losses,
because the limit may prevent the liquidation of unfavorable positions. Futures
Contract and option prices occasionally have moved to the daily limit for
several consecutive trading days with little or no trading, thereby preventing
prompt liquidation of positions and subjecting some traders to substantial
losses.
If a Fund or the Portfolio were unable to liquidate a Futures or option on
Futures position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses. The Fund or the
Portfolio would continue to be subject to market risk with respect to the
position. In addition, except in the case of purchased options, the
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<PAGE> 795
Fund or the Portfolio would continue to be required to make daily variation
margin payments and might be required to maintain the position being hedged by
the Future or option or to maintain cash or securities in a segregated account.
Certain characteristics of the Futures market might increase the risk that
movements in the prices of Futures Contracts or options on Futures might not
correlate perfectly with movements in the prices of the investments being
hedged. For example, all participants in the Futures and options on Futures
markets are subject to daily variation margin calls and might be compelled to
liquidate Futures or options on Futures positions whose prices are moving
unfavorably to avoid being subject to further calls. These liquidations could
increase price volatility of the instruments and distort the normal price
relationship between the Futures or options and the investments being hedged.
Also, because initial margin deposit requirements in the Futures market are less
onerous than margin requirements in the securities markets, there might be
increased participation by speculators in the Futures markets. This
participation also might cause temporary price distortions. In addition,
activities of large traders in both the Futures and securities markets involving
arbitrage, "program trading" and other investment strategies might result in
temporary price distortions.
OPTIONS ON FUTURES CONTRACTS
Options on Futures Contracts are similar to options on securities or
currencies except that options on Futures Contracts give 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 period of
the option. Upon exercise of the option, the delivery of the Futures position by
the writer of the option to the holder of the option will be accompanied by
delivery of the accumulated 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 is
exercised on the last trading day 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 level of the securities, currencies
or index upon which the Futures Contract is based on the expiration date.
Purchasers of options who fail to exercise their options prior to the exercise
date suffer a loss of the premium paid.
The purchase of call options on Futures can serve as a long hedge, and the
purchase of put options on Futures can serve as a short hedge. Writing call
options on Futures can serve as a limited short hedge, and writing put options
on Futures can serve as a limited long hedge, using a strategy similar to that
used for writing options on securities, foreign currencies or indices.
If a Fund or the Portfolio writes an option on a Futures Contract, it will be
required to deposit initial and variation margin pursuant to requirements
similar to those applicable to Futures Contracts. Premiums received from the
writing of an option on a Futures Contract are included in the initial margin
deposit.
A Fund or the Portfolio may seek to close out an option position by selling an
option covering the same Futures Contract and having the same exercise price and
expiration date. The ability to establish and close out positions on such
options is subject to the maintenance of a liquid secondary market.
LIMITATIONS ON USE OF FUTURES, OPTIONS ON FUTURES AND CERTAIN OPTIONS ON
CURRENCIES
To the extent that a Fund or the Portfolio enters into Futures Contracts,
options on Futures Contracts and options on foreign currencies traded on a
CFTC-regulated exchange, in each case other than for bona fide hedging purposes
(as defined by the CFTC), the aggregate initial margin and premiums required to
establish those positions (excluding the amount by which options are
"in-the-money") will not exceed 5% of the liquidation value of a Fund's or the
Portfolio's portfolio, after taking into account unrealized profits and
unrealized losses on any contracts the Fund or the Portfolio has entered into.
In general, a call option on a Futures Contract is "in-the-money" if the value
of the underlying Futures Contract exceeds the strike, i.e., exercise, price of
the call; a put option on a Futures Contract is "in-the-money" if the value of
the underlying Futures Contract is exceeded by the strike price of the put. This
guideline may be modified by the Trust's or the Portfolio's Board of Trustees,
as applicable, without a shareholder vote. This limitation does not limit the
percentage of a Fund's or the Portfolio's assets at risk to 5%.
FORWARD CONTRACTS
A Forward Contract is an obligation, generally arranged with a commercial bank
or other currency dealer, to purchase or sell a currency against another
currency at a future date and price as agreed upon by the parties. Government
Income Fund, Strategic Income Fund, Growth & Income Fund and the Portfolio
either may accept or make delivery of the currency
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<PAGE> 796
at the maturity of the Forward Contract. A Fund or the Portfolio may also, if
its contra party agrees, prior to maturity, enter into a closing transaction
involving the purchase or sale of an offsetting contract.
A Fund or the Portfolio engages in forward currency transactions in
anticipation of, or to protect itself against, fluctuations in exchange rates. A
Fund or the Portfolio might sell a particular foreign currency forward, for
example, when it holds bonds denominated in a foreign currency but anticipates,
and seeks to be protected against, a decline in the currency against the U.S.
dollar. Similarly, a Fund or the Portfolio might sell the U.S. dollar forward
when it holds bonds denominated in U.S. dollars but anticipates, and seeks to be
protected against, a decline in the U.S. dollar relative to other currencies.
Further, the Funds or the Portfolio might purchase a currency forward to "lock
in" the price of securities denominated in that currency that it anticipates
purchasing.
Forward Contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers. A
Forward Contract generally has no deposit requirement, and no commissions are
charged at any stage for trades. Government Income Fund, Strategic Income Fund,
Growth & Income Fund or the Portfolio will enter into such Forward Contracts
with major U.S. or foreign banks and securities or currency dealers in
accordance with guidelines approved by the Trust's or the Portfolio's Board of
Trustees, as applicable.
Government Income Fund, Strategic Income Fund, Growth & Income Fund or the
Portfolio may enter into Forward Contracts either with respect to specific
transactions or with respect to the overall investment of the Fund or the
Portfolio. The precise matching of the Forward Contract amounts and the value of
specific securities generally will not be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the Forward Contract
is entered into and the date it matures. Accordingly, it may be necessary for
the Fund or the Portfolio to purchase additional foreign currency on the spot
(i.e., cash) market (and bear the expense of such purchase) if the market value
of the security is less than the amount of foreign currency the Fund or the
Portfolio is obligated to deliver and if a decision is made to sell the security
and make delivery of the foreign currency. Conversely, it may be necessary to
sell on the spot market some of the foreign currency the Fund or the Portfolio
is obligated to deliver. The projection of short-term currency market movements
is extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain. Forward Contracts involve the risk that
anticipated currency movements will not be predicted accurately, causing the
Fund or the Portfolio to sustain losses on these contracts and transaction
costs.
At or before the maturity of a Forward Contract requiring the Fund or the
Portfolio to sell a currency, the Fund or the Portfolio either may sell a
portfolio security and use the sale proceeds to make delivery of the currency or
retain the security and offset its contractual obligation to deliver the
currency by purchasing a second contract pursuant to which the Fund or the
Portfolio will obtain, on the same maturity date, the same amount of the
currency that it is obligated to deliver. Similarly, the Fund or the Portfolio
may close out a Forward Contract requiring it to purchase a specified currency
by entering into a second contract, if its contra party agrees, entitling it to
sell the same amount of the same currency on the maturity date of the first
contract. The Fund or the Portfolio would realize a gain or loss as a result of
entering into such an offsetting Forward Contract under either circumstance to
the extent the exchange rate or rates between the currencies involved moved
between the execution dates of the first contract and the offsetting contract.
The cost to a Fund or the Portfolio of engaging in Forward Contracts varies
with factors such as the currencies involved, the length of the contract period
and the market conditions then prevailing. Because Forward Contracts usually are
entered into on a principal basis, no fees or commissions are involved. The use
of Forward Contracts does not eliminate fluctuations in the prices of the
underlying securities the Fund or the Portfolio owns or intends to acquire, but
it does establish a rate of exchange in advance. In addition, while Forward
Contracts limit the risk of loss due to a decline in the value of the hedged
currencies, they also limit any potential gain that might result should the
value of the currencies increase.
FOREIGN CURRENCY STRATEGIES -- SPECIAL CONSIDERATIONS
A Fund or the Portfolio may use options on foreign currencies, Futures on
foreign currencies, options on Futures on foreign currencies and Forward
Contracts to hedge against movements in the values of the foreign currencies in
which the Fund's or the Portfolio's securities are denominated. Such currency
hedges can protect against price movements in a security that a Fund or the
Portfolio owns or intends to acquire that are attributable to changes in the
value of the currency in which it is denominated. Such hedges do not, however,
protect against price movements in the securities that are attributable to other
causes.
A Fund or the Portfolio might seek to hedge against changes in the value of a
particular currency when no Futures Contract, Forward Contract or option
involving that currency is available or one of such contracts is more expensive
than certain other contracts. In such cases, the Fund or the Portfolio may hedge
against price movements in that currency by
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<PAGE> 797
entering into a contract on another currency or basket of currencies, the values
of which the Sub-advisor believes will have a positive correlation to the value
of the currency being hedged. The risk that movements in the price of the
contract will not correlate perfectly with movements in the price of the
currency being hedged is magnified when this strategy is used.
The value of Futures Contracts, options on Futures Contracts, Forward
Contracts and options on foreign currencies depends on the value of the
underlying currency relative to the U.S. dollar. Because foreign currency
transactions occurring in the interbank market might involve substantially
larger amounts than those involved in the use of Futures Contracts, Forward
Contracts or options, a Fund or the Portfolio could be disadvantaged by dealing
in the odd lot market (generally consisting of transactions of less than $1
million) for the underlying foreign currencies at prices that are less favorable
than for round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirements that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options or Futures markets are
closed while the markets for the underlying currencies remain open, significant
price and rate movements might take place in the underlying markets that cannot
be reflected in the markets for the Futures contracts or options until they
reopen.
Settlement of Futures Contracts, Forward Contracts and options involving
foreign currencies might be required to take place within the country issuing
the underlying currency. Thus, a Fund or the Portfolio might be required to
accept or make delivery of the underlying foreign currency in accordance with
any U.S. or foreign regulations regarding the maintenance of foreign banking
arrangements by U.S. residents and might be required to pay any fees, taxes and
charges associated with such delivery assessed in the issuing country.
COVER
Transactions using Forward Contracts, Futures Contracts and options (other
than options purchased by a Fund or the Portfolio) expose the Fund or the
Portfolio to an obligation to another party. A Fund or the Portfolio will not
enter into any such transactions unless it owns either (1) an offsetting
("covered") position in securities, currencies, or other options, Forward
Contracts or Futures Contracts, or (2) cash, receivables and short-term debt
securities with a value sufficient at all times to cover its potential
obligations not covered as provided in (1) above. Each Fund and the Portfolio
will comply with SEC guidelines regarding cover for these instruments and, if
the guidelines so require, set aside cash or liquid securities.
Assets used as cover or held in a segregated account cannot be sold while the
position in the corresponding Forward Contract, Futures Contract or option is
open, unless they are replaced with other appropriate assets. If a large portion
of a Fund's or the Portfolio's assets are used for cover or segregated accounts,
it could affect portfolio management or the Fund's or the Portfolio's ability to
meet redemption requests or other current obligations.
INTEREST RATE AND CURRENCY SWAPS
Strategic Income Fund and the Portfolio usually will enter into interest rate
swaps on a net basis, that is, the two payment streams are netted out in a cash
settlement on the payment date or dates specified in the instrument, with
Strategic Income Fund or the Portfolio receiving or paying, as the case may be,
only the net amount of the two payments. The net amount of the excess, if any,
of each of Strategic Income Fund's and the Portfolio's obligations over its
entitlements with respect to each swap will be accrued on a daily basis and an
amount of cash or liquid securities having an aggregate net asset value at least
equal to the accrued excess will be maintained in an account by a custodian that
satisfies the requirements of the 1940 Act. Strategic Income Fund and the
Portfolio will also establish and maintain such segregated accounts with respect
to its total obligations under any swaps that are not entered into on a net
basis and with respect to any caps or floors that are written by that Fund or
the Portfolio. The Sub-advisor, Strategic Income Fund and the Portfolio believe
that swaps, caps and floors do not constitute senior securities under the 1940
Act and, accordingly, will not treat them as being subject to the Fund's and the
Portfolio's borrowing restrictions. The Strategic Income Fund and the Portfolio
will not enter into any swap, cap, floor, collar or other derivative transaction
unless, at the time of entering into the transaction, the unsecured long-term
debt rating of the counterparty combined with any credit enhancements is rated
at least A by Moody's or S&P, or has an equivalent rating from a nationally
recognized statistical rating organization or is determined to be of equivalent
credit quality by the Sub-advisor. If a counterparty defaults, the Strategic
Income Fund or the Portfolio may have contractual remedies pursuant to the
agreements related to the transactions. The swap market has grown substantially
in recent years, with a large number of banks and investment banking firms
acting both as principals and as agents utilizing standardized swap
documentation. As a result, the swap market has become relatively liquid. Caps,
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<PAGE> 798
floors and collars are more recent innovations for which standardized
documentation has not yet been fully developed and, for that reason, they are
less liquid than swaps.
RISK FACTORS
NON-DIVERSIFIED CLASSIFICATION
The Funds and the Portfolio are classified as "non-diversified" funds under
the 1940 Act. As a result, the Funds and the Portfolio will be able to invest in
a fewer number of issuers than if they were classified as "diversified" funds
under the 1940 Act. To the extent that the Funds and the Portfolio invest in a
smaller number of issuers, the value of the Funds' and the Portfolio's shares
may fluctuate more widely and the Funds and the Portfolio may be subject to
greater investment and credit risk with respect to the portfolio.
ILLIQUID SECURITIES
Government Income Fund, Strategic Income Fund, Growth & Income Fund and the
Portfolio each may invest up to 15% of net assets in illiquid securities.
Securities may be considered illiquid if a Fund or the Portfolio cannot
reasonably expect within seven days to receive approximately the amount at which
the Fund or the Portfolio values such securities. The sale of illiquid
securities, if they can be sold at all, generally will require more time and
result in higher brokerage charges or dealer discounts and other selling
expenses than will the sale of liquid securities, such as securities eligible
for trading on U.S. securities exchanges or in the over-the-counter markets.
Moreover, restricted securities, which may be illiquid for purposes of this
limitation often sell, if at all, at a price lower than similar securities that
are not subject to restrictions on resale.
Illiquid securities include those that are subject to restrictions contained
in the securities laws of other countries. However, securities that are freely
marketable in the country where they are principally traded, but would not be
freely marketable in the United States, will not be considered illiquid. Where
registration is required, each Fund and the Portfolio may be obligated to pay
all or part of the registration expenses and a considerable period may elapse
between the time of the decision to sell and the time a Fund or the Portfolio
may be permitted to sell a security under an effective registration statement.
If, during such a period, adverse market conditions were to develop, a Fund or
the Portfolio might obtain a less favorable price than prevailed when it decided
to sell.
Not all restricted securities are illiquid. In recent years a large
institutional market has developed for certain securities that are not
registered under the Securities Act of 1933, as amended ("1933 Act"), including
private placements, repurchase agreements, commercial paper, foreign securities
and corporate bonds and notes. These instruments are often restricted securities
because the securities are sold in transactions not requiring registration.
Institutional investors generally will not seek to sell these instruments to the
general public, but instead will often depend either on an efficient
institutional market in which such unregistered securities can be readily resold
or on an issuer's ability to honor a demand for repayment. Therefore, the fact
that there are contractual or legal restrictions on resale to the general public
or certain institutions is not dispositive of the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the registration
requirements of the 1933 Act for resales of certain securities to qualified
institutional buyers. Institutional markets for restricted securities have
developed as a result of Rule 144A, providing both readily ascertainable values
for restricted securities and the ability to liquidate an investment to satisfy
share redemption orders. Such markets include automated systems for the trading,
clearance and settlement of unregistered securities of domestic and foreign
issuers, such as the PORTAL System sponsored by the National Association of
Securities Dealers, Inc. An insufficient number of qualified institutional
buyers interested in purchasing Rule 144A-eligible restricted securities held by
a Fund or the Portfolio, however, could affect adversely the marketability of
such portfolio securities and a Fund or the Portfolio might be unable to dispose
of such securities promptly or at favorable prices.
With respect to liquidity determinations generally, the Trust's or the
Portfolio's Board of Trustees has the ultimate responsibility for determining
whether specific securities, including restricted securities eligible for resale
to qualified institutional buyers pursuant to Rule 144A under the 1933 Act, are
liquid or illiquid. The Board has delegated the function of making day-to-day
determinations of liquidity to the Sub-advisor in accordance with procedures
approved by the Board. The Sub-advisor takes into account a number of factors in
reaching liquidity decisions, including: (i) the frequency of trading in the
security; (ii) the number of dealers that make quotes for the security; (iii)
the number of dealers that have undertaken to make a market in the security;
(iv) the number of other potential purchasers; and (v) the nature of the
security and how trading is effected (e.g., the time needed to sell the
security, how offers are solicited and the mechanics
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<PAGE> 799
of transfer). The Sub-advisor will monitor the liquidity of securities held by
each Fund and the Portfolio and report periodically on such decisions to the
Trust's or the Portfolio's Board of Trustees. Moreover, as noted in the
Prospectus, certain securities, such as those subject to registration
restrictions of more than seven days, will generally be treated as illiquid. If
the liquidity percentage restriction of a Fund or the Portfolio is satisfied at
the time of investment, a later increase in the percentage of illiquid
securities held by a Fund or the Portfolio resulting from a change in market
value or assets will not constitute a violation of that restriction. If as a
result of a change in market value or assets, the percentage of illiquid
securities held by the Fund or Portfolio increases above the applicable limit,
the Sub-advisor will take appropriate steps to bring the aggregate amount of
illiquid assets back within the prescribed limitations as soon as reasonably
practicable, taking into account the effect of any disposition on the Fund or
the Portfolio.
FOREIGN SECURITIES
Political, Social and Economic Risks. Investing in securities of non-U.S.
companies may entail additional risks due to the potential political, social and
economic instability of certain countries and the risks of expropriation,
nationalization, confiscation or the imposition of restrictions on foreign
investment, convertibility of currencies into U.S. dollars and on repatriation
of capital invested. In the event of such expropriation, nationalization,
confiscatory taxation or other confiscation by any country, either a Fund or the
Portfolio could lose its entire investment in any such country. Economies in
emerging markets are dependent heavily upon international trade and,
accordingly, have been and may continue to be affected adversely by trade
barriers, exchange controls, managed adjustments in relative currency values and
other protectionist measures imposed or negotiated by the countries with which
they trade. These economies also have been and may continue to be affected
adversely by economic conditions in the countries in which they trade.
Religious, Political and Ethnic Instability. Certain countries in which a Fund
or the Portfolio may invest may have groups that advocate radical religious or
revolutionary philosophies or support ethnic independence. Any disturbance on
the part of such individuals could carry the potential for widespread
destruction or confiscation of property owned by individuals and entities
foreign to such country and could cause the loss of a Fund's or the Portfolio's
investment in those countries. Instability may also result from, among other
things: (i) authoritarian governments or military involvement in political and
economic decision-making, including changes in government through
extra-constitutional means; (ii) popular unrest associated with demands for
improved political, economic and social conditions; and (iii) hostile relations
with neighboring or other countries. Such political, social and economic
instability could disrupt the principal financial markets in which a Fund or the
Portfolio invests and adversely affect the value of the Fund's or the
Portfolio's assets.
Foreign Investment Restrictions. Certain countries prohibit or impose
substantial restrictions on investments in their capital markets, particularly
their equity markets, by foreign entities such as the Government Income Fund,
the Strategic Income Fund, the Growth & Income Fund or the Portfolio. These
restrictions or controls may at times limit or preclude investment in certain
securities and may increase the cost and expenses of a Fund or the Portfolio.
For example, certain countries require prior governmental approval before
investments by foreign persons may be made, or may limit the amount of
investment by foreign persons in a particular company, or limit the investment
by foreign persons to only a specific class of securities of a company that may
have less advantageous terms than securities of the company available for
purchase by nationals. Moreover, the national policies of certain countries may
restrict investment opportunities in issuers or industries deemed sensitive to
national interests. In addition, some countries require governmental approval
for the repatriation of investment income, capital or the proceeds of securities
sales by foreign investors. In addition, if there is a deterioration in a
country's balance of payments or for other reasons, a country may impose
restrictions on foreign capital remittances abroad. The Government Income Fund,
the Strategic Income Fund, the Growth & Income Fund or the Portfolio could be
adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation, as well as by the application to it of
other restrictions on investments.
Non-Uniform Corporate Disclosure Standards and Governmental
Regulation. Foreign companies are subject to accounting, auditing and financial
standards and requirements that differ, in some cases significantly, from those
applicable to U.S. companies. In particular, the assets, liabilities and profits
appearing on the financial statements of such a company may not reflect its
financial position or results of operations in the way they would be reflected
had such financial statements been prepared in accordance with U.S. generally
accepted accounting principles. Most of the foreign securities held by the
Government Income Fund, the Strategic Income Fund, the Growth & Income Fund or
the Portfolio will not be registered with the SEC or regulators of any foreign
country, nor will the issuers thereof be subject to the SEC's reporting
requirements. Thus, there will be less available information concerning most
foreign issuers of securities held by the Government Income Fund, the Strategic
Income Fund, the Growth & Income Fund and the Portfolio than is available
concerning U.S. issuers. In instances where the financial statements of an
issuer are not deemed to reflect accurately the financial situation of the
issuer, the Sub-advisor will take appropriate steps to evaluate the proposed
investment, which
31
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may include on-site inspection of the issuer, interviews with its management and
consultations with accountants, bankers and other specialists. There is
substantially less publicly available information about foreign companies than
there are reports and ratings published about U.S. companies and the U.S.
Government. In addition, where public information is available, it may be less
reliable than such information regarding U.S. issuers. Issuers of securities in
foreign jurisdictions are generally not subject to the same degree of regulation
as are U.S. issuers with respect to such matters as restrictions on market
manipulation, insider trading rules, shareholder proxy requirements and timely
disclosure of information.
Currency Fluctuations. Because the Funds and the Portfolio, under normal
circumstances, will invest substantial portions of their total assets in the
securities of foreign issuers which are denominated in foreign currencies, the
strength or weakness of the U.S. dollar against such foreign currencies will
account for part of each Fund's and the Portfolio's investment performance. A
decline in the value of any particular currency against the U.S. dollar will
cause a decline in the U.S. dollar value of each Fund's and the Portfolio's
holdings of securities and cash denominated in such currency and, therefore,
will cause an overall decline in their respective net asset values and any net
investment income and capital gains derived from such securities to be
distributed in U.S. dollars to shareholders of the Funds. Moreover, if the value
of the foreign currencies in which a Fund or the Portfolio receives its income
declines relative to the U.S. dollar between the receipt of the income and the
making of Fund distributions, the Fund or the Portfolio may be required to
liquidate securities in order to make distributions if the Fund or the Portfolio
has insufficient cash in U.S. dollars to meet distribution requirements.
The rate of exchange between the U.S. dollar and other currencies is
determined by several factors including the supply and demand for particular
currencies, central bank efforts to support particular currencies, the relative
movement of interest rates and the pace of business activity in the other
countries, and the United States, and other economic and financial conditions
affecting the world economy.
Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the
Netherlands, Portugal, and Spain are members of the European Economic and
Monetary Union (the "EMU"). The EMU has established a common European currency
for participating countries which will be known as the "euro." Each
participating country has supplemented the existing currency with the euro on
January 1, 1999, and will replace its existing 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 after January 1,
1999.
The expected introduction of the euro presents unique risks and uncertainties,
including whether the payment and operational systems of banks and other
financial institutions will be ready by January 1, 1999; how outstanding
financial contracts will be treated after January 1, 1999; the establishment of
exchange rates for existing currencies and the euro; and the creation of
suitable clearing and settlement systems for the euro. These and other factors
could cause market disruptions before or after the introduction of the euro and
could adversely affect the value of securities held by the Funds.
Although the Funds and the Portfolio value their assets daily in terms of U.S.
dollars, they do not intend to convert holdings of foreign currencies into U.S.
dollars on a daily basis. The Funds and the Portfolio will do so from time to
time, and investors should be aware of the costs of currency conversion.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference ("spread") between the prices at which
they are buying and selling various currencies. Thus, a dealer may offer to sell
a foreign currency to a Fund at one rate, while offering a lesser rate of
exchange should the Fund desire to sell that currency to the dealer.
Adverse Market Characteristics. Securities of many foreign issuers may be less
liquid and their prices more volatile than securities of comparable U.S.
issuers. In addition, foreign securities markets and brokers generally are
subject to less governmental supervision and regulation than in the U.S., and
foreign securities transactions usually are subject to fixed commissions, which
generally are higher than negotiated commissions on U.S. transactions. In
addition, foreign securities transactions may be subject to difficulties
associated with the settlement of such transactions. Delays in settlement could
result in temporary periods when assets of a Fund or the Portfolio are
uninvested and no return is earned thereon. The inability of a Fund or the
Portfolio to make intended security purchases due to settlement problems could
cause it to miss attractive opportunities. Inability to dispose of a portfolio
security due to settlement problems either could result in losses to a Fund or
the Portfolio due to subsequent declines in value of the portfolio security or,
if the Fund or the Portfolio has entered into a contract to sell the security,
could result in possible liability to the purchaser. The Sub-advisor will
consider such difficulties when determining the allocation of each Fund's or the
Portfolio's assets, although the Sub-advisor does not believe that such
difficulties will have a material adverse effect on the Funds' or the
Portfolio's portfolio trading activities.
The Funds and the Portfolio may use foreign custodians, which may charge
higher custody fees than those attributable to domestic investing and may
involve risks in addition to those related to the use of U.S. custodians. Such
risks include uncertainties relating to: (i) determining and monitoring the
financial strength, reputation and standing of the foreign
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custodian; (ii) maintaining appropriate safeguards to protect the Funds' and the
Portfolio's investments and (iii) possible difficulties in obtaining and
enforcing judgments against such custodians.
Withholding Taxes. Each Fund's and the Portfolio's net investment income from
foreign issuers may be subject to withholding taxes by the foreign issuer's
country, thereby reducing the Fund's and the Portfolio's income or delaying the
receipt of income where those taxes may be recaptured. See "Dividends,
Distributions and Tax Matters" herein.
Concentration. To the extent a Fund invests a significant portion of its
assets in securities of issuers located in a particular country or region of the
world, such Portfolio may be subject to greater risks and may experience greater
volatility than a fund that is more broadly diversified geographically.
Special Considerations Affecting Western European Countries. The countries
that are members of the European Economic Community ("Common Market") (Austria,
Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,
Netherlands, Portugal, Spain, Sweden and the United Kingdom) eliminated certain
import tariffs and quotas and other trade barriers with respect to one another
over the past several years. The Sub-advisor believes that this deregulation
should improve the prospects for economic growth in many Western European
countries. Among other things, the deregulation could enable companies domiciled
in one country to avail themselves of lower labor costs existing in other
countries. In addition, this deregulation could benefit companies domiciled in
one country by opening additional markets for their goods and services in other
countries. Since, however, it is not clear what the exact form or effect of
these Common Market reforms will be on business in Western Europe, it is
impossible to predict the long-term impact of the implementation of these
programs on the securities owned by a Fund.
Special Considerations Affecting Russia and Eastern European
Countries. Investing in Russia and Eastern European countries involves a high
degree of risk and special considerations not typically associated with
investing in the United States securities markets, and should be considered
highly speculative. Such risks include: (1) delays in settling portfolio
transactions and risk of loss arising out of the system of share registration
and custody; (2) the risk that it may be impossible or more difficult than in
other countries to obtain and/or enforce a judgement; (3) pervasiveness of
corruption and crime in the economic system; (4) currency exchange rate
volatility and the lack of available currency hedging instruments; (5) higher
rates of inflation (including the risk of social unrest associated with periods
of hyper-inflation) and high unemployment; (6) controls on foreign investment
and local practices disfavoring foreign investors and limitations on
repatriation of invested capital, profits and dividends, and on a fund's ability
to exchange local currencies for U.S. dollars; (7) political instability and
social unrest and violence; (8) the risk that the governments of Russia and
Eastern European countries may decide not to continue to support the economic
reform programs implemented recently and could follow radically different
political and/or economic policies to the detriment of investors, including
non-market-oriented policies such as the support of certain industries at the
expense of other sectors or investors, or a return to the centrally planned
economy that existed when such countries had a communist form of government; (9)
the financial condition of companies in these countries, including large amounts
of inter-company debt which may create a payments crisis on a national scale;
(10) dependency on exports and the corresponding importance of international
trade; (11) the risk that the tax system in these countries will not be reformed
to prevent inconsistent, retroactive and/or exorbitant taxation; and (12) the
underdeveloped nature of the securities markets.
Special Considerations Affecting Japan. Japan's economic growth has declined
significantly since 1990. The general government position has deteriorated as a
result of weakening economic growth and stimulative measures taken to support
economic activity and to restore financial stability. Although the decline in
interest rates and fiscal stimulation packages have helped to contain
recessionary forces, uncertainties remain. Japan is also heavily dependent upon
international trade, so its economy is especially sensitive to trade barriers
and disputes. Japan has had difficult relations with its trading partners,
particularly the United States, where the trade imbalance is the greatest. It is
possible that trade sanctions and other protectionist measures could impact
Japan adversely in both the short and the long term.
The common stocks of many Japanese companies trade at high price-earnings
ratios. Differences in accounting methods make it difficult to compare the
earnings of Japanese companies with those of companies in other countries,
especially in the U.S. In general, however, reported net income in Japan is
understated relative to U.S. accounting standards and this is one reason why
price-earnings ratios of the stocks of Japanese companies have tended
historically to be higher than those for U.S. stocks. In addition, Japanese
companies have tended to have higher growth rates than U.S. companies and
Japanese interest rates have generally been lower than in the U.S., both of
which factors tend to result in lower discount rates and higher price-earnings
ratios in Japan than in the U.S.
The Japanese securities markets are less regulated than those in the United
States. Evidence has emerged from time to time of distortion of market prices to
serve political or other purposes. Shareholders' rights are not always equally
enforced. In addition, Japan's banking industry is undergoing problems related
to bad loans and declining values in real estate.
33
<PAGE> 802
Special Considerations Affecting Pacific Region Countries. Certain of the
risks associated with international investments are heightened for investments
in Pacific region countries. For example, some of the currencies of Pacific
region countries have experienced steady devaluations relative to the U.S.
dollar, and major adjustments have been made periodically in certain of such
currencies. Certain countries, such as India, face serious exchange constraints.
Jurisdictional disputes also exist between South Korea and North Korea. In
addition, the Funds may invest in Hong Kong, which reverted to Chinese
Administration on July 1, 1997. Investments in Hong Kong may be subject to
expropriation, national, nationalization or confiscation, in which case a Fund
could lose its entire investment in Hong Kong. In addition, the reversion of
Hong Kong also presents a risk that the Hong Kong dollar will be devalued and a
risk of possible loss of investor confidence in Hong Kong's currency, stock
market and assets.
Special Considerations Affecting Latin American Countries. Most Latin American
countries have experienced substantial, and in some periods extremely high,
rates of inflation for many years. Inflation and rapid fluctuations in inflation
rates have had and may continue to have very negative effects on the economies
and securities markets of certain Latin American countries. Certain Latin
American countries are also among the largest debtors to commercial banks and
foreign governments. At times certain Latin American countries have declared
moratoria on the payment of principal and/or interest on external debt. In
addition, certain Latin American securities markets have experienced high
volatility in recent years.
Latin American countries may also close certain sectors of their economies to
equity investments by foreigners. Further due to the absence of securities
markets and publicly owned corporations and due to restrictions on direct
investment by foreign entities, investments may only be made in certain Latin
American countries solely or primarily through governmentally approved
investment vehicles or companies.
Certain Latin American countries may have managed currencies that are
maintained at artificial levels to the U.S. dollar rather than at levels
determined by the market. This type of system can lead to sudden and large
adjustments in the currency which, in turn, can have a disruptive and negative
effect on foreign investors. For example, in late 1994, the value of the Mexican
peso lost more than one-third of its value relative to the U.S. dollar.
Special Considerations Affecting Emerging Markets. Strategic Income Fund,
Growth & Income Fund and the Portfolio may invest in debt securities in emerging
markets. Investing in securities in emerging countries may entail greater risks
than investing in debt securities in developed countries. Similarly, for Growth
& Income Fund, investing in the equity securities of companies in emerging
markets entails additional risks. These risks affecting debt and equity
investments in emerging markets include (i) less social, political and economic
stability; (ii) the small current size of the markets for such securities and
the currently low or nonexistent volume of trading, which result in a lack of
liquidity and in greater price volatility; (iii) certain national policies which
may restrict the Funds' and the Portfolio's investment opportunities, including
restrictions on investment in issuers or industries deemed sensitive to national
interests; (iv) foreign taxation; and (v) the absence of developed structures
governing private or foreign investment or allowing for judicial redress for
injury to private property. Because of the special risks associated with
investing in emerging markets, an investment in the Fund should be considered
speculative.
Settlement mechanisms in emerging securities markets may be less efficient and
reliable than in more developed markets. In such emerging securities markets
there may be share registration and delivery delays or failures.
Many emerging market countries have experienced substantial, and in some
periods extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates and corresponding currency devaluations have had
and may continue to have negative effects on the economies and securities
markets of certain emerging market countries.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
Government Income Fund and Strategic Income Fund may invest in mortgage-backed
and asset-backed securities. The yield characteristics of mortgage-backed and
asset-backed securities differ from those of traditional bonds. Among the major
differences are that interest and principal payments are made more frequently
(usually monthly) and that principal may be prepaid at any time because the
underlying mortgage loans or other assets generally may be prepaid at any time.
Generally, prepayments on fixed-rate mortgage loans will increase during a
period of falling interest rates and decrease during a period of rising interest
rates. Mortgage-backed and asset-backed securities may also decrease in value as
a result of increasing market interest rates and, because of prepayments, may
benefit less than other bonds from declining interest rates. Reinvestments of
prepayments may occur at lower interest rates than the original investment, thus
adversely affecting the yield of the Fund. Actual prepayment experience may
cause the yield of a mortgage-backed security to differ from what was assumed
when the Fund purchased the security. The market for privately issued
mortgage-backed and asset-backed securities is smaller and less liquid than the
market for U.S. government mortgage-backed securities.
34
<PAGE> 803
Foreign mortgage-backed securities markets are substantially smaller than U.S.
markets, but have been established in several countries, including Germany,
Denmark, Sweden, Canada and Australia, and may be developed elsewhere. Foreign
mortgage-backed securities generally are structured similar to domestic
mortgage-backed securities, and they normally present substantially similar
investment risks as well as the other risks normally associated with foreign
securities.
LOWER QUALITY DEBT SECURITIES
Under normal market conditions the Strategic Income Fund may invest up to 65%,
and the Portfolio may invest up to 100%, of their respective total assets in
debt securities rated below investment grade. Such investments involve a high
degree of risk.
Debt rated Baa by Moody's is considered by Moody's to have speculative
characteristics. Debt rated BB, B, CCC, CC or C by S&P and debt rated Ba, D,
Caa, Ca or C by Moody's is regarded, on balance, as predominantly speculative
with respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. While such lower quality debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions. Debt rated C
by Moody's or S&P is the lowest quality debt that is not in default as to
principal or interest and such issue so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing. Lower
quality debt securities are also generally considered to be subject to greater
risk than higher quality securities with regard to a deterioration of general
economic conditions. These securities are the equivalent of high yield, high
risk bonds, commonly known as "junk bonds." As noted above, Strategic Income
Fund and the Portfolio may invest in debt securities rated below C, which are in
default as to principal and/or interest.
Ratings of debt securities represent the rating agency's opinion regarding
their quality and are not a guarantee of quality. Rating agencies attempt to
evaluate the safety of principal and interest payments and do not evaluate the
risks of fluctuations in market value. Also, rating agencies may fail to make
timely changes in credit quality in response to subsequent events, so that an
issuer's current financial conditions may be better or worse than a rating
indicates.
The marked values of lower quality debt securities tend to reflect individual
developments of the issuer to a greater extent than do higher quality
securities, which react primarily to fluctuations in the general level of
interest rates. In addition, lower quality debt securities tend to be more
sensitive to economic conditions and generally have more volatile prices than
higher quality securities. Issuers of lower quality securities are often highly
leveraged and may not have available to them more traditional methods of
financing. For example, during an economic downturn or a sustained period of
rising interest rates, highly leveraged issuers of lower quality securities may
experience financial stress. During such periods, such issuers may not have
sufficient revenues to meet their interest payment obligations. The issuer's
ability to service its debt obligations may also be adversely affected by
specific developments affecting the issuer, such as the issuer's inability to
meet specific projected business forecasts or the unavailability of additional
financing. The risk of loss due to default by the issuer is significantly
greater for the holders of lower quality securities because such securities are
generally unsecured and may be subordinated to the claims of other creditors of
the issuer.
Lower quality debt securities of corporate issuers frequently have call or
buy-back features which would permit an issuer to call or repurchase the
security from Strategic Income Fund and the Portfolio. If an issuer exercises
these provisions in a declining interest rate market, Strategic Income Fund and
the Portfolio may have to replace the security with a lower yielding security,
resulting in a decreased return for investors. In addition, Strategic Income
Fund and the Portfolio may have difficulty disposing of lower quality securities
because there may be a thin trading market for such securities. There may be no
established retail secondary market for many of these securities, and Strategic
Income Fund and the Portfolio anticipate that such securities could be sold only
to a limited number of dealers or institutional investors. The lack of a liquid
secondary market also may have an adverse impact on market prices of such
instruments and may make it more difficult for Strategic Income Fund and the
Portfolio to obtain accurate market quotations for purposes of valuing the
securities in the portfolios of Strategic Income Fund and the Portfolio. Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may also decrease the values and liquidity of lower quality
securities, especially in a thinly traded market. Strategic Income Fund and the
Portfolio also may acquire lower quality debt securities during an initial
underwriting or may acquire lower quality debt securities which are sold without
registration under applicable securities laws. Such securities involve special
considerations and risks.
Factors having an adverse effect on the market value of lower rated securities
or their equivalents purchased by the Strategic Income Fund and the Portfolio
will adversely impact the respective net asset values of the Funds. In addition
to the foregoing, such factors may include: (i) potential adverse publicity;
(ii) heightened sensitivity to general economic or political conditions; and
(iii) the likely adverse impact of a major economic recession. Strategic Income
Fund and the Portfolio also may incur additional expenses to the extent they are
required to seek recovery upon a default in the payment of principal or interest
on its portfolio holdings, and Strategic Income Fund and the Portfolio may have
limited
35
<PAGE> 804
legal recourse in the event of a default. Debt securities issued by governments
in emerging markets can differ from debt obligations issued by private entities
in that remedies from defaults generally must be pursued in the courts of the
defaulting government, and legal recourse is therefore somewhat diminished.
Political conditions, in terms of a government's willingness to meet the terms
of its debt obligations, also are of considerable significance. There can be no
assurance that the holders of commercial bank debt may not contest payments to
the holders of debt securities issued by governments in emerging markets in the
event of default by the governments under commercial bank loan agreements.
As of October 31, 1998, the Strategic Income Fund and the Portfolio had %
and %, respectively, of their total net assets in debt securities that
received a rating from Moody's and % of its total net assets in debt
securities that were not so rated. In addition, the Strategic Income Fund and
the Portfolio had % and %, respectively, of their total net assets in
cash and net receivables. The Strategic Income Fund and the Portfolio had %
and %, respectively, of their total net assets invested in rated
securities; Aaa -- % and %; Aa -- % and %; A -- % and
%; Baa -- % and %; Ba -- % and %; B -- % and
%; Caa -- % and %; Ca -- % and %; C -- % and
%. Included under the unrated category are securities held by the Strategic
Income Fund or the Portfolio which, while unrated, have been determined by the
Sub-advisor to be of comparable quality to securities in the following rating
categories: Ba -- % and %; and B -- % and %. It should be
noted that the allocation of the investments of the Strategic Income Fund or the
Portfolio by rating on any given date will vary and should not be considered
representative of their future portfolio composition.
INVESTMENT LIMITATIONS
Each Fund and the Portfolio has adopted the following investment limitations
as fundamental policies which may not be changed without approval by the holders
of a majority of the outstanding shares of the Fund or Portfolio, as applicable.
Whenever Emerging Markets Debt Fund is requested to vote on a change in the
investment limitations of the Portfolio, the Fund will hold a meeting of its
shareholders and will cast its votes as instructed by its shareholders.
GOVERNMENT INCOME FUND
Government Income Fund may not:
(1) Purchase any security if, as a result of that purchase, 25% or
more of the Fund's total assets would be invested in securities of issuers
having their principal business activities in the same industry, except
that this limitation does not apply to securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities;
(2) Purchase or sell real estate, except that investments in
securities of issuers that invest in real estate and investments in
mortgage-based securities, mortgage participations or other instruments
supported by interests in real estate are not subject to this limitation,
and except that the Fund may exercise rights under agreements relating to
such securities, including the right to enforce security interests and to
hold real estate acquired by reason of such enforcement until that real
estate can be liquidated in an orderly manner;
(3) Engage in the business of underwriting securities of other
issuers, except to the extent that the Fund might be considered an
underwriter under the federal securities laws in connection with its
disposition of portfolio securities;
(4) Make loans, except through loans of portfolio securities or
through repurchase agreements, provided that for purposes of this
limitation, the acquisition of bonds, debentures, other debt securities or
instruments, or participations or other interests therein and investments
in government obligations, commercial paper, certificates of deposit,
bankers' acceptances or similar instruments will not be considered the
making of a loan;
(5) Issue senior securities or borrow money, except as permitted under
the 1940 Act and then not in excess of 33 1/3% of the Fund's total assets
(including the amount borrowed but reduced by any liabilities not
constituting borrowings) at the time of the borrowing, except that the Fund
may borrow up to an additional 5% of its total assets (not including the
amount borrowed) for temporary or emergency purposes; or
(6) Purchase or sell physical commodities, but the Fund may purchase,
sell or enter into financial options and futures, forward and spot currency
contracts, swap transactions and other financial contracts or derivative
instruments.
Notwithstanding any other investment policy of the Fund, the Fund may invest
all of its investable assets (cash, securities and receivables related to
securities) in an open-end management investment company having substantially
the same investment objective, policies and limitations as the Fund.
36
<PAGE> 805
For purposes of the Fund's concentration policy contained in limitation (1)
above, the Fund intends to comply with the SEC staff positions that securities
issued or guaranteed as to principal and interest by any single foreign
government or any supranational organizations in the aggregate are considered to
be securities of issuers in the same industry.
The following investment policies of Government Income Fund are not
fundamental policies and may be changed by vote of the Company's Board of
Trustees without shareholder approval. The Fund may not:
(1) Borrow money to purchase securities or borrow money except for
temporary or emergency purposes. While borrowings exceed 5% of the Fund's
total assets, the Fund will not make any additional investments;
(2) Invest in securities of an issuer if the investment would cause
the Fund to own more than 10% of any class of securities of any one issuer;
(3) Purchase securities on margin, provided that the Fund may obtain
short-term credits as may be necessary for the clearance of purchases and
sales of securities, and further provided that the Fund may make margin
deposits in connection with its use of financial options and futures,
forward and spot currency contracts, swap transactions and other financial
contracts or derivative instruments;
(4) Enter into a futures contract, if, as a result thereof, more than
5% of the Fund's total assets (taken at market value at the time of
entering into the contract) would be committed to margin on such futures
contracts;
(5) Purchase securities for which there is no readily available
market, or enter into repurchase agreements or purchase time deposits
maturing in more than seven days, or purchase OTC options or hold assets
set aside to cover OTC options written by the Fund, if immediately after
and as a result, the value of such securities would exceed, in the
aggregate, 15% of the Fund's net assets; or
(6) Mortgage, pledge, or hypothecate any of its assets, provided that
this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.
STRATEGIC INCOME FUND
Strategic Income Fund may not:
(1) Purchase any security if, as a result of that purchase, 25% or
more of the Fund's total assets would be invested in securities of issuers
having their principal business activities in the same industry, except
that this limitation does not apply to securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities;
(2) Purchase or sell real estate, except that investments in
securities of issuers that invest in real estate and investments in
mortgage-based securities, mortgage participations or other instruments
supported by interests in real estate are not subject to this limitation,
and except that the Fund may exercise rights under agreements relating to
such securities, including the right to enforce security interests and to
hold real estate acquired by reason of such enforcement until that real
estate can be liquidated in an orderly manner;
(3) Engage in the business of underwriting securities of other
issuers, except to the extent that the Fund might be considered an
underwriter under the federal securities laws in connection with its
disposition of portfolio securities;
(4) Make loans, except through loans of portfolio securities or
through repurchase agreements, provided that for purposes of this
limitation, the acquisition of bonds, debentures, other debt securities or
instruments, or participations or other interests therein and investments
in government obligations, commercial paper, certificates of deposit,
bankers' acceptances or similar instruments will not be considered the
making of a loan;
(5) Issue senior securities or borrow money, except as permitted under
the 1940 Act and then not in excess of 33 1/3% of the Fund's total assets
(including the amount borrowed but reduced by any liabilities not
constituting borrowings) at the time of the borrowing, except that the Fund
may borrow up to an additional 5% of its total assets (not including the
amount borrowed) for temporary or emergency purposes; or
(6) Purchase or sell physical commodities, but the Fund may purchase,
sell or enter into financial options and futures, forward and spot currency
contracts, swap transactions and other financial contracts or derivative
instruments.
37
<PAGE> 806
Notwithstanding any other investment policy of the Fund, the Fund may invest
all of its investable assets (cash, securities and receivables related to
securities) in an open-end management investment company having substantially
the same investment objective, policies and limitations as the Fund.
For purposes of the Fund's concentration policy contained in limitation (1)
above, the Fund intends to comply with the SEC staff positions that securities
issued or guaranteed as to principal and interest by any single foreign
government or any supranational organizations in the aggregate are considered to
be securities of issuers in the same industry.
The following investment policies of Strategic Income Fund are not fundamental
policies and may be changed by vote of the Company's Board of Trustees without
shareholder approval. The Fund may not:
(1) Invest more than 15% of its total assets in illiquid securities;
(2) Borrow money to purchase securities and will not invest in
securities of an issuer if the investment would cause the Fund to own more
than 10% of any class of securities of any one issuer (provided, however,
that the Fund may invest all of its investable assets in an open-end
management investment company with substantially the same investment
objectives, policies, and limitations as the Fund.);
(3) Invest more than 10% of its total assets in shares of other
investment companies and invest more than 5% of its total assets in any one
investment company or acquire more than 3% of the outstanding voting
securities of any one investment company (provided, however, that the Fund
may invest all of its investable assets in an open-end management
investment company with substantially the same investment objectives,
policies, and limitations as the Fund);
(4) Purchase securities on margin, provided that the Fund may obtain
short-term credits as may be necessary for the clearance of purchases and
sales of securities, and further provided that the Fund may make margin
deposits in connection with its use of financial options and futures,
forward and spot currency contracts, swap transactions and other financial
contracts or derivative instruments;
(5) Enter into a futures contract, if, as a result thereof, more than
5% of the Fund's total assets (taken at market value at the time of
entering into the contract) would be committed to margin on such futures
contracts; or
(6) Mortgage, pledge, or hypothecate any of its assets, provided that
this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.
EMERGING MARKETS DEBT FUND AND THE PORTFOLIO
Emerging Markets Debt Fund and the Portfolio each may not:
(1) Purchase any security if, as a result of that purchase, 25% or
more of the Fund's total assets would be invested in securities of issuers
having their principal business activities in the same industry, except
that this limitation does not apply to securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities;
(2) Purchase or sell real estate, except that investments in
securities of issuers that invest in real estate and investments in
mortgage-based securities, mortgage participations or other instruments
supported by interests in real estate are not subject to this limitation,
and except that the Fund may exercise rights under agreements relating to
such securities, including the right to enforce security interests and to
hold real estate acquired by reason of such enforcement until that real
estate can be liquidated in an orderly manner;
(3) Purchase or sell physical commodities, but the Fund may purchase,
sell or enter into financial options and futures, forward and spot currency
contracts, swap transactions and other financial contracts or derivative
instruments;
(4) Engage in the business of underwriting securities of other
issuers, except to the extent that the Fund might be considered an
underwriter under the federal securities laws in connection with its
disposition of portfolio securities;
(5) Make loans, except through loans of portfolio securities or
through repurchase agreements, provided that for purposes of this
limitation, the acquisition of bonds, debentures, other debt securities or
instruments, or participations or other interests therein and investments
in government obligations, commercial paper, certificates of deposit,
bankers' acceptances or similar instruments will not be considered the
making of a loan; or
38
<PAGE> 807
(6) Issue senior securities or borrow money, except as permitted under
the 1940 Act and then not in excess of 33 1/3% of the Fund's total assets
(including the amount borrowed but reduced by any liabilities not
constituting borrowings) at the time of the borrowing, except that the Fund
may borrow up to an additional 5% of its total assets (not including the
amount borrowed) for temporary or emergency purposes.
For purposes of the Fund's and the Portfolio's concentration policy contained
in limitation (1) above, they intend to comply with the SEC staff positions that
securities issued or guaranteed as to principal and interest by any single
foreign government or any supranational organizations in the aggregate are
considered to be securities of issuers in the same industry.
The following investment policies of Emerging Markets Debt Fund and the
Portfolio are not fundamental policies and may be changed by vote of the Trust's
or the Portfolio's Board of Trustees without shareholder approval. The Fund and
the Portfolio each may not:
(1) Invest in securities of an issuer if the investment would cause
the Fund or the Portfolio to own more than 10% of any class of securities
of any one issuer (provided, however, that the Fund may invest all of its
investable assets in an open-end management investment company with
substantially the same investment objectives as the Fund);
(2) Invest in companies for the purpose of exercising control or
management (provided, however, that the Fund may invest all of its
investable assets in an open-end management investment company with
substantially the same investment objectives as the Fund);
(3) Enter into a futures contract, an option on a futures contract or
an option on foreign currency traded on a CFTC-regulated exchange, in each
case other than for bona fide hedging purposes (as defined by the CFTC), if
the aggregate initial margin and premiums required to establish all of
those positions (excluding the amount by which options are "in-the-money")
exceeds 5% of the liquidation value of the Fund's or the Portfolio's
portfolio, after taking into account unrealized profits and unrealized
losses on any contracts the Fund or the Portfolio has entered into;
(4) Invest more than 10% of its total assets in shares of other
investment companies and invest more than 5% of its total assets in any one
investment company or acquire more than 3% of the outstanding voting
securities of any one investment company (provided, however, that the Fund
may invest all of its investable assets in an open-end management
investment company with substantially the same investment objectives as the
Fund);
(5) Purchase securities on margin, provided that the Fund may obtain
short-term credits as may be necessary for the clearance of purchases and
sales of securities, and further provided that the Fund may make margin
deposits in connection with its use of financial options and futures,
forward and spot currency contracts, swap transactions and other financial
contracts or derivative instruments; or
(6) Mortgage, pledge, or hypothecate any of its assets, provided that
this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.
GROWTH & INCOME FUND
Growth & Income Fund may not:
(1) Purchase any security if, as a result of that purchase, 25% or
more of the Fund's total assets would be invested in securities of issuers
having their principal business activities in the same industry, except
that this limitation does not apply to securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities;
(2) Purchase or sell real estate, except that investments in
securities of issuers that invest in real estate and investments in
mortgage-based securities, mortgage participations or other instruments
supported by interests in real estate are not subject to this limitation,
and except that the Fund may exercise rights under agreements relating to
such securities, including the right to enforce security interests and to
hold real estate acquired by reason of such enforcement until that real
estate can be liquidated in an orderly manner;
(3) Engage in the business of underwriting securities of other
issuers, except to the extent that the Fund might be considered an
underwriter under the federal securities laws in connection with its
disposition of portfolio securities;
(4) Make loans, except through loans of portfolio securities or
through repurchase agreements, provided that for purposes of this
limitation, the acquisition of bonds, debentures, other debt securities or
instruments, or
39
<PAGE> 808
participations or other interests therein and investments in government
obligations, commercial paper, certificates of deposit, bankers'
acceptances or similar instruments will not be considered the making of a
loan;
(5) Issue senior securities or borrow money, except as permitted under
the 1940 Act and then not in excess of 33 3/4% of the Fund's total assets
(including the amount borrowed but reduced by any liabilities not
constituting borrowings) at the time of the borrowing, except that the Fund
may borrow up to an additional 5% of its total assets (not including the
amount borrowed) for temporary or emergency purposes; or
(6) Purchase or sell physical commodities, but the Fund may purchase,
sell or enter into financial operations and futures, forward and spot
currency contracts, swap transactions and other financial contracts or
derivative instruments.
Notwithstanding any other investment policy of Growth & Income Fund, Growth &
Income Fund may invest all of its investable assets (cash, securities and
receivables related to securities) in an open-end management investment company
having substantially the same investment objective, policies and limitations as
the Fund.
For purposes of the Fund's concentration policy contained in limitation (1)
above, Growth & Income Fund intends to comply with the SEC staff position that
securities issued or guaranteed as to principal and interest by any single
foreign government or any supranational organizations in the aggregate are
considered to be securities of issuers in the same industry.
The following operating policies of the Growth & Income Fund are not
fundamental policies and may be changed by vote of the Trust's Board of Trustees
without shareholder approval. The Fund may not:
(1) Invest in securities of an issuer if the investment would cause
the Fund to own more than 10% of any class of securities of any one issuer;
(2) Sell securities short, except to the extent that the Fund
contemporaneously owns or has the right to acquire at no additional cost
securities identical to those sold short;
(3) Enter into a futures contract, an option on a futures contract, or
an option on foreign currency traded on a CFTC-regulated exchange, in each
case other than for bona fide hedging purposes (as defined by the CFTC), if
the aggregate initial margin and premiums required to establish all of
those positions (excluding the amount by which options are "in-the-money")
exceeds 5% of the liquidation value of the Fund's portfolio, after taking
into account unrealized profits and unrealized losses on any contracts the
Fund has entered into;
(4) Borrow money except for temporary or emergency purposes (other
than to meet redemptions). While borrowings exceed 5% of the Fund's total
assets, the Fund will not make any additional investments;
(5) Purchase securities on margin, provided that the Fund may obtain
short-term credits as may be necessary for the clearance of purchases and
sales of securities, and further provided that the Fund may make margin
deposits in connection with its use of financial options and futures,
forward and spot currency contracts, swap transactions and other financial
contracts or derivative instruments;
(6) Purchase securities for which there is no readily available
market, or enter into repurchase agreements or purchase time deposits
maturing in more than seven days, or purchase OTC options or hold assets
set aside to cover OTC options written by the Fund, if immediately after
and as a result, the value of such securities would exceed, in the
aggregate, 15% of the Fund's net assets; or
(7) Mortgage, pledge, or hypothecate any of its assets, provided that
this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.
Investors should refer to each Fund's Prospectus for further information about
each Fund's respective investment objectives, which may not be changed without
the approval of the Fund's shareholders and its corresponding Portfolio's
investment objective, which may be changed without the approval of the
Portfolio's shareholders, and other investment policies and techniques, which
may be changed without shareholder approval.
40
<PAGE> 809
EXECUTION OF PORTFOLIO TRANSACTIONS
Subject to policies established by the Trust's and the Portfolio's Board of
Trustees, the Sub-advisor is responsible for the execution of Government Income
Fund's, Strategic Income Fund's, Growth & Income Fund's and the Portfolio's
portfolio transactions and the selection of broker/dealers that execute such
transactions on behalf of these Funds and the Portfolio. In executing
transactions, the Sub-advisor seeks the best net results for Government Income
Fund, Strategic Income Fund, Growth & Income Fund and the Portfolio, taking into
account such factors as the price (including the applicable brokerage commission
or dealer spread), size of the order, difficulty of execution and operational
facilities of the firm involved. Although the Sub-advisor generally seeks
reasonably competitive commission rates and spreads, payment of the lowest
commission or spread is not necessarily consistent with the best net results.
While the Funds and the Portfolio may engage in soft dollar arrangements for
research services, as described below, neither the Funds nor the Portfolio has
any obligation to deal with any broker/dealer or group of broker/dealers in the
execution of portfolio transactions.
Debt securities generally are traded on a "net" basis with a dealer acting as
principal for its own account without a stated commission, although the price of
the security usually includes a profit to the dealer. U.S. and foreign
government securities and money market instruments generally are traded in the
OTC markets. In underwritten offerings, securities usually are purchased at a
fixed price which includes an amount of compensation to the underwriter. On
occasion, securities may be purchased directly from an issuer, in which case no
commissions or discounts are paid. Broker/dealers may receive commissions on
futures, currency and options transactions.
Consistent with the interests of the Funds and the Portfolio, the Sub-advisor
may select brokers to execute the Funds' and the Portfolio's portfolio
transactions on the basis of the research and brokerage services they provide to
the Sub-advisor for its use in managing the Funds and the Portfolio and its
other advisory accounts. Such services may include furnishing analyses, reports
and information concerning issuers, industries, securities, geographic regions,
economic factors and trends, portfolio strategy, and performance of accounts;
and effecting securities transactions and performing functions incidental
thereto (such as clearance and settlement). Research and brokerage services
received from such brokers are in addition to, and not in lieu of, the services
required to be performed by the Sub-advisor under investment management and
administration contracts. A commission paid to such brokers may be higher than
that which another qualified broker would have charged for effecting the same
transaction, provided that the Sub-advisor determines in good faith that such
commission is reasonable in terms either of that particular transaction or the
overall responsibility of the Sub-advisor to the Funds and the Portfolio and its
other clients and that the total commissions paid by the Funds and the Portfolio
will be reasonable in relation to the benefits received by the Funds and the
Portfolio over the long term. Research services may also be received from
dealers who execute Fund transactions in OTC markets.
The Sub-advisor may allocate brokerage transactions to broker/dealers who have
entered into arrangements under which the broker/dealer allocates a portion of
the commissions paid by the Funds or the Portfolio toward payment of the Funds'
or the Portfolio's expenses, such as transfer agent and custodian fees.
Investment decisions for each Fund and the Portfolio and for other investment
accounts managed by the Sub-advisor are made independently of each other in
light of differing conditions. However, the same investment decision
occasionally may be made for two or more of such accounts, including one or both
Funds and the Portfolio. In such cases, simultaneous transactions may occur.
Purchases or sales are then allocated as to price or amount in a manner deemed
fair and equitable to all accounts involved. While in some cases this practice
could have a detrimental effect upon the price or value of the security as far
as the Funds and the Portfolio are concerned, in other cases the Sub-advisor
believes that coordination and the ability to participate in volume transactions
will be beneficial to the Funds and the Portfolio.
Under a policy adopted by the Trust's and the Portfolio's Board of Trustees,
and subject to the policy of obtaining the best net results, the Sub-advisor may
consider a broker/dealer's sale of the shares of the Funds and the other funds
for which AIM or the Sub-advisor serves as investment manager in selecting
brokers and dealers for the execution of portfolio transactions. This policy
does not imply a commitment to execute portfolio transactions through all
broker/dealers that sell shares of the Funds and such other funds.
Each Fund and the Portfolio contemplates purchasing most foreign equity
securities in over-the-counter markets or stock exchanges located in the
countries in which the respective principal offices of the issuers of the
various securities are located, if that is the best available market. The fixed
commissions paid in connection with most such foreign stock transactions
generally are higher than negotiated commissions on United States transactions.
There generally is less government supervision and regulation of foreign stock
exchanges and brokers than in the United States. Foreign security settlements
may in some instances be subject to delays and related administrative
uncertainties.
Foreign equity securities may be held by a Fund and the Portfolio in the form
of ADRs, ADSs, CDRs, GDRs or EDRs or securities convertible into foreign equity
securities. ADRs, ADSs, CDRs, GDRs and EDRs may be listed on stock exchanges,
41
<PAGE> 810
or traded in the OTC markets in the United States or Europe, as the case may be.
ADRs, like other securities traded in the United States, will be subject to
negotiated commission rates. The foreign and domestic debt securities and money
market instruments in which the Funds and the Portfolio may invest generally are
traded in the OTC markets.
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 Boards of
Directors/Trustees of the various AIM Funds, including the Trust. These inter-
fund transactions do not generate brokerage commissions but may result in
custodial fees or taxes or other related expenses.
The Funds and the Portfolio contemplate that, consistent with the policy of
obtaining the best net results, brokerage transactions may be conducted through
certain companies that are affiliates of AIM and the Sub-advisor. The Trust's
Board of Trustees has adopted procedures in conformity with Rule 17e-1 under the
1940 Act to ensure that all brokerage commissions paid to such affiliates are
reasonable and fair in the context of the market in which they are operating.
Any such transactions will be effected and related compensation paid only in
accordance with applicable SEC regulations. For the fiscal years ended October
31, 1998, 1997 and 1996, the Portfolio paid aggregate brokerage commissions of
$ , $0 and $86,600, respectively. For the fiscal years ended October 31,
1998, 1997 and 1996, Government Income Fund paid aggregate brokerage commissions
of $ , $4,987 and $24,663, respectively. For the fiscal years ended October
31, 1998, 1997 and 1996, the Strategic Income Fund paid aggregate brokerage
commissions of $ , $6,177 and $85,404, respectively. For the fiscal years
ended October 31, 1998, 1997 and 1996, Growth & Income Fund paid aggregate
brokerage commissions of $ , $463,307 and $257,953, respectively. For the
fiscal years ended October 31, 1996 and 1997, the Growth & Income Fund paid to
LGT Bank in Liechtenstein, AG, which was an "affiliated" broker, aggregate
brokerage commissions of $16,898 and $12,262, respectively, for transactions
involving purchases and sales of portfolio securities which represented 6.55%
and 2.65%, respectively, of the total brokerage commissions paid by the Fund and
5.69% and 2.94%, respectively, of the aggregate dollar amount of transactions
involving payment of commissions by the Fund.
PORTFOLIO TRADING AND TURNOVER
Each Fund and the Portfolio engages in portfolio trading when the Sub-advisor
concludes that the sale of a security owned by a Fund and the Portfolio and/or
the purchase of another security of better value can enhance principal and/or
increase income. A security may be sold to avoid any prospective decline in
market value, or a security may be purchased in anticipation of a market rise.
Consistent with each Fund's and the Portfolio's investment objectives, a
security also may be sold and a comparable security purchased coincidentally in
order to take advantage of what is believed to be a disparity in the normal
yield and price relationship between the two securities. Although the Funds and
the Portfolio generally do not intend to trade for short-term profits, the
securities in each Fund's and the Portfolio's portfolio will be sold whenever
the Sub-advisor believes it is appropriate to do so, without regard to the
length of time a particular security may have been held. Portfolio turnover is
calculated by dividing the lesser of sales or purchases of portfolio securities
by each Fund's or the Portfolio's average month-end portfolio value, excluding
short-term investments. Higher portfolio turnover involves correspondingly
greater brokerage commissions and other transaction costs that a Fund or the
Portfolio will bear directly, and could result in the realization of net capital
gains that would be taxable when distributed to shareholders. The portfolio
turnover rates for the Government Income Fund, Growth & Income Fund, Strategic
Income Fund and the Portfolio the last three fiscal years were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
OCT. 31, 1998 OCT. 31, 1997 OCT. 31, 1996
------------- ------------- -------------
<S> <C> <C> <C>
Emerging Markets Debt Portfolio.................. % 214% 290%
Government Income Fund........................... % 241% 268%
Growth & Income Fund............................. % 50% 39%
Strategic Income Fund............................ % 149% 177%
</TABLE>
42
<PAGE> 811
MANAGEMENT
The Trust's Board of Trustees has overall responsibility for the operation of
the Funds. The Trust's Board of Trustees has approved all significant agreements
between the Trust on the one side and persons or companies furnishing services
to the Fund on the other, including the investment management and administration
agreement with AIM, the investment sub-advisory and sub-administration agreement
between AIM and the Sub-advisors, the agreements with AIM Distributors regarding
distribution of the Fund's shares, the custody agreement and the transfer agency
agreement. The day-to-day operations of the Fund are delegated to the officers
of the Trust, subject always to the investment objectives and policies of the
Fund and to the general supervision of the Trust's Board of Trustees.
TRUSTEES AND EXECUTIVE OFFICERS
The Trust and the Portfolio's Trustees and Executive Officers are listed
below. Unless otherwise indicated, the address of each Executive Officer is 11
Greenway Plaza, Suite 100, Houston, Texas 77046.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
NAME, ADDRESS AND AGE POSITIONS HELD WITH REGISTRANT PRINCIPAL OCCUPATION WITH REGISTRANT
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
ROBERT H. GRAHAM (51) Trustee, Chairman of the Board Director, President and Chief Executive
and 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; and Director, AMVESCAP PLC.
- ----------------------------------------------------------------------------------------------------
C. DEREK ANDERSON (57) Trustee President, Plantagenet Capital
220 Sansome Street Management, LLC (an investment
Suite 400 partnership); Chief Executive Officer,
San Francisco, CA 94104 Plantagenet Holdings, Ltd. (an
investment banking firm); Director,
Anderson Capital Management, Inc. since
1988; Director, PremiumWear, Inc.
(formerly Munsingwear, Inc.) (a casual
apparel company); Director, "R" Homes,
Inc. and various other companies; and
Trustee, each of the other investment
companies registered under the 1940 Act
that is sub-advised or sub-administered
by the Sub-advisor.
- ----------------------------------------------------------------------------------------------------
FRANK S. BAYLEY (59) Trustee Partner, law firm of Baker & McKenzie;
Two Embarcadero Center Director and Chairman, C.D. Stimson
Suite 2400 Company (a private investment company);
San Francisco, CA 94111 and Trustee, each of the other
investment companies registered under
the 1940 Act that is sub-advised or
sub-administered by the Sub-advisor.
- ----------------------------------------------------------------------------------------------------
ARTHUR C. PATTERSON (54) Trustee Managing Partner, Accel Partners (a
428 University Avenue venture capital firm); Director,
Palo Alto, CA 94301 Viasoft and PageMart, Inc. (both public
software companies) and several other
privately held software and
communications companies; and Trustee,
each of the other investment companies
registered under the 1940 Act that is
sub-advised or sub-administered by the
Sub-advisor.
- ----------------------------------------------------------------------------------------------------
RUTH H. QUIGLEY (63) Trustee Private investor; President, Quigley
1055 California Street Friedlander & Co., Inc. (a financial
San Francisco, CA 94108 advisory services firm) from 1984 to
1986; and Trustee, each of the other
investment companies registered under
the 1940 Act that is sub-advised or
sub-administered by the Sub-advisor.
- ----------------------------------------------------------------------------------------------------
</TABLE>
43
<PAGE> 812
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
NAME, ADDRESS AND AGE POSITIONS HELD WITH REGISTRANT PRINCIPAL OCCUPATION WITH REGISTRANT
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
+JOHN J. ARTHUR (53) Vice President Director and Senior Vice President,
A I M Advisors, Inc.; Vice President
and Treasurer, A I M Management Group
Inc.
- ----------------------------------------------------------------------------------------------------
KENNETH W. CHANCEY (53) Vice President and Principal Senior Vice President -- Mutual Fund
50 California Street Accounting Officer Accounting, the Sub-advisor since 1997;
San Francisco, CA 94111 Vice President -- Mutual Fund
Accounting, the Sub-advisor from 1992
to 1997.
- ----------------------------------------------------------------------------------------------------
MELVILLE B. COX (54) Vice President Vice President and Chief Compliance
Officer, A I M Advisors, Inc., A I M
Capital Management, Inc., A I M
Distributors, Inc., A I M Fund
Services, Inc. and Fund Management
Company.
- ----------------------------------------------------------------------------------------------------
GARY T. CRUM (50) Vice President Director and President, A I M Capital
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) Vice President Director, Senior Vice President,
General Counsel and Secretary, A I M
Advisors, Inc.; Senior Vice President,
General Counsel and Secretary, A I M
Management Group Inc.; Director, Vice
President and General Counsel, Fund
Management Company; Vice President and
General Counsel, A I M Fund Services,
Inc.; and Vice President, A I M Capital
Management, Inc. and A I M
Distributors, Inc.
- ----------------------------------------------------------------------------------------------------
DANA R. SUTTON, (39) Vice President and Assistant Vice President and Fund Controller,
Treasurer A I M Advisors, Inc.; and Assistant
Vice President and Assistant Treasurer,
Fund Management Company.
- ----------------------------------------------------------------------------------------------------
</TABLE>
The Board of Trustees has a Nominating and Audit Committee, composed of Miss
Quigley (Chairman) and Messrs. Anderson, Bayley and Patterson, which is
responsible for nominating persons to serve as Trustees, reviewing audits of the
Trust and its funds and recommending firms to serve as independent auditors of
the Trust. All of the Trust's Trustees also serve as directors or trustees of
some or all of the other investment companies managed, administered or advised
by AIM. All of the Trust's Executive Officers held similar offices with some or
all of the other investment companies managed, administered or advised by AIM.
Each Trustee who is not a trustee, officer or employee of the Sub-advisor or any
affiliated company is paid aggregate fees of $5,000 a year, plus $300 per Fund
for each meeting of the Board attended, and reimbursed travel and other expenses
incurred in connection with attendance at such meetings. Other Trustees and
Officers receive no compensation or expense reimbursement from the Trust. For
the fiscal year ended October 31, 1997, Mr. Anderson, Mr. Bayley, Mr. Patterson
and Miss Quigley, who are not trustees, officers, or employees of the
Sub-advisor or any affiliated company, received total compensation of $ ,
$ , $ and $ , respectively, from the Trust for their services
as Trustees. For the fiscal year ended October 31, 1998, Mr. Anderson, Mr.
Bayley, Mr. Patterson and Miss Quigley, who are not trustees, officers or
employees of the Sub-advisor or any other affiliated company, received total
compensation of $ , $ , $ and $ , respectively, from the
investment companies managed or administered by AIM and sub-advised or
sub-advised by the Sub-advisor for which he or she serves as a Trustee. Fees and
expenses disbursed to the Trustees contained no accrued or payable pension or
retirement benefits. As of , 1998, the Officers and Trustees and
their families as a group owned in the aggregate beneficially or of record less
than 1% of the outstanding shares of the Funds or of all the Trust's series in
the aggregate.
- ---------------
<TABLE>
<S> <C> <C>
+ Mr. Arthur and Ms. Relihan are married to each other.
</TABLE>
44
<PAGE> 813
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES
AIM serves as Government Income Fund's, Strategic Income Fund's and Growth &
Income Fund's investment manager and administrator under an investment
management and administration contract between the Trust and AIM ("Trust
Management Contract"). INVESCO Asset Management Limited serves as the
Portfolio's sub-advisor and sub-administrator under a sub-advisory and
sub-administration Agreement between AIM and the Sub-advisor ("Portfolio
Management Sub-Contract," and together with the Portfolio Management Contract,
the "Portfolio Management Contracts"). AIM serves as the Portfolio's investment
manager and administrator under an Investment Management and Administration
Contract between the Portfolio and AIM ("Portfolio Management Contract")
(collectively, "Management Contracts"). [The Sub-advisor serves as
sub-administrator to each Feeder Fund under a sub-administration contract
between AIM and the Sub-advisor ("Administration Sub-Contract," and together
with the Administration Contract, the "Administration Contracts").] AIM serves
as Emerging Markets Debt Fund's administrator under an Administration Contract
("Administration Contract") between the Trust and AIM. The Sub-advisor serves as
the sub-advisor and sub-administrator to the Government Income Fund, and Growth
& Income Fund and INVESCO (NY), Inc. serves as sub-advisor and sub-
administrator to Strategic Income Fund under a sub-advisory and
sub-administration Contract between AIM and the Sub-advisor ("Sub-Management
Contract," and together with the Management Contract, the "Management
Contracts"). The Administration Contracts will not be deemed advisory contracts,
as defined under the 1940 Act. As investment managers and administrators, AIM
and the Sub-advisor make all investment decisions for Government Income Fund,
Strategic Income Fund, Growth & Income Fund and the Portfolio and as
administrators, AIM and the Sub-advisor administer each Fund's and the
Portfolio's affairs. Among other things, AIM and the Sub-advisor furnish the
services and pay the compensation and travel expenses of persons who perform the
executive, administrative, clerical and bookkeeping functions of the Trust, the
Funds, and the Portfolio and provide suitable office space, necessary small
office equipment and utilities.
The Management Contracts may be renewed for one-year terms, provided that any
such renewal has been specifically approved at least annually by: (i) the
Trust's or the Portfolio's Board of Trustees, as applicable, or by the vote of a
majority of the Fund's or the Portfolio's outstanding voting securities (as
defined in the 1940 Act), and (ii) a majority of Trustees who are not parties to
the Management Contracts or the Administration Contracts or "interested persons"
of any such party (as defined in the 1940 Act), cast in person at a meeting
called for the specific purpose of voting on such approval. The Management
Contracts provide that with respect to Government Income Fund, Strategic Income
Fund, Growth & Income Fund and the Portfolio, and the Administration Contracts
provide that with respect to the Emerging Markets Debt Fund, either the Trust,
the Portfolio or each of AIM or the Sub-advisor may terminate the Contracts
without penalty upon sixty days' written notice to the other party. The
Management Contracts and the Administration Contracts terminate automatically in
the event of their assignment (as defined in the 1940 Act).
In each of the last three fiscal years Government Income Fund paid investment
management and administration fees to the Sub-advisor in the following amounts:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, AMOUNT PAID
- ---------------------- -----------
<S> <C>
1998........................................................ $
1997........................................................ 2,403,043
1996........................................................ 3,672,503
</TABLE>
In each of the last three fiscal years Strategic Income Fund paid investment
management and administration fees to the Sub-advisor in the following amounts:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, AMOUNT PAID
- ---------------------- -----------
<S> <C>
1998........................................................ $
1997........................................................ 3,474,804
1996........................................................ 3,807,689
</TABLE>
In each of the last three fiscal years the Growth & Income Fund paid
investment management and administration fees to the Sub-advisor in the
following amounts:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, AMOUNT PAID
- ---------------------- -----------
<S> <C>
1998........................................................ $
1997........................................................ 6,900,695
1996........................................................ 6,282,438
1995........................................................ 6,301,399
</TABLE>
45
<PAGE> 814
In each of the last three fiscal years Emerging Markets Debt Portfolio paid
investment management and administration fees to the Sub-advisor in the
following amounts:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, AMOUNT PAID
- ---------------------- -----------
<S> <C>
1998........................................................ $
1997........................................................ 2,971,167
1996........................................................ 3,014,924
</TABLE>
In each of the last three fiscal years Emerging Markets Debt Fund paid
administration fees to the Sub-advisor in the following amounts:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, AMOUNT PAID
- ---------------------- -----------
<S> <C>
1998........................................................ $
1997........................................................ 1,136,471
1996........................................................ 1,015,220
</TABLE>
For these services, each Fund pays AIM investment management and
administration fees, computed daily and paid monthly, based on its average daily
net assets, [at the annualized rate of 0.975% on the first $500 million, 0.95%
on the next $500 million, 0.925% on the next $500 million and 0.90% on the
amounts thereafter.] Out of the aggregate fees payable by each Fund, AIM pays
each Sub-advisor sub-advisory and sub-administration fees equal to 40% of the
aggregate fees AIM receives from each Fund. The investment management and
administration fees paid by the Funds are higher than those paid by most mutual
funds. The Funds pay all expenses not assumed by AIM, the Sub-advisors, AIM
Distributors or other agents. AIM has undertaken to limit each Fund's expenses
(exclusive of brokerage commissions, taxes, interest and extraordinary expenses)
to the annual rate of 2.00% and 2.50% of the average daily net assets of each
Fund's Class A and Class B and Class C shares, respectively.
AIM also serves as the Funds' pricing and accounting agent. For these
services, AIM receives a fee based on the aggregate net assets of the funds
which comprise the following investment companies: AIM Growth Series, AIM
Investment Funds, AIM Investment Portfolios, AIM Series Trust, G.T. Global
Variable Investment Series and G.T. Global Variable Investment Trust. The fee is
calculated at the rate of 0.03% of the first $5 billion of assets, and 0.02% of
the assets in excess of $5 billion. An amount is allocated to and paid by each
such fund based on its relative average daily net assets.
AIM, 11 Greenway Plaza, Suite 100, Houston, Texas 77046, serves as the
investment manager to the Fund pursuant to a master investment management and
administrative services agreement (the "Advisory Agreement"). AIM was organized
in 1976 and, together with its subsidiaries, manages or advises approximately 90
investment company portfolios encompassing a broad range of investment
objectives. INVESCO (NY), Inc., 1166 Avenue of the Americas, New York, New York
10036, serves as the sub-advisor to Strategic Income Fund pursuant to an
investment sub-advisory and sub-administration agreement. Prior to May 29, 1998,
the Sub-advisor was known as Chancellor LGT Asset Management, Inc. On May 29,
1998, Liechtenstein Global Trust AG ("LGT"), the former indirect parent
organization of INVESCO (NY), Inc., consummated a purchase agreement with
AMVESCAP PLC pursuant to which AMVESCAP PLC acquired LGT's Asset Management
Division, which included INVESCO (NY), Inc. and certain other affiliates. As a
result of this transaction, the INVESCO (NY), Inc. is now an indirect wholly
owned subsidiary of AMVESCAP PLC. Prior to the sale, INVESCO (NY), Inc. and its
worldwide asset management affiliates provided investment management and/or
administrative services to institutional, corporate and individual clients
around the world since 1969.
[INVESCO Asset Management Ltd., 11 Devonshire Square, London, EC2M 4YR, England,
serves as the sub-advisor and sub-administrator to Strategic Income Fund.]
AIM, the Sub-advisors and their worldwide asset management affiliates provide
investment management and/or administrative services to institutional, corporate
and individual clients around the world. A I M Management Group Inc. ("AIM
Management"), AIM and the Sub-advisors are both indirect wholly owned
subsidiaries of AMVESCAP PLC, 11 Devonshire Square, London, EC2M 4YR, England.
AMVESCAP PLC and its subsidiaries are an independent investment management group
that has a significant presence in the institutional and retail segment of the
investment management industry in North America and Europe, and a growing
presence in Asia.
In addition to the investment resources of their Houston, San Francisco and
New York offices, AIM and the Sub-advisors draw upon the expertise, personnel,
data and systems of other offices in Atlanta, Boston, Dallas, Denver,
Louisville, Miami, Portland (Oregon), Frankfurt, Hong Kong, London, Singapore,
Sydney, Tokyo and Toronto. In managing the Funds, the Sub-advisors employ a team
approach, taking advantage of its investment resources around the world.
In placing securities for a Fund's portfolio transactions, the Sub-advisors
seek to obtain the best net results. Consistent with its obligation to obtain
the best net results, the Sub-advisors may consider a broker/dealer's sale of
shares of the AIM
46
<PAGE> 815
Funds as a factor in considering through whom portfolio transactions will be
effected. Brokerage transactions may be executed through affiliates of AIM or
the Sub-advisors. High portfolio turnover (over 100%) involves correspondingly
greater brokerage commissions and other transaction costs that the Fund will
bear directly and could result in the realization of net capital gains which
would be taxable when distributed to shareholders. See "Dividends, Distributions
and Tax Matters."
AIM is a direct, wholly owned subsidiary of AIM Management, a holding company
that has been engaged in the financial services business since 1976. AIM is also
the sole shareholder of the Funds' principal underwriter, AIM Distributors.
DISTRIBUTION SERVICES
Each Fund's Advisor Class shares are offered continuously through each Fund's
principal underwriter and distributor, AIM Distributors, on a "best efforts"
basis pursuant to a distribution contract between the Trust and AIM Distributors
without a sales charge or a contingent deferred sales charge.
EXPENSES OF THE FUNDS AND THE PORTFOLIO
Each Fund and the Portfolio pays all expenses not assumed by AIM, the
Sub-advisor, AIM Distributors and other agents. These expenses include, in
addition to the advisory, distribution, transfer agency, pricing and accounting
agent and brokerage fees discussed above, legal and audit expenses, custodian
fees, trustees' fees, organizational fees, fidelity bond and other insurance
premiums, taxes, extraordinary expenses and the expenses of reports and
prospectuses sent to existing investors. The allocation of general Company
expenses and expenses shared by the Funds and other funds organized as series of
the Trust are allocated on a basis deemed fair and equitable, which may be based
on the relative net assets of the Funds or the nature of the services performed
and relative applicability to each Fund. Expenditures, including costs incurred
in connection with the purchase or sale of portfolio 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. The ratio of each Fund's and the Portfolio's expenses to its
relative net assets can be expected to be higher than the expense ratios of
funds investing solely in domestic securities, since the cost of maintaining the
custody of foreign securities and the rate of investment management fees paid by
each Fund and the Portfolio generally are higher than the comparable expenses of
such other funds.
NET ASSET VALUE DETERMINATION
The net asset value per share of each Fund and Portfolio is normally
determined daily as of the close of trading of the New York Stock Exchange
("NYSE") (generally 4:00 p.m. Eastern time) on each business day of the Fund and
Portfolio. 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 or Portfolio is
determined as of the close of the NYSE on such day. Net asset value per share is
determined by dividing the value of a Fund's or the Portfolio's securities, cash
and other assets (including interest accrued but not collected) attributable to
a particular class, less all its liabilities (including accrued expenses and
dividends payable) attributable to that class, by the total number of shares
outstanding of that class. Determination of a Fund's or the Portfolio's net
asset value per share is made in accordance with generally accepted accounting
principles.
Each equity security 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 last available bid. Each security traded in the
over-the-counter market (but not including securities reported on the NASDAQ
National Market System) is valued at the mean between the last bid and asked
prices based upon quotes furnished by market makers for such securities. Each
security reported on the NASDAQ National Market System is valued at the last
sales price on the valuation date or absent a last sales price, at the mean
between the closing bid and asked prices on that day. Debt securities are valued
on the basis of prices provided by an independent pricing service. Prices
provided by the pricing service may be determined without exclusive reliance on
quoted prices, and may reflect appropriate factors such as institution-size
trading in similar groups of securities, developments related to special
securities, yield, quality, coupon rate, maturity, type of issue, individual
trading characteristics and other market data. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the Trust's
officers in a manner specifically authorized by the Board of Trustees.
Short-term obligations having 60 days or less to maturity are valued on the
basis of amortized cost. For purposes of determining net asset value per share,
futures and options contracts generally will be valued 15 minutes after the
close of trading of the NYSE.
Generally, trading in foreign securities, corporate bonds, U.S. Government
securities and money market instruments is substantially completed each day at
various times prior to the close of the NYSE. The values of such securities used
in
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<PAGE> 816
computing the net asset value of each Fund's or Portfolio's shares are
determined at such times. Foreign currency exchange rates are also generally
determined prior to the close of the NYSE. Occasionally, events affecting the
values of such securities and such exchange rates may occur between the times at
which such values are determined and the close of the NYSE which will not be
reflected in the computation of a Fund's or Portfolio's net asset value. If
events materially affecting the value of such securities occur during such
period, then these securities will be valued at their fair value as determined
in good faith by or under the supervision of the Board of Trustees of the Fund.
HOW TO PURCHASE AND REDEEM SHARES
A complete description of the manner in which shares of the Funds may be
purchased appears in the Funds' Prospectuses under the headings "How to Purchase
Shares," "Terms and Conditions of Purchase of the AIM Funds" and "Special
Plans."
For purposes of a Letter of Intent entered into prior to June 1, 1998, any
registered investment advisor, trust company or bank trust department which
exercises investment discretion and which intends within thirteen months to
invest $500,000 or more can be treated as a single purchaser, provided further
that such entity places all purchases and redemption orders. Such entities
should be prepared to establish their qualifications for such treatment.
Complete information concerning the method of exchanging shares of the Funds
for shares of the other AIM Funds is set forth in the Prospectuses under the
heading "Exchange Privilege."
Information concerning redemption of the Funds' shares is set forth in the
Prospectuses under the heading "How to Redeem Shares." In addition to the Funds'
obligation to redeem shares, AIM Distributors may also repurchase shares as an
accommodation to shareholders. To effect a repurchase, those dealers who have
executed Selected Dealer Agreements with AIM Distributors must phone orders to
the order desk of the Funds at (800) 959-4246 and guarantee delivery of all
required documents in good order. A repurchase is effected at the net asset
value per share of the applicable Fund next determined after the repurchase
order is received. Such an arrangement is subject to timely receipt by A I M
Fund Services, Inc. ("AFS"), the Funds' transfer agent, of all required
documents in good order. If such documents are not received within a reasonable
time after the order is placed, the order is subject to cancellation. While
there is no charge imposed by a Fund or by AIM Distributors (other than any
applicable contingent deferred sales charge) when shares are redeemed or
repurchased, dealers may charge a fair service fee for handling the transaction.
The right of redemption may be suspended or the date of payment postponed when
(a) trading on the 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.
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 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.
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<PAGE> 817
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:
- a corporation
- an organization exempt from tax under Section 501(a), an individual
retirement plan (IRA), or a custodial account under Section 403(b)(7)
- the United States or any of its agencies or instrumentalities
- a state, the District of Columbia, a possession of the United States, or any
of their political subdivisions or instrumentalities
- a foreign government or any of its political subdivisions, agencies or
instrumentalities
- an international organization or any of its agencies or instrumentalities
- a foreign central bank of issue
- a dealer in securities or commodities required to register in the U.S. or a
possession of the U.S.
- a futures commission merchant registered with the Commodity Futures Trading
Commission
- a real estate investment trust
- an entity registered at all times during the tax year under the 1940 Act
- a common trust fund operated by a bank under Section 584(a)
- a financial institution
- a middleman known in the investment community as a nominee or listed in the
most recent publication of the American Society of Corporate Secretaries,
Inc., Nominee List
- a trust exempt from tax under Section 664 or described in Section 4947
Investors should contact the IRS if they have any questions concerning
entitlement to an exemption from backup withholding.
NOTE: Section references are to sections of the Code.
IRS PENALTIES -- Investors who do not supply the AIM Funds with a correct TIN
will be subject to a $50 penalty imposed by the IRS unless such failure is due
to reasonable cause and not willful neglect. If an investor falsifies
information on this form or makes any other false statement resulting in no
backup withholding on an account which should be subject to backup withholding,
such investor may be subject to a $500 penalty imposed by the IRS and to certain
criminal penalties including fines and/or imprisonment.
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.
TAXES
TAXATION OF THE FUNDS
Each Fund is treated as a separate corporation for federal income tax
purposes. To continue to qualify for treatment as a regulated investment company
("RIC") under the Code, each Fund must distribute to its shareholders for each
taxable year at least 90% of its investment company taxable income (consisting
generally of net investment income, net short-term capital gain and net gains
from certain foreign currency transactions) ("Distribution Requirement") and
must meet
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<PAGE> 818
several additional requirements. With respect to each Fund, these requirements
include the following: (1) the Fund must derive at least 90% of its gross income
each taxable year from dividends, interest, payments with respect to securities
loans and gains from the sale or other disposition of securities or foreign
currencies, or other income (including gains from options, Futures or Forward
Contracts) derived with respect to its business of investing in securities or
those currencies ("Income Requirement"); (2) at the close of each quarter of the
Fund's taxable year, at least 50% of the value of its total assets must be
represented by cash and cash items, U.S. government securities, securities of
other RICs and other securities, with these other securities limited, in respect
of any one issuer, to an amount that does not exceed 5% of the value of the
Fund's total assets and that does not represent more than 10% of the issuer's
outstanding voting securities; and (3) at the close of each quarter of the
Fund's taxable year, not more than 25% of the value of its total assets may be
invested in securities (other than U.S. government securities or the securities
of other RICs) of any one issuer. The Emerging Markets Debt Fund, as an investor
in the Portfolio, is deemed to own a proportionate share of the Portfolio's
assets, and to earn a proportionate share of the Portfolio's income, for
purposes of determining whether that Fund satisfies the requirements described
above to qualify as a RIC.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to
the extent it fails to distribute by the end of any calendar year substantially
all of its ordinary income for that year and capital gain net income for the
one-year period ending on October 31 of that year, plus certain other amounts.
See "Taxation of Certain Investment Activities" below for a discussion of the
tax consequences to the Emerging Markets Debt Fund of hedging transactions
engaged in, and investments in passive foreign investment companies ("PFICs")
and other foreign securities by, the Portfolio.
TAXATION OF THE PORTFOLIO -- GENERAL
The Portfolio is treated as a partnership for federal income tax purposes and
is not a "publicly traded partnership." As a result, the Portfolio is not
subject to federal income tax; instead, the Emerging Markets Debt Fund, as an
investor in the Portfolio, is required to take into account in determining its
federal income tax liability its share of the Portfolio's income, gains, losses,
deductions and credits, without regard to whether it has received any cash
distributions from the Portfolio. The Portfolio also is not subject to Delaware
income or franchise tax.
Because, as noted above, the Emerging Markets Debt Fund is deemed to own a
proportionate share of the Portfolio's assets, and to earn a proportionate share
of the Portfolio's income, for purposes of determining whether that Fund
satisfies the requirements to qualify as a RIC, the Portfolio intends to conduct
its operations so that the Emerging Markets Debt Fund will be able to continue
to satisfy all those requirements.
Distributions to the Emerging Markets Debt Fund from the Portfolio (whether
pursuant to a partial or complete withdrawal or otherwise) will not result in
that Fund's recognition of any gain or loss for federal income tax purposes,
except that (1) gain will be recognized to the extent any cash that is
distributed exceeds that Fund's basis for its interest in the Portfolio before
the distribution, (2) income or gain will be recognized if the distribution is
in liquidation of that Fund's entire interest in the Portfolio and includes a
disproportionate share of any unrealized receivables held by the Portfolio, and
(3) loss will be recognized if a liquidation distribution consists solely of
cash and/or unrealized receivables. The Emerging Markets Debt Fund's basis for
its interest in the Portfolio generally will equal the amount of cash and the
basis of any property that Fund invests in the Portfolio, increased by that
Fund's share of the Portfolio's net income and gains and decreased by (a) the
amount of cash and the basis of any property the Portfolio distributes to that
Fund and (b) that Fund's share of the Portfolio's losses.
TAXATION OF CERTAIN INVESTMENT ACTIVITIES
For purposes of the following discussion, "Investor Funds" means the
Government Income Fund, the Strategic Income Fund, the Growth & Income Fund and
the Portfolio.
Foreign Taxes. Interest and dividends received by an Investor Fund, and gains
realized thereby, may be subject to income, withholding or other taxes imposed
by foreign countries and U.S. possessions ("foreign taxes") that would reduce
the yield and/or total return on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate foreign taxes, however,
and many foreign countries do not impose taxes on capital gains in respect of
investments by foreign investors. If more than 50% of the value of an Investor
Fund's total assets (taking into account, in the case of the Emerging Markets
Debt Fund, its proportionate share of the Portfolio's assets) at the close of
its taxable year consists of securities of foreign corporations, the Fund will
be eligible to, and may, file an election with the Internal Revenue Service that
will enable its shareholders, in effect, to receive the benefit of the foreign
tax credit with respect to any foreign taxes paid by it (taking into account, in
the case of the Emerging Markets Debt Fund, its proportionate share of any
foreign taxes paid by the Portfolio) (a "Fund's foreign taxes"). Pursuant to the
election, an Investor Fund would
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treat those taxes as dividends paid to its shareholders and each shareholder
would be required to (1) include in gross income, and treat as paid by him, his
proportionate share of the Fund's foreign taxes, (2) treat his share of those
taxes and of any dividend paid by the Fund that represents its income from
foreign and U.S. possessions sources (taking into account, in the case of the
Emerging Markets Debt Fund, its proportionate share of the Portfolio's income
from those sources) as his own income from those sources and (3) either deduct
the taxes deemed paid by him in computing his taxable income or, alternatively,
use the foregoing information in calculating the foreign tax credit against his
federal income tax. Each Investor Fund will report to its shareholders shortly
after each taxable year their respective shares of the Fund's foreign taxes and
income (taking into account, in the case of the Emerging Markets Debt Fund, its
proportionate share of the Portfolio's income) from sources within foreign
countries and U.S. possessions if it makes this election. Pursuant to the
Taxpayer Relief Act of 1997 ("Tax Act"), individuals who have no more than $300
($600 for married persons filing jointly) of creditable foreign taxes included
on Form 1099 and all of whose foreign source income is "qualified passive
income" may elect each year to be exempt from the extremely complicated foreign
tax credit limitation and will be able to claim a foreign tax credit without
having to file the detailed Form 1116 that otherwise is required.
Passive Foreign Investment Companies. Each Investor Fund may invest in the
stock of PFICs. A PFIC is a foreign corporation -- other than a "controlled
foreign corporation" (i.e., a foreign corporation in which, on any day during
its taxable year, more than 50% of the total voting power of all voting stock
therein or the total value of all stock therein is owned, directly, indirectly
or constructively, by "U.S. shareholders," defined as U.S. persons that
individually own, directly, indirectly or constructively, at least 10% of that
voting power) as to which the Investor Fund is a U.S. shareholder (effective
with respect to each Investor Fund for its taxable year beginning November 1,
1998) -- that, in general, meets either of the following tests: (1) at least 75%
of its gross income is passive or (2) an average of at least 50% of its assets
produce, or are held for the production of, passive income. Under certain
circumstances, an Investor Fund will be subject to federal income tax on a part
(or, in the case of the Emerging Markets Debt Fund, its proportionate share of a
part) of any "excess distribution" received by it (or, in the case of the
Emerging Markets Debt Fund, by the Portfolio) on the stock of a PFIC or of any
gain on the Fund's (or, in the case of the Emerging Markets Debt Fund, the
Portfolio's) disposition of that stock (collectively "PFIC income"), plus
interest thereon, even if the Fund distributes the PFIC income as a taxable
dividend to its shareholders. The balance of the PFIC income will be included in
the Fund's investment company taxable income and, accordingly, will not be
taxable to it to the extent it distributes that income to its shareholders.
If an Investor Fund invests in a PFIC and elects to treat the PFIC as a
"qualified electing fund" ("QEF"), then in lieu of the foregoing tax and
interest obligation, the Investor Fund (or, in the case of the Portfolio, the
Emerging Markets Debt Fund) would be required to include in income each year its
pro rata share (taking into account, in the case of the Emerging Markets Debt
Fund, its proportionate share of the Portfolio's pro rata share) of the QEF's
ordinary earnings and net capital gain (i.e., the excess of net long-term
capital gain over net short-term capital loss) -- which most likely would have
to be distributed by the Investor Fund (or, in the case of the Portfolio, the
Emerging Markets Debt Fund) to satisfy the Distribution Requirement and avoid
imposition of the Excise Tax -- even if those earnings and gain were not
received thereby from the QEF. In most instances it will be very difficult, if
not impossible, to make this election because of certain requirements thereof.
Effective for its taxable year beginning November 1, 1998, each Investor Fund
may elect to "mark to market" its stock in any PFIC. "Marking-to-market," in
this context, means including in ordinary income each taxable year the excess,
if any, of the fair market value of the stock over an Investor Fund's adjusted
basis therein as of the end of that year. Pursuant to the election, an Investor
Fund also will be allowed to deduct (as an ordinary, not capital, loss) the
excess, if any, of its adjusted basis in PFIC stock over the fair market value
thereof as of the taxable year-end, but only to the extent of any net
mark-to-market gains with respect to that stock included in income by the Fund
for prior taxable years. An Investor Fund's adjusted basis in each PFIC's stock
subject to the election will be adjusted to reflect the amounts of income
included and deductions taken thereunder. Regulations proposed in 1992 provided
a similar election with respect to the stock of certain PFICs.
Options, Futures and Foreign Currency Transactions. The Investors Funds' use
of hedging transactions, such as selling (writing) and purchasing options and
Futures Contracts and entering into Forward Contracts, involves complex rules
that will determine, for federal income tax purposes, the amount, character and
timing of recognition of the gains and losses an Investor Fund realizes in
connection therewith. Gains from the disposition of foreign currencies (except
certain gains that may be excluded by future regulations), and gains from
options, Futures and Forward Contracts derived by an Investor Fund with respect
to its business of investing in securities or foreign currencies, will qualify
as permissible income under the Income Requirement for that Investor Fund (or,
in the case of the Portfolio, the Emerging Markets Debt Fund).
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Futures and Forward Contracts that are subject to Section 1256 of the Code
(other than those that are part of a "mixed straddle") ("Section 1256
Contracts") and that are held by an Investor Fund at the end of its taxable year
generally will be deemed to have been sold at that time at market value for
federal income tax purposes. Sixty percent of any net gain or loss recognized on
these deemed sales, and 60% of any net gain or loss realized from any actual
sales of Section 1256 Contracts, will be treated as long-term capital gain or
loss, and the balance will be treated as short-term capital gain or loss. That
60% portion will qualify for the reduced maximum tax rates on noncorporate
taxpayers' net capital gain enacted by the Tax Act -- 20% (10% for taxpayers in
the 15% marginal tax bracket) for gain recognized on capital assets held for
more than 18 months -- instead of the 28% rate in effect before that
legislation, which now applies to gain recognized on capital assets held for
more than one year but not more than 18 months.
Section 988 of the Code also may apply to gains and losses from transactions
in foreign currencies, foreign-currency-denominated debt securities and options,
Futures and Forward Contracts on foreign currencies ("Section 988" gains and
losses). Each Section 988 gain or loss generally is computed separately and
treated as ordinary income or loss. In the case of overlap between sections 1256
and 988, special provisions determine the character and timing of any income,
gain or loss. Each Investor Fund attempts to monitor section 988 transactions to
minimize any adverse tax impact.
If an Investor Fund has an "appreciated financial position" -- generally, an
interest (including an interest through an option, Futures or Forward Contract
or short sale) with respect to any stock, debt instrument (other than "straight
debt") or partnership interest the fair market value of which exceeds its
adjusted basis -- and enters into a "constructive sale" of the same or
substantially similar property, the Fund will be treated as having made an
actual sale thereof, with the result that gain will be recognized at that time.
A constructive sale generally consists of a short sale, an offsetting notional
principal contract or Futures or Forward Contract entered into by an Investor
Fund or a related person with respect to the same or substantially similar
property. In addition, if the appreciated financial position is itself a short
sale or such a contract, acquisition of the underlying property or substantially
similar property will be deemed a constructive sale.
The Strategic Income Fund and the Portfolio each may acquire zero coupon or
other securities issued with original issue discount ("OID"). As a holder of
those securities, that Fund and the Portfolio (and, through it, the Emerging
Markets Debt Fund) each must include in its income the portion of the OID that
accrues on the securities during the taxable year, even if no corresponding
payment on them is received during the year. Similarly, the Strategic Income
Fund and the Portfolio each must include in its gross income securities it
receives as "interest" on payment-in-kind securities. Because each Fund annually
must distribute substantially all of its investment company taxable income,
including any OID and other non-cash income, to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax, the Strategic Income Fund or
the Emerging Markets Debt Fund, or both, may be required in a particular year to
distribute as a dividend an amount that is greater than the total amount of cash
it actually receives (or, in the case of the Emerging Markets Debt Fund, its
share of the total amount of cash the Portfolio actually receives). Those
distributions will be made from the Fund's (or, in the case of the Emerging
Markets Debt Fund, its, or its share of the Portfolio's) cash assets or, if
necessary, from the proceeds of sales of portfolio securities. A Fund may
(directly or through the Portfolio) realize capital gains or losses from those
sales, which would increase or decrease its investment company taxable income
and/or net capital gain.
TAXATION OF THE FUNDS' SHAREHOLDERS
Dividends and other distributions declared by a Fund in, and payable to
shareholders of record as of a date in, October, November or December of any
year will be deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if the distributions are paid by the
Fund during the following January. Accordingly, those distributions will be
taxed to shareholders for the year in which that December 31 falls.
A portion of the dividends from the Growth & Income Fund's investment company
taxable income (whether paid in cash or reinvested in additional shares) may be
eligible for the dividends-received deduction allowed to corporations. The
eligible portion may not exceed the aggregate dividends received by that Fund
from U.S. corporations. However, dividends received by a corporate shareholder
and deducted by it pursuant to the dividends-received deduction are subject
indirectly to the federal alternative minimum tax. The Funds other than the
Growth & Income Fund are not expected to pay dividends eligible for that
deduction.
If Fund shares are sold at a loss after being held for six months or less, the
loss will be treated as long-term, instead of short-term, capital loss to the
extent of any capital gain distributions received on those shares. Investors
also should be aware that if shares are purchased shortly before the record date
for any dividend or other distribution, the shareholder will pay full price for
the shares and receive some portion of the price back as a taxable distribution.
Dividends paid by a Fund to a shareholder who, as to the United States, is a
nonresident alien individual, nonresident alien fiduciary of a trust or estate,
foreign corporation or foreign partnership ("foreign shareholder") generally
will be subject to U.S. withholding tax (at a rate of 30% or lower treaty rate).
Withholding will not apply, however, to a dividend
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paid by a Fund to a foreign shareholder that is "effectively connected with the
conduct of a U.S. trade or business," in which case the reporting and
withholding requirements applicable to domestic shareholders will apply. A
distribution of net capital gain by a Fund to a foreign shareholder generally
will be subject to U.S. federal income tax (at the rates applicable to domestic
persons) only if the distribution is "effectively connected" or the foreign
shareholder is treated as a resident alien individual for federal income tax
purposes.
The foregoing is a general and abbreviated summary of certain federal tax
considerations affecting the Funds, their shareholders and the Portfolio.
Investors are urged to consult their own tax advisors for more detailed
information and for information regarding any foreign, state and local taxes
applicable to distributions received from a Fund.
SHAREHOLDER INFORMATION
This information supplements the discussion in each Fund's Prospectus under
the title "Shareholder Information."
[TIMING OF PURCHASE ORDERS
Orders for the purchase of Advisor Class shares received prior to the close of
regular trading on the New York Stock Exchange ("NYSE"), which is generally 4:00
p.m. Eastern Time (and which is hereinafter referred to as "NYSE Close"), on any
business day of an AIM Fund will be confirmed at the price next determined.
Orders received after NYSE Close will be confirmed at the price determined on
the next business day of the AIM Fund. Certain financial institutions (or their
designees) may be authorized to accept purchase orders on behalf of the AIM
Funds. Orders received by authorized institutions (or their designees) before
NYSE Close will be deemed to have been received by an AIM Fund on such day and
will be effected that day, provided that such orders are transmitted to the
Transfer Agent prior to the time set for receipt of such orders. It is the
responsibility of the dealer/financial institution to ensure that all orders are
transmitted on a timely basis to the Transfer Agent. Any loss resulting from the
dealer/financial institution's failure to submit an order within the prescribed
time frame will be borne by that dealer/financial institution. A "business day"
of an AIM Fund is any day on which the NYSE is open for business. It is expected
that the NYSE will be closed during the next twelve months on Saturdays and
Sundays and on the days on which New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day are observed by the NYSE.
An investor who uses a check to purchase shares will be credited with the full
number of shares purchased at the time of receipt of the purchase order, as
previously described. However, in the event of a redemption or exchange of such
shares, the investor may be required to wait up to ten business days before the
redemption proceeds are sent. This delay is necessary in order to ensure that
the check has cleared. If the check does not clear, or if any investment order
must be cancelled due to nonpayment, the investor will be responsible for any
resulting loss to an AIM Fund or to AIM Distributors.]
[SHARE CERTIFICATES
Share certificates for all AIM Funds will be issued upon written request by a
shareholder to AIM Distributors or the Transfer Agent. Otherwise, such shares
will be held on the shareholder's behalf by the applicable AIM Fund(s) and be
recorded on the books of such fund(s).]
[SPECIAL PLANS
Except as noted below, each Advisor Class Fund provides the special plans
described below for the convenience of its Advisor Class shareholders. Once
established, there is no obligation to continue to invest through a plan, and a
shareholder may terminate a plan at any time.
Special plan applications and further information, including details of any
fees which are charged to a shareholder investing through a plan, may be
obtained by written request, directed to AFS at the address provided under "How
to Purchase Shares," or by calling the Client Services Department of AFS at
(800) 959-4246. It is recommended that a shareholder considering any of the
plans described herein consult a tax advisor before commencing participation in
such a plan.
Automatic Dividend Investment Plan
Advisor Class shareholders may elect to have all dividends and distributions
declared by an Advisor Class Fund paid in cash or invested at net asset value
either in Advisor Class shares of the same Advisor Class Fund or invested in
shares of another Advisor Class Fund. See "Dividends, Distributions and Tax
Matters -- Dividends and Distributions" for a
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description of payment dates for these options. In order to qualify to have
dividends and distributions of one Advisor Class Fund invested in shares of
another Advisor Class Fund, the following conditions must be satisfied: (a) the
shareholder must have an account balance in the dividend paying fund of at least
$5,000; (b) the account must be held in the name of the shareholder (i.e., the
account may not be held in nominee name); and (c) the shareholder must have
requested and completed an authorization relating to the reinvestment of
dividends into another Advisor Class Fund. An authorization may be given on the
account application or on an authorization form available from AIM Distributors.
An Advisor Class Fund will waive the $5,000 minimum account value requirement if
the shareholder has an account in the fund selected to receive the dividends and
distributions with a value of at least $500.
Portfolio Rebalancing Program
The Portfolio Rebalancing Program ("Program") permits eligible shareholders
with a minimum account balance of $5,000 to establish and maintain an allocation
across a range of Advisor Class Funds. The Program automatically rebalances
holdings of Advisor Class Funds to the established allocation on a periodic
basis. Under the Program, a shareholder may predesignate, on a percentage basis,
how the total value of his or her holdings in a minimum of two, and a maximum of
ten, Advisor Class Funds ("Personal Portfolio") is to be rebalanced on a
quarterly, semiannual, or annual basis.
Rebalancing under the Program will be effected through the exchange of shares
of one or more Advisor Class Funds in the shareholder's Personal Portfolio for
shares of the same class(es) of one or more other Advisor Class Funds in the
shareholder's Personal Portfolio. See "Exchange Privilege." If shares of the
Advisor Class Fund(s) in a shareholder's Personal Portfolio have appreciated
during a rebalancing period, the Program will result in shares of Advisor Class
Fund(s) that have appreciated most during the period being exchanged for shares
of Advisor Class Fund(s) that have appreciated least. Such exchanges are not
tax-free and may result in a shareholder's realizing a gain or loss, as the case
may be, for federal income tax purposes. See "Dividends, Distributions and Tax
Matters -- Dividends and Distributions." Participation in the Program does not
assure that a shareholder will profit from purchases under the Program nor does
it prevent or lessen losses in a declining market.
The Program will automatically rebalance the shareholder's Personal Portfolio
on the 28th day of the last month of the period chosen (or the immediately
preceding business day if the 28th is not a business day), subject to any
limitations below. The Program will not execute an exchange if the variance in a
shareholder's Personal Portfolio for a particular Advisor Class Fund would be 2%
or less. In predesignating percentages, shareholders must use whole percentages
and totals must equal 100%. Shareholders participating in the Program may not
request issuance of physical certificates representing an Advisor Class Fund's
shares. The AIM Funds and AIM Distributors reserve the right to modify, suspend,
or terminate the Program at any time on sixty (60) days' prior written notice to
shareholders. A request to participate in the Program must be received in good
order at least five business days prior to the next rebalancing date. Once a
shareholder establishes the Program for his or her Personal Portfolio, a
shareholder cannot cancel or change which rebalancing frequency, which Advisor
Class Funds or what allocation percentages are assigned to the Program, unless
canceled or changed in writing and received by the Transfer Agent in good order
at least five business days prior to the rebalancing date. Certain
dealers/financial institutions may charge a fee for establishing accounts
relating to the Program. Investors should contact their dealers/financial
institutions or AIM Distributors for more information.]
TERMS AND CONDITIONS OF EXCHANGES
Advisor Class shareholders of the Advisor Class Funds may participate in an
exchange privilege as described below. AIM Distributors acts as distributor for
the Advisor Class Funds which represent a range of different investment
objectives and policies.
Advisor Class shares of any Advisor Class Fund may be exchanged only for
Advisor Class shares of any other Advisor Class Fund.
Investors in wrap fee programs and advisory accounts interested in making an
exchange should contact their Financial Advisers to request the prospectus of an
Advisor Class Fund being considered. Other investors should contact AIM
Distributors for the appropriate prospectus.
An exchange is permitted only in the following circumstances: (a) the dollar
amount of the exchange must be at least equal to the minimum investment
applicable to the shares of the Advisor Class Fund acquired through such
exchange; (b) the shares of the Advisor Class Fund acquired through exchange
must be qualified for sale in the state in which the shareholder resides; (c)
the exchange must be made between accounts having identical registrations and
addresses; (d) the full amount of the purchase price for the shares being
exchanged must have already been received by the fund; (e) the account from
which shares have been exchanged must be coded as having a certified taxpayer
identification
54
<PAGE> 823
number on file or, in the alternative, an appropriate IRS Form W-8 (certificate
of foreign status) or Form W-9 (certifying exempt status) must have been
received by the fund; (f) newly acquired shares (through either an initial or
subsequent investment) are held in an account for at least ten business days,
and all other shares are held in an account for at least one day, prior to the
exchange; and (g) certificates representing shares must be returned before
shares can be exchanged. There is no fee for exchanges among the Advisor Class
Funds.
The current prospectus of each of the Advisor Class Funds and current
information concerning the operation of the exchange privilege are available
through AIM Distributors or through any dealer who has executed an applicable
agreement with AIM Distributors. Before exchanging shares, investors should
review the prospectuses of the funds whose shares will be acquired through
exchange. Exchanges of shares are considered to be sales for federal and state
income tax purposes and may result in a taxable gain or loss to a shareholder.
The exchange privilege is not an option or right to purchase shares but is
permitted under the respective policies of the participating funds, and may be
modified or discontinued by any of such funds or by AIM Distributors at any
time, and to the extent permitted by applicable law, without notice.
Shares of any Advisor Class Fund to be exchanged are redeemed at their net
asset value as determined at NYSE Close on the day that an exchange request in
proper form (described below) is received. Exchange requests received after NYSE
Close will result in the redemption of shares at their net asset value at NYSE
Close on the next business day. Normally, Advisor Class shares of an Advisor
Class Fund to be acquired by exchange are purchased at their net asset value
determined on the date that such request is received, but under unusual market
conditions such purchases may be delayed for up to five business days if it is
determined that an Advisor Class Fund would be materially disadvantaged by an
immediate transfer of the proceeds of the exchange. If a shareholder is
exchanging into an Advisor Class Fund that declares daily dividends ("Dividends,
Distributions and Tax Matters -- Dividends and Distributions," below), and the
release of the exchange proceeds is delayed for the foregoing five-day period,
such shareholder will not begin to accrue dividends until the sixth business day
after the exchange. Advisor Class shares purchased by check may not be exchanged
until it is determined that the check has cleared, which may take up to ten
business days from the date that the check is received. See "Timing of Purchase
Orders."
In the event of unusual market conditions, AIM Distributors reserves the right
to reject any exchange request, if, in the judgment of AIM Distributors, the
number of requests or the total value of the shares that are the subject of the
exchange places a material burden on a fund. For example, the number of
exchanges by investment managers making market timing exchanges may be limited.]
[EXCHANGES BY MAIL
Investors exchanging their Advisor Class shares by mail should send a written
request to AFS. The request should contain the account registration and account
number, the dollar amount or number of Advisor Class shares to be exchanged, and
the names of the Advisor Class Funds from which and into which the exchange is
to be made. The request should comply with all of the requirements for
redemption by mail. See "How to Redeem Shares."]
[EXCHANGES BY TELEPHONE
Shareholders or their agents may request an exchange by telephone. A
shareholder may give exchange information to his Financial Adviser. If a
shareholder does not wish to allow telephone exchanges by any person in his
account, he should decline that option on the account application. AIM
Distributors has made arrangements with certain dealers and investment advisory
firms to accept telephone instructions to exchange shares between any of the
Advisor Class Funds. AIM Distributors reserves the right to impose conditions on
dealers or investment advisors who make telephone exchanges of shares of the
Advisor Class 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 Financial Adviser, shareholder or dealer who has satisfied the
foregoing conditions must call AFS at (800) 959-4246. If a Financial Adviser,
shareholder or dealer is unable to reach AFS by telephone, he may also request
exchanges by telegraph or use overnight courier services to expedite exchanges
by mail, which will be effective on the business day received by the Transfer
Agent as long as such request is received prior to NYSE Close. The Transfer
Agent and AIM Distributors will not be liable for any loss, expense or cost
arising out of any telephone exchange request that they reasonably believe to be
genuine, but may in certain cases be liable for losses due to unauthorized or
fraudulent transactions if they do not follow reasonable procedures for
verification of telephone transactions. Such reasonable procedures may include
recordings of telephone transactions (maintained for six months), requests for
confirmation of the shareholder's Social Security Number and current address,
and mailings of confirmations promptly after the transaction.]
55
<PAGE> 824
[REDEMPTIONS BY MAIL
Redemption requests must be in writing and sent to the Transfer Agent. Upon
receipt of a redemption request in proper form, payment will be made as soon as
practicable, but in any event will normally be made within seven days after
receipt. However, in the event of a redemption of shares purchased by check, the
investor may be required to wait up to ten business days before the redemption
proceeds are sent. See "Terms and Conditions of Purchase of the AIM Funds --
Timing of Purchase Orders."
Requests for redemption must include: (a) original signatures of each
registered owner exactly as the shares are registered; (b) the fund and the
account number of shares to be redeemed; (c) share certificates, either properly
endorsed or accompanied by a duly executed stock power, for the shares to be
redeemed if such certificates have been issued and the shares are not in the
custody of the Transfer Agent; (d) signature guarantees, as described below; and
(e) any additional documents that may be required for redemption by
corporations, partnership, trusts or other entities. The burden is on the
shareholder to inquire as to whether any additional documentation is required.
Any request not in proper form may be rejected and in such case must be renewed
in writing.]
[REDEMPTIONS BY TELEPHONE
Shareholders may request a redemption by telephone. If a shareholder does not
wish to allow telephone redemptions by any person in his account, he should
decline that option on the account application. The telephone redemption feature
can be used only if: (a) the redemption proceeds are to be mailed to the address
of record or transferred electronically or wired to the pre-authorized bank
account; (b) there has been no change of address of record on the account within
the preceding 30 days; (c) the shares to be redeemed are not in certificate
form; (d) the person requesting the redemption can provide proper identification
information, and (e) the proceeds of the redemption do not exceed $50,000. AIM
Distributors has made arrangements with certain dealers and investment advisors
to accept telephone instructions for the redemption of shares. AIM Distributors
reserves the right to impose conditions on these dealers and investment
advisors, including the condition that they enter into agreements (which contain
additional conditions with respect to the redemption of shares) with AIM
Distributors. The Transfer Agent and AIM Distributors will not be liable for any
loss, expense or cost arising out of any telephone redemption request effected
in accordance with the authorization set forth in the appropriate form if they
reasonably believe such request to be genuine, but may in certain cases be
liable for losses due to unauthorized or fraudulent transactions if they do not
follow reasonable procedures for verification of telephone transactions. Such
reasonable procedures may include recordings of telephone transactions
(maintained for six months), requests for confirmation of the shareholder's
taxpayer identification number and current address, and mailings of
confirmations promptly after the transaction.]
[TIMING AND PRICING OF REDEMPTION ORDERS
Advisor Class shares of the Advisor Class Funds are redeemed at their net
asset value next computed after a request for redemption in proper form
(including signature guarantees and other required documentation for written
redemptions) is received by the Transfer Agent or certain financial institutions
(or their designees) who are authorized to accept redemption orders on behalf of
the AIM Funds, provided that such orders are transmitted to the Transfer Agent
prior to the time set for receipt of such orders. Orders for the redemption of
Advisor Class shares received on any business day of an AIM Fund will be
confirmed at the price determined as of the close of that day. Orders received
after NYSE Close will be confirmed at the price determined on the next business
day of an AIM Fund. It is the responsibility of the dealer/financial institution
to ensure that all orders are transmitted on a timely basis. Any resulting loss
from the dealer/financial institution's failure to submit a request for
redemption within the prescribed time frame will be borne by that dealer/
financial institution. Telephone redemption requests must be made by NYSE Close
on any business day of an AIM Fund and will be confirmed at the price determined
as of the close of that day. No AIM Fund will accept requests which specify a
particular date for redemption or which specify any special conditions.
Payment of the proceeds of redeemed shares is normally made within seven days
following the redemption date. However, in the event of a redemption of shares
purchased by check, the investor may be required to wait up to ten business days
before the redemption proceeds are sent. A charge for special handling (such as
wiring of funds or expedited delivery services) may be made by the Transfer
Agent. The right of redemption may not be suspended or the date of payment upon
redemption postponed except under unusual circumstances such as when trading on
the NYSE is restricted or suspended. Payment of the proceeds of redemptions
relating to shares for which checks sent in payment have not yet cleared will be
delayed until it is determined that the check has cleared, which may take up to
ten business days from the date that the check is received.]
56
<PAGE> 825
SIGNATURE GUARANTEES
A signature guarantee is designed to protect the investor, the AIM Funds, AIM
Distributors, and their agents by verifying the signature of each investor
seeking to redeem, transfer, or exchange shares of an AIM Fund. Examples of when
signature guarantees are required are: (1) redemptions by mail in excess of
$50,000; (2) redemptions by mail if the proceeds are to be paid to someone other
than the name(s) in which the account is registered; (3) written redemptions
requesting proceeds to be sent to other than the bank of record for the account;
(4) redemptions requesting proceeds to be sent to a new address or an address
that has been changed within the past 30 days; (5) requests to transfer the
registration of shares to another owner, (6) telephone exchange and telephone
redemption authorization forms; (7) changes in previously designated wiring or
electronic funds transfer instructions, and (8) written redemptions or exchanges
of shares previously reported as lost, whether or not the redemption amount is
under $50,000 or the proceeds are to be sent to the address of record. 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 in 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. Each Advisor Class Fund
may make additional distributions, if necessary, to avoid a non-deductible 4%
federal excise tax on certain undistributed income and capital gain (the "Excise
Tax").
All dividends and distributions of an AIM Fund are automatically reinvested on
the payment date in full and fractional shares of such fund, unless the
shareholder has made an alternate election as to the method of payment.
Dividends and distributions attributable to Advisor Class shares of an Advisor
Class Fund are reinvested in additional Advisor Class shares of that fund,
absent an election by a shareholder to receive cash or to have such dividends
and distributions reinvested in Advisor Class shares of another Advisor Class
Fund, to the extent permitted. For funds that do not declare a dividend daily,
such dividends and distributions will be reinvested at the net asset value per
share determined on the ex-dividend date. For funds that declare a dividend
daily, such dividends and distributions will be reinvested at the net asset
value per share determined on the payable date. Shareholders may elect, by
written notice to the Transfer Agent, to receive such distributions, or only the
dividend portion thereof, in cash, or to invest such dividends and distributions
in Advisor Class shares of another Advisor Class Fund. Investors who have not
previously selected such a reinvestment option on the account application form
may contact the Transfer Agent at any time to obtain a form to authorize such
reinvestments in another Advisor Class Fund.
Dividends on Advisor Class shares of an Advisor Class Fund are expected to be
higher than dividends on shares of other classes of that fund because of the
service and distribution fees paid by those other classes of 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, as
discussed below.]
57
<PAGE> 826
[MINIMUM ACCOUNT BALANCE
If (1) an account opened in a fund has been in effect for at least one year
and the shareholder has not made an additional purchase in that account within
the preceding six calendar months and (2) the value of such account drops below
$500 for three consecutive months as a result of redemptions or exchanges, the
fund has the right to redeem the account, after giving the shareholder 60 days'
prior written notice, unless the shareholder makes additional investments within
the notice period to bring the account value up to $500. If a fund determines
that a shareholder has provided incorrect information in opening an account with
a fund or in the course of conducting subsequent transactions with the fund
related to such account, the fund may, in its discretion, redeem the account and
distribute the proceeds of such redemption to the shareholder.
AIM Distributors and its agents reserve the right at any time (1) to withdraw
all or any part of the offering made by the Fund's Prospectus; (2) to reject any
purchase or exchange order or to cancel any purchase due to nonpayment of the
purchase price; (3) to increase, waive or lower the minimum investment
requirements; or (4) to modify any of the terms or conditions of purchase of
shares of such fund. For any fund named on the cover page, AIM Distributors and
its agents will use their best efforts to provide notice of any such actions
through correspondence with broker-dealers and existing shareholders,
supplements to the AIM Funds' prospectuses, or other appropriate means, and will
provide sixty (60) days' notice in the case of termination or material
modification to the exchange privilege discussed under the caption "Exchange
Privilege."]
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.
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., a wholly owned
subsidiary of AIM, 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173, 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 purchases of the AIM Funds.
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") has entered Into
an agreement with the Trust (and certain other AIM Funds), First Data Investor
Service Group (formerly The Shareholder Services Group, Inc.) 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).
INDEPENDENT ACCOUNTANTS
The Funds' and the Portfolio's independent accountants are
PricewaterhouseCoopers LLP. PricewaterhouseCoopers LLP conducts audits of each
Fund's and the Portfolio's financial statements, assists in the preparation of
the Funds' and the Portfolio's federal and state income tax returns and consults
with the Trust, the Funds and the Portfolio as to matters of accounting,
regulatory filings, and federal and state income taxation.
The audited financial statements of the Funds and the Portfolio included in
this Statement of Additional Information have been examined by
PricewaterhouseCoopers LLP, as stated in their opinion appearing herein and are
included in reliance upon such opinion given upon the authority of that firm as
experts in accounting and auditing.
LEGAL MATTERS
The law firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue N.W.,
Washington, D.C. 20036-1800, acts as counsel to the Trust and the Funds.
58
<PAGE> 827
SHAREHOLDER LIABILITY
Under Delaware law, the shareholders of the Trust enjoy the same limitations
extended to shareholders of private, for-profit corporations. There is a remote
possibility, however, that under certain circumstances shareholders of the Trust
may be held personally liable for the Trust's obligations. However, the Trust
Agreement disclaims shareholder liability for acts or obligations of the Trust
and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Trust or a trustee. If
a shareholder is held personally liable for the obligations of the Trust, the
Trust Agreement provides that the shareholder shall be entitled out of the
assets belonging to the applicable Fund (or allocable to the applicable Class),
to be held harmless from and indemnified against all loss and expense arising
from such liability in accordance with the Trust's Bylaws and applicable law.
Thus, the risk of a shareholder incurring financial loss on account of such
liability is limited to circumstances in which the Trust itself would be unable
to meet its obligations and where the other party was held not to be bound by
the disclaimer.
[NAMES
Prior to May 29, 1998, AIM Emerging Markets Debt Fund, formerly known as AIM
Global High Income Fund, operated under the name of GT Global High Income Fund;
AIM Strategic Income Fund operated under the name of GT Global Strategic Income
Fund; AIM Global Government Income Fund operated under the name of GT Global
Government Income Fund; and AIM Global Growth & Income Fund operated under the
name of GT Global Growth & Income Fund.]
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To the best knowledge of the Trust, the names and addresses of the holders of
5% or more of the outstanding shares of any class of each Fund's equity
securities as of , 1998, and the percentage of the outstanding
shares held by such holders are set forth below:
<TABLE>
<CAPTION>
PERCENT
PERCENT OWNED OF
OWNED OF RECORD AND
FUND NAME AND ADDRESS OF OWNER RECORD* BENEFICIALLY
- ---- ------------------------- -------- ------------
<S> <C> <C> <C>
Government Income Fund -- Advisor NFSC FEBO #179-514144 -0-
Class FMT CO Cust IRA
FBO Thomas Stanley Lipscomb
Cook-Fort Worth Children's Med C
801 7th Ave
Fort Worth, TX 76104-2733
Government Income Fund -- Class A MLPF&S for the Sole Benefit of -0-
Its
Customers, Security #
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd
Floor
Jacksonville, FL 32246-6484
Government Income Fund -- Class B MLPF&S for the Sole Benefit of -0-
Its
Customers, Security #97AM9
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd
Floor
Jacksonville, FL 32246-6484
Strategic Income Fund -- Advisor FTC & CO -0-
Class Attn: Datalynx #089
P.O. Box 173736
Denver, CO 80217-3736
Strategic Income Fund -- Class A MLPF&S for the Sole Benefit of -0-
Its
Customers, Security #974TI
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd
Floor
Jacksonville, FL 32246-6484
</TABLE>
59
<PAGE> 828
<TABLE>
<CAPTION>
PERCENT
PERCENT OWNED OF
OWNED OF RECORD AND
FUND NAME AND ADDRESS OF OWNER RECORD* BENEFICIALLY
- ---- ------------------------- -------- ------------
<S> <C> <C> <C>
Emerging Markets Debt Charles Schwab & Co. Inc. -0-
Fund -- Advisor Class For the Excl Benef. of our Custs.
Reinvest Account
101 Montgomery St.
San Francisco, California
94104-4122
Attn: Mutual Funds
Wells Fargo Bank NA TTEE FBO -0-
LGT Asset Management AC
5000201000
Serp Prft Shr Pln ###-##-####
P.O. Box 9800 MAC 9139-027
Calabasas, CA 91372-0800
Emerging Markets Debt MLPF&S for the Sole Benefit of -0-
Fund -- Class B Its
Customers, Security #97AM8
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd
Floor
Jacksonville, FL 32246-6484
Growth & Income Fund -- Advisor Wells Fargo Bank NA TTEE FBO -0-
Class LGT Asset Management AC
5000201000
Serp Prft Shr Pln ###-##-####
P O Box 9800 MAC 9137-027
Calabasas, CA 91372-0800
</TABLE>
- ---------------
* The Trust has no knowledge as to whether all or any portion of the shares
owned of record are also owned beneficially.
INVESTMENT RESULTS
TOTAL RETURN QUOTATIONS
The standard formula for calculating total return, as described in the
Prospectus, is as follows:
n
P(1+T) =ERV
<TABLE>
<S> <C> <C> <C>
Where P = a hypothetical initial payment of $1,000.
T = average annual total return (assuming the applicable maximum
sales load is deducted at the beginning of the 1, 5, or 10
year periods).
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment at
the end of the 1, 5, or 10 year periods (or fractional
portions of such period).
</TABLE>
The standardized returns for the Advisor Class shares of Strategic Income
Fund, stated as average annualized total returns for the periods shown, were:
<TABLE>
<CAPTION>
STRATEGIC
INCOME
FUND
PERIOD (ADVISOR CLASS)
- ------ ---------------
<S> <C>
Fiscal year ended Oct. 31, 1998............................. -2.97%
October 31, 1992 through Oct. 31, 1998...................... n/a
May 31, 1995 (commencement of operations) through Oct. 31,
1998...................................................... 9.36%
March 29, 1988 (commencement of operations) through Oct. 31,
1998...................................................... n/a
</TABLE>
60
<PAGE> 829
The standardized returns for the Advisor Class shares of Government Income
Fund, stated as average annualized total returns for the periods shown, were:
<TABLE>
<CAPTION>
GOVERNMENT
INCOME
FUND
PERIOD (ADVISOR CLASS)
- ------ ---------------
<S> <C>
Fiscal year ended Oct. 31, 1998............................. 11.18%
Oct. 31, 1992 through Oct. 31, 1998......................... n/a
May 31, 1995 (commencement of operations) through Oct. 31,
1998...................................................... 7.14%
March 29, 1988 (commencement of operations) through Oct. 31,
1998...................................................... n/a
</TABLE>
The standardized returns for the Advisor Class shares of Emerging Markets Debt
Fund, stated as average annualized total returns for the periods shown, were:
<TABLE>
<CAPTION>
EMERGING
MARKETS
DEBT FUND
PERIOD (ADVISOR CLASS)
- ------ ---------------
<S> <C>
Fiscal year ended Oct. 31, 1998............................. -29.79%
May 31, 1995 (commencement of operations) through Oct. 31,
1998...................................................... 5.08%
Oct. 22, 1992 (commencement of operations) through Oct. 31,
1998...................................................... n/a
</TABLE>
The standardized returns for the Advisor Class shares of Growth & Income Fund,
stated as average annualized total returns, for the periods shown, were:
<TABLE>
<CAPTION>
GROWTH AND
INCOME FUND
PERIOD (ADVISOR CLASS)
- ------ ---------------
<S> <C>
Fiscal year ended Oct. 31, 1998............................. 18.27%
Oct. 31, 1992 through Oct. 31, 1998......................... n/a
June 1, 1995 (commencement of operations) through Oct. 31,
1998...................................................... 16.90%
Sept. 25, 1990 (commencement of operations) through Oct. 31,
1998...................................................... n/a
</TABLE>
NON-STANDARDIZED RETURNS
Standard total return quotes may be accompanied by total return figures
calculated by alternative methods. For example, average annual total return may
be calculated without assuming payment of the full sales load according to the
following formula:
n
P(1+U) =ERV
<TABLE>
<S> <C> <C> <C>
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.
</TABLE>
Cumulative total return across a stated period may be calculated as follows:
n
P(1+V) =ERV
<TABLE>
<S> <C> <C> <C>
Where P = a hypothetical initial payment of $1,000.
V = cumulative total return assuming payment of all of, a stated
portion of, or none of, the applicable maximum sales load at
the beginning of the stated period.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment at
the end of the stated period.
</TABLE>
61
<PAGE> 830
The aggregate non-standardized returns (not taking sales charges into account)
for the Advisor Class shares of Strategic Income Fund, stated as aggregate total
returns for the periods shown, were:
<TABLE>
<CAPTION>
STRATEGIC
INCOME
FUND
PERIOD (ADVISOR CLASS)
- ------ ---------------
<S> <C>
May 31, 1995 (commencement of operations) through Oct. 31,
1998...................................................... 9.36%
March 29, 1988 (commencement of operations) through Oct. 31,
1998...................................................... n/a
</TABLE>
The aggregate Non-Standardized Returns (not taking sales charges into account)
for the Advisor Class shares of Government Income Fund, stated as aggregate
total returns for the periods shown, were:
<TABLE>
<CAPTION>
GOVERNMENT
INCOME
FUND
PERIOD (ADVISOR CLASS)
- ------ ---------------
<S> <C>
May 31, 1995 (commencement of operations) through Oct. 31,
1998...................................................... 7.14%
March 29, 1988 (commencement of operations) through Oct. 31,
1998...................................................... n/a
</TABLE>
The aggregate non-standardized returns (not taking sales charges into account)
for the Advisor Class shares of Emerging Markets Debt Fund, stated as aggregate
total returns for the periods shown, were:
<TABLE>
<CAPTION>
EMERGING
MARKETS
DEBT FUND
PERIOD (ADVISOR CLASS)
- ------ ---------------
<S> <C>
May 31, 1995 (commencement of operations) through Oct. 31,
1998...................................................... 6.72%
Oct. 22, 1992 (commencement of operations) through Oct. 31,
1998...................................................... n/a
</TABLE>
The aggregate non-standardized returns (not taking sales charges into account)
for the Advisor Class shares of Growth & Income Fund, stated as aggregate total
returns for the periods shown, were:
<TABLE>
<CAPTION>
GROWTH AND
INCOME FUND
PERIOD (ADVISOR CLASS)
- ------ ---------------
<S> <C>
June 1, 1995 (commencement of operations) through Oct. 31,
1998...................................................... 16.90%
Sept. 25, 1990 (commencement of operations) through Oct. 31,
1998...................................................... n/a
</TABLE>
YIELD QUOTATIONS
The standard formula for calculating yield for each Fund, as described in the
Prospectus, is as follows:
6
YIELD = 2[((a-b)/(c(LOGO)d)+1) -1]
<TABLE>
<S> <C> <C> <C>
Where a = dividends and interest earned during a stated 30-day period.
For purposes of this calculation, dividends are accrued
rather than recorded on the ex-dividend date. Interest
earned under this formula must generally be calculated based
on the yield to maturity of each obligation (or, if more
appropriate, based on yield to a call date).
b = expenses accrued during period (net of reimbursement).
c = the average daily number of shares outstanding during the
period.
d = the maximum offering price per share on the last day of the
period.
</TABLE>
The Yields of the Class A shares of Strategic Income Fund, Government Income
Fund and Emerging Markets Debt Fund for the one-month period ended October 31,
1996 were 6.58%, 6.23% and 7.29%, respectively. The current yields of the Class
B shares of Strategic Income Fund, Government Income Fund and Emerging Markets
Debt Fund for the one-month period ended October 31, 1996 were 6.23%, 5.87% and
7.00%, respectively. The Yields of the Advisor Class shares of the Strategic
Income Fund, Government Income Fund and Emerging Markets Debt Fund for the
one-month period ended October 31, 1996 were 7.27%, 6.74% and 8.04%,
respectively.
62
<PAGE> 831
PERFORMANCE INFORMATION
Total return and yield figures for the Funds are neither fixed nor
guaranteed, and no Fund's principal is insured. Performance quotations
reflect historical information and should not be considered representative
of a Fund's performance for any period in the future. Performance is a
function of a number of factors which can be expected to fluctuate. The
Funds may provide performance information in reports, sales literature and
advertisements. The Funds may also, from time to time, quote information
about the Funds published or aired by publications or other media entities
which contain articles or segments relating to investment results or other
data about one or more of the Funds. Such publications or media entities
may include the following, among others:
Advertising Age
Barron's
Best's Review
Broker World
Business Week
Changing Times
Christian Science Monitor
Consumer Reports
Economist
EuroMoney
FACS of the Week
Financial Planning
Financial Product News
Financial World
Forbes
Fortune
Global Finance
Hartford Courant Inc.
Institutional Investor
Insurance Forum
Insurance Week
Investor's Daily
Journal of the American
Society of CLU & ChFC
Kiplinger Letter
Money
Mutual Fund Forecaster
Mutual Fund Magazine
Nation's Business
New York Times
Pension World
Pensions & Investments
Personal Investor
Financial Services Week
Philadelphia Inquirer
Smart Money
USA Today
U.S. News & World Report
Wall Street Journal
Washington Post
CNN
CNBC
PBS
The Funds and AIM Distributors may from time to time, in advertisements, sales
literature and reports furnished to present or prospective shareholders, compare
each Fund with the following, or compare each Fund's performance to performance
data of similar mutual funds as published in the following, among others:
Bank Rate National Monitor Index
Bear Stearns Foreign Bond Index
Bond Buyer Index
CDA/Wiesenberger Investment Company Services
(data and mutual fund rankings and
comparisons)
CNBC/Financial News Composite Index
COFI
Consumer Price Index
Datastream
Donoghue's
Dow Jones Industrial Average
EAFE Index
First Boston High Yield Index
Fitch (publications)
Ibbotson Associates International Bond Index
International Bank for Reconstruction and
Development (publications)
International Finance Corporation Emerging
Markets Database
International Financial Statistics
Lehman Bond Indices
Lipper Analytical Data Services, Inc. (data and
mutual fund rankings and comparisons)
Micropal, Inc. (data and mutual fund rankings
and comparisons)
Moody's Investors Service (publications)
Morgan Stanley Capital International All Country
(AC) World Index
Morgan Stanley Capital International World
Indices
Morningstar, Inc. (data and mutual fund rankings
and comparisons)
NASDAQ
Organization for Economic Cooperation and
Development (publications)
Salomon Brothers Global Telecommunications
Index
Salomon Brothers World Government Bond
Index-Non-U.S.
Salomon Brothers World Government Bond
Index
Standard & Poor's (publications)
Standard & Poor's 500 Composite Stock Price
Index
Stangar
Wilshire Associates
World Bank (publications and reports)
The World Bank Publication of Trends in
Developing Countries
Worldscope
63
<PAGE> 832
Each Fund may also compare its performance to rates on Certificates of Deposit
and other fixed rate investments such as the following:
10-year Treasuries
30-year Treasuries
30-day Treasury Bills
Information relating to foreign market performance, capitalization and
diversification is based on sources believed to be reliable but may be subject
to revision and has not been independently verified by the Funds or AIM
Distributors. Advertising for the Funds may from time to time include
discussions of general economic conditions and interest rates. Advertising for
the Funds may also include reference to the use of those Funds as part of an
individual's overall retirement investment program. From time to time, sales
literature and/or advertisements for any of the Funds may disclose (i) the
largest holdings in the Fund's portfolio, (ii) certain selling group members
and/or (iii) certain institutional shareholders.
From time to time, the Funds' sales literature and/or advertisements may
discuss generic topics pertaining to the mutual fund industry. This includes,
but is not limited to, literature addressing general information about mutual
funds, variable annuities, dollar-cost averaging, stocks, bonds, money markets,
certificates of deposit, retirement, retirement plans, asset allocation,
tax-free investing, college planning, and inflation.
Although performance data may be useful to prospective investors when
comparing a Fund's performance with other funds and other potential investments,
investors should note that the methods of computing performance of other
potential investments are not necessarily comparable to the methods employed by
a Fund.
64
<PAGE> 833
APPENDIX
DESCRIPTION OF BOND RATINGS
Moody's Investors Service, Inc. ("Moody's") rates the debt securities issued
by various entities from "Aaa" to "C". Investment grade ratings are the first
four categories: 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 edged." 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 risk appear somewhat larger than the Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa -- Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. Ba -- Bonds which are rated Ba
are judged to have speculative elements; their future cannot be considered as
well-assured. Often the protection of interest and principal payments may be
very moderate, and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest. Ca -- Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings. C -- Bonds which are rated C are the lowest rated class of
bonds, and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"),
rates the securities debt of various entities in categories ranging from "AAA"
to "D" according to quality. Investment grade ratings are the first four
categories: AAA -- An obligation rated "AAA" has the highest rating assigned by
S&P. The obligor's capacity to meet its financial commitment on the obligation
is extremely strong. AA -- An obligation rated "AA" differs from the highest
rated obligations only in a small degree. The obligor's capacity to meet its
financial commitment on the obligation is very strong. A -- An obligation rated
"A" is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in higher rated
categories. BBB -- An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation. BB, B, CCC, CC, C -- Obligations rated "BB," "B,"
"CCC," "CC," and "C" are regarded as having significant speculative
characteristics. "BB" indicates the least degree of speculation and "C" the
highest. While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions. BB -- An obligation rated "BB" is less
vulnerable to nonpayment than other speculative issues. However, it faces major
ongoing uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation. B -- An obligation rated "B" is more
vulnerable to nonpayment than obligations rated "BB," but the obligor currently
has the capacity to meet its financial commitment on the obligation. Adverse
business, financial, or economic conditions will likely impair the obligor's
capacity or willingness to meet its financial commitment on the obligation.
CCC -- An obligation rated "CCC" is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC -- An obligation rated "CC" is currently highly vulnerable to nonpayment.
C -- The "C" rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued. D -- An obligation rated "D" is in payment default. The "D"
rating category is used when payments on an obligation are not made on the date
due even if the applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period. The "D" rating also
will be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
65
<PAGE> 834
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR: Indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's employs the designation "Prime-1" to indicate commercial paper having
a superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources of
alternate liquidity. Issues rated Prime-2 have a strong ability for repayment of
senior short-term debt obligations. This normally will be evidenced by many of
the characteristics cited above but to a lesser degree. Earnings trends and
coverage ratios, while sound, may be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
S&P ratings of commercial paper are graded into several categories ranging
from "A-1" for the highest quality obligations to "D" for the lowest. Issues in
the "A" category are delineated with numbers 1, 2, and 3 to indicate the
relative degree of safety. A-1 -- This highest category indicates that the
degree of safety regarding timely payment is strong. Those issues determined to
possess extremely strong safety characteristics will be denoted with a plus sign
(+) designation. A-2 -- Capacity for timely payments on issues with this
designation is satisfactory; however, the relative degree of safety is not as
high as for issues designated "A-1."
ABSENCE OF RATING
Where no rating has been assigned or where a rating has been suspended or
withdrawn, it may be for reasons unrelated to the quality of the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies
that are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or
issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa to Caa. The modifier 1 indicates that the Company ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the Company ranks in the
lower end of its generic rating category.
66
<PAGE> 835
FINANCIAL STATEMENTS
FS
<PAGE> 836
STATEMENT OF
ADDITIONAL INFORMATION
CLASS A, CLASS B AND CLASS C SHARES OF
AIM GLOBAL THEME FUNDS:
AIM GLOBAL CONSUMER PRODUCTS AND SERVICES FUND
AIM GLOBAL FINANCIAL SERVICES FUND
AIM GLOBAL HEALTH CARE FUND
AIM GLOBAL INFRASTRUCTURE FUND
AIM GLOBAL RESOURCES FUND
AIM GLOBAL TELECOMMUNICATIONS FUND
(SERIES PORTFOLIOS OF
AIM INVESTMENT FUNDS)
11 GREENWAY PLAZA
SUITE 100
HOUSTON, TX 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 FREE
OF CHARGE FROM AUTHORIZED DEALERS OR BY WRITING
A I M DISTRIBUTORS, INC.,
P.O. BOX 4739, HOUSTON, TEXAS 77210-4739
OR BY CALLING (800) 347-4246.
---------------------
STATEMENT OF ADDITIONAL INFORMATION DATED MARCH 1, 1999 RELATING TO
THE AIM GLOBAL CONSUMER PRODUCTS AND SERVICES FUND PROSPECTUS DATED MARCH 1,
1999,
THE AIM GLOBAL FINANCIAL SERVICES FUND PROSPECTUS DATED MARCH 1, 1999,
THE AIM GLOBAL HEALTH CARE FUND PROSPECTUS DATED MARCH 1, 1999,
THE AIM GLOBAL INFRASTRUCTURE FUND PROSPECTUS DATED MARCH 1, 1999,
THE AIM GLOBAL RESOURCES FUND PROSPECTUS DATED MARCH 1, 1999, AND
THE AIM GLOBAL TELECOMMUNICATIONS FUND PROSPECTUS DATED MARCH 1, 1999
<PAGE> 837
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
INTRODUCTION................................................ 4
GENERAL INFORMATION ABOUT THE FUNDS......................... 4
The Trust and Its Shares.................................. 4
INVESTMENT STRATEGIES AND RISKS............................. 5
Selection of Investments and Asset Allocation............. 9
Privatizations............................................ 10
Temporary Defensive Strategies............................ 10
Investments in Other Investment Companies................. 10
Depositary Receipts....................................... 11
Warrants or Rights........................................ 11
Lending of Portfolio Securities........................... 11
Money Market Instruments.................................. 12
Commercial Bank Obligations............................... 12
Repurchase Agreements..................................... 12
Borrowing, Reverse Repurchase Agreements and "Roll"
Transactions........................................... 12
When Issued or Forward Commitment Securities.............. 13
Short Sales............................................... 13
OPTIONS, FUTURES AND CURRENCY STRATEGIES.................... 14
Introduction.............................................. 14
Special Risks of Options, Futures and Currency
Strategies............................................. 14
Writing Call Options...................................... 15
Writing Put Options....................................... 16
Purchasing Put Options.................................... 16
Purchasing Call Options................................... 17
Index Options............................................. 18
Interest Rate, Currency and Stock Index Futures
Contracts.............................................. 19
Options on Futures Contracts.............................. 20
Limitations on Use of Futures, Options on Futures and
Certain Options on Currencies.......................... 21
Forward Contracts......................................... 21
Foreign Currency Strategies -- Special Considerations..... 22
Cover..................................................... 22
RISK FACTORS................................................ 23
General................................................... 23
Consumer Products and Services Fund....................... 23
Financial Services Fund................................... 23
Health Care Fund.......................................... 24
Infrastructure Fund....................................... 24
Resources Fund............................................ 24
Telecommunications Fund................................... 24
Lower Quality Debt Securities............................. 25
Investing in Smaller Companies............................ 25
Illiquid Securities....................................... 26
Foreign Securities........................................ 27
INVESTMENT LIMITATIONS...................................... 30
Feeder Funds.............................................. 30
Health Care Fund.......................................... 32
Telecommunications Fund................................... 33
EXECUTION OF PORTFOLIO TRANSACTIONS......................... 34
Portfolio Trading and Turnover............................ 36
</TABLE>
2
<PAGE> 838
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
MANAGEMENT.................................................. 37
Trustees and Executive Officers........................... 37
Investment Management and Administration Services relating
to the Feeder Funds and the Portfolios................. 38
Investment Management and Administration Services relating
to the Health Care Fund and Telecommunications Fund.... 39
Expenses of the Funds and of the Portfolios............... 40
THE DISTRIBUTION PLANS...................................... 40
The Class A and C Plan.................................... 40
The Class B Plan.......................................... 40
Both Plans................................................ 41
THE DISTRIBUTOR............................................. 43
NET ASSET VALUE DETERMINATION............................... 44
Sales Charges and Dealer Concessions...................... 45
REDUCTIONS IN INITIAL SALES CHARGES......................... 47
Contingent Deferred Sales Charge Exceptions............... 50
HOW TO PURCHASE AND REDEEM SHARES........................... 51
Backup Withholding........................................ 51
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS.................... 53
Taxation of the Funds..................................... 53
Taxation of the Theme Portfolios.......................... 53
Foreign Taxes............................................. 53
Taxation of the Funds' Shareholders....................... 55
SHAREHOLDER INFORMATION..................................... 55
MISCELLANEOUS INFORMATION................................... 58
Charges for Certain Account Information................... 58
Custodian and Transfer Agent.............................. 58
Independent Accountants................................... 58
Legal Matters............................................. 58
Shareholder Liability..................................... 58
[Names.................................................... 58]
Special Servicing Agreement............................... 59
Control Persons and Principal Holders of Securities....... 59
INVESTMENT RESULTS.......................................... 60
Total Return Quotations................................... 60
Performance Information................................... 64
General Information about the Theme Funds and Theme
Portfolios............................................. 65
Health Care Fund.......................................... 66
Information about the Global Health Care Industries....... 66
Telecommunications Fund................................... 67
Deregulation in the United States......................... 67
Consumer Products and Services Fund....................... 67
Infrastructure Fund....................................... 68
Financial Services Fund................................... 68
Resources Fund............................................ 68
APPENDIX.................................................... 69
Description of Bond Ratings............................... 69
Description of Commercial Paper Ratings................... 70
Absence of Rating......................................... 70
FINANCIAL STATEMENTS........................................ FS
</TABLE>
3
<PAGE> 839
INTRODUCTION
This Statement of Additional Information relates to the Class A, Class B and
Class C shares of AIM Global Consumer Products and Services Fund ("Consumer
Products and Services Fund"), AIM Global Financial Services Fund ("Financial
Services Fund"), AIM Global Health Care Fund ("Health Care Fund"), AIM Global
Infrastructure Fund ("Infrastructure Fund"), AIM Global Resources Fund
("Resources Fund") and AIM Global Telecommunications Fund ("Telecommunications
Fund") (each, a "Fund" or "Theme Fund," and, collectively, the "Funds" or "Theme
Funds"). Each Fund is a diversified series of AIM Investment Funds (the
"Trust"), a registered open-end management investment company organized as a
Delaware business trust. The Consumer Products and Services Fund, Financial
Services Fund, Infrastructure Fund and Resources Fund (each, a "Feeder Fund,"
and, collectively, the "Feeder Funds") invest all of their investable assets in
the Global Consumer Products and Services Portfolio, Global Financial Services
Portfolio, Global Infrastructure Portfolio and Global Resources Portfolio (each,
a "Portfolio," and, collectively, the "Portfolios"), respectively.
A I M Advisors, Inc. ("AIM" or the "Advisor") serves as the investment manager
of and administrator for the Health Care Fund, Telecommunications Fund and the
Portfolios (each a "Theme Portfolio," and collectively the "Theme Portfolios").
AIM also serve as the administrator and sub-administrator, respectively, for
each Feeder Fund.
The Trust is a series mutual fund. The rules and regulations of the Securities
and Exchange Commission (the "SEC") require all mutual funds to furnish
prospective investors certain information concerning the activities of the fund
being considered for investment. This information for Consumer Products and
Services Fund is included in a Prospectus dated March 1, 1999, for Financial
Services Fund is included in a Prospectus dated March 1, 1999, for Health Care
Fund is included in a Prospectus dated March 1, 1999, for Infrastructure Fund is
included in a Prospectus dated March 1, 1999, for Resources Fund is included in
a Prospectus dated March 1, 1999 and for Telecommunications Fund is included in
a Prospectus dated March 1, 1999. Additional copies of the Prospectuses and this
Statement of Additional Information may be obtained without charge by writing
the principal distributor of the Funds' shares, A I M Distributors, Inc. ("AIM
Distributors"), P.O. Box 4739, Houston, TX 77210-4739 or by calling (800)
347-4246. Investors must receive a Prospectus before they invest.
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
Registration Statement filed with the SEC. Copies of the Registration Statement,
including items from the Prospectus and this Statement of Additional
Information, may be obtained from the SEC by paying the charges described under
its rules and regulations.
GENERAL INFORMATION ABOUT THE FUNDS
THE TRUST AND ITS SHARES
The Trust previously operated under the name G.T. Investment Funds, Inc.,
which was organized as a Maryland corporation on October 29, 1987. The Trust was
reorganized on September 8, 1998 as a Delaware business trust, and is registered
with the SEC as a diversified open-end series management investment company. The
Trust currently consists of the following portfolios: AIM Developing Markets
Fund, AIM Emerging Markets Fund, AIM Emerging Markets Debt Fund (formerly, AIM
Global High Income Fund), AIM Global Consumer Products and Services Fund, AIM
Global Financial Services Fund, AIM Global Government Income Fund, AIM Global
Growth and Income Fund, AIM Global Health Care Fund, AIM Global Infrastructure
Fund, AIM Global Resources Fund, AIM Global Telecommunications Fund, AIM Latin
American Growth Fund and AIM Strategic Income Fund. Each of these funds has four
separate classes: Class A, Class B, Class C and Advisor Class shares. All
historical financial and other information contained in this Statement of
Additional Information for periods prior to September 8, 1998, is that of the
series of G.T. Investment Funds, Inc. (renamed AIM Investment Funds, Inc.).
This Statement of Additional Information relates solely to the Class A, B and
C shares of the Funds.
The term "majority of the outstanding shares" of the Trust, of a particular
Fund or of a particular class of a Fund or of a particular Portfolio means,
respectively, the vote of the lesser of (a) 67% or more of the shares of the
Trust, such Fund, such class or such Portfolio present at a meeting of the
Trust's shareholders, if the holders of more than 50% of the outstanding shares
of the Trust, such Fund, such class or such Portfolio are present or represented
by proxy, or (b) more than 50% of the outstanding shares of the Trust, such
Fund, such class or such Portfolio.
4
<PAGE> 840
Unless specifically noted, the Fund's investment policies described in the
Prospectuses and in this Statement of Additional Information may be changed by
the Trust's Board of Trustees without shareholder approval. The Fund's policies
regarding concentration and lending, and the percentage of the Fund's assets
that may be committed to borrowing, are fundamental policies and may not be
changed without shareholder approval.
The approval of the Fund and of other investors in the Portfolio, if any, is
not required to change the investment objective, policies or limitations of the
Portfolio, unless otherwise specified. Written notice shall be provided to
shareholders of the Fund thirty days prior to any changes in the Portfolio's
investment objective.
If a percentage restriction on investment or utilization of assets in an
investment policy or restriction is adhered to at the time an investment is
made, a later change in percentage ownership of a security or kind of securities
resulting from changing market values or a similar type of event will not be
considered a violation of the Fund's or Portfolio's investment policies or
restrictions.
Class A, Class B, Class C and Advisor Class shares of each Fund have equal
rights and privileges. Each share of a particular class is entitled to one vote,
to participate equally in dividends and distributions declared by the Trust's
Board of Trustees with respect to the class of such Fund and, upon liquidation
of the Fund, to participate proportionately in the net assets of the Fund
allocable to such class remaining after satisfaction of 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 Prospectus and this Statement
of Additional Information. Fractional shares have proportionately the same
rights, including voting rights, as are provided for a full share. Other than
the automatic conversion Class B Shares to Class A Shares, there are no
conversions.
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 trustees may elect all of the members of the Board of
Trustees of the Trust. In such event, the remaining holders cannot elect any
trustees of the Trust.
On any matter submitted to a vote of shareholders, shares of each Fund will be
voted by each Fund's shareholders individually when the matter affects the
specific interest of a Fund only, such as approval of its investment management
arrangements. In addition, shares of a particular class of a Fund may vote on
matters affecting only that class. The shares of each Fund will be voted in the
aggregate on other matters, such as the election of Trustees and ratification of
the selection of the Trust's independent accountants.
Normally there will be no annual meeting of shareholders for any of the Funds
in any year, except as required under the 1940 Act. A Trustee may be removed at
any meeting of the shareholders of the Trust by a vote of the shareholders
owning at least two-thirds of the outstanding shares [of a Fund]. Any Trustee
may call a special meeting of shareholders for any purpose. Furthermore,
Trustees shall promptly call a meeting of shareholders solely for the purpose of
removing one or more Trustees when requested in writing to do so by shareholders
holding 10% of the Trust's outstanding shares.
Pursuant to the Trust's Agreement and Declaration of Trust, the Trust may
issue an unlimited number of shares of each Fund. Each share of a Fund
represents an interest in the Fund only, has a par value of $0.01 per share,
represents an equal proportionate interest in the Fund with other shares of the
Fund and is entitled to such dividends and distributions out of the income
earned and gain realized on the assets belonging to the Fund as may be declared
by the Board of Trustees. Each share of a Fund is equal in earnings, assets and
voting privileges except that each class normally has exclusive voting rights
with respect to its distribution plan and bears the expenses, if any, related to
the distribution of its shares. Shares of a Fund, when issued, are fully paid
and nonassessable.
INVESTMENT STRATEGIES AND RISKS
The following discussion of investment policies supplements the discussion of
the investment objectives and policies set forth in the Prospectus under the
headings "Investment Objectives and Strategies" and "Principal Risks of
Investing in the Funds."
The investment objective of each Feeder Fund is long-term capital growth. The
investment objectives of the Health Care Fund and Telecommunications Fund are
long-term capital appreciation and long-term growth of capital, respectively.
The investment objective of a Fund may not be changed without the approval of a
majority of the outstanding voting shares of the Fund.
Each Feeder Fund seeks to achieve its investment objective by investing all of
its investable assets in a Portfolio, each of which is a subtrust (a "series")
of Global Investment Portfolio (an open-end management investment company), with
an investment objective that is identical to that of its corresponding Feeder
Fund. Whenever the phrase "all of a Fund's
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investable assets" is used herein and in the Prospectus, it means that the only
investment securities held by a Feeder Fund will be its interest in its
corresponding Portfolio. A Feeder Fund may withdraw its investment in its
corresponding Portfolio at any time, if the Board of Trustees of the Trust
determines that it is in the best interests of the Fund and its shareholders to
do so. A change in the Portfolio's investment objective, policies or limitations
that is not approved by the Board or the shareholders of the Feeder Fund could
require the Feeder Fund to redeem its interest in the Portfolio. Any such
redemption could result in a distribution in kind of portfolio securities (as
opposed to a cash distribution) by the Portfolio. Should such a distribution
occur, the Feeder Fund could incur brokerage fees or other transaction costs in
converting such securities to cash. In addition, a distribution in kind could
result in a less diversified portfolio of investments for the Feeder Fund and
could adversely affect its liquidity. Upon redemption, the Board would consider
what action might be taken, including the investment of all the investable
assets of the Feeder Fund in another pooled investment entity having
substantially the same investment objective as the Feeder Fund or the retention
by the Feeder Fund of its own investment advisor to manage its assets in
accordance with its investment objective, policies and limitations discussed
herein.
In addition to selling an interest therein to the Feeder Fund, the Portfolio
may sell interests therein to other non-affiliated investment companies and/or
other institutional investors. All institutional investors in the Portfolio will
pay a proportionate share of the Portfolio's expenses and will invest in the
Portfolio on the same terms and conditions. However, if another investment
company invests any or all of its assets in a Portfolio, it would not be
required to sell its shares at the same public offering price as the Feeder Fund
and may charge different sales commissions. Therefore, investors in the Feeder
Fund may experience different returns than investors in another investment
company that invests exclusively in the Portfolio. As of the date of this
Prospectus, the Feeder Fund is the only institutional investor in the Portfolio.
The Feeder Fund may be materially affected by the actions of other larger
investors, if any, in the Portfolio. For example, as with all open-end
investment companies, if a large investor were to redeem its interest in the
Portfolio, (1) the Portfolio's remaining investors could experience higher pro
rata operating expenses, thereby producing lower returns and (2) the Portfolio's
security holdings may become less diverse, resulting in increased risk.
Institutional investors in the Portfolio that have a greater pro rata ownership
interest in the Portfolio than the Feeder Fund could have effective voting
control over the operation of the Portfolio.
In addition to its primary investment policy set forth in its Prospectus, each
Theme Portfolio may invest up to 35% of its total assets in debt securities
issued by companies in the Theme Portfolio's particular industry and/or equity
and debt securities of companies outside of that industry which, in the opinion
of the Advisor, stand to benefit from developments in that industry. For each
Theme Portfolio's investment purposes, an issuer is considered to be in a
particular industry if: (i) at least 50% of either the revenues or the earnings
of the issuer was derived from activities related to that particular industry or
(ii) at least 50% of the assets was devoted to such activities, based upon the
company's most recent fiscal year.
Consumer Products and Services Fund
Examples of consumer products and services companies include those that
manufacture, market, retail, or distribute: durable goods (such as homes,
household goods, automobiles, boats, furniture and appliances, and computers);
non-durable goods (such as food and beverages and apparel); media,
entertainment, broadcasting, publishing and sports-related goods and services
(such as television and radio broadcast, motion pictures, wireless
communications, gaming casinos, theme parks, restaurants and lodging); and goods
and services to companies in the foregoing industries (such as advertisers,
textile companies and distribution and shipping companies).
The Portfolio expects that a significant portion of its assets may be invested
in the securities of U.S. issuers from time to time, particularly those that
market their products globally. However, consumer products and services
companies of a particular nation or region of the world are often operated and
owned in their local markets, close to their customers. These companies, the
Advisor believes, may offer superior opportunities for capital growth as
compared to their larger, multinational counterparts. Certain global markets may
be more attractive than others from time to time; companies dependent on U.S.
markets, for example, may be outperformed by companies not dependent on U.S.
markets.
The Advisor also believes that the demand for consumer products and services
worldwide will increase along with rising disposable incomes in both developed
and developing nations. Emerging economics, such as those in China, Southeast
Asia, Eastern Europe and Latin America, offer opportunities for the growth and
expansion of consumer markets. These regions currently comprise a growing source
of inexpensive consumer products for export and a growing source of demand for
consumer products and services as the disposable incomes of their populations
increase. In the Advisor's view, these changes are likely to create investment
opportunities in companies, both local and multinational, that are able to
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employ innovative manufacturing, marketing, retailing and distribution methods
to open new markets and/or expand existing markets.
Financial Services Fund
Examples of financial services companies include commercial banks and savings
institutions and loan associations and their holding companies; consumer and
industrial finance companies; diversified financial services companies;
investment banks; insurance brokerages; securities brokerage and investment
advisory companies; real estate-related companies; leasing companies; and a
variety of firms in all segments of the insurance field such as multi-line,
property and casualty and life insurance and insurance holding companies.
The Advisor believes an accelerating rate of global economic interdependence
will lead to significant growth in the demand for financial services. In
addition, in the Advisor's view, as the industries evolve, opportunities will
emerge for those companies positioned for the future. Thus, the Advisor expects
that banking and related financial institution consolidation in the developed
countries, increased demand for retail borrowing in developing countries, a
growing need for international trade-based financing, a rising demand for
sophisticated risk management, the proliferating number of liquid securities
markets around the world, and larger concentrations of investable assets should
lead to growth in financial service companies that are positioned for the
future.
Health Care Fund
Examples of health care companies include those that are substantially engaged
in the design, manufacture or sale of products or services used for or in
connection with health care or medicine. Such firms may include pharmaceutical
companies; firms that design, manufacture, sell or supply medical, dental and
optical products, hardware or services; companies involved in biotechnology,
medical diagnostic, and biochemical research and development; and companies
involved in the ownership and/or operation of health care facilities.
The Fund expects that, from time to time, a significant portion of its assets
may be invested in the securities of U.S. issuers. Health care industries,
however, are global industries with significant, growing markets outside of the
United States. A sizeable portion of the companies which comprise the health
care industries are headquartered outside of the United States, and many
important pharmaceutical and biotechnology discoveries and technological
breakthroughs have occurred outside of the United States, primarily in Japan,
the United Kingdom and Western Europe.
The Advisor believes that the global health care industries offer attractive
long-term supply/demand dynamics. While the United States, Western Europe, and
Japan presently account for a substantial portion of health care expenditures,
this should change dramatically in the coming decade if the populations of
developing countries devote an increasing percentage of income to health care.
Additionally, the Advisor believes demographics on aging point to a significant
increase in demand from the industrialized nations, as the elderly account for a
growing proportion of worldwide health care spending. Finally, in the Advisor's
view, technology will continue to expand the range of products and services
offered, with new drugs, medical devices and surgical procedures addressing
medical conditions previously considered untreatable.
In addition to these underlying trends, the United States is presently
experiencing a period of rapid and profound change in its own health care
system, marked by the rise of managed care, the formation of health care
delivery networks, and widespread consolidation across all segments of the
industry. The Advisor believes that this transition offers investment
opportunities in those companies acting as consolidators or otherwise gaining
market share at the expense of less efficient competitors.
Infrastructure Fund
Examples of infrastructure companies include those engaged in designing,
developing or providing the following products and services: electricity
production; oil, gas, and coal exploration, development, production and
distribution; water supply, including water treatment facilities; nuclear power
and other alternative energy sources; transportation, including the construction
or operation of transportation systems; steel, concrete, or similar types of
products; communications equipment and services (including equipment and
services for both data and voice transmission); mobile communications and
cellular radio/paging; emerging technologies combining telephone, television
and/or computer systems; and other products and services, which, in the
Advisor's judgment, constitute services significant to the development of a
country's infrastructure.
The Advisor believes that a country's infrastructure is one key to the
long-term success of that country's economy. The Advisor believes that adequate
energy, transportation, water, and communications systems are essential elements
for
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long-term economic growth. The Advisor believes that many developing nations,
especially in Asia and Latin America, plan to make significant expenditures to
the development of their infrastructure in the coming years, which is expected
to facilitate increased levels of services and manufactured goods.
In the developed countries of North America, Europe, Japan and the Pacific
Rim, the Advisor expects that the replacement and upgrade of transportation and
communications systems should stimulate growth in the infrastructure industries
of those countries. In addition, in the Advisor's view, deregulation of
telecommunications and electric and gas utilities in many countries is promoting
significant changes in these industries.
The Advisor believes that strong economic growth in developing countries and
infrastructure replacement, upgrade, and deregulation in more developed
countries provide an environment for favorable investment opportunities in
infrastructure companies worldwide. In addition, the long-term growth rates of
certain foreign countries' economies may be substantially higher than the
long-term growth rate of the U.S. economy. An integral aspect of certain foreign
countries' economies may be the development or improvement of their
infrastructure.
Resources Fund
Examples of natural resource companies include those which own, explore or
develop: energy sources (such as oil, gas and coal); ferrous and non-ferrous
metals (such as iron, aluminum, copper, nickel, zinc and lead), strategic metals
(such as uranium and titanium) and precious metals (such as gold, silver and
platinum); chemicals; forest products (such as timber, coated and uncoated tree
sheet, pulp and newsprint); other basic commodities (such as foodstuffs);
refined products (such as chemicals and steel) and service companies that sell
to these producers and refiners; and other products and services, which, in the
Advisor's opinion are significant to the ownership and development of natural
resources and other basic commodities.
The Advisor believes that the liberalization of formerly socialist economies
will bring about dramatic changes in both the supply and demand for natural
resources. In addition, rapid industrialization in developing countries of Asia
and Latin America is generating new demands for industrial materials that are
affecting world commodities markets. The Advisor believes these changes are
likely to create investment opportunities that benefit from new sources of
supply and/or from changes in commodities prices.
The Advisor also believes that investments in natural resource industries
offer an opportunity to protect wealth against the capital-eroding effects of
inflation. During periods of accelerating inflation or currency uncertainty,
worldwide investment demand for natural resources, particularly precious metals,
tends to increase, and during periods of disinflation or currency stability, it
tends to decrease. The Advisor believes that rising commodity prices and
increasing worldwide industrial production may favorably affect share prices of
natural resource companies, and investments in such companies can offer
excellent opportunities to offset the effects of inflation.
Telecommunications Fund
Telecommunications companies cover a variety of sectors, ranging from
companies concentrating on established technologies to those primarily engaged
in emerging or developing technologies. The characteristics of companies
focusing on the same technology will vary among countries depending upon the
extent to which the technology is established in the particular country. The
Advisor will allocate Telecommunications Fund's investments among these sectors
depending upon its assessment of their relative long-term growth potential.
Examples of telecommunications companies include those engaged in designing,
developing or providing the following products and services: communications
equipment and services (including equipment and services for both data and voice
transmission); electronic components and equipment; broadcasting (including
television and radio, satellite, microwave and cable television and
narrowcasting); computer equipment, mobile communications and cellular
radio/paging; electronic mail; local and wide area networking and linkage of
word and data processing systems; publishing and information systems; videotext
and teletext; and emerging technologies combining telephone, television and/or
computer systems.
The Advisor believes that there are opportunities for continued growth in
demand for components, products, media and systems to collect, store, retrieve,
transmit, process, distribute, record, reproduce and use information. The
pervasive societal impact of communications and information technologies has
been accelerated by the lower costs and higher efficiencies that result from the
blending of computers with telecommunications systems. Accordingly, companies
engaged in the production of methods for using electronic and, potentially,
video technology to communicate information are expected to be important in the
Fund's portfolio. Older technologies, such as photography and print also may be
represented, however.
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In addition, each Theme Portfolio's investment purposes, an issuer is
typically considered as located in a particular country if it (a) is organized
under the laws of or has its principal office in a particular country, or (b)
normally derives 50% or more of its total revenues from business in that
country, provided that, in the Advisor's view, the value of such issuer's
securities will tend to reflect such country's development to a greater extent
than developments elsewhere. However, these are not absolute requirements, and
certain companies incorporated in a particular country and considered by the
Sub-advisor to be located in that country may have substantial foreign
operations or subsidiaries and/or export sales exceeding in size the assets or
sales in that country.
SELECTION OF INVESTMENTS AND ASSET ALLOCATION
Each Theme Portfolio expects that, from time to time, a significant portion of
its assets may be invested in the securities of domestic issuers. The industry
represented in each Theme Portfolio, however, is a global industry with
significant, growing markets outside of the United States. A sizeable proportion
of the companies which comprise the infrastructure industries are headquartered
outside of the United States.
For these reasons, the Sub-advisor believes that a portfolio composed only of
securities of U.S. issuers does not provide the greatest potential for return
from an investment by a Theme Portfolio. The Sub-advisor uses its financial
expertise in markets located throughout the world and the substantial global
resources of AMVESCAP PLC in attempting to identify those countries and
companies then providing the greatest potential for long-term capital
appreciation. In this fashion, the Sub-advisor seeks to enable shareholders to
capitalize on the substantial investment opportunities and the potential for
long-term growth of capital presented by the industry represented in each Theme
Portfolio.
The Sub-advisor allocates each Theme Portfolio's assets among securities of
countries and in currency denominations where opportunities for meeting the
Theme Portfolio's investment objective are expected to be the most attractive.
Each Theme Portfolio may invest substantially in securities denominated in one
or more currencies. Under normal conditions, each Theme Portfolio invests in the
securities of issuers located in at least three countries, including the United
States; investments in securities of issuers in any one country, other than the
United States, will represent no more than 40% of the Financial Services
Portfolio's and the Telecommunications Fund's total assets, no more than 50% of
each Theme Portfolio's total assets.
In analyzing specific companies for possible investment, the Sub-advisor
ordinarily looks for several of the following characteristics: above-average per
share earnings growth; high return on invested capital; a healthy balance sheet;
sound financial and accounting policies and overall financial strength; strong
competitive advantages; effective research and product development and
marketing; development of new technologies; efficient service; pricing
flexibility; strong management; and general operating characteristics that will
enable the companies to compete successfully in their respective markets.
With respect to the Resources Portfolio, the Advisor has identified four areas
that it expects will create investment opportunities: (i) improving
supply/demand fundamentals, which may result in higher commodity prices; (ii)
privatization of state-owned natural resource businesses; (iii) management which
can improve production efficiencies without correspondingly increasing commodity
prices; and (iv) service companies with emerging technologies that can enhance
productivity or reduce production costs. Of course, there is no certainty that
these factors will produce the anticipated results.
With respect to the Telecommunications Fund, the Advisor has identified four
areas that it expects will create investment opportunities: (i) deregulation of
companies in the industry, which will allow competition to promote greater
efficiencies; (ii) privatization of state-owned telecommunications businesses;
(iii) development of infrastructure in underdeveloped countries and upgrading of
services in other countries; and (iv) emerging technologies that will enhance
productivity and reduce costs in the telecommunications industry. Of course,
there is no certainty that these factors will produce the anticipated results.
There may be times when, in the opinion of the Advisor, prevailing market,
economic or political conditions warrant reducing the proportion of the Theme
Portfolios' assets invested in equity securities and increasing the proportion
held in cash (U.S. dollars, foreign currencies or multinational currency units)
or invested in debt securities or high quality money market instruments issued
by corporations, or the U.S., or a foreign government. A portion of each Theme
Portfolio's assets normally will be held in cash (U.S. dollars, foreign
currencies or multinational currency units) or invested in foreign or domestic
high quality money market instruments pending investment of proceeds from new
sales of Fund shares to provide for ongoing expenses and to satisfy redemptions.
In certain countries, governmental restrictions and other limitations on
investment may affect a Theme Portfolio's ability to invest in such countries.
In addition, in some instances only special classes of securities may be
purchased by
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foreigners and the market prices, liquidity and rights with respect to those
securities may vary from shares owned by nationals. The Advisor is not aware at
this time of the existence of any investment or exchange control regulations
which might substantially impair the operations of the Theme Portfolios as
described in the Prospectus and this Statement of Additional Information.
Restrictions may in the future, however, make it undesirable to invest in
certain countries. None of the Theme Portfolios has a present intention of
making any significant investment in any country or stock market in which the
Sub-advisor considers the political or economic situation to threaten a Theme
Portfolio with substantial or total loss of its investment in such country or
market.
PRIVATIZATIONS
The governments of some foreign countries have been engaged in selling part or
all of their stakes in government-owned or controlled enterprises
("privatizations"). The Advisor believes that privatizations may offer
opportunities for significant capital appreciation and intends to invest assets
of the Theme Portfolios in privatizations in appropriate circumstances. In
certain foreign countries, the ability of foreign entities such as the Theme
Portfolios to participate may be limited by local law, or by the terms on which
a Theme Portfolio may be permitted to participate may be less advantageous than
those for local investors. There can be no assurance that foreign governments
will continue to sell companies currently owned or controlled by them or that
privatization programs will be successful.
TEMPORARY DEFENSIVE STRATEGIES
In the interest of preserving shareholders' capital, the Advisor may employ a
temporary defensive investment strategy if it determines such a strategy to be
warranted due to market, economic or political conditions. Under a defensive
strategy, each Theme Portfolio may invest up to 100% of its total assets in cash
(U.S. dollars, foreign currencies or multinational currency units such as euros)
and/or high quality debt securities or money market instruments of U.S. or
foreign issuers. In addition, for temporary defensive purposes, most or all of a
Theme Portfolio's investments may be made in the United States and denominated
in U.S. dollars. To the extent a Theme Portfolio adopts a temporary defensive
posture, it will not be invested so as to achieve directly its investment
objective. In addition, pending investment of proceeds from new sales of Fund
shares or to meet its ordinary daily cash needs, the Theme Portfolio may hold
cash (U.S. dollars, foreign currencies or multinational currency units) and may
invest in foreign or domestic high quality money market instruments. For a full
description of money market instruments, see "Money Market Instruments" herein.
INVESTMENTS IN OTHER INVESTMENT COMPANIES
Each Theme Portfolio may invest in the securities of investment companies
(including investment vehicles or companies advised by the Advisor or its
affiliates ("Affiliated Funds")) within the limits of the Investment Company Act
of 1940, as amended (the "1940 Act"). These limitations currently provide that,
in general, a Theme Portfolio may purchase shares of an investment company
unless (a) such a purchase would cause a Theme Portfolio to own in the aggregate
more than 3% of the total outstanding voting stock of the investment company or
(b) such a purchase would cause the Theme Portfolio to have more than 5% of its
assets invested in the investment company or more than 10% of its assets
invested in an aggregate of all such investment companies. The foregoing
restrictions do not apply to the investment of the Financial Services Fund,
Infrastructure Fund, Resources Fund and Consumer Products and Services Fund in
their corresponding Portfolios. Investment in closed-end investment companies
may involve the payment of substantial premiums above the value of such
companies' portfolio securities. Each Theme Portfolio does not intend to invest
in such investment companies unless, in the judgment of the Advisor, the
potential benefits of such investments justify the payment of any applicable
premiums. The return on such securities will be reduced by operating expenses of
such companies, including payments to the investment managers of those
investment companies. With respect to investments in Affiliated Funds, the
Advisor waives its advisory fee to the extent that such fees are based on assets
of a Theme Portfolio invested in Affiliated Funds.
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DEPOSITARY RECEIPTS
A Theme Portfolio may hold securities of foreign issuers in the form of
American Depositary Receipts ("ADRs"), American Depositary Shares ("ADSs"),
Global Depositary Receipts ("GDRs") and European Depositary Receipts ("EDRs") or
other securities convertible into securities of eligible foreign issuers. These
securities may not necessarily be denominated in the same currency as the
securities for which they may be exchanged. ADRs and ADSs are typically issued
by an American bank or trust company and evidence ownership of underlying
securities issued by a foreign corporation. EDRs, which are sometimes referred
to as Continental Depositary Receipts ("CDRs"), are issued in Europe typically
by foreign banks and trust companies and evidence ownership of either foreign or
domestic securities. GDRs are similar to EDRs and are designed for use in
several international financial markets. Generally, ADRs and ADSs in registered
form are designed for use in U.S. securities markets and EDRs in bearer form are
designed for use in European securities markets. For purposes of each Theme
Portfolio's investment policies, a Theme Portfolio's investments in ADRs, ADSs,
GDRs and EDRs will be deemed to be investments in the equity securities
representing securities of foreign issuers into which they may be converted.
ADR facilities may be established as either "unsponsored" or "sponsored."
While ADRs issued under these two types of facilities are in some respects
similar, there are distinctions between them relating to the rights and
obligations of ADR holders and the practices of market participants. A
depository may establish an unsponsored facility without participation by (or
even necessarily the acquiescence of) the issuer of the deposited securities,
although typically the depository requests a letter of non-objection from such
issuer prior to the establishment of the facility. Holders of unsponsored ADRs
generally bear all the costs of such facilities. The depository usually charges
fees upon the deposit and withdrawal of the deposited securities, the conversion
of dividends into U.S. dollars, the disposition of non-cash distributions, and
the performance of other services. The depository of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited securities or to pass-through voting
rights to ADR holders in respect of the deposited securities. Sponsored ADR
facilities are created in generally the same manner as unsponsored facilities,
except that the issuer of the deposited securities enters into a deposit
agreement with the depository. The deposit agreement sets out the rights and
responsibilities of the issuer, the depository and the ADR holders. With
sponsored facilities, the issuer of the deposited securities generally will bear
some of the costs relating to the facility (such as dividend payment fees of the
depository), although ADR holders continue to bear certain other costs (such as
deposit and withdrawal fees). Under the terms of most sponsored arrangements,
depositories agree to distribute notices of shareholder meetings and voting
instructions, and to provide shareholder communications and other information to
the ADR holders at the request of the issuer of the deposited securities. The
Theme Portfolios may invest in both sponsored and unsponsored ADRs.
WARRANTS OR RIGHTS
Warrants or rights may be acquired by a Theme Portfolio in connection with
other securities or separately and provide the Theme Portfolio with the right to
purchase at a later date other securities of the issuer. Warrants are securities
permitting, but not obligating, their holder to subscribe for other securities
or commodities. Warrants do not carry with them the right to dividends or voting
rights with respect to the securities that they entitle their holder to
purchase, and they do not represent any rights in the assets of the issuer. As a
result, warrants may be considered more speculative than certain other types of
investments. In addition, the value of a warrant does not necessarily change
with the value of the underlying securities and a warrant ceases to have value
if it is not exercised prior to its expiration date.
LENDING OF PORTFOLIO SECURITIES
For the purpose of realizing additional income, each Theme Portfolio may make
secured loans of its securities holdings amounting to not more than 30% of its
total assets. Securities loans are made to broker/dealers or institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral consisting of cash, U.S. government securities, or certain
other irrevocable letters of credit at least equal at all times to the value of
the securities lent plus any accrued interest, "marked to market" on a daily
basis. The Theme Portfolios may pay reasonable administrative and custodial fees
in connection with the loans of their securities. While the securities loan is
outstanding, a Theme Portfolio will continue to receive the equivalent of the
interest or dividends paid by the issuer on the securities, as well as interest
on the investment of the collateral or a fee from the borrower. A Theme
Portfolio will have a right to call each loan and obtain the securities within
the stated settlement period. A Theme Portfolio will not have the right to vote
equity securities while they are being lent, but it may call in a loan in
anticipation of any important vote. The risks in lending portfolio securities,
as with other extensions of secured credit, consist of possible delays in
receiving additional collateral or in recovery of the securities and possible
loss of rights in the collateral should the borrower fail financially. Loans
will only
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be made to firms deemed by the Advisor to be of good standing and will not be
made unless, in the judgment of the Advisor, the consideration to be earned from
such loans would justify the risk.
MONEY MARKET INSTRUMENTS
Money market instruments in which the Theme Portfolios may invest include U.S.
government securities, high-grade commercial paper, bank certificates of
deposit, bankers' acceptances and repurchase agreements related to any of the
foregoing. "High-grade commercial paper" refers to commercial paper rated A-1 by
Standard & Poor's, a division of The McGraw-Hill Companies, Inc., or P-1 by
Moody's Investors Services, Inc. or, if not rated, determined by the Advisor to
be of comparable quality.
COMMERCIAL BANK OBLIGATIONS
For the purposes of each Theme Portfolio's investment policies with respect to
bank obligations, obligations of foreign branches of U.S. banks and of foreign
banks are obligations of the issuing bank and may be general obligations of the
parent bank. Such obligations may, however, be limited by the terms of a
specific obligation and by government regulation. As with investments in
non-U.S. securities in general, investments in the obligations of foreign
branches of U.S. banks and of foreign banks may subject each Theme Portfolio to
investment risks that are different in some respects from those of investments
in obligations of U.S. issuers. Although each Theme Portfolio will typically
acquire obligations issued and supported by the credit of U.S. or foreign banks
having total assets at the time of purchase of $1 billion or more, this $1
billion figure is not an investment policy or restriction of each Theme
Portfolio. For the purposes of calculation with respect to the $1 billion
figure, the assets of a bank will be deemed to include the assets of its U.S.
and non-U.S. branches.
REPURCHASE AGREEMENTS
A repurchase agreement is a transaction in which a Theme Portfolio purchases a
security from a bank or recognized securities dealer and simultaneously commits
to resell that security to the bank or dealer at an agreed upon price, date, and
market rate of interest unrelated to the coupon rate or maturity of the
purchased security. Although repurchase agreements carry certain risks not
associated with direct investments in securities, including possible decline in
the market value of the underlying securities and delays and costs to the Theme
Portfolio if the other party to the repurchase agreement becomes bankrupt, the
Theme Portfolios intend to enter into repurchase agreements only with banks and
dealers believed by the Advisor to present minimal credit risks in accordance
with guidelines established by the Trust's or the Portfolios' Board of Trustees,
as applicable. The Advisor will review and monitor the creditworthiness of such
institutions under the applicable Board's general supervision.
Each Theme Portfolio will invest only in repurchase agreements collateralized
at all times in an amount at least equal to the repurchase price plus accrued
interest. To the extent that the proceeds from any sale of such collateral upon
a default in the obligation to repurchase were less than the repurchase price, a
Theme Portfolio would suffer a loss. If the financial institution which is party
to the repurchase agreement petitions for bankruptcy or otherwise becomes
subject to bankruptcy or other liquidation proceedings, there may be
restrictions on a Theme Portfolio's ability to sell the collateral and a Theme
Portfolio could suffer a loss. However, with respect to financial institutions
whose bankruptcy or liquidation proceedings are subject to the U.S. Bankruptcy
Code, each Theme Portfolio intends to comply with provisions under such Code
that would allow the immediate resale of such collateral. Each Theme Portfolio
will not enter into a repurchase agreement with a maturity of more than seven
days if, as a result, more than 15% of the value of its net assets (except for
Health Care Fund, more than 10% of the value of its total assets) would be
invested in such repurchase agreements and other illiquid investments.
BORROWING, REVERSE REPURCHASE AGREEMENTS AND "ROLL" TRANSACTIONS
Each Theme Portfolio may borrow from banks or may borrow through reverse
repurchase agreements and "roll" transactions in connection with meeting
requests for the redemptions of the Funds' shares. Each Theme Portfolio's
borrowings will not exceed 33 1/3% of its total assets, i.e., the Theme
Portfolio's total assets at all times will equal at least 300% of the amount of
outstanding borrowings. If market fluctuations in the value of a Theme
Portfolio's securities holdings or other factors cause the ratio of a Theme
Portfolio's total assets to outstanding borrowings to fall below 300%, within
three days (excluding Sundays and holidays) of such event that Theme Portfolio
may be required to sell portfolio securities to restore the 300% asset coverage,
even though from an investment standpoint such sales might be disadvantageous.
Each Theme Portfolio may also borrow up to 5% of its total assets for temporary
or emergency purposes other than to meet redemptions. However, no additional
investments will be made if a Theme Portfolio's borrowings
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exceed 5% of its total assets. Any borrowing by a Theme Portfolio may cause
greater fluctuation in the value of its shares than would be the case if that
Theme Portfolio did not borrow.
Each Theme Portfolio's fundamental investment limitations permit the Theme
Portfolio to borrow money for leveraging purposes. However, each Theme Portfolio
(except the Health Care Fund) is currently prohibited, pursuant to a non-
fundamental investment policy, from borrowing money in order to purchase
securities. Nevertheless, this policy may be changed in the future by the
Trust's or the Portfolios' Board of Trustees, as applicable. If a Theme
Portfolio employs leverage in the future, it would be subject to certain
additional risks. Use of leverage creates an opportunity for greater growth of
capital but would exaggerate any increases or decreases in the net asset value
of the Financial Services Fund, Infrastructure Fund, Resources Fund, Consumer
Products and Services Fund or a Theme Portfolio. When the income and gains on
securities purchased with the proceeds of borrowings exceed the costs of such
borrowings, a Theme Portfolio's earnings or a Fund's net asset value will
increase faster than otherwise would be the case; conversely, if such income and
gains fail to exceed such costs, a Theme Portfolio's earnings or a Fund's net
asset value would decline faster than would otherwise be the case.
Each Theme Portfolio may enter into reverse repurchase agreements. A reverse
repurchase agreement is a borrowing transaction in which the Portfolio transfers
possession of a security to another party, such as a bank or broker/dealer, in
return for cash, and agrees to repurchase the security in the future at an
agreed upon price, which includes an interest component. Each Theme Portfolio
may also engage in "roll" borrowing transactions, which involve the sale of
Government National Mortgage Association certificates or other securities
together with a commitment (for which the Theme Portfolio may receive a fee) to
purchase similar, but not identical, securities at a future date. Each Theme
Portfolio will segregate with a custodian liquid assets in an amount sufficient
to cover its obligations under "roll" transactions and reverse repurchase
agreements with broker/dealers. No segregation is required for reverse
repurchase agreements with banks.
WHEN ISSUED OR FORWARD COMMITMENT SECURITIES
Each Theme Portfolio may purchase debt securities on a "when-issued" basis and
may purchase or sell such securities on a "forward commitment" basis in order to
hedge against anticipated changes in interest rates and prices. The price, which
is generally expressed in yield terms, is fixed at the time that the commitment
is made, but delivery and payment for the securities take place at a later date.
When-issued securities and forward commitments may be sold prior to the
settlement date, but a Theme Portfolio will purchase or sell when-issued
securities or enter into forward commitments only with the intention of actually
receiving or delivering the securities, as the case may be. No income accrues on
securities that have been purchased pursuant to a forward commitment or on a
when-issued basis prior to delivery to the Theme Portfolio. If a Theme Portfolio
disposes of the right to acquire a when-issued security prior to its acquisition
or disposes of its right to deliver or receive against a forward commitment, it
may incur a gain or loss. At the time that a Theme Portfolio enters into a
transaction on a when-issued or forward commitment basis, the Theme Portfolio
will segregate cash or liquid securities equal to the value of the when-issued
or forward commitment securities with its custodian and will mark to market
daily such assets. There is a risk that the securities may not be delivered and
that the Theme Portfolio may incur a loss.
SHORT SALES
Each Theme Portfolio may make short sales of securities. A short sale is a
transaction in which a Theme Portfolio sells a security in anticipation that the
market price of that security will decline. A Theme Portfolio may make short
sales (i) as a form of hedging to offset potential declines in long positions in
securities it owns, or anticipates acquiring, or in similar securities, and (ii)
in order to maintain flexibility in its securities holdings.
When a Theme Portfolio makes a short sale of a security it does not own, it
must borrow the security sold short and deliver it to the broker/dealer or other
intermediary through which it made the short sale. The Theme Portfolio may have
to pay a fee to borrow particular securities and will often be obligated to pay
over any payments received on such borrowed securities.
A Theme Portfolio's obligation to replace the borrowed security when the
borrowing is called or expires will be secured by collateral deposited with the
intermediary. The Theme Portfolio will also be required to deposit collateral
with its custodian to the extent, if any, necessary so that the value of both
collateral deposits in the aggregate is at all times equal to at least 100% of
the current market value of the security sold short. Depending on arrangements
made with the intermediary from which it borrowed the security regarding payment
of any amounts received by that Theme Portfolio on such security, a Theme
Portfolio may not receive any payments (including interest) on its collateral
deposited with such intermediary.
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If the price of the security sold short increases between the time of the
short sale and the time a Theme Portfolio replaces the borrowed security, that
Theme Portfolio will incur a loss; conversely, if the price declines, the Theme
Portfolio will realize a gain. Any gain will be decreased, and any loss
increased, by the transaction costs associated with the transaction. Although a
Theme Portfolio's gain is limited by the price at which it sold the security
short, its potential loss theoretically is unlimited.
No Theme Portfolio will make a short sale if, after giving effect to such
sale, the market value of the securities sold short exceeds 25% of the value of
its total assets or the Theme Portfolio's aggregate short sales of the
securities of any one issuer exceed the lesser of 2% of the Theme Portfolio's
net assets or 2% of the securities of any class of the issuer. Moreover, a Theme
Portfolio may engage in short sales only with respect to securities listed on a
national securities exchange. A Theme Portfolio may make short sales "against
the box" without respect to such limitations. In this type of short sale, at the
time of the sale the Theme Portfolio owns the security it has sold short or has
the immediate and unconditional right to acquire at no additional cost the
identical security.
OPTIONS, FUTURES AND CURRENCY STRATEGIES
INTRODUCTION
Each Theme Portfolio may use forward currency contracts, futures contracts,
options on securities, options on indices, options on currencies, and options on
futures contracts to attempt to hedge against the overall level of investment
and currency risk normally associated with Theme Portfolio investments. These
instruments are often referred to as "derivatives," which may be defined as
financial instruments whose performance is derived, at least in part, from the
performance of another asset (such as a security, currency or an index of
securities). Each Theme Portfolio may invest in such instruments up to the full
value of its portfolio assets.
To attempt to hedge against adverse movements in exchange rates between
currencies, each Theme Portfolio may enter into forward currency contracts for
the purchase or sale of a specified currency at a specified future date. Such
contracts may involve the purchase or sale of a foreign currency against the
U.S. dollar or may involve two foreign currencies. A Theme Portfolio may enter
into forward currency contracts either with respect to specific transactions or
with respect to its portfolio positions. A Theme Portfolio also may purchase and
sell put and call options on currencies, futures contracts on currencies and
options on such futures contracts to hedge against movements in exchange rates.
In addition, each Theme Portfolio may purchase and sell put and call options
on equity and debt securities to hedge against the risk of fluctuations in the
prices of securities held by a Theme Portfolio or that the Advisor intends to
include in a Theme Portfolio's holdings. Each Theme Portfolio also may purchase
and sell put and call options on stock indexes to hedge against overall
fluctuations in the securities markets generally or in a specific market sector.
Further, each Theme Portfolio may sell stock index futures contracts and may
purchase put options or write call options on such futures contracts to protect
against a general stock market decline or a decline in a specific market sector
that could adversely affect the Portfolio's holdings. Each Theme Portfolio also
may purchase stock index futures contracts and purchase call options or write
put options on such contracts to hedge against a general stock market or market
sector advance and thereby attempt to lessen the cost of future securities
acquisitions. Each Theme Portfolio may use interest rate futures contracts and
options thereon to hedge the debt portion of its portfolio against changes in
the general level of interest rates.
SPECIAL RISKS OF OPTIONS, FUTURES AND CURRENCY STRATEGIES
The use of options, futures contracts and forward currency contracts ("Forward
Contracts") involves special considerations and risks, as described below. Risks
pertaining to particular instruments are described in the sections that follow.
(1) Successful use of most of these instruments depends upon the
Advisor's ability to predict movements of the overall securities and
currency markets, which requires different skills than predicting changes
in the prices of individual securities. While the Advisor is experienced in
the use of these instruments, there can be no assurance that any particular
strategy adopted will succeed.
(2) There might be imperfect correlation, or even no correlation,
between price movements of an instrument and price movements of the
investments being hedged. For example, if the value of an instrument used
in a short hedge increased by less than the decline in value of the hedged
investment, the hedge would not be fully successful. Such a lack of
correlation might occur due to factors unrelated to the value of the
investments being hedged, such as
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speculative or other pressures on the markets in which the hedging
instrument is traded. The effectiveness of hedges using hedging instruments
on indices will depend on the degree of correlation between price movements
in the index and price movements in the investments being hedged.
(3) Hedging strategies, if successful, can reduce risk of loss by
wholly or partially offsetting the negative effect of unfavorable price
movements in the investments being hedged. However, hedging strategies can
also reduce opportunity for gain by offsetting the positive effect of
favorable price movements in the hedged investments. For example, if a
Theme Portfolio entered into a short hedge because the Advisor projected a
decline in the price of a security in the Theme Portfolio's portfolio, and
the price of that security increased instead, the gain from that increase
might be wholly or partially offset by a decline in the price of the
hedging instrument. Moreover, if the price of the hedging instrument
declined by more than the increase in the price of the security, the Theme
Portfolio could suffer a loss. In either such case, the Theme Portfolio
would have been in a better position had it not hedged at all.
(4) As described below, the Theme Portfolio might be required to
maintain assets as "cover," maintain segregated accounts or make margin
payments when it takes positions in instruments involving obligations to
third parties (i.e., instruments other than purchased options). If the
Theme Portfolio were unable to close out its positions in such instruments,
it might be required to continue to maintain such assets or accounts or
make such payments until the position expired or matured. The requirements
might impair the Theme Portfolio's ability to sell a portfolio security or
make an investment at a time when it would otherwise be favorable to do so,
or require that the Theme Portfolio sell a portfolio security at a
disadvantageous time. The Theme Portfolio's ability to close out a position
in an instrument prior to expiration or maturity depends on the existence
of a liquid secondary market or, in the absence of such a market, the
ability and willingness of the other party to the transaction ("contra
party") to enter into a transaction closing out the position. Therefore,
there is no assurance that any position can be closed out at a time and
price that is favorable to the Theme Portfolio.
WRITING CALL OPTIONS
Each Theme Portfolio may write (sell) call options on securities, indices and
currencies. Call options generally will be written on securities and currencies
that, in the opinion of the Advisor are not expected to make any major price
moves in the near future but that, over the long term, are deemed to be
attractive investments for the Theme Portfolios.
A call option gives the holder (buyer) the right to purchase a security or
currency at a specified price (the exercise price) at any time until (American
style) or on (European style) a certain date (the expiration date). So long as
the obligation of the writer of a call option continues, he or she may be
assigned an exercise notice, requiring him or her to deliver the underlying
security or currency against payment of the exercise price. This obligation
terminates upon the expiration of the call option, or such earlier time at which
the writer effects a closing purchase transaction by purchasing an option
identical to that previously sold.
Portfolio securities or currencies on which call options may be written will
be purchased solely on the basis of investment considerations consistent with
each Theme Portfolio's investment objective. When writing a call option, a Theme
Portfolio, in return for the premium, gives up the opportunity for profit from a
price increase in the underlying security or currency above the exercise price,
and retains the risk of loss should the price of the security or currency
decline. Unlike one who owns securities or currencies not subject to an option,
a Theme Portfolio has no control over when it may be required to sell the
underlying securities or currencies, since most options may be exercised at any
time prior to the option's expiration. If a call option that a Theme Portfolio
has written expires, the Theme Portfolio will realize a gain in the amount of
the premium; however, such gain may be offset by a decline in the market value
of the underlying security or currency during the option period. If the call
option is exercised, the Theme Portfolio will realize a gain or loss from the
sale of the underlying security or currency, which will be increased or offset
by the premium received. Each Theme Portfolio does not consider a security or
currency covered by a call option to be "pledged" as that term is used in that
Theme Portfolio's policy that limits the pledging or mortgaging of its assets.
Writing call options can serve as a limited short hedge because declines in
the value of the hedged investment would be offset to the extent of the premium
received for writing the option. However, if the security or currency
appreciates to a price higher than the exercise price of the call option, it can
be expected that the option will be exercised and a Theme Portfolio will be
obligated to sell the security or currency at less than its market value.
The premium that a Theme Portfolio receives for writing a call option is
deemed to constitute the market value of an option. The premium the Theme
Portfolio will receive from writing a call option will reflect, among other
things, the current market price of the underlying investment, the relationship
of the exercise price to such market price, the historical price volatility of
the underlying investment, and the length of the option period. In determining
whether a
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particular call option should be written, the Advisor will consider the
reasonableness of the anticipated premium and the likelihood that a liquid
secondary market will exist for those options.
Closing transactions will be effected in order to realize a profit on an
outstanding call option, to prevent an underlying security or currency from
being called, or to permit the sale of the underlying security or currency.
Furthermore, effecting a closing transaction will permit a Theme Portfolio to
write another call option on the underlying security or currency with either a
different exercise price or expiration date, or both.
Each Theme Portfolio will pay transaction costs in connection with the writing
of options and in entering into closing purchase contracts. Transaction costs
relating to options activity are normally higher than those applicable to
purchases and sales of portfolio securities.
The exercise price of the options may be below, equal to or above the current
market values of the underlying securities, indices or currencies at the time
the options are written. From time to time, a Theme Portfolio may purchase an
underlying security or currency for delivery in accordance with the exercise of
an option, rather than delivering such security or currency from its portfolio.
In such cases, additional costs will be incurred.
A Theme Portfolio will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more, respectively, than
the premium received from writing the option. Because increases in the market
price of a call option generally will reflect increases in the market price of
the underlying security or currency, any loss resulting from the repurchase of a
call option is likely to be offset in whole or in part by appreciation of the
underlying security or currency owned by a Theme Portfolio.
WRITING PUT OPTIONS
Each Theme Portfolio may write put options on securities, indices and
currencies. A put option gives the purchaser of the option the right to sell,
and the writer (seller) the obligation to buy, the underlying security or
currency at the exercise price at any time until (American style) or on
(European style) the expiration date. The operation of put options in other
respects, including their related risks and rewards, is substantially identical
to that of call options.
A Theme Portfolio generally would write put options in circumstances where the
Sub-advisor wishes to purchase the underlying security or currency for a Theme
Portfolio's holdings at a price lower than the current market price of the
security or currency. In such event, a Theme Portfolio would write a put option
at an exercise price that, reduced by the premium received on the option,
reflects the lower price it is willing to pay. Since the Theme Portfolio would
also receive interest on debt securities or currencies maintained to cover the
exercise price of the option, this technique could be used to enhance current
return during periods of market uncertainty. The risk in such a transaction
would be that the market price of the underlying security or currency would
decline below the exercise price less the premium received.
Writing put options can serve as a limited long hedge because increases in the
value of the hedged investment would be offset to the extent of the premium
received for writing the option. However, if the security or currency
depreciates to a price lower than the exercise price of the put option, it can
be expected that the put option will be exercised and a Theme Portfolio will be
obligated to purchase the security or currency at greater than its market value.
PURCHASING PUT OPTIONS
Each Theme Portfolio may purchase put options on securities, indices and
currencies. As the holder of a put option, a Theme Portfolio would have the
right to sell the underlying security or currency at the exercise price at any
time until (American style) or on (European style) the expiration date. A Theme
Portfolio may enter into closing sale transactions with respect to such options,
exercise such option or permit such option to expire.
Each Theme Portfolio may purchase a put option on an underlying security or
currency ("protective put") owned by the Theme Portfolio in order to protect
against an anticipated decline in the value of the security or currency. Such
hedge protection is provided only during the life of the put option when the
Theme Portfolio, as the holder of the put option, is able to sell the underlying
security or currency at the put exercise price regardless of any decline in the
underlying security's market price or currency's exchange value. The premium
paid for the put option and any transaction costs would reduce any profit
otherwise available for distribution when the security or currency is eventually
sold.
A Theme Portfolio may also purchase put options at a time when it does not own
the underlying security or currency. By purchasing put options on a security or
currency it does not own, that Theme Portfolio seeks to benefit from a decline
in the market price of the underlying security or currency. If the put option is
not sold when it has remaining value, and if the market price of the underlying
security or currency remains equal to or greater than the exercise price during
the life of the put option, the Theme Portfolio will lose its entire investment
in the put option. In order for the purchase of a put
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option to be profitable, the market price of the underlying security or currency
must decline sufficiently below the exercise price to cover the premium and
transaction costs, unless the put option is sold in a closing sale transaction.
PURCHASING CALL OPTIONS
Each Theme Portfolio may purchase call options on securities, indices and
currencies. As the holder of a call option, the Theme Portfolio would have the
right to purchase the underlying security or currency at the exercise price at
any time until (American style) or on (European style) the expiration date. A
Theme Portfolio may enter into closing sale transactions with respect to such
options, exercise such options or permit such options to expire.
Call options may be purchased by a Theme Portfolio for the purpose of
acquiring the underlying security or currency for its portfolio. Utilized in
this fashion, the purchase of call options would enable a Theme Portfolio to
acquire the security or currency at the exercise price of the call option plus
the premium paid. At times, the net cost of acquiring the security or currency
in this manner may be less than the cost of acquiring the security or currency
directly. This technique may also be useful to a Theme Portfolio in purchasing a
large block of securities that would be more difficult to acquire by direct
market purchases. So long as it holds such a call option, rather than the
underlying security or currency itself, the Theme Portfolio is partially
protected from any unexpected decline in the market price of the underlying
security or currency and, in such event, could allow the call option to expire,
incurring a loss only to the extent of the premium paid for the option.
A Theme Portfolio may also purchase call options on underlying securities or
currencies it owns to avoid realizing losses that would result in a reduction of
its current return. For example, where a Theme Portfolio has written a call
option on an underlying security or currency having a current market value below
the price at which it purchased the security or currency, an increase in the
market price could result in the exercise of the call option written by the
Theme Portfolio and the realization of a loss on the underlying security or
currency. Accordingly, the Theme Portfolio could purchase a call option on the
same underlying security or currency, which could be exercised to fulfill the
Theme Portfolio's delivery obligations under its written call (if it is
exercised). This strategy could allow the Theme Portfolio to avoid selling the
portfolio security or currency at a time when it has an unrealized loss;
however, the Theme Portfolio would have to pay a premium to purchase the call
option plus transaction costs.
Aggregate premiums paid for put and call options will not exceed 5% of each
Theme Portfolio's total assets at the time of each purchase.
A Theme Portfolio may attempt to accomplish objectives similar to those
involved in using Forward Contracts, by purchasing put or call options on
currencies. A put option gives the Theme Portfolio as purchaser the right (but
not the obligation) to sell a specified amount of currency at the exercise price
at any time until (American style) or on (European style) the expiration date of
the option. A call option gives the Theme Portfolio as purchaser the right (but
not the obligation) to purchase a specified amount of currency at the exercise
price at any time until (American style) or on (European style) the expiration
date of the option. A Theme Portfolio might purchase a currency put option, for
example, to protect itself against a decline in the dollar value of a currency
in which it holds or anticipates holding securities. If the currency's value
should decline against the dollar, the loss in currency value should be offset,
in whole or in part, by an increase in the value of the put. If the value of the
currency instead should rise against the dollar, any gain to a Theme Portfolio
would be reduced by the premium it had paid for the put option. A currency call
option might be purchased, for example, in anticipation of, or to protect
against, a rise in the value against the dollar of a currency in which a Theme
Portfolio anticipates purchasing securities.
Options may be either listed on an exchange or traded in over-the-counter
("OTC") markets. Listed options are third-party contracts (i.e., performance of
the obligations of the purchaser and seller is guaranteed by the exchange or
clearing corporation) and have standardized strike prices and expiration dates.
OTC options are two-party contracts with negotiated strike prices and expiration
dates. A Theme Portfolio will not purchase an OTC option unless it believes that
daily valuations for such options are readily obtainable. OTC options differ
from exchange-traded options in that OTC options are transacted with dealers
directly and not through a clearing corporation (which guarantees performance).
Consequently, there is a risk of non-performance by the dealer. Since no
exchange is involved, OTC options are valued on the basis of an average of the
last bid prices obtained from dealers, unless a quotation from only one dealer
is available, in which case only that dealer's price will be used. In the case
of OTC options, there can be no assurance that a liquid secondary market will
exist for any particular option at any specific time.
The staff of the SEC considers purchased OTC options to be illiquid
securities. A Theme Portfolio may also sell OTC options and, in connection
therewith, segregate assets or cover its obligations with respect to OTC options
written by the Theme Portfolio. The assets used as cover for OTC options written
by a Theme Portfolio will be considered illiquid unless the OTC options are sold
to qualified dealers who agree that the Theme Portfolio may repurchase any OTC
option it
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writes at a maximum price to be calculated by a formula set forth in the option
agreement. The cover for an OTC option written subject to this procedure would
be considered illiquid only to the extent that the maximum repurchase price
under the formula exceeds the intrinsic value of the option.
A Theme Portfolio's ability to establish and close out positions in
exchange-listed options depends on the existence of a liquid market. A Theme
Portfolio intends to purchase or write only those exchange-traded options for
which there appears to be a liquid secondary market. However, there can be no
assurance that such a market will exist at any particular time. Closing
transactions can be made for OTC options only by negotiating directly with the
contra party or by a transaction in the secondary market if any such market
exists. Although a Theme Portfolio will enter into OTC options only with contra
parties that are expected to be capable of entering into closing transactions
with the Theme Portfolio, there is no assurance that the Theme Portfolio will in
fact be able to close out an OTC option position at a favorable price prior to
expiration. In the event of insolvency of the contra party, the Theme Portfolio
might be unable to close out an OTC option position at any time prior to its
expiration.
INDEX OPTIONS
Puts and calls on indices are similar to puts and calls on securities or
futures contracts except that all settlements are in cash and gain or loss
depends on changes in the index in question (and thus on price movements in the
securities market or a particular market sector generally) rather than on price
movements in individual securities or futures contracts. When a Theme Portfolio
writes a call on an index, it receives a premium and agrees that, prior to the
expiration date, the purchaser of the call, upon exercise of the call, will
receive from the Theme Portfolio an amount of cash if the closing level of the
index upon which the call is based is greater than the exercise price of the
call. The amount of cash is equal to the difference between the closing price of
the index and the exercise price of the call times a specified multiple (the
"multiplier"), which determines the total dollar value for each point of such
difference. When a Theme Portfolio buys a call on an index, it pays a premium
and has the same rights as to such call as are indicated above. When a Theme
Portfolio buys a put on an index, it pays a premium and has the right, prior to
the expiration date, to require the seller of the put, upon the Theme
Portfolio's exercise of the put, to deliver to the Theme Portfolio an amount of
cash if the closing level of the index upon which the put is based is less than
the exercise price of the put, which amount of cash is determined by the
multiplier, as described above for calls. When the Theme Portfolio writes a put
on an index, it receives a premium and the purchaser has the right, prior to the
expiration date, to require the Theme Portfolio to deliver to it an amount of
cash equal to the difference between the closing level of the index and the
exercise price times the multiplier, if the closing level is less than the
exercise price.
The risks of investment in index options may be greater than options on
securities. Because index options are settled in cash, when a Theme Portfolio
writes a call on an index it cannot provide in advance for its potential
settlement obligations by acquiring and holding the underlying securities. A
Theme Portfolio can offset some of the risk of writing a call index option
position by holding a diversified portfolio of securities similar to those on
which the underlying index is based. However, a Theme Portfolio cannot, as a
practical matter, acquire and hold a portfolio containing exactly the same
securities as underlie the index and, as a result, bears a risk that the value
of the securities held will vary from the value of the index.
Even if a Theme Portfolio could assemble a securities portfolio that exactly
reproduced the composition of the underlying index, it still would not be fully
covered from a risk standpoint because of the "timing risk" inherent in writing
index options. When an index option is exercised, the amount of cash that the
holder is entitled to receive is determined by the difference between the
exercise price and the closing index level on the date when the option is
exercised. As with other kinds of options, the Theme Portfolio, as the call
writer, will not know that it has been assigned until the next business day at
the earliest. The time lag between exercise and notice of assignment poses no
risk for the writer of a covered call on a specific underlying security, such as
common stock, because there the writer's obligation is to deliver the underlying
security, not to pay its value as of a fixed time in the past. So long as the
writer already owns the underlying security, it can satisfy its settlement
obligations by simply delivering it, and the risk that its value may have
declined since the exercise date is borne by the exercising holder. In contrast,
even if the writer of an index call holds securities that exactly match the
composition of the underlying index, it will not be able to satisfy its
assignment obligations by delivering those securities against payment of the
exercise price. Instead, it will be required to pay cash in an amount based on
the closing index value on the exercise date; and by the time it learns that it
has been assigned, the index may have declined, with a corresponding decline in
the value of its securities portfolio. This "timing risk" is an inherent
limitation on the ability of index call writers to cover their risk exposure by
holding securities positions.
If a Theme Portfolio purchases an index option and exercises it before the
closing index value for that day is available, it runs the risk that the level
of the underlying index may subsequently change. If such a change causes the
exercised
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option to fall out-of-the-money, the Theme Portfolio will be required to pay the
difference between the closing index value and the exercise price of the option
(times the applicable multiplier) to the assigned writer.
INTEREST RATE, CURRENCY AND STOCK INDEX FUTURES CONTRACTS
Each Theme Portfolio may enter into interest rate or currency futures
contracts, and may enter into stock index futures contracts (collectively,
"Futures" or "Futures Contracts"), as a hedge against changes in prevailing
levels of interest rates, currency exchange rates or stock price levels in order
to establish more definitely the effective return on securities or currencies
held or intended to be acquired by the Theme Portfolio. A Theme Portfolio's
hedging may include sales of Futures as an offset against the effect of expected
increases in interest rates, and decreases in currency exchange rates and stock
prices, and purchases of Futures as an offset against the effect of expected
declines in interest rates, and increases in currency exchange rates or stock
prices.
Each Theme Portfolio only will enter into Futures Contracts that are traded on
futures exchanges and are standardized as to maturity date and underlying
financial instrument. Futures exchanges and trading thereon in the United States
are regulated under the Commodity Exchange Act by the Commodity Futures Trading
Commission ("CFTC"). Futures are exchanged in London at the London International
Financial Futures Exchange.
Although techniques other than sales and purchases of Futures Contracts could
be used to reduce a Theme Portfolio's exposure to interest rate, currency
exchange rate and stock market fluctuations, that Theme Portfolio may be able to
hedge its exposure more effectively and at a lower cost through using Futures
Contracts.
A Futures Contract provides for the future sale by one party and purchase by
another party of a specified amount of a specific financial instrument (security
or currency) for a specified price at a designated date, time and place. A stock
index Futures Contract provides for the delivery, at a designated date, time and
place, of an amount of cash equal to a specified dollar amount times the
difference between the stock index value at the close of trading on the contract
and the price at which the Futures Contract is originally struck; no physical
delivery of stocks comprising the index is made. Brokerage fees are incurred
when a Futures Contract is bought or sold, and margin deposits must be
maintained at all times the Futures Contract is outstanding.
Although Futures Contracts typically require future delivery of and payment
for financial instruments or currencies, Futures Contracts usually are closed
out before the delivery date. Closing out an open Futures Contract sale or
purchase is effected by entering into an offsetting Futures Contract purchase or
sale, respectively, for the same aggregate amount of the identical financial
instrument or currency and the same delivery date. If the offsetting purchase
price is less than the original sale price, the Theme Portfolio realizes a gain;
if it is more, the Theme Portfolio realizes a loss. Conversely, if the
offsetting sale price is more than the original purchase price, the Theme
Portfolio realizes a gain; if it is less, the Theme Portfolio realizes a loss.
The transaction costs must also be included in these calculations. There can be
no assurance, however, that a Theme Portfolio will be able to enter into an
offsetting transaction with respect to a particular Futures Contract at a
particular time. If a Theme Portfolio is not able to enter into an offsetting
transaction, that Theme Portfolio will continue to be required to maintain the
margin deposits on the Futures Contract.
As an example of an offsetting transaction, the contractual obligations
arising from the sale of one Futures Contract of September Deutschemarks on an
exchange may be fulfilled at any time before delivery under the Futures Contract
is required (i.e., on a specified date in September, the "delivery month") by
the purchase of another Futures Contract of September Deutschemarks on the same
exchange. In such instance, the difference between the price at which the
Futures Contract was sold and the price paid for the offsetting purchase, after
allowance for transaction costs, represents the profit or loss to the Theme
Portfolio.
Each Theme Portfolio's Futures transactions will be entered into for hedging
purposes only; that is, Futures Contracts will be sold to protect against a
decline in the price of securities or currencies that a Theme Portfolio owns, or
Futures Contracts will be purchased to protect a Theme Portfolio against an
increase in the price of securities or currencies it has committed to purchase
or expects to purchase.
"Margin" with respect to Futures Contracts is the amount of funds that must be
deposited by a Theme Portfolio in order to initiate Futures trading and maintain
the Theme Portfolio's open positions in Futures Contracts. A margin deposit made
when the Futures Contract is entered into ("initial margin") is intended to
ensure the Theme Portfolio's performance under the Futures Contract. The margin
required for a particular Futures Contract is set by the exchange on which the
Futures Contract is traded and may be significantly modified from time to time
by the exchange during the term of the Futures Contract.
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Subsequent payments, called "variation margin," to and from the futures
commission merchant through which the Theme Portfolio entered into the Futures
Contract will be made on a daily basis as the price of the underlying security,
currency or index fluctuates making the Futures Contract more or less valuable,
a process known as marking-to-market.
Risks of Using Futures Contracts. The prices of Futures Contracts are volatile
and are influenced by, among other things, actual and anticipated changes in
interest rates and currency exchange rates, and in stock market movements, which
in turn are affected by fiscal and monetary policies and national and
international political and economic events.
There is a risk of imperfect correlation between changes in prices of Futures
Contracts and prices of the securities or currencies in a Theme Portfolio's
portfolio being hedged. The degree of imperfection of correlation depends upon
circumstances such as variations in speculative market demand for Futures and
for securities or currencies, including technical influences in Futures trading;
and differences between the financial instruments being hedged and the
instruments underlying the standard Futures Contracts available for trading. A
decision of whether, when and how to hedge involves skill and judgment, and even
a well-conceived hedge may be unsuccessful to some degree because of unexpected
market behavior or interest or currency rate trends.
Because of the low margin deposits required, Futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a Futures Contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the Futures Contract is deposited as margin, a subsequent 10%
decrease in the value of the Futures Contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the Futures Contract were closed out.
Thus, a purchase or sale of a Futures Contract may result in losses in excess of
the amount invested in the Futures Contract.
Most U.S. Futures exchanges limit the amount of fluctuation permitted in
Futures Contract and options on Futures Contracts prices during a single trading
day. The daily limit establishes the maximum amount that the price of a Futures
Contract or option may vary either up or down from the previous day's settlement
price at the end of a trading session. Once the daily limit has been reached in
a particular type of Futures Contract or option, no trades may be made on that
day at a price beyond that limit. The daily limit governs only price movement
during a particular trading day and therefore does not limit potential losses,
because the limit may prevent the liquidation of unfavorable positions. Futures
Contract and option prices have occasionally moved to the daily limit for
several consecutive trading days with little or no trading, thereby preventing
prompt liquidation of positions and subjecting some traders to substantial
losses.
If a Theme Portfolio were unable to liquidate a Futures or option on Futures
position due to the absence of a liquid secondary market or the imposition of
price limits, it could incur substantial losses. The Theme Portfolio would
continue to be subject to market risk with respect to the position. In addition,
except in the case of purchased options, the Theme Portfolio would continue to
be required to make daily variation margin payments and might be required to
maintain the position being hedged by the Future or option or to maintain cash
or securities in a segregated account.
Certain characteristics of the Futures market might increase the risk that
movements in the prices of Futures Contracts or options on Futures might not
correlate perfectly with movements in the prices of the investments being
hedged. For example, all participants in the Futures and options on Futures
markets are subject to daily variation margin calls and might be compelled to
liquidate Futures or options on Futures positions whose prices are moving
unfavorably to avoid being subject to further calls. These liquidations could
increase price volatility of the instruments and distort the normal price
relationship between the Futures or options and the investments being hedged.
Also, because initial margin deposit requirements in the Futures market are less
onerous than margin requirements in the securities markets, there might be
increased participation by speculators in the Futures markets. This
participation also might cause temporary price distortions. In addition,
activities of large traders in both the Futures and securities markets involving
arbitrage, "program trading" and other investment strategies might result in
temporary price distortions.
OPTIONS ON FUTURES CONTRACTS
Options on Futures Contracts are similar to options on securities or
currencies except that options on Futures Contracts give 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 period of
the option. Upon exercise of the option, the delivery of the Futures position by
the writer of the option to the holder of the option will be accompanied by
delivery of the accumulated 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 is
exercised on the last trading day 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 level of the securities, currencies
or index upon which
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the Futures Contract is based on the expiration date. Purchasers of options who
fail to exercise their options prior to the exercise date suffer a loss of the
premium paid.
The purchase of call options on Futures can serve as a long hedge, and the
purchase of put options on Futures can serve as a short hedge. Writing call
options on Futures can serve as a limited short hedge, and writing put options
on Futures can serve as a limited long hedge, using a strategy similar to that
used for writing options on securities, foreign currencies or indices.
If a Theme Portfolio writes an option on a Futures Contract, it will be
required to deposit initial and variation margin pursuant to requirements
similar to those applicable to Futures Contracts. Premiums received from the
writing of an option on a Futures Contract are included in the initial margin
deposit.
A Theme Portfolio may seek to close out an option position by selling an
option covering the same Futures Contract and having the same exercise price and
expiration date. The ability to establish and close out positions on such
options is subject to the maintenance of a liquid secondary market.
LIMITATIONS ON USE OF FUTURES, OPTIONS ON FUTURES AND CERTAIN OPTIONS ON
CURRENCIES
To the extent that a Theme Portfolio enters into Futures Contracts, options on
Futures Contracts, and options on foreign currencies traded on a CFTC-regulated
exchange, in each case other than for bona fide hedging purposes (as defined by
the CFTC), the aggregate initial margin and premiums required to establish those
positions (excluding the amount by which options are "in-the-money") will not
exceed 5% of the liquidation value of the Theme Portfolio, after taking into
account unrealized profits and unrealized losses on any contracts the Theme
Portfolio has entered into. In general, a call option on a Futures Contract is
"in-the-money" if the value of the underlying Futures Contract exceeds the
strike, i.e., exercise, price of the call; a put option on a Futures Contract is
"in-the-money" if the value of the underlying Futures Contract is exceeded by
the strike price of the put. This guideline may be modified by the Trust's Board
of Trustees and the Portfolio's Board of Trustees, as applicable, without a
shareholder vote. This limitation does not limit the percentage of a Theme
Portfolio's assets at risk to 5%.
FORWARD CONTRACTS
A Forward Contract is an obligation, usually arranged with a commercial bank
or other currency dealer, to purchase or sell a currency against another
currency at a future date and price as agreed upon by the parties. A Theme
Portfolio either may accept or make delivery of the currency at the maturity of
the Forward Contract. A Theme Portfolio may also, if its contra party agrees
prior to maturity, enter into a closing transaction involving the purchase or
sale of an offsetting contract.
A Theme Portfolio engages in forward currency transactions in anticipation of,
or to protect itself against, fluctuations in exchange rates. A Theme Portfolio
might sell a particular foreign currency forward, for example, when it holds
bonds denominated in a foreign currency but anticipates, and seeks to be
protected against, a decline in the currency against the U.S. dollar. Similarly,
a Theme Portfolio might sell the U.S. dollar forward when it holds bonds
denominated in U.S. dollars but anticipates, and seeks to be protected against,
a decline in the U.S. dollar relative to other currencies. Further, a Theme
Portfolio might purchase a currency forward to "lock in" the price of securities
denominated in that currency that it anticipates purchasing.
Forward Contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers. A
Forward Contract generally has no deposit requirement, and no commissions are
charged at any stage for trades. Each Theme Portfolio will enter into such
Forward Contracts with major U.S. or foreign banks and securities or currency
dealers in accordance with guidelines approved by the Trust's or the Portfolios'
Board of Trustees, as applicable.
A Theme Portfolio may enter into Forward Contracts either with respect to
specific transactions or with respect to overall investments of that Theme
Portfolio. The precise matching of the Forward Contract amounts and the value of
specific securities generally will not be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the Forward Contract
is entered into and the date it matures. Accordingly, it may be necessary for
that Theme Portfolio to purchase additional foreign currency on the spot (i.e.,
cash) market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Theme Portfolio is
obligated to deliver and if a decision is made to sell the security and make
delivery of the foreign currency. Conversely, it may be necessary to sell on the
spot market some of the foreign currency the Theme Portfolio is obligated to
deliver. The projection of short-term currency market movements is extremely
difficult, and the successful execution of a short-term hedging strategy is
highly uncertain.
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Forward Contracts involve the risk that anticipated currency movements will not
be predicted accurately, causing a Theme Portfolio to sustain losses on these
contracts and transaction costs.
At or before the maturity of a Forward Contract requiring a Theme Portfolio to
sell a currency, that Theme Portfolio either may sell a security and use the
sale proceeds to make delivery of the currency or retain the security and offset
its contractual obligation to deliver the currency by purchasing a second
contract pursuant to which the Theme Portfolio will obtain, on the same maturity
date, the same amount of the currency that it is obligated to deliver.
Similarly, a Theme Portfolio may close out a Forward Contract requiring it to
purchase a specified currency by entering into a second contract, if its contra
party agrees, entitling it to sell the same amount of the same currency on the
maturity date of the first contract. A Theme Portfolio would realize a gain or
loss as a result of entering into such an offsetting Forward Contract under
either circumstance to the extent the exchange rate or rates between the
currencies involved moved between the execution dates of the first contract and
the offsetting contract.
The cost to a Theme Portfolio of engaging in Forward Contracts varies with
factors such as the currencies involved, the length of the contract period and
the market conditions then prevailing. Because Forward Contracts are usually
entered into on a principal basis, no fees or commissions are involved. The use
of Forward Contracts does not eliminate fluctuations in the prices of the
underlying securities a Theme Portfolio owns or intends to acquire, but it does
establish a rate of exchange in advance. In addition, while Forward Contract
sales limit the risk of loss due to a decline in the value of the hedged
currencies, they also limit any potential gain that might result should the
value of the currencies increase.
FOREIGN CURRENCY STRATEGIES -- SPECIAL CONSIDERATIONS
A Theme Portfolio may use options on foreign currencies, Futures on foreign
currencies, options on Futures on foreign currencies and Forward Contracts to
hedge against movements in the values of the foreign currencies in which the
Theme Portfolio's securities are denominated. Such currency hedges can protect
against price movements in a security that the Theme Portfolio owns or intends
to acquire that are attributable to changes in the value of the currency in
which it is denominated. Such hedges do not, however, protect against price
movements in the securities that are attributable to other causes.
A Theme Portfolio might seek to hedge against changes in the value of a
particular currency when no Futures Contract, Forward Contract or option
involving that currency is available or one of such contracts is more expensive
than certain other contracts. In such cases, the Theme Portfolio may hedge
against price movements in that currency by entering into a contract on another
currency or basket of currencies, the values of which the Sub-advisor believes
will have a positive correlation to the value of the currency being hedged. The
risk that movements in the price of the contract will not correlate perfectly
with movements in the price of the currency being hedged is magnified when this
strategy is used.
The value of Futures Contracts, options on Futures Contracts, Forward
Contracts and options on foreign currencies depends on the value of the
underlying currency relative to the U.S. dollar. Because foreign currency
transactions occurring in the interbank market might involve substantially
larger amounts than those involved in the use of Futures Contracts, Forward
Contracts or options, the Theme Portfolio could be disadvantaged by dealing in
the odd lot market (generally consisting of transactions of less than $1
million) for the underlying foreign currencies at prices that are less favorable
than for round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirements that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options or Futures markets are
closed while the markets for the underlying currencies remain open, significant
price and rate movements might take place in the underlying markets that cannot
be reflected in the markets for the Futures contracts or options until they
reopen.
Settlement of Futures Contracts, Forward Contracts and options involving
foreign currencies might be required to take place within the country issuing
the underlying currency. Thus, the Theme Portfolio might be required to accept
or make delivery of the underlying foreign currency in accordance with any U.S.
or foreign regulations regarding the maintenance of foreign banking arrangements
by U.S. residents and might be required to pay any fees, taxes and charges
associated with such delivery assessed in the issuing country.
COVER
Transactions using Forward Contracts, Futures Contracts and options (other
than options purchased by a Theme Portfolio) expose the Theme Portfolio to an
obligation to another party. A Theme Portfolio will not enter into any such
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transactions unless it owns either (1) an offsetting ("covered") position in
securities, currencies, or other options, Forward Contracts or Futures
Contracts, or (2) cash, receivables and short-term debt securities with a value
sufficient at all times to cover its potential obligations not covered as
provided in (1) above. Each Theme Portfolio will comply with SEC guidelines
regarding cover for these instruments and, if the guidelines so require, set
aside cash or liquid securities.
Assets used as cover or held in a segregated account cannot be sold while the
position in the corresponding Forward Contract, Futures Contract or option is
open, unless they are replaced with other appropriate assets. If a large portion
of a Theme Portfolio's assets is used for cover or otherwise set aside, it could
affect portfolio management or the Theme Portfolio's ability to meet redemption
requests or other current obligations.
RISK FACTORS
GENERAL
Equity securities, particularly common stocks, generally represent the most
junior position in an issuer's capital structure, and entitle holders to an
interest in the assets of the issuer, if any, remaining after all more senior
claims have been satisfied. The value of equity securities held by a Theme
Portfolio will fluctuate in response to general market and economic
developments, as well as developments affecting the particular issuers of such
securities. The value of debt securities held by a Theme Portfolio generally
will fluctuate with changes in the perceived creditworthiness of the issuers of
such securities and interest rates.
CONSUMER PRODUCTS AND SERVICES FUND
The performance of consumer products and services companies relates closely to
the actual and perceived performance of the overall economy, interest rates, and
consumer confidence. In addition, many consumer products and services companies
have unpredictable earnings, due in part to changes in consumer tastes and
intense competition. As a result of either of these factors, consumer products
and services companies may be subject to increased share price volatility.
Changes in governmental policy and the need for regulatory approvals may have
a material effect on the products and services offered by companies in the
consumer products and services industries. Such governmental regulations may
also hamper the development of new business opportunities.
FINANCIAL SERVICES FUND
Companies in the financial services sector are subject to rapid business
changes, significant competition, value fluctuations due to the concentration of
loans in particular industries significantly affected by economic conditions
(such as real estate or energy), and volatile performance dependent upon the
availability and cost of capital and prevailing interest rates. In addition,
general economic conditions significantly affect these companies. Credit and
other losses resulting from the financial difficulty of borrowers or other third
parties potentially may have an adverse effect on companies in these industries.
Foreign banks, particularly those of Japan, have reported financial difficulties
attributed to increased competition, regulatory changes, and general economic
difficulties.
The financial services area in the United States currently is changing
relatively rapidly as existing distinctions between various financial service
segments become less clear. For instance, recent business combinations have
included insurance, finance, and securities brokerage under single ownership.
Some primarily retail corporations have expanded into securities and insurance
fields. Investment banking, securities brokerage, and investment advisory
companies are subject to government regulation and risk due to securities
trading and underwriting activities.
Many of the investment considerations discussed in connection with banks,
savings institutions and loan associations, and finance companies also apply to
insurance companies. The performance of insurance company investments will be
subject to risk from several factors. The earnings of insurance companies will
be affected by interest rates, pricing (including severe pricing competition
from time to time), claims activity, marketing competition and general economic
conditions. Particular insurance lines also will be influenced by specific
matters. Property and casualty insurance profits may be affected by certain
weather catastrophes and other disasters. Life and health insurers' profits may
be affected by mortality and morbidity rates. Individual companies may be
exposed to material risks, including reserve inadequacy, problems in investment
portfolios (due to real estate or "junk" bond holdings, for example), and the
inability to collect from reinsurance carriers. Insurance companies are subject
to extensive governmental regulation, including the imposition of maximum rate
levels, which may not be adequate for some lines of business. Proposed or
potential anti-trust or tax law changes also may affect adversely insurance
companies' policy sales, tax obligations, and profitability.
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HEALTH CARE FUND
Health care industries generally are subject to substantial governmental
regulation. Changes in governmental policy or regulation could have a material
effect on the demand for products and services offered by companies in the
health care industries and therefore could affect the performance of the Fund.
Regulatory approvals are generally required before new drugs and medical devices
or procedures may be introduced and before the acquisition of additional
facilities by health care providers. In addition, the products and services
offered by such companies may be subject to rapid obsolescence caused by
technological and scientific advances.
INFRASTRUCTURE FUND
The nature of regulation of infrastructure industries continues to evolve in
both the United States and foreign countries, and changes in governmental policy
and the need for regulatory approvals may have a material effect on the products
and services offered by companies in the infrastructure industries. Electric,
gas, water, and most telecommunications companies in the United States, for
example, are subject to both federal and state regulation affecting permitted
rates of return and the kinds of services that may be offered. Government
regulation may also hamper the development of new technologies. Adverse
regulatory developments could therefore potentially affect the performance of
infrastructure Fund.
In addition, many infrastructure companies have historically been subject to
the risks attendant to increases in fuel and other operating costs, high
interest costs on borrowed funds, costs associated with compliance with
environmental, and other safety regulations and changes in the regulatory
climate. Changes in prevailing interest rates may also affect the Infrastructure
Fund's share values because prices of equity and debt securities of
infrastructure companies tend to increase when interest rates decline and
decrease when interest rates rise. Further, competition is intense for many
infrastructure companies. As a result, many of these companies may be adversely
affected in the future and such companies may be subject to increased share
price volatility. In addition, many companies have diversified into oil and gas
exploration and development, and therefore returns may be more sensitive to
energy prices.
Some infrastructure companies, such as water supply companies, operate in
highly fragmented market sectors due to local ownership. In addition, some of
these companies are mature and experience little or no growth. Either of these
factors could have a material effect on infrastructure companies and could
therefore affect the performance of Infrastructure Fund.
RESOURCES FUND
Resources Fund invests in companies that engage in the exploration,
development, and distribution of coal, oil and gas in the United States. These
companies are subject to significant federal and state regulation, which may
affect rates of return on such investments and the kinds of services that may be
offered. In addition, many natural resource companies historically have been
subject to significant costs associated with compliance with environmental and
other safety regulations. Governmental regulation may also hamper the
development of new technologies.
Further, competition is intense for many natural resource companies. As a
result, many of these companies may be adversely affected in the future and the
value of the securities issued by such companies may be subject to increased
price volatility. Such companies may also be subject to irregular fluctuations
in earnings due to changes in the availability of money, the level of interest
rates, and other factors.
The value of securities of natural resource companies will fluctuate in
response to market conditions for the particular natural resources with which
the issuers are involved. The price of natural resources will fluctuate due to
changes in worldwide levels of inventory, and changes, perceived or actual, in
production and consumption. With respect to precious metals, such price
fluctuations may be substantial over short periods of time. In addition, the
value of natural resources may fluctuate directly with respect to various stages
of the inflationary cycle and perceived inflationary trends and are subject to
numerous factors, including national and international politics.
TELECOMMUNICATIONS FUND
Telecommunications industries may be subject to greater governmental
regulation than many other industries and changes in governmental policy and the
need for regulatory approvals may have a material effect on the products and
services offered by companies in the telecommunications industries. Telephone
operating companies in the United States, for example, are subject to both
federal and state regulation affecting permitted rates of return and the kinds
of services that may be offered. In addition, certain types of companies in the
telecommunications industries are engaged in fierce competition for market share
that could result in increased share price volatility.
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LOWER QUALITY DEBT SECURITIES
The Resources Portfolio, Consumer Products and Services Portfolio, and
Infrastructure Portfolio may invest up to 20%, and Health Care Fund,
Telecommunications Fund, and Financial Services Portfolio may invest up to 5%,
of their respective total assets in below investment grade debt securities, that
is, rated below BBB by Standard & Poor's, a division of The McGraw-Hill
Companies, Inc. ("S&P"), or Baa by Moody's Investors Service, Inc. ("Moody's")
or, if unrated, deemed to be of equivalent quality in the judgment of the
Advisor. Such investments involve a high degree of risk. However, the Theme
Portfolios will not invest in debt securities that are in default as to payment
of principal and interest.
Debt rated Baa by Moody's is considered by Moody's to have speculative
characteristics. Debt rated BB, B, CCC, CC or C by S&P and debt rated Ba, B,
Caa, Ca or C by Moody's is regarded, on balance, as predominately speculative
with respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. While such lower quality debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions. Debt rated C
by Moody's or S&P is the lowest rated debt that is not in default as to
principal or interest, and such issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing. Lower
quality debt securities are also generally considered to be subject to greater
risk than securities with higher ratings with regard to a deterioration of
general economic conditions. These lower quality debt securities are the
equivalent of high yield, high risk bonds, commonly known as "junk bonds."
Ratings of debt securities represent the rating agency's opinion regarding
their quality and are not a guarantee of quality. Rating agencies attempt to
evaluate the safety of principal and interest payments and do not evaluate the
risks of fluctuations in market value. Also, rating agencies may fail to make
timely changes in credit ratings in response to subsequent events, so that an
issuer's current financial condition may be better or worse than a rating
indicates.
The market values of lower quality debt securities tend to reflect individual
developments of the issuer to a greater extent than do higher quality
securities, which react primarily to fluctuations in the general level of
interest rates. In addition, lower quality debt securities tend to be more
sensitive to economic conditions and generally have more volatile prices than
higher quality securities. Issuers of lower quality securities are often highly
leveraged and may not have available to them more traditional methods of
financing. For example, during an economic downturn or a sustained period of
rising interest rates, highly leveraged issuers of lower quality securities may
experience financial stress. During such periods, such issuers may not have
sufficient revenues to meet their interest payment obligations. The issuer's
ability to service its debt obligations may also be adversely affected by
specific developments affecting the issuer, such as the issuer's inability to
meet specific projected business forecasts or the unavailability of additional
financing. The risk of loss due to default by the issuer is significantly
greater for the holders of lower quality securities because such securities are
generally unsecured and may be subordinated to the claims of other creditors of
the issuer.
Lower quality debt securities of corporate issuers frequently have call or
buy-back features which would permit an issuer to call or repurchase that
security from a Theme Portfolio. If an issuer exercises these provisions in a
declining interest rate market, the Theme Portfolio may have to replace the
security with a lower yielding security, resulting in a decreased return for
investors. In addition, the Theme Portfolio may have difficulty disposing of
lower quality securities because they may have a thin trading market. There may
be no established retail secondary market for many of these securities, and the
Theme Portfolio anticipates that such securities could be sold only to a limited
number of dealers or institutional investors. The lack of a liquid secondary
market also may have an adverse impact on market prices of such instruments and
may make it more difficult for the Theme Portfolio to obtain accurate market
quotations for purposes of valuing its investments. The Theme Portfolios may
also acquire lower quality debt securities during an initial underwriting or
which are sold without registration under applicable securities laws. Such
securities involve special considerations and risks.
In addition to the foregoing, factors that could have an adverse effect on the
market value of lower quality debt securities in which the Theme Portfolios may
invest include: (i) potential adverse publicity; (ii) heightened sensitivity to
general economic or political conditions, and (iii) the likely adverse impact of
a major economic recession. The Theme Portfolios may also incur additional
expenses to the extent it is required to seek recovery upon a default in the
payment of principal or interest on portfolio holdings, and the Theme Portfolios
may have limited legal recourse in the event of a default.
INVESTING IN SMALLER COMPANIES
While a Theme Portfolio's holdings normally will include securities of
established suppliers of traditional products and services, a Theme Portfolio
may invest in smaller companies which can benefit from the development of new
products and services. These smaller companies may present greater opportunities
for capital appreciation, but may also involve greater risks than large,
established issuers. Such smaller companies may have limited product lines,
markets or financial resources, and their securities may trade less frequently
and in more limited volume than the securities of larger, more
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established companies. As a result, the prices of the securities of such smaller
companies may fluctuate to a greater degree than the prices of the securities of
other issuers.
ILLIQUID SECURITIES
Each Theme Portfolio may invest up to 15% of its net assets in illiquid
securities. Securities may be considered illiquid if a Theme Portfolio cannot
reasonably expect within seven days to sell the securities for approximately the
amount at which that Theme Portfolio values such securities. See "Investment
Limitations." The sale of illiquid securities, if they can be sold at all,
generally will require more time and result in higher brokerage charges or
dealer discounts and other selling expenses than will the sale of liquid
securities such as securities eligible for trading on U.S. securities exchanges
or in OTC markets. Moreover, restricted securities, which may be illiquid for
purposes of this limitation, often sell, if at all, at a price lower than
similar securities that are not subject to restrictions on resale.
Illiquid securities include those that are subject to restrictions contained
in the securities laws of other countries. However, securities that are freely
marketable in the country where they are principally traded, but would not be
freely marketable in the United States, will not be considered illiquid. Where
registration is required, a Theme Portfolio may be obligated to pay all or part
of the registration expenses and a considerable period may elapse between the
time of the decision to sell and the time the Theme Portfolio may be permitted
to sell a security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, the Theme Portfolio might
obtain a less favorable price than prevailed when it decided to sell.
The Advisor believes that carefully selected investments in joint ventures,
cooperatives, partnerships and state enterprises which are illiquid
(collectively, "Special Situations") could enable the Theme Portfolios to
achieve capital appreciation substantially exceeding the appreciation the Theme
Portfolios would realize if they did not make such investments. However, in
order to attempt to limit investment risk, the Theme Portfolios will invest no
more than 5% of its total assets in Special Situations.
Not all restricted securities are illiquid. In recent years a large
institutional market has developed for certain securities that are not
registered under the Securities Act of 1933, as amended ("1933 Act"), including
private placements, repurchase agreements, commercial paper, foreign securities
and corporate bonds and notes. These instruments are often restricted securities
because the securities are sold in transactions not requiring registration.
Institutional investors generally will not seek to sell these instruments to the
general public, but instead will often depend either on an efficient
institutional market in which such unregistered securities can be readily resold
or on an issuer's ability to honor a demand for repayment. Therefore, the fact
that there are contractual or legal restrictions on resale to the general public
or certain institutions is not dispositive of the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the registration
requirements of the 1933 Act for resales of certain securities to qualified
institutional buyers. Institutional markets for restricted securities have
developed as a result of Rule 144A, providing both readily ascertainable values
for restricted securities and the ability to liquidate an investment to satisfy
share redemption orders. Such markets include automated systems for the trading,
clearance and settlement of unregistered securities of domestic and foreign
issuers, such as the PORTAL System sponsored by the National Association of
Securities Dealers, Inc. An insufficient number of qualified institutional
buyers interested in purchasing Rule 144A-eligible restricted securities held by
a Theme Portfolio, however, could affect adversely the marketability of such
portfolio securities and the Theme Portfolio might be unable to dispose of such
securities promptly or at favorable prices.
With respect to liquidity determinations generally, the Trust's or the
Portfolios' Board of Trustees, as applicable, has the ultimate responsibility
for determining whether specific securities, including restricted securities
pursuant to Rule 144A under the 1933 Act, are liquid or illiquid. Each Board has
delegated the function of making day-to-day determinations of liquidity to the
Advisor, in accordance with procedures approved by that Board. The Advisor takes
into account a number of factors in reaching liquidity decisions, including, but
not limited to, (i) the frequency of trading in the security; (ii) the number of
dealers that make quotes for the security; (iii) the number of dealers that have
undertaken to make a market in the security; (iv) the number of other potential
purchasers; and (v) the nature of the security and how trading is effected
(e.g., the time needed to sell the security, how offers are solicited and the
mechanics of transfer). The Advisor monitors the liquidity of securities held by
each Theme Portfolio and periodically reports such determinations to the Trust's
or the Portfolios' Board of Trustees, as applicable. If the liquidity percentage
restriction of a Theme Portfolio is satisfied at the time of investment, a later
increase in the percentage of illiquid securities held by the Theme Portfolio
resulting from a change in market value or assets will not constitute a
violation of that restriction. If as a result of a change in market value or
assets, the percentage of illiquid securities held by the Theme Portfolio
increases above the applicable limit, the Advisor
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<PAGE> 862
will take appropriate steps to bring the aggregate amount of illiquid assets
back within the prescribed limitations as soon as reasonably practicable, taking
into account the effect of any disposition on the Theme Portfolio.
FOREIGN SECURITIES
Political, Social and Economic Risks. Individual foreign economies may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross national product, rate of inflation, rate of savings and capital
reinvestment, resource self sufficiency and balance of payments positions.
Investing in securities of non-U.S. companies may entail additional risks due to
the potential political, social and economic instability of certain countries
and the risks of expropriation, nationalization, confiscation or the imposition
of restrictions on foreign investment convertibility of currencies into U.S.
dollars and on repatriation of capital invested. In the event of such
expropriation, nationalization, confiscatory taxation or other confiscation by
any country, a Theme Portfolio could lose its entire investment in any such
country. In addition, governmental regulation in certain foreign countries may
impose interest rate controls, credit controls, and price controls. These
factors could have a material effect on foreign companies and could therefore
affect the performance of the Funds.
Religious, Political and Ethnic Instability. Certain countries in which a
Theme Portfolio may invest may have groups that advocate radical religious or
revolutionary philosophies or support ethnic independence. Any disturbance on
the part of such individuals could carry the potential for widespread
destruction or confiscation of property owned by individuals and entities
foreign to such country and could cause the loss of a Theme Portfolio's
investment in those countries. Instability may also result from, among other
things: (i) authoritarian governments or military involvement in political and
economic decision-making, including changes in government through
extra-constitutional means; (ii) popular unrest associated with demands for
improved political, economic and social conditions; and (iii) hostile relations
with neighboring or other countries. Such political, social and economic
instability could disrupt the principal financial markets in which a Theme
Portfolio invests and adversely affect the value of a Theme Portfolio's assets.
Foreign Investment Restrictions. Certain countries prohibit or impose
substantial restrictions on investments in their capital markets, particularly
their equity markets, by foreign entities such as a Theme Portfolio. These
restrictions or controls may at times limit or preclude investment in certain
securities and may increase the cost and expenses of a Theme Portfolio. For
example, certain countries require prior governmental approval before
investments by foreign persons may be made, or may limit the amount of
investment by foreign persons in a particular company or limit the investment by
foreign persons to only a specific class of securities of a company that may
have less advantageous terms than securities of the company available for
purchase by nationals. Moreover, the national policies of certain countries may
restrict investment opportunities in issuers or industries deemed sensitive to
national interests. In addition, some countries require governmental approval
for the repatriation of investment income, capital or the proceeds of securities
sales by foreign investors. In addition, if there is a deterioration in a
country's balance of payments or for other reasons, a country may impose
restrictions on foreign capital remittances abroad. A Theme Portfolio could be
adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation, as well as by the application to it of
other restrictions on investments.
Non-Uniform Corporate Disclosure Standards and Governmental
Regulation. Foreign companies are subject to accounting, auditing and financial
standards and requirements that differ, in some cases significantly, from those
applicable to U.S. companies. In particular, the assets, liabilities and profits
appearing on the financial statements of such a company may not reflect its
financial position or results of operations in the way they would be reflected
had such financial statements been prepared in accordance with U.S. generally
accepted accounting principles. Most of the foreign securities held by a Theme
Portfolio will not be registered with the SEC or regulators of any foreign
country, nor will the issuers thereof be subject to the SEC's reporting
requirements. Thus, there will be less available information concerning most
foreign issuers of securities held by a Theme Portfolio than is available
concerning U.S. issuers. In instances where the financial statements of an
issuer are not deemed to reflect accurately the financial situation of the
issuer, the Advisor will take appropriate steps to evaluate the proposed
investment, which may include on-site inspection of the issuer, interviews with
its management and consultations with accountants, bankers and other
specialists. There is substantially less publicly available information about
foreign companies than there are reports and ratings published about U.S.
companies and the U.S. government. In addition, where public information is
available, it may be less reliable than such information regarding U.S. issuers.
Issuers of securities in foreign jurisdictions are generally not subject to the
same degree of regulation as are U.S. issuers with respect to such matters as
restrictions on market manipulation, insider trading rules, shareholder proxy
requirements and timely disclosure of information.
Currency Fluctuations. Because each Theme Portfolio, under normal
circumstances, will invest a substantial portion of its total assets in the
securities of foreign issuers which are denominated in foreign currencies, the
strength or weakness of the U.S. dollar against such foreign currencies will
account for part of a Theme Portfolio's investment performance. A
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<PAGE> 863
decline in the value of any particular currency against the U.S. dollar will
cause a decline in the U.S. dollar value of that Theme Portfolio's holdings of
securities and cash denominated in such currency and, therefore, will cause an
overall decline in the appropriate Fund's net asset value and any net investment
income and capital gains derived from such securities to be distributed in U.S.
dollars to shareholders of that Fund. Moreover, if the value of the foreign
currencies in which a Theme Portfolio receives its income falls relative to the
U.S. dollar between receipt of the income and the making of Theme Portfolio
distributions, the Theme Portfolio may be required to liquidate securities in
order to make distributions if the Theme Portfolio has insufficient cash in U.S.
dollars to meet distribution requirements.
The rate of exchange between the U.S. dollar and other currencies is
determined by several factors, including the supply and demand for particular
currencies, central bank efforts to support particular currencies, the relative
movement of interest rates and the pace of business activity in the other
countries and the United States, and other economic and financial conditions
affecting the world economy.
Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the
Netherlands, Portugal, and Spain are members of the European Economic and
Monetary Union (the "EMU"). The EMU has established a common European currency
for participating countries which will be known as the "euro." Each
participating country has supplemented the existing currency with the euro on
January 1, 1999, and will replace its existing 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 after January 1,
1999.
The expected introduction of the euro presents unique risks and uncertainties,
including whether the payment and operational systems of banks and other
financial institutions will be ready by January 1, 1999; how outstanding
financial contracts will be treated after January 1, 1999; the establishment of
exchange rates for existing currencies and the euro; and the creation of
suitable clearing and settlement systems for the euro. These and other factors
could cause market disruptions before or after the introduction of the euro and
could adversely affect the value of securities held by the Theme Portfolios.
Although each Theme Portfolio values its assets daily in terms of U.S.
dollars, the Portfolios do not intend to convert their holdings of foreign
currencies into U.S. dollars on a daily basis. Each Portfolio will do so, from
time to time, and investors should be aware of the costs of currency conversion.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference ("spread") between the prices at which
they buy and sell various currencies. Thus, a dealer may offer to sell a foreign
currency to a Portfolio at one rate, while offering a lesser rate of exchange
should a Portfolio desire to sell that currency to the dealer.
Adverse Market Characteristics. Securities of many foreign issuers may be less
liquid and their prices more volatile than securities of comparable U.S.
issuers. In addition, foreign securities markets and brokers generally are
subject to less governmental supervision and regulation than in the United
States, and foreign securities transactions usually are subject to fixed
commissions, which generally are higher than negotiated commissions on U.S.
transactions. In addition, foreign securities transactions may be subject to
difficulties associated with the settlement of such transactions. Delays in
settlement could result in temporary periods when assets of a Theme Portfolio
are uninvested and no return is earned thereon. The inability of a Theme
Portfolio to make intended security purchases due to settlement problems could
cause that Theme Portfolio to miss attractive investment opportunities.
Inability to dispose of a portfolio security due to settlement problems either
could result in losses to that Theme Portfolio due to subsequent declines in
value of the portfolio security or, if that Theme Portfolio has entered into a
contract to sell the security, could result in possible liability to the
purchaser. The Advisor will consider such difficulties when determining the
allocation of a Theme Portfolio's assets, although the Advisor does not believe
that such difficulties will have a material adverse effect on a Theme
Portfolio's portfolio trading activities.
Each Theme Portfolio may use foreign custodians, which may charge higher
custody fees than those attributable to domestic investing and may involve risks
in addition to those related to its use of U.S. custodians. Such risks include
uncertainties relating to determining and monitoring the foreign custodian's
financial strength, reputation and standing; maintaining appropriate safeguards
concerning that Theme Portfolio's investments; and possible difficulties in
obtaining and enforcing judgments against such custodians.
Withholding Taxes. Each Theme Portfolio's net investment income from foreign
issuers may be subject to withholding taxes by the foreign issuer's country,
thereby reducing that income or delaying the receipt of income when those taxes
may be recaptured. See "Taxes."
Concentration. To the extent a Theme Portfolio invests a significant portion
of its assets in securities of issuers located in a particular country or region
of the world, such Portfolio may be subject to greater risks and may experience
greater volatility than a fund that is more broadly diversified geographically.
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Special Considerations Affecting Western European Countries. The countries
that are members of the European Economic Community ("Common Market") (Austria,
Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,
Netherlands, Portugal, Spain, Sweden and the United Kingdom) eliminated certain
import tariffs and quotas and other trade barriers with respect to one another
over the past several years. The Advisor believes that this deregulation should
improve the prospects for economic growth in many Western European countries.
Among other things, the deregulation could enable companies domiciled in one
country to avail themselves of lower labor costs existing in other countries. In
addition, this deregulation could benefit companies domiciled in one country by
opening additional markets for their goods and services in other countries.
Since, however, it is not clear what the exact form or effect of these Common
Market reforms will be on business in Western Europe, it is impossible to
predict the long-term impact of the implementation of these programs on the
securities owned by a Theme Portfolio.
Special Considerations Affecting Russia and Eastern European
Countries. Investing in Russia and Eastern European countries involves a high
degree of risk and special considerations not typically associated with
investing in the United States securities markets, and should be considered
highly speculative. Such risks include: (1) delays in settling portfolio
transactions and risk of loss arising out of the system of share registration
and custody; (2) the risk that it may be impossible or more difficult than in
other countries to obtain and/or enforce a judgement; (3) pervasiveness of
corruption and crime in the economic system; (4) currency exchange rate
volatility and the lack of available currency hedging instruments; (5) higher
rates of inflation (including the risk of social unrest associated with periods
of hyper-inflation) and high unemployment; (6) controls on foreign investment
and local practices disfavoring foreign investors and limitations on
repatriation of invested capital, profits and dividends, and on a fund's ability
to exchange local currencies for U.S. dollars; (7) political instability and
social unrest and violence; (8) the risk that the governments of Russia and
Eastern European countries may decide not to continue to support the economic
reform programs implemented recently and could follow radically different
political and/or economic policies to the detriment of investors, including
non-market-oriented policies such as the support of certain industries at the
expense of other sectors or investors, or a return to the centrally planned
economy that existed when such countries had a communist form of government; (9)
the financial condition of companies in these countries, including large amounts
of inter-company debt which may create a payments crisis on a national scale;
(10) dependency on exports and the corresponding importance of international
trade; (11) the risk that the tax system in these countries will not be reformed
to prevent inconsistent, retroactive and/or exorbitant taxation; and (12) the
underdeveloped nature of the securities markets.
Special Considerations Affecting Japan. Japan's economic growth has declined
significantly since 1990. The general government position has deteriorated as a
result of weakening economic growth and stimulative measures taken to support
economic activity and to restore financial stability. Although the decline in
interest rates and fiscal stimulation packages have helped to contain
recessionary forces, uncertainties remain. Japan is also heavily dependent upon
international trade, so its economy is especially sensitive to trade barriers
and disputes. Japan has had difficult relations with its trading partners,
particularly the United States, where the trade imbalance is the greatest. It is
possible that trade sanctions and other protectionist measures could impact
Japan adversely in both the short and the long term.
The common stocks of many Japanese companies trade at high price-earnings
ratios. Differences in accounting methods make it difficult to compare the
earnings of Japanese companies with those of companies in other countries,
especially in the U.S. In general, however, reported net income in Japan is
understated relative to U.S. accounting standards and this is one reason why
price-earnings ratios of the stocks of Japanese companies have tended
historically to be higher than those for U.S. stocks. In addition, Japanese
companies have tended to have higher growth rates than U.S. companies and
Japanese interest rates have generally been lower than in the U.S., both of
which factors tend to result in lower discount rates and higher price-earnings
ratios in Japan than in the U.S.
The Japanese securities markets are less regulated than those in the United
States. Evidence has emerged from time to time of distortion of market prices to
serve political or other purposes. Shareholders' rights are not always equally
enforced. In addition, Japan's banking industry is undergoing problems related
to bad loans and declining values in real estate.
Special Considerations Affecting Pacific Region Countries. Certain of the
risks associated with international investments are heightened for investments
in Pacific region countries. For example, some of the currencies of Pacific
region countries have experienced steady devaluations relative to the U.S.
dollar, and major adjustments have been made periodically in certain of such
currencies. Certain countries, such as India, face serious exchange constraints.
Jurisdictional disputes also exist between South Korea and North Korea. In
addition, the Theme Portfolios may invest in Hong Kong, which reverted to
Chinese Administration on July 1, 1997. Investments in Hong Kong may be subject
to expropriation, national, nationalization or confiscation, in which case a
Theme Portfolio could lose its entire investment in Hong Kong. In addition, the
reversion of Hong Kong also presents a risk that the Hong Kong dollar will be
devalued and a risk of possible loss of investor confidence in Hong Kong's
currency, stock market and assets.
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Special Considerations Affecting Latin American Countries. Most Latin American
countries have experienced substantial, and in some periods extremely high,
rates of inflation for many years. Inflation and rapid fluctuations in inflation
rates have had and may continue to have very negative effects on the economies
and securities markets of certain Latin American countries. Certain Latin
American countries are also among the largest debtors to commercial banks and
foreign governments. At times certain Latin American countries have declared
moratoria on the payment of principal and/or interest on external debt. In
addition, certain Latin American securities markets have experienced high
volatility in recent years.
Latin American countries may also close certain sectors of their economies to
equity investments by foreigners. Further due to the absence of securities
markets and publicly owned corporations and due to restrictions on direct
investment by foreign entities, investments may only be made in certain Latin
American countries solely or primarily through governmentally approved
investment vehicles or companies.
Certain Latin American countries may have managed currencies that are
maintained at artificial levels to the U.S. dollar rather than at levels
determined by the market. This type of system can lead to sudden and large
adjustments in the currency which, in turn, can have a disruptive and negative
effect on foreign investors. For example, in late 1994, the value of the Mexican
peso lost more than one-third of its value relative to the U.S. dollar.
Special Considerations Affecting Emerging Markets. Investing in the securities
of companies in emerging markets may entail special risks relating to potential
political and economic instability and the risks of expropriation,
nationalization, confiscation or the imposition of restrictions on foreign
investment, convertibility of currencies into U.S. dollars and on repatriation
of capital invested. In the event of such expropriation, nationalization or
other confiscation by any country, a Theme Portfolio could lose its entire
investment in any such country.
Emerging securities markets are substantially smaller, less developed, less
liquid and more volatile than the major securities markets. The limited size of
emerging securities markets and limited trading value in issuers compared to the
volume of trading in U.S. securities could cause prices to be erratic for
reasons apart from factors that affect the quality of the securities. For
example, limited market size may cause prices to be unduly influenced by traders
who control large positions. Adverse publicity and investors' perceptions,
whether or not based on fundamental analysis, may decrease the value and
liquidity of portfolio securities, especially in these markets. In addition,
securities traded in certain emerging markets may be subject to risks due to the
inexperience of financial intermediaries, a lack of modern technology, the lack
of a sufficient capital base to expand business operations, and the possibility
of permanent or temporary termination of trading.
Settlement mechanisms in emerging securities markets may be less efficient and
reliable than in more developed markets. In such emerging securities there may
be share registration and delivery delays or failures.
Many emerging market countries have experienced substantial, and in some
periods extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates and corresponding currency devaluations have had
and may continue to have negative effects on the economies and securities
markets of certain emerging market countries.
INVESTMENT LIMITATIONS
FEEDER FUNDS
The Financial Services Fund, Infrastructure Fund, Resources Fund and Consumer
Products and Services Fund each has the following fundamental investment policy
to enable it to invest in the Financial Services Portfolio, Infrastructure
Portfolio, Resources Portfolio and Consumer Products and Services Portfolio,
respectively:
Notwithstanding any other investment policy of the Fund, the Fund may invest
all of its investable assets (cash, securities and receivables related to
securities) in an open-end management investment company having substantially
the same investment objective, policies and limitations as the Fund.
All other fundamental investment policies, and the non-fundamental investment
policies, of each Feeder Fund and its corresponding Portfolio are identical.
Therefore, although the following discusses the investment policies of each
Portfolio and its Board of Trustees, it applies equally to each Feeder Fund and
its Board of Trustees.
Each Portfolio has adopted the following investment limitations as fundamental
policies that (unless otherwise noted) may not be changed without approval by
the affirmative vote of a majority of the outstanding shares of the Portfolio.
Whenever a Feeder Fund is requested to vote on a change in the investment
limitations of its corresponding Portfolio, the Fund will hold a meeting of its
shareholders and will cast its votes as instructed by its shareholders.
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No Portfolio may:
(1) Purchase or sell real estate, except that investments in
securities of issuers that invest in real estate and investments in
mortgage-backed securities, mortgage participations or other instruments
supported by interests in real estate are not subject to this limitation,
and except that the Portfolio may exercise rights under agreements relating
to such securities, including the right to enforce security interests and
to hold real estate acquired by reason of such enforcement until that real
estate can be liquidated in an orderly manner;
(2) Purchase or sell physical commodities, but the Portfolio may
purchase, sell or enter into financial options and futures, forward and
spot currency contracts, swap transactions and other financial contracts or
derivative instruments;
(3) Engage in the business of underwriting securities of other
issuers, except to the extent that the Portfolio might be considered an
underwriter under the federal securities laws in connection with its
disposition of portfolio securities;
(4) Make loans, except through loans of portfolio securities or
through repurchase agreements, provided that for purposes of this
limitation, the acquisition of bonds, debentures, other debt securities or
instruments, or participations or other interests therein and investments
in government obligations, commercial paper, certificates of deposit,
bankers' acceptances or similar instruments will not be considered the
making of a loan;
(5) Issue senior securities or borrow money, except as permitted under
the 1940 Act and then not in excess of 33 1/3% of the Portfolio's total
assets (including the amount borrowed but reduced by any liabilities not
constituting borrowings) at the time of the borrowing, except that the
Portfolio may borrow up to an additional 5% of its total assets (not
including the amount borrowed) for temporary or emergency purposes; or
(6) Purchase securities of any one issuer if, as a result, more than
5% of the Portfolio's total assets would be invested in securities of that
issuer or the Portfolio would own or hold more than 10% of the outstanding
voting securities of that issuer, except that up to 25% of the Portfolio's
total assets may be invested without regard to this limitation, and except
that this limitation does not apply to securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities or to securities
issued by other investment companies.
The following investment policies of each Portfolio are not fundamental
policies and may be changed by vote of the Portfolios' Board of Trustees without
shareholder approval. No Portfolio may:
(1) Invest in securities of an issuer if the investment would cause
the Portfolio to own more than 10% of any class of securities of any one
issuer;
(2) Invest in companies for the purpose of exercising control or
management;
(3) Invest more than 15% of its net assets in illiquid securities,
including securities that are illiquid by virtue of the absence of a
readily available market;
(4) Enter into a futures contract, an option on a futures contract, or
an option on foreign currency traded on a CFTC-regulated exchange, in each
case other than for bona fide hedging purposes (as defined by the CFTC), if
the aggregate initial margin and premiums required to establish all of
those positions (excluding the amount by which options are "in-the-money")
exceeds 5% of the liquidation value of the Portfolio's portfolio, after
taking into account unrealized profits and unrealized losses on any
contracts the Portfolio has entered into;
(5) Borrow money except for temporary or emergency purposes (other
than to meet redemptions). While borrowings exceed 5% of the Portfolio's
total assets, the Portfolio will not make any additional investments;
(6) Invest more than 10% of its total assets in shares of other
investment companies and may not invest more than 5% of its total assets in
any one investment company or acquire more than 3% of the outstanding
voting securities of any one investment company;
(7) Purchase securities on margin, provided that each Portfolio may
obtain short-term credits as may be necessary for the clearance of
purchases and sales of securities, and further provided that the Portfolio
may make margin deposits in connection with its use of financial options
and futures, forward and spot currency contracts, swap transactions and
other financial contracts or derivative instruments; or
(8) Mortgage, pledge, or hypothecate any of its assets, provided that
this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.
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Investors should refer to the Prospectus for further information with respect
to the investment objective of each Feeder Fund, which may not be changed
without the approval of the Fund's shareholders, and its corresponding
Portfolio's investment objective, which may be changed without the approval of
the Portfolio's shareholders, and other investment policies, techniques and
limitations, which may or may not be changed without shareholder approval.
HEALTH CARE FUND
The Health Care Fund has adopted the following investment limitations as
fundamental policies, which (unless otherwise noted) may not be changed without
approval by the affirmative vote of the lesser of (i) 67% of its shares
represented at a meeting at which more than 50% of the outstanding shares are
represented, or (ii) more than 50% of the outstanding shares.
The Health Care Fund may not:
(1) Purchase or sell real estate, except that investments in
securities of issuers that invest in real estate and investments in
mortgage-backed securities, mortgage participations or other instruments
supported by interests in real estate are not subject to this limitation,
and except that the Health Care Fund may exercise rights under agreements
relating to such securities, including the right to enforce security
interests and to hold real estate acquired by reason of such enforcement
until that real estate can be liquidated in an orderly manner;
(2) Engage in the business of underwriting securities of other
issuers, except to the extent that the Health Care Fund might be considered
an underwriter under the federal securities laws in connection with its
disposition of portfolio securities;
(3) Make loans, except through loans of portfolio securities or
through repurchase agreements, provided that for purposes of this
limitation, the acquisition of bonds, debentures, other debt securities or
instruments, or participations or other interests therein and investments
in government obligations, commercial paper, certificates of deposit,
bankers' acceptances or similar instruments will not be considered the
making of a loan;
(4) Purchase or sell physical commodities, but the Health Care Fund
may purchase, sell or enter into financial options and futures, forward and
spot currency contracts, swap transactions and other financial contracts or
derivative instruments;
(5) Issue senior securities or borrow money, except as permitted under
the 1940 Act and then not in excess of 33 1/3% of the Health Care Fund's
total assets (including the amount borrowed but reduced by any liabilities
not constituting borrowings) at the time of the borrowing, except that the
Health Care Fund may borrow up to an additional 5% of its total assets (not
including the amount borrowed) for temporary or emergency purposes; or
(6) Purchase securities of any one issuer if, as a result, more than
5% of the Health Care Fund's total assets would be invested in securities
of that issuer or the Health Care Fund would own or hold more than 10% of
the outstanding voting securities of that issuer, except that up to 25% of
the Health Care Fund's total assets may be invested without regard to this
limitation, and except that this limitation does not apply to securities
issued or guaranteed by the U.S. government, its agencies or
instrumentalities or to securities issued by other investment companies.
Notwithstanding any other investment policy of the Health Care Fund, the
Health Care Fund may invest all of its investable assets (cash, securities and
receivables related to securities) in an open-end management investment company
having substantially the same investment objective, policies and limitations as
the Fund.
The following investment policies of the Health Care Fund are not fundamental
policies and may be changed by vote of the Trust's Board of Trustees without
shareholder approval. The Health Care Fund will not:
(1) Purchase securities for which there is no readily available
market, or enter into repurchase agreements or purchase time deposits
maturing in more than seven days, or purchase OTC options or hold assets
set aside to cover OTC options written by the Health Care Fund, if
immediately after and as a result, the value of such securities would
exceed, in the aggregate, 15% of the Health Care Fund's net assets;
(2) Purchase securities on margin, provided that the Health Care Fund
may obtain short-term credits as may be necessary for the clearance of
purchases and sales of securities, and further provided that the Health
Care Fund may make margin deposits in connection with its use of financial
options and futures, forward and spot currency contracts, swap transactions
and other financial contracts or derivative instruments; or
32
<PAGE> 868
(3) Mortgage, pledge, or hypothecate any of its assets, provided that
this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities; or
(4) Borrow money except for temporary or emergency purposes (other
than to meet redemptions). While borrowings exceed 5% of the Health Care
Fund's total assets, it will not make any additional investments.
Investors should refer to the Health Care Fund's Prospectus for further
information with respect to the Health Care Fund's investment objective, which
may not be changed without the approval of its shareholders, and other
investment policies, techniques and limitations, which may be changed without
shareholder approval.
TELECOMMUNICATIONS FUND
The Telecommunications Fund has adopted the following investment limitations
as fundamental policies, which (unless otherwise noted) may not be changed
without approval by the affirmative vote of the lesser of (i) 67% of its shares
represented at a meeting at which more than 50% of the outstanding shares are
represented, or (ii) more than 50% of the outstanding shares.
The Telecommunications Fund may not:
(1) Purchase or sell real estate, except that investments in
securities of issuers that invest in real estate and investments in
mortgage-backed securities, mortgage participations or other instruments
supported by interests in real estate are not subject to this limitation,
and except that the Telecommunications Fund may exercise rights under
agreements relating to such securities, including the right to enforce
security interests and to hold real estate acquired by reason of such
enforcement until that real estate can be liquidated in an orderly manner;
(2) Purchase or sell physical commodities, but the Telecommunications
Fund may purchase, sell or enter into financial options and futures,
forward and spot currency contracts, swap transactions and other financial
contracts or derivative instruments;
(3) Engage in the business of underwriting securities of other
issuers, except to the extent that the Telecommunications Fund might be
considered an underwriter under the federal securities laws in connection
with its disposition of portfolio securities;
(4) Make loans, except through loans of portfolio securities or
through repurchase agreements, provided that for purposes of this
limitation, the acquisition of bonds, debentures, other debt securities or
instruments, or participations or other interests therein and investments
in government obligations, commercial paper, certificates of deposit,
bankers' acceptances or similar instruments will not be considered the
making of a loan;
(5) Issue senior securities or borrow money, except as permitted under
the 1940 Act and then not in excess of 33 1/3% of the Telecommunications
Fund's total assets (including the amount borrowed but reduced by any
liabilities not constituting borrowings) at the time of the borrowing,
except that the Telecommunications Fund may borrow up to an additional 5%
of its total assets (not including the amount borrowed) for temporary or
emergency purposes; or
(6) Purchase securities of any one issuer if, as a result, more than
5% of the Telecommunications Fund's total assets would be invested in
securities of that issuer or the Telecommunications Fund would own or hold
more than 10% of the outstanding voting securities of that issuer, except
that up to 25% of the Telecommunications Fund's total assets may be
invested without regard to this limitation, and except that this limitation
does not apply to securities issued or guaranteed by the U.S. government,
its agencies or instrumentalities or to securities issued by other
investment companies.
Notwithstanding any other investment policy of the Telecommunications Fund,
the Telecommunications Fund may invest all of its investable assets (cash,
securities and receivables related to securities) in an open-end management
investment company having substantially the same investment objective, policies
and limitations as the Fund.
The following investment policies of the Telecommunications Fund are not
fundamental policies and may be changed by vote of the Trust's Board of Trustees
without shareholder approval. The Telecommunications Fund may not:
(1) Invest in securities of an issuer if the investment would cause
the Telecommunications Fund to own more than 10% of any class of securities
of any one issuer;
(2) Invest in companies for the purpose of exercising control or
management;
33
<PAGE> 869
(3) Invest more than 15% of its net assets in illiquid securities,
including securities that are illiquid by virtue of the absence of a
readily available market;
(4) Enter into a futures contract, an option on a futures contract, or
an option on foreign currency traded on a CFTC-regulated exchange, in each
case other than for bona fide hedging purposes (as defined by the CFTC), if
the aggregate initial margin and premiums required to establish all of
those positions (excluding the amount by which options are "in-the-money")
exceeds 5% of the liquidation value of the Fund's portfolio, after taking
into account unrealized profits and unrealized losses on any contracts the
Fund has entered into;
(5) Borrow money except for temporary or emergency purposes (other
than to meet redemptions). While borrowings exceed 5% of the
Telecommunications Fund's total assets, it will not make any additional
investments;
(6) Purchase securities on margin, provided that the
Telecommunications Fund may obtain short-term credits as may be necessary
for the clearance of purchases and sales of securities, and further
provided that the Telecommunications Fund may make margin deposits in
connection with its use of financial options and futures, forward and spot
currency contracts, swap transactions and other financial contracts or
derivative instruments; or
(7) Mortgage, pledge, or hypothecate any of its assets, provided that
this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.
Investors should refer to the Telecommunications Fund's Prospectus for further
information with respect to the Telecommunications Fund's investment objective,
which may not be changed without the approval of its shareholders, and other
investment policies, techniques and limitations, which may be changed without
shareholder approval.
If a percentage restriction on investment or utilization of assets in an
investment policy or restriction is adhered to at the time an investment is
made, a later change in percentage ownership of a security or kind of securities
resulting from changing market values or a similar type of event will not be
considered a violation of a Fund's or Portfolio's investment policies or
restrictions. A Fund or Portfolio may exchange securities, exercise conversion
or subscription rights, warrants or other rights to purchase common stock or
other equity securities and may hold, except to the extent limited by the 1940
Act, any such securities so acquired without regard to the Fund's or Portfolio's
investment policies and restrictions. The original cost of the securities so
acquired will be included in any subsequent determination of a Fund's or
Portfolio's compliance with the investment percentage limitations referred to
above and in the Prospectus.
EXECUTION OF PORTFOLIO TRANSACTIONS
Subject to policies established by the Trust's and the Portfolios' Board of
Trustees, the Advisor is responsible for the execution of each Theme Portfolio's
securities transactions and the selection of broker/dealers who execute such
transactions on behalf of each Theme Portfolio. In executing transactions, the
Advisor seeks the best net results for each Theme Portfolio, taking into account
such factors as the price (including the applicable brokerage commission or
dealer spread), size of the order, difficulty of execution and operational
facilities of the firm involved. Although the Sub-advisor generally seeks
reasonably competitive commission rates and spreads, payment of the lowest
commission or spread is not necessarily consistent with the best net results.
While each Theme Portfolio may engage in soft dollar arrangements for research
services, as described below, it has no obligation to deal with any
broker/dealer or group of broker/dealers in the execution of portfolio
transactions.
Consistent with the interests of each Theme Portfolio, the Advisor may select
broker/dealers to execute that Theme Portfolio's portfolio transaction on the
basis of the research and brokerage services they provide to the Advisor for its
use in managing that Theme Portfolio and its other advisory accounts. Such
services may include furnishing analyses, reports and information concerning
issuers, industries, securities, geographic regions, economic factors and
trends, portfolio strategy, and performance of accounts; and effecting
securities transactions and performing functions incidental thereto (such as
clearance and settlement). Research and brokerage services received from such
broker are in addition to, and not in lieu of, the services required to be
performed by the Advisor under the applicable investment management and
administration contract. A commission paid to such broker may be higher than
that which another qualified broker would have charged for effecting the same
transaction, provided that the Advisor determines in good faith that such
commission is reasonable in terms either of that particular transaction or the
overall responsibility of the Advisor to that Theme Portfolio and its other
clients and that the total commissions paid by that Theme Portfolio will be
reasonable in relation to the benefits it received over the long term. Research
services may also be received from dealers who execute portfolio transactions in
OTC markets.
34
<PAGE> 870
The Advisor may allocate brokerage transactions to broker/dealers who have
entered into arrangements under which the broker/dealer allocates a portion of
the commissions paid by a Theme Portfolio toward payment of its expenses, such
as custodian fees.
Investment decisions for a Theme Portfolio and for other investment accounts
managed by the Advisor are made independently of each other in light of
differing conditions. However, the same investment decision occasionally may be
made for two or more of such accounts, including a Theme Portfolio. In such
cases, simultaneous transactions may occur. Purchases or sales are then
allocated as to price or amount in a manner deemed fair and equitable to all
accounts involved. While in some cases this practice could have a detrimental
effect upon the price or value of the security as far as a Theme Portfolio is
concerned, in other cases the Advisor believes that coordination and the ability
to participate in volume transactions will be beneficial to that Theme
Portfolio.
Under a policy adopted by the Trust's and the Portfolios' Board of Trustees,
and subject to the policy of obtaining the best net results, the Advisor may
consider a broker/dealer's sale of the shares of the Theme Funds and the other
portfolios for which AIM or the Advisor serves as investment manager or
administrator in selecting broker/dealers for the execution of portfolio
transactions. This policy does not imply a commitment to execute portfolio
transactions through all broker/dealers that sell shares of the Theme Funds and
such other portfolios.
Each Theme Portfolio contemplates purchasing most foreign equity securities in
OTC markets or stock exchanges located in the countries in which the respective
principal offices of the issuers of the various securities are located, if that
is the best available market. The fixed commissions paid in connection with most
such foreign stock transactions generally are higher than negotiated commissions
on U.S. transactions. There generally is less government supervision and
regulation of foreign stock exchanges and brokers than in the United States.
Foreign security settlements may in some instances be subject to delays and
related administrative uncertainties.
Foreign equity securities may be held by a Theme Portfolio in the form of
ADRs, ADSs, EDRs, GDRs, CDRs or securities convertible into foreign equity
securities. ADRs, ADSs, EDRs, GDRs and CDRs may be listed on stock exchanges, or
traded in the OTC markets in the United States or Europe, as the case may be.
ADRs, like other securities traded in the United States, will be subject to
negotiated commission rates. The foreign and domestic debt securities and money
market instruments in which a Theme Portfolio may invest are generally traded in
the OTC markets.
A Theme Portfolio does not have any obligation to deal with any broker/dealer
or group of broker/dealers in the execution of securities transactions. Each
Theme Portfolio contemplates that, consistent with the policy of obtaining the
best net results, brokerage transactions may be conducted through certain
companies that are affiliated with AIM or the Advisor. The Trust's or the
Portfolios' Board of Trustees, as applicable, has adopted procedures in
conformity with Rule 17e-1 under the 1940 Act to ensure that all brokerage
commissions paid to such affiliates are reasonable and fair in the context of
the market in which they are operating. Any such transactions will be effected
and related compensation paid only in accordance with applicable SEC
regulations.
The Portfolios 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 Portfolio, provided the conditions of an exemptive order
received by the Portfolios from the SEC are met. In addition, a Portfolio may
purchase or sell a security from or to another AIM Fund provided the Portfolios
follow procedures adopted by the Boards of Directors/Trustees of the various AIM
Funds, including the Trust. These inter-fund transactions do not generate
brokerage commissions but may result in custodial fees or taxes or other related
expenses.
For the fiscal years ended October 31, 1998, 1997 and 1996, the Health Care
Fund paid aggregate brokerage commissions of $ , $1,150,118 and
$1,619,500, respectively. For the fiscal years ended October 31, 1998, 1997 and
1996, the Telecommunications Fund paid aggregate brokerage commissions of
$ , $2,254,069 and $2,848,733, respectively. For the fiscal years ended
October 31, 1998, 1997 and 1996, the Financial Services Portfolio paid aggregate
brokerage commissions of $ , $250,893 and $77,822, respectively. For
the fiscal years ended October 31, 1998, 1997 and 1996, the Infrastructure
Portfolio paid aggregate brokerage commissions of $ , $131,543 and
$124,164, respectively. For the fiscal years ended October 31, 1998, 1997 and
1996, the Resources Portfolio paid aggregate brokerage commissions of
$ , $1,281,212 and $496,370, respectively. For the fiscal years ended
October 31, 1998, 1997 and 1996, the Consumer Products and Services Portfolio
paid aggregate brokerage commissions of $ , $1,454,348 and $356,459,
respectively. For the fiscal years ended October 31, 1998, 1997 and 1996, the
Health Care Fund paid to LGT Bank in Liechtenstein AG, which was an "affiliated"
broker, aggregate brokerage commissions of $23,081 and $32,898, respectively,
for transactions involving purchases and sales of portfolio securities which
represented 2.01% and 2.03%, respectively of the total brokerage commissions
paid by the Health Care Fund and 1.61% and 1.71%, respectively, of the aggregate
dollar amount of transactions involving payment of commissions by the Health
Care Fund. For fiscal year ended October 31, 1998 and 1997, the
Telecommunications Fund
35
<PAGE> 871
paid to LGT Bank in Liechtenstein, AG, which was an "affiliated" broker,
aggregate brokerage commissions of $22,584 for transactions involving purchases
and sales of portfolio securities which represented 1.00% of the total brokerage
commissions paid by the Fund and 0.67% of the aggregate dollar amount of
transactions involving payment of commissions by the Fund.
PORTFOLIO TRADING AND TURNOVER
Although each Theme Portfolio does not intend generally to trade for
short-term profits, the securities held by that Theme Portfolio will be sold
whenever management believes it is appropriate to do so, without regard to the
length of time a particular security may have been held. Portfolio turnover rate
is calculated by dividing the lesser of sales or purchases of portfolio
securities by each Theme Portfolio's average month-end portfolio value,
excluding short-term investments. The portfolio turnover rate will not be a
limiting factor when management deems portfolio changes appropriate. Higher
portfolio turnover involves correspondingly greater brokerage commissions and
other transaction costs that the Theme Portfolio will bear directly, and may
result in the realization of net capital gains that are taxable when distributed
to each Fund's shareholders. For the fiscal years ended October 31, 1998 and
1997, the Telecommunications Fund's portfolio turnover rates were % and 35%,
respectively. For the fiscal years ended October 31, 1998 and 1997, the Health
Care Fund's portfolio turnover rates were % and 149%, respectively. For the
fiscal years ended October 31, 1998 and 1997, the portfolio turnover rates for
the Financial Services Portfolio, Infrastructure Portfolio and Resources
Portfolio were % and 91%, % and 41%, and % and 321%, respectively. For
the fiscal years ended October 31, 1998 and 1997, the portfolio turnover rates
for the Consumer Products and Services Portfolio were % and 392%,
respectively.
36
<PAGE> 872
MANAGEMENT
The Trust's Board of Trustees has overall responsibility for the operation of
the Funds. The Trust's Board of Trustees has approved all significant agreements
between the Trust on the one side and persons or companies furnishing services
to the Fund on the other, including the investment management and administration
agreement with AIM, the investment sub-advisory and sub-administration agreement
between AIM and the Sub-advisor, the agreements with AIM Distributors regarding
distribution of the Fund's shares, the custody agreement and the transfer agency
agreement. The day-to-day operations of the Fund are delegated to the officers
of the Trust, subject always to the investment objectives and policies of the
Fund and to the general supervision of the Trust's Board of Trustees.
TRUSTEES AND EXECUTIVE OFFICERS
The Trust's Trustees and Executive Officers and the Portfolios' Trustees and
Executive Officers are listed below. Unless otherwise indicated, the address of
each Executive Officer is 11 Greenway Plaza, Suite 100, Houston, Texas 77046.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
NAME, ADDRESS AND AGE POSITIONS HELD WITH REGISTRANT PRINCIPAL OCCUPATION WITH REGISTRANT
--------------------- ------------------------------ ------------------------------------
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
*ROBERT H. GRAHAM (51) Trustee, Chairman of the Board Director, President, and Chief
and President Executive 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; and Director,
AMVESCAP PLC.
- ----------------------------------------------------------------------------------------------------
C. DEREK ANDERSON (57) Trustee President, Plantagenet Capital
220 Sansome Street Management, LLC (an investment
Suite 400 partnership); Chief Executive Officer,
San Francisco, CA 94104 Plantagenet Holdings, Ltd. (an
investment banking firm); Director,
Anderson Capital Management, Inc. since
1988; Director, PremiumWear, Inc.
(formerly Munsingwear, Inc.) (a casual
apparel company); Director, "R" Homes,
Inc. and various other companies; and
Trustee, each of the other investment
companies registered under the 1940 Act
that is sub-advised or sub-administered
by the Sub-advisor.
- ----------------------------------------------------------------------------------------------------
FRANK S. BAYLEY (59) Trustee Partner, law firm of Baker & McKenzie;
Two Embarcadero Center Director and Chairman, C.D. Stimson
Suite 2400 Company (a private investment company);
San Francisco, CA 94111 and Trustee, each of the other
investment companies registered under
the 1940 Act that is sub-advised or
sub-administered by the Sub-advisor.
- ----------------------------------------------------------------------------------------------------
ARTHUR C. PATTERSON (54) Trustee Managing Partner, Accel Partners (a
428 University Avenue venture capital firm); Director,
Palo Alto, CA 94301 Viasoft and PageMart, Inc. (both public
software companies) and several other
privately held software and
communications companies; and Trustee,
each of the other investment companies
registered under the 1940 Act that is
sub-advised or sub-administered by the
Sub-advisor.
- ----------------------------------------------------------------------------------------------------
RUTH H. QUIGLEY (63) Trustee Private investor; President, Quigley
1055 California Street Friedlander & Co., Inc. (a financial
San Francisco, CA 94108 advisory services firm) from 1984 to
1986; and Trustee, each of the other
investment companies registered under
the 1940 Act that is sub-advised or
sub-administered by the Sub-advisor.
- ----------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
<TABLE>
<S> <C> <C>
* A Trustee who is an "interested person" of the Trust and A I M Advisors, Inc., as defined in the
1940 Act.
</TABLE>
37
<PAGE> 873
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
NAME, ADDRESS AND AGE POSITIONS HELD WITH REGISTRANT PRINCIPAL OCCUPATION WITH REGISTRANT
--------------------- ------------------------------ ------------------------------------
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
+JOHN J. ARTHUR (53) Vice President Director and Senior Vice President,
A I M Advisors, Inc.; Vice President
and Treasurer, A I M Management Group
Inc.
- ----------------------------------------------------------------------------------------------------
KENNETH W. CHANCEY (53) Vice President and Principal Senior Vice President -- Mutual Fund
50 California Street Accounting Officer Accounting, the Sub-advisor since 1997;
San Francisco, CA 94111 Vice President -- Mutual Fund
Accounting, the Sub-advisor from 1992
to 1997.
- ----------------------------------------------------------------------------------------------------
MELVILLE B. COX (54) Vice President Vice President and Chief Compliance
Officer, A I M Advisors, Inc., A I M
Capital Management, Inc., A I M
Distributors, Inc., A I M Fund
Services, Inc. and Fund Management
Company.
- ----------------------------------------------------------------------------------------------------
GARY T. CRUM (50) Vice President Director and President, A I M Capital
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) Vice President Director, Senior Vice President,
General Counsel and Secretary, A I M
Advisors, Inc.; Senior Vice President,
General Counsel and Secretary, A I M
Management Group Inc.; Director, Vice
President and General Counsel, Fund
Management Company; Vice President and
General Counsel, A I M Fund Services,
Inc.; and Vice President, A I M Capital
Management, Inc. and A I M
Distributors, Inc.
- ----------------------------------------------------------------------------------------------------
DANA R. SUTTON (39) Vice President and Assistant Vice President and Fund Controller,
Treasurer A I M Advisors, Inc.; and Assistant
Vice President and Assistant Treasurer,
Fund Management Company.
- ----------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
+ Mr. Arthur and Ms. Relihan are married to each other.
The Board of Trustees has a Nominating and Audit Committee, comprised of Miss
Quigley (Chairman) and Messrs. Anderson, Bayley and Patterson, which is
responsible for nominating persons to serve as Directors, reviewing audits of
the Trust and its funds and recommending firms to serve as independent auditors
of the Trust. All of the Trust's Trustees also serve as directors or trustees of
some or all of the other investment companies managed, administered or advised
by AIM. All of the Trust's executive officers hold similar offices with some or
all of the other investment companies managed, administered or advised by AIM.
Each Trustee who is not a director, officer or employee of the Sub-advisor or
any affiliated company is paid aggregate fees of $5,000 a year, plus $300 per
Fund for each meeting of the Board attended, and reimbursed travel and other
expenses incurred in connection with attendance at such meetings. Other Trustees
and Officers receive no compensation or expense reimbursement from the Trust.
For the fiscal year ended October 31, 1997, Mr. Anderson, Mr. Bayley, Mr.
Patterson and Miss Quigley, who are not directors, officers or employees of the
Sub-advisor or any affiliated company, received total compensation of $38,650,
$38,650, $27,850 and $38,650, respectively, from the Trust for their services as
Trustees. For the fiscal year ended October 31, 1997, Mr. Anderson, Mr. Bayley,
Mr. Patterson and Miss Quigley, who are not directors, officers or employees of
the Sub-advisor or any other affiliated company, received total compensation of
$117,304, $114,386, $88,350 and $111,688, respectively, from the investment
companies managed or administered by AIM and sub-advised or sub-administered by
the Sub-advisor for which he or she serves as a Director or Trustee. Fees and
expenses disbursed to the Directors contained no accrued or payable pension or
retirement benefits. As of August 10, 1998, the Officers and Trustees and their
families as a group owned in the aggregate beneficially or of record less than
1% of the outstanding shares of each Fund or of all the Trust's series in the
aggregate.
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES RELATING TO THE FEEDER FUNDS
AND THE PORTFOLIOS
AIM serves as each Portfolio's investment manager and administrator under an
investment management and administration contract between each Portfolio and AIM
("Portfolio Management Contract"). AIM serves as administrator
38
<PAGE> 874
to each Feeder Fund under an administration contract between the Trust and AIM
("Administration Contract"). The Administration Contract will not be deemed
advisory contracts, as defined under the 1940 Act. As investment manager and
administrator, AIM makes all investment decisions for each Portfolio and, as
administrator, administers each Portfolio's and each Feeder Fund's affairs.
Among other things, AIM furnishes the services and pay the compensation and
travel expenses of persons who perform the executive, administrative, clerical
and bookkeeping functions of each Portfolio and each Feeder Fund and provides
suitable office space, necessary small office equipment and utilities.
The Portfolio Management Contract may be renewed with respect to a Portfolio
for additional one-year terms, provided that any such renewal has been
specifically approved at least annually by (i) the Portfolios' Board of Trustees
or the vote of a majority of the Portfolio's outstanding voting securities (as
defined in the 1940 Act) and (ii) a majority of Trustees who are not parties to
the Portfolio Management Contract or "interested persons" of any such party (as
defined in the 1940 Act), cast in person at a meeting called for the specific
purpose of voting on such approval. The Portfolio Management Contract provides
that with respect to each Portfolio, and the Administration Contract provides
that with respect to each Feeder Fund, either the Trust, each Portfolio or AIM
may terminate the Contracts without penalty upon sixty days' written notice to
the other party. The Portfolio Management Contract terminates automatically in
the event of their assignment (as defined in the 1940 Act).
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES RELATING TO THE HEALTH CARE
FUND AND TELECOMMUNICATIONS FUND
AIM serves as the investment manager and administrator to the Health Care Fund
and Telecommunications Fund under an Investment Management and Administration
Contract ("Management Contract") between the Trust and AIM. As investment
manager and administrator, AIM makes all investment decisions for the Health
Care Fund and Telecommunications Fund and administers the Health Care Fund's and
Telecommunications Fund's affairs. Among other things, AIM furnishes the
services and pay the compensation and travel expenses of persons who perform the
executive, administrative, clerical and bookkeeping functions of the Trust and
the Health Care Fund and Telecommunications Fund, and provides suitable office
space, necessary small office equipment and utilities.
The Management Contract may be renewed for additional one-year terms with
respect to the Health Care Fund and Telecommunications Fund, provided that any
such renewal has been specifically approved at least annually by: (i) the
Trust's Board of Trustees, or by the vote of a majority of the Health Care Fund
and Telecommunications Fund's outstanding voting securities (as defined in the
1940 Act), and (ii) a majority of Trustees who are not parties to the Management
Contract or "interested persons" of any such party (as defined in the 1940 Act),
cast in person at a meeting called for the specific purpose of voting on such
approval. The Management Contract provides that with respect to the Health Care
Fund and Telecommunications Fund either the Trust or of AIM may terminate the
Contracts without penalty upon sixty days' written notice to the other party.
The Management Contract terminate automatically in the event of their assignment
(as defined in the 1940 Act).
Each Theme Portfolio paid the following advisory fees net of any expense
limitations (fee waivers) for the years ended October 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Consumer Products and Services Portfolio............... $ $ 1,207,854 $ 422,640
Financial Services Portfolio........................... 346,965 99,991
Health Care Fund....................................... 5,820,067 5,495,494
Infrastructure Portfolio............................... 772,727 635,456
Resources Portfolio.................................... 979,215 213,856
Telecommunications Fund................................ 17,999,111 23,119,601
</TABLE>
[Prior to October 19, 1998, INVESCO (NY), Inc. was the sub-advisor and
sub-administrator to the Theme Portfolios. For the fiscal years ended October
31, 1997 and 1996, the Theme Portfolios paid the above referenced advisory fees
to INVESCO (NY), Inc. For the fiscal year ended October 31, 1998, the Theme
Portfolios paid INVESCO (NY) Inc. $ and AIM $ in advisory fees.]
For the fiscal year ended October 31, 1996, the Sub-advisor reimbursed the
Financial Services Portfolio, Infrastructure Portfolio and Resources Portfolio
for their respective investment management and administration fees in the
amounts of $103,267; $0; and $0. Each of these Portfolios had no reimbursement
for the fiscal year ended October 31, 1997. For the fiscal years ended October
31, 1996 and 1997, the Financial Services Fund, Infrastructure Fund and
Resources Fund paid administration fees of $34,865 and $119,765; $218,735 and
$266,025; and $147,614 and $338,578, respectively.
39
<PAGE> 875
However, the Sub-advisor reimbursed those Funds for such fees in the amounts of
$34,865 and $0; $0 and $0; and $0 and $0, respectively. For the fiscal years
ended October 31, 1996 and 1997, the Sub-advisor reimbursed the Consumer
Products and Services Portfolio for investment management and administration
fees in the amounts of $0 and $0, respectively. For the same periods, the
Consumer Products and Services Fund paid $147,623 and $416,297, respectively, in
administration fees; however, the Sub-advisor reimbursed the Fund in the amounts
of $0 and $0, respectively.
EXPENSES OF THE FUNDS AND OF THE PORTFOLIOS
Each Fund and each Portfolio pays all expenses not assumed by AIM, the
Sub-advisor, AIM Distributors and other agents. These expenses include, in
addition to the advisory, administration, distribution, transfer agency, pricing
and accounting agency and brokerage fees discussed above, legal and audit
expenses, custodian fees, trustees' fees, organizational fees, fidelity bond and
other insurance premiums, taxes, extraordinary expenses and expenses of reports
and prospectuses sent to existing investors. The allocation of general Trust
expenses and expenses shared among the Funds and other funds organized as series
of the Trust are allocated on a basis deemed fair and equitable, which may be
based on the relative net assets of the Funds or the nature of the service
performed and relative applicability to the Funds. Expenditures, including costs
incurred in connection with the purchase or sale of portfolio 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. The ratio of each Fund's expenses to its relative net assets can be
expected to be higher than the expense ratios of funds investing solely in
domestic securities, since the cost of maintaining the custody of foreign
securities and the rate of investment management fees paid by the Funds or the
Portfolios generally are higher than the comparable expenses of such other
funds.
THE DISTRIBUTION PLANS
THE CLASS A AND C PLAN
The Trust has adopted a Master Distribution Plan pursuant to Rule 12b-1 under
the 1940 Act relating to the Class A and C shares of the Funds (the "Class A and
C Plan"). The Class A and C Plan provides that the Class A shares pay 0.50% per
annum of their average daily net assets as compensation to AIM Distributors for
the purpose of financing any activity which is primarily intended to result in
the sale of Class A shares. Under the Class A and C Plan, Class C shares of the
Funds pay compensation to AIM Distributors at an annual rate of 1.00% of the
average daily net assets attributable to Class C shares. Payments can also be
directed by AIM Distributors to selected institutions who have entered into
service agreements with respect to Class A and Class C shares of each Fund and
who provide continuing personal services to their customers who own Class A and
C shares of the Fund. The service fees payable to selected institutions are
calculated at the annual rate of 0.25% of the average daily net asset value of
those Fund shares that are held in such institution's customers' accounts [which
were purchased on or after a prescribed date set forth in the Plan.] Activities
appropriate for financing under the Class A and C Plan include, but are not
limited to, the following: printing of prospectuses and statements of additional
information and reports for other than existing shareholders; overhead;
preparation and distribution of advertising material and sales literature;
expenses of organizing and conducting sales seminars; supplemental payments to
dealers and other institutions such as asset-based sales charges or as payments
of service fees under shareholder service arrangements; and costs of
administering the Class A and C Plan.
Of the aggregate amount payable under the Class A and C Plan, payments to
dealers and other financial institutions that provide continuing personal
shareholder services to their customers who purchase and own shares of the Fund,
in amounts of up to 0.25% of the average daily net assets of the Fund
attributable to the customers of such dealers or financial institutions are
characterized as a service fee, and payments to dealers and other financial
institutions in excess of such amount and payments to AIM Distributors would be
characterized as an asset-based sales charge pursuant to the Class A and C Plan.
THE CLASS B PLAN
The Trust has also adopted a Master Distribution Plan pursuant to Rule 12b-1
under the 1940 Act relating to Class B shares of the Funds (the "Class B Plan",
and collectively with the Class A Plan, the "Plans"). Under the Class B Plan,
each Fund pays compensation to AIM Distributors at an annual rate of 1.00% of
the average daily net assets attributable to Class B shares. Of such amount,
each Fund pays a service fee of 0.25% of the average daily net assets
attributable to Class B shares to selected dealers and other institutions which
furnish continuing personal shareholder services to their customers who purchase
and own Class B shares. Amounts paid in accordance with the Class B Plan may be
used to finance any activity primarily intended to result in the sale of Class B
shares, including but not limited to printing of
40
<PAGE> 876
prospectuses and statements of additional information and reports for other than
existing shareholders; overhead; preparation and distribution of advertising
material and sales literature; expenses of organizing and conducting sales
seminars; supplemental payments to dealers and other institutions such as
asset-based sales charges or as payments of service fees under shareholder
service arrangements; and costs of administering the Class B Plan. AIM
Distributors may transfer and sell its rights to payments under the Class B Plan
in order to finance distribution expenditures in respect of Class B shares.
BOTH PLANS
Pursuant to an incentive program, AIM Distributors may enter into agreements
("Shareholder Service Agreements") with investment dealers selected from time to
time by AIM Distributors for the provision of distribution assistance in
connection with the sale of the Funds' shares to such dealers' customers, and
for the provision of continuing personal shareholder services to customers who
may from time to time directly or beneficially own shares of the Funds. The
distribution assistance and continuing personal shareholder services to be
rendered by dealers under the Shareholder Service Agreements may include, but
shall not be limited to, the following: distributing sales literature; answering
routine customer inquiries concerning the Fund; assisting customers in changing
dividend options, account designations and addresses, and in enrolling in any of
the several special investment plans offered in connection with the purchase of
a 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 a Fund's shares; and providing such other information and
services as a Fund 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; performing
sub-accounting; establishing and maintaining shareholder accounts and records;
processing customer purchase and redemption transactions; providing periodic
statements showing a shareholder's account balance and the integration of such
statements with those of other transactions and balances in the shareholder's
other accounts serviced by the bank; forwarding applicable prospectuses, proxy
statements, reports and notices to bank clients who hold Fund shares; and such
other administrative services as a Fund reasonably may request, to the extent
permitted by applicable statute, rule or regulation. Similar agreements may be
permitted under the Plans for institutions which provide recordkeeping for and
administrative services to 401(k) plans.
Financial intermediaries and any other person entitled to receive compensation
for selling Fund shares may receive different compensation for selling shares of
one particular class over another.
Under a Shareholder Service Agreement, each Fund agrees to pay periodically
fees to selected dealers and other institutions who render the foregoing
services to their customers. The fees payable under a Shareholder Service
Agreement generally will be calculated at the end of each payment period for
each business day of a Fund during such period at the annual rate of 0.25% of
the average daily net asset value of the Fund's 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 each Fund's shares are held.
Payments pursuant to the Plans are subject to any applicable limitations
imposed by rules of the National Association of Securities Dealers, Inc.
("NASD"). The Plans conform to rules of the NASD by limiting payments made to
dealers and other financial institutions who provide continuing personal
shareholder services to their customers who purchase and own shares of the Funds
to no more than 0.25% per annum of the average daily net assets of the funds
attributable to the customers of such dealers or financial institutions, and by
imposing a cap on the total sales charges, including asset based sales charges,
that may be paid by the Fund and its respective classes.
AIM Distributors does not act as principal, but rather as agent for the Funds,
in making dealer incentive and shareholder servicing payments under the Plans.
These payments are an obligation of a Fund and not of AIM Distributors.
41
<PAGE> 877
For the fiscal year ended October 31, 1998, each Fund paid the following
[distribution fees]:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS A CLASS B
---------- ---------- ------- -------
% OF CLASS
AVERAGE DAILY
NET ASSETS
<S> <C> <C> <C> <C>
Consumer Products and Services Fund.......... $ $ .50% 1.00%
Health Care Fund............................. $ $ .50% 1.00%
Financial Services Fund...................... $ $ .50% 1.00%
Infrastructure Fund.......................... $ $ .50% 1.00%
Resources Fund............................... $ $ .50% 1.00%
Telecommunications Fund...................... $ $ .50% 1.00%
</TABLE>
Prior to June 1, 1998, the Trust had adopted a different Rule 12b-1 plan, that
operated as a "reimbursement-type" plan (the "Prior Plan"). The Trust provided
GT Global, Inc., the distributor at the time the Prior Plan was in effect,
$ in payments under the Prior Plan for 1998. For 1998, the Trust provided
AIM Distributors, the current distributor of the Funds $ .
Actual fees by category paid by each Fund with regard to the Class A shares
during the year ended October 31, 1998 are as follows:
<TABLE>
<CAPTION>
CONSUMER
PRODUCTS
AND FINANCIAL HEALTH TELECOMMUNI-
SERVICES SERVICES CARE INFRASTRUCTURE RESOURCES CATIONS
FUND FUND FUND FUND FUND FUND
---------- ---------- -------- -------------- --------- ------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Compensation to
Underwriters to
partially offset
other marketing
expenses............ $ $ $ $ $ $
Compensation to Dealers
including finder's
fees................ $ $ $ $ $ $
</TABLE>
Actual fees by category paid by each Fund with regard to the Class B Shares
during the year ended October 31, 1998 are as follows:
<TABLE>
<CAPTION>
CONSUMER
PRODUCTS
AND FINANCIAL HEALTH TELECOMMUNI-
SERVICES SERVICES CARE INFRASTRUCTURE RESOURCES CATIONS
FUND FUND FUND FUND FUND FUND
---------- ---------- -------- -------------- --------- ------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS B
Compensation to
Underwriters to
partially offset
upfront dealer
commissions and
other marketing
costs............... $ $ $ $ $ $
Compensation to
Dealers............. $ $ $ $ $ $
</TABLE>
The Plans require AIM Distributors to provide the Board of Trustees at least
quarterly with a written report of the amounts expended pursuant to the Plans
and the purposes for which such expenditures were made. The Board of Trustees
reviews these reports in connection with their decisions with respect to the
Plans.
As required by Rule 12b-1, the Plans and related forms of Shareholder Service
Agreements were approved by the Board of Trustees, including a majority of the
trustees who are not "interested persons" (as defined in the 1940 Act) of the
Trust and who have no direct or indirect financial interest in the operation of
the Plans or in any agreements related to the Plans ("Qualified Trustees"). In
approving the Plans in accordance with the requirements of Rule 12b-1, the
Trustees considered various factors and determined that there is a reasonable
likelihood that the Plans would benefit each class of each Fund and their
respective shareholders.
42
<PAGE> 878
The Plans do not obligate the Funds to reimburse AIM Distributors for the
actual expenses AIM Distributors may incur in fulfilling its obligations under
the Plans. Thus, even if AIM Distributors' actual expenses exceed the fee
payable to AIM Distributors thereunder at any given time, a Fund will not be
obligated to pay more than that fee. If AIM Distributors' expenses are less than
the fee it receives, AIM Distributors will retain the full amount of the fee.
Unless terminated earlier in accordance with their terms, the Plans continue
in effect until May 29, 1999 and each year thereafter, as long as such
continuance is specifically approved at least annually by the Board of Trustees,
including a majority of the Qualified Trustees.
The Plans may be terminated by the vote of a majority of the Qualified
Trustees, or, with respect to a particular class, by the vote of a majority of
the outstanding voting securities of that class.
Any change in the Plans that would increase materially the distribution
expenses paid by the applicable class requires shareholder approval; otherwise,
it may be amended by the trustees, including a majority of the Qualified
Trustees, by votes cast in person at a meeting called for the purpose of voting
upon such amendment. As long as the Plans are in effect, the selection or
nomination of the Qualified Trustees is committed to the discretion of the
Qualified Trustees. In the event the Class A and C Plan is amended in a manner
which the Board of Trustees determines would materially increase the charges
paid under the Class A and C Plan, the Class B shares of each Fund will no
longer convert into Class A shares of the same Fund unless the Class B shares,
voting separately, approve such amendment. If the Class B shareholders do not
approve such amendment, the Board of Trustees will (i) create a new class of
shares of the Fund which is identical in all material respects to the Class A
shares as they existed prior to the implementation of the amendment and (ii)
ensure that the existing Class B shares of the Fund will be exchanged or
converted into such new class of shares no later than the date the Class B
shares were scheduled to convert into Class A shares.
The principal differences between the Class A and C Plan, on the one hand, and
the Class B Plan, on the other hand, are: (i) the Class A and C Plan allows
payment to AIM Distributors or to dealers or financial institutions of up to
0.50% of average daily net assets of the Class A shares of each Fund, as
compared to 1.00% of such assets of the Funds' Class B shares; (ii) the Class B
Plan obligates the Class B shares to continue to make payments to AIM
Distributors following termination of the Class B shares Distribution Agreement
with respect to Class B shares sold by or attributable to the distribution
efforts of AIM Distributors or its predecessor, GT Global, Inc. unless there has
been a complete termination of the Class B Plan (as defined in such Plan) and
(iii) the Class B Plan expressly authorizes AIM Distributors to assign, transfer
or pledge its rights to payments pursuant to the Class B Plan.
THE DISTRIBUTOR
Information concerning AIM Distributors and the continuous offering of each
Fund's shares is set forth in the Prospectus under the headings "How to Purchase
Shares" and "Terms and Conditions of Purchase of the AIM Funds." Master
Distribution Agreements with AIM Distributors relating to the Class A and Class
B shares of the Funds were approved by the Board of Trustees on May 7, 1998. An
Amended and Restated Master Distribution Agreement with AIM Distributors
relating to the Class A and C shares of the Funds were approved by the Board of
Trustees on , 1998. Such Master Distribution Agreements are
hereinafter collectively referred to as the "Distribution Agreements."
The Distribution Agreements provide that AIM Distributors will bear the
expenses of printing from the final proof and distributing each Fund's
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 Fund), and any promotional or sales
literature used by AIM Distributors or furnished by AIM Distributors to dealers
in connection with the public offering of each Fund's 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 any
Fund.
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. 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.
AIM Distributors expects to pay sales commissions from its own resources to
dealers and institutions who sell Class B shares of the Funds at the time of
such sales. Payments with respect to Class B shares will equal 4.0% of the
purchase price of the Class B shares sold by the dealer or institution, and will
consist of a sales commission equal to 3.75% of the
43
<PAGE> 879
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
anticipates that it will require a number of years to recoup from Class B Plan
payments the sales commissions paid to dealers and institutions in connection
with sales of Class B shares. In the future, if multiple distributors serve a
Fund, each such distributor (or its assignee or transferee) would receive a
share of the payments under the Class B Plan based on the portion of the Fund's
Class B shares sold by or attributable to the distribution efforts of that
distributor.
The Trust (on behalf of any class of a 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 and its predecessor; provided,
however, that a complete termination of the Class B Plan (as defined in such
Plan) would terminate all payments by the Fund of asset based distribution fees
and service fees to AIM Distributors. Termination of the Class B Plan or
Distribution Agreement does not affect the obligation of Class B shareholders to
pay contingent deferred sales charges.
The following chart reflects the total sales charges paid in connection with
the sale of Class A shares of each Fund and the amount retained by the Trust's
distributors for the fiscal year ended October 31, 1998 and 1997.
<TABLE>
<CAPTION>
1998 1997
------------------- -------------------
SALES AMOUNT SALES AMOUNT
CHARGE RETAINED CHARGE RETAINED
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Consumer Products and Services Fund......... $ $ $286,139 $ 85,990
Financial Services Fund..................... $ $ $ 84,341 $ 22,263
Health Care Fund............................ $ $ $ 13,880 $ 54,971
Infrastructure Fund......................... $ $ $100,622 $ 24,988
Resources Fund.............................. $ $ $221,895 $ 63,915
Telecommunications Fund..................... $ $ $497,045 $131,495
</TABLE>
[Prior to June 1, 1998, GT Global Inc. was the Trust's distributor, and a
total of $ sales charges were paid in connection with the sale of Class A
shares of each Fund and the amount retained by GT Global Inc. was $ .]
The following chart reflects the contingent deferred sales charges paid by
Class A and Class B shareholders for the fiscal year ended October 31, 1998 and
1997, for Class A and Class B shares:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Consumer Products and Services Fund......................... $ $ 545,758
Financial Services Fund..................................... $ $7,116,869
Health Care Fund............................................ $ $ 81,031
Infrastructure Fund......................................... $ $ 261,619
Resources Fund.............................................. $ $ 417,878
Telecommunications Fund..................................... $ $ 508,410
</TABLE>
NET ASSET VALUE DETERMINATION
The net asset value per share of each Fund is normally determined daily as of
the close of trading of the New York Stock Exchange ("NYSE") (generally 4:00
p.m. Eastern time) on each business day of the Fund. In the event the NYSE
closes early (i.e., before 4:00 p.m. Eastern time) on a particular day, the net
asset value of a Fund is determined as of the close of the NYSE on such day. Net
asset value per share is determined by dividing the value of each Theme
Portfolio's securities, cash and other assets (including interest accrued but
not collected) attributable to a particular class, less all its liabilities
(including accrued expenses and dividends payable) attributable to that class,
by the total number of shares outstanding of that class. Determination of each
Fund's net asset value per share is made in accordance with generally accepted
accounting principles.
Each equity security held by a Theme Portfolio 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 last available bid.
Each security traded in the over-the-counter market (but not including
securities reported on the NASDAQ National Market System) is
44
<PAGE> 880
valued at the mean between the last bid and asked prices based upon quotes
furnished by market makers for such securities. Each security reported on the
NASDAQ National Market System is valued at the last sales price on the valuation
date or absent a last sales price, at the mean between the closing bid and asked
prices on that day. Debt securities are valued on the basis of prices provided
by an independent pricing service. Prices provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to special securities, yield, quality, coupon
rate, maturity, type of issue, individual trading characteristics and other
market data. Securities for which market quotations are not readily available or
are questionable are valued at fair value as determined in good faith by or
under the supervision of the Trust's officers in a manner specifically
authorized by the Board of Trustees. Short-term obligations having 60 days or
less to maturity are valued on the basis of amortized cost. For purposes of
determining net asset value per share, futures and options contracts generally
will be valued 15 minutes after the close of trading of the NYSE.
Generally, trading in foreign securities, corporate bonds, U.S. Government
securities and money market instruments is substantially completed each day at
various times prior to the close of the NYSE. The values of such securities used
in computing the net asset value of each Fund's shares are determined at such
times. Foreign currency exchange rates are also generally determined prior to
the close of the NYSE. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times at which such
values are determined and the close of the NYSE which will not be reflected in
the computation of a Fund's net asset value. If events materially affecting the
value of such securities occur during such period, then these securities will be
valued at their fair value as determined in good faith by or under the
supervision of the Board of Trustees of the Fund and the Portfolio.
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 Advisor
MultiFlex 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 European Development Fund, AIM Europe Growth Fund,
AIM Global Utilities Fund, AIM Global Growth & Income Fund, AIM International
Equity Fund, AIM International Growth Fund, AIM Japan Growth Fund, AIM Large Cap
Growth Fund, AIM Mid Cap Equity Fund, AIM Money Market Fund, AIM New Pacific
Growth Fund, AIM Select Growth Fund, AIM Small Cap Growth Fund, AIM Small Cap
Opportunities Fund, AIM Value Fund, AIM Weingarten Fund and AIM Worldwide Growth
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>
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 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 Fund, AIM Global Trends Fund, AIM
High Income Municipal Fund, AIM High Yield Fund, AIM High Yield Fund II, AIM
Income Fund, AIM
45
<PAGE> 881
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; 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. In some instances, these incentives may
be offered only to certain dealers who have sold or may sell significant amounts
of shares. At the option of the dealer, such incentives may take the form of
payment for travel expenses, including lodging, incurred in connection with
trips taken by qualifying registered representatives and their families to
places within or outside the United States. The total amount of such additional
bonus payments or other consideration shall not exceed 0.25% of the public
offering price of the shares sold. Any such bonus or incentive programs will not
change the price paid by investors for the purchase of the applicable AIM Fund's
shares or the amount that any particular AIM Fund will receive as proceeds from
such sales. Dealers may not use sales of the AIM Funds' shares to qualify for
any incentives to the extent that such incentives may be prohibited by the laws
of any state.
AIM Distributors may make payments to dealers and institutions who are dealers
of record for purchases of $1 million or more of Class A shares (or shares which
normally involve payment of initial sales charges), which are sold at net asset
value and are subject to a contingent deferred sales charge, for all AIM Funds
other than Class A shares of each of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund as follows: 1% of the first $2 million of such
purchases, plus 0.80% of the next $1 million of such purchases, plus 0.50% of
the next $17 million of such purchases, plus 0.25% of amounts in excess of $20
million of such purchases. 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
46
<PAGE> 882
deferred sales charge, in an amount up to 0.10% of such purchases of Class A
shares of AIM Limited Maturity Treasury Fund, and in an amount up to 0.25% of
such purchases of Class A shares of AIM Tax-Free Intermediate Fund.
AIM Distributors may pay sales commissions to dealers and institutions who
sell Class B shares of the AIM Funds at the time of such sales. Payments with
respect to Class B shares will equal 4.00% of the purchase price of the Class B
shares sold by the dealer or institution, and will consist of a sales commission
equal to 3.75% of the purchase price of the Class B shares sold plus an advance
of the first year service fee of 0.25% with respect to such shares. The portion
of the payments to AIM Distributors under the Class B Plan which constitutes an
asset-based sales charge (0.75%) is intended in part to permit AIM Distributors
to recoup a portion of such sales commissions plus financing costs.
AIM Distributors may pay sales commissions to dealers and institutions who
sell Class C shares of the AIM Funds at the time of such sales. Payments with
respect to Class C shares will equal 1.00% of the purchase price of the Class C
shares sold by the dealer or institution, and will consist of a sales commission
of 0.75% of the purchase price of the Class C shares sold plus an advance of the
first year service fee of 0.25% with respect to such shares. AIM Distributors
will retain all payments received by it relating to Class C shares for the first
year after they are purchased. The portion of the payments to AIM Distributors
under the Class A and C Plan attributable to Class C shares which constitutes an
asset-based sales charge, (0.75%) is intended in part to permit AIM Distributors
to recoup a portion of on-going sales commissions to dealers plus financing
costs, if any. After the first full year, AIM Distributors will make such
payments quarterly to dealers and institutions based on the average net asset
value of Class C shares which are attributable to shareholders for whom the
dealers and institutions are designated as dealers of record. These commissions
are not paid on sales to investors exempt from the CDSC, including shareholders
of record on April 30, 1995, who purchase additional shares in any of the Funds
on or after May 1, 1995, and in circumstances where AIM Distributors grants an
exemption on particular transactions.
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.
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:
- an individual and his or her spouse and children, including any trust
established exclusively for the benefit of any such person; or a pension,
profit-sharing, or other benefit plan established exclusively for the
benefit of any such person, such as an IRA, Roth IRA, a single-participant
money-purchase/profit-sharing plan or an individual participant in a 403(b)
Plan (unless such 403(b) plan qualifies as the purchaser as defined below);
- a 403(b) plan, the employer/sponsor of which is an organization described
under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended
(the "Code"), 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;
- a trustee or fiduciary purchasing for a single trust, estate or single
fiduciary account (including a pension, profit-sharing or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Code) and 457 plans, although more than one beneficiary or participant is
involved;
- a Simplified Employee Pension (SEP), Salary Reduction and other Elective
Simplified Employee Pension account (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 IRS accounts should be linked; or
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<PAGE> 883
- 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 and (ii) Class B and Class C shares of the AIM Funds) within the
following 13 consecutive months. By marking the LOI section on the account
application and by signing the account application, the purchaser indicates that
he understands and agrees to the terms of the LOI and is bound by the provisions
described below.
Each purchase of fund shares normally subject to an initial sales charge made
during the 13-month period will be made at the public offering price applicable
to a single transaction of the total dollar amount indicated by the LOI, as
described under "Sales Charges and Dealer Concessions." It is the purchaser's
responsibility at the time of purchase to specify the account numbers that
should be considered in determining the appropriate sales charge. The offering
price may be further reduced as described under "Rights of Accumulation" if the
Transfer Agent is advised of all other accounts at the time of the investment.
Shares acquired through reinvestment of dividends and capital gains
distributions will not be applied to the LOI. At any time during the 13-month
period after meeting the original obligation, a purchaser may revise his
intended investment amount upward by submitting a written and signed request.
Such a revision will not change the original expiration date. By signing an LOI,
a purchaser is not making a binding commitment to purchase additional shares,
but if purchases made within the 13-month period do not total the amount
specified, the investor will pay the increased amount of sales charge as
described below. Purchases made within 90 days before signing an LOI will be
applied toward completion of the LOI. The LOI effective date will be the date of
the first purchase within the 90-day period. The Transfer Agent will process
necessary adjustments upon the expiration or completion date of the LOI.
Purchases made more than 90 days before signing an LOI will be applied toward
completion of the LOI based on the value of the shares purchased calculated at
the public offering price on the effective date of the LOI.
To assure compliance with the provisions of the 1940 Act, out of the initial
purchase (or subsequent purchases if necessary) the Transfer Agent will escrow
in the form of shares an appropriate dollar amount (computed to the nearest full
share). All dividends and any capital gain distributions on the escrowed shares
will be credited to the purchaser. All shares purchased, including those
escrowed, will be registered in the purchaser's name. If the total investment
specified under this LOI is completed within the 13-month period, the escrowed
shares will be promptly released. If the intended investment is not completed,
the purchaser will pay the Transfer Agent the difference between the sales
charge on the specified amount and the amount actually purchased. If the
purchaser does not pay such difference within 20 days of the expiration date, he
irrevocably constitutes and appoints the Transfer Agent as his attorney to
surrender for redemption any or all shares, to make up such difference within 60
days of the expiration date.
If at any time before completing the LOI Program, the purchaser wishes to
cancel the agreement, he must give written notice to AIM Distributors. If at any
time before completing the LOI Program the purchaser requests the Transfer Agent
to liquidate or transfer beneficial ownership of his total shares, a
cancellation of the LOI will automatically be effected. If the total amount
purchased is less than the amount specified in the LOI, the Transfer Agent will
redeem an appropriate number of escrowed shares equal to the difference between
the sales charge actually paid and the sales charge that would have been paid if
the total purchases had been made at a single time.
2. RIGHTS OF ACCUMULATION. A "purchaser," as previously defined, may also
qualify for reduced initial sales charges based upon such purchaser's existing
investment in shares of any of the AIM Funds (except for (i) Class A shares of
AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money Market Fund
and (ii) Class B and Class C shares of the 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
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<PAGE> 884
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) owned by such purchaser, calculated at their then current
public offering price. If a purchaser so qualifies for a reduced sales charge,
the reduced sales charge applies to the total amount of money then being
invested by such purchaser and not just to the portion that exceeds the
breakpoint above which a reduced sales charge applies. For example, if a
purchaser already owns qualifying shares of any AIM Fund with a value of $20,000
and wishes to invest an additional $20,000 in a fund, with a maximum initial
sales charge of 5.50%, the reduced initial sales charge of 5.25% will apply to
the full $20,000 purchase and not just to the $15,000 in excess of the $25,000
breakpoint. To qualify for obtaining the discount applicable to a particular
purchase, the purchaser or his dealer must furnish AFS with a list of the
account numbers and the names in which such accounts of the purchaser are
registered at the time the purchase is made.
PURCHASES AT NET ASSET VALUE. Purchases of shares of any of the AIM Funds at
net asset value (without payment of an initial sales charge) may be made in
connection with: (a) the reinvestment of dividends and distributions from a
fund; (b) exchanges of shares of certain other 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:
- AIM Management and its affiliates, or their clients;
- 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;
- 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;
- 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;
- Purchases through approve fee-based programs;
- Employee benefit plans designated as qualified purchasers as defined above,
provided the initial investment in the Fund(s) is at least $1 million; the
sponsor signs a $1 million LOI; the employer-sponsored plan 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 agreement 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;
- Shareholders of record or discretionary advised clients of any investment
advisor holding shares of Weingarten or Constellation on September 8, 1996,
or of Charter 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;
- Unitholders of G/SET series unit investment trusts investing proceeds from
such trusts in shares of Weingarten or Constellation; 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 Weingarten and Constellation is effected within 30
days of the redemption or repurchase;
- 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;
- 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
- 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.
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<PAGE> 885
CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS
CDSCs will not apply to the following:
- Additional purchases of Class C shares of AIM Advisor Flex Fund, AIM Advisor
International Value Fund, AIM Advisor Large Cap Value Fund, AIM Advisor
MultiFlex Fund and AIM Advisor Real Estate Fund by shareholders of record on
April 30, 1995, of these Funds, 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;
- 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;
- 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 beneficiaries 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;
- 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;
- Liquidation by the Fund when the account value falls below the minimum
required account size of $500;
- Investment account(s) of AIM; and
- 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 in Categories I and II purchased in amounts of
$1 million or more, no CDSC will be applied in the following situations:
- Shares held more than 18 months;
- 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;
- Private foundations or endowment funds;
- 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
- Shares acquired by exchange from Class A shares in Categories I and II
unless the shares acquired by exchange are redeemed within 18 months of the
original purchase of the Class A shares.
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<PAGE> 886
HOW TO PURCHASE AND REDEEM SHARES
A complete description of the manner by which shares of the Funds may be
purchased appears in the Prospectus 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 shown in the Prospectus.
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 Prospectus under the caption "Exchanging Shares."
Information concerning redemption of the Funds' shares is set forth in the
Prospectus 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 obligation of the Funds to redeem shares, AIM Distributors also
repurchases shares. AIM intends to redeem all shares of the Funds in cash. 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 the 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.
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 the
Fund not reasonably practicable.
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 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.
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<PAGE> 887
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:
- a corporation
- an organization exempt from tax under Section 501(a), an individual
retirement plan (IRA), or a custodial account under Section 403(b)(7)
- the United States or any of its agencies or instrumentalities
- a state, the District of Columbia, a possession of the United States, or any
of their political subdivisions or instrumentalities
- a foreign government or any of its political subdivisions, agencies or
instrumentalities
- an international organization or any of its agencies or instrumentalities
- a foreign central bank of issue
- a dealer in securities or commodities required to register in the U.S. or a
possession of the U.S.
- a futures commission merchant registered with the Commodity Futures Trading
Commission
- a real estate investment trust
- an entity registered at all times during the tax year under the 1940 Act
- a common trust fund operated by a bank under Section 584(a)
- a financial institution
- a middleman known in the investment community as a nominee or listed in the
most recent publication of the American Society of Corporate Secretaries,
Inc., Nominee List
- a trust exempt from tax under Section 664 or described in Section 4947
Investors should contact the IRS if they have any questions concerning
entitlement to an exemption from backup withholding.
NOTE: Section references are to sections of the Code.
IRS PENALTIES -- Investors who do not supply the AIM Funds with a correct TIN
will be subject to a $50 penalty imposed by the IRS unless such failure is due
to reasonable cause and not willful neglect. If an investor falsifies
information on this form or makes any other false statement resulting in no
backup withholding on an account which should be subject to backup withholding,
such investor may be subject to a $500 penalty imposed by the IRS and to certain
criminal penalties including fines and/or imprisonment.
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.
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DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
TAXATION OF THE FUNDS
Each Fund is treated as a separate corporation for federal income tax
purposes. To continue to qualify for treatment as a regulated investment company
("RIC") under the Code, each Fund must distribute to its shareholders for each
taxable year at least 90% of its investment company taxable income (consisting
generally of net investment income, net short-term capital gain and net gains
from certain foreign currency transactions) ("Distribution Requirement") and
must meet several additional requirements. With respect to each Fund, these
requirements include the following: (1) the Fund must derive at least 90% of its
gross income each taxable year from dividends, interest, payments with respect
to securities loans and gains from the sale or other disposition of securities
or foreign currencies, or other income (including gains from options, Futures or
Forward Contracts) derived with respect to its business of investing in
securities or those currencies ("Income Requirement"); and (2) the
Diversification Requirements. Each Feeder Fund, as an investor in its
corresponding Portfolio, is deemed to own a proportionate share of the
Portfolio's assets, and to earn a proportionate share of the Portfolio's income,
for purposes of determining whether the Fund satisfies the requirements
described above to qualify as a RIC.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to
the extent it fails to distribute by the end of any calendar year substantially
all of its ordinary income for that year and capital gain net income for the
one-year period ending on October 31 of that year, plus certain other amounts.
See the next section for a discussion of the tax consequences to each Feeder
Fund of hedging transactions engaged in, and investments in passive foreign
investment companies ("PFICs") and other foreign securities by its corresponding
Portfolio and to the Health Care Fund and Telecommunications Fund of those
transactions and investments.
TAXATION OF THE THEME PORTFOLIOS
The Portfolios and their Relationship to the Feeder Funds. Each Portfolio is
treated as a separate partnership for federal income tax purposes and is not a
"publicly traded partnership." As a result, each Portfolio is not subject to
federal income tax; instead, each Feeder Fund, as an investor in its
corresponding Portfolio, is required to take into account in determining its
federal income tax liability its share of the Portfolio's income, gains, losses,
deductions and credits, without regard to whether it has received any cash
distributions from the Portfolio. Each Portfolio also is not subject to Delaware
income or franchise tax.
Because, as noted above, each Feeder Fund is deemed to own a proportionate
share of its corresponding Portfolio's assets, and to earn a proportionate share
of its corresponding Portfolio's income, for purposes of determining whether the
Fund satisfies the requirements to qualify as a RIC, each Portfolio intends to
conduct its operations so that its corresponding Fund will be able to continue
to satisfy all those requirements.
Distributions to each Feeder Fund from its corresponding Portfolio (whether
pursuant to a partial or complete withdrawal or otherwise) will not result in
the Fund's recognition of any gain or loss for federal income tax purposes,
except that (1) gain will be recognized to the extent any cash that is
distributed exceeds the Fund's basis for its interest in the Portfolio before
the distribution, (2) income or gain will be recognized if the distribution is
in liquidation of the Fund's entire interest in the Portfolio and includes a
disproportionate share of any unrealized receivables held by the Portfolio, and
(3) loss will be recognized if a liquidation distribution consists solely of
cash and/or unrealized receivables. Each Feeder Fund's basis for its interest in
its corresponding Portfolio generally will equal the amount of cash and the
basis of any property the Fund invests in the Portfolio, increased by the Fund's
share of the Portfolio's net income and gains and decreased by (a) the amount of
cash and the basis of any property the Portfolio distributes to the Fund and (b)
the Fund's share of the Portfolio's losses.
FOREIGN TAXES
Dividends and interest received by a Theme Portfolio, and gains realized
thereby, may be subject to income, withholding or other taxes imposed by foreign
countries and U.S. possessions ("foreign taxes") that would reduce the yield
and/or total return on its securities. Tax conventions between certain countries
and the United States may reduce or eliminate foreign taxes, however, and many
foreign countries do not impose taxes on capital gains in respect of investments
by foreign investors. If more than 50% of the value of a Fund's total assets
(taking into account, in the case of a Feeder Fund, its proportionate share of
its corresponding Portfolio's assets) at the close of its taxable year consists
of securities of foreign corporations, the Fund will be eligible to, and may,
file an election with the Internal Revenue Service that will enable its
shareholders, in effect, to receive the benefit of the foreign tax credit with
respect to any foreign taxes paid by it
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<PAGE> 889
(taking into account, in the case of a Feeder Fund, its proportionate share of
any foreign taxes paid by its corresponding Portfolio) (a "Fund's foreign
taxes"). Pursuant to the election, a Fund would treat those taxes as dividends
paid to its shareholders and each shareholder would be required to (1) include
in gross income, and treat as paid by him, his share of the Fund's foreign
taxes, (2) treat his share of those taxes and of any dividend paid by the Fund
that represents its income from foreign and U.S. possessions sources (taking
into account, in the case of a Feeder Fund, its proportionate share of its
corresponding Portfolio's income from those sources) as his own income from
those sources and (3) either deduct the taxes deemed paid by him in computing
his taxable income or, alternatively, use the foregoing information in
calculating the foreign tax credit against his federal income tax. Each Fund
will report to its shareholders shortly after each taxable year their respective
shares of the Fund's foreign taxes and income (taking into account, in the case
of a Feeder Fund, its proportionate share of its corresponding Portfolio's
income) from sources within foreign countries and U.S. possessions if it makes
this election. Pursuant to the Taxpayer Relief Act of 1997 ("Tax Act"),
individuals who have no more than $300 ($600 for married persons filing jointly)
of creditable foreign taxes included on Form 1099 and all of whose foreign
source of income is "qualified passive income" may elect each year to be exempt
from the extremely complicated foreign tax credit limitation and will be able to
claim a foreign tax credit without having to file the detailed Form 1116 that
otherwise is required.
Passive Foreign Investment Companies. Each Theme Portfolio may invest in the
stock of PFICs. A PFIC is a foreign corporation -- other than a "controlled
foreign corporation" (i.e., a foreign corporation in which, on any day during
its taxable year, more than 50% of the total voting power of all voting stock
therein or the total value of all stock therein is owned, directly, indirectly
or constructively, by "U.S. shareholders," defined as U.S. persons that
individually own, directly, indirectly or constructively, at least 10% of that
voting power) as to which the Theme Portfolio is a U.S. shareholder (effective
with respect to each Fund for their taxable year beginning November 1,
1998) -- that, in general, meets either of the following tests: (1) at least 75%
of its gross income is passive or (2) an average of at least 50% of its assets
produce, or are held for the production of, passive income. Under certain
circumstances, a Fund will be subject to federal income tax on a part (or, in
the case of a Feeder Fund, its proportionate share of a part) of any "excess
distribution" received by it (or, in the case of a Feeder Fund, by its
corresponding Portfolio) on the stock of a PFIC or of any gain on the Fund's
(or, in the case of a Feeder Fund, its corresponding Portfolio's) disposition of
that stock (collectively "PFIC income"), plus interest thereon, even if the Fund
distributes the PFIC income as a taxable dividend to its shareholders. The
balance of the PFIC income will be included in the Fund's investment company
taxable income and, accordingly, will not be taxable to it to the extent it
distributes that income to its shareholders.
If a Theme Portfolio invests in a PFIC and elects to treat the PFIC as a
"qualified electing fund" ("QEF"), then in lieu of the foregoing tax and
interest obligation, the Theme Portfolio (or, in the case of a Portfolio, its
corresponding Feeder Fund) would be required to include in income each year its
pro rata share (taking into account, in the case of a Feeder Fund, its
proportionate share of its corresponding Portfolio's pro rata share) of the
QEF's ordinary earnings and net capital gain (i.e., the excess of net long-term
capital gain over net short-term capital loss) -- which most likely would have
to be distributed by the Theme Portfolio (or, in the case of a Portfolio, its
corresponding Feeder Fund) to satisfy the Distribution Requirement and avoid
imposition of the Excise Tax -- even if those earnings and gain were not
received thereby from the QEF. In most instances it will be very difficult, if
not impossible, to make this election because of certain requirements thereof.
A holder of stock in any PFIC may elect to include in ordinary income for each
taxable year beginning after 1997 the excess, if any, of the fair market value
of the stock over the adjusted basis therein as of the end of that year.
Pursuant to the election, a deduction (as an ordinary, not capital, loss) also
will be allowed for the excess, if any, of the holder's adjusted basis in PFIC
stock over the fair market value thereof as of the taxable year-end, but only to
the extent of any net mark-to-market gains with respect to that stock included
in income for prior taxable years. The adjusted basis in each PFIC's stock
subject to the election will be adjusted to reflect the amounts of income
included and deductions taken thereunder. Regulations proposed in 1992 provided
a similar election with respect to the stock of certain PFICs.
Options, Futures and Foreign Currency Transactions. The Theme Portfolios' use
of hedging transactions, such as selling (writing) and purchasing options and
Futures and entering into Forward Contracts, involves complex rules that will
determine, for federal income tax purposes, the amount, character and timing of
recognition of the gains and losses a Theme Portfolio realizes in connection
therewith. Gains from the disposition of foreign currencies (except certain
gains that may be excluded by future regulations), and gains from options,
Futures and Forward Contracts derived by a Theme Portfolio with respect to its
business of investing in securities or foreign currencies, will qualify as
permissible income under the Income Requirement for that Theme Portfolio (or, in
the case of a Portfolio, its corresponding Feeder Fund).
Futures and Forward Contracts that are subject to section 1256 of the Code
(other than those that are part of a "mixed straddle") ("Section 1256
Contracts") and that are held by a Theme Portfolio at the end of its taxable
year generally will be deemed to have been sold at that time at market value for
federal income tax purposes. Sixty percent of any net gain or
54
<PAGE> 890
loss recognized on these deemed sales, and 60% of any net gain or loss realized
from any actual sales of Section 1256 Contracts, will be treated as long-term
capital gain or loss, and the balance will be treated as short-term capital gain
or loss. That 60% portion will qualify for the reduced maximum tax rates on
noncorporate taxpayers' net capital gain enacted by the Tax Act -- 20% (10% for
taxpayers in the 15% marginal tax bracket) for gain recognized on capital assets
held for more than 18 months -- instead of the 28% rate in effect before that
legislation, which now applies to gain recognized on capital assets held for
more than one year but not more than 18 months.
Section 988 of the Code also may apply to gains and losses from transactions
in foreign currencies, foreign-currency-denominated debt securities and options,
Futures and Forward Contracts on foreign currencies ("Section 988" gains and
losses). Each Section 988 gain or loss generally is computed separately and
treated as ordinary income or loss. In the case of overlap between sections 1256
and 988, special provisions determine the character and timing of any income,
gain or loss. Each Theme Portfolio attempts to monitor section 988 transactions
to minimize any adverse tax impact.
If a Theme Portfolio has an "appreciated financial position" -- generally, an
interest (including an interest through an option, Futures or Forward Contract
or short sale) with respect to any stock, debt instrument (other than "straight
debt") or partnership interest the fair market value of which exceeds its
adjusted basis -- and enters into a "constructive sale" of the same or
substantially similar property, the Theme Portfolio will be treated as having
made an actual sale thereof, with the result that gain will be recognized at
that time. A constructive sale generally consists of a short sale, an offsetting
notional principal contract or Futures or Forward Contract entered into by a
Theme Portfolio or a related person with respect to the same or substantially
similar property. In addition, if the appreciated financial position is itself a
short sale or such a contract, acquisition of the underlying property or
substantially similar property will be deemed a constructive sale.
TAXATION OF THE FUNDS' SHAREHOLDERS
Dividends and other distributions declared by a Fund in, and payable to
shareholders of record as of a date in, October, November or December of any
year will be deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if the distributions are paid by the
Fund during the following January. Accordingly, those distributions will be
taxed to shareholders for the year in which that December 31 falls.
If Fund shares are sold at a loss after being held for six months or less, the
loss will be treated as long-term, instead of short-term, capital loss to the
extent of any capital gain distributions received on those shares. Investors
also should be aware that if shares are purchased shortly before the record date
for any dividend or other distribution, the shareholder will pay full price for
the shares and receive some portion of the price back as a taxable distribution.
Dividends paid by a Fund to a shareholder who, as to the United States, is a
nonresident alien individual, nonresident alien fiduciary of a trust or estate,
foreign corporation or foreign partnership ("foreign shareholder") generally
will be subject to U.S. withholding tax (at a rate of 30% or lower treaty rate).
Withholding will not apply, however, to a dividend paid by a Fund to a foreign
shareholder that is "effectively connected with the conduct of a U.S. trade or
business," in which case the reporting and withholding requirements applicable
to domestic shareholders will apply. A distribution of net capital gain by a
Fund to a foreign shareholder generally will be subject to U.S. federal income
tax (at the rates applicable to domestic persons) only if the distribution is
"effectively connected" or the foreign shareholder is treated as a resident
alien individual for federal income tax purposes.
The foregoing is a general and abbreviated summary of certain federal tax
considerations affecting the Funds, their shareholders and the Portfolios.
Investors are urged to consult their own tax advisors for more detailed
information and for information regarding any foreign, state and local taxes
applicable to distributions received from a Fund.
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. 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.
SHARES CERTIFICATES. 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. AIM Funds will not issue certificates for shares
held in prototype retirement plans.
55
<PAGE> 891
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. 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. Procedures for verification of telephone transactions
may include recordings of telephone transactions (maintained for six months),
requests for confirmation of the shareholder's Social Security Number and
current address, and mailings of confirmations promptly after the transaction.
The Transfer Agent reserves the right to 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
56
<PAGE> 892
the right to cease to act as attorney-in-fact subject to this appointment, and
AIM Distributors reserves the right to modify or terminate the telephone
redemption privilege at any time without notice. An investor may elect not to
have this privilege by marking the appropriate box on the application. Then any
redemptions must be effected in writing by the investor.
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 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.
REINSTATEMENT PRIVILEGE (CLASS A SHARES ONLY). A shareholder may realize a
gain or a loss on a redemption made in connection with the exercise of the
reinstatement privilege. A realized gain on the redemption is taxable, and
reinvestment may alter any capital gains payable. If there has been a loss on
the redemption and shares of the same fund are repurchased, all of the loss may
not be tax deductible, depending on the timing and amount reinvested. Under the
Code, if the redemption proceeds of fund shares on which a sales charge was paid
are reinvested in (or exchanged for) shares of another AIM Fund at a reduced
sales charge within 90 days of the payment of the sales charge, the
shareholder's basis in the fund shares redeemed may not include the amount of
the sales charge paid, thereby reducing the loss or increasing the gain
recognized from the redemption; however, the shareholder's basis in the fund
shares purchased will include the sales charge.
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.
57
<PAGE> 893
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.
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., a wholly owned
subsidiary of AIM, 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173, 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 purchases 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 (formerly The Shareholder Services Group, Inc.) 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).
INDEPENDENT ACCOUNTANTS
The Trust's and Theme Portfolios' independent accountants are
PricewaterhouseCoopers LLP. PricewaterhouseCoopers LLP conducts annual audits of
the Portfolios' and the Funds' financial statements, assists in the preparation
of each Portfolio's and each Fund's federal and state income tax returns and
consults with the Trust and Global Investment Portfolio as to matters of
accounting, regulatory filings, and federal and state income taxation.
The audited financial statements of the Trust included in this Statement of
Additional Information have been examined by PricewaterhouseCoopers LLP, as
stated in their opinion appearing herein, and are included in reliance upon such
opinion given upon the authority of that firm as experts in accounting and
auditing.
LEGAL MATTERS
The law firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, N.W.,
Washington, D.C. 20036-1800, acts as counsel to the Trust and the Fund.
SHAREHOLDER LIABILITY
Under Delaware law, the shareholders of the Trust enjoy the same limitations
extended to shareholders of private, for-profit corporations. There is a remote
possibility, however, that under certain circumstances shareholders of the Trust
may be held personally liable for the Trust's obligations. However, the Trust
Agreement disclaims shareholder liability for acts or obligations of the Trust
and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Trust or a trustee. If
a shareholder is held personally liable for the obligations of the Trust, the
Trust Agreement provides that the shareholder shall be entitled out of the
assets belonging to the applicable Fund (or allocable to the applicable Class),
to be held harmless from and indemnified against all loss and expense arising
from such liability in accordance with the Trust's Bylaws and applicable law.
Thus, the risk of a shareholder incurring financial loss on account of such
liability is limited to circumstances in which the Trust itself would be unable
to meet its obligations and where the other party was held not to be bound by
the disclaimer.
[NAMES
Prior to May 29, 1998, AIM Global Consumer Products and Services Fund operated
under the name of GT Global Consumer Products and Services Fund; AIM Global
Financial Services Fund operated under the name of GT Global Financial Services
Fund; AIM Global Health Care Fund operated under the name of GT Global Health
Care Fund; AIM Global Infrastructure Fund operated under the name of GT Global
Infrastructure Fund; AIM Global Resources Fund
58
<PAGE> 894
operated under the name of GT Global Natural Resources Fund; and AIM Global
Telecommunications Fund operated under the name of GT Global Telecommunications
Fund.]
SPECIAL SERVICING AGREEMENT
[Subject to receipt of an exemptive order from the SEC, the Funds will be
parties to a Special Servicing Agreement ("Agreement") among the Trust on behalf
of the Funds, AIM Series Trust on behalf of its sole series, AIM Global Trends
Fund ("Global Trends Fund"), AIM, [the Sub-advisor] and AFS. The Agreement will
provide that, if the Trust's Board of Trustees determines that a Fund's share of
the aggregate expenses of Global Trends Fund is less than the estimated savings
to the Fund from the operation of Global Trends Fund, the Fund will bear those
expenses in proportion to the average daily value of its shares owned by Global
Trends Fund, provided that no Fund will bear such expenses in excess of the
estimated savings to it. Those savings are expected to result primarily from the
elimination of numerous separate shareholder accounts that are or would have
been invested directly in the Funds and the resulting reduction in shareholder
servicing costs. Although these cost savings are not certain, the estimated
savings to the Funds generated by the operation of Global Trends Fund are
expected to be sufficient to offset most, if not all, of the expenses incurred
by that Fund.]
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To the best knowledge of the Trust, the names and addresses of the holders of
5% or more of the outstanding shares of any class of each Fund's equity
securities as of , 1998, and the percentage of the outstanding shares
held by such holders are set forth below:
<TABLE>
<CAPTION>
PERCENT
PERCENT OWNED OF
OWNED OF RECORD AND
FUND NAME AND ADDRESS OF OWNER RECORD* BENEFICIALLY
---- ------------------------- -------- ------------
<S> <C> <C> <C>
Consumer Products and Services GT New Dimension Fund % -0-
Fund -- Advisor Class Theme Fund Omnibus Account
2121 N. California Blvd. Ste. 395
Walnut Creek, CA 94596-7305
Consumer Products and Services -- MLPF&S for the Sole Benefit of its % -0-
Class A Customers, Security #97DD9
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Consumer Products and Services MLPF&S for the Sole Benefit of its % -0-
Fund -- Class B Customers, Security #97F31
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Financial Services Fund -- GT New Dimension Fund % -0-
Advisor Class Theme Fund Omnibus Account
2121 N. California Blvd. Ste. 395
Walnut Creek, CA 94596-7305
Financial Services Fund -- Class A MLPF&S for the Sole Benefit of its % -0-
Customers, Security #97D41
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Financial Services Fund -- Class B MLPF&S for the Sole Benefit of its % -0-
Customers, Security #97D30
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Health Care Fund -- Advisor Class GT New Dimension Fund % -0-
Theme Fund Omnibus Account
2121 N. California Blvd. Ste. 395
Walnut Creek, CA 94596-7305
</TABLE>
- ---------------
<TABLE>
<S> <C> <C> <C>
* The Trust has no knowledge as to whether all or any portion of the shares owned of record are also owned
beneficially.
</TABLE>
59
<PAGE> 895
<TABLE>
<CAPTION>
PERCENT
PERCENT OWNED OF
OWNED OF RECORD AND
FUND NAME AND ADDRESS OF OWNER RECORD* BENEFICIALLY
---- ------------------------- -------- ------------
<S> <C> <C> <C>
Health Care Fund -- Class A MLPF&S for the Sole Benefit of its % -0-
Customers, Security #975M3
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Health Care Fund -- Class B MLPF&S for the Sole Benefit of its % -0-
Customers, Security #97BA1
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Infrastructure Fund -- Advisor Class GT New Dimension Fund % -0-
Theme Fund Omnibus Account
2121 N. California Blvd. Ste. 395
Walnut Creek, CA 94596-7305
Infrastructure Fund -- Class B MLPF&S for the Sole Benefit of its % -0-
Customers, Security #97HX6
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Resources Fund -- Advisor Class GT New Dimension Fund % -0-
Theme Fund Omnibus Account
2121 N. California Blvd. Ste. 395
Walnut Creek, CA 94596-7305
Telecommunications Fund -- GT New Dimension Fund % -0-
Advisor Class Theme Fund Omnibus Account
2121 N. California Blvd. Ste. 395
Walnut Creek, CA 94596-7305
Telecommunications Fund -- Class A MLPF&S for the Sole Benefit of its % -0-
Customers, Security #979F7
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Telecommunications Fund -- Class B MLPF&S for the Sole Benefit of its % -0-
Customers, Security #97BA2
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
</TABLE>
- ---------------
* The Trust has no knowledge as to whether all or any portion of the shares
owned of record are also owned beneficially.
INVESTMENT RESULTS
TOTAL RETURN QUOTATIONS
The standard formula for calculating total return, as described in the
Prospectus, is as follows:
n
P(1+T) = ERV
<TABLE>
<S> <C> <C> <C>
Where P = a hypothetical initial payment of $1,000.
T = average annual total return (assuming the applicable maximum
sales load is deducted at the beginning of the 1, 5, or 10
year periods).
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment at
the end of the 1, 5, or 10 year periods (or fractional
portion of such period).
</TABLE>
60
<PAGE> 896
The standardized returns for the Class A and Class B shares of Health Care
Fund and Telecommunications Fund, stated as average annualized total returns for
the periods shown, were:
<TABLE>
<CAPTION>
HEALTH HEALTH TELECOM- TELECOM-
CARE CARE MUNICATIONS MUNICATIONS
FUND FUND FUND FUND
PERIOD (CLASS A) (CLASS B) (CLASS A) (CLASS B)
- ------ --------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Fiscal year ended October 31, 1998......... -9.25% -8.75% -7.76% -8.15%
Fiscal year ended October 31, 1997......... 22.25% 22.75% 12.13% 12.15%
October 31, 1992 through October 31,
1997..................................... 15.24% n/a 13.87% n/a
April 1, 1993 (commencement of operations)
through October 31, 1997................. n/a 20.09% n/a 12.09%
January 27, 1992 (commencement of
operations) through October 31, 1997..... n/a n/a 11.48% n/a
August 7, 1989 (commencement of operations)
through October 31, 1997................. 15.23% n/a n/a n/a
</TABLE>
The standardized returns for the Class A and Class B shares of the Financial
Services Fund, Infrastructure Fund and Resources Fund, stated as average
annualized total returns for the periods shown, were:
<TABLE>
<CAPTION>
FINANCIAL FINANCIAL INFRA- INFRA-
SERVICES SERVICES STRUCTURE STRUCTURE RESOURCES RESOURCES
FUND FUND FUND FUND FUND FUND
PERIOD (CLASS A) (CLASS B) (CLASS A) (CLASS B) (CLASS A) (CLASS B)
- ------ --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Fiscal year ended October 31,
1998....................... -2.35% -2.85% -9.35% -10.01% -47.63% -47.89%
Fiscal year ended October 31,
1997....................... 23.72% 24.13% 4.17% 3.83% 16.81% 16.99%
May 31, 1994 (commencement of
operations) through October
31, 1997................... 13.70% 14.13% 8.30% 8.60% 18.64% 19.17%
</TABLE>
The standardized returns for the Class A and Class B shares of the Consumer
Products and Services Fund, stated as average annualized total returns for the
periods shown, were:
<TABLE>
<CAPTION>
CONSUMER PRODUCTS CONSUMER PRODUCTS
AND AND
SERVICES FUND SERVICES FUND
PERIOD (CLASS A) (CLASS B)
- ------ ----------------- -----------------
<S> <C> <C>
Fiscal year ended October 31, 1998.................. 3.48% 3.19%
Fiscal year ended October 31, 1997.................. 5.28% 4.95%
December 30, 1994 (commencement of operations) to
October 31, 1997.................................. 27.70% 28.59%
</TABLE>
Standard total return quotes may be accompanied by total return figures
calculated by alternative methods. For example, average annual total return may
be calculated without assuming payment of the full sales load according to the
following formula:
n
P(1+U) = ERV
<TABLE>
<S> <C> <C> <C>
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.
</TABLE>
61
<PAGE> 897
The average annual non-standardized returns for the Class A and Class B shares
of the Health Care Fund and Telecommunications Fund, stated as average
annualized total returns for the periods shown, were:
<TABLE>
<CAPTION>
HEALTH HEALTH TELECOM- TELECOM-
CARE CARE MUNICATIONS MUNICATIONS
FUND FUND FUND FUND
PERIOD (CLASS A) (CLASS B) (CLASS A) (CLASS B)
- ------ --------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Fiscal year ended October 31, 1998......... -4.71% -5.20% -3.16% -3.67%
October 31, 1993 through October 31,
1998..................................... 14.72% 14.15% 4.86% 4.33%
April 1, 1993 (commencement of operations)
through October 31, 1998................. n/a 15.29% n/a 9.32%
January 27, 1992 (commencement of
operations) through October 31, 1998..... n/a n/a 9.97% n/a
August 7, 1989 (commencement of operations)
through October 31, 1998................. 13.48% n/a n/a n/a
</TABLE>
The average annual non-standardized returns for the Class A and Class B shares
of the Financial Services Fund, Infrastructure Fund and Resources Fund, stated
as aggregate total returns for the periods shown, were:
<TABLE>
<CAPTION>
FINANCIAL FINANCIAL INFRA- INFRA-
SERVICES SERVICES STRUCTURE STRUCTURE RESOURCES RESOURCES
FUND FUND FUND FUND FUND FUND
PERIOD (CLASS A) (CLASS B) (CLASS A) (CLASS B) (CLASS A) (CLASS B)
- ------ --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Fiscal year ended October 31,
1998....................... 2.53% 2.08% -4.82% -5.31% -45.02% -45.25%
May 31, 1994 (commencement of
operations) through October
31, 1997................... 12.30% 11.76% 6.35% 5.82% .79% .30%
</TABLE>
The average annual non-standardized returns for the Class A and Class B shares
of the Consumer Products and Services Fund, stated as average annualized total
returns for the periods shown, were:
<TABLE>
<CAPTION>
CONSUMER PRODUCTS CONSUMER PRODUCTS
AND AND
SERVICES FUND SERVICES FUND
PERIOD (CLASS A) (CLASS B)
- ------ ----------------- -----------------
<S> <C> <C>
Fiscal year ended October 31, 1998.................. 8.66% 8.16%
December 30, 1994 (commencement of operations) to
October 31, 1997.................................. 24.00% 23.39%
</TABLE>
Cumulative total return across a stated period may be calculated as follows:
n
P(1+V) = ERV
<TABLE>
<S> <C> <C> <C>
Where P = a hypothetical initial payment of $1,000.
V = cumulative total return assuming payment of all of, a stated
portion of, or none of, the applicable maximum sales load at
the beginning of the stated period.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment at
the end of the stated period.
</TABLE>
62
<PAGE> 898
The aggregate non-standardized returns (not taking sales charges into account)
for the Class A and Class B shares of the Health Care Fund and
Telecommunications Fund, stated as aggregate total returns for the periods
shown, were:
<TABLE>
<CAPTION>
HEALTH HEALTH TELECOM- TELECOM-
CARE CARE MUNICATIONS MUNICATIONS
FUND FUND FUND FUND
PERIOD (CLASS A) (CLASS B) (CLASS A) (CLASS B)
- ------ --------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Fiscal year ended October 31, 1998......... -4.71% -5.20% -3.16% -3.67%
April 1, 1993 (commencement of operations)
through Oct. 31, 1998.................... n/a 121.29% n/a 64.49%
January 27, 1992 (commencement of
operations) through Oct. 31, 1998........ n/a n/a 90.12% n/a
August 7, 1989 (commencement of operations)
through October 31, 1998................. 221.47% n/a n/a n/a
</TABLE>
The aggregate non-standardized returns (not taking sales charges into account)
for the Class A and Class B shares of the Financial Services Fund,
Infrastructure Fund and Resources Fund, stated as aggregate total returns for
the period shown were:
<TABLE>
<CAPTION>
FINANCIAL FINANCIAL INFRA- INFRA-
SERVICES SERVICES STRUCTURE STRUCTURE RESOURCES RESOURCES
FUND FUND FUND FUND FUND FUND
PERIOD (CLASS A) (CLASS B) (CLASS A) (CLASS B) (CLASS A) (CLASS B)
- ------ --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Fiscal year ended October
31, 1998.................. 2.53% 2.08% -4.82% -5.31% -45.02% -45.25%
May 31, 1994 (commencement
of operations) through
October 31, 1998.......... 66.98% 63.46% 31.25% 28.38% 3.54% 1.35%
</TABLE>
The aggregate non-standardized returns (not taking sales charges into account)
for the Class A and Class B shares of the Consumer Products and Services Fund,
stated as aggregate total returns for the period shown, were:
<TABLE>
<CAPTION>
CONSUMER PRODUCTS CONSUMER PRODUCTS
AND AND
SERVICES FUND SERVICES FUND
PERIOD (CLASS A) (CLASS B)
- ------ ----------------- -----------------
<S> <C> <C>
Fiscal year ended October 31, 1998.................. 8.66% 8.16%
December 30, 1994 (commencement of operations) to
October 31, 1998.................................. 128.20% 123.91%
</TABLE>
The aggregate standardized returns (taking sales charges into account) for the
Class A and Class B shares of the Health Care Fund and Telecommunications Fund,
stated as aggregate total returns for the periods shown, were:
<TABLE>
<CAPTION>
HEALTH HEALTH TELECOM- TELECOM-
CARE CARE MUNICATIONS MUNICATIONS
FUND FUND FUND FUND
PERIOD (CLASS A) (CLASS B) (CLASS A) (CLASS B)
- ------ --------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Fiscal year ended October 31, 1998......... -9.25% -8.75% -7.76% -8.15%
April 1, 1993 (commencement of operations)
through October 31, 1998................. n/a 120.29% n/a 63.49%
January 27, 1992 (commencement of
operations) through October 31, 1998..... n/a n/a 81.09% n/a
August 7, 1989 (commencement of operations)
through October 31, 1998................. 206.19% n/a n/a n/a
</TABLE>
63
<PAGE> 899
The aggregate standardized returns (taking sales charges into account) for the
Class A and Class B shares of the Financial Services Fund, Infrastructure Fund
and Resources Fund, stated as aggregate total returns for the periods shown
were:
<TABLE>
<CAPTION>
FINANCIAL FINANCIAL INFRA- INFRA-
SERVICES SERVICES STRUCTURE STRUCTURE RESOURCES RESOURCES
FUND FUND FUND FUND FUND FUND
PERIOD (CLASS A) (CLASS B) (CLASS A) (CLASS B) (CLASS A) (CLASS B)
- ------ --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Fiscal year ended October 31,
1998....................... -2.35% -2.85% -9.35% -10.01% -47.63% -47.89%
May 31, 1994 (commencement of
operations) through October
31, 1998................... 59.05% 61.46% 25.02% 26.38% -1.38% -.53%
</TABLE>
The aggregate non-standardized returns (taking sales charges into account) for
the Class A and Class B shares of the Consumer Products and Services Fund,
stated as aggregate total returns for the periods shown, were:
<TABLE>
<CAPTION>
CONSUMER PRODUCTS CONSUMER PRODUCTS
AND AND
SERVICES FUND SERVICES FUND
PERIOD (CLASS A) (CLASS B)
------ ----------------- -----------------
<S> <C> <C>
Fiscal year ended October 31, 1998................... 3.48% 3.19%
December 30, 1994 (commencement of operations) to
October 31, 1998................................... 117.36% 120.91%
</TABLE>
Each Fund's investment results will vary from time to time depending upon
market conditions, the composition of each Fund's portfolio and operating
expenses of each Fund, so that current or past yield or total return should not
be considered representative of what an investment in each Fund may earn in any
future period. These factors and possible differences in the methods used in
calculating investment results should be considered when comparing each Fund's
investment results with those published for other investment companies and other
investment vehicles. Each Fund's results also should be considered relative to
the risks associated with such Fund's investment objective and policies.
PERFORMANCE INFORMATION
Total return and yield figures for the Funds are neither fixed nor guaranteed,
and no Fund's principal is insured. Performance quotations reflect historical
information and should not be considered representative of a Fund's performance
for any period in the future. Performance is a function of a number of factors
which can be expected to fluctuate. The Funds may provide performance
information in reports, sales literature and advertisements. The Funds may also,
from time to time, quote information about the Funds published or aired by
publications or other media entities which contain articles or segments relating
to investment results or other data about one or more of the Funds. Such
publications or media entities may include the following, among others:
Advertising Age
Barron's
Best's Review
Broker World
Business Week
Changing Times
Christian Science Monitor
Consumer Reports
Economist
EuroMoney
FACS of the Week
Financial Planning
Financial Product News
Financial World
Forbes
Fortune
Global Finance
Hartford Courant Inc.
Institutional Investor
Insurance Forum
Insurance Week
Investor's Daily
Journal of the American
Society of CLU & ChFC
Kiplinger Letter
Money
Mutual Fund Forecaster
Mutual Fund Magazine
Nation's Business
New York Times
Pension World
Pensions & Investments
Personal Investor
Financial Services Week
Philadelphia Inquirer
Smart Money
USA Today
U.S. News & World Report
Wall Street Journal
Washington Post
CNN
CNBC
PBS
64
<PAGE> 900
The Funds and AIM Distributors may from time to time, in advertisements, sales
literature and reports furnished to present or prospective shareholders, compare
each Fund with the following, or compare each Fund's performance to performance
data of similar mutual funds as published in the following, among others:
Bank Rate National Monitor Index
Bear Stearns Foreign Bond Index
Bond Buyer Index
CDA/Wiesenberger Investment Company Services
(data and mutual fund rankings and comparisons)
CNBC/Financial News Composite Index
COFI
Consumer Price Index
Datastream
Donoghue's
Dow Jones Industrial Average
EAFE Index
First Boston High Yield Index
Fitch (publications)
Ibbotson Associates International Bond Index
International Bank for Reconstruction and
Development (publications)
International Finance Corporation Emerging Markets
Database
International Financial Statistics
Lehman Bond Indices
Lipper Analytical Data Services, Inc. (data and
mutual fund rankings and comparisons)
Micropal, Inc. (data and mutual fund rankings
and comparisons)
Moody's Investors Service (publications)
Morgan Stanley Capital International All Country
(AC) World Index
Morgan Stanley Capital International World Indices
Morningstar, Inc. (data and mutual fund rankings
and comparisons)
NASDAQ
Organization for Economic Cooperation and
Development (publications)
Salomon Brothers Global Telecommunications Index
Salomon Brothers World Government Bond
Index-Non-U.S.
Salomon Brothers World Government Bond Index
Standard & Poor's (publications)
Standard & Poor's 500 Composite Stock Price Index
Stangar
Wilshire Associates
World Bank (publications and reports)
The World Bank Publication of Trends in Developing
Countries
Worldscope
Each Fund may also compare its performance to rates on Certificates of Deposit
and other fixed rate investments such as the following:
10-year Treasuries
30-year Treasuries
30-day Treasury Bills
Information relating to foreign market performance, capitalization and
diversification is based on sources believed to be reliable but may be subject
to revision and has not been independently verified by the Funds or AIM
Distributors. Advertising for the Funds may from time to time include
discussions of general economic conditions and interest rates. Advertising for
the Funds may also include reference to the use of those Funds as part of an
individual's overall retirement investment program. From time to time, sales
literature and/or advertisements for any of the Funds may disclose (i) the
largest holdings in the Fund's portfolio, (ii) certain selling group members
and/or (iii) certain institutional shareholders.
From time to time, the Funds' sales literature and/or advertisements may
discuss generic topics pertaining to the mutual fund industry. This includes,
but is not limited to, literature addressing general information about mutual
funds, variable annuities, dollar-cost averaging, stocks, bonds, money markets,
certificates of deposit, retirement, retirement plans, asset allocation,
tax-free investing, college planning, and inflation.
Although performance data may be useful to prospective investors when
comparing a Fund's performance with other funds and other potential investments,
investors should note that the methods of computing performance of other
potential investments are not necessarily comparable to the methods employed by
a Fund.
GENERAL INFORMATION ABOUT THE THEME FUNDS AND THEME PORTFOLIOS
Each Theme Portfolio may invest worldwide across industries within the
Portfolio's area of concentration without national or regional restrictions. The
ability of each Theme Portfolio to invest worldwide may allow the portfolio
managers to select industries in different economic cycles and varying stages of
development, though there is no assurance that the managers will be successful
in this selection.
65
<PAGE> 901
Each Theme Portfolio's area of concentration reflects the underlying theme of
the Portfolio. AIM Distributors believes that there are certain social,
political and economic trends that may benefit one or more industries within a
Theme Portfolio's area of concentration. Of course, there is no assurance that
any of the Funds will benefit as a result.
HEALTH CARE FUND
From time to time the Fund and AIM Distributors will quote information
including data regarding:
- Trading volume, number of listed companies and the largest companies of the
global health care industry
- Expenditures by various countries, regions and age groups on health care
- Population of countries, regions and age groups
- Natality and mortality rates in various regions, countries and age groups
- Life expectancy rates in various regions, countries and age groups
- New health care products and products seeking approval
- Health maintenance organizations (HMOs) and their enrollment growth
- Studies from, but not limited to, the American Medical Association showing
the effectiveness of using drugs to cure illness
- Medical technology and devices in use or in development
- Regulatory environment of health care industries
- Consolidation in the health care industries
The information quoted has not been independently verified by a Fund or AIM
Distributors and will be based on data provided that is believed to be reliable
and accurate from sources including the following:
- Research firms such as Mehta and Isaly which publishes Pharmaceutical
Portfolio Recommendations
- OECD and its publications such as the OECD Health Data, as supplemented
annually
- Morgan Stanley Capital International stock market industry indices such as
Health & Personal Care
- The World Bank and its publications such as The World Development Report, as
supplemented annually
- IFC and publications such as the Emerging Stock Markets Factbook
INFORMATION ABOUT THE GLOBAL HEALTH CARE INDUSTRIES
The Fund and the Sub-advisor believe that certain market and demographic
factors merit an investor's consideration when making a health care investment.
Worldwide standards of living and life expectancy have increased at a
substantial rate. The Sub-advisor expects this growth, which works to the
general benefit of the global health care industry, to continue at a roughly
comparable rate in the future, although no assurances can be given in this
regard. Moreover, according to the Sub-advisor, the health care industry
historically has proven to be a relatively non-cyclical industry that continues
to provide goods and services to the public in periods of economic weakness as
well as economic strength.
The Sub-advisor believes that the anticipated increase in the world's elderly
population could increase demand for health care products and services. For
example, according to data compiled by the Sub-advisor, in Japan the number of
people age 65 and older is expected to grow over 100% by the year 2025; in
Germany, France and the U.S., the same age group should grow 40%. Similarly, the
U.S. Census Bureau predicts the number of Americans 85 and older to double in
the next 30 years. From time to time, the Fund and AIM Distributors will quote
information including, but not limited to, international data regarding
populations, birth rates, mortality rates, life expectancy, health care
expenditures, and gross domestic product vs. life expectancy. The information
quoted has not been independently verified by the Fund or AIM Distributors and
will be based on data that is believed to be reliable and accurate.
66
<PAGE> 902
TELECOMMUNICATIONS FUND
From time to time the Fund and AIM Distributors will quote information
including data regarding:
- Increased usage of new technologies such as, but not limited to, cellular
and wireless communications in emerging and established countries around the
world
- Supply and demand of telephone equipment and services
- Regulatory environment of telecommunications industries
- Revenue, price and usage of telecommunications products and services
- Privatization and/or deregulation of telecommunications companies
The information quoted has not been independently verified by the Fund or AIM
Distributors and will be based on data provided that is believed to be reliable
and accurate from sources including the following:
- Salomon Brothers World Equity Telecommunications Index, which includes stock
market data about the telecommunications industry in established and
developing markets
- OECD and other publications from its subsidiaries such as the International
Telecommunications Union
- Morgan Stanley Capital International stock market industry indices such as
Telecommunications, Broadcasting & Publishing and Data Processing &
Reproduction
- International Technology Consultants, a Washington D.C. based firm which
publishes reports such as Eastern European & Soviet Telecom Report and Latin
American Telecom Report
- Telegeography and other publications
DEREGULATION IN THE UNITED STATES
The United States has been the bellwether for deregulation of the telephone
industry. The divestiture of the Bell System from American Telephone and
Telegraph has produced competing companies in the United States. Such U.S.
market-driven competition has, for example, led to lower costs for consumers
which in turn led to greater consumer usage and to higher industrywide revenues.
The Sub-advisor expects this scenario to continue to benefit such companies in
the U.S. and to similarly to be realized by the established telecommunications
companies in established economies, although no assurances can be made in this
regard.
CONSUMER PRODUCTS AND SERVICES FUND
From time to time the Fund and AIM Distributors will quote information
including data regarding:
- Trading volume, number of listed companies and the largest companies located
around the world in the consumer products and services industries
- Expenditures, demand and consumption by various countries, regions, income
classes and age groups of consumer products and services
- Population of countries, regions and age groups
- Life expectancy rates in various regions, countries and age groups
- New consumer products and services in the development or manufacturing
stages
- Income of various regions, countries and age groups
- Sales and sales growth of consumer products and services companies in their
own country and abroad
- Sales, supply and demand of consumer products and services
- Parent Companies and the products and services they distribute
- Regulatory environment of consumer products industries
67
<PAGE> 903
The information quoted will not be independently verified by the Fund or AIM
Distributors and will be based on data provided that is believed to be reliable
and accurate from sources including the following:
- Consumer and trade groups
- Fortune magazine and other periodicals
- The World Bank and its publications
- The International Monetary Fund (IMF) and its publications
- IFC and its publications
- OECD and its publications
INFRASTRUCTURE FUND
From time to time the Fund and AIM Distributors may quote information
including:
- Supply and demand of telephone equipment and services, electricity, water,
transportation, construction materials and other infrastructure-related
products and services
- Regulatory environment of infrastructure industries
- Quantity and costs of current and projected infrastructure projects
- Privatization of industries and companies
- New technologies, products and services used in infrastructure industries
- Infrastructure Finance Magazine and other periodicals
FINANCIAL SERVICES FUND
From time to time the Fund and AIM Distributors may quote information
including:
- Supply and demand of financial services
- Regulatory environment of financial service industries
- Credit ratings of U.S. and non-U.S. banks
- New technologies, products and services used in the financial services
industries
- Consolidation in the financial services industries
RESOURCES FUND
From time to time the Fund and AIM Distributors may quote information
including:
- Supply, demand and prices of natural resources
- Regulatory environment of natural resources
- Supply, demand and prices of products manufactured from natural resources
- New technologies, products and services used in the natural resources
industries
68
<PAGE> 904
APPENDIX
DESCRIPTION OF BOND RATINGS
Moody's Investors Service, Inc. ("Moody's") rates the debt securities issued
by various entities from "Aaa" to "C." Investment grade ratings are the first
four categories: 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 edged." 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 risk appear somewhat larger than the Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa -- Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. Ba -- Bonds which are rated Ba
are judged to have speculative elements; their future cannot be considered as
well-assured. Often the protection of interest and principal payments may be
very moderate, and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest. Ca -- Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings. C -- Bonds which are rated C are the lowest rated class of
bonds, and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"),
rates the securities debt of various entities in categories ranging from "AAA"
to "D" according to quality. Investment grade ratings are the first four
categories: AAA -- An obligation rated "AAA" has the highest rating assigned by
S&P. The obligor's capacity to meet its financial commitment on the obligation
is extremely strong. AA -- An obligation rated "AA" differs from the highest
rated obligations only in a small degree. The obligor's capacity to meet its
financial commitment on the obligation is very strong. A -- An obligation rated
"A" is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in higher rated
categories. BBB -- An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation. BB, B, CCC, CC, C -- Obligations rated "BB," "B,"
"CCC," "CC," and "C" are regarded as having significant speculative
characteristics. "BB" indicates the least degree of speculation and "C" the
highest. While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions. BB -- An obligation rated "BB" is less
vulnerable to nonpayment than other speculative issues. However, it faces major
ongoing uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation. B -- An obligation rated "B" is more
vulnerable to nonpayment than obligations rated "BB," but the obligor currently
has the capacity to meet its financial commitment on the obligation. Adverse
business, financial, or economic conditions will likely impair the obligor's
capacity or willingness to meet its financial commitment on the obligation.
CCC -- An obligation rated "CCC" is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC -- An obligation rated "CC" is currently highly vulnerable to nonpayment.
C -- The "C" rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued. D -- An obligation rated "D" is in payment default. The "D"
rating category is used when payments on an obligation are not made on the date
due even if the applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period. The "D" rating also
will be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
69
<PAGE> 905
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR: Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's employs the designation "Prime-1" to indicate commercial paper having
a superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources of
alternate liquidity. Issues rated Prime-2 have a strong ability for repayment of
senior short-term debt obligations. This normally will be evidenced by many of
the characteristics cited above but to a lesser degree. Earnings trends and
coverage ratios, while sound, may be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
S&P ratings of commercial paper are graded into several categories ranging
from "A-1" for the highest quality obligations to "D" for the lowest. Issues in
the "A" category are delineated with numbers 1, 2, and 3 to indicate the
relative degree of safety. A-1 -- This highest category indicates that the
degree of safety regarding timely payment is strong. Those issues determined to
possess extremely strong safety characteristics will be denoted with a plus sign
(+) designation. A-2 -- Capacity for timely payments on issues with this
designation is satisfactory; however, the relative degree of safety is not as
high as for issues designated "A-1."
ABSENCE OF RATING
Where no rating has been assigned or where a rating has been suspended or
withdrawn, it may be for reasons unrelated to the quality of the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies
that are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or
issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa to Caa. The modifier 1 indicates that the Company ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the Company ranks in the
lower end of its generic rating category.
70
<PAGE> 906
FINANCIAL STATEMENTS
FS
<PAGE> 907
STATEMENT OF
ADDITIONAL INFORMATION
ADVISOR CLASS SHARES OF
AIM GLOBAL THEME FUNDS:
AIM GLOBAL FINANCIAL SERVICES FUND
AIM GLOBAL INFRASTRUCTURE FUND
AIM GLOBAL RESOURCES FUND
AIM GLOBAL CONSUMER PRODUCTS AND SERVICES FUND
AIM GLOBAL HEALTH CARE FUND
AIM GLOBAL TELECOMMUNICATIONS FUND
(SERIES PORTFOLIOS OF
AIM INVESTMENT FUNDS)
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 FREE
OF CHARGE FROM AUTHORIZED DEALERS OR BY WRITING
A I M DISTRIBUTORS, INC.,
P.O. BOX 4739, HOUSTON, TEXAS 77210-4739
OR BY CALLING (800) 347-4246
---------------------
STATEMENT OF ADDITIONAL INFORMATION DATED MARCH 1, 1999 RELATING TO THE
AIM GLOBAL FINANCIAL SERVICES FUND PROSPECTUS, THE AIM GLOBAL INFRASTRUCTURE
FUND PROSPECTUS, THE AIM GLOBAL RESOURCES FUND PROSPECTUS, THE AIM GLOBAL
CONSUMER PRODUCTS AND SERVICES FUND PROSPECTUS, THE AIM GLOBAL HEALTH CARE FUND
PROSPECTUS AND THE AIM GLOBAL TELECOMMUNICATIONS FUND PROSPECTUS EACH DATED
MARCH 1, 1999
<PAGE> 908
TABLE OF CONTENTS
<TABLE>
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<S> <C>
INTRODUCTION................................................ 4
GENERAL INFORMATION ABOUT THE FUNDS......................... 4
The Trust and Its Shares.................................. 4
INVESTMENT STRATEGIES AND RISKS............................. 5
Selection of Investments and Asset Allocation............. 8
Privatizations............................................ 9
Temporary Defensive Strategies............................ 10
Investments in Other Investment Companies................. 10
Depositary Receipts....................................... 10
Warrants or Rights........................................ 11
Lending of Portfolio Securities........................... 11
Money Market Instruments.................................. 11
Commercial Bank Obligations............................... 11
Repurchase Agreements..................................... 11
Borrowing, Reverse Repurchase Agreements and "Roll"
Transactions........................................... 12
When Issued or Forward Commitment Securities.............. 12
Short Sales............................................... 13
OPTIONS, FUTURES AND CURRENCY STRATEGIES.................... 13
Introduction.............................................. 13
Special Risks of Options, Futures and Currency
Strategies............................................. 14
Writing Call Options...................................... 14
Writing Put Options....................................... 15
Purchasing Put Options.................................... 16
Purchasing Call Options................................... 16
Index Options............................................. 17
Interest Rate, Currency and Stock Index Futures
Contracts.............................................. 18
Options on Futures Contracts.............................. 20
Limitations on Use of Futures, Options on Futures and
Certain Options on Currencies.......................... 20
Forward Contracts......................................... 21
Foreign Currency Strategies -- Special Considerations..... 21
Cover..................................................... 22
RISK FACTORS................................................ 22
General................................................... 22
Consumer Products and Services Fund....................... 22
Financial Services Fund................................... 23
Health Care Fund.......................................... 23
Infrastructure Fund....................................... 23
Resources Fund............................................ 24
Telecommunications Fund................................... 24
Lower Quality Debt Securities............................. 24
Investing in Smaller Companies............................ 25
Illiquid Securities....................................... 25
Foreign Securities........................................ 26
INVESTMENT LIMITATIONS...................................... 30
Feeder Funds.............................................. 30
Health Care Fund.......................................... 31
Telecommunications Fund................................... 32
EXECUTION OF PORTFOLIO TRANSACTIONS......................... 34
Portfolio Trading and Turnover............................ 35
</TABLE>
2
<PAGE> 909
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
MANAGEMENT.................................................. 36
Trustees and Executive Officers........................... 36
Investment Management and Administration Services Relating
to the Federal Funds and the Portfolios................ 38
Investment Management and Administration Services Relating
to the Health Care Fund and Telecommunications Fund.... 38
Distribution Services Relating to Each Fund............... 39
Expenses of the Funds and of the Portfolios............... 39
NET ASSET VALUE DETERMINATION............................... 40
HOW TO PURCHASE AND REDEEM SHARES........................... 40
Backup Withholding........................................ 41
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS.................... 42
Taxation of the Funds..................................... 42
Taxation of the Theme Portfolios.......................... 42
Taxation of the Funds' Shareholders....................... 44
SHAREHOLDER INFORMATION..................................... 45
[Timing of Purchase Orders................................ 45]
[Share Certificates....................................... 45]
[Special Plans............................................ 45]
Terms and Conditions of Exchanges......................... 46
[Exchanges by Mail........................................ 47]
[Exchanges by Telephone................................... 47]
[Redemptions by Mail...................................... 48]
[Redemptions by Telephone................................. 48]
[Timing and Pricing of Redemption Orders.................. 48]
Signature Guarantees...................................... 49
Dividends and Distributions............................... 49
[Minimum Account Balance.................................. 50]
MISCELLANEOUS INFORMATION................................... 50
Charges for Certain Account Information................... 50
Custodian and Transfer Agent.............................. 50
Independent Accounts...................................... 50
Shareholder Liability..................................... 51
Names..................................................... 51
Special Servicing Agreement............................... 51
Control Persons and Principal Holders of Security......... 52
INVESTMENT RESULTS.......................................... 53
Total Return Quotations................................... 53
Performance Information................................... 56
General Information About the Theme Funds and Theme
Portfolios............................................. 57
Health Care Fund.......................................... 58
Information About the Global Health Care Industries....... 58
Telecommunications Fund................................... 59
Deregulation in the United States......................... 59
Consumer Products and Services Fund....................... 59
Infrastructure Fund....................................... 60
Financial Services Fund................................... 60
Resources Fund............................................ 60
APPENDIX.................................................... 61
Description of Bond Ratings............................... 61
Description of Commercial Paper Ratings................... 62
Absence of Rating......................................... 62
FINANCIAL STATEMENTS........................................ FS
</TABLE>
3
<PAGE> 910
INTRODUCTION
This Statement of Additional Information relates to the Advisor Class shares
of AIM Global Consumer Products and Services Fund ("Consumer Products and
Services Fund"), AIM Global Financial Services Fund ("Financial Services Fund"),
AIM Global Health Care Fund ("Health Care Fund"), AIM Global Infrastructure Fund
("Infrastructure Fund"), AIM Global Resources Fund ("Resources Fund") and AIM
Global Telecommunications Fund ("Telecommunications Fund") (each, a "Fund" or
"Theme Fund," and, collectively, the "Funds" or "Theme Funds"). Each Fund is a
diversified series of AIM Investment Funds (the "Trust"), a registered open-end
management investment company organized as a Delaware business trust. The
Consumer Products and Services Fund, Financial Services Fund, Infrastructure
Fund and Resources Fund (each, a "Feeder Fund," and, collectively, the "Feeder
Funds") invest all of their investable assets in the Global Consumer Products
and Services Portfolio, Global Financial Services Portfolio, Global
Infrastructure Portfolio and Global Resources Portfolio (each, a "Portfolio,"
and, collectively, the "Portfolios"), respectively.
A I M Advisors, Inc. ("AIM") serves as the investment manager of and
administrator for the Health Care Fund, Telecommunications Fund and the
Portfolios (each a "Theme Portfolio," and collectively the "Theme Portfolios").
AIM also serves as the administrator and sub-administrator, respectively, for
each Feeder Fund.
The Trust is a series mutual fund. The rules and regulations of the Securities
and Exchange Commission (the "SEC") require all mutual funds to furnish
prospective investors certain information concerning the activities of the fund
being considered for investment. This information for Consumer Products and
Services Fund is included in a Prospectus dated March 1, 1999, for Financial
Services Fund is included in a Prospectus dated March 1, 1999, for Health Care
Fund is included in a Prospectus dated March 1, 1999, for Infrastructure Fund is
included in a Prospectus dated March 1, 1999, for Resources Fund is included in
a Prospectus dated March 1, 1999 and for Telecommunications Fund is included in
a Prospectus dated March 1, 1999. Additional copies of the Prospectuses and this
Statement of Additional Information may be obtained without charge by writing
the principal distributor of the Funds' shares, A I M Distributors, Inc. ("AIM
Distributors"), P.O. Box 4739, Houston, TX 77210-4739 or by calling (800)
347-4246. Investors must receive a Prospectus before they invest.
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
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 FUNDS
THE TRUST AND ITS SHARES
The Trust previously operated under the name G.T. Investment Funds, Inc.,
which was organized as a Maryland corporation on October 29, 1987. The Trust was
reorganized on September 8, 1998 as a Delaware business trust, and is registered
with the SEC as a diversified open-end series management investment company. The
Trust currently consists of the following portfolios: AIM Developing Markets
Fund, AIM Emerging Markets Fund, AIM Emerging Markets Debt Fund (formerly, AIM
Global High Income Fund), AIM Global Consumer Products and Services Fund, AIM
Global Financial Services Fund, AIM Global Government Income Fund, AIM Global
Growth and Income Fund, AIM Global Health Care Fund, AIM Global Infrastructure
Fund, AIM Global Resources Fund, AIM Global Telecommunications Fund, AIM Latin
American Growth Fund and AIM Strategic Income Fund. Each of these funds has four
separate classes: Class A, Class B, Class C and Advisor Class shares. All
historical financial and other information contained in this Statement of
Additional Information for periods prior to September 8, 1998, is that of the
series of G.T. Investment Funds, Inc. (renamed AIM Investment Funds, Inc.).
This Statement of Additional Information relates solely to the Advisor Class
shares of the Funds.
The term "majority of the outstanding shares" of the Trust, of a particular
Fund or of a particular class of a Fund or of a particular Portfolio means,
respectively, the vote of the lesser of (a) 67% or more of the shares of the
Trust, such Fund or such class present at a meeting of the Trust's shareholders,
if the holders of more than 50% of the outstanding shares of the Trust, such
Fund or such class are present or represented by proxy, or (b) more than 50% of
the outstanding shares of the Trust, such Fund or such class.
4
<PAGE> 911
Unless specifically noted, the Fund's investment policies described in the
Prospectuses and in this Statement of Additional Information may be changed by
the Trust's Board of Trustees without shareholder approval. The Fund's policies
regarding concentration and lending, and the percentage of the Fund's assets
that may be committed to borrowing, are fundamental policies and may not be
changed without shareholder approval.
The approval of the Fund and of other investors in the Portfolio, if any, is
not required to change the investment objective, policies or limitations of the
Portfolio, unless otherwise specified. Written notice shall be provided to
shareholders of the Fund thirty days prior to any changes in the Portfolio's
investment objective.
If a percentage restriction on investment or utilization of assets in an
investment policy or restriction is adhered to at the time an investment is
made, a later change in percentage ownership of a security or kind of securities
resulting from changing market values or a similar type of event will not be
considered a violation of the Fund's or Portfolio's investment policies or
restrictions.
Class A, Class B and Advisor Class shares of each Fund have equal rights and
privileges. Each share of a particular class is entitled to one vote, to
participate equally in dividends and distributions declared by the Trust's Board
of Trustees with respect to the class of such Fund and, upon liquidation of the
Fund, to participate proportionately in the net assets of the Fund allocable to
such class remaining after satisfaction of 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 Prospectus and this Statement of
Additional Information. Fractional shares have proportionately the same rights,
including voting rights, as are provided for a full share.
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 trustees may elect all of the members of the Board of
Trustees of the Trust. In such event, the remaining holders cannot elect any
trustees of the Trust.
INVESTMENT STRATEGIES AND RISKS
The following discussion of investment policies supplements the discussion of
the investment objectives and policies set forth in the Prospectus under the
headings "Investment Objectives and Strategies" and "Principal Risks of
Investing in the Funds."
The investment objective of each Feeder Fund is long-term capital growth. The
investment objectives of the Health Care Fund and Telecommunications Fund are
long-term capital appreciation and long-term growth of capital, respectively.
The investment objective of a Fund may not be changed without the approval of a
majority of the outstanding voting shares of the Fund.
Each Feeder Fund seeks to achieve its investment objective by investing all of
its investable assets in a Portfolio, each of which is a subtrust (a "series")
of Global Investment Portfolio (an open-end management investment company), with
an investment objective that is identical to that of its corresponding Feeder
Fund. Whenever the phrase "all of a Fund's investable assets" is used herein and
in the Prospectus, it means that the only investment securities held by a Feeder
Fund will be its interest in its corresponding Portfolio. A Feeder Fund may
withdraw its investment in its corresponding Portfolio at any time, if the Board
of Trustees of the Trust determines that it is in the best interests of the Fund
and its shareholders to do so. A change in the Portfolio's investment objective,
policies or limitations that is not approved by the Board or the shareholders of
the Feeder Fund could require the Feeder Fund to redeem its interest in the
Portfolio. Any such redemption could result in a distribution in kind of
portfolio securities (as opposed to a cash distribution) by the Portfolio.
Should such a distribution occur, the Feeder Fund could incur brokerage fees or
other transaction costs in converting such securities to cash. In addition, a
distribution in kind could result in a less diversified portfolio of investments
for the Feeder Fund and could adversely affect its liquidity. Upon redemption,
the Board would consider what action might be taken, including the investment of
all the investable assets of the Feeder Fund in another pooled investment entity
having substantially the same investment objective as the Feeder Fund or the
retention by the Feeder Fund of its own investment advisor to manage its assets
in accordance with its investment objective, policies and limitations discussed
herein.
In addition to selling an interest therein to the Feeder Fund, the Portfolio
may sell interests therein to other non-affiliated investment companies and/or
other institutional investors. All institutional investors in the Portfolio will
pay a proportionate share of the Portfolio's expenses and will invest in the
Portfolio on the same terms and conditions. However, if another investment
company invests any or all of its assets in a Portfolio, it would not be
required to sell its shares at the same public offering price as the Feeder Fund
and may charge different sales commissions. Therefore, investors in the Feeder
Fund may experience different returns than investors in another investment
company that invests
5
<PAGE> 912
exclusively in the Portfolio. As of the date of this Prospectus, the Feeder Fund
is the only institutional investor in the Portfolio.
The Feeder Fund may be materially affected by the actions of other larger
investors, if any, in the Portfolio. For example, as with all open-end
investment companies, if a large investor were to redeem its interest in the
Portfolio, (1) the Portfolio's remaining investors could experience higher pro
rata operating expenses, thereby producing lower returns and (2) the Portfolio's
security holdings may become less diverse, resulting in increased risk.
Institutional investors in the Portfolio that have a greater pro rata ownership
interest in the Portfolio than the Feeder Fund could have effective voting
control over the operation of the Portfolio.
In addition to its primary investment policy set forth in its Prospectus, each
Theme Portfolio may invest up to 35% of its total assets in debt securities
issued by companies in the Theme Portfolio's particular industry and/or equity
and debt securities of companies outside of that industry which, in the opinion
of the Advisor, stand to benefit from developments in that industry. For each
Theme Portfolio's investment purposes, an issuer is considered to be in a
particular industry if: (i) at least 50% of either the revenues or the earnings
of the issuer was derived from activities related to that particular industry or
(ii) at least 50% of the assets was devoted to such activities, based upon the
company's most recent fiscal year.
Consumer Products and Services Fund
Examples of consumer products and services companies include those that
manufacture, market, retail, or distribute: durable goods (such as homes,
household goods, automobiles, boats, furniture and appliances, and computers);
non-durable goods (such as food and beverages and apparel); media,
entertainment, broadcasting, publishing and sports-related goods and services
(such as television and radio broadcast, motion pictures, wireless
communications, gaming casinos, theme parks, restaurants and lodging); and goods
and services to companies in the foregoing industries (such as advertisers,
textile companies and distribution and shipping companies).
The Portfolio expects that a significant portion of its assets may be invested
in the securities of U.S. issuers from time to time, particularly those that
market their products globally. However, consumer products and services
companies of a particular nation or region of the world are often operated and
owned in their local markets, close to their customers. These companies, the
Advisor believes, may offer superior opportunities for capital growth as
compared to their larger, multinational counterparts. Certain global markets may
be more attractive than others from time to time; companies dependent on U.S.
markets, for example, may be outperformed by companies not dependent on U.S.
markets.
The Advisor also believes that the demand for consumer products and services
worldwide will increase along with rising disposable incomes in both developed
and developing nations. Emerging economics, such as those in China, Southeast
Asia, Eastern Europe and Latin America, offer opportunities for the growth and
expansion of consumer markets. These regions currently comprise a growing source
of inexpensive consumer products for export and a growing source of demand for
consumer products and services as the disposable incomes of their populations
increase. In the Advisor's view, these changes are likely to create investment
opportunities in companies, both local and multinational, that are able to
employ innovative manufacturing, marketing, retailing and distribution methods
to open new markets and/or expand existing markets.
Financial Services Fund
Examples of financial services companies include commercial banks and savings
institutions and loan associations and their holding companies; consumer and
industrial finance companies; diversified financial services companies;
investment banks; insurance brokerages; securities brokerage and investment
advisory companies; real estate-related companies; leasing companies; and a
variety of firms in all segments of the insurance field such as multi-line,
property and casualty and life insurance and insurance holding companies.
The Advisor believes an accelerating rate of global economic interdependence
will lead to significant growth in the demand for financial services. In
addition, in the Advisor's view, as the industries evolve, opportunities will
emerge for those companies positioned for the future. Thus, the Advisor expects
that banking and related financial institution consolidation in the developed
countries, increased demand for retail borrowing in developing countries, a
growing need for international trade-based financing, a rising demand for
sophisticated risk management, the proliferating number of liquid securities
markets around the world, and larger concentrations of investable assets should
lead to growth in financial service companies that are positioned for the
future.
6
<PAGE> 913
Health Care Fund
Examples of health care companies include those that are substantially engaged
in the design, manufacture or sale of products or services used for or in
connection with health care or medicine. Such firms may include pharmaceutical
companies; firms that design, manufacture, sell or supply medical, dental and
optical products, hardware or services; companies involved in biotechnology,
medical diagnostic, and biochemical research and development; and companies
involved in the ownership and/or operation of health care facilities.
The Fund expects that, from time to time, a significant portion of its assets
may be invested in the securities of U.S. issuers. Health care industries,
however, are global industries with significant, growing markets outside of the
United States. A sizeable portion of the companies which comprise the health
care industries are headquartered outside of the United States, and many
important pharmaceutical and biotechnology discoveries and technological
breakthroughs have occurred outside of the United States, primarily in Japan,
the United Kingdom and Western Europe.
The Advisor believes that the global health care industries offer attractive
long-term supply/demand dynamics. While the United States, Western Europe, and
Japan presently account for a substantial portion of health care expenditures,
this should change dramatically in the coming decade if the populations of
developing countries devote an increasing percentage of income to health care.
Additionally, the Advisor believes demographics on aging point to a significant
increase in demand from the industrialized nations, as the elderly account for a
growing proportion of worldwide health care spending. Finally, in the Advisor's
view, technology will continue to expand the range of products and services
offered, with new drugs, medical devices and surgical procedures addressing
medical conditions previously considered untreatable.
In addition to these underlying trends, the United States is presently
experiencing a period of rapid and profound change in its own health care
system, marked by the rise of managed care, the formation of health care
delivery networks, and widespread consolidation across all segments of the
industry. The Advisor believes that this transition offers investment
opportunities in those companies acting as consolidators or otherwise gaining
market share at the expense of less efficient competitors.
Infrastructure Fund
Examples of infrastructure companies include those engaged in designing,
developing or providing the following products and services: electricity
production; oil, gas, and coal exploration, development, production and
distribution; water supply, including water treatment facilities; nuclear power
and other alternative energy sources; transportation, including the construction
or operation of transportation systems; steel, concrete, or similar types of
products; communications equipment and services (including equipment and
services for both data and voice transmission); mobile communications and
cellular radio/paging; emerging technologies combining telephone, television
and/or computer systems; and other products and services, which, in the
Advisor's judgment, constitute services significant to the development of a
country's infrastructure.
The Advisor believes that a country's infrastructure is one key to the
long-term success of that country's economy. The Advisor believes that adequate
energy, transportation, water, and communications systems are essential elements
for long-term economic growth. The Advisor believes that many developing
nations, especially in Asia and Latin America, plan to make significant
expenditures to the development of their infrastructure in the coming years,
which is expected to facilitate increased levels of services and manufactured
goods.
In the developed countries of North America, Europe, Japan and the Pacific
Rim, the Advisor expects that the replacement and upgrade of transportation and
communications systems should stimulate growth in the infrastructure industries
of those countries. In addition, in the Advisor's view, deregulation of
telecommunications and electric and gas utilities in many countries is promoting
significant changes in these industries.
The Advisor believes that strong economic growth in developing countries and
infrastructure replacement, upgrade, and deregulation in more developed
countries provide an environment for favorable investment opportunities in
infrastructure companies worldwide. In addition, the long-term growth rates of
certain foreign countries' economies may be substantially higher than the
long-term growth rate of the U.S. economy. An integral aspect of certain foreign
countries' economies may be the development or improvement of their
infrastructure.
Resources Fund
Examples of natural resource companies include those which own, explore or
develop: energy sources (such as oil, gas and coal); ferrous and non-ferrous
metals (such as iron, aluminum, copper, nickel, zinc and lead), strategic metals
(such
7
<PAGE> 914
as uranium and titanium) and precious metals (such as gold, silver and
platinum); chemicals; forest products (such as timber, coated and uncoated tree
sheet, pulp and newsprint); other basic commodities (such as foodstuffs);
refined products (such as chemicals and steel) and service companies that sell
to these producers and refiners; and other products and services, which, in the
Advisor's opinion are significant to the ownership and development of natural
resources and other basic commodities.
The Advisor believes that the liberalization of formerly socialist economies
will bring about dramatic changes in both the supply and demand for natural
resources. In addition, rapid industrialization in developing countries of Asia
and Latin America is generating new demands for industrial materials that are
affecting world commodities markets. The Advisor believes these changes are
likely to create investment opportunities that benefit from new sources of
supply and/or from changes in commodities prices.
The Advisor also believes that investments in natural resource industries
offer an opportunity to protect wealth against the capital-eroding effects of
inflation. During periods of accelerating inflation or currency uncertainty,
worldwide investment demand for natural resources, particularly precious metals,
tends to increase, and during periods of disinflation or currency stability, it
tends to decrease. The Advisor believes that rising commodity prices and
increasing worldwide industrial production may favorably affect share prices of
natural resource companies, and investments in such companies can offer
excellent opportunities to offset the effects of inflation.
Telecommunications Fund
Telecommunications companies cover a variety of sectors, ranging from
companies concentrating on established technologies to those primarily engaged
in emerging or developing technologies. The characteristics of companies
focusing on the same technology will vary among countries depending upon the
extent to which the technology is established in the particular country. The
Advisor will allocate Telecommunications Fund's investments among these sectors
depending upon its assessment of their relative long-term growth potential.
Examples of telecommunications companies include those engaged in designing,
developing or providing the following products and services: communications
equipment and services (including equipment and services for both data and voice
transmission); electronic components and equipment; broadcasting (including
television and radio, satellite, microwave and cable television and
narrowcasting); computer equipment, mobile communications and cellular
radio/paging; electronic mail; local and wide area networking and linkage of
word and data processing systems; publishing and information systems; videotext
and teletext; and emerging technologies combining telephone, television and/or
computer systems.
The Advisor believes that there are opportunities for continued growth in
demand for components, products, media and systems to collect, store, retrieve,
transmit, process, distribute, record, reproduce and use information. The
pervasive societal impact of communications and information technologies has
been accelerated by the lower costs and higher efficiencies that result from the
blending of computers with telecommunications systems. Accordingly, companies
engaged in the production of methods for using electronic and, potentially,
video technology to communicate information are expected to be important in the
Fund's portfolio. Older technologies, such as photography and print also may be
represented, however.
In addition, each Theme Portfolio's investment purposes, an issuer is
typically considered as located in a particular country if it (a) is organized
under the laws of or has its principal office in a particular country, or (b)
normally derives 50% or more of its total revenues from business in that
country, provided that, in the Advisor's view, the value of such issuer's
securities will tend to reflect such country's development to a greater extent
than developments elsewhere. However, these are not absolute requirements, and
certain companies incorporated in a particular country and considered by the
Sub-advisor to be located in that country may have substantial foreign
operations or subsidiaries and/or export sales exceeding in size the assets or
sales in that country.
SELECTION OF INVESTMENTS AND ASSET ALLOCATION
Each Theme Portfolio expects that, from time to time, a significant portion of
its assets may be invested in the securities of domestic issuers. The industry
represented in each Theme Portfolio, however, is a global industry with
significant, growing markets outside of the United States. A sizeable proportion
of the companies which comprise the infrastructure industries are headquartered
outside of the United States.
For these reasons, the Sub-advisor believes that a portfolio composed only of
securities of U.S. issuers does not provide the greatest potential for return
from an investment by a Theme Portfolio. The Sub-advisor uses its financial
expertise in markets located throughout the world and the substantial global
resources of AMVESCAP PLC in attempting to identify
8
<PAGE> 915
those countries and companies then providing the greatest potential for
long-term capital appreciation. In this fashion, the Sub-advisor seeks to enable
shareholders to capitalize on the substantial investment opportunities and the
potential for long-term growth of capital presented by the industry represented
in each Theme Portfolio.
The Sub-advisor allocates each Theme Portfolio's assets among securities of
countries and in currency denominations where opportunities for meeting the
Theme Portfolio's investment objective are expected to be the most attractive.
Each Theme Portfolio may invest substantially in securities denominated in one
or more currencies. Under normal conditions, each Theme Portfolio invests in the
securities of issuers located in at least three countries, including the United
States; investments in securities of issuers in any one country, other than the
United States, will represent no more than 40% of the Financial Services
Portfolio's and the Telecommunications Fund's total assets, no more than 50% of
each Theme Portfolio's total assets.
In analyzing specific companies for possible investment, the Sub-advisor
ordinarily looks for several of the following characteristics: above-average per
share earnings growth; high return on invested capital; a healthy balance sheet;
sound financial and accounting policies and overall financial strength; strong
competitive advantages; effective research and product development and
marketing; development of new technologies; efficient service; pricing
flexibility; strong management; and general operating characteristics that will
enable the companies to compete successfully in their respective markets.
With respect to the Resources Portfolio, the Advisor has identified four areas
that it expects will create investment opportunities: (i) improving
supply/demand fundamentals, which may result in higher commodity prices; (ii)
privatization of state-owned natural resource businesses; (iii) management which
can improve production efficiencies without correspondingly increasing commodity
prices; and (iv) service companies with emerging technologies that can enhance
productivity or reduce production costs. Of course, there is no certainty that
these factors will produce the anticipated results.
With respect to the Telecommunications Fund, the Advisor has identified four
areas that it expects will create investment opportunities: (i) deregulation of
companies in the industry, which will allow competition to promote greater
efficiencies; (ii) privatization of state-owned telecommunications businesses;
(iii) development of infrastructure in underdeveloped countries and upgrading of
services in other countries; and (iv) emerging technologies that will enhance
productivity and reduce costs in the telecommunications industry. Of course,
there is no certainty that these factors will produce the anticipated results.
There may be times when, in the opinion of the Advisor, prevailing market,
economic or political conditions warrant reducing the proportion of the Theme
Portfolios' assets invested in equity securities and increasing the proportion
held in cash (U.S. dollars, foreign currencies or multinational currency units)
or invested in debt securities or high quality money market instruments issued
by corporations, or the U.S., or a foreign government. A portion of each Theme
Portfolio's assets normally will be held in cash (U.S. dollars, foreign
currencies or multinational currency units) or invested in foreign or domestic
high quality money market instruments pending investment of proceeds from new
sales of Fund shares to provide for ongoing expenses and to satisfy redemptions.
In certain countries, governmental restrictions and other limitations on
investment may affect a Theme Portfolio's ability to invest in such countries.
In addition, in some instances only special classes of securities may be
purchased by foreigners and the market prices, liquidity and rights with respect
to those securities may vary from shares owned by nationals. The Advisor is not
aware at this time of the existence of any investment or exchange control
regulations which might substantially impair the operations of the Theme
Portfolios as described in the Prospectus and this Statement of Additional
Information. Restrictions may in the future, however, make it undesirable to
invest in certain countries. None of the Theme Portfolios has a present
intention of making any significant investment in any country or stock market in
which the Sub-advisor considers the political or economic situation to threaten
a Theme Portfolio with substantial or total loss of its investment in such
country or market.
PRIVATIZATIONS
The governments of some foreign countries have been engaged in selling part or
all of their stakes in government-owned or controlled enterprises
("privatizations"). The Advisor believes that privatizations may offer
opportunities for significant capital appreciation and intends to invest assets
of the Theme Portfolios in privatizations in appropriate circumstances. In
certain foreign countries, the ability of foreign entities such as the Theme
Portfolios to participate may be limited by local law, or by the terms on which
a Theme Portfolio may be permitted to participate may be less advantageous than
those for local investors. There can be no assurance that foreign governments
will continue to sell companies currently owned or controlled by them or that
privatization programs will be successful.
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TEMPORARY DEFENSIVE STRATEGIES
In the interest of preserving shareholders' capital, the Advisor may employ a
temporary defensive investment strategy if it determines such a strategy to be
warranted due to market, economic or political conditions. Under a defensive
strategy, each Theme Portfolio may invest up to 100% of its total assets in cash
(U.S. dollars, foreign currencies or multinational currency units such as euros)
and/or high quality debt securities or money market instruments of U.S. or
foreign issuers. In addition, for temporary defensive purposes, most or all of a
Theme Portfolio's investments may be made in the United States and denominated
in U.S. dollars. To the extent a Theme Portfolio adopts a temporary defensive
posture, it will not be invested so as to achieve directly its investment
objective. In addition, pending investment of proceeds from new sales of Fund
shares or to meet its ordinary daily cash needs, the Theme Portfolio may hold
cash (U.S. dollars, foreign currencies or multinational currency units) and may
invest in foreign or domestic high quality money market instruments. For a full
description of money market instruments, see "Money Market Instruments" herein.
INVESTMENTS IN OTHER INVESTMENT COMPANIES
Each Theme Portfolio may invest in the securities of investment companies
(including investment vehicles or companies advised by the Advisor or its
affiliates ("Affiliated Funds")) within the limits of the Investment Company Act
of 1940, as amended (the "1940 Act"). These limitations currently provide that,
in general, a Theme Portfolio may purchase shares of an investment company
unless (a) such a purchase would cause a Theme Portfolio to own in the aggregate
more than 3% of the total outstanding voting stock of the investment company or
(b) such a purchase would cause the Theme Portfolio to have more than 5% of its
assets invested in the investment company or more than 10% of its assets
invested in an aggregate of all such investment companies. The foregoing
restrictions do not apply to the investment of the Financial Services Fund,
Infrastructure Fund, Resources Fund and Consumer Products and Services Fund in
their corresponding Portfolios. Investment in closed-end investment companies
may involve the payment of substantial premiums above the value of such
companies' portfolio securities. Each Theme Portfolio does not intend to invest
in such investment companies unless, in the judgment of the Advisor, the
potential benefits of such investments justify the payment of any applicable
premiums. The return on such securities will be reduced by operating expenses of
such companies, including payments to the investment managers of those
investment companies. With respect to investments in Affiliated Funds, the
Advisor waives its advisory fee to the extent that such fees are based on assets
of a Theme Portfolio invested in Affiliated Funds.
DEPOSITARY RECEIPTS
A Theme Portfolio may hold securities of foreign issuers in the form of
American Depositary Receipts ("ADRs"), American Depositary Shares ("ADSs"),
Global Depositary Receipts ("GDRs") and European Depositary Receipts ("EDRs") or
other securities convertible into securities of eligible foreign issuers. These
securities may not necessarily be denominated in the same currency as the
securities for which they may be exchanged. ADRs and ADSs are typically issued
by an American bank or trust company and evidence ownership of underlying
securities issued by a foreign corporation. EDRs, which are sometimes referred
to as Continental Depositary Receipts ("CDRs"), are issued in Europe typically
by foreign banks and trust companies and evidence ownership of either foreign or
domestic securities. GDRs are similar to EDRs and are designed for use in
several international financial markets. Generally, ADRs and ADSs in registered
form are designed for use in U.S. securities markets and EDRs in bearer form are
designed for use in European securities markets. For purposes of each Theme
Portfolio's investment policies, a Theme Portfolio's investments in ADRs, ADSs,
GDRs and EDRs will be deemed to be investments in the equity securities
representing securities of foreign issuers into which they may be converted.
ADR facilities may be established as either "unsponsored" or "sponsored."
While ADRs issued under these two types of facilities are in some respects
similar, there are distinctions between them relating to the rights and
obligations of ADR holders and the practices of market participants. A
depository may establish an unsponsored facility without participation by (or
even necessarily the acquiescence of) the issuer of the deposited securities,
although typically the depository requests a letter of non-objection from such
issuer prior to the establishment of the facility. Holders of unsponsored ADRs
generally bear all the costs of such facilities. The depository usually charges
fees upon the deposit and withdrawal of the deposited securities, the conversion
of dividends into U.S. dollars, the disposition of non-cash distributions, and
the performance of other services. The depository of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited securities or to pass-through voting
rights to ADR holders in respect of the deposited securities. Sponsored ADR
facilities are created in generally the same manner as unsponsored facilities,
except that the issuer of the deposited securities enters into a deposit
agreement with the depository. The deposit agreement sets out the rights and
responsibilities of the issuer, the depository and the ADR holders. With
sponsored facilities, the issuer of the deposited securities generally will bear
some of the costs relating to
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the facility (such as dividend payment fees of the depository), although ADR
holders continue to bear certain other costs (such as deposit and withdrawal
fees). Under the terms of most sponsored arrangements, depositories agree to
distribute notices of shareholder meetings and voting instructions, and to
provide shareholder communications and other information to the ADR holders at
the request of the issuer of the deposited securities. The Theme Portfolios may
invest in both sponsored and unsponsored ADRs.
WARRANTS OR RIGHTS
Warrants or rights may be acquired by a Theme Portfolio in connection with
other securities or separately and provide the Theme Portfolio with the right to
purchase at a later date other securities of the issuer. Warrants are securities
permitting, but not obligating, their holder to subscribe for other securities
or commodities. Warrants do not carry with them the right to dividends or voting
rights with respect to the securities that they entitle their holder to
purchase, and they do not represent any rights in the assets of the issuer. As a
result, warrants may be considered more speculative than certain other types of
investments. In addition, the value of a warrant does not necessarily change
with the value of the underlying securities and a warrant ceases to have value
if it is not exercised prior to its expiration date.
LENDING OF PORTFOLIO SECURITIES
For the purpose of realizing additional income, each Theme Portfolio may make
secured loans of its securities holdings amounting to not more than 30% of its
total assets. Securities loans are made to broker/dealers or institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral consisting of cash, U.S. government securities, or certain
other irrevocable letters of credit at least equal at all times to the value of
the securities lent plus any accrued interest, "marked to market" on a daily
basis. The Theme Portfolios may pay reasonable administrative and custodial fees
in connection with the loans of their securities. While the securities loan is
outstanding, a Theme Portfolio will continue to receive the equivalent of the
interest or dividends paid by the issuer on the securities, as well as interest
on the investment of the collateral or a fee from the borrower. A Theme
Portfolio will have a right to call each loan and obtain the securities within
the stated settlement period. A Theme Portfolio will not have the right to vote
equity securities while they are being lent, but it may call in a loan in
anticipation of any important vote. The risks in lending portfolio securities,
as with other extensions of secured credit, consist of possible delays in
receiving additional collateral or in recovery of the securities and possible
loss of rights in the collateral should the borrower fail financially. Loans
will only be made to firms deemed by the Advisor to be of good standing and will
not be made unless, in the judgment of the Advisor, the consideration to be
earned from such loans would justify the risk.
MONEY MARKET INSTRUMENTS
Money market instruments in which the Theme Portfolios may invest include U.S.
government securities, high-grade commercial paper, bank certificates of
deposit, bankers' acceptances and repurchase agreements related to any of the
foregoing. "High-grade commercial paper" refers to commercial paper rated A-1 by
Standard & Poor's, a division of The McGraw-Hill Companies, Inc., or P-1 by
Moody's Investors Services, Inc. or, if not rated, determined by the Advisor to
be of comparable quality.
COMMERCIAL BANK OBLIGATIONS
For the purposes of each Theme Portfolio's investment policies with respect to
bank obligations, obligations of foreign branches of U.S. banks and of foreign
banks are obligations of the issuing bank and may be general obligations of the
parent bank. Such obligations may, however, be limited by the terms of a
specific obligation and by government regulation. As with investments in
non-U.S. securities in general, investments in the obligations of foreign
branches of U.S. banks and of foreign banks may subject each Theme Portfolio to
investment risks that are different in some respects from those of investments
in obligations of U.S. issuers. Although each Theme Portfolio will typically
acquire obligations issued and supported by the credit of U.S. or foreign banks
having total assets at the time of purchase of $1 billion or more, this $1
billion figure is not an investment policy or restriction of each Theme
Portfolio. For the purposes of calculation with respect to the $1 billion
figure, the assets of a bank will be deemed to include the assets of its U.S.
and non-U.S. branches.
REPURCHASE AGREEMENTS
A repurchase agreement is a transaction in which a Theme Portfolio purchases a
security from a bank or recognized securities dealer and simultaneously commits
to resell that security to the bank or dealer at an agreed upon price, date, and
market rate of interest unrelated to the coupon rate or maturity of the
purchased security. Although repurchase agreements carry certain risks not
associated with direct investments in securities, including possible decline in
the market
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value of the underlying securities and delays and costs to the Theme Portfolio
if the other party to the repurchase agreement becomes bankrupt, the Theme
Portfolios intend to enter into repurchase agreements only with banks and
dealers believed by the Advisor to present minimal credit risks in accordance
with guidelines established by the Trust's or the Portfolios' Board of Trustees,
as applicable. The Advisor will review and monitor the creditworthiness of such
institutions under the applicable Board's general supervision.
Each Theme Portfolio will invest only in repurchase agreements collateralized
at all times in an amount at least equal to the repurchase price plus accrued
interest. To the extent that the proceeds from any sale of such collateral upon
a default in the obligation to repurchase were less than the repurchase price, a
Theme Portfolio would suffer a loss. If the financial institution which is party
to the repurchase agreement petitions for bankruptcy or otherwise becomes
subject to bankruptcy or other liquidation proceedings, there may be
restrictions on a Theme Portfolio's ability to sell the collateral and a Theme
Portfolio could suffer a loss. However, with respect to financial institutions
whose bankruptcy or liquidation proceedings are subject to the U.S. Bankruptcy
Code, each Theme Portfolio intends to comply with provisions under such Code
that would allow the immediate resale of such collateral. Each Theme Portfolio
will not enter into a repurchase agreement with a maturity of more than seven
days if, as a result, more than 15% of the value of its net assets (except for
Health Care Fund, more than 10% of the value of its total assets) would be
invested in such repurchase agreements and other illiquid investments.
BORROWING, REVERSE REPURCHASE AGREEMENTS AND "ROLL" TRANSACTIONS
Each Theme Portfolio may borrow from banks or may borrow through reverse
repurchase agreements and "roll" transactions in connection with meeting
requests for the redemptions of the Funds' shares. Each Theme Portfolio's
borrowings will not exceed 33 1/3% of its total assets, i.e., the Theme
Portfolio's total assets at all times will equal at least 300% of the amount of
outstanding borrowings. If market fluctuations in the value of a Theme
Portfolio's securities holdings or other factors cause the ratio of a Theme
Portfolio's total assets to outstanding borrowings to fall below 300%, within
three days (excluding Sundays and holidays) of such event that Theme Portfolio
may be required to sell portfolio securities to restore the 300% asset coverage,
even though from an investment standpoint such sales might be disadvantageous.
Each Theme Portfolio may also borrow up to 5% of its total assets for temporary
or emergency purposes other than to meet redemptions. However, no additional
investments will be made if a Theme Portfolio's borrowings exceed 5% of its
total assets. Any borrowing by a Theme Portfolio may cause greater fluctuation
in the value of its shares than would be the case if that Theme Portfolio did
not borrow.
Each Theme Portfolio's fundamental investment limitations permit the Theme
Portfolio to borrow money for leveraging purposes. However, each Theme Portfolio
(except the Health Care Fund) is currently prohibited, pursuant to a non-
fundamental investment policy, from borrowing money in order to purchase
securities. Nevertheless, this policy may be changed in the future by the
Trust's or the Portfolios' Board of Trustees, as applicable. If a Theme
Portfolio employs leverage in the future, it would be subject to certain
additional risks. Use of leverage creates an opportunity for greater growth of
capital but would exaggerate any increases or decreases in the net asset value
of the Financial Services Fund, Infrastructure Fund, Resources Fund, Consumer
Products and Services Fund or a Theme Portfolio. When the income and gains on
securities purchased with the proceeds of borrowings exceed the costs of such
borrowings, a Theme Portfolio's earnings or a Fund's net asset value will
increase faster than otherwise would be the case; conversely, if such income and
gains fail to exceed such costs, a Theme Portfolio's earnings or a Fund's net
asset value would decline faster than would otherwise be the case.
Each Theme Portfolio may enter into reverse repurchase agreements. A reverse
repurchase agreement is a borrowing transaction in which the Portfolio transfers
possession of a security to another party, such as a bank or broker/dealer, in
return for cash, and agrees to repurchase the security in the future at an
agreed upon price, which includes an interest component. Each Theme Portfolio
may also engage in "roll" borrowing transactions, which involve the sale of
Government National Mortgage Association certificates or other securities
together with a commitment (for which the Theme Portfolio may receive a fee) to
purchase similar, but not identical, securities at a future date. Each Theme
Portfolio will segregate with a custodian liquid assets in an amount sufficient
to cover its obligations under "roll" transactions and reverse repurchase
agreements with broker/dealers. No segregation is required for reverse
repurchase agreements with banks.
WHEN ISSUED OR FORWARD COMMITMENT SECURITIES
Each Theme Portfolio may purchase debt securities on a "when-issued" basis and
may purchase or sell such securities on a "forward commitment" basis in order to
hedge against anticipated changes in interest rates and prices. The price, which
is generally expressed in yield terms, is fixed at the time that the commitment
is made, but delivery and payment for the securities take place at a later date.
When-issued securities and forward commitments may be sold prior to the
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settlement date, but a Theme Portfolio will purchase or sell when-issued
securities or enter into forward commitments only with the intention of actually
receiving or delivering the securities, as the case may be. No income accrues on
securities that have been purchased pursuant to a forward commitment or on a
when-issued basis prior to delivery to the Theme Portfolio. If a Theme Portfolio
disposes of the right to acquire a when-issued security prior to its acquisition
or disposes of its right to deliver or receive against a forward commitment, it
may incur a gain or loss. At the time that a Theme Portfolio enters into a
transaction on a when-issued or forward commitment basis, the Theme Portfolio
will segregate cash or liquid securities equal to the value of the when-issued
or forward commitment securities with its custodian and will mark to market
daily such assets. There is a risk that the securities may not be delivered and
that the Theme Portfolio may incur a loss.
SHORT SALES
Each Theme Portfolio may make short sales of securities. A short sale is a
transaction in which a Theme Portfolio sells a security in anticipation that the
market price of that security will decline. A Theme Portfolio may make short
sales (i) as a form of hedging to offset potential declines in long positions in
securities it owns, or anticipates acquiring, or in similar securities, and (ii)
in order to maintain flexibility in its securities holdings.
When a Theme Portfolio makes a short sale of a security it does not own, it
must borrow the security sold short and deliver it to the broker/dealer or other
intermediary through which it made the short sale. The Theme Portfolio may have
to pay a fee to borrow particular securities and will often be obligated to pay
over any payments received on such borrowed securities.
A Theme Portfolio's obligation to replace the borrowed security when the
borrowing is called or expires will be secured by collateral deposited with the
intermediary. The Theme Portfolio will also be required to deposit collateral
with its custodian to the extent, if any, necessary so that the value of both
collateral deposits in the aggregate is at all times equal to at least 100% of
the current market value of the security sold short. Depending on arrangements
made with the intermediary from which it borrowed the security regarding payment
of any amounts received by that Theme Portfolio on such security, a Theme
Portfolio may not receive any payments (including interest) on its collateral
deposited with such intermediary.
If the price of the security sold short increases between the time of the
short sale and the time a Theme Portfolio replaces the borrowed security, that
Theme Portfolio will incur a loss; conversely, if the price declines, the Theme
Portfolio will realize a gain. Any gain will be decreased, and any loss
increased, by the transaction costs associated with the transaction. Although a
Theme Portfolio's gain is limited by the price at which it sold the security
short, its potential loss theoretically is unlimited.
No Theme Portfolio will make a short sale if, after giving effect to such
sale, the market value of the securities sold short exceeds 25% of the value of
its total assets or the Theme Portfolio's aggregate short sales of the
securities of any one issuer exceed the lesser of 2% of the Theme Portfolio's
net assets or 2% of the securities of any class of the issuer. Moreover, a Theme
Portfolio may engage in short sales only with respect to securities listed on a
national securities exchange. A Theme Portfolio may make short sales "against
the box" without respect to such limitations. In this type of short sale, at the
time of the sale the Theme Portfolio owns the security it has sold short or has
the immediate and unconditional right to acquire at no additional cost the
identical security.
OPTIONS, FUTURES AND CURRENCY STRATEGIES
INTRODUCTION
Each Theme Portfolio may use forward currency contracts, futures contracts,
options on securities, options on indices, options on currencies, and options on
futures contracts to attempt to hedge against the overall level of investment
and currency risk normally associated with Theme Portfolio investments. These
instruments are often referred to as "derivatives," which may be defined as
financial instruments whose performance is derived, at least in part, from the
performance of another asset (such as a security, currency or an index of
securities). Each Theme Portfolio may invest in such instruments up to the full
value of its portfolio assets.
To attempt to hedge against adverse movements in exchange rates between
currencies, each Theme Portfolio may enter into forward currency contracts for
the purchase or sale of a specified currency at a specified future date. Such
contracts may involve the purchase or sale of a foreign currency against the
U.S. dollar or may involve two foreign currencies. A Theme Portfolio may enter
into forward currency contracts either with respect to specific transactions or
with respect to
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its portfolio positions. A Theme Portfolio also may purchase and sell put and
call options on currencies, futures contracts on currencies and options on such
futures contracts to hedge against movements in exchange rates.
In addition, each Theme Portfolio may purchase and sell put and call options
on equity and debt securities to hedge against the risk of fluctuations in the
prices of securities held by a Theme Portfolio or that the Advisor intends to
include in a Theme Portfolio's holdings. Each Theme Portfolio also may purchase
and sell put and call options on stock indexes to hedge against overall
fluctuations in the securities markets generally or in a specific market sector.
Further, each Theme Portfolio may sell stock index futures contracts and may
purchase put options or write call options on such futures contracts to protect
against a general stock market decline or a decline in a specific market sector
that could adversely affect the Portfolio's holdings. Each Theme Portfolio also
may purchase stock index futures contracts and purchase call options or write
put options on such contracts to hedge against a general stock market or market
sector advance and thereby attempt to lessen the cost of future securities
acquisitions. Each Theme Portfolio may use interest rate futures contracts and
options thereon to hedge the debt portion of its portfolio against changes in
the general level of interest rates.
SPECIAL RISKS OF OPTIONS, FUTURES AND CURRENCY STRATEGIES
The use of options, futures contracts and forward currency contracts ("Forward
Contracts") involves special considerations and risks, as described below. Risks
pertaining to particular instruments are described in the sections that follow.
(1) Successful use of most of these instruments depends upon the
Advisor's ability to predict movements of the overall securities and
currency markets, which requires different skills than predicting changes
in the prices of individual securities. While the Advisor is experienced in
the use of these instruments, there can be no assurance that any particular
strategy adopted will succeed.
(2) There might be imperfect correlation, or even no correlation,
between price movements of an instrument and price movements of the
investments being hedged. For example, if the value of an instrument used
in a short hedge increased by less than the decline in value of the hedged
investment, the hedge would not be fully successful. Such a lack of
correlation might occur due to factors unrelated to the value of the
investments being hedged, such as speculative or other pressures on the
markets in which the hedging instrument is traded. The effectiveness of
hedges using hedging instruments on indices will depend on the degree of
correlation between price movements in the index and price movements in the
investments being hedged.
(3) Hedging strategies, if successful, can reduce risk of loss by
wholly or partially offsetting the negative effect of unfavorable price
movements in the investments being hedged. However, hedging strategies can
also reduce opportunity for gain by offsetting the positive effect of
favorable price movements in the hedged investments. For example, if a
Theme Portfolio entered into a short hedge because the Advisor projected a
decline in the price of a security in the Theme Portfolio's portfolio, and
the price of that security increased instead, the gain from that increase
might be wholly or partially offset by a decline in the price of the
hedging instrument. Moreover, if the price of the hedging instrument
declined by more than the increase in the price of the security, the Theme
Portfolio could suffer a loss. In either such case, the Theme Portfolio
would have been in a better position had it not hedged at all.
(4) As described below, the Theme Portfolio might be required to
maintain assets as "cover," maintain segregated accounts or make margin
payments when it takes positions in instruments involving obligations to
third parties (i.e., instruments other than purchased options). If the
Theme Portfolio were unable to close out its positions in such instruments,
it might be required to continue to maintain such assets or accounts or
make such payments until the position expired or matured. The requirements
might impair the Theme Portfolio's ability to sell a portfolio security or
make an investment at a time when it would otherwise be favorable to do so,
or require that the Theme Portfolio sell a portfolio security at a
disadvantageous time. The Theme Portfolio's ability to close out a position
in an instrument prior to expiration or maturity depends on the existence
of a liquid secondary market or, in the absence of such a market, the
ability and willingness of the other party to the transaction ("contra
party") to enter into a transaction closing out the position. Therefore,
there is no assurance that any position can be closed out at a time and
price that is favorable to the Theme Portfolio.
WRITING CALL OPTIONS
Each Theme Portfolio may write (sell) call options on securities, indices and
currencies. Call options generally will be written on securities and currencies
that, in the opinion of the Advisor are not expected to make any major price
moves in the near future but that, over the long term, are deemed to be
attractive investments for the Theme Portfolios.
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A call option gives the holder (buyer) the right to purchase a security or
currency at a specified price (the exercise price) at any time until (American
style) or on (European style) a certain date (the expiration date). So long as
the obligation of the writer of a call option continues, he or she may be
assigned an exercise notice, requiring him or her to deliver the underlying
security or currency against payment of the exercise price. This obligation
terminates upon the expiration of the call option, or such earlier time at which
the writer effects a closing purchase transaction by purchasing an option
identical to that previously sold.
Portfolio securities or currencies on which call options may be written will
be purchased solely on the basis of investment considerations consistent with
each Theme Portfolio's investment objective. When writing a call option, a Theme
Portfolio, in return for the premium, gives up the opportunity for profit from a
price increase in the underlying security or currency above the exercise price,
and retains the risk of loss should the price of the security or currency
decline. Unlike one who owns securities or currencies not subject to an option,
a Theme Portfolio has no control over when it may be required to sell the
underlying securities or currencies, since most options may be exercised at any
time prior to the option's expiration. If a call option that a Theme Portfolio
has written expires, the Theme Portfolio will realize a gain in the amount of
the premium; however, such gain may be offset by a decline in the market value
of the underlying security or currency during the option period. If the call
option is exercised, the Theme Portfolio will realize a gain or loss from the
sale of the underlying security or currency, which will be increased or offset
by the premium received. Each Theme Portfolio does not consider a security or
currency covered by a call option to be "pledged" as that term is used in that
Theme Portfolio's policy that limits the pledging or mortgaging of its assets.
Writing call options can serve as a limited short hedge because declines in
the value of the hedged investment would be offset to the extent of the premium
received for writing the option. However, if the security or currency
appreciates to a price higher than the exercise price of the call option, it can
be expected that the option will be exercised and a Theme Portfolio will be
obligated to sell the security or currency at less than its market value.
The premium that a Theme Portfolio receives for writing a call option is
deemed to constitute the market value of an option. The premium the Theme
Portfolio will receive from writing a call option will reflect, among other
things, the current market price of the underlying investment, the relationship
of the exercise price to such market price, the historical price volatility of
the underlying investment, and the length of the option period. In determining
whether a particular call option should be written, the Advisor will consider
the reasonableness of the anticipated premium and the likelihood that a liquid
secondary market will exist for those options.
Closing transactions will be effected in order to realize a profit on an
outstanding call option, to prevent an underlying security or currency from
being called, or to permit the sale of the underlying security or currency.
Furthermore, effecting a closing transaction will permit a Theme Portfolio to
write another call option on the underlying security or currency with either a
different exercise price or expiration date, or both.
Each Theme Portfolio will pay transaction costs in connection with the writing
of options and in entering into closing purchase contracts. Transaction costs
relating to options activity are normally higher than those applicable to
purchases and sales of portfolio securities.
The exercise price of the options may be below, equal to or above the current
market values of the underlying securities, indices or currencies at the time
the options are written. From time to time, a Theme Portfolio may purchase an
underlying security or currency for delivery in accordance with the exercise of
an option, rather than delivering such security or currency from its portfolio.
In such cases, additional costs will be incurred.
A Theme Portfolio will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more, respectively, than
the premium received from writing the option. Because increases in the market
price of a call option generally will reflect increases in the market price of
the underlying security or currency, any loss resulting from the repurchase of a
call option is likely to be offset in whole or in part by appreciation of the
underlying security or currency owned by a Theme Portfolio.
WRITING PUT OPTIONS
Each Theme Portfolio may write put options on securities, indices and
currencies. A put option gives the purchaser of the option the right to sell,
and the writer (seller) the obligation to buy, the underlying security or
currency at the exercise price at any time until (American style) or on
(European style) the expiration date. The operation of put options in other
respects, including their related risks and rewards, is substantially identical
to that of call options.
A Theme Portfolio generally would write put options in circumstances where the
Sub-advisor wishes to purchase the underlying security or currency for a Theme
Portfolio's holdings at a price lower than the current market price of the
security or currency. In such event, a Theme Portfolio would write a put option
at an exercise price that, reduced by the
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premium received on the option, reflects the lower price it is willing to pay.
Since the Theme Portfolio would also receive interest on debt securities or
currencies maintained to cover the exercise price of the option, this technique
could be used to enhance current return during periods of market uncertainty.
The risk in such a transaction would be that the market price of the underlying
security or currency would decline below the exercise price less the premium
received.
Writing put options can serve as a limited long hedge because increases in the
value of the hedged investment would be offset to the extent of the premium
received for writing the option. However, if the security or currency
depreciates to a price lower than the exercise price of the put option, it can
be expected that the put option will be exercised and a Theme Portfolio will be
obligated to purchase the security or currency at greater than its market value.
PURCHASING PUT OPTIONS
Each Theme Portfolio may purchase put options on securities, indices and
currencies. As the holder of a put option, a Theme Portfolio would have the
right to sell the underlying security or currency at the exercise price at any
time until (American style) or on (European style) the expiration date. A Theme
Portfolio may enter into closing sale transactions with respect to such options,
exercise such option or permit such option to expire.
Each Theme Portfolio may purchase a put option on an underlying security or
currency ("protective put") owned by the Theme Portfolio in order to protect
against an anticipated decline in the value of the security or currency. Such
hedge protection is provided only during the life of the put option when the
Theme Portfolio, as the holder of the put option, is able to sell the underlying
security or currency at the put exercise price regardless of any decline in the
underlying security's market price or currency's exchange value. The premium
paid for the put option and any transaction costs would reduce any profit
otherwise available for distribution when the security or currency is eventually
sold.
A Theme Portfolio may also purchase put options at a time when it does not own
the underlying security or currency. By purchasing put options on a security or
currency it does not own, that Theme Portfolio seeks to benefit from a decline
in the market price of the underlying security or currency. If the put option is
not sold when it has remaining value, and if the market price of the underlying
security or currency remains equal to or greater than the exercise price during
the life of the put option, the Theme Portfolio will lose its entire investment
in the put option. In order for the purchase of a put option to be profitable,
the market price of the underlying security or currency must decline
sufficiently below the exercise price to cover the premium and transaction
costs, unless the put option is sold in a closing sale transaction.
PURCHASING CALL OPTIONS
Each Theme Portfolio may purchase call options on securities, indices and
currencies. As the holder of a call option, the Theme Portfolio would have the
right to purchase the underlying security or currency at the exercise price at
any time until (American style) or on (European style) the expiration date. A
Theme Portfolio may enter into closing sale transactions with respect to such
options, exercise such options or permit such options to expire.
Call options may be purchased by a Theme Portfolio for the purpose of
acquiring the underlying security or currency for its portfolio. Utilized in
this fashion, the purchase of call options would enable a Theme Portfolio to
acquire the security or currency at the exercise price of the call option plus
the premium paid. At times, the net cost of acquiring the security or currency
in this manner may be less than the cost of acquiring the security or currency
directly. This technique may also be useful to a Theme Portfolio in purchasing a
large block of securities that would be more difficult to acquire by direct
market purchases. So long as it holds such a call option, rather than the
underlying security or currency itself, the Theme Portfolio is partially
protected from any unexpected decline in the market price of the underlying
security or currency and, in such event, could allow the call option to expire,
incurring a loss only to the extent of the premium paid for the option.
A Theme Portfolio may also purchase call options on underlying securities or
currencies it owns to avoid realizing losses that would result in a reduction of
its current return. For example, where a Theme Portfolio has written a call
option on an underlying security or currency having a current market value below
the price at which it purchased the security or currency, an increase in the
market price could result in the exercise of the call option written by the
Theme Portfolio and the realization of a loss on the underlying security or
currency. Accordingly, the Theme Portfolio could purchase a call option on the
same underlying security or currency, which could be exercised to fulfill the
Theme Portfolio's delivery obligations under its written call (if it is
exercised). This strategy could allow the Theme Portfolio to avoid selling the
portfolio security or currency at a time when it has an unrealized loss;
however, the Theme Portfolio would have to pay a premium to purchase the call
option plus transaction costs.
Aggregate premiums paid for put and call options will not exceed 5% of each
Theme Portfolio's total assets at the time of each purchase.
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A Theme Portfolio may attempt to accomplish objectives similar to those
involved in using Forward Contracts, by purchasing put or call options on
currencies. A put option gives the Theme Portfolio as purchaser the right (but
not the obligation) to sell a specified amount of currency at the exercise price
at any time until (American style) or on (European style) the expiration date of
the option. A call option gives the Theme Portfolio as purchaser the right (but
not the obligation) to purchase a specified amount of currency at the exercise
price at any time until (American style) or on (European style) the expiration
date of the option. A Theme Portfolio might purchase a currency put option, for
example, to protect itself against a decline in the dollar value of a currency
in which it holds or anticipates holding securities. If the currency's value
should decline against the dollar, the loss in currency value should be offset,
in whole or in part, by an increase in the value of the put. If the value of the
currency instead should rise against the dollar, any gain to a Theme Portfolio
would be reduced by the premium it had paid for the put option. A currency call
option might be purchased, for example, in anticipation of, or to protect
against, a rise in the value against the dollar of a currency in which a Theme
Portfolio anticipates purchasing securities.
Options may be either listed on an exchange or traded in over-the-counter
("OTC") markets. Listed options are third-party contracts (i.e., performance of
the obligations of the purchaser and seller is guaranteed by the exchange or
clearing corporation) and have standardized strike prices and expiration dates.
OTC options are two-party contracts with negotiated strike prices and expiration
dates. A Theme Portfolio will not purchase an OTC option unless it believes that
daily valuations for such options are readily obtainable. OTC options differ
from exchange-traded options in that OTC options are transacted with dealers
directly and not through a clearing corporation (which guarantees performance).
Consequently, there is a risk of non-performance by the dealer. Since no
exchange is involved, OTC options are valued on the basis of an average of the
last bid prices obtained from dealers, unless a quotation from only one dealer
is available, in which case only that dealer's price will be used. In the case
of OTC options, there can be no assurance that a liquid secondary market will
exist for any particular option at any specific time.
The staff of the SEC considers purchased OTC options to be illiquid
securities. A Theme Portfolio may also sell OTC options and, in connection
therewith, segregate assets or cover its obligations with respect to OTC options
written by the Theme Portfolio. The assets used as cover for OTC options written
by a Theme Portfolio will be considered illiquid unless the OTC options are sold
to qualified dealers who agree that the Theme Portfolio may repurchase any OTC
option it writes at a maximum price to be calculated by a formula set forth in
the option agreement. The cover for an OTC option written subject to this
procedure would be considered illiquid only to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the option.
A Theme Portfolio's ability to establish and close out positions in
exchange-listed options depends on the existence of a liquid market. A Theme
Portfolio intends to purchase or write only those exchange-traded options for
which there appears to be a liquid secondary market. However, there can be no
assurance that such a market will exist at any particular time. Closing
transactions can be made for OTC options only by negotiating directly with the
contra party or by a transaction in the secondary market if any such market
exists. Although a Theme Portfolio will enter into OTC options only with contra
parties that are expected to be capable of entering into closing transactions
with the Theme Portfolio, there is no assurance that the Theme Portfolio will in
fact be able to close out an OTC option position at a favorable price prior to
expiration. In the event of insolvency of the contra party, the Theme Portfolio
might be unable to close out an OTC option position at any time prior to its
expiration.
INDEX OPTIONS
Puts and calls on indices are similar to puts and calls on securities or
futures contracts except that all settlements are in cash and gain or loss
depends on changes in the index in question (and thus on price movements in the
securities market or a particular market sector generally) rather than on price
movements in individual securities or futures contracts. When a Theme Portfolio
writes a call on an index, it receives a premium and agrees that, prior to the
expiration date, the purchaser of the call, upon exercise of the call, will
receive from the Theme Portfolio an amount of cash if the closing level of the
index upon which the call is based is greater than the exercise price of the
call. The amount of cash is equal to the difference between the closing price of
the index and the exercise price of the call times a specified multiple (the
"multiplier"), which determines the total dollar value for each point of such
difference. When a Theme Portfolio buys a call on an index, it pays a premium
and has the same rights as to such call as are indicated above. When a Theme
Portfolio buys a put on an index, it pays a premium and has the right, prior to
the expiration date, to require the seller of the put, upon the Theme
Portfolio's exercise of the put, to deliver to the Theme Portfolio an amount of
cash if the closing level of the index upon which the put is based is less than
the exercise price of the put, which amount of cash is determined by the
multiplier, as described above for calls. When the Theme Portfolio writes a put
on an index, it receives a premium and the purchaser has the right, prior to the
expiration date, to require the Theme Portfolio to deliver to it an amount of
cash
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equal to the difference between the closing level of the index and the exercise
price times the multiplier, if the closing level is less than the exercise
price.
The risks of investment in index options may be greater than options on
securities. Because index options are settled in cash, when a Theme Portfolio
writes a call on an index it cannot provide in advance for its potential
settlement obligations by acquiring and holding the underlying securities. A
Theme Portfolio can offset some of the risk of writing a call index option
position by holding a diversified portfolio of securities similar to those on
which the underlying index is based. However, a Theme Portfolio cannot, as a
practical matter, acquire and hold a portfolio containing exactly the same
securities as underlie the index and, as a result, bears a risk that the value
of the securities held will vary from the value of the index.
Even if a Theme Portfolio could assemble a securities portfolio that exactly
reproduced the composition of the underlying index, it still would not be fully
covered from a risk standpoint because of the "timing risk" inherent in writing
index options. When an index option is exercised, the amount of cash that the
holder is entitled to receive is determined by the difference between the
exercise price and the closing index level on the date when the option is
exercised. As with other kinds of options, the Theme Portfolio, as the call
writer, will not know that it has been assigned until the next business day at
the earliest. The time lag between exercise and notice of assignment poses no
risk for the writer of a covered call on a specific underlying security, such as
common stock, because there the writer's obligation is to deliver the underlying
security, not to pay its value as of a fixed time in the past. So long as the
writer already owns the underlying security, it can satisfy its settlement
obligations by simply delivering it, and the risk that its value may have
declined since the exercise date is borne by the exercising holder. In contrast,
even if the writer of an index call holds securities that exactly match the
composition of the underlying index, it will not be able to satisfy its
assignment obligations by delivering those securities against payment of the
exercise price. Instead, it will be required to pay cash in an amount based on
the closing index value on the exercise date; and by the time it learns that it
has been assigned, the index may have declined, with a corresponding decline in
the value of its securities portfolio. This "timing risk" is an inherent
limitation on the ability of index call writers to cover their risk exposure by
holding securities positions.
If a Theme Portfolio purchases an index option and exercises it before the
closing index value for that day is available, it runs the risk that the level
of the underlying index may subsequently change. If such a change causes the
exercised option to fall out-of-the-money, the Theme Portfolio will be required
to pay the difference between the closing index value and the exercise price of
the option (times the applicable multiplier) to the assigned writer.
INTEREST RATE, CURRENCY AND STOCK INDEX FUTURES CONTRACTS
Each Theme Portfolio may enter into interest rate or currency futures
contracts, and may enter into stock index futures contracts (collectively,
"Futures" or "Futures Contracts"), as a hedge against changes in prevailing
levels of interest rates, currency exchange rates or stock price levels in order
to establish more definitely the effective return on securities or currencies
held or intended to be acquired by the Theme Portfolio. A Theme Portfolio's
hedging may include sales of Futures as an offset against the effect of expected
increases in interest rates, and decreases in currency exchange rates and stock
prices, and purchases of Futures as an offset against the effect of expected
declines in interest rates, and increases in currency exchange rates or stock
prices.
Each Theme Portfolio only will enter into Futures Contracts that are traded on
futures exchanges and are standardized as to maturity date and underlying
financial instrument. Futures exchanges and trading thereon in the United States
are regulated under the Commodity Exchange Act by the Commodity Futures Trading
Commission ("CFTC"). Futures are exchanged in London at the London International
Financial Futures Exchange.
Although techniques other than sales and purchases of Futures Contracts could
be used to reduce a Theme Portfolio's exposure to interest rate, currency
exchange rate and stock market fluctuations, that Theme Portfolio may be able to
hedge its exposure more effectively and at a lower cost through using Futures
Contracts.
A Futures Contract provides for the future sale by one party and purchase by
another party of a specified amount of a specific financial instrument (security
or currency) for a specified price at a designated date, time and place. A stock
index Futures Contract provides for the delivery, at a designated date, time and
place, of an amount of cash equal to a specified dollar amount times the
difference between the stock index value at the close of trading on the contract
and the price at which the Futures Contract is originally struck; no physical
delivery of stocks comprising the index is made. Brokerage fees are incurred
when a Futures Contract is bought or sold, and margin deposits must be
maintained at all times the Futures Contract is outstanding.
Although Futures Contracts typically require future delivery of and payment
for financial instruments or currencies, Futures Contracts usually are closed
out before the delivery date. Closing out an open Futures Contract sale or
purchase is
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effected by entering into an offsetting Futures Contract purchase or sale,
respectively, for the same aggregate amount of the identical financial
instrument or currency and the same delivery date. If the offsetting purchase
price is less than the original sale price, the Theme Portfolio realizes a gain;
if it is more, the Theme Portfolio realizes a loss. Conversely, if the
offsetting sale price is more than the original purchase price, the Theme
Portfolio realizes a gain; if it is less, the Theme Portfolio realizes a loss.
The transaction costs must also be included in these calculations. There can be
no assurance, however, that a Theme Portfolio will be able to enter into an
offsetting transaction with respect to a particular Futures Contract at a
particular time. If a Theme Portfolio is not able to enter into an offsetting
transaction, that Theme Portfolio will continue to be required to maintain the
margin deposits on the Futures Contract.
As an example of an offsetting transaction, the contractual obligations
arising from the sale of one Futures Contract of September Deutschemarks on an
exchange may be fulfilled at any time before delivery under the Futures Contract
is required (i.e., on a specified date in September, the "delivery month") by
the purchase of another Futures Contract of September Deutschemarks on the same
exchange. In such instance, the difference between the price at which the
Futures Contract was sold and the price paid for the offsetting purchase, after
allowance for transaction costs, represents the profit or loss to the Theme
Portfolio.
Each Theme Portfolio's Futures transactions will be entered into for hedging
purposes only; that is, Futures Contracts will be sold to protect against a
decline in the price of securities or currencies that a Theme Portfolio owns, or
Futures Contracts will be purchased to protect a Theme Portfolio against an
increase in the price of securities or currencies it has committed to purchase
or expects to purchase.
"Margin" with respect to Futures Contracts is the amount of funds that must be
deposited by a Theme Portfolio in order to initiate Futures trading and maintain
the Theme Portfolio's open positions in Futures Contracts. A margin deposit made
when the Futures Contract is entered into ("initial margin") is intended to
ensure the Theme Portfolio's performance under the Futures Contract. The margin
required for a particular Futures Contract is set by the exchange on which the
Futures Contract is traded and may be significantly modified from time to time
by the exchange during the term of the Futures Contract.
Subsequent payments, called "variation margin," to and from the futures
commission merchant through which the Theme Portfolio entered into the Futures
Contract will be made on a daily basis as the price of the underlying security,
currency or index fluctuates making the Futures Contract more or less valuable,
a process known as marking-to-market.
Risks of Using Futures Contracts. The prices of Futures Contracts are volatile
and are influenced by, among other things, actual and anticipated changes in
interest rates and currency exchange rates, and in stock market movements, which
in turn are affected by fiscal and monetary policies and national and
international political and economic events.
There is a risk of imperfect correlation between changes in prices of Futures
Contracts and prices of the securities or currencies in a Theme Portfolio's
portfolio being hedged. The degree of imperfection of correlation depends upon
circumstances such as variations in speculative market demand for Futures and
for securities or currencies, including technical influences in Futures trading;
and differences between the financial instruments being hedged and the
instruments underlying the standard Futures Contracts available for trading. A
decision of whether, when and how to hedge involves skill and judgment, and even
a well-conceived hedge may be unsuccessful to some degree because of unexpected
market behavior or interest or currency rate trends.
Because of the low margin deposits required, Futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a Futures Contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the Futures Contract is deposited as margin, a subsequent 10%
decrease in the value of the Futures Contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the Futures Contract were closed out.
Thus, a purchase or sale of a Futures Contract may result in losses in excess of
the amount invested in the Futures Contract.
Most U.S. Futures exchanges limit the amount of fluctuation permitted in
Futures Contract and options on Futures Contracts prices during a single trading
day. The daily limit establishes the maximum amount that the price of a Futures
Contract or option may vary either up or down from the previous day's settlement
price at the end of a trading session. Once the daily limit has been reached in
a particular type of Futures Contract or option, no trades may be made on that
day at a price beyond that limit. The daily limit governs only price movement
during a particular trading day and therefore does not limit potential losses,
because the limit may prevent the liquidation of unfavorable positions. Futures
Contract and option prices have occasionally moved to the daily limit for
several consecutive trading days with little or no trading, thereby preventing
prompt liquidation of positions and subjecting some traders to substantial
losses.
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If a Theme Portfolio were unable to liquidate a Futures or option on Futures
position due to the absence of a liquid secondary market or the imposition of
price limits, it could incur substantial losses. The Theme Portfolio would
continue to be subject to market risk with respect to the position. In addition,
except in the case of purchased options, the Theme Portfolio would continue to
be required to make daily variation margin payments and might be required to
maintain the position being hedged by the Future or option or to maintain cash
or securities in a segregated account.
Certain characteristics of the Futures market might increase the risk that
movements in the prices of Futures Contracts or options on Futures might not
correlate perfectly with movements in the prices of the investments being
hedged. For example, all participants in the Futures and options on Futures
markets are subject to daily variation margin calls and might be compelled to
liquidate Futures or options on Futures positions whose prices are moving
unfavorably to avoid being subject to further calls. These liquidations could
increase price volatility of the instruments and distort the normal price
relationship between the Futures or options and the investments being hedged.
Also, because initial margin deposit requirements in the Futures market are less
onerous than margin requirements in the securities markets, there might be
increased participation by speculators in the Futures markets. This
participation also might cause temporary price distortions. In addition,
activities of large traders in both the Futures and securities markets involving
arbitrage, "program trading" and other investment strategies might result in
temporary price distortions.
OPTIONS ON FUTURES CONTRACTS
Options on Futures Contracts are similar to options on securities or
currencies except that options on Futures Contracts give 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 period of
the option. Upon exercise of the option, the delivery of the Futures position by
the writer of the option to the holder of the option will be accompanied by
delivery of the accumulated 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 is
exercised on the last trading day 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 level of the securities, currencies
or index upon which the Futures Contract is based on the expiration date.
Purchasers of options who fail to exercise their options prior to the exercise
date suffer a loss of the premium paid.
The purchase of call options on Futures can serve as a long hedge, and the
purchase of put options on Futures can serve as a short hedge. Writing call
options on Futures can serve as a limited short hedge, and writing put options
on Futures can serve as a limited long hedge, using a strategy similar to that
used for writing options on securities, foreign currencies or indices.
If a Theme Portfolio writes an option on a Futures Contract, it will be
required to deposit initial and variation margin pursuant to requirements
similar to those applicable to Futures Contracts. Premiums received from the
writing of an option on a Futures Contract are included in the initial margin
deposit.
A Theme Portfolio may seek to close out an option position by selling an
option covering the same Futures Contract and having the same exercise price and
expiration date. The ability to establish and close out positions on such
options is subject to the maintenance of a liquid secondary market.
LIMITATIONS ON USE OF FUTURES, OPTIONS ON FUTURES AND CERTAIN OPTIONS ON
CURRENCIES
To the extent that a Theme Portfolio enters into Futures Contracts, options on
Futures Contracts, and options on foreign currencies traded on a CFTC-regulated
exchange, in each case other than for bona fide hedging purposes (as defined by
the CFTC), the aggregate initial margin and premiums required to establish those
positions (excluding the amount by which options are "in-the-money") will not
exceed 5% of the liquidation value of the Theme Portfolio, after taking into
account unrealized profits and unrealized losses on any contracts the Theme
Portfolio has entered into. In general, a call option on a Futures Contract is
"in-the-money" if the value of the underlying Futures Contract exceeds the
strike, i.e., exercise, price of the call; a put option on a Futures Contract is
"in-the-money" if the value of the underlying Futures Contract is exceeded by
the strike price of the put. This guideline may be modified by the Trust's Board
of Trustees and the Portfolio's Board of Trustees, as applicable, without a
shareholder vote. This limitation does not limit the percentage of a Theme
Portfolio's assets at risk to 5%.
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FORWARD CONTRACTS
A Forward Contract is an obligation, usually arranged with a commercial bank
or other currency dealer, to purchase or sell a currency against another
currency at a future date and price as agreed upon by the parties. A Theme
Portfolio either may accept or make delivery of the currency at the maturity of
the Forward Contract. A Theme Portfolio may also, if its contra party agrees
prior to maturity, enter into a closing transaction involving the purchase or
sale of an offsetting contract.
A Theme Portfolio engages in forward currency transactions in anticipation of,
or to protect itself against, fluctuations in exchange rates. A Theme Portfolio
might sell a particular foreign currency forward, for example, when it holds
bonds denominated in a foreign currency but anticipates, and seeks to be
protected against, a decline in the currency against the U.S. dollar. Similarly,
a Theme Portfolio might sell the U.S. dollar forward when it holds bonds
denominated in U.S. dollars but anticipates, and seeks to be protected against,
a decline in the U.S. dollar relative to other currencies. Further, a Theme
Portfolio might purchase a currency forward to "lock in" the price of securities
denominated in that currency that it anticipates purchasing.
Forward Contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers. A
Forward Contract generally has no deposit requirement, and no commissions are
charged at any stage for trades. Each Theme Portfolio will enter into such
Forward Contracts with major U.S. or foreign banks and securities or currency
dealers in accordance with guidelines approved by the Trust's or the Portfolios'
Board of Trustees, as applicable.
A Theme Portfolio may enter into Forward Contracts either with respect to
specific transactions or with respect to overall investments of that Theme
Portfolio. The precise matching of the Forward Contract amounts and the value of
specific securities generally will not be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the Forward Contract
is entered into and the date it matures. Accordingly, it may be necessary for
that Theme Portfolio to purchase additional foreign currency on the spot (i.e.,
cash) market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Theme Portfolio is
obligated to deliver and if a decision is made to sell the security and make
delivery of the foreign currency. Conversely, it may be necessary to sell on the
spot market some of the foreign currency the Theme Portfolio is obligated to
deliver. The projection of short-term currency market movements is extremely
difficult, and the successful execution of a short-term hedging strategy is
highly uncertain. Forward Contracts involve the risk that anticipated currency
movements will not be predicted accurately, causing a Theme Portfolio to sustain
losses on these contracts and transaction costs.
At or before the maturity of a Forward Contract requiring a Theme Portfolio to
sell a currency, that Theme Portfolio either may sell a security and use the
sale proceeds to make delivery of the currency or retain the security and offset
its contractual obligation to deliver the currency by purchasing a second
contract pursuant to which the Theme Portfolio will obtain, on the same maturity
date, the same amount of the currency that it is obligated to deliver.
Similarly, a Theme Portfolio may close out a Forward Contract requiring it to
purchase a specified currency by entering into a second contract, if its contra
party agrees, entitling it to sell the same amount of the same currency on the
maturity date of the first contract. A Theme Portfolio would realize a gain or
loss as a result of entering into such an offsetting Forward Contract under
either circumstance to the extent the exchange rate or rates between the
currencies involved moved between the execution dates of the first contract and
the offsetting contract.
The cost to a Theme Portfolio of engaging in Forward Contracts varies with
factors such as the currencies involved, the length of the contract period and
the market conditions then prevailing. Because Forward Contracts are usually
entered into on a principal basis, no fees or commissions are involved. The use
of Forward Contracts does not eliminate fluctuations in the prices of the
underlying securities a Theme Portfolio owns or intends to acquire, but it does
establish a rate of exchange in advance. In addition, while Forward Contract
sales limit the risk of loss due to a decline in the value of the hedged
currencies, they also limit any potential gain that might result should the
value of the currencies increase.
FOREIGN CURRENCY STRATEGIES -- SPECIAL CONSIDERATIONS
A Theme Portfolio may use options on foreign currencies, Futures on foreign
currencies, options on Futures on foreign currencies and Forward Contracts to
hedge against movements in the values of the foreign currencies in which the
Theme Portfolio's securities are denominated. Such currency hedges can protect
against price movements in a security that the Theme Portfolio owns or intends
to acquire that are attributable to changes in the value of the currency in
which it is denominated. Such hedges do not, however, protect against price
movements in the securities that are attributable to other causes.
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A Theme Portfolio might seek to hedge against changes in the value of a
particular currency when no Futures Contract, Forward Contract or option
involving that currency is available or one of such contracts is more expensive
than certain other contracts. In such cases, the Theme Portfolio may hedge
against price movements in that currency by entering into a contract on another
currency or basket of currencies, the values of which the Sub-advisor believes
will have a positive correlation to the value of the currency being hedged. The
risk that movements in the price of the contract will not correlate perfectly
with movements in the price of the currency being hedged is magnified when this
strategy is used.
The value of Futures Contracts, options on Futures Contracts, Forward
Contracts and options on foreign currencies depends on the value of the
underlying currency relative to the U.S. dollar. Because foreign currency
transactions occurring in the interbank market might involve substantially
larger amounts than those involved in the use of Futures Contracts, Forward
Contracts or options, the Theme Portfolio could be disadvantaged by dealing in
the odd lot market (generally consisting of transactions of less than $1
million) for the underlying foreign currencies at prices that are less favorable
than for round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirements that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options or Futures markets are
closed while the markets for the underlying currencies remain open, significant
price and rate movements might take place in the underlying markets that cannot
be reflected in the markets for the Futures contracts or options until they
reopen.
Settlement of Futures Contracts, Forward Contracts and options involving
foreign currencies might be required to take place within the country issuing
the underlying currency. Thus, the Theme Portfolio might be required to accept
or make delivery of the underlying foreign currency in accordance with any U.S.
or foreign regulations regarding the maintenance of foreign banking arrangements
by U.S. residents and might be required to pay any fees, taxes and charges
associated with such delivery assessed in the issuing country.
COVER
Transactions using Forward Contracts, Futures Contracts and options (other
than options purchased by a Theme Portfolio) expose the Theme Portfolio to an
obligation to another party. A Theme Portfolio will not enter into any such
transactions unless it owns either (1) an offsetting ("covered") position in
securities, currencies, or other options, Forward Contracts or Futures
Contracts, or (2) cash, receivables and short-term debt securities with a value
sufficient at all times to cover its potential obligations not covered as
provided in (1) above. Each Theme Portfolio will comply with SEC guidelines
regarding cover for these instruments and, if the guidelines so require, set
aside cash or liquid securities.
Assets used as cover or held in a segregated account cannot be sold while the
position in the corresponding Forward Contract, Futures Contract or option is
open, unless they are replaced with other appropriate assets. If a large portion
of a Theme Portfolio's assets is used for cover or otherwise set aside, it could
affect portfolio management or the Theme Portfolio's ability to meet redemption
requests or other current obligations.
RISK FACTORS
GENERAL
Equity securities, particularly common stocks, generally represent the most
junior position in an issuer's capital structure, and entitle holders to an
interest in the assets of the issuer, if any, remaining after all more senior
claims have been satisfied. The value of equity securities held by a Theme
Portfolio will fluctuate in response to general market and economic
developments, as well as developments affecting the particular issuers of such
securities. The value of debt securities held by a Theme Portfolio generally
will fluctuate with changes in the perceived creditworthiness of the issuers of
such securities and interest rates.
CONSUMER PRODUCTS AND SERVICES FUND
The performance of consumer products and services companies relates closely to
the actual and perceived performance of the overall economy, interest rates, and
consumer confidence. In addition, many consumer products and services companies
have unpredictable earnings, due in part to changes in consumer tastes and
intense competition. As a result of either of these factors, consumer products
and services companies may be subject to increased share price volatility.
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Changes in governmental policy and the need for regulatory approvals may have
a material effect on the products and services offered by companies in the
consumer products and services industries. Such governmental regulations may
also hamper the development of new business opportunities.
FINANCIAL SERVICES FUND
Companies in the financial services sector are subject to rapid business
changes, significant competition, value fluctuations due to the concentration of
loans in particular industries significantly affected by economic conditions
(such as real estate or energy), and volatile performance dependent upon the
availability and cost of capital and prevailing interest rates. In addition,
general economic conditions significantly affect these companies. Credit and
other losses resulting from the financial difficulty of borrowers or other third
parties potentially may have an adverse effect on companies in these industries.
Foreign banks, particularly those of Japan, have reported financial difficulties
attributed to increased competition, regulatory changes, and general economic
difficulties.
The financial services area in the United States currently is changing
relatively rapidly as existing distinctions between various financial service
segments become less clear. For instance, recent business combinations have
included insurance, finance, and securities brokerage under single ownership.
Some primarily retail corporations have expanded into securities and insurance
fields. Investment banking, securities brokerage, and investment advisory
companies are subject to government regulation and risk due to securities
trading and underwriting activities.
Many of the investment considerations discussed in connection with banks,
savings institutions and loan associations, and finance companies also apply to
insurance companies. The performance of insurance company investments will be
subject to risk from several factors. The earnings of insurance companies will
be affected by interest rates, pricing (including severe pricing competition
from time to time), claims activity, marketing competition and general economic
conditions. Particular insurance lines also will be influenced by specific
matters. Property and casualty insurance profits may be affected by certain
weather catastrophes and other disasters. Life and health insurers' profits may
be affected by mortality and morbidity rates. Individual companies may be
exposed to material risks, including reserve inadequacy, problems in investment
portfolios (due to real estate or "junk" bond holdings, for example), and the
inability to collect from reinsurance carriers. Insurance companies are subject
to extensive governmental regulation, including the imposition of maximum rate
levels, which may not be adequate for some lines of business. Proposed or
potential anti-trust or tax law changes also may affect adversely insurance
companies' policy sales, tax obligations, and profitability.
HEALTH CARE FUND
Health care industries generally are subject to substantial governmental
regulation. Changes in governmental policy or regulation could have a material
effect on the demand for products and services offered by companies in the
health care industries and therefore could affect the performance of the Fund.
Regulatory approvals are generally required before new drugs and medical devices
or procedures may be introduced and before the acquisition of additional
facilities by health care providers. In addition, the products and services
offered by such companies may be subject to rapid obsolescence caused by
technological and scientific advances.
INFRASTRUCTURE FUND
The nature of regulation of infrastructure industries continues to evolve in
both the United States and foreign countries, and changes in governmental policy
and the need for regulatory approvals may have a material effect on the products
and services offered by companies in the infrastructure industries. Electric,
gas, water, and most telecommunications companies in the United States, for
example, are subject to both federal and state regulation affecting permitted
rates of return and the kinds of services that may be offered. Government
regulation may also hamper the development of new technologies. Adverse
regulatory developments could therefore potentially affect the performance of
Infrastructure Fund.
In addition, many infrastructure companies have historically been subject to
the risks attendant to increases in fuel and other operating costs, high
interest costs on borrowed funds, costs associated with compliance with
environmental, and other safety regulations and changes in the regulatory
climate. Changes in prevailing interest rates may also affect the Infrastructure
Fund's share values because prices of equity and debt securities of
infrastructure companies tend to increase when interest rates decline and
decrease when interest rates rise. Further, competition is intense for many
infrastructure companies. As a result, many of these companies may be adversely
affected in the future and such companies may be subject to increased share
price volatility. In addition, many companies have diversified into oil and gas
exploration and development, and therefore returns may be more sensitive to
energy prices.
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Some infrastructure companies, such as water supply companies, operate in
highly fragmented market sectors due to local ownership. In addition, some of
these companies are mature and experience little or no growth. Either of these
factors could have a material effect on infrastructure companies and could
therefore affect the performance of Infrastructure Fund.
RESOURCES FUND
Resources Fund invests in companies that engage in the exploration,
development, and distribution of coal, oil and gas in the United States. These
companies are subject to significant federal and state regulation, which may
affect rates of return on such investments and the kinds of services that may be
offered. In addition, many natural resource companies historically have been
subject to significant costs associated with compliance with environmental and
other safety regulations. Governmental regulation may also hamper the
development of new technologies.
Further, competition is intense for many natural resource companies. As a
result, many of these companies may be adversely affected in the future and the
value of the securities issued by such companies may be subject to increased
price volatility. Such companies may also be subject to irregular fluctuations
in earnings due to changes in the availability of money, the level of interest
rates, and other factors.
The value of securities of natural resource companies will fluctuate in
response to market conditions for the particular natural resources with which
the issuers are involved. The price of natural resources will fluctuate due to
changes in worldwide levels of inventory, and changes, perceived or actual, in
production and consumption. With respect to precious metals, such price
fluctuations may be substantial over short periods of time. In addition, the
value of natural resources may fluctuate directly with respect to various stages
of the inflationary cycle and perceived inflationary trends and are subject to
numerous factors, including national and international politics.
TELECOMMUNICATIONS FUND
Telecommunications industries may be subject to greater governmental
regulation than many other industries and changes in governmental policy and the
need for regulatory approvals may have a material effect on the products and
services offered by companies in the telecommunications industries. Telephone
operating companies in the United States, for example, are subject to both
federal and state regulation affecting permitted rates of return and the kinds
of services that may be offered. In addition, certain types of companies in the
telecommunications industries are engaged in fierce competition for market share
that could result in increased share price volatility.
LOWER QUALITY DEBT SECURITIES
The Resources Portfolio, Consumer Products and Services Portfolio, and
Infrastructure Portfolio may invest up to 20%, and Health Care Fund,
Telecommunications Fund, and Financial Services Portfolio may invest up to 5%,
of their respective total assets in below investment grade debt securities, that
is, rated below BBB by Standard & Poor's, a division of The McGraw-Hill
Companies, Inc. ("S&P"), or Baa by Moody's Investors Service, Inc. ("Moody's")
or, if unrated, deemed to be of equivalent quality in the judgment of the
Advisor. Such investments involve a high degree of risk. However, the Theme
Portfolios will not invest in debt securities that are in default as to payment
of principal and interest.
Debt rated Baa by Moody's is considered by Moody's to have speculative
characteristics. Debt rated BB, B, CCC, CC or C by S&P and debt rated Ba, B,
Caa, Ca or C by Moody's is regarded, on balance, as predominately speculative
with respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. While such lower quality debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions. Debt rated C
by Moody's or S&P is the lowest rated debt that is not in default as to
principal or interest, and such issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing. Lower
quality debt securities are also generally considered to be subject to greater
risk than securities with higher ratings with regard to a deterioration of
general economic conditions. These lower quality debt securities are the
equivalent of high yield, high risk bonds, commonly known as "junk bonds."
Ratings of debt securities represent the rating agency's opinion regarding
their quality and are not a guarantee of quality. Rating agencies attempt to
evaluate the safety of principal and interest payments and do not evaluate the
risks of fluctuations in market value. Also, rating agencies may fail to make
timely changes in credit ratings in response to subsequent events, so that an
issuer's current financial condition may be better or worse than a rating
indicates.
The market values of lower quality debt securities tend to reflect individual
developments of the issuer to a greater extent than do higher quality
securities, which react primarily to fluctuations in the general level of
interest rates. In addition, lower quality debt securities tend to be more
sensitive to economic conditions and generally have more volatile
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<PAGE> 931
prices than higher quality securities. Issuers of lower quality securities are
often highly leveraged and may not have available to them more traditional
methods of financing. For example, during an economic downturn or a sustained
period of rising interest rates, highly leveraged issuers of lower quality
securities may experience financial stress. During such periods, such issuers
may not have sufficient revenues to meet their interest payment obligations. The
issuer's ability to service its debt obligations may also be adversely affected
by specific developments affecting the issuer, such as the issuer's inability to
meet specific projected business forecasts or the unavailability of additional
financing. The risk of loss due to default by the issuer is significantly
greater for the holders of lower quality securities because such securities are
generally unsecured and may be subordinated to the claims of other creditors of
the issuer.
Lower quality debt securities of corporate issuers frequently have call or
buy-back features which would permit an issuer to call or repurchase that
security from a Theme Portfolio. If an issuer exercises these provisions in a
declining interest rate market, the Theme Portfolio may have to replace the
security with a lower yielding security, resulting in a decreased return for
investors. In addition, the Theme Portfolio may have difficulty disposing of
lower quality securities because they may have a thin trading market. There may
be no established retail secondary market for many of these securities, and the
Theme Portfolio anticipates that such securities could be sold only to a limited
number of dealers or institutional investors. The lack of a liquid secondary
market also may have an adverse impact on market prices of such instruments and
may make it more difficult for the Theme Portfolio to obtain accurate market
quotations for purposes of valuing its investments. The Theme Portfolios may
also acquire lower quality debt securities during an initial underwriting or
which are sold without registration under applicable securities laws. Such
securities involve special considerations and risks.
In addition to the foregoing, factors that could have an adverse effect on the
market value of lower quality debt securities in which the Theme Portfolios may
invest include: (i) potential adverse publicity; (ii) heightened sensitivity to
general economic or political conditions, and (iii) the likely adverse impact of
a major economic recession. The Theme Portfolios may also incur additional
expenses to the extent it is required to seek recovery upon a default in the
payment of principal or interest on portfolio holdings, and the Theme Portfolios
may have limited legal recourse in the event of a default.
INVESTING IN SMALLER COMPANIES
While a Theme Portfolio's holdings normally will include securities of
established suppliers of traditional products and services, a Theme Portfolio
may invest in smaller companies which can benefit from the development of new
products and services. These smaller companies may present greater opportunities
for capital appreciation, but may also involve greater risks than large,
established issuers. Such smaller companies may have limited product lines,
markets or financial resources, and their securities may trade less frequently
and in more limited volume than the securities of larger, more established
companies. As a result, the prices of the securities of such smaller companies
may fluctuate to a greater degree than the prices of the securities of other
issuers.
ILLIQUID SECURITIES
Each Theme Portfolio may invest up to 15% of its net assets in illiquid
securities. Securities may be considered illiquid if a Theme Portfolio cannot
reasonably expect within seven days to sell the securities for approximately the
amount at which that Theme Portfolio values such securities. See "Investment
Limitations." The sale of illiquid securities, if they can be sold at all,
generally will require more time and result in higher brokerage charges or
dealer discounts and other selling expenses than will the sale of liquid
securities such as securities eligible for trading on U.S. securities exchanges
or in OTC markets. Moreover, restricted securities, which may be illiquid for
purposes of this limitation, often sell, if at all, at a price lower than
similar securities that are not subject to restrictions on resale.
Illiquid securities include those that are subject to restrictions contained
in the securities laws of other countries. However, securities that are freely
marketable in the country where they are principally traded, but would not be
freely marketable in the United States, will not be considered illiquid. Where
registration is required, a Theme Portfolio may be obligated to pay all or part
of the registration expenses and a considerable period may elapse between the
time of the decision to sell and the time the Theme Portfolio may be permitted
to sell a security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, the Theme Portfolio might
obtain a less favorable price than prevailed when it decided to sell.
The Advisor believes that carefully selected investments in joint ventures,
cooperatives, partnerships and state enterprises which are illiquid
(collectively, "Special Situations") could enable the Theme Portfolios to
achieve capital appreciation substantially exceeding the appreciation the Theme
Portfolios would realize if they did not make such investments. However, in
order to attempt to limit investment risk, the Theme Portfolios will invest no
more than 5% of its total assets in Special Situations.
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Not all restricted securities are illiquid. In recent years a large
institutional market has developed for certain securities that are not
registered under the Securities Act of 1933, as amended ("1933 Act"), including
private placements, repurchase agreements, commercial paper, foreign securities
and corporate bonds and notes. These instruments are often restricted securities
because the securities are sold in transactions not requiring registration.
Institutional investors generally will not seek to sell these instruments to the
general public, but instead will often depend either on an efficient
institutional market in which such unregistered securities can be readily resold
or on an issuer's ability to honor a demand for repayment. Therefore, the fact
that there are contractual or legal restrictions on resale to the general public
or certain institutions is not dispositive of the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the registration
requirements of the 1933 Act for resales of certain securities to qualified
institutional buyers. Institutional markets for restricted securities have
developed as a result of Rule 144A, providing both readily ascertainable values
for restricted securities and the ability to liquidate an investment to satisfy
share redemption orders. Such markets include automated systems for the trading,
clearance and settlement of unregistered securities of domestic and foreign
issuers, such as the PORTAL System sponsored by the National Association of
Securities Dealers, Inc. An insufficient number of qualified institutional
buyers interested in purchasing Rule 144A-eligible restricted securities held by
a Theme Portfolio, however, could affect adversely the marketability of such
portfolio securities and the Theme Portfolio might be unable to dispose of such
securities promptly or at favorable prices.
With respect to liquidity determinations generally, the Trust's or the
Portfolios' Board of Trustees, as applicable, has the ultimate responsibility
for determining whether specific securities, including restricted securities
pursuant to Rule 144A under the 1933 Act, are liquid or illiquid. Each Board has
delegated the function of making day-to-day determinations of liquidity to the
Advisor, in accordance with procedures approved by that Board. The Advisor takes
into account a number of factors in reaching liquidity decisions, including, but
not limited to, (i) the frequency of trading in the security; (ii) the number of
dealers that make quotes for the security; (iii) the number of dealers that have
undertaken to make a market in the security; (iv) the number of other potential
purchasers; and (v) the nature of the security and how trading is effected
(e.g., the time needed to sell the security, how offers are solicited and the
mechanics of transfer). The Advisor monitors the liquidity of securities held by
each Theme Portfolio and periodically reports such determinations to the Trust's
or the Portfolios' Board of Trustees, as applicable. If the liquidity percentage
restriction of a Theme Portfolio is satisfied at the time of investment, a later
increase in the percentage of illiquid securities held by the Theme Portfolio
resulting from a change in market value or assets will not constitute a
violation of that restriction. If as a result of a change in market value or
assets, the percentage of illiquid securities held by the Theme Portfolio
increases above the applicable limit, the Advisor will take appropriate steps to
bring the aggregate amount of illiquid assets back within the prescribed
limitations as soon as reasonably practicable, taking into account the effect of
any disposition on the Theme Portfolio.
FOREIGN SECURITIES
Political, Social and Economic Risks. Individual foreign economies may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross national product, rate of inflation, rate of savings and capital
reinvestment, resource self sufficiency and balance of payments positions.
Investing in securities of non-U.S. companies may entail additional risks due to
the potential political, social and economic instability of certain countries
and the risks of expropriation, nationalization, confiscation or the imposition
of restrictions on foreign investment convertibility of currencies into U.S.
dollars and on repatriation of capital invested. In the event of such
expropriation, nationalization, confiscatory taxation, or other confiscation by
any country, a Theme Portfolio could lose its entire investment in any such
country. In addition, governmental regulation in certain foreign countries may
impose interest rate controls, credit controls, and price controls. These
factors could have a material effect on foreign companies and could therefore
affect the performance of the Funds.
Religious, Political and Ethnic Instability. Certain countries in which a
Theme Portfolio may invest may have groups that advocate radical religious or
revolutionary philosophies or support ethnic independence. Any disturbance on
the part of such individuals could carry the potential for widespread
destruction or confiscation of property owned by individuals and entities
foreign to such country and could cause the loss of a Theme Portfolio's
investment in those countries. Instability may also result from, among other
things: (i) authoritarian governments or military involvement in political and
economic decision-making, including changes in government through
extra-constitutional means; (ii) popular unrest associated with demands for
improved political, economic and social conditions; and (iii) hostile relations
with neighboring or other countries. Such political, social and economic
instability could disrupt the principal financial markets in which a Theme
Portfolio invests and adversely affect the value of a Theme Portfolio's assets.
Foreign Investment Restrictions. Certain countries prohibit or impose
substantial restrictions on investments in their capital markets, particularly
their equity markets, by foreign entities such as a Theme Portfolio. These
restrictions or
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<PAGE> 933
controls may at times limit or preclude investment in certain securities and may
increase the cost and expenses of a Theme Portfolio. For example, certain
countries require prior governmental approval before investments by foreign
persons may be made, or may limit the amount of investment by foreign persons in
a particular company or limit the investment by foreign persons to only a
specific class of securities of a company that may have less advantageous terms
than securities of the company available for purchase by nationals. Moreover,
the national policies of certain countries may restrict investment opportunities
in issuers or industries deemed sensitive to national interests. In addition,
some countries require governmental approval for the repatriation of investment
income, capital or the proceeds of securities sales by foreign investors. In
addition, if there is a deterioration in a country's balance of payments or for
other reasons, a country may impose restrictions on foreign capital remittances
abroad. A Theme Portfolio could be adversely affected by delays in, or a refusal
to grant, any required governmental approval for repatriation, as well as by the
application to it of other restrictions on investments.
Non-Uniform Corporate Disclosure Standards and Governmental
Regulation. Foreign companies are subject to accounting, auditing and financial
standards and requirements that differ, in some cases significantly, from those
applicable to U.S. companies. In particular, the assets, liabilities and profits
appearing on the financial statements of such a company may not reflect its
financial position or results of operations in the way they would be reflected
had such financial statements been prepared in accordance with U.S. generally
accepted accounting principles. Most of the foreign securities held by a Theme
Portfolio will not be registered with the SEC or regulators of any foreign
country, nor will the issuers thereof be subject to the SEC's reporting
requirements. Thus, there will be less available information concerning most
foreign issuers of securities held by a Theme Portfolio than is available
concerning U.S. issuers. In instances where the financial statements of an
issuer are not deemed to reflect accurately the financial situation of the
issuer, the Advisor will take appropriate steps to evaluate the proposed
investment, which may include on-site inspection of the issuer, interviews with
its management and consultations with accountants, bankers and other
specialists. There is substantially less publicly available information about
foreign companies than there are reports and ratings published about U.S.
companies and the U.S. government. In addition, where public information is
available, it may be less reliable than such information regarding U.S. issuers.
Issuers of securities in foreign jurisdictions are generally not subject to the
same degree of regulation as are U.S. issuers with respect to such matters as
restrictions on market manipulation, insider trading rules, shareholder proxy
requirements and timely disclosure of information.
Currency Fluctuations. Because each Theme Portfolio, under normal
circumstances, will invest a substantial portion of its total assets in the
securities of foreign issuers which are denominated in foreign currencies, the
strength or weakness of the U.S. dollar against such foreign currencies will
account for part of a Theme Portfolio's investment performance. A decline in the
value of any particular currency against the U.S. dollar will cause a decline in
the U.S. dollar value of that Theme Portfolio's holdings of securities and cash
denominated in such currency and, therefore, will cause an overall decline in
the appropriate Fund's net asset value and any net investment income and capital
gains derived from such securities to be distributed in U.S. dollars to
shareholders of that Fund. Moreover, if the value of the foreign currencies in
which a Theme Portfolio receives its income falls relative to the U.S. dollar
between receipt of the income and the making of Theme Portfolio distributions,
the Theme Portfolio may be required to liquidate securities in order to make
distributions if the Theme Portfolio has insufficient cash in U.S. dollars to
meet distribution requirements.
The rate of exchange between the U.S. dollar and other currencies is
determined by several factors, including the supply and demand for particular
currencies, central bank efforts to support particular currencies, the relative
movement of interest rates and the pace of business activity in the other
countries and the United States, and other economic and financial conditions
affecting the world economy.
Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the
Netherlands, Portugal, and Spain are members of the European Economic and
Monetary Union (the "EMU"). The EMU has established a common European currency
for participating countries which will be known as the "euro." Each
participating country has supplemented the existing currency with the euro on
January 1, 1999, and will replace its existing 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 after January 1,
1999.
The expected introduction of the euro presents unique risks and uncertainties,
including whether the payment and operational systems of banks and other
financial institutions will be ready by January 1, 1999; how outstanding
financial contracts will be treated after January 1, 1999; the establishment of
exchange rates for existing currencies and the euro; and the creation of
suitable clearing and settlement systems for the euro. These and other factors
could cause market disruptions before or after the introduction of the euro and
could adversely affect the value of securities held by the Theme Portfolios.
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Although each Theme Portfolio values its assets daily in terms of U.S.
dollars, the Portfolios do not intend to convert their holdings of foreign
currencies into U.S. dollars on a daily basis. Each Portfolio will do so, from
time to time, and investors should be aware of the costs of currency conversion.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference ("spread") between the prices at which
they buy and sell various currencies. Thus, a dealer may offer to sell a foreign
currency to a Portfolio at one rate, while offering a lesser rate of exchange
should a Portfolio desire to sell that currency to the dealer.
Adverse Market Characteristics. Securities of many foreign issuers may be less
liquid and their prices more volatile than securities of comparable U.S.
issuers. In addition, foreign securities markets and brokers generally are
subject to less governmental supervision and regulation than in the United
States, and foreign securities transactions usually are subject to fixed
commissions, which generally are higher than negotiated commissions on U.S.
transactions. In addition, foreign securities transactions may be subject to
difficulties associated with the settlement of such transactions. Delays in
settlement could result in temporary periods when assets of a Theme Portfolio
are uninvested and no return is earned thereon. The inability of a Theme
Portfolio to make intended security purchases due to settlement problems could
cause that Theme Portfolio to miss attractive investment opportunities.
Inability to dispose of a portfolio security due to settlement problems either
could result in losses to that Theme Portfolio due to subsequent declines in
value of the portfolio security or, if that Theme Portfolio has entered into a
contract to sell the security, could result in possible liability to the
purchaser. The Advisor will consider such difficulties when determining the
allocation of a Theme Portfolio's assets, although the Advisor does not believe
that such difficulties will have a material adverse effect on a Theme
Portfolio's portfolio trading activities.
Each Theme Portfolio may use foreign custodians, which may charge higher
custody fees than those attributable to domestic investing and may involve risks
in addition to those related to its use of U.S. custodians. Such risks include
uncertainties relating to determining and monitoring the foreign custodian's
financial strength, reputation and standing; maintaining appropriate safeguards
concerning that Theme Portfolio's investments; and possible difficulties in
obtaining and enforcing judgments against such custodians.
Withholding Taxes. Each Theme Portfolio's net investment income from foreign
issuers may be subject to withholding taxes by the foreign issuer's country,
thereby reducing that income or delaying the receipt of income when those taxes
may be recaptured. See "Taxes."
Concentration. To the extent a Theme Portfolio invests a significant portion
of its assets in securities of issuers located in a particular country or region
of the world, such Portfolio may be subject to greater risks and may experience
greater volatility than a fund that is more broadly diversified geographically.
Special Considerations Affecting Western European Countries. The countries
that are members of the European Economic Community ("Common Market") (Austria,
Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,
Netherlands, Portugal, Spain, Sweden and the United Kingdom) eliminated certain
import tariffs and quotas and other trade barriers with respect to one another
over the past several years. The Advisor believes that this deregulation should
improve the prospects for economic growth in many Western European countries.
Among other things, the deregulation could enable companies domiciled in one
country to avail themselves of lower labor costs existing in other countries. In
addition, this deregulation could benefit companies domiciled in one country by
opening additional markets for their goods and services in other countries.
Since, however, it is not clear what the exact form or effect of these Common
Market reforms will be on business in Western Europe, it is impossible to
predict the long-term impact of the implementation of these programs on the
securities owned by a Theme Portfolio.
Special Considerations Affecting Russia and Eastern European
Countries. Investing in Russia and Eastern European countries involves a high
degree of risk and special considerations not typically associated with
investing in the United States securities markets, and should be considered
highly speculative. Such risks include: (1) delays in settling portfolio
transactions and risk of loss arising out of the system of share registration
and custody; (2) the risk that it may be impossible or more difficult than in
other countries to obtain and/or enforce a judgement; (3) pervasiveness of
corruption and crime in the economic system; (4) currency exchange rate
volatility and the lack of available currency hedging instruments; (5) higher
rates of inflation (including the risk of social unrest associated with periods
of hyper-inflation) and high unemployment; (6) controls on foreign investment
and local practices disfavoring foreign investors and limitations on
repatriation of invested capital, profits and dividends, and on a fund's ability
to exchange local currencies for U.S. dollars; (7) political instability and
social unrest and violence; (8) the risk that the governments of Russia and
Eastern European countries may decide not to continue to support the economic
reform programs implemented recently and could follow radically different
political and/or economic policies to the detriment of investors, including
non-market-oriented policies such as the support of certain industries at the
expense of other sectors or investors, or a return to the centrally planned
economy that existed when such countries had a communist form of
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government; (9) the financial condition of companies in these countries,
including large amounts of inter-company debt which may create a payments crisis
on a national scale; (10) dependency on exports and the corresponding importance
of international trade; (11) the risk that the tax system in these countries
will not be reformed to prevent inconsistent, retroactive and/or exorbitant
taxation; and (12) the underdeveloped nature of the securities markets.
Special Considerations Affecting Japan. Japan's economic growth has declined
significantly since 1990. The general government position has deteriorated as a
result of weakening economic growth and stimulative measures taken to support
economic activity and to restore financial stability. Although the decline in
interest rates and fiscal stimulation packages have helped to contain
recessionary forces, uncertainties remain. Japan is also heavily dependent upon
international trade, so its economy is especially sensitive to trade barriers
and disputes. Japan has had difficult relations with its trading partners,
particularly the United States, where the trade imbalance is the greatest. It is
possible that trade sanctions and other protectionist measures could impact
Japan adversely in both the short and the long term.
The common stocks of many Japanese companies trade at high price-earnings
ratios. Differences in accounting methods make it difficult to compare the
earnings of Japanese companies with those of companies in other countries,
especially in the U.S. In general, however, reported net income in Japan is
understated relative to U.S. accounting standards and this is one reason why
price-earnings ratios of the stocks of Japanese companies have tended
historically to be higher than those for U.S. stocks. In addition, Japanese
companies have tended to have higher growth rates than U.S. companies and
Japanese interest rates have generally been lower than in the U.S., both of
which factors tend to result in lower discount rates and higher price-earnings
ratios in Japan than in the U.S.
The Japanese securities markets are less regulated than those in the United
States. Evidence has emerged from time to time of distortion of market prices to
serve political or other purposes. Shareholders' rights are not always equally
enforced. In addition, Japan's banking industry is undergoing problems related
to bad loans and declining values in real estate.
Special Considerations Affecting Pacific Region Countries. Certain of the
risks associated with international investments are heightened for investments
in Pacific region countries. For example, some of the currencies of Pacific
region countries have experienced steady devaluations relative to the U.S.
dollar, and major adjustments have been made periodically in certain of such
currencies. Certain countries, such as India, face serious exchange constraints.
Jurisdictional disputes also exist between South Korea and North Korea. In
addition, the Theme Portfolios may invest in Hong Kong, which reverted to
Chinese Administration on July 1, 1997. Investments in Hong Kong may be subject
to expropriation, national, nationalization or confiscation, in which case a
Theme Portfolio could lose its entire investment in Hong Kong. In addition, the
reversion of Hong Kong also presents a risk that the Hong Kong dollar will be
devalued and a risk of possible loss of investor confidence in Hong Kong's
currency, stock market and assets.
Special Considerations Affecting Latin American Countries. Most Latin American
countries have experienced substantial, and in some periods extremely high,
rates of inflation for many years. Inflation and rapid fluctuations in inflation
rates have had and may continue to have very negative effects on the economies
and securities markets of certain Latin American countries. Certain Latin
American countries are also among the largest debtors to commercial banks and
foreign governments. At times certain Latin American countries have declared
moratoria on the payment of principal and/or interest on external debt. In
addition, certain Latin American securities markets have experienced high
volatility in recent years.
Latin American countries may also close certain sectors of their economies to
equity investments by foreigners. Further due to the absence of securities
markets and publicly owned corporations and due to restrictions on direct
investment by foreign entities, investments may only be made in certain Latin
American countries solely or primarily through governmentally approved
investment vehicles or companies.
Certain Latin American countries may have managed currencies that are
maintained at artificial levels to the U.S. dollar rather than at levels
determined by the market. This type of system can lead to sudden and large
adjustments in the currency which, in turn, can have a disruptive and negative
effect on foreign investors. For example, in late 1994, the value of the Mexican
peso lost more than one-third of its value relative to the U.S. dollar.
Special Considerations Affecting Emerging Markets. Investing in the securities
of companies in emerging markets may entail special risks relating to potential
political and economic instability and the risks of expropriation,
nationalization, confiscation or the imposition of restrictions on foreign
investment, convertibility of currencies into U.S. dollars and on repatriation
of capital invested. In the event of such expropriation, nationalization or
other confiscation by any country, a Theme Portfolio could lose its entire
investment in any such country.
Emerging securities markets are substantially smaller, less developed, less
liquid and more volatile than the major securities markets. The limited size of
emerging securities markets and limited trading value in issuers compared to the
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<PAGE> 936
volume of trading in U.S. securities could cause prices to be erratic for
reasons apart from factors that affect the quality of the securities. For
example, limited market size may cause prices to be unduly influenced by traders
who control large positions. Adverse publicity and investors' perceptions,
whether or not based on fundamental analysis, may decrease the value and
liquidity of portfolio securities, especially in these markets. In addition,
securities traded in certain emerging markets may be subject to risks due to the
inexperience of financial intermediaries, a lack of modern technology, the lack
of a sufficient capital base to expand business operations, and the possibility
of permanent or temporary termination of trading.
Settlement mechanisms in emerging securities markets may be less efficient and
reliable than in more developed markets. In such emerging securities there may
be share registration and delivery delays or failures.
Many emerging market countries have experienced substantial, and in some
periods extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates and corresponding currency devaluations have had
and may continue to have negative effects on the economies and securities
markets of certain emerging market countries.
INVESTMENT LIMITATIONS
FEEDER FUNDS
The Financial Services Fund, Infrastructure Fund, Resources Fund and Consumer
Products and Services Fund each has the following fundamental investment policy
to enable it to invest in the Financial Services Portfolio, Infrastructure
Portfolio, Resources Portfolio and Consumer Products and Services Portfolio,
respectively:
Notwithstanding any other investment policy of the Fund, the Fund may invest
all of its investable assets (cash, securities and receivables related to
securities) in an open-end management investment company having substantially
the same investment objective, policies and limitations as the Fund.
All other fundamental investment policies, and the non-fundamental investment
policies, of each Feeder Fund and its corresponding Portfolio are identical.
Therefore, although the following discusses the investment policies of each
Portfolio and its Board of Trustees, it applies equally to each Feeder Fund and
its Board of Trustees.
Each Portfolio has adopted the following investment limitations as fundamental
policies that (unless otherwise noted) may not be changed without approval by
the affirmative vote of a majority of the outstanding shares of the Portfolio.
Whenever a Feeder Fund is requested to vote on a change in the investment
limitations of its corresponding Portfolio, the Fund will hold a meeting of its
shareholders and will cast its votes as instructed by its shareholders.
No Portfolio may:
(1) Purchase or sell real estate, except that investments in
securities of issuers that invest in real estate and investments in
mortgage-backed securities, mortgage participations or other instruments
supported by interests in real estate are not subject to this limitation,
and except that the Portfolio may exercise rights under agreements relating
to such securities, including the right to enforce security interests and
to hold real estate acquired by reason of such enforcement until that real
estate can be liquidated in an orderly manner;
(2) Purchase or sell physical commodities, but the Portfolio may
purchase, sell or enter into financial options and futures, forward and
spot currency contracts, swap transactions and other financial contracts or
derivative instruments;
(3) Engage in the business of underwriting securities of other
issuers, except to the extent that the Portfolio might be considered an
underwriter under the federal securities laws in connection with its
disposition of portfolio securities;
(4) Make loans, except through loans of portfolio securities or
through repurchase agreements, provided that for purposes of this
limitation, the acquisition of bonds, debentures, other debt securities or
instruments, or participations or other interests therein and investments
in government obligations, commercial paper, certificates of deposit,
bankers' acceptances or similar instruments will not be considered the
making of a loan;
(5) Issue senior securities or borrow money, except as permitted under
the 1940 Act and then not in excess of 33 1/3% of the Portfolio's total
assets (including the amount borrowed but reduced by any liabilities not
constituting borrowings) at the time of the borrowing, except that the
Portfolio may borrow up to an additional 5% of its total assets (not
including the amount borrowed) for temporary or emergency purposes; or
30
<PAGE> 937
(6) Purchase securities of any one issuer if, as a result, more than
5% of the Portfolio's total assets would be invested in securities of that
issuer or the Portfolio would own or hold more than 10% of the outstanding
voting securities of that issuer, except that up to 25% of the Portfolio's
total assets may be invested without regard to this limitation, and except
that this limitation does not apply to securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities or to securities
issued by other investment companies.
The following investment policies of each Portfolio are not fundamental
policies and may be changed by vote of the Portfolios' Board of Trustees without
shareholder approval.
No Portfolio may:
(1) Invest in securities of an issuer if the investment would cause
the Portfolio to own more than 10% of any class of securities of any one
issuer;
(2) Invest in companies for the purpose of exercising control or
management;
(3) Invest more than 15% of its net assets in illiquid securities,
including securities that are illiquid by virtue of the absence of a
readily available market;
(4) Enter into a futures contract, an option on a futures contract, or
an option on foreign currency traded on a CFTC-regulated exchange, in each
case other than for bona fide hedging purposes (as defined by the CFTC), if
the aggregate initial margin and premiums required to establish all of
those positions (excluding the amount by which options are "in-the-money")
exceeds 5% of the liquidation value of the Portfolio's portfolio, after
taking into account unrealized profits and unrealized losses on any
contracts the Portfolio has entered into;
(5) Borrow money except for temporary or emergency purposes (other
than to meet redemptions). While borrowings exceed 5% of the Portfolio's
total assets, the Portfolio will not make any additional investments;
(6) Invest more than 10% of its total assets in shares of other
investment companies and may not invest more than 5% of its total assets in
any one investment company or acquire more than 3% of the outstanding
voting securities of any one investment company;
(7) Purchase securities on margin, provided that each Portfolio may
obtain short-term credits as may be necessary for the clearance of
purchases and sales of securities, and further provided that the Portfolio
may make margin deposits in connection with its use of financial options
and futures, forward and spot currency contracts, swap transactions and
other financial contracts or derivative instruments; or
(8) Mortgage, pledge, or hypothecate any of its assets, provided that
this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.
Investors should refer to the Prospectus for further information with respect
to the investment objective of each Feeder Fund, which may not be changed
without the approval of the Fund's shareholders, and its corresponding
Portfolio's investment objective, which may be changed without the approval of
the Portfolio's shareholders, and other investment policies, techniques and
limitations, which may or may not be changed without shareholder approval.
HEALTH CARE FUND
The Health Care Fund has adopted the following investment limitations as
fundamental policies, which (unless otherwise noted) may not be changed without
approval by a majority of the outstanding shares of the Fund.
The Health Care Fund may not:
(1) Purchase or sell real estate, except that investments in
securities of issuers that invest in real estate and investments in
mortgage-backed securities, mortgage participations or other instruments
supported by interests in real estate are not subject to this limitation,
and except that the Health Care Fund may exercise rights under agreements
relating to such securities, including the right to enforce security
interests and to hold real estate acquired by reason of such enforcement
until that real estate can be liquidated in an orderly manner;
(2) Engage in the business of underwriting securities of other
issuers, except to the extent that the Health Care Fund might be considered
an underwriter under the federal securities laws in connection with its
disposition of portfolio securities;
31
<PAGE> 938
(3) Make loans, except through loans of portfolio securities or
through repurchase agreements, provided that for purposes of this
limitation, the acquisition of bonds, debentures, other debt securities or
instruments, or participations or other interests therein and investments
in government obligations, commercial paper, certificates of deposit,
bankers' acceptances or similar instruments will not be considered the
making of a loan;
(4) Purchase or sell physical commodities, but the Health Care Fund
may purchase, sell or enter into financial options and futures, forward and
spot currency contracts, swap transactions and other financial contracts or
derivative instruments;
(5) Issue senior securities or borrow money, except as permitted under
the 1940 Act and then not in excess of 33 1/3% of the Health Care Fund's
total assets (including the amount borrowed but reduced by any liabilities
not constituting borrowings) at the time of the borrowing, except that the
Health Care Fund may borrow up to an additional 5% of its total assets (not
including the amount borrowed) for temporary or emergency purposes; or
(6) Purchase securities of any one issuer if, as a result, more than
5% of the Health Care Fund's total assets would be invested in securities
of that issuer or the Health Care Fund would own or hold more than 10% of
the outstanding voting securities of that issuer, except that up to 25% of
the Health Care Fund's total assets may be invested without regard to this
limitation, and except that this limitation does not apply to securities
issued or guaranteed by the U.S. government, its agencies or
instrumentalities or to securities issued by other investment companies.
Notwithstanding any other investment policy of the Health Care Fund, the
Health Care Fund may invest all of its investable assets (cash, securities and
receivables related to securities) in an open-end management investment company
having substantially the same investment objective, policies and limitations as
the Fund.
The following investment policies of the Health Care Fund are not fundamental
policies and may be changed by vote of the Trust's Board of Trustees without
shareholder approval. The Health Care Fund will not:
(1) Purchase securities for which there is no readily available
market, or enter into repurchase agreements or purchase time deposits
maturing in more than seven days, or purchase OTC options or hold assets
set aside to cover OTC options written by the Health Care Fund, if
immediately after and as a result, the value of such securities would
exceed, in the aggregate, 15% of the Health Care Fund's net assets;
(2) Purchase securities on margin, provided that the Health Care Fund
may obtain short-term credits as may be necessary for the clearance of
purchases and sales of securities, and further provided that the Health
Care Fund may make margin deposits in connection with its use of financial
options and futures, forward and spot currency contracts, swap transactions
and other financial contracts or derivative instruments; or
(3) Mortgage, pledge, or hypothecate any of its assets, provided that
this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities; or
(4) Borrow money except for temporary or emergency purposes (other
than to meet redemptions). While borrowings exceed 5% of the Health Care
Fund's total assets, it will not make any additional investments.
Investors should refer to the Health Care Fund's Prospectus for further
information with respect to the Health Care Fund's investment objective, which
may not be changed without the approval of its shareholders, and other
investment policies, techniques and limitations, which may be changed without
shareholder approval.
TELECOMMUNICATIONS FUND
The Telecommunications Fund has adopted the following investment limitations
as fundamental policies, which (unless otherwise noted) may not be changed
without approval by the affirmative vote of a majority of the outstanding shares
of the Fund.
The Telecommunications Fund may not:
(1) Purchase or sell real estate, except that investments in
securities of issuers that invest in real estate and investments in
mortgage-backed securities, mortgage participations or other instruments
supported by interests in real estate are not subject to this limitation,
and except that the Telecommunications Fund may exercise rights under
agreements relating to such securities, including the right to enforce
security interests and to hold real estate acquired by reason of such
enforcement until that real estate can be liquidated in an orderly manner;
32
<PAGE> 939
(2) Purchase or sell physical commodities, but the Telecommunications
Fund may purchase, sell or enter into financial options and futures,
forward and spot currency contracts, swap transactions and other financial
contracts or derivative instruments;
(3) Engage in the business of underwriting securities of other
issuers, except to the extent that the Telecommunications Fund might be
considered an underwriter under the federal securities laws in connection
with its disposition of portfolio securities;
(4) Make loans, except through loans of portfolio securities or
through repurchase agreements, provided that for purposes of this
limitation, the acquisition of bonds, debentures, other debt securities or
instruments, or participations or other interests therein and investments
in government obligations, commercial paper, certificates of deposit,
bankers' acceptances or similar instruments will not be considered the
making of a loan;
(5) Issue senior securities or borrow money, except as permitted under
the 1940 Act and then not in excess of 33 1/3% of the Telecommunications
Fund's total assets (including the amount borrowed but reduced by any
liabilities not constituting borrowings) at the time of the borrowing,
except that the Telecommunications Fund may borrow up to an additional 5%
of its total assets (not including the amount borrowed) for temporary or
emergency purposes; or
(6) Purchase securities of any one issuer if, as a result, more than
5% of the Telecommunications Fund's total assets would be invested in
securities of that issuer or the Telecommunications Fund would own or hold
more than 10% of the outstanding voting securities of that issuer, except
that up to 25% of the Telecommunications Fund's total assets may be
invested without regard to this limitation, and except that this limitation
does not apply to securities issued or guaranteed by the U.S. government,
its agencies or instrumentalities or to securities issued by other
investment companies.
Notwithstanding any other investment policy of the Telecommunications Fund,
the Telecommunications Fund may invest all of its investable assets (cash,
securities and receivables related to securities) in an open-end management
investment company having substantially the same investment objective, policies
and limitations as the Fund.
The following investment policies of the Telecommunications Fund are not
fundamental policies and may be changed by vote of the Trust's Board of Trustees
without shareholder approval.
The Telecommunications Fund may not:
(1) Invest in securities of an issuer if the investment would cause
the Telecommunications Fund to own more than 10% of any class of securities
of any one issuer;
(2) Invest in companies for the purpose of exercising control or
management;
(3) Invest more than 15% of its net assets in illiquid securities,
including securities that are illiquid by virtue of the absence of a
readily available market;
(4) Enter into a futures contract, an option on a futures contract, or
an option on foreign currency traded on a CFTC-regulated exchange, in each
case other than for bona fide hedging purposes (as defined by the CFTC), if
the aggregate initial margin and premiums required to establish all of
those positions (excluding the amount by which options are "in-the-money")
exceeds 5% of the liquidation value of the Fund's portfolio, after taking
into account unrealized profits and unrealized losses on any contracts the
Fund has entered into;
(5) Borrow money except for temporary or emergency purposes (other
than to meet redemptions). While borrowings exceed 5% of the
Telecommunications Fund's total assets, it will not make any additional
investments;
(6) Purchase securities on margin, provided that the
Telecommunications Fund may obtain short-term credits as may be necessary
for the clearance of purchases and sales of securities, and further
provided that the Telecommunications Fund may make margin deposits in
connection with its use of financial options and futures, forward and spot
currency contracts, swap transactions and other financial contracts or
derivative instruments; or
(7) Mortgage, pledge, or hypothecate any of its assets, provided that
this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.
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<PAGE> 940
Investors should refer to the Telecommunications Fund's Prospectus for further
information with respect to the Telecommunications Fund's investment objective,
which may not be changed without the approval of its shareholders, and other
investment policies, techniques and limitations, which may be changed without
shareholder approval.
If a percentage restriction on investment or utilization of assets in an
investment policy or restriction is adhered to at the time an investment is
made, a later change in percentage ownership of a security or kind of securities
resulting from changing market values or a similar type of event will not be
considered a violation of a Fund's or Portfolio's investment policies or
restrictions. A Fund or Portfolio may exchange securities, exercise conversion
or subscription rights, warrants or other rights to purchase common stock or
other equity securities and may hold, except to the extent limited by the 1940
Act, any such securities so acquired without regard to the Fund's or Portfolio's
investment policies and restrictions. The original cost of the securities so
acquired will be included in any subsequent determination of a Fund's or
Portfolio's compliance with the investment percentage limitations referred to
above and in the Prospectus.
EXECUTION OF PORTFOLIO TRANSACTIONS
Subject to policies established by the Trust's and the Portfolios' Board of
Trustees, the Sub-advisor is responsible for the execution of each Theme
Portfolio's securities transactions and the selection of broker/dealers who
execute such transactions on behalf of each Theme Portfolio. In executing
transactions, the Sub-advisor seeks the best net results for each Theme
Portfolio, taking into account such factors as the price (including the
applicable brokerage commission or dealer spread), size of the order, difficulty
of execution and operational facilities of the firm involved. Although the Sub-
advisor generally seeks reasonably competitive commission rates and spreads,
payment of the lowest commission or spread is not necessarily consistent with
the best net results. While each Theme Portfolio may engage in soft dollar
arrangements for research services, as described below, it has no obligation to
deal with any broker/dealer or group of broker/dealers in the execution of
portfolio transactions.
Consistent with the interests of each Theme Portfolio, the Sub-advisor may
select broker/dealers to execute that Theme Portfolio's portfolio transaction on
the basis of the research and brokerage services they provide to the Sub-advisor
for its use in managing that Theme Portfolio and its other advisory accounts.
Such services may include furnishing analyses, reports and information
concerning issuers, industries, securities, geographic regions, economic factors
and trends, portfolio strategy, and performance of accounts; and effecting
securities transactions and performing functions incidental thereto (such as
clearance and settlement). Research and brokerage services received from such
broker are in addition to, and not in lieu of, the services required to be
performed by the Sub-advisor under the applicable investment management and
administration contract. A commission paid to such broker may be higher than
that which another qualified broker would have charged for effecting the same
transaction, provided that the Sub-advisor determines in good faith that such
commission is reasonable in terms either of that particular transaction or the
overall responsibility of the Sub-advisor to that Theme Portfolio and its other
clients and that the total commissions paid by that Theme Portfolio will be
reasonable in relation to the benefits it received over the long term. Research
services may also be received from dealers who execute portfolio transactions in
OTC markets.
The Sub-advisor may allocate brokerage transactions to broker/dealers who have
entered into arrangements under which the broker/dealer allocates a portion of
the commissions paid by a Theme Portfolio toward payment of its expenses, such
as custodian fees.
Investment decisions for a Theme Portfolio and for other investment accounts
managed by the Sub-advisor are made independently of each other in light of
differing conditions. However, the same investment decision occasionally may be
made for two or more of such accounts, including a Theme Portfolio. In such
cases, simultaneous transactions may occur. Purchases or sales are then
allocated as to price or amount in a manner deemed fair and equitable to all
accounts involved. While in some cases this practice could have a detrimental
effect upon the price or value of the security as far as a Theme Portfolio is
concerned, in other cases the Sub-advisor believes that coordination and the
ability to participate in volume transactions will be beneficial to that Theme
Portfolio.
Under a policy adopted by the Trust's and the Portfolios' Board of Trustees,
and subject to the policy of obtaining the best net results, the Sub-advisor may
consider a broker/dealer's sale of the shares of the Theme Funds and the other
portfolios for which AIM or the Sub-advisor serves as investment manager or
administrator in selecting broker/dealers for the execution of portfolio
transactions. This policy does not imply a commitment to execute portfolio
transactions through all broker/dealers that sell shares of the Theme Funds and
such other portfolios.
Each Theme Portfolio contemplates purchasing most foreign equity securities in
OTC markets or stock exchanges located in the countries in which the respective
principal offices of the issuers of the various securities are located, if that
is the best available market. The fixed commissions paid in connection with most
such foreign stock transactions generally
34
<PAGE> 941
are higher than negotiated commissions on U.S. transactions. There generally is
less government supervision and regulation of foreign stock exchanges and
brokers than in the United States. Foreign security settlements may in some
instances be subject to delays and related administrative uncertainties.
Foreign equity securities may be held by a Theme Portfolio in the form of
ADRs, ADSs, EDRs, GDRs and CDRs or securities convertible into foreign equity
securities. ADRs, ADSs, EDRs, GDRs and CDRs may be listed on stock exchanges, or
traded in the OTC markets in the United States or Europe, as the case may be.
ADRs, like other securities traded in the United States, will be subject to
negotiated commission rates. The foreign and domestic debt securities and money
market instruments in which a Theme Portfolio may invest are generally traded in
the OTC markets.
A Theme Portfolio does not have any obligation to deal with any broker/dealer
or group of broker/dealers in the execution of securities transactions. Each
Theme Portfolio contemplates that, consistent with the policy of obtaining the
best net results, brokerage transactions may be conducted through certain
companies that are affiliated with AIM or the Sub-advisor. The Trust's or the
Portfolios' Board of Trustees, as applicable, has adopted procedures in
conformity with Rule 17e-1 under the 1940 Act to ensure that all brokerage
commissions paid to such affiliates are reasonable and fair in the context of
the market in which they are operating. Any such transactions will be effected
and related compensation paid only in accordance with applicable SEC
regulations.
The Portfolios 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 Portfolio, provided the conditions of an exemptive order
received by the Portfolios from the SEC are met. In addition, a Portfolio may
purchase or sell a security from or to another AIM Fund provided the Portfolios
follow procedures adopted by the Boards of Directors/Trustees of the various AIM
Funds, including the Trust. These inter-fund transactions do not generate
brokerage commissions but may result in custodial fees or taxes or other related
expenses.
For the fiscal years ended October 31, 1998, 1997 and 1996, the Health Care
Fund paid aggregate brokerage commissions of $ , $1,150,118 and
$1,619,500, respectively. For the fiscal years ended October 31, 1998, 1997 and
1996, the Telecommunications Fund paid aggregate brokerage commissions of
$ , $2,254,069 and $2,848,733, respectively. For the fiscal years ended
October 31, 1998, 1997 and 1996, the Financial Services Portfolio paid aggregate
brokerage commissions of $ , $250,893 and $77,822, respectively. For
the fiscal years ended October 31, 1998, 1997 and 1996, the Infrastructure
Portfolio paid aggregate brokerage commissions of $ , $131,543 and
$124,164, respectively. For the fiscal years ended October 31, 1998, 1997 and
1996, the Resources Portfolio paid aggregate brokerage commissions of
$ , $1,281,212 and $496,370, respectively. For the fiscal years ended
October 31, 1998, 1997 and 1996, the Consumer Products and Services Portfolio
paid aggregate brokerage commissions of $ , $1,454,348 and $356,459,
respectively. For the fiscal years ended October 31, 1998, 1997 and 1996, the
Health Care Fund paid to LGT Bank in Liechtenstein AG, which was an "affiliated"
broker, aggregate brokerage commissions of $23,081 and $32,898, respectively,
for transactions involving purchases and sales of portfolio securities which
represented 2.01% and 2.03%, respectively of the total brokerage commissions
paid by the Health Care Fund and 1.61% and 1.71%, respectively, of the aggregate
dollar amount of transactions involving payment of commissions by the Health
Care Fund. For fiscal year ended October 31, 1998 and 1997, the
Telecommunications Fund paid to LGT Bank in Liechtenstein, AG, which was an
"affiliated" broker, aggregate brokerage commissions of $22,584 for transactions
involving purchases and sales of portfolio securities which represented 1.00% of
the total brokerage commissions paid by the Fund and 0.67% of the aggregate
dollar amount of transactions involving payment of commissions by the Fund.
PORTFOLIO TRADING AND TURNOVER
Although each Theme Portfolio does not intend generally to trade for
short-term profits, the securities held by that Theme Portfolio will be sold
whenever management believes it is appropriate to do so, without regard to the
length of time a particular security may have been held. Portfolio turnover rate
is calculated by dividing the lesser of sales or purchases of portfolio
securities by each Theme Portfolio's average month-end portfolio value,
excluding short-term investments. The portfolio turnover rate will not be a
limiting factor when management deems portfolio changes appropriate. Higher
portfolio turnover involves correspondingly greater brokerage commissions and
other transaction costs that the Theme Portfolio will bear directly, and may
result in the realization of net capital gains that are taxable when distributed
to each Fund's shareholders. For the fiscal years ended October 31, 1998 and
1997, the Telecommunications Fund's portfolio turnover rates were % and 35%,
respectively. For the fiscal years ended October 31, 1998 and 1997, the Health
Care Fund's portfolio turnover rates were % and 149%, respectively. For the
fiscal years ended October 31, 1998 and 1997, the portfolio turnover rates for
the Financial Services Portfolio, Infrastructure Portfolio and Resources
Portfolio were % and 91%, % and 41%, and % and 321%, respectively. For
the fiscal years ended
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<PAGE> 942
October 31, 1998 and 1997, the portfolio turnover rates for the Consumer
Products and Services Portfolio were % and 392%, respectively.
MANAGEMENT
The Trust's Board of Trustees has overall responsibility for the operation of
the Funds. The Trust's Board of Trustees has approved all significant agreements
between the Trust on the one side and persons or companies furnishing services
to the Fund on the other, including the investment management and administration
agreement with AIM, the investment sub-advisory and sub-administration agreement
between AIM and the Sub-advisor, the agreements with AIM Distributors regarding
distribution of the Fund's shares, the custody agreement and the transfer agency
agreement. The day-to-day operations of the Fund are delegated to the officers
of the Trust, subject always to the investment objectives and policies of the
Fund and to the general supervision of the Trust's Board of Trustees.
TRUSTEES AND EXECUTIVE OFFICERS
The Trust's Trustees and Executive Officers and the Portfolios' Trustees and
Executive Officers are listed below. Unless otherwise indicated, the address of
each Executive Officer is 11 Greenway, Suite 100, Houston, Texas 77046.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
POSITIONS HELD
NAME, ADDRESS AND AGE WITH REGISTRANT PRINCIPAL OCCUPATION DURING PAST 5 YEARS
--------------------- --------------- ----------------------------------------
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
*ROBERT H. GRAHAM (51) Trustee, Chairman of the Director, President and Chief Executive Officer,
Board and President 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; and
Director, AMVESCAP PLC.
- ---------------------------------------------------------------------------------------------------------
C. DEREK ANDERSON (57) Trustee President, Plantagenet Capital Management, LLC (an
220 Sansome Street investment partnership); Chief Executive Officer,
Suite 400 Plantagenet Holdings, Ltd. (an investment banking
San Francisco, CA 94104 firm); Director, Anderson Capital Management, Inc.
since 1988; Director, PremiumWear, Inc. (formerly
Munsingwear, Inc.) (a casual apparel company);
Director, "R" Homes, Inc. and various other
companies; and Trustee, each of the other
investment companies registered under the 1940 Act
that is sub-advised or sub-administered by the Sub-
advisor.
- ---------------------------------------------------------------------------------------------------------
FRANK S. BAYLEY (59) Trustee Partner, law firm of Baker & McKenzie; Director and
Two Embarcadero Center Chairman, C.D. Stimson Company (a private
Suite 2400 investment company); and Trustee, each of the other
San Francisco, CA 94111 investment companies registered under the 1940 Act
that is sub-advised or sub-administered by the Sub-
advisor.
- ---------------------------------------------------------------------------------------------------------
ARTHUR C. PATTERSON (54) Trustee Managing Partner, Accel Partners (a venture capital
428 University Avenue firm); Director, Viasoft and PageMart, Inc. (both
Palo Alto, CA 94301 public software companies) and several other
privately held software and communications
companies; and Trustee, each of the other
investment companies registered under the 1940 Act
that is sub-advised or sub-administered by the Sub-
advisor.
- ---------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
<TABLE>
<S> <C> <C>
* A Trustee who is an "interested person" of the Trust and A I M Advisors, Inc., as defined in the 1940
Act.
</TABLE>
36
<PAGE> 943
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
POSITIONS HELD
NAME, ADDRESS AND AGE WITH REGISTRANT PRINCIPAL OCCUPATION DURING PAST 5 YEARS
--------------------- --------------- ----------------------------------------
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
RUTH H. QUIGLEY (63) Trustee Private investor; President, Quigley Friedlander &
1055 California Street Co., Inc. (a financial advisory services firm) from
San Francisco, CA 94108 1984 to 1986; and Trustee, each of the other
investment companies registered under the 1940 Act
that is sub-advised or sub-administered by the Sub-
advisor.
- ---------------------------------------------------------------------------------------------------------
+ JOHN J. ARTHUR (53) Vice President Director and Senior Vice President, A I M Advisors,
Inc.; and Vice President and Treasurer, A I M
Management Group Inc.
- ---------------------------------------------------------------------------------------------------------
KENNETH W. CHANCEY (53) Vice President and Senior Vice President -- Mutual Fund Accounting,
50 California Street Principal Accounting the Sub-advisor since 1997; Vice
San Francisco, CA 94111 Officer President -- Mutual Fund Accounting, the
Sub-advisor from 1992 to 1997.
- ---------------------------------------------------------------------------------------------------------
MELVILLE B. COX (54) Vice President Vice President and Chief Compliance Officer, A I M
Advisors, Inc., A I M Capital Management, Inc.,
A I M Distributors, Inc., A I M Fund Services, Inc.
and Fund Management Company.
- ---------------------------------------------------------------------------------------------------------
GARY T. CRUM (50) Vice President Director and President, A I M Capital 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) Vice President Director, Senior Vice President, General Counsel
and Secretary, A I M Advisors, Inc.; Senior Vice
President, General Counsel and Secretary, A I M
Management Group Inc.; Director, Vice President and
General Counsel, Fund Management Company; Vice
President and General Counsel, A I M Fund Services,
Inc.; and Vice President, A I M Capital Management,
Inc. and A I M Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------
DANA R. SUTTON (39) Vice President and Vice President and Fund Controller, A I M Advisors,
Assistant Treasurer Inc.; and Assistant Vice President and Assistant
Treasurer, Fund Management Company.
- ---------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
+ Mr. Arthur and Ms. Relihan are married to each other.
The Board of Trustees has a Nominating and Audit Committee, comprised of Miss
Quigley (Chairman) and Messrs. Anderson, Bayley and Patterson, which is
responsible for nominating persons to serve as Directors, reviewing audits of
the Trust and its funds and recommending firms to serve as independent auditors
of the Trust. All of the Trust's Trustees also serve as directors or trustees of
some or all of the other investment companies managed, administered or advised
by AIM. All of the Trust's executive officers hold similar offices with some or
all of the other investment companies managed, administered or advised by AIM.
Each Trustee who is not a director, officer or employee of the Sub-advisor or
any affiliated company is paid aggregate fees of $5,000 a year, plus $300 per
Fund for each meeting of the Board attended, and reimbursed travel and other
expenses incurred in connection with attendance at such meetings. Other Trustees
and Officers receive no compensation or expense reimbursement from the Trust.
For the fiscal year ended October 31, 1997, Mr. Anderson, Mr. Bayley, Mr.
Patterson and Miss Quigley, who are not directors, officers or employees of the
Sub-advisor or any affiliated company, received total compensation of $38,650,
$38,650, $27,850 and $38,650, respectively, from the Trust for their services as
Trustees. For the fiscal year ended October 31, 1997, Mr. Anderson, Mr. Bayley,
Mr. Patterson and Miss Quigley, who are not directors, officers or employees of
the Sub-advisor or any other affiliated company, received total compensation of
$117,304, $114,386, $88,350 and $111,688, respectively, from the investment
companies managed or administered by AIM and sub-advised or sub-administered by
the Sub-advisor for which he or she serves as a Director or Trustee. Fees and
expenses disbursed to the Directors contained no accrued or payable pension or
retirement benefits. As of August 10, 1998, the Officers and Trustees and their
families as a group owned in the
37
<PAGE> 944
aggregate beneficially or of record less than 1% of the outstanding shares of
each Fund or of all the Trust's series in the aggregate.
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES RELATING TO THE FEEDER FUNDS
AND THE PORTFOLIOS
AIM serves as each Portfolio's investment manager and administrator under an
investment management and administration contract between each Portfolio and AIM
("Portfolio Management Contract"). The Sub-advisor serves as each Portfolio's
sub-advisor and sub-administrator under a sub-advisory and sub-administration
agreement between AIM and the Sub-advisor ("Portfolio Management Sub-Contract,"
and together with the Portfolio Management Contract, the "Portfolio Management
Contracts"). AIM serves as administrator to each Feeder Fund under an
administration contract between the Trust and AIM ("Administration Contract").
The Sub-advisor serves as sub-administrator to each Feeder Fund under a
sub-administration contract between AIM and the Sub-advisor ("Administration
Sub-Contract," and together with the Administration Contract, the
"Administration Contracts"). The Administration Contracts will not be deemed
advisory contracts, as defined under the 1940 Act. As investment managers and
administrators, AIM and the Sub-advisor make all investment decisions for each
Portfolio and, as administrators, administer each Portfolio's and each Feeder
Fund's affairs. Among other things, AIM and the Sub-advisor furnish the services
and pay the compensation and travel expenses of persons who perform the
executive, administrative, clerical and bookkeeping functions of each Portfolio
and each Feeder Fund and provide suitable office space, necessary small office
equipment and utilities.
The Portfolio Management Contracts may be renewed with respect to a Portfolio
for additional one-year terms, provided that any such renewal has been
specifically approved at least annually by (i) the Portfolios' Board of Trustees
or the vote of a majority of the Portfolio's outstanding voting securities (as
defined in the 1940 Act) and (ii) a majority of Trustees who are not parties to
the Portfolio Management Contracts or "interested persons" of any such party (as
defined in the 1940 Act), cast in person at a meeting called for the specific
purpose of voting on such approval. The Portfolio Management Contracts provide
that with respect to each Portfolio, and the Administration Contracts provide
that with respect to each Feeder Fund, either the Trust, each Portfolio or the
Sub-advisor may terminate the Contracts without penalty upon sixty days' written
notice to the other party. The Portfolio Management Contracts terminate
automatically in the event of their assignment (as defined in the 1940 Act).
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES RELATING TO THE HEALTH CARE
FUND AND TELECOMMUNICATIONS FUND
AIM serves as the investment manager and administrator to the Health Care Fund
and Telecommunications Fund under an investment management and administration
contract ("Management Contract") between the Trust and AIM. The Sub-advisor
serves as the sub-advisor and sub-administrator to the Health Care Fund and
Telecommunications Fund under a Sub-Advisory and Sub-Administration Contract
between AIM and the Sub-advisor ("Sub-Management Contract," and together with
the Management Contract, the "Management Contracts"). As investment managers and
administrators, AIM and the Sub-advisor make all investment decisions for the
Health Care Fund and Telecommunications Fund and administer the Health Care
Fund's and the Telecommunications Fund's affairs. Among other things, AIM and
the Sub-advisor furnish the services and pay the compensation and travel
expenses of persons who perform the executive, administrative, clerical and
bookkeeping functions of the Trust and the Health Care Fund and
Telecommunications Fund, and provide suitable office space, necessary small
office equipment and utilities.
The Management Contracts may be renewed for additional one-year terms with
respect to the Health Care Fund and Telecommunications Fund, provided that any
such renewal has been specifically approved at least annually by: (i) the
Trust's Board of Trustees, or by the vote of a majority of the Health Care Fund
and Telecommunications Fund's outstanding voting securities (as defined in the
1940 Act), and (ii) a majority of Trustees who are not parties to the Management
Contracts or "interested persons" of any such party (as defined in the 1940
Act), cast in person at a meeting called for the specific purpose of voting on
such approval. The Management Contracts provide that with respect to the Health
Care Fund and Telecommunications Fund either the Trust or each of AIM or the
Sub-advisor may terminate the Contracts without penalty upon sixty days' written
notice to the other party. The Management Contracts terminate automatically in
the event of their assignment (as defined in the 1940 Act).
38
<PAGE> 945
Each Theme Portfolio paid the following advisory fees net of any expense
limitations (fee waivers) for the years ended October 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Consumer Products and Services Portfolio............... $ $ 1,207,854 $ 422,640
Financial Services Portfolio........................... 346,965 99,991
Health Care Fund....................................... 5,820,067 5,495,494
Infrastructure Portfolio............................... 772,727 635,456
Resources Portfolio.................................... 979,215 213,856
Telecommunications Fund................................ 17,999,111 23,119,601
</TABLE>
[Prior to October 19, 1998, INVESCO (NY), Inc. was the sub-advisor and
sub-administrator to the Theme Portfolios. For the fiscal years ended October
31, 1997 and 1996, the Theme Portfolios paid the above referenced advisory fees
to INVESCO (NY), Inc. For the fiscal year ended October 31, 1998, the Theme
Portfolios paid INVESCO (NY) Inc. $ and AIM $ in advisory fees.]
For the fiscal year ended October 31, 1996, the Sub-advisor reimbursed the
Financial Services Portfolio, Infrastructure Portfolio and Resources Portfolio
for their respective investment management and administration fees in the
amounts of $103,267; $0; and $0. Each of these Portfolios had no reimbursement
for the fiscal year ended October 31, 1997. For the fiscal years ended October
31, 1996 and 1997, the Financial Services Fund, Infrastructure Fund and
Resources Fund paid administration fees of $34,865 and $119,765; $218,735 and
$266,025; and $147,614 and $338,578, respectively. However, the Sub-advisor
reimbursed those Funds for such fees in the amounts of $34,865 and $0; $0 and
$0; and $0 and $0, respectively. For the fiscal years ended October 31, 1996 and
1997, the Sub-advisor reimbursed the Consumer Products and Services Portfolio
for investment management and administration fees in the amounts of $0 and $0,
respectively. For the same periods, the Consumer Products and Services Fund paid
$147,623 and $416,297, respectively, in administration fees; however, the
Sub-advisor reimbursed the Fund in the amounts of $0 and $0, respectively.
DISTRIBUTION SERVICES RELATING TO EACH FUND
Each Fund's Advisor Class shares are offered continuously through each Fund's
principal underwriter and distributor, AIM Distributors, on a "best efforts"
basis pursuant to a distribution contract between the Trust and AIM Distributors
without a front-end sales charge or a contingent deferred sales charge.
EXPENSES OF THE FUNDS AND OF THE PORTFOLIOS
Each Fund and each Portfolio pays all expenses not assumed by AIM, the
Sub-advisor, AIM Distributors and other agents. These expenses include, in
addition to the advisory, administration, distribution, transfer agency, pricing
and accounting agency and brokerage fees described above, legal and audit
expenses, custodian fees, trustees' fees, organizational fees, fidelity bond and
other insurance premiums, taxes, extraordinary expenses and expenses of reports
and prospectuses sent to existing investors. The allocation of general Company
expenses and expenses shared among the Funds and other funds organized as series
of the Company are allocated on a basis deemed fair and equitable, which may be
based on the relative net assets of the Funds or the nature of the service
performed and relative applicability to the Funds. Expenditures, including costs
incurred in connection with the purchase or sale of portfolio 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. The ratio of each Fund's expenses to its relative net assets can be
expected to be higher than the expense ratios of funds investing solely in
domestic securities, since the cost of maintaining the custody of foreign
securities and the rate of investment management fees paid by the Funds or the
Portfolios generally are higher than the comparable expenses of such other
funds.
39
<PAGE> 946
NET ASSET VALUE DETERMINATION
The net asset value per share of each Fund is normally determined daily as of
the close of trading of the New York Stock Exchange ("NYSE") (generally 4:00
p.m. Eastern time) on each business day of the Fund. In the event the NYSE
closes early (i.e., before 4:00 p.m. Eastern time) on a particular day, the net
asset value of a Fund is determined as of the close of the NYSE on such day. Net
asset value per share is determined by dividing the value of each Theme
Portfolio's securities, cash and other assets (including interest accrued but
not collected) attributable to a particular class, less all its liabilities
(including accrued expenses and dividends payable) attributable to that class,
by the total number of shares outstanding of that class. Determination of each
Theme Portfolio's net asset value per share is made in accordance with generally
accepted accounting principles.
Each equity security held by a Theme Portfolio 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 last available bid.
Each security traded in the over-the-counter market (but not including
securities reported on the NASDAQ National Market System) is valued at the mean
between the last bid and asked prices based upon quotes furnished by market
makers for such securities. Each security reported on the NASDAQ National Market
System is valued at the last sales price on the valuation date or absent a last
sales price, at the mean between the closing bid and asked prices on that day.
Debt securities are valued on the basis of prices provided by an independent
pricing service. Prices provided by the pricing service may be determined
without exclusive reliance on quoted prices, and may reflect appropriate factors
such as institution-size trading in similar groups of securities, developments
related to special securities, yield, quality, coupon rate, maturity, type of
issue, individual trading characteristics and other market data. Securities for
which market quotations are not readily available or are questionable are valued
at fair value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of Trustees.
Short-term obligations having 60 days or less to maturity are valued on the
basis of amortized cost. For purposes of determining net asset value per share,
futures and options contracts generally will be valued 15 minutes after the
close of trading of the NYSE.
Generally, trading in foreign securities, corporate bonds, U.S. Government
securities and money market instruments is substantially completed each day at
various times prior to the close of the NYSE. The values of such securities used
in computing the net asset value of each Fund's shares are determined at such
times. Foreign currency exchange rates are also generally determined prior to
the close of the NYSE. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times at which such
values are determined and the close of the NYSE which will not be reflected in
the computation of a Fund's net asset value. If events materially affecting the
value of such securities occur during such period, then these securities will be
valued at their fair value as determined in good faith by or under the
supervision of the Board of Trustees of the Fund and the Portfolio.
HOW TO PURCHASE AND REDEEM SHARES
A complete description of the manner in which shares of the Funds may be
purchased appears in the Funds' Prospectuses under the headings "How to Purchase
Shares," "Terms and Conditions of Purchase of the AIM Funds" and "Special
Plans."
For purposes of a Letter of Intent entered into prior to June 1, 1998, any
registered investment advisor, trust company or bank trust department which
exercises investment discretion and which intends within thirteen months to
invest $500,000 or more can be treated as a single purchaser, provided further
that such entity places all purchases and redemption orders. Such entities
should be prepared to establish their qualifications for such treatment.
Complete information concerning the method of exchanging shares of the Funds
for shares of the other AIM Funds is set forth in the Prospectuses under the
heading "Exchange Privilege."
Information concerning redemption of the Funds' shares is set forth in the
Prospectuses under the heading "How to Redeem Shares." In addition to the Funds'
obligation to redeem shares, AIM Distributors may also repurchase shares as an
accommodation to shareholders. To effect a repurchase, those dealers who have
executed Selected Dealer Agreements with AIM Distributors must phone orders to
the order desk of the Funds at (800) 959-4246 and guarantee delivery of all
required documents in good order. A repurchase is effected at the net asset
value per share of the applicable Fund next determined after the repurchase
order is received. Such an arrangement is subject to timely receipt by A I M
Fund Services, Inc. ("AFS"), the Funds' transfer agent, of all required
documents in good order. If such documents are not received within a reasonable
time after the order is placed, the order is subject to cancellation. While
there is no charge imposed by a Fund or by AIM Distributors (other than any
applicable contingent deferred sales charge) when shares are redeemed or
repurchased, dealers may charge a fair service fee for handling the transaction.
40
<PAGE> 947
The right of redemption may be suspended or the date of payment postponed when
(a) trading on the NYSE is restricted, as determined by applicable rules and
regulations of the SEC, (b) the NYSE is closed for other than customary weekend
and holiday closings, (c) the SEC has by order permitted such suspension, or (d)
an emergency as determined by the SEC exists making disposition of portfolio
securities or the valuation of the net assets of a Fund not reasonably
practicable.
A Fund's net asset value is calculated by dividing the number of outstanding
shares into the net assets of the Fund. Net assets are the excess of a Fund's
assets over its liabilities. A more detailed description of how each Fund's net
asset value is calculated appears in the Prospectuses under the heading
"Determination of Net Asset Value."
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 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:
- a corporation
- an organization exempt from tax under Section 501(a), an individual
retirement plan (IRA), or a custodial account under Section 403(b)(7)
- the United States or any of its agencies or instrumentalities
- a state, the District of Columbia, a possession of the United States, or any
of their political subdivisions or instrumentalities
- a foreign government or any of its political subdivisions, agencies or
instrumentalities
- an international organization or any of its agencies or instrumentalities
- a foreign central bank of issue
- a dealer in securities or commodities required to register in the U.S. or a
possession of the U.S.
- a futures commission merchant registered with the Commodity Futures Trading
Commission
- a real estate investment trust
- an entity registered at all times during the tax year under the 1940 Act
41
<PAGE> 948
- a common trust fund operated by a bank under Section 584(a)
- a financial institution
- a middleman known in the investment community as a nominee or listed in the
most recent publication of the American Society of Corporate Secretaries,
Inc., Nominee List
- a trust exempt from tax under Section 664 or described in Section 4947
Investors should contact the IRS if they have any questions concerning
entitlement to an exemption from backup withholding.
NOTE: Section references are to sections of the Code.
IRS PENALTIES -- Investors who do not supply the AIM Funds with a correct TIN
will be subject to a $50 penalty imposed by the IRS unless such failure is due
to reasonable cause and not willful neglect. If an investor falsifies
information on this form or makes any other false statement resulting in no
backup withholding on an account which should be subject to backup withholding,
such investor may be subject to a $500 penalty imposed by the IRS and to certain
criminal penalties including fines and/or imprisonment.
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.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
TAXATION OF THE FUNDS
Each Fund is treated as a separate corporation for federal income tax
purposes. To continue to qualify for treatment as a regulated investment company
("RIC") under the Code, each Fund must distribute to its shareholders for each
taxable year at least 90% of its investment company taxable income (consisting
generally of net investment income, net short-term capital gain and net gains
from certain foreign currency transactions) ("Distribution Requirement") and
must meet several additional requirements. With respect to each Fund, these
requirements include the following: (1) the Fund must derive at least 90% of its
gross income each taxable year from dividends, interest, payments with respect
to securities loans and gains from the sale or other disposition of securities
or foreign currencies, or other income (including gains from options, Futures or
Forward Contracts) derived with respect to its business of investing in
securities or those currencies ("Income Requirement"); and (2) the
Diversification Requirements. Each Feeder Fund, as an investor in its
corresponding Portfolio, is deemed to own a proportionate share of the
Portfolio's assets, and to earn a proportionate share of the Portfolio's income,
for purposes of determining whether the Fund satisfies the requirements
described above to qualify as a RIC.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to
the extent it fails to distribute by the end of any calendar year substantially
all of its ordinary income for that year and capital gain net income for the
one-year period ending on October 31 of that year, plus certain other amounts.
See the next section for a discussion of the tax consequences to each Feeder
Fund of hedging transactions engaged in, and investments in passive foreign
investment companies ("PFICs") and other foreign securities, by its
corresponding Portfolio and to the Health Care Fund and Telecommunications Fund
of those transactions and investments.
TAXATION OF THE THEME PORTFOLIOS
The Portfolios and their Relationship to the Feeder Funds. Each Portfolio is
treated as a separate partnership for federal income tax purposes and is not a
"publicly traded partnership." As a result, each Portfolio is not subject to
federal income tax; instead, each Feeder Fund, as an investor in its
corresponding Portfolio, is required to take into account in determining its
federal income tax liability its share of the Portfolio's income, gains, losses,
deductions and credits, without regard to whether it has received any cash
distributions from the Portfolio. Each Portfolio also is not subject to Delaware
income or franchise tax.
42
<PAGE> 949
Because, as noted above, each Feeder Fund is deemed to own a proportionate
share of its corresponding Portfolio's assets, and to earn a proportionate share
of its corresponding Portfolio's income, for purposes of determining whether the
Fund satisfies the requirements to qualify as a RIC, each Portfolio intends to
conduct its operations so that its corresponding Fund will be able to continue
to satisfy all those requirements.
Distributions to each Feeder Fund from its corresponding Portfolio (whether
pursuant to a partial or complete withdrawal or otherwise) will not result in
the Fund's recognition of any gain or loss for federal income tax purposes,
except that (1) gain will be recognized to the extent any cash that is
distributed exceeds the Fund's basis for its interest in the Portfolio before
the distribution, (2) income or gain will be recognized if the distribution is
in liquidation of the Fund's entire interest in the Portfolio and includes a
disproportionate share of any unrealized receivables held by the Portfolio, and
(3) loss will be recognized if a liquidation distribution consists solely of
cash and/or unrealized receivables. Each Feeder Fund's basis for its interest in
its corresponding Portfolio generally will equal the amount of cash and the
basis of any property the Fund invests in the Portfolio, increased by the Fund's
share of the Portfolio's net income and gains and decreased by (a) the amount of
cash and the basis of any property the Portfolio distributes to the Fund and (b)
the Fund's share of the Portfolio's losses.
Foreign Taxes. Dividends and interest received by a Theme Portfolio, and gains
realized thereby, may be subject to income, withholding or other taxes imposed
by foreign countries and U.S. possessions ("foreign taxes") that would reduce
the yield and/or total return on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate foreign taxes, however,
and many foreign countries do not impose taxes on capital gains in respect of
investments by foreign investors. If more than 50% of the value of a Fund's
total assets (taking into account, in the case of a Feeder Fund, its
proportionate share of its corresponding Portfolio's assets) at the close of its
taxable year consists of securities of foreign corporations, the Fund will be
eligible to, and may, file an election with the Internal Revenue Service that
will enable its shareholders, in effect, to receive the benefit of the foreign
tax credit with respect to any foreign taxes paid by it (taking into account, in
the case of a Feeder Fund, its proportionate share of any foreign taxes paid by
its corresponding Portfolio) (a "Fund's foreign taxes"). Pursuant to the
election, a Fund would treat those taxes as dividends paid to its shareholders
and each shareholder would be required to (1) include in gross income, and treat
as paid by him, his share of the Fund's foreign taxes, (2) treat his share of
those taxes and of any dividend paid by the Fund that represents its income from
foreign and U.S. possessions sources (taking into account, in the case of a
Feeder Fund, its proportionate share of its corresponding Portfolio's Income
from those sources) as his own income from those sources and (3) either deduct
the taxes deemed paid by him in computing his taxable income or, alternatively,
use the foregoing information in calculating the foreign tax credit against his
federal income tax. Each Fund will report to its shareholders shortly after each
taxable year their respective shares of the Fund's foreign taxes and income
(taking into account, in the case of a Feeder Fund, its proportionate share of
its corresponding Portfolio's income) from sources within foreign countries and
U.S. possessions if it makes this election. Pursuant to the Taxpayer Relief Act
of 1997 ("Tax Act"), individuals who have no more than $300 ($600 for married
persons filing jointly) of creditable foreign taxes included on Form 1099 and
all of whose foreign source of income is "qualified passive income" may elect
each year to be exempt from the extremely complicated foreign tax credit
limitation and will be able to claim a foreign tax credit without having to file
the detailed Form 1116 that otherwise is required.
Passive Foreign Investment Companies. Each Theme Portfolio may invest in the
stock of PFICs. A PFIC is a foreign corporation -- other than a "controlled
foreign corporation" (i.e., a foreign corporation in which, on any day during
its taxable year, more than 50% of the total voting power of all voting stock
therein or the total value of all stock therein is owned, directly, indirectly
or constructively, by "U.S. shareholders," defined as U.S. persons that
individually own, directly, indirectly or constructively, at least 10% of that
voting power) as to which the Theme Portfolio is a U.S. shareholder (effective
with respect to each Fund for their taxable year beginning November 1,
1998) -- that, in general, meets either of the following tests: (1) at least 75%
of its gross income is passive or (2) an average of at least 50% of its assets
produce, or are held for the production of, passive income. Under certain
circumstances, a Fund will be subject to federal income tax on a part (or, in
the case of a Feeder Fund, its proportionate share of a part) of any "excess
distribution" received by it (or, in the case of a Feeder Fund, by its
corresponding Portfolio) on the stock of a PFIC or of any gain on the Fund's
(or, in the case of a Feeder Fund, its corresponding Portfolio's) disposition of
that stock (collectively "PFIC income"), plus interest thereon, even if the Fund
distributes the PFIC income as a taxable dividend to its shareholders. The
balance of the PFIC income will be included in the Fund's investment company
taxable income and, accordingly, will not be taxable to it to the extent it
distributes that income to its shareholders.
If a Theme Portfolio invests in a PFIC and elects to treat the PFIC as a
"qualified electing fund" ("QEF"), then in lieu of the foregoing tax and
interest obligation, the Theme Portfolio (or, in the case of a Portfolio, its
corresponding Feeder Fund) would be required to include in income each year its
pro rata share (taking into account, in the case of a Feeder Fund, its
proportionate share of its corresponding Portfolio's pro rata share) of the
QEF's annual ordinary earnings and
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<PAGE> 950
net capital gain (i.e., the excess of net long-term capital gain over net
short-term capital loss) -- which most likely would have to be distributed by
the Theme Portfolio (or, in the case of a Portfolio, its corresponding Feeder
Fund) to satisfy the Distribution Requirement and avoid imposition of the Excise
Tax -- even if those earnings and gain were not received thereby from the QEF.
In most instances it will be very difficult, if not impossible, to make this
election because of certain requirements thereof.
A holder of stock in any PFIC may elect to include in ordinary income for each
taxable year beginning after 1997, the excess, if any, of the fair market value
of the stock over the adjusted basis therein as of the end of that year.
Pursuant to the election, a deduction (as an ordinary, not capital, loss) also
will be allowed for the excess, if any, of the holder's adjusted basis in PFIC
stock over the fair market value thereof as of the taxable year-end, but only to
the extent of any net mark-to-market gains with respect to that stock included
in income for prior taxable years. The adjusted basis in each PFIC's stock
subject to the election will be adjusted to reflect the amounts of income
included and deductions taken thereunder. Regulations proposed in 1992 provided
a similar election with respect to the stock of certain PFICs.
Options, Futures and Foreign Currency Transactions. The Theme Portfolios' use
of hedging transactions, such as selling (writing) and purchasing options and
Futures Contracts and entering into Forward Contracts, involves complex rules
that will determine, for federal income tax purposes, the amount, character and
timing of recognition of the gains and losses a Theme Portfolio realizes in
connection therewith. Gains from disposition of foreign currencies (except
certain gains that may be excluded by future regulations), and gains from the
options, Futures and Forward Contracts derived by a Theme Portfolio with respect
to its business of investing in securities or foreign currencies, will qualify
as permissible income under the Income Requirement for that Theme Portfolio (or,
in the case of a Portfolio, its corresponding Feeder Fund).
Futures and Forward Contracts that are subject to section 1256 of the Code
(other than those that are part of a "mixed straddle") ("Section 1256
Contracts") and that are held by a Theme Portfolio at the end of its taxable
year generally will be deemed to have been sold at that time at market value for
federal income tax purposes. Sixty percent of any net gain or loss recognized on
these deemed sales, and 60% of any net gain or loss realized from any actual
sales of Section 1256 Contracts, will be treated as long-term capital gain or
loss, and the balance will be treated as short-term capital gain or loss. That
60% portion will qualify for the reduced maximum tax rates on non-corporate
taxpayers' net capital gain enacted by the Tax Act -- 20% (10% for taxpayers in
the 15% marginal tax bracket) for gain recognized on capital assets held for
more than 18 months -- instead of the 28% rate in effect before that
legislation, which now applies to gain recognized on capital assets held for
more than one year but not more than 18 months.
Section 988 of the Code also may apply to gains and losses from transactions
in foreign currencies, foreign-currency-denominated debt securities and options,
Futures and Forward Contracts on foreign currencies ("Section 988" gains and
losses). Each Section 988 gain or loss generally is computed separately and
treated as ordinary income or loss. In the case of overlap between sections 1256
and 988, special provisions determine the character and timing of any income,
gain or loss. Each Theme Portfolio attempts to monitor section 988 transactions
to minimize any adverse tax impact.
If a Theme Portfolio has an "appreciated financial position" -- generally, an
interest (including an interest through an option, Futures or Forward Contract
or short sale) with respect to any stock, debt instrument (other than "straight
debt") or partnership interest the fair market value of which exceeds its
adjusted basis -- and enters into a "constructive sale" of the same or
substantially similar property, the Theme Portfolio will be treated as having
made an actual sale thereof, with the result that gain will be recognized at
that time. A constructive sale generally consists of a short sale, an offsetting
notional principal contract or Futures or Forward Contract entered into by a
Theme Portfolio or a related person with respect to the same or substantially
similar property. In addition, if the appreciated financial position is itself a
short sale or such a contract, acquisition of the underlying property or
substantially similar property will be deemed a constructive sale.
TAXATION OF THE FUNDS' SHAREHOLDERS
Dividends and other distributions declared by a Fund in, and payable to
shareholders of record as of a date in, October, November or December of any
year will be deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if the distributions are paid by the
Fund during the following January. Accordingly, those distributions will be
taxed to shareholders for the year in which that December 31 falls.
If Fund shares are sold at a loss after being held for six months or less, the
loss will be treated as long-term, instead of short-term, capital loss to the
extent of any capital gain distributions received on those shares. Investors
also should be aware that if shares are purchased shortly before the record date
for any dividend or other distribution, the shareholder will pay full price for
the shares and receive some portion of the price back as a taxable distribution.
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<PAGE> 951
Dividends paid by a Fund to a shareholder who, as to the United States, is a
nonresident alien individual, nonresident alien fiduciary of a trust or estate,
foreign corporation or foreign partnership ("foreign shareholder") generally
will be subject to U.S. withholding tax (at a rate of 30% or lower treaty rate).
Withholding will not apply, however, to a dividend paid by a Fund to a foreign
shareholder that is "effectively connected with the conduct of a U.S. trade or
business," in which case the reporting and withholding requirements applicable
to domestic shareholders will apply. A distribution of net capital gain by a
Fund to a foreign shareholder generally will be subject to U.S. federal income
tax (at the rates applicable to domestic persons) only if the distribution is
"effectively connected" or the foreign shareholder is treated as a resident
alien individual for federal income tax purposes.
The foregoing is a general and abbreviated summary of certain federal tax
considerations affecting the Funds, their shareholders and the Portfolios.
Investors are urged to consult their own tax advisors for more detailed
information and for information regarding any foreign, state and local taxes
applicable to distributions received from a Fund.
Additional Information AIM was organized in 1976, and along with its
subsidiaries, manages or advises approximately 90 investment company portfolios
encompassing a broad range of investment objectives. AIM is a direct, wholly
owned subsidiary of A I M Management Group Inc. ("AIM Management"), a holding
company that has been engaged in the financial services business since 1976. AIM
is the sole shareholder of the Funds' principal underwriter, AIM Distributors.
AIM Management is an indirect wholly owned subsidiary of AMVESCAP PLC, 11
Devonshire Square, London, EC2M 4YR, England. AMVESCAP PLC and its subsidiaries
are an independent investment management group that has a significant presence
in the institutional and retail segment of the investment management industry in
North America and Europe, and a growing presence in Asia.
SHAREHOLDER INFORMATION
This information supplements the discussion in each Fund's Prospectus under
the title "Shareholder Information."
[TIMING OF PURCHASE ORDERS
Orders for the purchase of Advisor Class shares received prior to the close of
regular trading on the New York Stock Exchange ("NYSE"), which is generally 4:00
p.m. Eastern Time (and which is hereinafter referred to as "NYSE Close"), on any
business day of an AIM Fund will be confirmed at the price next determined.
Orders received after NYSE Close will be confirmed at the price determined on
the next business day of the AIM Fund. Certain financial institutions (or their
designees) may be authorized to accept purchase orders on behalf of the AIM
Funds. Orders received by authorized institutions (or their designees) before
NYSE Close will be deemed to have been received by an AIM Fund on such day and
will be effected that day, provided that such orders are transmitted to the
Transfer Agent prior to the time set for receipt of such orders. It is the
responsibility of the dealer/financial institution to ensure that all orders are
transmitted on a timely basis to the Transfer Agent. Any loss resulting from the
dealer/financial institution's failure to submit an order within the prescribed
time frame will be borne by that dealer/financial institution. A "business day"
of an AIM Fund is any day on which the NYSE is open for business. It is expected
that the NYSE will be closed during the next twelve months on Saturdays and
Sundays and on the days on which New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day are observed by the NYSE.
An investor who uses a check to purchase shares will be credited with the full
number of shares purchased at the time of receipt of the purchase order, as
previously described. However, in the event of a redemption or exchange of such
shares, the investor may be required to wait up to ten business days before the
redemption proceeds are sent. This delay is necessary in order to ensure that
the check has cleared. If the check does not clear, or if any investment order
must be cancelled due to nonpayment, the investor will be responsible for any
resulting loss to an AIM Fund or to AIM Distributors.]
[SHARE CERTIFICATES
Share certificates for all AIM Funds will be issued upon written request by a
shareholder to AIM Distributors or the Transfer Agent. Otherwise, such shares
will be held on the shareholder's behalf by the applicable AIM Fund(s) and be
recorded on the books of such fund(s).]
[SPECIAL PLANS
Except as noted below, each Advisor Class Fund provides the special plans
described below for the convenience of its Advisor Class shareholders. Once
established, there is no obligation to continue to invest through a plan, and a
shareholder may terminate a plan at any time.
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<PAGE> 952
Special plan applications and further information, including details of any
fees which are charged to a shareholder investing through a plan, may be
obtained by written request, directed to AFS at the address provided under "How
to Purchase Shares," or by calling the Client Services Department of AFS at
(800) 959-4246. It is recommended that a shareholder considering any of the
plans described herein consult a tax advisor before commencing participation in
such a plan.
Automatic Dividend Investment Plan
Advisor Class shareholders may elect to have all dividends and distributions
declared by an Advisor Class Fund paid in cash or invested at net asset value
either in Advisor Class shares of the same Advisor Class Fund or invested in
shares of another Advisor Class Fund. See "Dividends, Distributions and Tax
Matters -- Dividends and Distributions" for a description of payment dates for
these options. In order to qualify to have dividends and distributions of one
Advisor Class Fund invested in shares of another Advisor Class Fund, the
following conditions must be satisfied: (a) the shareholder must have an account
balance in the dividend paying fund of at least $5,000; (b) the account must be
held in the name of the shareholder (i.e., the account may not be held in
nominee name); and (c) the shareholder must have requested and completed an
authorization relating to the reinvestment of dividends into another Advisor
Class Fund. An authorization may be given on the account application or on an
authorization form available from AIM Distributors. An Advisor Class Fund will
waive the $5,000 minimum account value requirement if the shareholder has an
account in the fund selected to receive the dividends and distributions with a
value of at least $500.
Portfolio Rebalancing Program
The Portfolio Rebalancing Program ("Program") permits eligible shareholders
with a minimum account balance of $5,000 to establish and maintain an allocation
across a range of Advisor Class Funds. The Program automatically rebalances
holdings of Advisor Class Funds to the established allocation on a periodic
basis. Under the Program, a shareholder may predesignate, on a percentage basis,
how the total value of his or her holdings in a minimum of two, and a maximum of
ten, Advisor Class Funds ("Personal Portfolio") is to be rebalanced on a
quarterly, semiannual, or annual basis.
Rebalancing under the Program will be effected through the exchange of shares
of one or more Advisor Class Funds in the shareholder's Personal Portfolio for
shares of the same class(es) of one or more other Advisor Class Funds in the
shareholder's Personal Portfolio. See "Exchange Privilege." If shares of the
Advisor Class Fund(s) in a shareholder's Personal Portfolio have appreciated
during a rebalancing period, the Program will result in shares of Advisor Class
Fund(s) that have appreciated most during the period being exchanged for shares
of Advisor Class Fund(s) that have appreciated least. Such exchanges are not
tax-free and may result in a shareholder's realizing a gain or loss, as the case
may be, for federal income tax purposes. See "Dividends, Distributions and Tax
Matters -- Dividends and Distributions." Participation in the Program does not
assure that a shareholder will profit from purchases under the Program nor does
it prevent or lessen losses in a declining market.
The Program will automatically rebalance the shareholder's Personal Portfolio
on the 28th day of the last month of the period chosen (or the immediately
preceding business day if the 28th is not a business day), subject to any
limitations below. The Program will not execute an exchange if the variance in a
shareholder's Personal Portfolio for a particular Advisor Class Fund would be 2%
or less. In predesignating percentages, shareholders must use whole percentages
and totals must equal 100%. Shareholders participating in the Program may not
request issuance of physical certificates representing an Advisor Class Fund's
shares. The AIM Funds and AIM Distributors reserve the right to modify, suspend,
or terminate the Program at any time on sixty (60) days' prior written notice to
shareholders. A request to participate in the Program must be received in good
order at least five business days prior to the next rebalancing date. Once a
shareholder establishes the Program for his or her Personal Portfolio, a
shareholder cannot cancel or change which rebalancing frequency, which Advisor
Class Funds or what allocation percentages are assigned to the Program, unless
canceled or changed in writing and received by the Transfer Agent in good order
at least five business days prior to the rebalancing date. Certain
dealers/financial institutions may charge a fee for establishing accounts
relating to the Program. Investors should contact their dealers/financial
institutions or AIM Distributors for more information.]
TERMS AND CONDITIONS OF EXCHANGES
Advisor Class shareholders of the Advisor Class Funds may participate in an
exchange privilege as described below. AIM Distributors acts as distributor for
the Advisor Class Funds which represent a range of different investment
objectives and policies.
46
<PAGE> 953
Advisor Class shares of any Advisor Class Fund may be exchanged only for
Advisor Class shares of any other Advisor Class Fund.
Investors in wrap fee programs and advisory accounts interested in making an
exchange should contact their Financial Advisers to request the prospectus of an
Advisor Class Fund being considered. Other investors should contact AIM
Distributors for the appropriate prospectus.
An exchange is permitted only in the following circumstances: (a) the dollar
amount of the exchange must be at least equal to the minimum investment
applicable to the shares of the Advisor Class Fund acquired through such
exchange; (b) the shares of the Advisor Class Fund acquired through exchange
must be qualified for sale in the state in which the shareholder resides; (c)
the exchange must be made between accounts having identical registrations and
addresses; (d) the full amount of the purchase price for the shares being
exchanged must have already been received by the fund; (e) the account from
which shares have been exchanged must be coded as having a certified taxpayer
identification number on file or, in the alternative, an appropriate IRS Form
W-8 (certificate of foreign status) or Form W-9 (certifying exempt status) must
have been received by the fund; (f) newly acquired shares (through either an
initial or subsequent investment) are held in an account for at least ten
business days, and all other shares are held in an account for at least one day,
prior to the exchange; and (g) certificates representing shares must be returned
before shares can be exchanged. There is no fee for exchanges among the Advisor
Class Funds.
The current prospectus of each of the Advisor Class Funds and current
information concerning the operation of the exchange privilege are available
through AIM Distributors or through any dealer who has executed an applicable
agreement with AIM Distributors. Before exchanging shares, investors should
review the prospectuses of the funds whose shares will be acquired through
exchange. Exchanges of shares are considered to be sales for federal and state
income tax purposes and may result in a taxable gain or loss to a shareholder.
The exchange privilege is not an option or right to purchase shares but is
permitted under the respective policies of the participating funds, and may be
modified or discontinued by any of such funds or by AIM Distributors at any
time, and to the extent permitted by applicable law, without notice.
Shares of any Advisor Class Fund to be exchanged are redeemed at their net
asset value as determined at NYSE Close on the day that an exchange request in
proper form (described below) is received. Exchange requests received after NYSE
Close will result in the redemption of shares at their net asset value at NYSE
Close on the next business day. Normally, Advisor Class shares of an Advisor
Class Fund to be acquired by exchange are purchased at their net asset value
determined on the date that such request is received, but under unusual market
conditions such purchases may be delayed for up to five business days if it is
determined that an Advisor Class Fund would be materially disadvantaged by an
immediate transfer of the proceeds of the exchange. If a shareholder is
exchanging into an Advisor Class Fund that declares daily dividends ("Dividends,
Distributions and Tax Matters -- Dividends and Distributions," below), and the
release of the exchange proceeds is delayed for the foregoing five-day period,
such shareholder will not begin to accrue dividends until the sixth business day
after the exchange. Advisor Class shares purchased by check may not be exchanged
until it is determined that the check has cleared, which may take up to ten
business days from the date that the check is received. See "Timing of Purchase
Orders."
In the event of unusual market conditions, AIM Distributors reserves the right
to reject any exchange request, if, in the judgment of AIM Distributors, the
number of requests or the total value of the shares that are the subject of the
exchange places a material burden on a fund. For example, the number of
exchanges by investment managers making market timing exchanges may be limited.]
[EXCHANGES BY MAIL
Investors exchanging their Advisor Class shares by mail should send a written
request to AFS. The request should contain the account registration and account
number, the dollar amount or number of Advisor Class shares to be exchanged, and
the names of the Advisor Class Funds from which and into which the exchange is
to be made. The request should comply with all of the requirements for
redemption by mail. See "How to Redeem Shares."]
[EXCHANGES BY TELEPHONE
Shareholders or their agents may request an exchange by telephone. A
shareholder may give exchange information to his Financial Adviser. If a
shareholder does not wish to allow telephone exchanges by any person in his
account, he should decline that option on the account application. AIM
Distributors has made arrangements with certain dealers and investment advisory
firms to accept telephone instructions to exchange shares between any of the
Advisor Class Funds. AIM Distributors reserves the right to impose conditions on
dealers or investment advisors who make telephone exchanges
47
<PAGE> 954
of shares of the Advisor Class 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 Financial Adviser, shareholder or dealer who has
satisfied the foregoing conditions must call AFS at (800) 959-4246. If a
Financial Adviser, shareholder or dealer is unable to reach AFS by telephone, he
may also request exchanges by telegraph or use overnight courier services to
expedite exchanges by mail, which will be effective on the business day received
by the Transfer Agent as long as such request is received prior to NYSE Close.
The Transfer Agent and AIM Distributors will not be liable for any loss, expense
or cost arising out of any telephone exchange request that they reasonably
believe to be genuine, but may in certain cases be liable for losses due to
unauthorized or fraudulent transactions if they do not follow reasonable
procedures for verification of telephone transactions. Such reasonable
procedures may include recordings of telephone transactions (maintained for six
months), requests for confirmation of the shareholder's Social Security Number
and current address, and mailings of confirmations promptly after the
transaction.]
[REDEMPTIONS BY MAIL
Redemption requests must be in writing and sent to the Transfer Agent. Upon
receipt of a redemption request in proper form, payment will be made as soon as
practicable, but in any event will normally be made within seven days after
receipt. However, in the event of a redemption of shares purchased by check, the
investor may be required to wait up to ten business days before the redemption
proceeds are sent. See "Terms and Conditions of Purchase of the AIM Funds --
Timing of Purchase Orders."
Requests for redemption must include: (a) original signatures of each
registered owner exactly as the shares are registered; (b) the fund and the
account number of shares to be redeemed; (c) share certificates, either properly
endorsed or accompanied by a duly executed stock power, for the shares to be
redeemed if such certificates have been issued and the shares are not in the
custody of the Transfer Agent; (d) signature guarantees, as described below; and
(e) any additional documents that may be required for redemption by
corporations, partnership, trusts or other entities. The burden is on the
shareholder to inquire as to whether any additional documentation is required.
Any request not in proper form may be rejected and in such case must be renewed
in writing.]
[REDEMPTIONS BY TELEPHONE
Shareholders may request a redemption by telephone. If a shareholder does not
wish to allow telephone redemptions by any person in his account, he should
decline that option on the account application. The telephone redemption feature
can be used only if: (a) the redemption proceeds are to be mailed to the address
of record or transferred electronically or wired to the pre-authorized bank
account; (b) there has been no change of address of record on the account within
the preceding 30 days; (c) the shares to be redeemed are not in certificate
form; (d) the person requesting the redemption can provide proper identification
information, and (e) the proceeds of the redemption do not exceed $50,000. AIM
Distributors has made arrangements with certain dealers and investment advisors
to accept telephone instructions for the redemption of shares. AIM Distributors
reserves the right to impose conditions on these dealers and investment
advisors, including the condition that they enter into agreements (which contain
additional conditions with respect to the redemption of shares) with AIM
Distributors. The Transfer Agent and AIM Distributors will not be liable for any
loss, expense or cost arising out of any telephone redemption request effected
in accordance with the authorization set forth in the appropriate form if they
reasonably believe such request to be genuine, but may in certain cases be
liable for losses due to unauthorized or fraudulent transactions if they do not
follow reasonable procedures for verification of telephone transactions. Such
reasonable procedures may include recordings of telephone transactions
(maintained for six months), requests for confirmation of the shareholder's
taxpayer identification number and current address, and mailings of
confirmations promptly after the transaction.]
[TIMING AND PRICING OF REDEMPTION ORDERS
Advisor Class shares of the Advisor Class Funds are redeemed at their net
asset value next computed after a request for redemption in proper form
(including signature guarantees and other required documentation for written
redemptions) is received by the Transfer Agent or certain financial institutions
(or their designees) who are authorized to accept redemption orders on behalf of
the AIM Funds, provided that such orders are transmitted to the Transfer Agent
prior to the time set for receipt of such orders. Orders for the redemption of
Advisor Class shares received on any business day of an AIM Fund will be
confirmed at the price determined as of the close of that day. Orders received
after NYSE Close will be confirmed at the price determined on the next business
day of an AIM Fund. It is the responsibility of the dealer/financial institution
to ensure that all orders are transmitted on a timely basis. Any resulting loss
from the dealer/financial institution's failure to submit a request for
redemption within the prescribed time frame will be borne by that
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<PAGE> 955
dealer/financial institution. Telephone redemption requests must be made by NYSE
Close on any business day of an AIM Fund and will be confirmed at the price
determined as of the close of that day. No AIM Fund will accept requests which
specify a particular date for redemption or which specify any special
conditions.
Payment of the proceeds of redeemed shares is normally made within seven days
following the redemption date. However, in the event of a redemption of shares
purchased by check, the investor may be required to wait up to ten business days
before the redemption proceeds are sent. A charge for special handling (such as
wiring of funds or expedited delivery services) may be made by the Transfer
Agent. The right of redemption may not be suspended or the date of payment upon
redemption postponed except under unusual circumstances such as when trading on
the NYSE is restricted or suspended. Payment of the proceeds of redemptions
relating to shares for which checks sent in payment have not yet cleared will be
delayed until it is determined that the check has cleared, which may take up to
ten business days from the date that the check is received.]
SIGNATURE GUARANTEES
A signature guarantee is designed to protect the investor, the AIM Funds, AIM
Distributors, and their agents by verifying the signature of each investor
seeking to redeem, transfer, or exchange shares of an AIM Fund. Examples of when
signature guarantees are required are: (1) redemptions by mail in excess of
$50,000; (2) redemptions by mail if the proceeds are to be paid to someone other
than the name(s) in which the account is registered; (3) written redemptions
requesting proceeds to be sent to other than the bank of record for the account;
(4) redemptions requesting proceeds to be sent to a new address or an address
that has been changed within the past 30 days; (5) requests to transfer the
registration of shares to another owner, (6) telephone exchange and telephone
redemption authorization forms; (7) changes in previously designated wiring or
electronic funds transfer instructions, and (8) written redemptions or exchanges
of shares previously reported as lost, whether or not the redemption amount is
under $50,000 or the proceeds are to be sent to the address of record. 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 in 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. Each Advisor Class Fund
may make additional distributions, if necessary, to avoid a non-deductible 4%
federal excise tax on certain undistributed income and capital gain (the "Excise
Tax").
All dividends and distributions of an AIM Fund are automatically reinvested on
the payment date in full and fractional shares of such fund, unless the
shareholder has made an alternate election as to the method of payment.
Dividends and distributions attributable to Advisor Class shares of an Advisor
Class Fund are reinvested in additional Advisor Class shares of that fund,
absent an election by a shareholder to receive cash or to have such dividends
and distributions reinvested in Advisor Class shares of another Advisor Class
Fund, to the extent permitted. For funds that do not declare a dividend daily,
such dividends and distributions will be reinvested at the net asset value per
share determined on the ex-dividend date. For funds that declare a dividend
daily, such dividends and distributions will be reinvested at the net asset
value per share determined on the payable date. Shareholders may elect, by
written notice to the Transfer Agent, to receive such distributions, or only the
dividend portion thereof, in cash, or to invest such dividends and distributions
in Advisor Class shares of another Advisor Class Fund. Investors who have not
previously selected such a reinvestment option on the account application form
may contact the Transfer Agent at any time to obtain a form to authorize such
reinvestments in another Advisor Class Fund.
Dividends on Advisor Class shares of an Advisor Class Fund are expected to be
higher than dividends on shares of other classes of that fund because of the
service and distribution fees paid by those other classes of shares. Dividends
on all shares may also be affected by other class-specific expenses.
49
<PAGE> 956
Changes in the form of dividend and distribution payments may be made by the
shareholder at any time by notice to the Transfer Agent and are effective as to
any subsequent payment if such notice is received by the Transfer Agent prior to
the record date of such payment. Any dividend and distribution election remains
in effect until the Transfer Agent receives a revised written election by the
shareholder.
Any dividend or distribution paid by a fund which does not declare dividends
daily has the effect of reducing the net asset value per share on the
ex-dividend date by the amount of the dividend or distribution. Therefore, a
dividend or distribution declared shortly after a purchase of shares by an
investor would represent, in substance, a return of capital to the shareholder
with respect to such shares even though it would be subject to income taxes, as
discussed below.]
[MINIMUM ACCOUNT BALANCE
If (1) an account opened in a fund has been in effect for at least one year
and the shareholder has not made an additional purchase in that account within
the preceding six calendar months and (2) the value of such account drops below
$500 for three consecutive months as a result of redemptions or exchanges, the
fund has the right to redeem the account, after giving the shareholder 60 days'
prior written notice, unless the shareholder makes additional investments within
the notice period to bring the account value up to $500. If a fund determines
that a shareholder has provided incorrect information in opening an account with
a fund or in the course of conducting subsequent transactions with the fund
related to such account, the fund may, in its discretion, redeem the account and
distribute the proceeds of such redemption to the shareholder.
AIM Distributors and its agents reserve the right at any time (1) to withdraw
all or any part of the offering made by the Fund's Prospectus; (2) to reject any
purchase or exchange order or to cancel any purchase due to nonpayment of the
purchase price; (3) to increase, waive or lower the minimum investment
requirements; or (4) to modify any of the terms or conditions of purchase of
shares of such fund. For any fund named on the cover page, AIM Distributors and
its agents will use their best efforts to provide notice of any such actions
through correspondence with broker-dealers and existing shareholders,
supplements to the AIM Funds' prospectuses, or other appropriate means, and will
provide sixty (60) days' notice in the case of termination or material
modification to the exchange privilege discussed under the caption "Exchange
Privilege."]
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.
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., a wholly owned
subsidiary of AIM, 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173, 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 purchases 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 (formerly The Shareholder Services Group, Inc.) 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).
INDEPENDENT ACCOUNTANTS
The Trust's and Theme Portfolios' independent accountants are
PricewaterhouseCoopers LLP. PricewaterhouseCoopers LLP conducts annual audits of
the Portfolios' and the Funds' financial statements, assists in the preparation
of each Portfolio's and each Fund's federal and state income tax returns and
consults with the Trust and Global Investment Portfolio as to matters of
accounting, regulatory filings, and federal and state income taxation.
50
<PAGE> 957
The audited financial statements of the Trust included in this Statement of
Additional Information have been examined by PricewaterhouseCoopers LLP, as
stated in their opinion appearing herein, and are included in reliance upon such
opinion given upon the authority of that firm as experts in accounting and
auditing.
SHAREHOLDER LIABILITY
Under Delaware law, the shareholders of the Trust enjoy the same limitations
extended to shareholders of private, for-profit corporations. There is a remote
possibility, however, that under certain circumstances shareholders of the Trust
may be held personally liable for the Trust's obligations. However, the Trust
Agreement disclaims shareholder liability for acts or obligations of the Trust
and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Trust or a trustee. If
a shareholder is held personally liable for the obligations of the Trust, the
Trust Agreement provides that the shareholder shall be entitled out of the
assets belonging to the applicable Fund (or allocable to the applicable Class),
to be held harmless from and indemnified against all loss and expense arising
from such liability in accordance with the Trust's Bylaws and applicable law.
Thus, the risk of a shareholder incurring financial loss on account of such
liability is limited to circumstances in which the Trust itself would be unable
to meet its obligations and where the other party was held not to be bound by
the disclaimer.
NAMES
Prior to May 29, 1998, AIM Global Consumer Products and Services Fund operated
under the name of GT Global Consumer Products and Services Fund; AIM Global
Financial Services Fund operated under the name of GT Global Financial Services
Fund; AIM Global Health Care Fund operated under the name of GT Global Health
Care Fund; AIM Global Infrastructure Fund operated under the name of GT Global
Infrastructure Fund; AIM Global Resources Fund operated under the name of GT
Global Natural Resources Fund; and AIM Global Telecommunications Fund operated
under the name of GT Global Telecommunications Fund.
SPECIAL SERVICING AGREEMENT
Subject to receipt of an exemptive order from the SEC, the Funds will be
parties to a Special Servicing Agreement ("Agreement") among the Trust on behalf
of the Funds, AIM Series Trust on behalf of its sole series, AIM Global Trends
Fund ("Global Trends Fund"), AIM, the Sub-advisor, and AFS. The Agreement will
provide that, if the Board of Trustees determines that a Fund's share of the
aggregate expenses of Global Trends Fund is less than the estimated savings to
the Fund from the operation of Global Trends Fund, the Fund will bear those
expenses in proportion to the average daily value of its shares owned by Global
Trends Fund, provided that no Fund will bear such expenses in excess of the
estimated savings to it. Those savings are expected to result primarily from the
elimination of numerous separate shareholder accounts which are or would have
been invested directly in the Funds and the resulting reduction in shareholder
servicing costs. Although such cost savings are not certain, the estimated
savings to the Funds generated by the operation of Global Trends Fund are
expected to be sufficient to offset most, if not all, of the expenses incurred
by that Fund.
51
<PAGE> 958
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITY
To the best knowledge of the Trust, the names and the holders of 5% or more of
the outstanding shares of any class of each Fund's equity securities as of
, 1998, and the percentage of the outstanding shares held by
such holders are set forth below:
<TABLE>
<CAPTION>
PERCENT
PERCENT OWNED OF
OWNED OF RECORD AND
FUND NAME AND ADDRESS OF OWNER RECORD* BENEFICIALLY
---- ------------------------- -------- ------------
<S> <C> <C> <C>
Consumer Products and Services GT New Dimension Fund % -0-
Fund -- Advisor Class Theme Fund Omnibus Account
2121 N. California Blvd. Ste. 395
Walnut Creek, CA 94596-7305
Consumer Products and Services -- MLPF&S for the Sole Benefit of its % -0-
Class A Customers, Security #97DD9
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Consumer Products and Services MLPF&S for the Sole Benefit of its % -0-
Fund -- Class B Customers, Security #97F31
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Financial Services Fund -- GT New Dimension Fund % -0-
Advisor Class Theme Fund Omnibus Account
2121 N. California Blvd. Ste. 395
Walnut Creek, CA 94596-7305
Financial Services Fund -- Class A MLPF&S for the Sole Benefit of its % -0-
Customers, Security #97D41
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Financial Services Fund -- Class B MLPF&S for the Sole Benefit of its % -0-
Customers, Security #97D30
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Health Care Fund -- Advisor Class GT New Dimension Fund % -0-
Theme Fund Omnibus Account
2121 N. California Blvd. Ste. 395
Walnut Creek, CA 94596-7305
Health Care Fund -- Class A MLPF&S for the Sole Benefit of its % -0-
Customers, Security #975M3
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Health Care Fund -- Class B MLPF&S for the Sole Benefit of its % -0-
Customers, Security #97BA1
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Infrastructure Fund -- Advisor Class GT New Dimension Fund % -0-
Theme Fund Omnibus Account
2121 N. California Blvd. Ste. 395
Walnut Creek, CA 94596-7305
</TABLE>
- ---------------
* The Trust has no knowledge as to whether all or any portion of the shares
owned of record are also owned beneficially.
52
<PAGE> 959
<TABLE>
<CAPTION>
PERCENT
PERCENT OWNED OF
OWNED OF RECORD AND
FUND NAME AND ADDRESS OF OWNER RECORD* BENEFICIALLY
---- ------------------------- -------- ------------
<S> <C> <C> <C>
Infrastructure Fund -- Class B MLPF&S for the Sole Benefit of its % -0-
Customers, Security #97HX6
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Resources Fund -- Advisor Class GT New Dimension Fund % -0-
Theme Fund Omnibus Account
2121 N. California Blvd. Ste. 395
Walnut Creek, CA 94596-7305
Telecommunications Fund -- GT New Dimension Fund % -0-
Advisor Class Theme Fund Omnibus Account
2121 N. California Blvd. Ste. 395
Walnut Creek, CA 94596-7305
Telecommunications Fund -- Class A MLPF&S for the Sole Benefit of its % -0-
Customers, Security #979F7
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Telecommunications Fund -- Class B MLPF&S for the Sole Benefit of its % -0-
Customers, Security #97BA2
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
</TABLE>
- ---------------
* The Trust has no knowledge as to whether all or any portion of the shares
owned of record are also owned beneficially.
INVESTMENT RESULTS
TOTAL RETURN QUOTATIONS
The standard formula for calculating total return, as described in the
Prospectus, is as follows:
P(1+T)(n)=ERV
<TABLE>
<S> <C> <C> <C>
Where P = a hypothetical initial payment of $1,000.
T = average annual total return (assuming the applicable maximum
sales load is deducted at the beginning of the 1, 5, or 10
year periods.)
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment at
the end of the 1, 5, or 10 year periods (or fractional
portion of such period).
</TABLE>
The standardized returns for the Advisor Class shares of the Health Care Fund,
stated as average annualized total returns for the periods shown, were:
<TABLE>
<CAPTION>
HEALTH CARE
FUND
PERIOD (ADVISOR CLASS)
------ ---------------
<S> <C>
Fiscal year ended Oct. 31, 1998............................. -4.28%
Oct. 31, 1992 through Oct. 31, 1998......................... n/a
June 1, 1995 (commencement of operations) through Oct. 31,
1998...................................................... 18.44%
Aug. 7, 1989 (commencement of operation) through Oct. 31,
1998...................................................... n/a
</TABLE>
53
<PAGE> 960
The non-standardized returns for the Advisor Class shares of the
Telecommunications Fund, stated as average annualized total returns for the
periods shown, were:
<TABLE>
<CAPTION>
TELECOMMUNI-
CATIONS FUND
PERIOD (ADVISOR CLASS)
------ ---------------
<S> <C>
Fiscal year ended Oct. 31, 1998............................. -2.59%
Oct. 31, 1992 through Oct. 31, 1998......................... n/a
June 1, 1995 (commencement of operations) through Oct. 31,
1998...................................................... 8.57%
Jan. 27, 1992 (commencement of operations) through Oct. 31,
1998...................................................... n/a
</TABLE>
The non-standardized returns for the Advisor Class shares of the Financial
Services Fund, stated as average annualized total returns for the periods shown,
were:
<TABLE>
<CAPTION>
FINANCIAL
SERVICES FUND
PERIOD (ADVISOR CLASS)
------ ---------------
<S> <C>
Fiscal year ended Oct. 31, 1998............................. 3.03%
June 1, 1995 (commencement of operations) through Oct. 31,
1998...................................................... 17.48%
May 31, 1994 (commencement of operations) through Oct. 31,
1998...................................................... n/a
</TABLE>
The non-standardized returns for the Advisor Class shares of the
Infrastructure Fund, stated as average annualized total returns for the periods
shown, were:
<TABLE>
<CAPTION>
INFRASTRUCTURE
FUND
PERIOD (ADVISOR CLASS)
------ ---------------
<S> <C>
Fiscal year ended Oct. 31, 1998............................. -4.35%
June 1, 1995 (commencement of operations) through Oct. 31,
1998...................................................... 7.22%
May 31, 1994 (commencement of operations) through Oct. 31,
1998...................................................... n/a
</TABLE>
The non-standardized returns for the Advisor Class shares of the Resources
Fund, stated as average annualized total returns for the periods shown, were:
<TABLE>
<CAPTION>
RESOURCES
FUND
PERIOD (ADVISOR CLASS)
------ ---------------
<S> <C>
Fiscal year ended Oct. 31, 1998............................. -44.79%
June 1, 1995 (commencement of operations) through Oct. 31,
1998...................................................... 1.25%
May 31, 1994 (commencement of operations) through Oct. 31,
1998...................................................... n/a
</TABLE>
The non-standardized returns for the Advisor Class shares of the Consumer
Products and Services Fund, stated as average annualized total returns for the
periods shown, were:
<TABLE>
<CAPTION>
CONSUMER PRODUCTS
AND
SERVICES FUND
PERIOD (ADVISOR CLASS)
------ -----------------
<S> <C>
Fiscal year ended Oct. 31, 1998............................. 9.20%
June 1, 1995 (commencement of operations) to Oct. 31,
1998...................................................... 26.66%
Dec. 30, 1994 (commencement of operations) to Oct. 31,
1998...................................................... n/a
</TABLE>
54
<PAGE> 961
Standard total return quotes may be accompanied by total return figures
calculated by alternative methods. For example, average annual total return may
be calculated without assuming payment of the full sales load according to the
following formula:
P(1+U)(n)=ERV
<TABLE>
<S> <C> <C> <C>
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.
</TABLE>
Cumulative total return across a stated period may be calculated as follows:
P(1+V)(n)=ERV
<TABLE>
<S> <C> <C> <C>
Where P = a hypothetical initial payment of $1,000.
V = cumulative total return assuming payment of all of, a stated
portion of, or none of, the applicable maximum sales load at
the beginning of the stated period.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment at
the end of the stated period.
</TABLE>
The aggregate non-standardized returns (not taking sales charges into account)
for the Advisor Class shares of the Health Care Fund, stated as aggregate total
returns for the periods shown, were:
<TABLE>
<CAPTION>
HEALTH CARE
FUND
PERIOD (ADVISOR CLASS)
------ ---------------
<S> <C>
June 1, 1995 (commencement of operations) through Oct. 31,
1998...................................................... 78.28%
Aug. 7, 1989 (commencement of operations) through Oct. 31,
1998...................................................... n/a
</TABLE>
The aggregate non-standardized returns (not taking sales charges into account)
for the Advisor Class shares of the Telecommunications Fund, stated as aggregate
total returns for the periods shown, were:
<TABLE>
<CAPTION>
TELECOMMUNI-
CATIONS FUND
PERIOD (ADVISOR CLASS)
------ ---------------
<S> <C>
June 1, 1995 (commencement of operations) through Oct. 31,
1998...................................................... 32.44%
Jan. 27, 1992 (commencement of operations) through Oct. 31,
1998...................................................... n/a
</TABLE>
The aggregate non-standardized returns (not taking sales charges into account)
for the Advisor Class shares of the Financial Services Fund, stated as aggregate
total returns for the period shown, were:
<TABLE>
<CAPTION>
FINANCIAL
SERVICES FUND
PERIOD (ADVISOR CLASS)
------ ---------------
<S> <C>
June 1, 1995 (commencement of operations) through Oct. 31,
1998...................................................... 73.41%
May 31, 1994 (commencement of operations) through Oct. 31,
1998...................................................... n/a
</TABLE>
The aggregate non-standardized returns (not taking sales charges into account)
for the Advisor Class shares of the Infrastructure Fund, stated as aggregate
total returns for the period shown, were:
<TABLE>
<CAPTION>
INFRASTRUCTURE
FUND
PERIOD (ADVISOR CLASS)
------ ---------------
<S> <C>
June 1, 1995 (commencement of operations) through Oct. 31,
1998...................................................... 26.90%
May 31, 1994 (commencement of operations) through Oct. 31,
1998...................................................... n/a
</TABLE>
55
<PAGE> 962
The aggregate non-standardized returns (not taking sales charges into account)
for the Advisor Class shares of the Resources Fund, stated as aggregate total
returns for the period shown, were:
<TABLE>
<CAPTION>
RESOURCES
FUND
PERIOD (ADVISOR CLASS)
------ ---------------
<S> <C>
June 1, 1995 (commencement of operations) through Oct. 31,
1998...................................................... 4.35%
May 31, 1994 (commencement of operations) through Oct. 31,
1998...................................................... n/a
</TABLE>
The aggregate non-standardized returns (not taking sales charges into account)
for the Advisor Class shares of the Consumer Products and Services Fund, stated
as aggregate total returns for the period shown, were:
<TABLE>
<CAPTION>
CONSUMER PRODUCTS
AND
SERVICES FUND
PERIOD (ADVISOR CLASS)
------ ------------------
<S> <C>
June 1, 1995 (commencement of operations) through Oct. 31,
1998...................................................... 124.19%
Dec. 30, 1994 (commencement of operations) through Oct. 31,
1998...................................................... n/a
</TABLE>
Each Fund's investment results will vary from time to time depending upon
market conditions, the composition of each Fund's portfolio and operating
expenses of each Fund, so that current or past yield or total return should not
be considered representative of what an investment in each Fund may earn in any
future period. These factors and possible differences in the methods used in
calculating investment results should be considered when comparing each Fund's
investment results with those published for other investment companies and other
investment vehicles. Each Fund's results also should be considered relative to
the risks associated with such Fund's investment objective and policies.
PERFORMANCE INFORMATION
Total return and yield figures for the Funds are neither fixed nor guaranteed,
and no Fund's principal is insured. Performance quotations reflect historical
information and should not be considered representative of a Fund's performance
for any period in the future. Performance is a function of a number of factors
which can be expected to fluctuate. The Funds may provide performance
information in reports, sales literature and advertisements. The Funds may also,
from time to time, quote information about the Funds published or aired by
publications or other media entities which contain articles or segments relating
to investment results or other data about one or more of the Funds. Such
publications or media entities may include the following, among others:
Advertising Age
Barron's
Best's Review
Broker World
Business Week
Changing Times
Christian Science Monitor
Consumer Reports
Economist
EuroMoney
FACS of the Week
Financial Planning
Financial Product News
Financial World
Forbes
Fortune
Global Finance
Hartford Courant Inc.
Institutional Investor
Insurance Forum
Insurance Week
Investor's Daily
Journal of the American
Society of CLU & ChFC
Kiplinger Letter
Money
Mutual Fund Forecaster
Mutual Fund Magazine
Nation's Business
New York Times
Pension World
Pensions & Investments
Personal Investor
Financial Services Week
Philadelphia Inquirer
Smart Money
USA Today
U.S. News & World Report
Wall Street Journal
Washington Post
CNN
CNBC
PBS
56
<PAGE> 963
The Funds and AIM Distributors may from time to time, in advertisements, sales
literature and reports furnished to present or prospective shareholders, compare
each Fund with the following, or compare each Fund's performance to performance
data of similar mutual funds as published in the following, among others:
Bank Rate National Monitor Index
Bear Stearns Foreign Bond Index
Bond Buyer Index
CDA/Wiesenberger Investment Company Services
(data and mutual fund rankings and
comparisons)
CNBC/Financial News Composite Index
COFI
Consumer Price Index
Datastream
Donoghue's
Dow Jones Industrial Average
EAFE Index
First Boston High Yield Index
Fitch (publications)
Ibbotson Associates International Bond Index
International Bank for Reconstruction and
Development (publications)
International Finance Corporation Emerging
Markets Database
International Financial Statistics
Lehman Bond Indices
Lipper Analytical Data Services, Inc. (data and
mutual fund rankings and comparisons)
Micropal, Inc. (data and mutual fund rankings
and comparisons)
Moody's Investors Service (publications)
Morgan Stanley Capital International All
Country (AC) World Index
Morgan Stanley Capital International World
Indices
Morningstar, Inc. (data and mutual fund rankings
and comparisons)
NASDAQ
Organization for Economic Cooperation and
Development (publications)
Salomon Brothers Global Telecommunications
Index
Salomon Brothers World Government Bond
Index -- Non-U.S.
Salomon Brothers World Government Bond Index
Standard & Poor's (publications)
Standard & Poor's 500 Composite Stock Price
Index
Stangar
Wilshire Associates
World Bank (publications and reports)
The World Bank Publication of Trends in
Developing Countries
Worldscope
Each Fund may also compare its performance to rates on Certificates of Deposit
and other fixed rate investments such as the following:
10-year Treasuries
30-year Treasuries
30-day Treasury Bills
Information relating to foreign market performance, capitalization and
diversification is based on sources believed to be reliable but may be subject
to revision and has not been independently verified by the Funds or AIM
Distributors. Advertising for the Funds may from time to time include
discussions of general economic conditions and interest rates. Advertising for
the Funds may also include reference to the use of those Funds as part of an
individual's overall retirement investment program. From time to time, sales
literature and/or advertisements for any of the Funds may disclose (i) the
largest holdings in the Fund's portfolio, (ii) certain selling group members
and/or (iii) certain institutional shareholders.
From time to time, the Funds' sales literature and/or advertisements may
discuss generic topics pertaining to the mutual fund industry. This includes,
but is not limited to, literature addressing general information about mutual
funds, variable annuities, dollar-cost averaging, stocks, bonds, money markets,
certificates of deposit, retirement, retirement plans, asset allocation,
tax-free investing, college planning, and inflation.
Although performance data may be useful to prospective investors when
comparing a Fund's performance with other funds and other potential investments,
investors should note that the methods of computing performance of other
potential investments are not necessarily comparable to the methods employed by
a Fund.
GENERAL INFORMATION ABOUT THE THEME FUNDS AND THEME PORTFOLIOS
Each Theme Portfolio may invest worldwide across industries within the
Portfolio area of concentration without national or regional restrictions. The
ability of each Theme Portfolio to invest worldwide may allow the portfolio
managers to select industries in different economic cycles and varying stages of
development, though there is no assurance that the managers will be successful
in this selection.
57
<PAGE> 964
Each Theme Portfolio's area of concentration reflects the underlying theme of
the Portfolio. AIM Distributors believes that there are certain social,
political and economic trends that may benefit one or more industries within a
Theme Portfolio's area of concentration. Of course, there is no assurance that
any of the Funds will benefit as a result.
HEALTH CARE FUND
From time to time the Fund and AIM Distributors will quote information
including data regarding:
- Trading volume, number of listed companies and the largest companies of the
global health care industry
- Expenditures by various countries, regions and age groups on health care
- Population of countries, regions and age groups
- Natality and mortality rates in various regions, countries and age groups
- Life expectancy rates in various regions, countries and age groups
- New health care products and products seeking approval
- Health maintenance organizations (HMOs) and their enrollment growth
- Studies from, but not limited to, the American Medical Association showing
the effectiveness of using drugs to cure illness
- Medical technology and devices in use or in development
- Regulatory environment of health care industries
- Consolidation in the health care industries
The information quoted has not been independently verified by a Fund or AIM
Distributors and will be based on data provided that is believed to be reliable
and accurate from sources including the following:
- Research firms such as Mehta and Isaly which publishes Pharmaceutical
Portfolio Recommendations
- OECD and its publications such as the OECD Health Data, as supplemented
annually
- Morgan Stanley Capital International stock market industry indices such as
Health & Personal Care
- The World Bank and its publications such as The World Development Report, as
supplemented annually
- IFC and publications such as the Emerging Stock Markets Factbook
INFORMATION ABOUT THE GLOBAL HEALTH CARE INDUSTRIES
The Fund and the Sub-advisor believe that certain market and demographic
factors merit an investor's consideration when making a health care investment.
Worldwide standards of living and life expectancy have increased at a
substantial rate. The Sub-advisor expects this growth, which works to the
general benefit of the global health care industry, to continue at a roughly
comparable rate in the future, although no assurances can be given in this
regard. Moreover, according to the Sub-advisor, the health care industry
historically has proven to be a relatively non-cyclical industry that continues
to provide goods and services to the public in periods of economic weakness as
well as economic strength.
The Sub-advisor believes that the anticipated increase in the world's elderly
population could increase demand for health care products and services. For
example, according to data compiled by the Sub-advisor, in Japan the number of
people age 65 and older is expected to grow over 100% by the year 2025; in
Germany, France and the U.S., the same age group should grow 40%. Similarly, the
U.S. Census Bureau predicts the number of Americans 85 and older to double in
the next 30 years. From time to time, the Fund and AIM Distributors will quote
information including, but not limited to, international data regarding
populations, birth rates, mortality rates, life expectancy, health care
expenditures, and gross domestic product vs. life expectancy. The information
quoted has not been independently verified by the Fund or AIM Distributors and
will be based on data that is believed to be reliable and accurate.
58
<PAGE> 965
TELECOMMUNICATIONS FUND
From time to time the Fund and AIM Distributors will quote information
including data regarding:
- Increased usage of new technologies such as, but not limited to, cellular
and wireless communications in emerging and established countries around the
world
- Supply and demand of telephone equipment and services
- Regulatory environment of telecommunications industries
- Revenue, price and usage of telecommunications products and services
- Privatization and/or deregulation of telecommunications companies
The information quoted has not been independently verified by the Fund or AIM
Distributors and will be based on data provided that is believed to be reliable
and accurate from sources including the following:
- Salomon Brothers World Equity Telecommunications Index, which includes stock
market data about the telecommunications industry in established and
developing markets
- OECD and other publications from its subsidiaries such as the International
Telecommunications Union
- Morgan Stanley Capital International stock market industry indices such as
Telecommunications, Broadcasting & Publishing and Data Processing &
Reproduction
- International Technology Consultants, a Washington D.C. based firm which
publishes reports such as Eastern European & Soviet Telecom Report and Latin
American Telecom Report
- Telegeography and other publications
DEREGULATION IN THE UNITED STATES
The United States has been the bellwether for deregulation of the telephone
industry. The divestiture of the Bell System from American Telephone and
Telegraph has produced competing companies in the United States. Such U.S.
market-driven competition has, for example, led to lower costs for consumers
which in turn led to greater consumer usage and to higher industrywide revenues.
The Sub-advisor expects this scenario to continue to benefit such companies in
the U.S. and similarly to be realized by the established telecommunications
companies in established economies, although no assurances can be made in this
regard.
CONSUMER PRODUCTS AND SERVICES FUND
From time to time the Fund and AIM Distributors will quote information
including data regarding:
- Trading volume, number of listed companies and the largest companies located
around the world in the consumer products and services industries
- Expenditures, demand and consumption by various countries, regions, income
classes and age groups of consumer products and services
- Population of countries, regions and age groups
- Life expectancy rates in various regions, countries and age groups
- New consumer products and services in the development or manufacturing
stages
- Income of various regions, countries and age groups
- Sales and sales growth of consumer products and services companies in their
own country and abroad
- Sales, supply and demand of consumer products and services
- Parent Companies and the products and services they distribute
- Regulatory environment of consumer products industries
59
<PAGE> 966
The information quoted will not be independently verified by the Fund or AIM
Distributors and will be based on data provided that is believed to be reliable
and accurate from sources including the following:
- Consumer and trade groups
- Fortune magazine and other periodicals
- The World Bank and its publications
- The International Monetary Fund (IMF) and its publications
- IFC and its publications
- OECD and its publications
INFRASTRUCTURE FUND
From time to time the Fund and AIM Distributors may quote information
including:
- Supply and demand of telephone equipment and services, electricity, water,
transportation, construction materials and other infrastructure related
products and services
- Regulatory environment of infrastructure industries
- Quantity and costs of current and projected infrastructure projects
- Privatization of industries and companies
- New technologies, products and services used in infrastructure industries
- Infrastructure Finance magazine and other periodicals
FINANCIAL SERVICES FUND
From time to time the Fund and AIM Distributors may quote information
including:
- Supply and demand of financial services
- Regulatory environment of financial service industries
- Credit ratings of U.S. and non-U.S. banks
- New technologies, products and services used in the financial services
industries
- Consolidation in the financial services industries
RESOURCES FUND
From time to time the Fund and AIM Distributors may quote information
including:
- Supply, demand and prices of natural resources
- Regulatory environment of natural resources
- Supply, demand and prices of products manufactured from natural resources
- New technologies, products and services used in the natural resources
industries
60
<PAGE> 967
APPENDIX
DESCRIPTION OF BOND RATINGS
Moody's Investors Service, Inc. ("Moody's") rates the debt securities issued
by various entities from "Aaa" to "C." Investment grade ratings are the first
four categories:
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 edged." 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 risk appear
somewhat larger than the Aaa securities. A -- Bonds which are rated A possess
many favorable investment attributes and are to be considered as
upper-medium-grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present which suggest a
susceptibility to impairment some time in the future. Baa -- Bonds which are
rated Baa are considered as medium-grade obligations, (i.e., they are neither
highly protected nor poorly secured). Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well. Ba -- Bonds which are rated Ba are judged to have
speculative elements; their future cannot be considered well-assured. Often the
protection of interest and principal payments may be very moderate, and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class. B -- Bonds which are rated B
generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small. Caa -- Bonds which are rated Caa are
of poor standing. Such issues may be in default or there may be present elements
of danger with respect to principal or interest. Ca -- Bonds which are rated Ca
represent obligations which are speculative in a high degree. Such issues are
often in default or have other marked shortcomings. C -- Bonds which are rated C
are the lowest rated class of bonds, and issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"),
rates the securities debt of various entities in categories ranging from "AAA"
to "D" according to quality. Investment grade ratings are the first four
categories: AAA -- An obligation rated "AAA" has the highest rating assigned by
S&P. The obligor's capacity to meet its financial commitment on the obligation
is extremely strong. AA -- An obligation rated "AA" differs from the highest
rated obligations only in a small degree. The obligor's capacity to meet its
financial commitment on the obligation is very strong. A -- An obligation rated
"A" is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in higher rated
categories. BBB -- An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation. BB, B, CCC, CC, C -- Obligations rated "BB," "B,"
"CCC," "CC," and "C" are regarded as having significant speculative
characteristics. "BB" indicates the least degree of speculation and "C" the
highest. While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions. BB - An obligation rated "BB" is less
vulnerable to nonpayment than other speculative issues. However, it faces major
ongoing uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation. B -- An obligation rated "B" is more
vulnerable to nonpayment than obligations rated "BB," but the obligor currently
has the capacity to meet its financial commitment on the obligation. Adverse
business, financial, or economic conditions will likely impair the obligor's
capacity or willingness to meet its financial commitment on the obligation.
CCC -- An obligation rated "CCC" is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC -- An obligation rated "CC" is currently highly vulnerable to nonpayment.
C -- The "C" rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued. D -- An obligation rated "D" is in payment default. The "D"
rating category is used when payments on an obligation are not made on the date
due even if the applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period. The "D" rating also
will be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
61
<PAGE> 968
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR: Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's employs the designation "Prime-1" to indicate commercial paper having
a superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources of
alternate liquidity. Issues rated Prime-2 have a strong ability for repayment of
senior short-term debt obligations. This normally will be evidenced by many of
the characteristics cited above but to a lesser degree. Earnings trends and
coverage ratios, while sound, may be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
S&P ratings of commercial paper are graded into several categories ranging
from "A-1" for the highest quality obligations to "D" for the lowest. Issues in
the "A" category are delineated with numbers 1, 2, and 3 to indicate the
relative degree of safety. A-1 -- This highest category indicates that the
degree of safety regarding timely payment is strong. Those issues determined to
possess extremely strong safety characteristics will be denoted with a plus sign
(+) designation. A-2 -- Capacity for timely payments on issues with this
designation is satisfactory; however, the relative degree of safety is not as
high as for issues designated "A-1."
ABSENCE OF RATING
Where no rating has been assigned or where a rating has been suspended or
withdrawn, it may be for reasons unrelated to the quality of the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies
that are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or
issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa to Caa. The modifier 1 indicates that the Company ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the Company ranks in the
lower end of its generic rating category.
62
<PAGE> 969
FINANCIAL STATEMENTS
FS
<PAGE> 970
PART C: OTHER INFORMATION
Item 23. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C> <C> <C>
(a) (1) - Agreement and Declaration of Trust of Registrant was filed as an Exhibit to
Post-Effective Amendment No. 55, on August 26, 1998 and is hereby incorporated by
reference.
(2) - First Amendment to Agreement and Declaration of Trust of Registrant is filed herewith
electronically.
(3) - Form of Second Amendment to Agreement and Declaration of Trust of Registrant is filed
herewith electronically.
(b) - By-Laws of Registrant were filed as an Exhibit to Post-Effective Amendment No. 55, on
August 26, 1998 and is hereby incorporated by reference.
(c) - Provisions of instruments defining the rights of holders of Registrant's securities are
contained in the Agreement and Declaration of Trust, as amended, Articles II, VI, VII, VIII and
IX and By-Laws Articles IV, V, VI, VII and VIII, which are included as part of Exhibits (a)(1) and
(b) of this Registration Statement.
(d) (1) - (i) Investment Management and Administration Contract, dated May 29, 1998, between
Registrant and A I M Advisors, Inc. was filed as an Exhibit to Post-Effective Amendment
No. 55 on August 26, 1998.
- (ii) Investment Management and Administration Contract, dated September 8, 1998, between
Registrant and A I M Advisors, Inc. was filed as an Exhibit to Post-Effective Amendment No.
55 on August 26, 1998 and is hereby incorporated by reference.
(2) - (i) Administration Contract, dated May 29, 1998, between Registrant and A I M
Advisors, Inc. was filed as an Exhibit to Post-Effective Amendment No. 55 on August 26,
1998.
- (ii) Administration Contract, dated September 8, 1998, between Registrant and
A I M Advisors, Inc. was filed as an Exhibit to Post-Effective Amendment No. 55 on August
26, 1998 and is hereby incorporated by reference.
(3) - (i) Sub-Administration Contract, dated May 29, 1998, between A I M Advisors, Inc. and
INVESCO (NY), Inc. with respect to Registrant was filed as an Exhibit to
Post-Effective Amendment No. 55 on August 26, 1998.
- (ii) Sub-Administration Contract, dated September 8, 1998, between A I M Advisors,
Inc. and INVESCO (NY), Inc. with respect to Registrant was filed as an Exhibit to
Post-Effective Amendment No. 55 on August 26, 1998 and is hereby incorporated by
reference.
(4) - (i) Sub-Advisory and Sub-Administration Contract, dated May 29, 1998, between A I M
Advisors, Inc. and INVESCO (NY), Inc. with respect to Registrant was filed as an
Exhibit to Post-Effective Amendment No. 55 on August 26, 1998.
- (ii) Sub-Advisory and Sub-Administration Contract, dated September 8, 1998, between
A I M Advisors, Inc. and INVESCO (NY), Inc. with respect to Registrant was filed as an
Exhibit to Post-Effective Amendment No. 55 on August 26, 1998 and is hereby
incorporated by reference.
</TABLE>
C-1
<PAGE> 971
<TABLE>
<S> <C> <C> <C>
(5) - Investment Management and Administration Contract, dated May 29, 1998, between Global
Investment Portfolio and A I M Advisors, Inc. was filed as an Exhibit to
Post-Effective Amendment No. 55 on August 26, 1998 and is hereby incorporated by
reference.
(6) - Investment Management and Administration Contract, dated May 29, 1998, between Global
High Income Portfolio (now known as Emerging Markets Debt Portfolio) and A I M Advisors,
Inc. was filed as an Exhibit to Post-Effective Amendment No. 55 on August 26, 1998 and
is hereby incorporated by reference.
(7) - Sub-Advisory and Sub-Administration Contract, dated May 29, 1998, between A I M
Advisors, Inc. and INVESCO (NY), Inc. with respect to Global Investment Portfolio
was filed as an Exhibit to Post-Effective Amendment No. 55 on August 26, 1998 and
is hereby incorporated by reference.
(8) - Sub-Advisory and Sub-Administration Contract, dated May 29, 1998, between A I M
Advisors, Inc. and INVESCO (NY), Inc. with respect to Global High Income Portfolio
(now known as Emerging Markets Debt Portfolio) was filed as an Exhibit to Post-Effective
Amendment No. 55 on August 26, 1998 and is hereby incorporated by reference.
(e) (1) - (i) Distribution Agreement, dated May 29, 1998, between Registrant and A I M
Distributors, Inc. with respect to Class A shares was filed as an Exhibit to
Post-Effective Amendment No. 55 on August 26, 1998.
- (ii) Distribution Agreement, dated September 8, 1998,
between Registrant and A I M Distributors, Inc. with respect
to Class A shares was filed as an Exhibit to Post-Effective
Amendment No. 55 on August 26, 1998 and is hereby incorporated
by reference.
- (iii) Form of Master Distribution Agreement between
Registrant and A I M Distributors, Inc. with respect to Class
A and C shares is filed herewith electronically.
(2) - (i) Distribution Agreement, dated May 29, 1998, between Registrant and A I M
Distributors, Inc. with respect to Class B shares was filed as an Exhibit to
Post-Effective Amendment No. 55 on August 26, 1998.
- (ii) Distribution Agreement, dated September 8, 1998, between Registrant
and A I M Distributors, Inc. with respect to Class B shares was filed as an
Exhibit to Post-Effective Amendment No. 55 on August 26, 1998 and is hereby
incorporated by reference.
(3) - (i) Distribution Agreement, dated May 29, 1998, between Registrant and A I M Distributors,
Inc. with respect to Advisor Class shares was filed as an Exhibit to Post-Effective Amendment
No. 55 on August 26, 1998.
- (ii) Distribution Agreement, dated September 8, 1998, between Registrant and A I M
Distributors, Inc. with respect to Advisor Class shares was filed as an Exhibit to
Post-Effective Amendment No. 55 on August 26, 1998 and is hereby incorporated by
reference.
(4) - Form of Selected Dealer Agreement between and A I M Distributors, Inc. and selected
dealers is filed herewith electronically.
(5) - Form of Bank Selling Group Agreement between and A I M Distributors, Inc. and banks is
filed herewith electronically.
(f) - Agreements Concerning Officers and Directors/Trustees Benefits - None.
</TABLE>
C-2
<PAGE> 972
<TABLE>
<S> <C> <C> <C>
(g) (1) - Custodian Contract, dated April 27, 1988, between Registrant and State Street Bank
and Trust Company is filed herewith electronically.
(2) - Notice of Additional Fund, dated August 7, 1989, to Custodian Contract, dated April
27, 1988, between Registrant and State Street Bank and Trust Company is filed
herewith electronically.
(3) - Notice of Additional Fund, dated September 23, 1990, to Custodian Contract, dated
April 27, 1988, between Registrant and State Street Bank and Trust Company is filed
herewith electronically.
(4) - Notice of Additional Fund, dated August 8, 1991, to Custodian Contract, dated April
27, 1988, between Registrant and State Street Bank and Trust Company is filed
herewith electronically.
(5) - Notice of Additional Fund, dated January 27, 1992, to Custodian Contract, dated April
27, 1988, between Registrant and State Street Bank and Trust Company is filed
herewith electronically.
(6) - Notice of Additional Fund, dated May 10, 1992, to Custodian Contract, dated April 27,
1988, between Registrant and State Street Bank and Trust Company is filed herewith
electronically.
(7) - Notice of Additional Fund, dated June 1, 1992, to Custodian Contract, dated April 27,
1988, between Registrant and State Street Bank and Trust Company is filed herewith
electronically.
(8) - Notice of Additional Fund, dated October 22, 1992, to Custodian Contract, dated April
27, 1988, between Registrant and State Street Bank and Trust Company is filed
herewith electronically.
(9) - Notice of Additional Fund, dated May 31, 1994, to Custodian Contract, dated April 27,
1988, between Registrant and State Street Bank and Trust Company is filed herewith
electronically.
(10) - Amendment to Custodian Contract, dated August 17, 1994, is filed herewith
electronically.
(11) - Amendment to Custodian Contract, dated June 20, 1995, is filed herewith
electronically.
(12) - Notice of Additional Fund, dated October 24, 1997, to Custodian Contract, dated April 27,
1988, between Registrant and State Street Bank and Trust Company is filed herewith
electronically.
(13) - Notice of Registrant's reorganization, dated September 22, 1998, to Custodian is filed
herewith electronically.
(h) (1) - (i) Transfer Agency and Service Agreement, dated September 8, 1998, between Registrant
and A I M Fund Services, Inc. is filed herewith electronically.
- (ii) Form of Amendment No. 1 to Transfer Agency and Services Agreement, dated
September 8, 1998, between Registrant and A I M Fund Services, Inc. is filed herewith
electronically.
(2) - (i) Remote Access and Related Services Agreement, dated as of December 23, 1994, was
filed as an Exhibit to Post- Effective Amendment No. 55 on August 26, 1998 and is
hereby incorporated by reference.
</TABLE>
C-3
<PAGE> 973
<TABLE>
<S> <C> <C> <C>
- (ii) Amendment No. 1, dated October 4, 1995, to the Remote Access and Related
Services Agreement, dated as of December 23, 1994, was filed as an Exhibit to Post-
Effective Amendment No. 55 on August 26, 1998 and is hereby incorporated by
reference.
- (iii) Addendum No. 2, dated October 12, 1995, to the Remote Access and Related
Services Agreement, dated as of December 23, 1994, was filed as an Exhibit to
Post-Effective Amendment No. 55 on August 26, 1998 and is hereby incorporated by
reference.
- (iv) Amendment No. 3, dated February 1, 1997, to the Remote Access and Related
Services Agreement, dated December 23, 1994, was filed as an Exhibit to Post-
Effective Amendment No. 55 on August 26, 1998 and is hereby incorporated by
reference.
- (v) Exhibit 1, effective as of August 4, 1997, to the Remote Access and Related
Services Agreement, dated December 23, 1994, was filed as an Exhibit to
Post-Effective Amendment No. 55 on August 26, 1998 and is hereby incorporated by
reference.
- (vi) Preferred Registration Technology Escrow Agreement, dated September 10, 1997,
was filed as an Exhibit to Post- Effective Amendment No. 55 on August 26, 1998.
- (vii) Amendment No. 4, dated June 30, 1998, to the Remote Access and Related Services
Agreement, dated December 23, 1994, is filed herewith electronically.
- (viii) Amendment No. 5, dated July 1, 1998, to the Remote Access and Related Services
Agreement, dated December 23, 1994, is filed herewith electronically.
(3) - Fund Accounting and Pricing Agent Agreement between Registrant and
INVESCO (NY), Inc. was filed as an exhibit to Post-Effective Amendment
No. 55 on August 26, 1998, and is hereby incorporated by reference.
(i) (1) - Opinion and Consent of Kirkpatrick & Lockhart LLP is filed herewith electronically.
(2) - (i) Opinion and Consent of Delaware Counsel were filed as an Exhibit to Post-Effective
Amendment No. 55 on August 26, 1998, and is hereby incorporated by reference.
(ii) Opinion and Consent of Delaware Counsel is filed herewith electronically.
(j) - Other opinions - None.
(k) - Omitted Financial Statements - None.
(l) - Agreements Concerning Initial Capitalization - None.
(m) (1) - (i) Distribution Plan, effective as of September 8, 1998, adopted pursuant to Rule
12b-1 with respect to Class A shares is filed herewith electronically.
- (ii) Form of Master Distribution Plan, pursuant to Rule 12b-1 with respect to Class A
and C shares is filed herewith electronically.
(2) - Distribution Plan, effective as of September 8, 1998, adopted pursuant to Rule 12b-1 with
respect to Class B shares is filed herewith electronically.
(3) - (i) Form of Shareholder Service Agreement to be used in connection with Registrant's
Master Distribution Plan is filed herewith electronically.
- (ii) Form of Bank Shareholder Service Agreement to be used in connection with
Registrant's Master Distribution Plan is filed herewith electronically.
- (iii) Form of Service Agreement for Bank Trust Department and for Broker to be used
in connection with Registrant's Master Distribution Plan is filed herewith
electronically.
- (iv) Form of Agency Pricing Agreement to be used in connection with Registrant's
Master Distribution Plan is filed herewith electronically.
</TABLE>
C-4
<PAGE> 974
<TABLE>
<S> <C>
(n) - Financial Data Schedules were filed as Exhibits to Post-Effective Amendment No. 51 to
Registration Statement on Form N-1A, filed January 30, 1998, and are hereby
incorporated by reference.
(o) - Rule 18f-3 Multiple Class Plan was filed as an Exhibit to Post-Effective Amendment
No. 55 on August 26, 1998 and is hereby incorporated by reference.
</TABLE>
Item 24. Persons Controlled by or Under Common Control with the Fund
Provide a list or diagram of all persons directly or indirectly
controlled by or under common control with the Fund. For any person controlled
by another person, disclose the percentage of voting securities owned by the
immediately controlling person or other basis of that person's control. For each
company, also provide the state or other sovereign power under the laws of which
the company is organized.
[None.]
Item 25. Indemnification
State the general effect of any contract, arrangements or statute under
which any director, officer, underwriter or affiliated person of the Fund is
insured or indemnified against any liability incurred in their official
capacity, other than insurance provided by any director, officer, affiliated
person, or underwriter for their own protection.
Article VIII of the Registrant's Agreement and Declaration of Trust, as
amended, provides for indemnification of certain persons acting on
behalf of the Registrant. Article VIII, Section 8.1 provides that a
Trustee, when acting in such capacity, shall not be personally liable to
any person for any act, omission, or obligation of the Registrant or any
Trustee; provided, however, that nothing contained in the Registrant's
Agreement and Declaration of Trust or in the Delaware Business Trust Act
shall protect any Trustee against any liability to the Registrant or the
Shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of the office of Trustee.
Article VIII, Section 3 of the Registrant's By-Laws also provides that
every person who is, or has been, a Trustee or Officer of the Registrant
to the fullest extent permitted by the Delaware Business Trust Act, the
Registrant's By-Laws and other applicable law.
Item 26. Business and Other Connections of the Investment Advisor
Describe any other business, profession, vocation or employment of a
substantial nature that each investment adviser, and each director, officer or
partner of the adviser, is or has been engaged within the last two fiscal years
for his or her own account or in the capacity of director, officer, employee,
partner, or trustee.
See the material under the headings "Trustees and Executive Officers"
and "Management" included in Part B (Statement of Additional
Information) of this Post-Effective Amendment. Information as to the
Directors and Officers of A I M Advisors, Inc. and INVESCO (NY), Inc. is
included in Schedule A and Schedule D of Part I of each entity's Form
ADV (File No. 801-12313 and File No. 801-10254, respectively), filed
with the Securities and Exchange Commission, which are incorporated
herein by reference thereto.
C-5
<PAGE> 975
Item 27. Principal Underwriters
(a) A I M Distributors, Inc., the Registrant's principal underwriter, also
acts as a principal underwriter to the following investment companies:
AIM Advisor Funds, Inc.
AIM Eastern Europe Fund
AIM Equity Funds, Inc. (Retail Classes)
AIM Funds Group
AIM Growth Series
AIM International Funds, Inc.
AIM Investment Funds
AIM Investment Portfolios
AIM Investment Securities Funds
AIM Series Trust
AIM Summit Fund, Inc.
AIM Tax-Exempt Funds, Inc.
AIM Variable Insurance Funds, Inc.
GT Global Floating Rate Fund, Inc. (d/b/a AIM Floating Rate Fund)
(b)
<TABLE>
<CAPTION>
Name and Principal Position and Offices Position and Offices
Business Address* with Underwriter with Fund
- ----------------- ---------------- ---------
<S> <C> <C>
Charles T. Bauer Chairman of the Board of Directors None
Michael J. Cemo President & Director None
Gary T. Crum Director Vice President
Robert H. Graham Senior Vice President & Director Chairman & President
William G. Littlepage Senior Vice President & Director None
John Caldwell Senior Vice President None
Marilyn M. Miller Senior Vice President None
James L. Salners Senior Vice President None
Gordon J. Sprague Senior Vice President None
Michael C. Vessels Senior Vice President None
B.J. Thompson First Vice President None
James R. Anderson Vice President None
John J. Arthur Vice President & Treasurer Vice President
Mary K. Coleman Vice President None
Melville B. Cox Vice President & Chief Vice President
Compliance Officer
</TABLE>
- ----------
* 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173
C-6
<PAGE> 976
<TABLE>
<CAPTION>
Name and Principal Position and Offices Position and Offices
Business Address* with Underwriter with Fund
- ----------------- ---------------- ---------
<S> <C> <C>
Charles R. Dewey Vice President None
Sidney M. Dilgren Vice President None
Tony D. Green Vice President None
William H. Kleh Vice President None
Ofelia M. Mayo Vice President, General Counsel Assistant Secretary
& Assistant Secretary
Terri L. Ransdell Vice President None
Carol F. Relihan Vice President Vice President
Kamala C. Sachidanandan Vice President None
Frank V. Serebrin Vice President None
Christopher T. Simutis Vice President None
Robert D. Van Sant, Jr. Vice President None
Gary K. Wendler Vice President None
David E. Hessel Assistant Vice President, None
Assistant Treasurer
& Controller
Kathleen J. Pflueger Secretary Assistant Secretary
Luke P. Beausoleil Assistant Vice President None
Tisha B. Christopher Assistant Vice President None
Glenda A. Dayton Assistant Vice President None
Kathleen M. Douglas Assistant Vice President None
Terri N. Fiedler Assistant Vice President None
Mary E. Gentempo Assistant Vice President None
Jeffrey L. Horne Assistant Vice President None
Melissa E. Hudson Assistant Vice President None
Jodie L. Johnson Assistant Vice President None
Kathryn A. Jordan Assistant Vice President None
Wayne W. LaPlante Assistant Vice President None
</TABLE>
- ----------
* 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173
C-7
<PAGE> 977
<TABLE>
<CAPTION>
<S> <C> <C>
Kim T. Lankford Assistant Vice President None
Ivy B. McLemore Assistant Vice President None
David B. O'Neil Assistant Vice President None
Patricia M. Shyman Assistant Vice President None
Nicholas D. White Assistant Vice President None
Norman W. Woodson Assistant Vice President None
Nancy L. Martin Assistant General Counsel Assistant Secretary
& Assistant Secretary
Samuel D. Sirko Assistant General Counsel Assistant Secretary
& Assistant Secretary
Stephen I. Winer Assistant Secretary None
</TABLE>
- ----------
* 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173
(c) - Not Applicable
Item 28. Location of Accounts and Records
State the name and address of each person maintaining physical
possessions of each account, book, or other document required to be maintained
by section 31(a) [15 U.S.C. 80a-30(a)] and the rules under that section.
Accounts, books and other records required by Rules 31a-1 and 31a-2
under the Investment Company Act of 1940, as amended, are maintained
and held in the offices of the Registrant and its advisor A I M
Advisors, Inc., 11 Greenway Plaza, Suite 100, Houston, Texas 77046, and
its custodian, State Street Bank and Trust Company, 225 Franklin
Street, Boston, MA 02110.
Records covering shareholder accounts and portfolio transactions are
also maintained and kept by the Registrant's Transfer Agent, A I M Fund
Services, Inc., 11 Greenway Plaza, Suite 100, Houston, Texas 77046, and
by the Registrant's custodian, State Street Bank and Trust Company, 225
Franklin Street, Boston, MA 02110.
Item 29. Management Services
Provide a summary of the substantive provisions of any
management-related service contract not discussed in Part A or B, disclosing the
parties to the contract and the total amount paid and by whom for the Fund's
last three fiscal years.
None.
Item 30. Undertakings
None.
C-8
<PAGE> 978
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of Houston, Texas on the 30th day of
December, 1998.
REGISTRANT: AIM INVESTMENT FUNDS
By: /s/ ROBERT H. GRAHAM
---------------------------
Robert H. Graham, President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ ROBERT H. GRAHAM
--------------------------------- Chairman, Trustee & President December 30, 1998
(Robert H. Graham) (Principal Executive Officer)
/s/ C. DEREK ANDERSON
--------------------------------- Trustee December 30, 1998
(C. Derek Anderson)
/s/ FRANK S. BAYLEY
--------------------------------- Trustee December 30, 1998
(Frank S. Bayley)
/s/ ARTHUR C. PATTERSON
--------------------------------- Trustee December 30, 1998
(Arthur C. Patterson)
/s/ RUTH H. QUIGLEY
--------------------------------- Trustee December 30, 1998
(Ruth H. Quigley)
/s/ KENNETH W. CHANCEY Vice President &
--------------------------------- Principal Financial December 30, 1998
(Kenneth W. Chancey) and Accounting Officer
</TABLE>
<PAGE> 979
SIGNATURES
Emerging Markets Debt Portfolio has duly caused this Amendment of the
Registration Statement of AIM Investment Funds to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Houston, Texas on
the 30th day of December, 1998.
EMERGING MARKETS DEBT PORTFOLIO
By: /s/ ROBERT H. GRAHAM
-------------------------------
Robert H. Graham, President
This Amendment to the Registration Statement of AIM Investment Funds
has been signed below by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ ROBERT H. GRAHAM
--------------------------------- Chairman, Trustee & President December 30, 1998
(Robert H. Graham) (Principal Executive Officer)
/s/ C. DEREK ANDERSON
--------------------------------- Trustee December 30, 1998
(C. Derek Anderson)
/s/ FRANK S. BAYLEY
--------------------------------- Trustee December 30, 1998
(Frank S. Bayley)
/s/ ARTHUR C. PATTERSON
--------------------------------- Trustee December 30, 1998
(Arthur C. Patterson)
/s/ RUTH H. QUIGLEY
--------------------------------- Trustee December 30, 1998
(Ruth H. Quigley)
/s/ KENNETH W. CHANCEY Vice President &
--------------------------------- Principal Financial December 30, 1998
(Kenneth W. Chancey) and Accounting Officer
</TABLE>
<PAGE> 980
SIGNATURES
Global Investment Portfolio has duly caused this Amendment of the
Registration Statement of AIM Investment Funds to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Houston, Texas on
the 30th day of December, 1998.
GLOBAL INVESTMENT PORTFOLIO
By: /s/ ROBERT H. GRAHAM
------------------------------
Robert H. Graham, President
This Amendment to the Registration Statement of AIM Investment Funds
has been signed below by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ ROBERT H. GRAHAM
--------------------------------- Chairman, Trustee & President December 30, 1998
(Robert H. Graham) (Principal Executive Officer)
/s/ C. DEREK ANDERSON
--------------------------------- Trustee December 30, 1998
(C. Derek Anderson)
/s/ FRANK S. BAYLEY
--------------------------------- Trustee December 30, 1998
(Frank S. Bayley)
/s/ ARTHUR C. PATTERSON
--------------------------------- Trustee December 30, 1998
(Arthur C. Patterson)
/s/ RUTH H. QUIGLEY
--------------------------------- Trustee December 30, 1998
(Ruth H. Quigley)
/s/ KENNETH W. CHANCEY Vice President &
--------------------------------- Principal Financial December 30, 1998
(Kenneth W. Chancey) and Accounting Officer
</TABLE>
<PAGE> 981
INDEX TO EXHIBITS
AIM INVESTMENT FUNDS
<TABLE>
<CAPTION>
Exhibit Number
- --------------
<S> <C>
(a)(2) First Amendment to Agreement and Declaration of Trust of Registrant
(a)(3) Form of Second Amendment to Agreement and Declaration of Trust of Registrant
(e)(1)(iii) Form of Master Distribution Agreement between Registrant and A I M Distributors, Inc. with
respect to Class A and C shares.
(e)(4) Form of Selected Dealer Agreement between A I M Distributors, Inc. and selected dealers
(e)(5) Form of Bank Selling Group Agreement between A I M Distributors, Inc. and banks
(g)(1) Custodian Contract between Registrant and State Street Bank and Trust Company
(g)(2) Notice of Additional Fund, dated August 7, 1989, to Custodian Contract, dated April 27, 1988,
between Registrant and State Street Bank and Trust Company
(g)(3) Notice of Additional Fund, dated September 23, 1990, to Custodian Contract, dated April 27,
1988, between Registrant and State Street Bank and Trust Company
(g)(4) Notice of Additional Fund, dated August 8, 1991, to Custodian Contract, dated April 27, 1988,
between Registrant and State Street Bank and Trust Company
(g)(5) Notice of Additional Fund, dated January 27, 1992, to Custodian Contract, dated April 27, 1988,
between Registrant and State Street Bank and Trust Company
(g)(6) Notice of Additional Fund, dated May 10, 1992, to Custodian Contract, dated April 27, 1988,
between Registrant and State Street Bank and Trust Company
(g)(7) Notice of Additional Fund, dated June 1, 1992, to Custodian Contract, dated April 27, 1988,
between Registrant and State Street Bank and Trust Company
(g)(8) Notice of Additional Fund, dated October 22, 1992, to Custodian Contract, dated April 27, 1988,
between Registrant and State Street Bank and Trust Company
(g)(9) Notice of Additional Fund, dated May 31, 1994, to Custodian Contract, dated April 27, 1988,
between Registrant and State Street Bank and Trust Company
(g)(10) Amendment to Custodian Contract dated August 17, 1994
(g)(11) Amendment to Custodian Contract dated June 20, 1995
(g)(12) Notice of Additional Fund, dated October 24, 1997, to Custodian Contract, dated April 27, 1988,
between Registrant and State Street Bank and Trust Company
(g)(13) Notice of Registrant's reorganization dated September 22, 1998, to Custodian
(h)(1)(i) Transfer Agency and Service Agreement between Registrant and A I M Fund Services, Inc.
</TABLE>
<PAGE> 982
<TABLE>
<S> <C>
(h)(1)(ii) Form of Amendment No. 1 to Transfer Agency and Services Agreement, dated September 8,
1998, between Registrant and A I M Fund Services, Inc.
(h)(2)(vii) Amendment No. 4 to the Remote Access and Related Services Agreement between Registrant
and First Data Investor Services Group, Inc
(h)(2)(viii) Amendment No. 5 to the Remote Access and Related Services Agreement between Registrant
and First Data Investor Services Group, Inc.
(i)(1) Opinion and Consent of Kirkpatrick & Lockhart LLP
(i)(2)(ii) Opinion and Consent of Delaware Counsel
(m)(1)(i) Distribution Plan adopted pursuant to Rule 12b-1 with respect to Class A shares
(m)(1)(ii) Form of Master Distribution Plan, pursuant to Rule 12b-1 with respect to Class A and C shares
m(2) Distribution Plan adopted pursuant to Rule 12b-1 with respect to Class B shares
(m)(3)(i) Form of Shareholder Service Agreement to be used in connection with Registrant's Master
Distribution Plan
(m)(3)(ii) Form of Bank Shareholder Service Agreement to be used in connection with Registrant's Master
Distribution Plan
(m)(3)(iii) Form of Service Agreement for Bank Trust Department and for Broker to be used in connection
with Registrant's Master Distribution Plan
(m)(3)(iv) Form of Agency Pricing Agreement to be used in connection with Registrant's Master Distribution
Plan
</TABLE>
<PAGE> 1
EXHIBIT a(2)
FIRST AMENDMENT
TO
AGREEMENT AND DECLARATION OF TRUST
OF
AIM INVESTMENT FUNDS
THIS FIRST AMENDMENT TO AGREEMENT AND DECLARATION OF TRUST OF AIM
INVESTMENT FUNDS (the "Amendment") is entered into as of the 8th day of
September, 1998, among C. Derek Anderson, Frank S. Bayley, Robert H. Graham,
Arthur C. Patterson and Ruth H. Quigley, as Trustees, and each person who became
or becomes a Shareholder in accordance with the terms set forth in that certain
Agreement and Declaration of Trust of AIM Investment Funds entered into as of
May 7, 1998, (the "Agreement").
WHEREAS, Sections 2.3 and 9.7 of the Agreement empower the Trustees
without Shareholder action to amend the Agreement in order to change the
designations of the Portfolios; and
WHEREAS, the Trustees on August 12, 1998 approved amending the
Agreement to change certain designations of the Portfolios as hereinafter set
forth.
NOW, THEREFORE, the Trustees hereby amend the Agreement as follows:
1. Capitalized terms not specifically defined in this Amendment shall
have the meanings ascribed to them in the Agreement.
2. Schedule A to the Agreement is hereby deleted in its entirety and a
new Schedule A to the Agreement is substituted as to read in its entirety as
follows:
"SCHEDULE A
AIM Investment Funds shall be divided into the following Portfolios,
each of which shall have three Classes (Class A, Class B and Advisor Class):
AIM Developing Markets Fund
AIM Emerging Markets Fund
AIM Global Growth & Income Fund
AIM Latin American Growth Fund
AIM Global Consumer Products and Services Fund
AIM Global Financial Services Fund
AIM Global Health Care Fund
AIM Global Infrastructure Fund
AIM Global Resources Fund
AIM Global Telecommunications Fund
AIM Global Government Income Fund
AIM Emerging Markets Debt Fund
AIM Strategic Income Fund
Dated: September 8, 1998"
<PAGE> 2
3. Except for the above change in Schedule A to the Agreement, the
Agreement shall in all other respects remain in full force and effect.
4. This Amendment may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same Amendment.
IN WITNESS WHEREOF, the undersigned, being all of the Trustees of the
Trust, have executed this First Amendment to Agreement and Declaration of Trust
of AIM Investment Funds as of the day first above written.
/s/ C. DEREK ANDERSON /s/ ROBERT H. GRAHAM
- ------------------------------ -----------------------------
C. Derek Anderson, Trustee Robert H. Graham, Trustee
/s/ FRANK S. BAYLEY /s/ ARTHUR C. PATTERSON
- ------------------------------ -----------------------------
Frank S. Bayley, Trustee Arthur C. Patterson, Trustee
/s/ RUTH H. QUIGLEY
------------------------
Ruth H. Quigley, Trustee
[THIS IS THE SIGNATURE PAGE FOR
THE FIRST AMENDMENT TO AGREEMENT AND DECLARATION OF TRUST
OF AIM INVESTMENT FUNDS]
<PAGE> 1
EXHIBIT a(3)
SECOND AMENDMENT
TO
AGREEMENT AND DECLARATION OF TRUST
OF
AIM INVESTMENT FUNDS
THIS SECOND AMENDMENT AGREEMENT AND DECLARATION OF TRUST OF AIM
INVESTMENT FUNDS (the "Amendment") is entered into the ____ day of
______________, 1998, among C. Derek Anderson, Frank S. Bayley, Robert H.
Graham, Arthur C. Patterson and Ruth H. Quigley, as Trustees, and each person
who became or becomes a Shareholder in accordance with the terms set forth in
that certain Agreement and Declaration of Trust of AIM Investment Funds, a
Delaware business trust (the "Trust"), entered into as of May 7, 1998, as
amended (the "Agreement").
WHEREAS, the Trustees of the Trust desire to establish a new Class of
shares of AIM Developing Markets Fund, AIM Global Growth & Income Fund, AIM
Latin American Growth Fund, AIM Global Consumer Products and Services Fund, AIM
Global Financial Services Fund, AIM Global Health Care Fund, AIM Global
Infrastructure Fund, AIM Global Resources Fund, AIM Global Telecommunications
Fund, AIM Global Government Income Fund, AIM Emerging Markets Debt Fund and AIM
Strategic Income Fund, Portfolios of the Trust: the Class C Shares; and
WHEREAS, Section 2.3 (b) and Section 2.3.1 of the Agreement permit the
Trustees to establish such Class and Section 9.7 of the Agreement authorizes the
Trustees to amend or otherwise supplement the Agreement by making an amendment,
all without Shareholder authorization or vote; and
WHEREAS, at a meeting duly called and held on the ____ day of
______________, 1998, the Trustees have resolved to amend the Agreement as
hereinafter set forth.
NOW, THEREFORE, the Trustees hereby amend the Agreement as herein set
forth below:
1. Capitalized terms not specifically defined in this Amendment shall
have the meanings ascribed to them in the Agreement.
2. Schedule A of the Agreement shall be deleted in its entirety and the
following new Schedule A shall be substituted in lieu thereof:
-1-
<PAGE> 2
"SCHEDULE A
AIM Investment Funds shall be divided into the following Portfolios and
Classes:
Class A, Class B, Class C and Advisor Class
AIM Developing Markets Fund AIM Global Growth &
Income Fund AIM Latin American Growth Fund AIM Global
Consumer Products and Services Fund AIM Global
Financial Services Fund AIM Global Health Care Fund
AIM Global Infrastructure Fund AIM Global Resources
Fund AIM Global Telecommunications Fund AIM Global
Government Income Fund AIM Emerging Markets Debt Fund
AIM Strategic Income Fund
Class A, Class B and Advisor Class
AIM Emerging Markets Fund
Date: ______________________, 1998"
3. With the exception of the amendment to Schedule A of the Agreement
as set forth in paragraph 2 of this Amendment, the Agreement, as amended, shall
in all other respects remain in full force and effect.
4. This Amendment may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same Amendment.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the undersigned, being all of the Trustees
of the Trust, have executed Second Amendment to Agreement and Declaration of
Trust of AIM Investment Funds as of the day and year first above written.
- -------------------------- -----------------------------
C. Derek Anderson, Trustee Frank S. Bayley, Trustee
- -------------------------- -----------------------------
Robert H. Graham, Trustee Arthur C. Patterson, Trustee
- --------------------------
Ruth H. Quigley, Trustee
[THIS IS THE SIGNATURE PAGE FOR
THE SECOND AMENDMENT TO AGREEMENT AND DECLARATION OF TRUST
OF AIM INVESTMENT FUNDS]
<PAGE> 1
EXHIBIT e (1)(iii)
MASTER DISTRIBUTION AGREEMENT
BETWEEN
AIM INVESTMENT FUNDS
(CLASS A AND C SHARES)
AND
A I M DISTRIBUTORS, INC.
THIS AGREEMENT made as of the_____ day of ______________, 1998, by and
between AIM INVESTMENT FUNDS, a Delaware business trust (the "Company"), with
respect to the series of shares of its common stock set forth on Appendix A to
this Agreement (the "Portfolios") and the shares, other than the Class B shares,
representing the Portfolios (hereinafter referred to as the "Class A and Class C
Shares") and A I M DISTRIBUTORS, INC., a Delaware corporation (the
"Distributor").
W I T N E S S E T H:
In consideration of the mutual covenants herein contained and other
good and valuable consideration, the receipt whereof is hereby acknowledged, the
parties hereto agree as follows:
FIRST: The Company on behalf of the Class A and Class C Shares hereby
appoints the Distributor as its exclusive agent for the sale of the Class A and
Class C Shares to the public directly and through investment dealers and
financial institutions in the United States and throughout the world in
accordance with the terms of the current prospectuses applicable to the
Portfolios.
SECOND: The Company shall not sell any Class A and Class C Shares
except through the Distributor and under the terms and conditions set forth in
paragraph FOURTH below. Notwithstanding the provisions of the foregoing
sentence, however:
(A) the Company may issue Class A and Class C Shares to any other
investment company or personal holding company, or to the shareholders thereof,
in exchange for all or a majority of the shares or assets of any such company;
and
(B) the Company may issue Class A and Class C Shares at their net asset
value in connection with certain classes of transactions or to certain
categories of persons, in accordance with Rule 22d-1 under the Investment
Company Act of 1940, as amended (the "1940 Act"), provided that any such
category is specified in the then current prospectus of the applicable Class A
and Class C Shares.
THIRD: The Distributor hereby accepts appointment as exclusive agent
for the sale of the Class A and Class C Shares and agrees that it will use its
best efforts to sell such shares; provided, however, that:
(A) the Distributor may, and when requested by the Company on behalf of
the Class A and Class C Shares shall, suspend its efforts to effectuate such
sales at any time when, in the
1
<PAGE> 2
opinion of the Distributor or of the Company, no sales should be made because of
market or other economic considerations or abnormal circumstances of any kind;
and
(B) the Company may withdraw the offering of the Class A and Class C
Shares (I) at any time with the consent of the Distributor, or (ii) without such
consent when so required by the provisions of any statute or of any order, rule
or regulation of any governmental body having jurisdiction. It is mutually
understood and agreed that the Distributor does not undertake to sell any
specific amount of the Class A and Class C Shares. The Company shall have the
right to specify minimum amounts for initial and subsequent orders for the
purchase of Class A and Class C Shares.
FOURTH:
(A) The public offering price of Class A Shares (the "offering price")
shall be the net asset value per share plus a sales charge, if any. Net asset
value per share shall be determined in accordance with the provisions of the
then current prospectus and statement of additional information of the
Portfolios. The sales charge shall be established by the Distributor. The
Distributor may establish a schedule of contingent deferred sales charges to be
imposed at the time of redemption of certain Class A Shares and such schedule of
contingent deferred sales charges shall be disclosed in the current prospectus
or statement of additional information for each Portfolio. The sales charges and
contingent deferred sales charges may reflect scheduled variations in, or the
elimination of, sales charges on sales of Class A Shares or redemption of Class
A Shares either generally to the public, or to any specified class of investors
or in connection with any specified class of transactions, in accordance with
Rule 22d-1 and as set forth in the then current prospectus and statement of
additional information of the Portfolios. The Distributor shall apply any
scheduled variation in, or elimination of, the selling commission or contingent
deferred sales charge uniformly to all offerees in the class specified.
The public offering price of the Class C shares shall be the net asset
value per share of the applicable Class C shares. Net asset value per share
shall be determined in accordance with the provisions of the then current
prospectus and statement of additional information of the applicable Portfolio.
The Distributor may establish a schedule of contingent deferred sales charges to
be imposed at the time of redemption of the Shares, and such schedule shall be
disclosed in the current prospectus or statement of additional information of
each Portfolio. Such schedule of contingent deferred sales charges may reflect
variations in or waivers of such charges on redemptions of Class C shares,
either generally to the public or to any specified class of shareholders and/or
in connection with any specified class of transactions, in accordance with
applicable rules and regulations and exemptive relief granted by the Securities
and Exchange Commission, and as set forth in the Portfolios' current
prospectus(es) or statement(s) of additional information. The Distributor and
the Company shall apply any then applicable scheduled variation in or waiver of
contingent deferred sales charges uniformly to all shareholders and/or all
transactions belonging to a specified class.
(B) The Portfolios shall allow directly to investment dealers and other
financial institutions through whom Class A Shares are sold such portion of the
sales charge as may be payable to them and specified by the Distributor up to
but not exceeding the amount of the total sales charge. The difference between
any commissions so payable and the total sales charges included in the offering
price shall be paid to the Distributor.
2
<PAGE> 3
The Distributor may pay to investment dealers and other financial
institutions through whom Class C shares are sold, such sales commission as the
Distributor may specify from time to time. Payment of any such sales commissions
shall be the sole obligation of the Distributor.
(C) No provision of this Agreement shall be deemed to prohibit any
payments by a Portfolio to the Distributor or by a Portfolio or the Distributor
to investment dealers, financial institutions and 401(k) plan service providers
where such payments are made under a distribution plan adopted by the Company on
behalf of each Portfolio pursuant to Rule 12b-1 under the 1940 Act.
(D) The Company shall redeem Class A and Class C Shares from
shareholders in accordance with the terms set forth from time to time in the
current prospectus and statement of additional information of each Portfolio.
The price to be paid to a shareholder to redeem Class A and Class C Shares shall
be equal to the net asset value of the Class A and Class C Shares being
redeemed, less any applicable contingent deferred sales charge. The Distributor
shall be entitled to receive the amount of any applicable contingent deferred
sales charge that has been subtracted from gross redemption proceeds. The
Company shall pay or cause the Company's transfer agent to pay the applicable
contingent deferred sales charge to the Distributor on the date net redemption
proceeds are payable to the redeeming shareholder.
FIFTH: The Distributor shall act as agent of the Company on behalf of
each Portfolio in connection with the sale and repurchase of Class A and Class C
Shares. Except with respect to such sales and repurchases, the Distributor shall
act as principal in all matters relating to the promotion or the sale of Class A
and Class C Shares and shall enter into all of its own engagements, agreements
and contracts as principal on its own account. The Distributor shall enter into
agreements with investment dealers and financial institutions selected by the
Distributor, authorizing such investment dealers and financial institutions to
offer and sell Class A and Class C Shares to the public upon the terms and
conditions set forth therein, which shall not be inconsistent with the
provisions of this Agreement. Each agreement shall provide that the investment
dealer and financial institution shall act as a principal, and not as an agent,
of the Company on behalf of the Portfolios. The Distributor or such other
investment dealers or financial institutions will be deemed to have performed
all services required to be performed in order to be entitled to receive the
asset based sales charge portion of any amounts payable with respect to Class C
Shares to the Distributor pursuant to a distribution plan adopted by the Company
on behalf of each Portfolio pursuant to Rule 12b-1 under the 1940 Act upon the
settlement of each sale of a Class C Share (or a share of another portfolio from
which the Class C Share derives).
SIXTH: The Portfolios shall bear:
(A) the expenses of qualification of Class A and Class C Shares for
sale in connection with such public offerings in such states as shall be
selected by the Distributor, and of continuing the qualification therein until
the Distributor notifies the Company that it does not wish such qualification
continued; and
(B) all legal expenses in connection with the foregoing.
SEVENTH:
(A) The Distributor shall bear the expenses of printing from the final
proof and distributing the Portfolios' prospectuses and statements of additional
information (including supplements
3
<PAGE> 4
thereto) relating to public offerings made by the Distributor pursuant to this
Agreement (which shall not include those prospectuses and statements of
additional information, and supplements thereto, to be distributed to
shareholders of each Portfolio), and any other promotional or sales literature
used by the Distributor or furnished by the Distributor to dealers in connection
with such public offerings, and expenses of advertising in connection with such
public offerings.
(B) The Distributor may be reimbursed for all or a portion of such
expenses, or may receive reasonable compensation for distribution related
services, to the extent permitted by a distribution plan adopted by the Company
on behalf of the Portfolios pursuant to Rule 12b-1 under the 1940 Act.
EIGHTH: The Distributor will accept orders for the purchase of Class A
and Class C Shares only to the extent of purchase orders actually received and
not in excess of such orders, and it will not avail itself of any opportunity of
making a profit by expediting or withholding orders. It is mutually understood
and agreed that the Company may reject purchase orders where, in the judgment of
the Company, such rejection is in the best interest of the Company.
NINTH: The Company, on behalf of the Portfolios, and the Distributor
shall each comply with all applicable provisions of the 1940 Act, the Securities
Act of 1933 and of all other federal and state laws, rules and regulations
governing the issuance and sale of Class A and Class C Shares.
TENTH:
(A) In the absence of willful misfeasance, bad faith, gross negligence
or reckless disregard of obligations or duties hereunder on the part of the
Distributor, the Company on behalf of the Portfolios agrees to indemnify the
Distributor against any and all claims, demands, liabilities and expenses which
the Distributor may incur under the Securities Act of 1933, or common law or
otherwise, arising out of or based upon any alleged untrue statement of a
material fact contained in any registration statement or prospectus of the
Portfolios, or any omission to state a material fact therein, the omission of
which makes any statement contained therein misleading, unless such statement or
omission was made in reliance upon, and in conformity with, information
furnished to the Company or Portfolio in connection therewith by or on behalf of
the Distributor. The Distributor agrees to indemnify the Company and the
Portfolios against any and all claims, demands, liabilities and expenses which
the Company or the Portfolios may incur arising out of or based upon any act or
deed of the Distributor or its sales representatives which has not been
authorized by the Company or the Portfolios in its prospectus or in this
Agreement.
(B) The Distributor agrees to indemnify the Company and the Portfolios
against any and all claims, demands, liabilities and expenses which the Company
or the Portfolios may incur under the Securities Act of 1933, or common law or
otherwise, arising out of or based upon any alleged untrue statement of a
material fact contained in any registration statement or prospectus of the
Portfolios, or any omission to state a material fact therein if such statement
or omission was made in reliance upon, and in conformity with, information
furnished to the Company or the Portfolios in connection therewith by or on
behalf of the Distributor.
(C) Notwithstanding any other provision of this Agreement, the
Distributor shall not be liable for any errors of the Portfolios' transfer
agent(s), or for any failure of any such transfer agent to perform its duties.
4
<PAGE> 5
ELEVENTH: Nothing herein contained shall require the Company to take
any action contrary to any provision of its Agreement and Declaration of Trust,
or to any applicable statute or regulation.
TWELFTH: This Agreement shall become effective as of the date hereof,
shall continue in force and effect until June 30, 1999, and shall continue in
force and effect from year to year thereafter, provided, that such continuance
is specifically approved at least annually (a)(I) by the Board of Trustees of
the Company or (ii) by the vote of a majority of the Portfolios' outstanding
voting securities (as defined in Section 2(a)(42) of the 1940 Act), and (b) by
vote of a majority of the Company's trustees who are not parties to this
Agreement or "interested persons" (as defined in Section 2(a)(19) of the 1940
Act) of any party to this Agreement cast in person at a meeting called for such
purpose.
THIRTEENTH:
(A) This Agreement may be terminated at any time, without the payment
of any penalty, by vote of the Board of Trustees of the Company or by vote of a
majority of the outstanding voting securities of each Portfolio, or by the
Distributor, on sixty (60) days' written notice to the other party.
(B) This Agreement shall automatically terminate in the event of its
assignment, the term "assignment" having the meaning set forth in Section
2(a)(4) of the 1940 Act.
FOURTEENTH: Any notice under this Agreement shall be in writing,
addressed and delivered, or mailed postage prepaid, to the other party at such
address as the other party may designate for the receipt of notices. Until
further notice to the other party, it is agreed that the addresses of both the
Company and the Distributor shall be 11 Greenway Plaza, Suite 100, Houston,
Texas 77046.
FIFTEENTH: Notice is hereby given that, as provided by applicable law,
the obligations of or arising out of this Agreement are not binding upon any of
the shareholders of the Company individually, but are binding only upon the
assets and property of the Company and that the shareholders shall be entitled,
to the fullest extent permitted by applicable law, to the same limitation on
personal liability as stockholders of private corporations for profit.
SIXTEENTH: This Agreement shall be governed by and construed in
accordance with the laws (without reference to conflicts of law provisions) of
the State of Delaware.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed in duplicate on the day and year first above written.
AIM INVESTMENT FUNDS
Attest:
By:
--------------------------
- --------------------------------- Name: Robert H. Graham
Name: Title: President
Title:
A I M DISTRIBUTORS, INC.
Attest:
By:
--------------------------
- --------------------------------- Name: Michael J. Cemo
Name: Title: President
Title:
6
<PAGE> 7
APPENDIX A
TO
MASTER DISTRIBUTION AGREEMENT
OF
AIM INVESTMENT FUNDS
CLASS A SHARES
AIM Global Consumer Products and Services Fund
AIM Global Financial Services Fund
AIM Global Health Care Fund
AIM Global Infrastructure Fund
AIM Global Resources Fund
AIM Global Telecommunications Fund
AIM Emerging Markets Fund
AIM Latin American Growth Fund
AIM Global Growth & Income Fund
AIM Global Government Income Fund
AIM Emerging Markets Debt Fund
AIM Strategic Income Fund
AIM Developing Makes Fund
CLASS C SHARES
AIM Global Consumer Products and Services Fund
AIM Global Financial Services Fund
AIM Global Health Care Fund
AIM Global Infrastructure Fund
AIM Global Resources Fund
AIM Global Telecommunications Fund
AIM Latin American Growth Fund
AIM Global Growth & Income Fund
AIM Global Government Income Fund
AIM Emerging Markets Debt Fund
AIM Strategic Income Fund
AIM Developing Makes Fund
7
<PAGE> 1
EXHIBIT (e)(4)
[AIM LOGO APPEARS HERE]
A I M DISTRIBUTORS, INC.
SELECTED DEALER AGREEMENT
FOR INVESTMENT COMPANIES MANAGED
BY A I M ADVISORS, INC.
TO THE UNDERSIGNED SELECTED DEALER:
Gentlemen:
A I M Distributors, Inc., as the exclusive national distributor of shares (the
"Shares") of the registered investment companies for which we now or in the
future act as underwriter, as disclosed in each Fund's prospectus, which may be
amended from time to time by us (the "Funds"), understands that you are a member
in good standing of the National Association of Securities Dealers, Inc.
("NASD"), or, if a foreign dealer, that you agree to abide by all of the rules
and regulations of the NASD for purposes of this Agreement (which you confirm by
your signature below). In consideration of the mutual covenants stated below,
you and we hereby agree as follows:
1 Sales of Shares through you will be at the public offering price of such
Shares (the net asset value of the Shares plus any sales charge applicable
to such Shares (the "Sales Charge")), as determined in accordance with the
then effective prospectus or Statement of Additional Information used in
connection with the offer and sale of Shares (collectively, the
"Prospectus"), which public offering price may reflect scheduled variations
in, or the elimination of, the Sales Charge on sales of the Funds' Shares
either generally to the public or in connection with special purchase plans,
as described in the Prospectus. You agree that you will apply any scheduled
variation in, or elimination of, the Sales Charge uniformly to all offerees
in the class specified in the Prospectus.
2 You agree to purchase Shares solely through us and only for the purpose of
covering purchase orders already received from customers or for your own
bona fide investment. You agree not to purchase for any other securities
dealer unless you have an agreement with such other dealer or broker to
handle clearing arrangements and then only in the ordinary course of
business for such purpose and only if such other dealer has executed a
Selected Dealer Agreement with us. You also agree not to withhold any
customer order so as to profit therefrom.
3 The procedures relating to the handling of orders shall be subject to
instructions which we will forward from time to time to all selected
dealers with whom we have entered into a Selected Dealer Agreement. The
minimum initial order shall be specified in the Funds' then current
Prospectuses. All purchase orders are subject to receipt of Shares by us
from the Funds concerned and to acceptance of such orders by us. We reserve
the right in our sole discretion to reject any order.
4 With respect to the Funds the Shares of which are indicated in that Fund's
Prospectus as being sold with a Sales Charge (the "Load Funds"), you will be
allowed the concessions from the public offering price provided in the Load
Funds' Prospectus and/or periodic instruction from us. With respect to the
Funds, the Shares of which are indicated in that Fund's Prospectus as being
sold with a contingent deferred sales charge or early withdrawal charge (the
"CDSC Funds"), you will be paid a commission or concession as disclosed in
the CDSC Fund's Prospectus and/or periodic instructions from us. With
respect to the Funds whose Shares are indicated as being sold without a
Sales Charge or a contingent deferred sales charge (the "No-Load Funds"),
you may charge a reasonable administrative fee. For the purpose of this
Agreement the term Dealer Commission means commissions or concessions
payable to you as disclosed in the Fund's Prospectuses and the terms "Sales
Charge" and "Dealer Commission" apply only to the Load Funds and the CDSC
Funds. All Dealer Commissions are subject to change without notice by us and
will comply with any changes in regulatory requirements. You agree that you
will not combine customer orders to reach breakpoints in commissions for any
purpose whatsoever unless authorized by the Prospectus or by us in writing.
5 You agree that your transactions in Shares of the Funds will be limited to
(a) the purchase of Shares from us for resale to your customers at the
public offering price then in effect or for your own bona fide investment,
(b) exchanges of Shares between Funds, as permitted by the Funds' then
current registration statement (which includes the Prospectus) and in
accordance with procedures as they may be modified by us from time to time,
and (c) transactions involving the redemption of Shares by a Fund or the
repurchase of Shares by us as an accommodation to shareholders or where
applicable, through tender offers. Redemptions by a Fund and repurchases by
us will be effected in the manner and upon the terms described in the
Prospectus. We will, upon your request, assist you in processing such orders
for redemptions or repurchases. To facilitate prompt payment following a
redemption or repurchase of Shares, the owner's signature shall appear as
registered on the Funds' records and, as described in the Prospectus, it may
be required to be guaranteed by a commercial bank, trust company or a member
of a national securities exchange.
5/98
<PAGE> 2
6 Sales and exchanges of Shares may only be made in those states and
jurisdictions where the Shares are registered or qualified for sale to the
public. We agree to advise you currently of the identity of those states
and jurisdictions in which the Shares are registered or qualified for sale,
and you agree to indemnify us and/or the Funds for any claim, liability,
expense or loss in any way arising out of a sale of Shares in any state or
jurisdiction in which such Shares are not so registered or qualified.
7 We shall accept orders only on the basis of the then current offering
price. You agree to place orders in respect of Shares immediately upon the
receipt of orders from your customers for the same number of shares. Orders
which you receive from your customers shall be deemed to be placed with us
when received by us. Orders which you receive prior to the close of
business, as defined in the Prospectus, and placed with us within the time
frame set forth in the Prospectus shall be priced at the offering price
next computed after they are received by you. We will not accept from you
a conditional order on any basis. All orders shall be subject to
confirmation by us.
8 Your customer will be entitled to a reduction in the Sales Charge on
purchases made under a Letter of Intent or Right of Accumulation described
in the Prospectus. In such case, your Dealer's Concession will be based
upon such reduced Sales Charge; however, in the case of a Letter of Intent
signed by your customer, an adjustment to a higher Dealer Commission
will thereafter be made to reflect actual purchases by your customer if he
should fail to fulfil his Letter of Intent. When placing wire trades, you
agree to advise us of any Letter of Intent signed by your customer or of
any Right of Accumulation available to him of which he has made you aware.
If you fail to so advise us, you will be liable to us for the return of
any Dealer Commission plus interest thereon.
9 You and we agree to abide by the Conduct Rules of the NASD and all other
federal and state rules and regulations that are now or may become
applicable to transactions hereunder. Your expulsion from the NASD will
automatically terminate this Agreement without notice. Your suspension from
the NASD or a violation by you of applicable state and federal laws and
rules and regulations of authorized regulatory agencies will terminate this
Agreement effective upon notice received by you from us. You agree that it
is your responsibility to determine the suitability of any Shares as
investments for your customers, and that AIM Distributors has no
responsibility for such determination.
10 With respect to the Load Funds and the CDSC Funds, and unless otherwise
agreed, settlement shall be made at the offices of the Funds' transfer
agent within three (3) business days after our acceptance of the order. With
respect to the No-Load Funds, settlement will be made only upon receipt by
the Fund of payment in the form of federal funds. If payment is not so
received or made within ten (10) business days of our acceptance of the
order, we reserve the right to cancel the sale or, at our option, to sell
the Shares to the Funds at the then prevailing net asset value. In this
event, or in the event that you cancel the trade for any reason, you agree
to be responsible for any loss resulting to the Funds or to us from your
failure to make payments as aforesaid. You shall not be entitled to any
gains generated thereby.
11 If any Shares of any of the Load Funds sold to you under the terms of this
Agreement are redeemed by the Fund or repurchased for the account of the
Funds or are tendered to the Funds for redemption or repurchase within seven
(7) business days after the date of our confirmation to you of your original
purchase order therefore, you agree to pay forthwith to us the full amount
of the Dealer Commission allowed to you on the original sale and we agree to
pay such amount to the Fund when received by us. We also agree to pay to the
Fund the amount of our share of the Sales Charge on the original sale of
such Shares.
12 Any order placed by you for the repurchase of Shares of a Fund is subject
to the timely receipt by the Fund's transfer agent of all required
documents in good order. If such documents are not received within a
reasonable time after the order is placed, the order is subject to
cancellation, in which case you agree to be responsible for any loss
resulting to the Fund or to us from such cancellation.
13 We reserve the right in our discretion without notice to you to suspend
sales or withdraw any offering of Shares entirely, to change the offering
prices as provided in the Prospectus or, upon notice to you, to amend or
cancel this Agreement. You agree that any order to purchase Shares of the
Funds placed by you after notice of any amendment to this Agreement has
been sent to you shall constitute your agreement to any such amendment.
14 In every transaction, we will act as agent for the Fund and you will act as
principal for your own account. You have no authority whatsoever to act as
our agent or as agent for the Funds, any other Selected Dealer or the
Funds' transfer agent and nothing in this Agreement shall serve to appoint
you as an agent of any of the foregoing in connection with transactions
with your customers or otherwise.
15 No person is authorized to make any representations concerning the Funds or
their Shares except those contained in the Prospectus and any such
information as may be released by us as information supplemental to the
Prospectus. If you should make such unauthorized representation, you agree
to indemnify the Funds and us from and against any and all claims,
liability, expense or loss in any way arising out of or in any way
connected with such representation.
5/98
<PAGE> 3
16 We will supply you with copies of the Prospectuses of the Funds (including
any amendments thereto) in reasonable quantities upon request. You will
provide all customers with a Prospectus prior to or at the time such
customer purchases Shares. You will provide any customer who so requests a
copy of the Statement of Additional Information within the time dictated by
regulatory requirements, as they may be amended from time to time.
17 You shall be solely responsible for the accuracy, timeliness and
completeness of any orders transmitted by you on behalf of your customers
by wire or telephone for purchases, exchanges or redemptions, and shall
indemnify us against any claims by your customers as a result of your
failure to properly transmit their instructions.
18 No advertising or sales literature, as such terms are defined by the NASD,
of any kind whatsoever will be used by you with respect to the Funds or us
unless first provided to you by us or unless you have obtained our prior
written approval.
19 All expenses incurred in connection with your activities under this
Agreement shall be borne by you.
20 This Agreement shall not be assignable by you. This Agreement shall be
constructed in accordance with the laws of the State of Texas.
21 Any notice to you shall be duly given if mailed or telegraphed to you at
your address as registered from time to time with the NASD.
22 This Agreement constitutes the entire agreement between the undersigned and
supersedes all prior oral or written agreements between the parties hereto.
A I M DISTRIBUTORS, INC.
Date: By: X
------------------ ---------------------------------------------
The undersigned accepts your invitation to become a Selected Dealer and agrees
to abide by the foregoing terms and conditions. The undersigned acknowledges
receipt of prospectuses for use in connection with offers and sales of the
Funds.
Date: By: X
------------------ ---------------------------------------------
Signature
---------------------------------------------
Print Name Title
---------------------------------------------
Dealer's Name
---------------------------------------------
Address
---------------------------------------------
City State Zip
Please sign both copies and return one copy of each to:
A I M Distributors, Inc.
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
5/98
<PAGE> 1
EXHIBIT (e)(5)
[AIM LOGO APPEARS HERE]
A I M DISTRIBUTORS, INC.
BANK ACTING AS AGENT
FOR ITS CUSTOMERS
Agreement Relating to Shares
of AIM Family of Funds
(Confirmation and Prospectus to be sent by A I M Distributors,
Inc. to Customer)
A I M Distributors, Inc. is the exclusive national distributor of the shares of
the registered investment companies for which we now or in the future act as
underwriter, as disclosed in each Fund's prospectus, which may be amended from
time to time by us (the "Funds"). As exclusive agent for the Funds, we are
offering to make available shares of the Funds (the "Shares") for purchase by
your customers on the following terms:
1 In all sales of Shares you shall act as agent for your customers, and in no
transaction shall you have any authority to act as agent for any Fund or
for us.
2 The customers in question are, for all purposes, your customers and not
customers of A I M Distributors, Inc. In receiving orders from your
customers who purchase Shares, A I M Distributors, Inc. is not soliciting
such customers and, therefore, has no responsibility for determining
whether Shares are suitable investments for such customers.
3 It is hereby understood that in all cases in which you place orders with us
for the purchase of Shares (a) you are acting as agent for the customer;
(b) the transactions are without recourse against you by the customer; (c)
as between you and the customer, the customer will have full beneficial
ownership of the securities; (d) each such transaction is initiated solely
upon the order of the customer; and (e) each such transaction is for the
account of the customer and not for your account.
4 Orders received from you will be accepted by us only at the public offering
price applicable to each order, as established by the then current
prospectus or Statement of Additional Information, (collectively, the
"Prospectus" of the appropriate Fund, subject to the discounts (defined
below) provided in such Prospectus. Following receipt from you of any order
to purchase Shares for the account of a customer, we shall confirm such
order to you in writing. We shall be responsible for sending your customer
a written confirmation of the order with a copy of the appropriate Fund's
current Prospectus. We shall send you a copy of such confirmation.
Additional instructions may be forwarded to you from time to time. All
orders are subject to acceptance or rejection by us in our sole discretion.
5 Members of the general public, including your customers, may purchase
Shares only at the public offering price determined in the manner described
in the current Prospectus of the appropriate Fund. With respect to the
Funds, the Shares of which are indicated in the Fund's Prospectus as
being sold with a sales charge (i.e. the "Load Funds"), you will be allowed
to retain a commission or concession from the public offering price
provided in such Load Funds' current Prospectus and/or periodic instructions
from us. With respect to the Funds, the Shares of which are indicated on the
attached Schedule A as being sold with a contingent deferred sales charge or
early withdrawal charge (the "CDSC Funds"), you will be
paid a commission or concession as disclosed in the CDSC Fund's then
current prospectus. With respect to the Funds whose Shares are indicated on
the attached Schedule as being sold without a sales charge or a contingent
deferred sales charge, (i.e. the "No-Load Funds"), you will not be allowed
to retain any commission or concession. All commissions or concessions set
forth in any of the Load Funds' or CDSC Funds' Prospectus are subject to
change without notice by us and will comply with any changes in regulatory
requirements.
6 The tables of sales charges and discounts set forth in the current
Prospectus of each Fund are applicable to all purchases made at any one
time by any "purchaser", as defined in the current Prospectus. For this
purpose, a purchaser may aggregate concurrent purchases of securities of
any of the Funds.
7 Reduced sales charges may also be available as a result of quantity
discounts, rights of accumulation or letters of intent. Further information
as to such reduced sales charges, if any, is set forth in the appropriate
Fund Prospectus. In such case, your discount will be based upon such
reduced sales charge; however, in the case of a letter of intent signed by
your customer, an adjustment to a higher discount will thereafter be made
to reflect actual purchases by your customer if he should fail to fulfill
his letter of intent. You agree to advise us promptly as to the amounts of
any sales made by you to your customers qualifying for reduced sales
charges. If you fail to so advise us of any letter of intent signed by your
customer or of any right of accumulation available to him of which he has
made you aware, you will be liable to us for the return of any discount
plus interest thereon.
8 By accepting this Agreement you agree:
a. that you will purchase Shares only from us;
b. that you will purchase Shares from us only to cover purchase orders
already received from your customers; and
c. that you will not withhold placing with us orders received from your
customers so as to profit yourself as a result of such withholdings.
9 We will not accept from you a conditional order for Shares on any basis.
10 Payment for Shares ordered from us shall be in the form of a wire transfer
or a cashiers check mailed to us. Payment shall be made within three (3)
business days after our acceptance of the order placed on behalf of your
customer. Payment shall be equal to the public offering price less the
discount retained by you hereunder.
5/98
<PAGE> 2
11 If payment is not received within ten (10) business days of our acceptance
of the order, we reserve the right to cancel the sale or, at our option, to
sell Shares to the Fund at the then prevailing net asset value. In this
event you agree to be responsible for any loss resulting to the Fund from
the failure to make payment as aforesaid.
12 Shares sold hereunder shall be available in book-entry form on the books of
the Funds' Transfer Agent unless other instructions have been given.
13 No person is authorized to make any representations concerning Shares of
any Fund except those contained in the applicable current Prospectus and
printed information subsequently issued by the appropriate Fund or by us as
information supplemental to such Prospectus. You agree that you will not
make Shares available to your customers except under circumstances that
will result in compliance with the applicable Federal and State Securities
and Banking Laws and that you will not furnish to any person any
information contained in the then current Prospectus or cause any
advertisement to be published in any newspaper or posted in any public
place without our consent and the consent of the appropriate Fund.
14 Sales and exchanges of Shares may only be made in those states and
jurisdictions where Shares are registered or qualified for sale to the
public. We agree to advise you currently of the identity of those states
and jurisdictions in which the Shares are registered or qualified for
sales, and you agree to indemnify us and/or the Funds for any claim,
liability, expense or loss in any way arising out of a sale of Shares in
any state or jurisdiction not identified by us as a state or jurisdiction
in which such Shares are so registered or qualified. We agree to indemnify
you for any claim, liability, expense or loss in any way arising out of a
sale of shares in any state or jurisdiction identified by us as a state or
jurisdiction in which shares are so registered or qualified.
15 You shall be solely responsible for the accuracy, timeliness and
completeness of any orders transmitted by you on behalf of your customers
by wire or telephone for purchases, exchanges or redemptions, and shall
indemnify us against any claims by your customers as a result of your
failure to properly transmit their instructions.
16 All sales will be made subject to our receipt of Shares from the
appropriate Fund. We reserve the right, in our discretion, without notice,
to modify, suspend or withdraw entirely the offering of any Shares and,
upon notice, to change the sales charge or discount or to modify, cancel or
change the terms of this Agreement. You agree that any order to purchase
Shares of the Funds placed by you after any notice of amendment to this
Agreement has been sent to you shall constitute your agreement to any such
agreement.
17 The names of your customers shall remain your sole property and shall not
be used by us for any purpose except for servicing and information mailings
in the normal course of business to Fund Shareholders.
18 Your acceptance of this Agreement constitutes a representation that you are
a "Bank" as defined in Section 3(a)(6) of the Securities Exchange Act of
1934, as amended, and are duly authorized to engage in the transactions to
be performed hereunder.
All communications to us should be sent to A I M Distributors, Inc., Eleven
Greenway Plaza, Suite 100, Houston, Texas 77046. Any notice to you shall
be duly given if mailed or telegraphed to you at the address specified by
you below or to such other address as you shall have designated in writing
to us. This Agreement shall be construed in accordance with the laws of the
State of Texas.
A I M DISTRIBUTORS, INC.
Date: By: X
------------------ ---------------------------------------------
The undersigned agrees to abide by the foregoing terms and conditions.
Date: By: X
------------------ ---------------------------------------------
Signature
---------------------------------------------
Print Name Title
---------------------------------------------
Dealer's Name
---------------------------------------------
Address
---------------------------------------------
City State Zip
Please sign both copies and return one copy of each to:
A I M Distributors, Inc.
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
5/98
<PAGE> 1
EXHIBIT g(1)
CUSTODIAN CONTRACT
Between
G.T. GLOBAL INCOME SERIES, INC.
and
STATE STREET BANK AND TRUST COMPANY
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Employment of Custodian and Property to be Held By It.....................1
2. Duties of the Custodian with Respect to Property of the Fund Held by
the Custodian in the United States........................................3
2.1 Holding Securities.................................................3
2.2 Delivery of Securities.............................................3
2.3 Registration of Securities.........................................8
2.4 Bank Accounts......................................................9
2.5 Availability of Federal Funds.....................................10
2.6 Collection of Income..............................................10
2.7 Payment of Fund Monies............................................11
2.8 Liability for Payment in Advance of Receipt of Securities
Purchased.........................................................14
2.9 Appointment of Agents.............................................14
2.10 Deposit of Fund Assets in Securities System.......................15
2.10A Fund Assets Held in the Custodian's Direct Paper System...........18
2.11 Segregated Account................................................20
2.12 Ownership Certificates for Tax Purposes...........................21
2.13 Proxies...........................................................21
2.14 Communications Relating to Portfolio Securities...................22
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States.............................................22
3.1 Appointment of Foreign Sub-Custodians.............................22
3.2 Assets to be Held.................................................23
3.3 Foreign Securities Depositories...................................23
3.4 Segregation of Securities.........................................24
3.5 Agreements with Foreign Banking Institutions......................24
3.6 Access of Independent Accountants of the Fund.....................25
3.7 Reports by Custodian..............................................25
3.8 Transactions in Foreign Custody Account...........................26
3.9 Liability of Foreign Sub-Custodians...............................27
3.10 Liability of Custodian............................................27
3.11 Reimbursement for Advances........................................28
3.12 Monitoring Responsibilities.......................................29
3.13 Branches of U.S. Banks............................................30
4. Payments for Sales or Repurchase or Redemptions of Shares of the Fund....30
5. Proper Instructions......................................................31
6. Actions Permitted Without Express Authority..............................32
7. Evidence of Authority....................................................33
8. Duties of Custodian With Respect to the Books of Account and
Calculation of Net Asset Value and Net Income............................33
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
9. Records............................................................34
10. Opinion of Fund's Independent Accountants..........................35
11. Reports to Fund by Independent Public Accountants..................35
12. Compensation of Custodian..........................................35
13. Responsibility of Custodian........................................36
14. Effective Period, Termination and Amendment........................37
15. Successor Custodian................................................39
16. Interpretive and Additional Provisions.............................41
17. Additional Funds...................................................41
18. Massachusetts Law to Apply.........................................41
19. Prior Contracts....................................................42
</TABLE>
<PAGE> 4
CUSTODIAN CONTRACT
This Contract between G.T. Global Income Series, Inc., a corporation
organized and existing under the laws of Maryland, having its principal place
of business at 50 California Street, San Francisco, California 94111 hereinafter
called the "Fund", and State Street Bank and Trust Company, a Massachusetts
trust company, having its principal place of business at 225 Franklin Street,
Boston, Massachusetts, 02110, hereinafter called the "Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund intends to initially offer shares in two series, the
G.T. Global Bond Fund and G.T. Government Income Fund (such series together with
all other series subsequently established by the Fund and made subject to this
Contract in accordance with paragraph 17, being herein referred to as the
"Portfolio(s)");
NOW THEREFOR, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United States
("domestic
<PAGE> 5
securities") and securities it desires to be held outside the United States
("foreign securities") pursuant to the provisions of the Articles of
Incorporation. The Fund on behalf of the Portfolio(s) agrees to deliver to the
Custodian all securities and cash of the Portfolios, and all payments of income,
payments of principal or capital distributions received by it with respect to
all securities owned by the Portfolio(s) from time to time, and the cash
consideration received by it for such new or treasury shares of beneficial
interest of the Fund representing interests in the Portfolios, ("Shares") as may
be issued or sold from time to time. The Custodian shall not be responsible for
any property of a Portfolio held or received by the Portfolio and not delivered
to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article 5),
the Custodian shall on behalf of the applicable Portfolio(s) from time to time
employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Directors of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund On account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as sub-custodian
for the Fund's foreign Securities on behalf of the applicable Portfolio(s) the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.
-2-
<PAGE> 6
Duties of the Custodian with Respect to Property of the Fund held By the
Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of each Portfolio all non-cash property, to be held by
it in the United States including all domestic securities owned by
such Portfolio, other than (a) securities which are maintained pursuant
to Section 2.10 in a clearing agency which acts as a securities
depository or in a book-entry system authorized by the U.S. Department
of the Treasury, collectively referred to herein as "Securities System"
and (b) commercial paper of an issuer for which State Street Bank and
Trust Company acts as issuing and paying agent ("Direct Paper") which
is deposited and/or maintained in the Direct Paper System of the
Custodian pursuant to Section 2.10A.
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by a Portfolio held by the Custodian or in a
Securities System account of the Custodian or in the Custodian's Direct
Paper book entry system account ("Direct Paper System Account") only
upon receipt of Proper Instructions from the Fund on behalf of the
applicable Portfolio, which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the
Portfolio and receipt of payment therefor;
-3-
<PAGE> 7
2) Upon the receipt of payment in connection with any
repurchase agreement related to such securities entered into
by the Portfolio;
3) In the case of a sale effected through a Securities System,
in accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Portfolio or into the name of any nominee or
nominees of the Custodian or into the name or nominee name
of any agent appointed pursuant to Section 2.9 or into the
name or nominee name of any sub-custodian appointed pursuant
to Article 1; or for exchange for a different number of
bonds, certificates or other evidence representing the same
aggregate face amount or number of units; provided that, in
any such case, the new securities are to be delivered to the
Custodian;
-4-
<PAGE> 8
7) Upon the sale of such securities for the account of the
Portfolio, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street
delivery" custom; provided that in any such case, the
Custodian shall have no responsibility or liability for any
loss arising from the delivery of such securities prior to
receiving payment for such securities except as may arise
from the Custodian's own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion
contained in such securities, or pursuant to any deposit
agreement; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the
Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights
or similar securities or the surrender of interim receipts
or temporary securities for
-5-
<PAGE> 9
definitive securities; provided that, in any such case, the
new securities and cash, if any, are to be delivered to the
Custodian;
10) For delivery in connection with any loans of securities made
by the Portfolio, but only against receipt of adequate
collateral as agreed upon from time to time by the Custodian
and the Fund on behalf of the Portfolio, which may be in the
form of cash or obligations issued by the United States
government, its agencies or instrumentalities, except that
in connection with any loans for which collateral is to be
credited to the Custodian's account in the book-entry system
authorized by the U.S. Department of the Treasury, the
Custodian will not be held liable or responsible for the
delivery of securities owned by the Portfolio prior to the
receipt of such collateral;
11) For delivery as security in connection with any borrowings
by the Fund on behalf of the Portfolio requiring a pledge of
assets by the Fund on behalf of the Portfolio, but only
against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian and a
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<PAGE> 10
broker-dealer registered under the Securities Exchange Act
of 1934 (the "Exchange Act") and a member of The National
Association of Securities Dealers, Inc. ("NASD"), relating
to compliance with the rules of The Options Clearing
Corporation and of any registered national securities
exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian, and a Futures Commission Merchant registered
under the Commodity Exchange Act, relating to compliance
with the rules of the Commodity Futures Trading Commission
and/or any Contract Market, or any similar organization
or organizations, regarding account deposits in connection
with transactions by the Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to such
Transfer Agent or to the holders of shares in connection
with distributions in kind, as may be described described
-7-
<PAGE> 11
from time to time in the currently effective prospectus and
statement of additional information of the Fund, related
to the Portfolio ("Prospectus"), in satisfaction of requests
by holders of Shares for repurchase or redemption; and
15) For any other proper corporate purpose, but only upon
receipt of, in addition to Proper Instructions from the Fund
on behalf of the applicable Portfolio, a certified copy of a
resolution of the Board of Directors or of the Executive
Committee signed by an officer of the Fund and certified by
the Secretary or an Assistant Secretary, specifying the
securities of the Portfolio to be delivered, setting forth
the purpose for which such delivery is to be made, declaring
such purpose to be a proper corporate purpose, and naming
the person or persons to whom delivery of such securities
shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized
in writing the appointment of a nominee to
-8-
<PAGE> 12
be used in common with other registered investment companies having the
same investment adviser as the Portfolio, or in the name or nominee
name of any agent appointed pursuant to Section 2.9 or in the name or
nominee name of any sub-custodian appointed pursuant to Article 1. All
securities accepted by the Custodian on behalf of the Portfolio under
the terms of this Contract shall be in "street name" or other good
delivery form.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio
of the Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such account
or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Portfolio, other than cash maintained by
the Portfolio in a bank account established and used in accordance with
Rule 17f-3 under the Investment Company Act of 1940. Funds held by the
Custodian for a Portfolio may be deposited by it to its credit as
Custodian in the Banking Department of the Custodian or in such other
banks or trust companies as it may in its discretion deem necessary or
desirable; provided, however, that every such bank or trust company
shall be qualified to act as a custodian under the Investment Company
Act of 1940 and that each such bank or trust company and the funds to
be deposited with each such bank or trust company shall on behalf of
-9-
<PAGE> 13
each applicable Portfolio be approved by vote of a majority of the
Board of Directors of the Fund. Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the
Fund on behalf of each applicable Portfolio and the Custodian, the
Custodian shall, upon the receipt of Proper Instructions from the Fund
on behalf of a Portfolio, make federal funds available to such
Portfolio as of specified times agreed upon from time to time by the
Fund and the Custodian in the amount of checks received in payment for
Shares of such Portfolio which are deposited into the Portfolio's
account.
2.6 Collection of Income. The Custodian shall collect on a timely basis all
income and other payments with respect to registered domestic securities
held hereunder to which each Portfolio shall be entitled either by law
or pursuant to custom in the securities business, and shall collect on a
timely basis all income and other payments with respect to bearer
domestic securities if, on the date of payment by the issuer, such
securities are held by the Custodian or its agent thereof and shall
credit such income, as collected, to such Portfolio's custodian account.
Without limiting the generality of the foregoing, the Custodian shall
detach and present for payment all coupons and other income items
requiring
-10-
<PAGE> 14
presentation as and when they become due and shall collect interest
when due on securities held hereunder. Income due each Portfolio on
securities loaned pursuant to the provisions of Section 2.2 (10) shall
be the responsibility of the Fund. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the
Fund' with such information or data as may be necessary to assist the
Fund in arranging for the timely delivery to the Custodian of the
income to which the Portfolio is properly entitled.
2.7 Payment of Fund Monies Upon receipt of Proper Instructions from the
Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian
shall pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Portfolio but only (a) against the delivery of such
securities or evidence of title to such options, futures
contracts or options on futures contracts to the Custodian
(or any bank, banking firm or trust company doing business
in the United States or abroad which is qualified under the
Investment Company Act of 1940, as amended, to act as a
custodian and has been designated by the Custodian as
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<PAGE> 15
its agent for this purpose) registered in the name of the
Portfolio or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in proper form for
transfer; (b) in the case of a purchase effected through a
Securities System, in accordance with the conditions set
forth in Section 2.10 hereof; (c) in the case of a purchase
involving the Direct Paper System, in accordance with the
conditions set forth in Section 2.10A; (d) in the case of
repurchase agreements entered into between the Fund on
behalf of the Portfolio and the Custodian, or another bank,
or a broker-dealer which is a member of NASD, (i) against
delivery of the securities either in certificate form or
through an entry crediting the Custodian's account at the
Federal Reserve Bank with such securities or (ii) against
delivery of the receipt evidencing purchase by the Portfolio
of securities owned by the Custodian along with written
evidence of the agreement by the Custodian to repurchase
such securities from the Portfolio or (e) for transfer to a
time deposit account of the Fund in any bank, whether
domestic or foreign; such transfer
-12-
<PAGE> 16
may be effected prior to receipt of a confirmation from a
broker and/or the applicable bank pursuant to Proper
Instructions from the Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section
2.2 hereof;
3) For the redemption or repurchase of Shares issued by the
Portfolio as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following
payments for the account of the Portfolio: interest, taxes,
management, accounting, transfer agent and legal fees, and
operating expenses of the Fund whether or not such expenses
are to be in whole or part capitalized or treated as
deferred expenses;
5) For the payment of any dividends on Shares of the Portfolio
declared pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect
of securities sold short;
7) For any other proper purpose, but only upon receipt of, in
addition to Proper
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<PAGE> 17
Instructions from the Fund on behalf of the Portfolio, a
certified copy of a resolution of the Board of Directors or
of the Executive Committee of the Fund signed by an officer
of the Fund and certified by its Secretary or an Assistant
Secretary, specifying the amount of such payments, setting
forth the purpose for which such payment is to be made,
declaring such purpose to be a proper purpose, and naming
the person or persons to whom such payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of a Portfolio is made by the Custodian in advance of receipt
of the securities purchased in the absence of specific written
instructions from the Fund on behalf of such Portfolio to so pay in
advance, the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received by
the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out
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<PAGE> 18
such of the provisions of this Article 2 as the Custodian may from time
to time direct; provided, however, that the appointment of any agent
shall not relieve the Custodian of its responsibilities or liabilities
hereunder.
2.10 Deposit of Fund Assets in Securities Systems. The Custodian may deposit
and/or maintain securities owned by a Portfolio in a clearing agency
registered with the Securities and Exchange Commission under Section
17A of the Securities Exchange Act of 1934, which acts as a securities
depository, or in the book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies, collectively
referred to herein as "Securities System" in accordance with applicable
Federal Reserve Board and Securities and Exchange Commission rules and
regulations, if any, and subject to the following provisions:
1) The Custodian may keep securities of the Portfolio in a
Securities System provided that such securities are
represented in an account ("Account") of the Custodian in
the Securities System which shall not include any assets of
the Custodian other than assets held as a fiduciary,
custodian or otherwise for customers;
2) The records of the Custodian with respect to securities of
the Portfolio which are maintained in a Securities System
shall
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<PAGE> 19
identify by book-entry those securities belonging to the
Portfolio;
3) The Custodian shall pay for securities purchased for the
account of the Portfolio upon (i) receipt of advice from the
Securities System that such securities have been transferred
to the Account, and (ii) the making of an entry on the
records of the Custodian to reflect such payment and
transfer for the account of the Portfolio. The Custodian
shall transfer securities sold for the account of the
Portfolio upon (i) receipt of advice from the Securities
System that payment for such securities has been transferred
to the Account, and (ii) the making of an entry on the
records of the Custodian to reflect such transfer and
payment for the account of the Portfolio. Copies of all
advices from the Securities System of transfers of
securities for the account of the Portfolio shall identify
the Portfolio, be maintained for the Portfolio by the
Custodian and be provided to the Fund at its request. Upon
request, the Custodian shall furnish the Fund on behalf of
the Portfolio confirmation of each transfer to or from the
account of the Portfolio in the form
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<PAGE> 20
of a written advice or notice and shall furnish to the Fund
on behalf of the Portfolio copies of daily transaction
sheets reflecting each day's transactions in the Securities
system for the account of the Portfolio.
4) The Custodian shall provide the Fund for the Portfolio with
any report obtained by the Custodian on the Securities
System's accounting system, internal accounting control and
procedures for safeguarding securities deposited in the
Securities System;
5) The Custodian shall have received from the Fund on behalf of
the Portfolio the initial or annual certificate, as the case
may be, required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding,
the Custodian shall be liable to the Fund for the benefit of
the Portfolio for any loss or damage to the Portfolio
resulting from use of the Securities System by reason of any
negligence, misfeasance or misconduct of the Custodian or
any of its agents or of any of its or their employees or
from failure of the Custodian or any such agent to enforce
effectively such rights as it may have
-17-
<PAGE> 21
against the Securities System; at the election of the Fund,
it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claim against the Securities
System or any other person which the Custodian may have as a
consequence of any such loss or damage if and to the extent
that the Portfolio has not been made whole for any such loss
or damage.
2.10A Fund Assets Held in the Custodian's Direct Paper System. The Custodian
may deposit and/or maintain securities owned by a Portfolio in the
Direct Paper System of the Custodian subject to the following
provisions:
1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper
Instructions from the Fund on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the
Direct Paper System only if such securities are represented
in an account ("Account") of the Custodian in the Direct
Paper System which shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian
or otherwise for customers;
3) The records of the Custodian with respect to securities of
the Portfolio which are
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<PAGE> 22
maintained in the Direct Paper System shall identify by
book-entry those securities belonging to the Portfolio;
4) The Custodian shall pay for securities purchased for the
account of the Portfolio upon the making of an entry on the
records of the Custodian to reflect such payment and
transfer of securities to the account of the Portfolio. The
Custodian shall transfer securities sold for the account of
the Portfolio upon the making of an entry on the records of
the Custodian to reflect such transfer and receipt of
payment for the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the
account of the Portfolio, in the form of a written advice or
notice, of Direct Paper on the next business day following
such transfer and shall furnish to the Fund on behalf of the
Portfolio copies of daily transaction sheets reflecting
each day's transaction in the Securities System for the
account of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the
Portfolio with any report on its system of internal
accounting control as
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<PAGE> 23
the Fund may reasonably request from time to time.
2.11 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on
behalf of each such Portfolio, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
an account by the Custodian pursuant to Section 2.10 hereof, (i) in
accordance with the provisions of any agreement among the Fund on
behalf of the Portfolio, the Custodian and a broker-dealer registered
under the Exchange Act and a member of the NASD (or any futures
commission merchant registered under the Commodity Exchange Act),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by the
Portfolio or commodity futures contracts or options thereon purchased
or sold by the Portfolio, (iii) for the purposes of compliance by the
Portfolio with the procedures required by Investment Company Act
Release No
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<PAGE> 24
10666, or any subsequent release or releases of the Securities and
Exchange Commission relating to the maintenance of segregated accounts
by registered investment companies and (iv) for other proper corporate
purposes, but only, in the case of clause (iv), upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
applicable Portfolio, a certified copy of a resolution of the Board of
Directors or of the Executive Committee signed by an officer of the
Fund and certified by the Secretary or an Assistant Secretary, setting
forth the purpose or purposes of such segregated account and declaring
such purposes to be proper corporate purposes.
2.12 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of each Portfolio held by
it and in connection with transfers of securities.
2.13 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Portfolio or a nominee of the Portfolio, all proxies,
without indication of the manner in which such proxies are to be voted,
and shall promptly deliver to the Portfolio such proxies, all proxy
soliciting materials and all notices relating to such securities.
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<PAGE> 25
2.14 Communications Relating to Portfolio Securities.
The Custodian shall transmit promptly to the Fund for each Portfolio
all written information (including, without limitation, pendency of
calls and maturities of domestic securities and expirations of rights
in connection therewith and notices of exercise of call and put options
written by the Fund on behalf of the Portfolio and the maturity of
futures contracts purchased or sold by the Portfolio) received by the
Custodian from issuers of the securities being held for the Portfolio.
With respect to tender or exchange offers, the Custodian shall transmit
promptly to the Portfolio all written information received by the
Custodian from issuers of the securities whose tender or exchange is
sought and from the party (or his agents) making the tender or exchange
offer. If the Portfolio desires to take action with respect to any
tender offer, exchange offer or any other similar transaction, the
Portfolio shall notify the Custodian at least three business days prior
to the date on which the Custodian is to take such action.
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States
3.1 Appointment of Foreign Sub-Custodians.
The Fund hereby authorizes and instructs the Custodian to employ as
sub-custodians for the Portfolio's securities and other assets
maintained outside the United States the foreign banking institutions
and foreign securities
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<PAGE> 26
depositories designated on Schedule A hereto ("foreign
sub-custodians"). Upon receipt of "Proper Instructions", as defined in
Section 5 of this Contract, together with a certified resolution of the
Fund's Board of Directors, the Custodian and the Fund may agree to
amend Schedule A hereto from time to time to designate additional
foreign banking institutions and foreign securities depositories to act
as sub-custodian. Upon receipt of Proper Instructions, the Fund may
instruct the Custodian to cease the employment of any one or more such
sub-custodians for maintaining custody of the Portfolio's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5
under the Investment Company Act of 1940, and (b) cash and cash
equivalents in such amounts as the Custodian or the Fund may determine
to be reasonably necessary to effect the Portfolio's foreign
securities transactions.
3.3 Foreign Securities Depositories. Except as may otherwise be agreed upon
in writing by the Custodian and the Fund, assets of the Portfolios
shall be maintained in foreign securities depositories only through
arrangements implemented by the foreign banking institutions serving as
sub-custodians pursuant to the terms hereof. Where possible, such
arrangements shall include entry into
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<PAGE> 27
agreements containing the provisions set forth in Section 3.5 hereof.
3.4 Segregation of Securities.
The Custodian shall identify on its books as belonging to each
applicable Portfolio of the Fund, the foreign securities of such
Portfolios held by each foreign sub-custodian. Each agreement pursuant
to which the Custodian employs a foreign banking institution shall
require that such institution establish a custody account for the
Custodian on behalf of the Fund for each applicable Portfolio of the
Fund and physically segregate in each account, securities and other
assets of the Portfolios, and, in the event that such institution
deposits the securities of one or more of the Portfolios in a foreign
securities depository, that it shall identify on its books as belonging
to the Custodian, as agent for each applicable Portfolio, the
securities so deposited.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall be substantially in the form set
forth in Exhibit 1 hereto and shall provide that: (a) the assets of
each Portfolio will not be subject to any right, charge, security
interest, lien or claim of any kind in favor of the foreign banking
institution or its creditors or agent, except a claim of payment for
their safe custody or administration; (b) beneficial ownership for the
assets
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<PAGE> 28
of each Portfolio will be freely transferable without the payment of
money or value other than for custody or administration; (c) adequate
records will be maintained identifying the assets as belonging to each
applicable Portfolio; (d) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent permitted
under applicable law the independent public accountants for the Fund,
will be given access to the books and records of the foreign banking
institution relating to its actions under its agreement with the
Custodian; and (e) assets of the Portfolios held by the foreign
sub-custodian will be subject only to the instructions of the Custodian
or its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use its best efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Portfolio(s) held by foreign
sub-custodians, including but not limited to an identification of
entities having possession of the Portfolio(s) securities
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<PAGE> 29
and other assets and advices or notifications of any transfers of
securities to or from each custodial account maintained by a foreign
banking institution for the Custodian on behalf of each applicable
Portfolio indicating, as to securities acquired for a Portfolio, the
identity of the entity having physical possession of such securities.
3.8 Transactions in Foreign Custody Account.
(a) Except as otherwise provided in paragraph (b) of this Section 3.8,
the provision of Sections 2.2 and 2.7 of this Contract shall apply,
mutatis mutandis to the foreign securities of the Fund held outside
the United States by foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of each
applicable Portfolio and delivery of securities maintained for the
account of each applicable Portfolio may be effected in accordance
with the customary established securities trading or securities
processing practices and procedures in the jurisdiction or market in
which the transaction occurs, including, without limitation,
delivering securities to the purchaser thereof or to a dealer therefor
(or an agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such
purchaser or dealer.
(c) Securities maintained in the custody of a foreign
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<PAGE> 30
sub-custodian may be maintained in the name of such entity's nominee to
the same extent as set forth in Section 2.3 of this Contract, and the
Fund agrees to hold any such nominee harmless from any liability as a
holder of record of such securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable
care in the performance of its duties and to indemnify, and hold
harmless, the Custodian and each Fund from and against any loss,
damage, cost, expense, liability or claim arising out of or in
connection with the institution's performance of such obligations. At
the election of the Fund, it shall be entitled to be subrogated to the
rights of the Custodian with respect to any claims against a foreign
banking institution as a consequence of any such loss, damage, cost,
expense, liability or claim if and to the extent that the Fund has not
been made whole for any such loss, damage, cost, expense, liability or
claim.
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same standard of care
as set forth in Exhibit 1 and, regardless of whether assets are
maintained in the custody of a foreign banking institution, a foreign
securities depository or a branch of a U.S. bank as contemplated by
paragraph 3.13 hereof.
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<PAGE> 31
The Custodian shall not be liable for any loss, damage, cost, expense,
liability or claim resulting from nationalization, expropriation,
currency restrictions, or acts of war or terrorism or any loss where
the sub-custodian has otherwise exercised reasonable care.
Notwithstanding the foregoing provisions of this paragraph 3.10, in
delegating custody duties to State Street London Ltd., the Custodian
shall not be relieved, of any responsibility to the Fund for any
loss due to such delegation, except such loss as may result from (a)
political risk (including, but not limited to, exchange control
restrictions, confiscation, expropriation, nationalization,
insurrection, civil strife or armed hostilities) or (b) other losses
(excluding a bankruptcy or insolvency of State Street London Ltd. not
caused by political risk) due to Acts of God, nuclear incident or other
losses under circumstances where the Custodian and State Street London
Ltd. have exercised reasonable care.
3.11 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose for the benefit of a
Portfolio including the purchase or sale of foreign exchange or of
contracts for foreign exchange, or in the event that the Custodian or
its nominee shall incur or be assessed any taxes (excluding any
corporate tax liability of the Custodian), charges, expenses,
assessments, claims or liabilities in
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<PAGE> 32
connection with the performance of this Contract, except such as may
arise from its or its nominee's own negligent action, negligent failure
to act or willful misconduct, any property at any time held for the
account of the applicable Portfolio shall be security therefor and
should the Fund fail to repay the Custodian promptly, the Custodian
shall after five business days written notice be entitled to utilize
available cash and to dispose of such Portfolios assets to the extent
necessary to obtain reimbursement.
3.12 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the Custodian
will promptly inform the Fund in the event that the Custodian learns of
a material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the Fund or in the
case of any foreign sub-custodian not the subject of an exemptive order
from the Securities and Exchange Commission is notified by such foreign
sub-custodian that there appears to be a substantial likelihood that
its shareholders' equity will decline below $200 million (U.S. dollars
or the equivalent thereof) or that its shareholders' equity has
declined
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<PAGE> 33
below $200 million (in each case computed in accordance with generally
accepted U.S. accounting principles).
3.13 Branches of U.S. Banks.
(a) Except as otherwise set forth in this Contract, the provisions
hereof shall not apply where the custody of the Portfolios assets are
maintained in a foreign branch of a banking institution which is a
"bank" as defined by Section 2(a)(5) of the Investment Company Act of
1940 meeting the qualification set forth in Section 26(a) of said Act.
The appointment of any such branch as a sub-custodian shall be governed
by paragraph 1 of this Contract.
(b) Cash held for each Portfolio of the Fund in the United Kingdom
shall be maintained in an interest bearing account established for the
Fund with the Custodian's London branch, which account shall be subject
to the direction of the Custodian, State Street London Ltd. or both.
4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund.
The Custodian shall receive from the distributor for the Shares or from the
Transfer Agent of the Fund and deposit into the account of the appropriate
Portfolio such payments as are received for Shares as of that Portfolio issued
or sold from time to time by the Fund. The Custodian will provide timely
notification to the Fund on behalf of each such Portfolio and the Transfer Agent
of any receipt by it of payments for Shares of such Portfolio
-30-
<PAGE> 34
From such funds as may be available for the purpose but subject to the
limitations of the Articles of Incorporation and any applicable votes of the
Board of Directors of the Fund pursuant thereto, the Custodian shall, upon
receipt of instructions from the Transfer Agent, make funds available for
payment to holders of Shares who have delivered to the Transfer Agent a request
for redemption or repurchase of their Shares. In connection with the redemption
or repurchase of their Shares. In connection with the redemption or repurchase
of Shares of a Portfolio, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian shall honor checks drawn on
the Custodian by a holder of Shares, which checks have been furnished by the
Fund to the holder of Shares, when presented to the Custodian in accordance with
such procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian.
5. Proper Instructions. Proper Instructions as used throughout this
Contract means a writing signed or initialled by one or more person or persons
as the Board of Directors shall have from time to time authorized. Each such
writing shall set forth the specific transaction or type of transaction
involved, including a specific statement of the purpose for which such action is
requested. Oral instructions will be considered Proper Instructions if the
Custodian reasonably believes them to have been given by a person authorized to
give such instructions with respect to the transaction involved. The Fund shall
cause all
-31-
<PAGE> 35
oral instructions to be confirmed in writing. Upon receipt of a certificate of
the Secretary or an Assistant Secretary as to the authorization by the Board of
Directors of the Fund accompanied by a detailed description of procedures
approved by the Board of Directors, Proper Instructions may include
communications effected directly between electro-mechanical or electronic
devices provided that the Board of Directors and the Custodian are satisfied
that such procedures afford adequate safeguards for the Portfolios' assets. For
purposes of this Section, Proper Instructions shall include instructions
received by the Custodian pursuant to any three-party agreement which requires a
segregated asset account in accordance with Section 2.11.
6. Actions Permitted without Express Authority. The Custodian may in its
discretion, without express authority from the Fund on behalf of each
applicable Portfolio:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this Contract,
provided that all such payments shall be accounted for to the Fund on behalf of
the Portfolio;
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Portfolio, checks, drafts
and other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and other dealings
with the securities and property of
-32-
<PAGE> 36
the Portfolio except as otherwise directed by the Board of Directors of the
Fund.
7. Evidence of Authority.
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or on behalf of the Fund.
The Custodian may receive and accept a certified copy of a vote of the Board of
Directors of the Fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or of any action
by the Board of Directors pursuant to the Articles of Incorporation as described
in such vote, and such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income.
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Directors of the Fund to keep
the books of account of each Portfolio and/or compute the net asset value per
share of the outstanding shares of each Portfolio or, if directed in writing to
do so by the Fund on behalf of the Portfolio, shall itself keep such books of
account and/or compute such net asset value per share. If so directed, the
Custodian shall also calculate daily the net income of the Portfolio as
described in the Fund's currently effective prospectus related to such Portfolio
and shall advise the Fund and the Transfer Agent daily of the total
-33-
<PAGE> 37
amounts of such net income and, if instructed in writing by an officer of the
Fund to do so, shall advise the Transfer Agent periodically of the division of
such net income among its various components. The calculations of the net asset
value per share and the daily income of each Portfolio shall be made at the time
or times described from time to time in the Fund's currently effective
prospectus related to such Portfolio.
9. Records
The Custodian shall with respect to each Portfolio create and maintain
all records relating to its activities and obligations under this Contract in
such manner as will meet the obligations of the Fund under the Investment
Company Act of 1940, with particular attention to Section 31 thereof and Rules
31a-1 and 31a-2 thereunder, applicable federal and state tax laws and any other
law or administrative rules or procedures which may be applicable to the Fund.
All such records shall be the property of the Fund and shall at all times during
the regular business hours of the Custodian be open for inspection by duly
authorized officers, employees or agents of the Fund and employees and agents of
the Securities and Exchange Commission. The Custodian shall, at the Fund's
request, supply the Fund with a tabulation of securities owned by each Portfolio
and held by the Custodian and shall, when requested to do so by the Fund and for
such compensation as shall be agreed upon between the Fund and the Custodian,
include certificate numbers in such tabulations.
-34-
<PAGE> 38
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund on behalf
of each applicable Portfolio may from time to time request, to obtain from year
to year favorable opinions from the Fund's independent accountants with respect
to its activities hereunder in connection with the preparation of the Fund's
Form N1-A, and Form N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.
11. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, on behalf of each of the
Portfolios at such times as the Fund may reasonably require, with reports by
independent public accountants on the accounting system, internal accounting
control and procedures for safeguarding securities, futures contracts and
options on futures contracts, including securities deposited and/or maintained
in a Securities System, relating to the services provided by the Custodian under
this Contract; such reports, shall be of sufficient scope and in sufficient
detail, as may reasonably be required by the Fund to provide reasonable
assurance that any material inadequacies would be disclosed by such examination,
and, if there are no such inadequacies, the reports shall so state.
12. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Fund on behalf of each applicable Portfolio and the Custodian.
-35-
<PAGE> 39
13. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it pursuant
to this Contract and shall be held harmless in acting upon any notice, requests,
consent, certificate or other instrument reasonably believed by it to be genuine
and to be signed by the proper party or parties, including any futures
commission merchant acting pursuant to the terms of a three - party futures or
options agreement. The Custodian shall be held to the exercise of reasonable
care in carrying out the provisions of this Contract, but shall be kept
indemnified by and shall be without liability to the Fund for any action taken
or omitted by it in good faith without negligence. It shall be entitled to rely
on and may act upon advice of counsel (who may be counsel for the Fund) on all
matters, and shall be without liability for any action reasonably taken or
omitted pursuant to such advice. Notwithstanding the foregoing, the
responsibility of the Custodian with respect to redemptions effected by check
shall be in accordance with a separate Agreement entered into between the
Custodian and the Fund.
If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Fund or the Portfolio being liable for the
-36-
<PAGE> 40
payment of money or incurring liability of some other form, the Fund on behalf
of the Portfolio, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If the Fund requires the Custodian to advance cash or securities for
any purpose for the benefit of a Portfolio including the purchase or sale of
foreign exchange or of contracts for foreign exchange or in the event that the
Custodian or its nominee shall incur or be assessed any taxes (excluding any
corporate tax liability of the Custodian), charges, expenses, assessments,
claims or liabilities in connection with the performance of this Contract,
except such as may arise from its or its nominee's own negligent action,
negligent failure to act or willful misconduct, any property at any time held
for the account of the applicable Portfolio shall be security therefor and
should the Fund fail to repay the Custodian promptly, the Custodian shall upon
five business days written notice be entitled to utilize available cash and to
dispose of such Portfolio's assets to the extent necessary to obtain
reimbursement. Parties hereby agree that any use of the term reasonable care
shall be given the same meaning as ordinary negligence under Massachusetts law.
14. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either
-37-
<PAGE> 41
party by an instrument in writing delivered or mailed, postage prepaid to the
other party, such termination to take effect not sooner than ninety (90) days
after the date of such delivery or mailing; provided, however that the Custodian
shall not with respect to a Portfolio act under Section 2.10 hereof in the
absence of receipt of an initial certificate of the Secretary or an Assistant
Secretary that the Board of Directors of the Fund has approved the initial use
of a particular Securities System by such Portfolio and the receipt of an annual
certificate of the Secretary or an Assistant Secretary that the Board of
Directors has reviewed the use by such Portfolio of such Securities System, as
required in each case by Rules 17f-4 and 17f-5 under the Investment Company Act
of 1940, as amended and that the Custodian shall not with respect to a Portfolio
act under Section 2.10A hereof in the absence of receipt of an initial
certificate of the Secretary or an Assistant Secretary that the Board of
Directors has approved the initial use of the Direct Paper System by such
Portfolio and the receipt of an annual certificate of the Secretary or an
Assistant Secretary that the Board of Directors has reviewed the use by such
Portfolio of the Direct Paper System; provided further, however, that the Fund
shall not amend or terminate this Contract in contravention of any applicable
federal or state regulations, or any provision of the Articles of Incorporation,
and further provided, that the Fund on behalf of one or more of the Portfolios
may at any time by action of its Board of Directors (i) substitute another bank
or trust company for the Custodian by giving notice as described above to the
-38-
<PAGE> 42
custodian, or (ii) immediately terminate this Contract in the event of the
appointment of a conservator or receiver for the Custodian by the Comptroller of
the Currency or upon the happening of a like event at the direction of an
appropriate regulatory agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
15. Successor Custodian
If a successor custodian for the Fund, of one or more of the Portfolios
shall be appointed by the Board of Directors of the Fund, the Custodian shall,
upon termination, deliver to such successor custodian of the office of the
Custodian, duly endorsed and in the form for transfer, all securities of each
applicable Portfolio then held by it hereunder and shall transfer to an account
of the successor custodian all of the securities of each such Portfolio held
in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of
Directors of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors shall have been delivered to
the Custodian on or before
-39-
<PAGE> 43
date when such termination shall become effective, then the Custodian shall have
the right to deliver to a bank or trust company, which is a "bank" as defined in
the Investment Company Act of 1940, doing business in Boston,
Massachusetts, of its own [ILLEGIBLE], having an aggregate capital, surplus, and
undivided profits, as shown by its last published report, of not less than
$25,000,000, all securities, funds and other properties held by the Custodian on
behalf of each applicable Portfolio and all instruments held by the Custodian
relative thereto and all other property held by it under this Contract on behalf
of each applicable Portfolio and to transfer to an account of such successor
custodian all of the securities of each such Portfolio held in any Securities
System. Thereafter, such bank or trust company shall be the successor of the
Custodian under this contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the verified copy of the vote referred to or of
the Board of Directors to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract [ILLEGIBLE] to the duties and obligations of the
Custodian shall remain in full force and effect.
-40-
<PAGE> 44
Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and the
Fund on behalf of each of the Portfolios, may from time to time agree on such
provisions interpretive of or in addition to the provisions of this Contract as
may in their joint opinion be consistent with the general tenor of this
Contract. Any such interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any applicable federal or
state regulations or any provision of the Articles of Incorporation of the Fund.
No interpretive or additional provisions made as provided is the preceding
sentence shall be deemed to be an amendment of this Contract.
17. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to G.T. Global Bond Fund and G.T. Government Income Fund with respect
to which it desires to have the Custodian render services custodian under the
terms hereof, it shall so notify the Custodian in writing, and if the Custodian
agrees in writing to provide such services, such series of Shares shall become a
Portfolio hereunder.
18. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
-41-
<PAGE> 45
[Illegible] Contracts
This Contract supersedes and terminates, as of the date [illegible] prior
contracts between the Fund on behalf of each of [illegible] and the Custodian
relating to the custody of the [illegible] assets.
IN WITNESS WHEREOF, each of the parties has caused this [illegible] to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the_____________day of_______________, 1998.
ATTEST G.T. GLOBAL INCOME SERIES, INC.
/s/ ILLEGIBLE By /s/ ILLEGIBLE
- ------------------------ -------------------------------
Vice President
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/ ILLEGIBLE By /s/ ILLEGIBLE
- ------------------------ -------------------------------
Assistant Secretary Vice President
-42-
<PAGE> 46
SCHEDULE A
The following foreign banking institutions and foreign securities
[ILLEGIBLE] have been approved by the Board of Directors for use [ILLEGIBLE]
sub-custodians for the Fund's securities and other assets:
<TABLE>
<CAPTION>
Securities Depository or
Country Bank Clearing Agency
- ------- --------------------------- -------------------------
<S> <C> <C>
Australia Australia and None
New Zealand Banking
Group Limited
Austria Girozentrale und None
Bank der Osterreichischen
Belgium Banque Bruxelles C.I.K.
Lambert
Canada Canada Trust Company Canadian Depository for
Securities, Ltd.
Denmark Den Danske Bank None
Finland Kanasallis - Osake - None
Pankki
France Credit Commerciale De SICOVAM
France
Germany Berliner Frankfurter Kassenverein
Handals -- Und AG (Frankfurt Central
Frankfurter Bank Depository)
Hong Kong The Chartered Bank None
Italy Credito Italiano None
Japan Sumitomo Trust and None
Banking Co. Ltd.
Luxembourg None Cedel
Malaysia Standard Chartered Bank
Mexico Citibank, Mexico INDEVAL
(Bank of Citibank, N.A.) (Institute Nationel de
Valares)
</TABLE>
<PAGE> 47
Schedule A
Page Two
<TABLE>
<CAPTION>
Securities Depository or
Country Bank Clearing Agency
- ------- ---- ------------------------
<S> <C> <C>
Netherlands Bank Mees and Hope; NECIGEF
subsidiary of Algemene (Netherlands Clearing
Bank Nederland, N.V. Institute for Giro
Securities Deliveries
New Zealand Westpac Banking Corp. None
Norway Christiania Bank Og None
Kreditkasse
Phillipines Standard Chartered Bank
Singapore DBS Trustee Limited; None
Subsidiary of DBS
Bank Ltd.
Spain Banco Hispano Americano
Sweden Skandinaviska None
Enskilda Banken
Switzerland Union Bank of Switzerland SEGA
Thailand Standard Chartered Bank
United Kingdom State Street London Limited;
Subsidiary of State Street
Boston Corporation
Transnational The Euroclear
System
</TABLE>
<PAGE> 1
EXHIBIT g(2)
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
Gentlemen:
This is to advise you that G.T. Investment Funds, Inc. ("Company") has
established a new series of shares to be known as G.T. Global Health Care Fund.
In accordance with the Additional Funds provision in Section 17 of the Custodian
Contract dated April 27, 1988 (the "Contract"), between the Company and State
Street Bank and Trust Company, the Company hereby requests that you act as
Custodian for the new series under the terms of the Contract.
Please indicate your acceptance of the foregoing by executing two copies of this
Letter Agreement, returning one to the Company and retaining one copy for your
records.
By: /s/ JAMES W. CHURM
-------------------------------
James W. Churm
Vice President and Secretary
Agreed to this 7th day of August, 1989.
State Street Bank and Trust Company
By: /s/ [ILLEGIBLE]
-------------------------------
SENIOR VICE PRESIDENT
<PAGE> 1
EXHIBIT g(3)
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
Gentlemen:
This is to advise you that G.T. Investment Funds, Inc. ("Company") has
established a new series of shares to be known as G.T. Global Growth & Income
Fund. In accordance with the Additional Funds provision in Section 17 of the
Custodian Contract dated April 27, 1988 (the "Contract"), between the Company
and State Street Bank and Trust Company, the Company hereby requests that you
act as Custodian for the new series under the terms of the Contract.
Please indicate your acceptance of the foregoing by executing two copies of this
Letter Agreement, returning one to the Company and retaining one copy for your
records.
By: /s/ JAMES W. CHURM
-------------------------------
James W. Churm
Vice President and Secretary
Agreed to this 23rd day of September, 1990.
State Street Bank and Trust Company
By: /s/ [ILLEGIBLE]
-------------------------------
SENIOR VICE PRESIDENT
<PAGE> 1
EXHIBIT g(4)
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
Gentlemen:
This is to advise you that G.T. Investment Funds, Inc. ("Company") has
established a new series of shares to be known as G.T. Latin America Growth
Fund. In accordance with the Additional Funds provision in Section 17 of the
Custodian Contract dated April 27, 1988 (the "Contract"), between the Company
and State Street Bank and Trust Company, the Company hereby requests that you
act as Custodian for the new series under the terms of the Contract.
Please indicate your acceptance of the foregoing by executing two copies of this
Letter Agreement, returning one to the Company and retaining one copy for your
records.
By: /s/ JAMES W. CHURM
-------------------------------
James W. Churm
Vice President and Secretary
Agreed to this 8th day of August, 1991.
State Street Bank and Trust Company
By: /s/ [ILLEGIBLE]
-------------------------------
SENIOR VICE PRESIDENT
<PAGE> 1
EXHIBIT g(5)
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
Gentlemen:
This is to advise you that G.T. Investment Funds, Inc. ("Company") has
established a new series of shares to be known as G.T. Global Telecommunications
Fund. In accordance with the Additional Funds provision in Section 17 of the
Custodian Contract dated April 27, 1988 (the "Contract"), between the Company
and State Street Bank and Trust Company, the Company hereby requests that you
act as Custodian for the new series under the terms of the Contract.
Please indicate your acceptance of the foregoing by executing two copies of this
Letter Agreement, returning one to the Company and retaining one copy for your
records.
By: /s/ JAMES W. CHURM
-------------------------------
James W. Churm
Vice President and Secretary
Agreed to this 27th day of January, 1992.
State Street Bank and Trust Company
By: /s/ [ILLEGIBLE]
-------------------------------
SENIOR VICE PRESIDENT
<PAGE> 1
EXHIBIT g(6)
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
Gentlemen:
This is to advise you that G.T. Investment Funds, Inc. ("Company") has
established a new series of shares to be known as G.T. Global Emerging Markets
Fund. In accordance with the Additional Funds provision in Section 17 of the
Custodian Contract dated April 27, 1988 (the "Contract"), between the Company
and State Street Bank and Trust Company, the Company hereby requests that you
act as Custodian for the new series under the terms of the Contract.
Please indicate your acceptance of the foregoing by executing two copies of this
Letter Agreement, returning one to the Company and retaining one copy for your
records.
By /s/ JAMES W. CHURM
-------------------------------
James W. Churm
Vice President and Secretary
Agreed to this 10th day of May, 1992.
State Street Bank and Trust Company
By /s/ [ILLEGIBLE]
-------------------------------
SR. Vice President
<PAGE> 1
EXHIBIT g(7)
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
Gentlemen:
This is to advise you that G.T. Investment Funds, Inc. ("Company") has
established a new series of shares to be known as G.T. Global Financial Services
Fund. In accordance with the Additional Funds provision in Section 17 of the
Custodian Contract dated April 27, 1988 (the "Contract"), between the Company
and State Street Bank and Trust Company, the Company hereby requests that you
act as Custodian for the new series under the terms of the Contract.
Please indicate your acceptance of the foregoing by executing two copies of this
Letter Agreement, returning one to the Company and retaining one copy for your
records.
By: /s/ JAMES W. CHURM
-------------------------------
James W. Churm
Vice President and Secretary
Agreed to this 1st day of June, 1992.
State Street Bank and Trust Company
By /s/ [ILLEGIBLE]
-------------------------------
SENIOR VICE PRESIDENT
<PAGE> 1
EXHIBIT g(8)
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
Gentlemen:
This is to advise you that G.T. Investment Funds, Inc. ("Company") has
established a new series of shares to be known as G.T. Global High Income Fund.
In accordance with the Additional Funds provision in Section 17 of the Custodian
Contract dated April 27, 1988 (the "Contract"), between the Company and State
Street Bank and Trust Company, the Company hereby requests that you act as
Custodian for the new series under the terms of the Contract.
Please indicate your acceptance of the foregoing by executing two copies of this
Letter Agreement, returning one to the Company and retaining one copy for your
records.
By: /s/ JAMES W. CHURM
-------------------------------
James W. Churm
Vice President and Secretary
Agreed to this 22nd day of October, 1992.
State Street Bank and Trust Company
By: /s/ [ILLEGIBLE]
-------------------------------
<PAGE> 1
EXHIBIT g(9)
[GT LOGO]
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
Gentlemen:
This is to advise you that G.T. Investment Funds, Inc. ("Company") has
established a new series of shares to be known as G.T. Global Natural Resources
Fund. In accordance with the Additional Funds provision in Section 17 of the
Custodian Contract dated April 27, 1988 (the "Contract"), between the Company
and State Street Bank and Trust Company, the Company hereby requests that you
act as Custodian for the new series under the terms of the Contract.
Please indicate your acceptance of the foregoing by executing two copies of this
Letter Agreement, returning one to the Company and retaining one copy for your
records.
By: /s/ PETER R. GUARINO
-------------------------------
Peter R. Guarino
Vice President and Secretary
Agreed to this 31st day of May, 1994.
State Street Bank and Trust Company
By: /s/ [ILLEGIBLE]
-------------------------------
<PAGE> 2
[GT LOGO]
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
Gentlemen:
This is to advise you that G.T. Investment Funds, Inc. ("Company") has
established a new series of shares to be known as G.T. Global Infrastructure
Fund. In accordance with the Additional Funds provision in Section 17 of the
Custodian Contract dated April 27, 1988 (the "Contract"), between the Company
and State Street Bank and Trust Company, the Company hereby requests that you
act as Custodian for the new series under the terms of the Contract.
Please indicate your acceptance of the foregoing by executing two copies of this
Letter Agreement, returning one to the Company and retaining one copy for your
records.
By: /s/ PETER R. GUARINO
-------------------------------
Peter R. Guarino
Vice President and Secretary
Agreed to this 31st day of May, 1994.
State Street Bank and Trust Company
By: /s/ [ILLEGIBLE]
-------------------------------
<PAGE> 3
[GT LOGO]
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
Gentlemen:
This is to advise you that G.T. Investment Funds, Inc. ("Company") has
established a new series of shares to be known as G.T. Global Financial Services
Fund. In accordance with the Additional Funds provision in Section 17 of the
Custodian Contract dated April 27, 1988 (the "Contract"), between the Company
and State Street Bank and Trust Company, the Company hereby requests that you
act as Custodian for the new series under the terms of the Contract.
Please indicate your acceptance of the foregoing by executing two copies of this
Letter Agreement, returning one to the Company and retaining one copy for your
records.
By: /s/ PETER R. GUARINO
-------------------------------
Peter R. Guarino
Vice President and Secretary
Agreed to this 31st day of May, 1994.
State Street Bank and Trust Company
By: /s/ [ILLEGIBLE]
-------------------------------
<PAGE> 1
EXHIBIT g(10)
AMENDMENT TO THE CUSTODIAN CONTRACT
AGREEMENT made by and between STATE STREET BANK AND TRUST COMPANY (the
"Custodian") and G.T. INVESTMENT FUNDS, INC. (the "Fund").
WHEREAS, the Custodian and the Fund are parties to a custodian contract
dated April 27, 1988 (the "Custodian Contract") governing the terms and
conditions under which the Custodian maintains custody of the securities and
other assets of the Fund; and
WHEREAS, the Custodian and the Fund desire to amend the Custodian Contract;
NOW THEREFORE, the Custodian and the Fund hereby amend Section 5 of the
Custodian Contract entitled "Proper Instructions" to read:
"Proper Instructions" as used throughout this Contract means a writing
signed in the name of the Fund by any two of the President, and Vice
President, the Secretary, the Assistant Secretary, the Treasurer or the
Assistant Treasurer of the Fund or any other persons duly authorized to
sign such writing by the Board of Directors of the Fund. Each such writing
shall set forth the specific transaction or type of transaction involved,
including a specific statement of the purpose for which such action is
requested. The Custodian may act and rely upon oral instructions if the
Custodian reasonably believes them to have been given by a person
authorized to give instructions with respect to the transactions involved.
Oral Instructions shall be promptly confirmed in writing by Proper
Instructions. Upon receipt of a certificate of the Secretary or an
Assistant Secretary as to the authorization by the Board of Directors,
Proper Instructions may include communications effected directly between
electro-mechanical or electronic devices provided that the Board of
Directors and the Custodian are satisfied that such procedures afford
adequate safeguards for the Portfolios' assets. For purposes of this
Section, Proper Instructions shall include instructions received by the
Custodian pursuant to any three-party agreement which requires a segregated
asset account in accordance with Section 2.11"
Except as specifically superseded or modified herein, the terms and
provisions of the Custodian Contract shall continue to apply with full force
and effect.
<PAGE> 2
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative as of
the ________ day of ____________ 1994.
STATE STREET BANK AND TRUST COMPANY
By: /s/ [ILLEGIBLE]
--------------------------------------
Executive Vice President
G.T. INVESTMENT FUNDS, INC.
By: /s/ HELGE KRIST LEE
--------------------------------------
Vice President
<PAGE> 1
EXHIBIT g(11)
AMENDMENT TO CUSTODIAN CONTRACT
Agreement made by and between State Street Bank and Trust Company (the
"Custodian") and G.T. Investment Funds Inc. (formerly G.T. Global Income
Series, Inc.) (the "Fund").
WHEREAS, the Custodian and the Fund are parties to a custodian
contract dated April 27, 1988 as amended August 17, 1994 (the "Custodian
Contract") governing the terms and conditions under which the Custodian
maintains custody of the securities and other assets of the Fund; and
WHEREAS, the Custodian and the Fund desire to amend the terms and
conditions under which the Custodian maintains the Fund's securities and other
non-cash property in the custody of certain foreign sub-custodians in
conformity with the requirements of Rule 17f-5 under the Investment Company Act
of 1940, as amended;
NOW THEREFORE, in consideration of the premises and covenants
contained herein, the Custodian and the Fund hereby amend the Custodian
Contract by the addition of the following terms and provisions;
1. Notwithstanding any provisions to the contrary set forth in the
Custodian Contract, the Custodian may hold securities and other non-cash
property for all of its customers, including the Fund, with a foreign
sub-custodian in a single account that is identified as belonging to the
Custodian for the benefit of its customers, provided however, that (i) the
records of the Custodian with respect to securities and other non-cash property
of the Fund which are maintained in such account shall identify by book-entry
those securities and other non-cash property belonging to the Fund and (ii) the
Custodian shall require that securities and other non-cash property so held by
the foreign sub-custodian be held separately from any assets of the foreign
sub-custodian or of others.
2. Except as specifically superseded or modified herein, the terms and
provisions of the Custodian Contract shall continue to apply with full force
and effect.
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed as a sealed instrument in its name and behalf by its duly
authorized representative this 20th day of June, 1995.
G.T. INVESTMENT FUNDS, INC.
By: /s/ HELGE KRIST LEE
----------------------------------------
Title: Vice President
--------------------------------------
STATE STREET BANK AND TRUST COMPANY
By: [ILLEGIBLE]
----------------------------------------
Title: Vice President
--------------------------------------
<PAGE> 2
G.T. CAPITAL MANAGEMENT
[G.T. LOGO]
BY FEDERAL EXPRESS
June 20, 1995
Mr. Matthew N. Karstetter
Vice President
Mutual Fund Services
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA
Re: Omnibus Accounts
Dear Matt:
Enclosed please find an executed set of Amendments to the Custodian Contracts
for each of the G.T. Global Mutual Fund companies dated June 20, 1995.
I have kept a set of the Amendments for our files.
If you should have any questions, please do not hesitate to call me at
415-445-6410.
Very truly yours,
/s/ PETER R. GUARINO
Peter R. Guarino
Assistant General Counsel
enclosures
<PAGE> 1
EXHIBIT g(12)
October 24, 1997
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Dear Sir or Madam:
We are writing to inform you that G.T. Investment Funds, Inc. (the
"Company") has established a new series of shares to be known as GT Global
Developing Markets Fund. In accordance with the Additional Funds provision in
Section 17 of the Custodian Contract of April 27, 1988 (the "Contract") between
the Company and State Street Bank and Trust Company, the Company hereby
requests that you act as Custodian for the new series under the terms of the
Contract. We are also writing to confirm that you are currently acting as
Custodian, pursuant to the Contract, for the following series of the Company:
(1) GT Global Government Income Fund; (2) GT Global Strategic Income Fund; (3)
GT Global Growth & Income Fund; (4) GT Global Health Care Fund; (5) GT Global
Latin America Growth Fund; (6) GT Global Telecommunications Fund; (7) GT Global
Financial Services Fund; (8) GT Global Emerging Markets Fund, (9) GT Global
High Income Fund; (10) GT Global Infrastructure Fund; (11) GT Global Natural
Resources Fund; and (12) GT Global Consumer Products and Services Fund.
Please indicate your acceptance of the foregoing by executing two
copies of this Letter Agreement, returning one to the Company and retaining one
copy for your records.
Yours truly,
G.T. Investment Funds, Inc.
By: /s/ KENNETH W. CHANCEY
------------------------------------
Kenneth W. Chancey
Vice President and
Principal Accounting Officer
Acknowledged and Accepted:
State Street Bank and Trust Company
By: [ILLEGIBLE]
-------------------------------
Authorized Officer
<PAGE> 1
EXHIBIT g(13)
September 22, 1998
Mr. Scott Corrick
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Dear Mr. Corrick:
We are writing to inform you about the recent reorganization of AIM
Investment Funds, Inc. (the "Company") into a newly organized Delaware business
trust, AIM Investment Funds (the "Trust"). In connection with this
reorganization, which occurred on September 8, 1998, each series of the Company
listed on Schedule A to this letter (each an "Old Fund") transferred all of its
assets to the corresponding series listed on Schedule A (each a "New Fund") in
exchange solely for shares of beneficial interest in such New Fund and such New
Fund's assumption of such Old Fund's liabilities.
Consistent with the "Effective Period, Termination and Amendment"
provision in Section 14 of the Custodian Contract dated April 27, 1988, as
amended from time to time (the "contract"), between the Company and State Street
Bank and Trust Company, the Company hereby requests that, effective the close of
business on September 8, 1998, you act under the terms of the Contract,
including the fee schedule relating thereto, as Custodian for each New Fund,
which shall be deemed to have succeeded to the corresponding Old Fund's
obligations, rights, and duties under the Contract.
The Company hereby further requests that you agree that, as
contemplated by Delaware law, the obligations of the Trust under the Contract
shall not be binding upon any of the Trust's trustees, shareholders, nominees,
officers, agents, or employees personally, but shall be binding only upon the
assets and property of the New Fund or New Funds to which such obligations
relate.
Please indicate your acceptance of the foregoing by executing two
copies of this Letter Agreement, returning one copy to the Company and retaining
one for your records.
Sincerely,
AIM Investment Funds
By: /s/ ROBERT H. GRAHAM
---------------------------------
Robert H. Graham
President
Acknowledged and Accepted:
State Street Bank and Trust Company
By: /s/ N. GRADY
----------------------------------
Name: N. Grady
Title: Vice President
<PAGE> 2
SCHEDULE A
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
AIM INVESTMENT FUNDS, INC. AIM INVESTMENT FUNDS
- -------------------------------------------------------------------------------------------------------------
<S> <C>
AIM Developing Markets Fund AIM Developing Markets Fund
- -------------------------------------------------------------------------------------------------------------
AIM Emerging Markets Fund AIM Emerging Markets Fund
- -------------------------------------------------------------------------------------------------------------
AIM Global Growth & Income Fund AIM Global Growth & Income Fund
- -------------------------------------------------------------------------------------------------------------
AIM Latin American Growth Fund AIM Latin American Growth Fund
- -------------------------------------------------------------------------------------------------------------
AIM Global Consumer Products and Services Fund AIM Global Consumer Products and Services Fund
- -------------------------------------------------------------------------------------------------------------
AIM Global Financial Services Fund AIM Global Financial Services Fund
- -------------------------------------------------------------------------------------------------------------
AIM Global Health Care Fund AIM Global Health Care Fund
- -------------------------------------------------------------------------------------------------------------
AIM Global Infrastructure Fund AIM Global Infrastructure Fund
- -------------------------------------------------------------------------------------------------------------
AIM Global Resources Fund AIM Global Resources Fund
- -------------------------------------------------------------------------------------------------------------
AIM Global Telecommunications Fund AIM Global Telecommunications Fund
- -------------------------------------------------------------------------------------------------------------
AIM Global Government Income Fund AIM Global Government Income Fund
- -------------------------------------------------------------------------------------------------------------
AIM Global High Income Fund AIM Emerging Markets Debt Fund
- -------------------------------------------------------------------------------------------------------------
AIM Strategic Income Fund AIM Strategic Income Fund
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT h(1)(i)
TRANSFER AGENCY AND SERVICE AGREEMENT
BETWEEN
AIM INVESTMENT FUNDS
AND
A I M FUND SERVICES, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1 TERMS OF APPOINTMENT; DUTIES OF THE TRANSFER AGENT.........................1
ARTICLE 2 FEES AND EXPENSES..........................................................2
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE TRANSFER AGENT.......................3
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE FUND.................................3
ARTICLE 5 INDEMNIFICATION............................................................4
ARTICLE 6 COVENANTS OF THE FUND AND THE TRANSFER AGENT...............................5
ARTICLE 7 TERMINATION OF AGREEMENT...................................................6
ARTICLE 8 ADDITIONAL FUNDS...........................................................6
ARTICLE 9 ASSIGNMENT.................................................................6
ARTICLE 10 AMENDMENT..................................................................7
ARTICLE 11 TEXAS LAW TO APPLY.........................................................7
ARTICLE 12 MERGER OF AGREEMENT........................................................7
ARTICLE 13 COUNTERPARTS...............................................................7
ARTICLE 14 LIMITATION OF SHAREHOLDER LIABILITY........................................7
</TABLE>
<PAGE> 3
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the eighth day of September, 1998, by and between
AIM INVESTMENT FUNDS, a Delaware business trust, having its principal office and
place of business at 11 Greenway Plaza, Suite 100, Houston, Texas 77046 (the
"Fund"), and A I M Fund Services, Inc., a Delaware corporation having its
principal office and place of business at 11 Greenway Plaza, Suite 100, Houston,
Texas 77046 (the "Transfer Agent").
WHEREAS, the Transfer Agent is registered as such with the Securities
and Exchange Commission (the "SEC"); and
WHEREAS, the Fund is authorized to issue shares in separate series and
classes, with each such series representing interests in a separate portfolio of
securities and other assets and each such class having different distribution
arrangements; and
WHEREAS, the Fund on behalf of each portfolio thereof (the
"Portfolios") desires to appoint the Transfer Agent as its transfer agent, and
agent in connection with certain other activities, with respect to the
Portfolios, and the Transfer Agent desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
ARTICLE 1
TERMS OF APPOINTMENT; DUTIES OF THE TRANSFER AGENT
1.01 Subject to the terms and conditions set forth in this Agreement,
the Fund hereby employs and appoints the Transfer Agent to act as, and the
Transfer Agent agrees to act as, its transfer agent for the authorized and
issued shares of beneficial interest of the Fund representing interests of each
of the respective Portfolios ("Shares"), dividend disbursing agent, and agent in
connection with any accumulation or similar plans provided to shareholders of
each of the Portfolios (the "Shareholders"), including without limitation any
periodic investment plan or periodic withdrawal program, as provided in the
currently effective prospectus and statement of additional information (the
"Prospectus") of the Fund on behalf of the Portfolios.
1.02 The Transfer Agent agrees that it will perform the following
services:
(a) The Transfer Agent shall, in accordance with procedures established
from time to time by agreement between the Fund on behalf of each of the
Portfolios, as applicable, and the Transfer Agent:
(i) receive for acceptance, orders for the purchase of
Shares, and promptly deliver payment and appropriate
documentation thereof to the Custodian of the Fund
authorized pursuant to the Agreement and Declaration
of Trust and Bylaws of the Fund (the "Custodian");
(ii) pursuant to purchase orders, issue the appropriate
number of Shares and hold such Shares in the
appropriate Shareholder account;
<PAGE> 4
(iii) receive for acceptance redemption requests and
redemption directions and deliver the appropriate
documentation thereof to the Custodian;
(iv) at the appropriate time as and when it receives
monies paid to it by the Custodian with respect to
any redemption, pay over or cause to be paid over in
the appropriate manner such monies as instructed by
the Fund;
(v) effect transfers of Shares by the registered owners
thereof upon receipt of appropriate instructions;
(vi) prepare and transmit payments for dividends and
distributions declared by the Fund on behalf of the
Shares;
(vii) maintain records of account for and advise the Fund
and its Shareholders as to the foregoing; and
(viii) record the issuance of Shares of the Fund and
maintain pursuant to SEC Rule 17Ad-10(e) a record of
the total number of Shares which are authorized,
based upon data provided to it by the Fund, and
issued and outstanding.
The Transfer Agent shall also provide the Fund on a regular basis with
the total number of Shares which are authorized and issued and outstanding and
shall have no obligation, when recording the issuance of Shares, to monitor the
issuance of such Shares or to take cognizance of any laws relating to the issue
or sale of such Shares, which function shall be the sole responsibility of the
Fund.
(b) In addition to the services set forth in the above paragraph (a),
the Transfer Agent shall perform the customary services of a transfer agent,
including but not limited to: maintaining all Shareholder accounts, mailing
Shareholder reports and prospectuses to current Shareholders, preparing and
mailing confirmation forms and statements of accounts to Shareholders for all
purchases and redemptions of Shares and other confirmable transactions in
Shareholder accounts, preparing and mailing activity statements for
Shareholders, and providing Shareholder account information.
(c) Procedures as to who shall provide certain of these services in
Article 1 may be established from time to time by agreement between the Fund on
behalf of each Portfolio and the Transfer Agent. The Transfer Agent may at times
perform only a portion of these services and the Fund or its agent may perform
these services on the Fund's behalf.
ARTICLE 2
FEES AND EXPENSES
2.01 For performance by the Transfer Agent pursuant to this Agreement,
the Fund agrees on behalf of each of the Portfolios to pay the Transfer Agent
fees as set out in the initial fee schedule attached hereto. Such fees and
out-of-pocket expenses and advances identified under Section 2.02 below may be
changed from time to time subject to mutual written agreement between the Fund
and the Transfer Agent.
2
<PAGE> 5
2.02 In addition to the fee paid under Section 2.01 above, the Fund
agrees to reimburse the Transfer Agent for out-of-pocket expenses or advances
incurred by the Transfer Agent for the items set out in the fee schedule
attached hereto. In addition, any other expenses incurred by the Transfer Agent
at the request or with the consent of the Fund, will be reimbursed by the Fund
on behalf of the applicable Shares.
2.03 The Fund agrees on behalf of each of the Portfolios to pay all
fees and reimbursable expenses following the mailing of the respective billing
notice. Postage for mailing of dividends, proxies, Fund reports and other
mailings to all Shareholder accounts shall be advanced to the Transfer Agent by
the Fund at least seven (7) days prior to the mailing date of such materials.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE TRANSFER AGENT
The Transfer Agent represents and warrants to the Fund that:
3.01 It is a corporation duly organized and existing and in good
standing under the laws of the state of Delaware.
3.02 It is duly qualified to carry on its business in Delaware and in
Texas.
3.03 It is empowered under applicable laws and by its Charter and
By-Laws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to authorize
it to enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
3.06 It is registered as a Transfer Agent as required by the federal
securities laws.
3.07 This Agreement is a legal, valid and binding obligation to it.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to the Transfer Agent that:
4.01 It is a business trust duly organized and existing and in good
standing under the laws of Delaware.
4.02 It is empowered under applicable laws and by its Agreement and
Declaration of Trust and Bylaws to enter into and perform this Agreement.
4.03 All corporate proceedings required by said Agreement and
Declaration of Trust and Bylaws have been taken to authorize it to enter into
and perform this Agreement.
3
<PAGE> 6
4.04 It is an open-end, diversified management investment company
registered under the Investment Company Act of 1940, as amended.
4.05 A registration statement under the Securities Act of 1933, as
amended on behalf of each of the Portfolios is currently effective and will
remain effective, with respect to all Shares of the Fund being offered for sale.
ARTICLE 5
INDEMNIFICATION
5.01 The Transfer Agent shall not be responsible for, and the Fund
shall on behalf of the applicable Portfolio, indemnify and hold the Transfer
Agent harmless from and against, any and all losses, damages, costs, charges,
counsel fees, payments, expenses and liability arising out of or attributable
to:
(a) all actions of the Transfer Agent or its agents or subcontractors
required to be taken pursuant to this Agreement, provided that such actions are
taken in good faith and without negligence or willful misconduct;
(b) the Fund's lack of good faith, negligence or willful misconduct
which arise out of the breach of any representation or warranty of the Fund
hereunder;
(c) the reliance on or use by the Transfer Agent or its agents or
subcontractors of information, records and documents or services which (I) are
received or relied upon by the Transfer Agent or its agents or subcontractors
and/or furnished to it or performed by on behalf of the Fund, and (ii) have been
prepared, maintained and/or performed by the Fund or any other person or firm on
behalf of the Fund; provided such actions are taken in good faith and without
negligence or willful misconduct;
(d) the reliance on, or the carrying out by the Transfer Agent or its
agents or subcontractors of any instructions or requests of the Fund on behalf
of the applicable Portfolio; provided such actions are taken in good faith and
without negligence or willful misconduct; or
(e) the offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities laws or regulations
of any state that such Shares be registered in such state or in violation of any
stop order or other determination or ruling by any federal agency or any state
with respect to the offer or sale of such Shares in such state.
5.02 The Transfer Agent shall indemnify and hold the Fund harmless from
and against any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of or attributable to any action or failure
or omission to act by the Transfer Agent as result of the Transfer Agent's lack
of good faith, negligence or willful misconduct.
5.03 At any time the Transfer Agent may apply to any officer of the
Fund for instructions, and may consult with legal counsel with respect to any
matter arising in connection with the services to be performed by the Transfer
Agent under this Agreement, and the Transfer Agent and its agents or
subcontractors shall not be liable to and shall be indemnified by the Fund on
behalf of the applicable Portfolio for any action taken or omitted by it in
reliance upon such instructions or upon the opinion of such counsel. The
Transfer Agent shall be protected and indemnified in acting upon
4
<PAGE> 7
any paper or document furnished by or on behalf of the Fund, reasonably believed
to be genuine and to have been signed by the proper person or persons, or upon
any instruction, information, data, records or documents provided to the
Transfer Agent or its agents or subcontractors by machine readable input, telex,
CRT data entry or other similar means authorized by the Fund, and shall not be
held to have notice of any change of authority of any person, until receipt of
written notice thereof from the Fund.
5.04 In the event either party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherwise from
such causes.
5.05 Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act hereunder.
5.06 In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim for which either party may
be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
ARTICLE 6
COVENANTS OF THE FUND AND THE TRANSFER AGENT
6.01 The Fund shall, upon request, on behalf of each of the Portfolios
promptly furnish to the Transfer Agent the following:
(a) a certified copy of the resolution of the Board of Trustees of the
Fund authorizing the appointment of the Transfer Agent and the execution and
delivery of this Agreement; and
(b) a copy of the Agreement and Declaration of Trust and Bylaws of the
Fund and all amendments thereto.
6.02 The Transfer Agent shall keep records relating to the services to
be performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Company Act of 1940, as amended,
and the Rules thereunder, the Transfer Agent agrees that all such records
prepared or maintained by the Transfer Agent relating to the services to be
performed by the Transfer Agent hereunder are the property of the Fund and will
be preserved, maintained and made available in accordance with such Section and
Rules, and will be surrendered promptly to the Fund on and in accordance with
its request.
6.03 The Transfer Agent and the Fund agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the
5
<PAGE> 8
negotiation or the carrying out of this Agreement shall remain confidential, and
shall not be voluntarily disclosed to any other person, except as may be
required by law.
6.04 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, the Transfer Agent will endeavor to notify the
Fund and to secure instructions from an authorized officer of the Fund as to
such inspection. The Transfer Agent reserves the right, however, to exhibit the
Shareholder records to any person whenever it is advised by its counsel that it
may be held liable for the failure to exhibit the Shareholder records to such
person.
ARTICLE 7
TERMINATION OF AGREEMENT
7.01 This Agreement may be terminated by either party upon sixty (60)
days written notice to the other.
7.02 Should the Fund exercise its right to terminate this Agreement,
all out-of-pocket expenses associated with the movement of records and material
will be borne by the Fund on behalf of the applicable Portfolios. Additionally,
the Transfer Agent reserves the right to charge the Fund or the applicable
Portfolios for any other reasonable expenses associated with such termination,
not to exceed a charge equivalent to the average of three (3) months' fees;
provided, however, the Transfer Agent shall not be entitled to such expenses in
the event of the merger and/or liquidation of the applicable Portfolios.
ARTICLE 8
ADDITIONAL FUNDS
8.01 In the event that the Fund establishes one or more series of
Shares in addition to the Portfolios with respect to which it desires to have
the Transfer Agent render services as transfer agent under the terms hereof, it
shall so notify the Transfer Agent in writing, and if the Transfer Agent agrees
in writing to provide such services, such series of Shares shall become a
Portfolio hereunder.
ARTICLE 9
ASSIGNMENT
9.01 Except as provided in Section 9.03 below, neither this Agreement
nor any rights or obligations hereunder may be assigned by either party without
the written consent of the other party.
9.02 This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns.
9.03 The Transfer Agent may, without further consent on the part of the
Fund, subcontract for the performance hereof with any entity which is duly
registered as a transfer agent pursuant to Section 17A(c)(1) of the Securities
Exchange Act of 1934 as amended ("Section 17A(c)(1)"); provided, however, that
the Transfer Agent shall be as fully responsible to the Fund for the acts and
omissions of any subcontractor as it is for its own acts and omissions.
6
<PAGE> 9
ARTICLE 10
AMENDMENT
10.01 This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution of the Board
of Trustees of the Fund.
ARTICLE 11
TEXAS LAW TO APPLY
11.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the State of Texas.
ARTICLE 12
MERGER OF AGREEMENT
12.01 This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
ARTICLE 13
COUNTERPARTS
13.01 This Agreement may be executed by the parties hereto on any
number of counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
ARTICLE 14
LIMITATION OF SHAREHOLDER LIABILITY
14.01 Notice is hereby given that this Agreement is being executed by
the Fund by a duly authorized officer thereof acting as such and not
individually. The obligations of this Agreement are not binding upon any of the
Trustees, officers, shareholders or the investment advisor of the Fund
individually but are binding only upon the assets and property belonging to the
Fund, on its own behalf or on behalf of a Portfolio, for the benefit of which
the Trustees or officers have caused this Agreement to be executed.
7
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
AIM INVESTMENT FUNDS
By: /s/ ROBERT H. GRAHAM
----------------------------
President
ATTEST:
/s/ SAMUEL D. SIRKO
- ----------------------------
Assistant Secretary
A I M FUND SERVICES, INC.
By: /s/ ILLEGIBLE
----------------------------
President
ATTEST:
/s/ SAMUEL D. SIRKO
- ----------------------------
Assistant Secretary
8
<PAGE> 11
FEE SCHEDULE
1. For performance by the Transfer Agent pursuant to this Agreement, the Fund
agrees on behalf of each of the Portfolios to pay the Transfer Agent an
annualized fee for shareholder accounts that are open during any monthly
period as set forth below, and an annualized fee of $.70 per shareholder
account that is closed during any monthly period. Both fees shall be billed
by the Transfer Agent monthly in arrears on a prorated basis of 1/12 of the
annualized fee for all such accounts.
<TABLE>
<CAPTION>
Per Account Fee
Fund Type Annualized
--------- ----------
<S> <C>
Class A Annual/Semi-Annual Dividends $24.85*
Class A Quarterly & Monthly Dividend 24.85*
Class A Daily Accrual 24.85*
Class B 24.85*
Advisor Class 24.85*
</TABLE>
* This fee includes all out of pocket expenses, the annualized credit,
Consumer Price Index increase, Balance Credit and Remote Services Fee
discussed below. Currently, therefore, paragraphs 2,3, and 5 below do not
apply. Paragraph 4 does not apply for 1998, however the IRA Annual
Maintenance Fee will be charged beginning in 1999.
2. The Transfer Agent shall provide the various mutual funds that are advised
by A I M Advisors, Inc. or its affiliates and distributed by A I M
Distributors, Inc. (the "AIM Funds") with an annualized credit to the
monthly billings of (a) $1.50 for each open account in excess of 100,000
open AIM Funds Accounts up to and including 125,000 open AIM Funds
Accounts; (b) $1.75 for each open account in excess of 125,000 open AIM
Funds Accounts up to and including 150,000 open AIM Funds Accounts; (c)
$2.00 for each open AIM Funds Account in excess of 150,000 open AIM Funds
Accounts up to and including 200,000 open AIM Funds Accounts; (d) $2.25 for
each open AIM Funds Account in excess of 200,000 open AIM Funds Accounts up
to and including 500,000 open AIM Funds Accounts; (e) $2.50 for each open
AIM Funds Account in excess of 500,000 open AIM Funds Accounts up to and
including 1,000,000 open AIM Funds Accounts; and (f) $3.00 for each open
AIM Funds Account in excess of 1,000,000 open AIM Funds Accounts.
3. In addition, beginning on the anniversary date of the execution of the
Remote Services Agreement with The Shareholder Services Group, Inc., and on
each subsequent anniversary date, the per account fees shall each be
increased by a percentage amount equal to the percentage increase in the
then current Consumer Price Index (all urban consumers) or its successor
index, though in no event shall such increase be greater than a 7% increase
over the previous fees.
4. Other Fees
IRA Annual Maintenance Fee $10 per IRA account per year (paid by
investor per tax I.D. number).
9
<PAGE> 12
Balance Credit The total fees due to the Transfer Agent
from all funds affiliated with the Fund
shall be reduced by an amount equal to
one half of investment income earned by
the Transfer Agent on the DDA balances
of the disbursement accounts for those
funds.
Remote Services Fee $3.60 per open account per year, payable
monthly and $1.80 per closed account
per year, payable monthly.
5. OUT-OF-POCKET EXPENSES
The Fund shall reimburse the Transfer Agent monthly for applicable
out-of-pocket expenses, including, but not limited to the following items:
- Microfiche/microfilm production & equipment
- Magnetic media tapes and freight
- Printing costs, including, without limitation, certificates,
envelopes, checks, stationery, confirmations and statements
- Postage (bulk, pre-sort, ZIP+4, bar coding, first class) direct
pass through to the Fund
- Due diligence mailings
- Telephone and telecommunication costs, including all lease,
maintenance and line costs
- Ad hoc reports
- Proxy solicitations, mailings and tabulations
- Daily & Distribution advice mailings
- Shipping, Certified and Overnight mail and insurance
- Year-end form production and mailings
- Terminals, communication lines, printers and other equipment and
any expenses incurred in connection with such terminals and lines
- Duplicating services
- Courier services
- Banking charges, including without limitation incoming and
outgoing wire charges @ $8.00 per wire
- Rendering fees as billed
- Federal Reserve charges for check clearance
- Record retention, retrieval and destruction costs, including, but
not limited to exit fees charged by third party record keeping
vendors
- Third party audit reviews
- All client specific Systems enhancements will be at the Funds'
cost.
- Certificate Insurance
- Such other miscellaneous expenses reasonably incurred by the
Transfer Agent in performing its duties and responsibilities
under this Agreement
- Check writing fee of $.75 per check redemption.
The Fund agrees that postage and mailing expenses will be paid on the day
of or prior to mailing. In addition, the Fund will promptly reimburse the
Transfer Agent for any other unscheduled expenses incurred by the Transfer
Agent whenever the Fund and the Transfer Agent mutually agree that such
expenses are not otherwise properly borne by the Transfer Agent as part of
its duties and obligations under the Agreement.
10
<PAGE> 1
EXHIBIT h(1)(ii)
AMENDMENT NO. 1
TRANSFER AGENCY AND SERVICE AGREEMENT
The Transfer Agency and Service Agreement (the "Agreement"), dated as
of September 8, 1998, by and between AIM Investment Funds, a Delaware business
trust, and A I M Fund Services, Inc., a Delaware corporation, is hereby amended
as follows (terms used herein but not otherwise defined herein have the meaning
ascribed them in the Agreement):
1) Section 1. of the Fee Schedule to the Agreement is hereby deleted in
its entirety and replaced with the following:
"1. For performance by the Transfer Agent pursuant to this Agreement, the Fund
agrees on behalf of each of the Portfolios to pay the Transfer Agent an
annualized fee for shareholder accounts that are open during any monthly
period as set forth below, and an annualized fee of $.70 per shareholder
account that is closed during any monthly period. Both fees shall be billed
by the Transfer Agent monthly in arrears on a prorated basis of 1/12 of the
annualized fee for all such accounts.
<TABLE>
<CAPTION>
Per Account Fee
Fund Type Annualized
--------- ----------
<S> <C>
Class A Annual/Semi-Annual Dividends $24.85*
Class A Quarterly & Monthly Dividend 24.85*
Class A Daily Accrual 24.85*
Class B 24.85*
Class C 24.85*
Advisor Class 24.85*
</TABLE>
* This fee includes all out of pocket expenses, the annualized credit,
Consumer Price Index increase, Balance Credit and Remote Services Fee
discussed below. Currently, therefore, paragraphs 2,3, and 5 below do not
apply. Paragraph 4 does not apply for 1998, however the IRA Annual
Maintenance Fee will be charged beginning in 1999."
All other terms and provisions of the Agreement not amended herein shall
remain in full force and effect.
Dated: , 1998
--------------------------
AIM INVESTMENT FUNDS
Attest: By:
-------------------------------- ---------------------
Assistant Secretary Robert H. Graham
President
(SEAL)
A I M FUND SERVICES, INC.
Attest: By:
-------------------------------- ---------------------
Assistant Secretary John Caldwell
President
(SEAL)
<PAGE> 1
EXHIBIT (h)(2)(vii)
AMENDMENT NUMBER 4 TO THE REMOTE
ACCESS AND RELATED SERVICES AGREEMENT
THIS AMENDMENT, dated as of June 30, 1998 is made to the Remote Access
and Related Services Agreement dated December 23, 1994, as amended (the
"Agreement") between each registered investment company listed on Exhibit 1 of
the Agreement (the "Fund") and First Data Investor Services Group, Inc,
("FDISG").
WITNESSETH
WHEREAS, the Fund and FDISG desire to further amend the Agreement to
reflect certain changes thereto.
NOW THEREFORE, in consideration of the mutual covenants contained
herein, the parties agree that as of the date first referenced above, the
Agreement shall be amended as follows:
1. Section 14(a) of the Agreement (as amended by Amendment Number 3) is
hereby deleted in its entirety and replaced with the following new Section
14(a):
"(a) This Agreement which became effective as of December 23, 1994 is
hereby extended and shall continue through December 31, 2002 (the
"Initial Term"). Upon the expiration of the Initial Term, this
Agreement shall automatically renew for successive terms of one
(1) year ("Renewal Terms") each, unless the Fund or FDISG
provides written notice to the other of its intent not to renew.
Such notice must be received not less than one-hundred and eighty
(180) days prior to the expiration of the Initial Term or the
then current Renewal Term."
2. Effective January 1, 1999, Section I "Shareholder Account Fees" of
Schedule C "Fee Schedule" (as amended by Amendment Number 3) is amended by
deleting Section I in its entirety and adding the following new Section I:
"I. SHAREHOLDER ACCOUNT FEES. The Fund shall pay the following
fees:
For the period beginning on January 1, 1999, and continuing through
December 31, 2002, the Fund shall pay FDISG an annualized fee for
shareholder accounts open during any monthly period ("Open Account
Fee") as follows:
<TABLE>
<CAPTION>
Account Volume Fee per shareholder account
-------------- ---------------------------
<S> <C> <C>
1-1.5 million $3.50
1.5-3 million $2.40
3-4 million $2.00
4-5 million $1.90
Exceeding 5 million $1.80
</TABLE>
<PAGE> 2
The Fund also shall pay FDISG Group an annualized fee of $1.60 per
shareholder account that is closed during any monthly period (Closed
Account Fee")(The Open Account Fees and Closed Account Fees hereafter
collectively referred to as "Shareholder Account Fees"). The
Shareholder Account Fees shall be billed by FDISG monthly in arrears on
a prorated basis of 1/12 of the annualized fee, for all such accounts.
In addition, on January 1 of the years 2001 and 2002 the Shareholder
Account fees may be increased by FDISG in an amount equal to the lesser
of (i) the cumulative percentage increase in the Consumer Price Index
for all Urban Consumers (CPI-U) U.S. City Average, All Items
(unadjusted = (1982-84 + 100). published by the U.S. Department of
Labor, or (ii) seven percent (7%) of the Shareholder Account Fees
charged by FDISG to the Fund for the preceding twelve (12) month
period.
In return for the Shareholder Account Fees, FDISG agrees to provide the
following to the Fund:
o Remote Access to FDISG's FSR System
o License for 512 IMPRESS Plus seats. Includes six weeks of
technical training (Completed)
o Conversion of the GT Global Funds into the AIM Family of Funds.
Conversion estimated at 4500 hours of systems development
o License for up to 15 copies of FDISG's ACE+ (Automate Control
Environment) software as further defined in Schedule H
o Dedicated Programming Support equivalent to 1 Systems Manager, 4
Programmers, and 2 Business Systems Analysts
o Separate FSR processing cycle
o Implementation of a Separate FSR processing cycle by September
15, 1997, as more fully described in the attached Exhibit 3 of
this Schedule C (Completed)
o Implementation of the core TA system functionality identified in
Exhibit 1 of this Schedule C (Completed)
o Implementation of IWT Release 5.x functionality as identified in
Exhibit 2 of this Schedule C (Completed)
o Continued use of FDISG's Price/Rate Transmission (PRAT)
application. The PRAT Application will accept prices and dividend
rates from the Fund Accounting Department of the Fund
electronically and post them to the FDISG Pricing System. The
PRAT application will run interconnected via Local Area Network
hardware and software."
The Agreement, as previously amended and as amended by this Amendment,
("Modified Agreement") constitutes the entire agreement between the parties with
respect to the subject matter hereof. The Modified Agreement supersedes all
prior and contemporaneous agreements between the parties in connection with the
subject matter hereof. No officer, employee, servant
<PAGE> 3
or other agent of either party is authorized to make any representation,
warranty, or other promises not expressly contained herein with respect to the
subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized officers, as of the day and year first above
written.
On behalf of the Funds and respective Portfolios and Classes set forth in
Exhibit 1 of the Agreement, as amended and as may be amended in the future from
time to time.
By: /s/ [ILLEGIBLE]
--------------------------------------
Title: AIM Fund Services, Inc.
-----------------------------------
FIRST DATA INVESTOR SERVICES GROUP, INC
By: /s/ [ILLEGIBLE]
--------------------------------------
Title: Executive VP
-----------------------------------
<PAGE> 1
EXHIBIT (h)(2)(viii)
AMENDMENT NUMBER 5 TO THE REMOTE
ACCESS AND RELATED SERVICES AGREEMENT
THIS AMENDMENT, dated as of July 1, 1998 is made to the Remote Access
and Related Services Agreement dated December 23, 1994, as amended (the
"Agreement") between each registered investment company listed on Exhibit 1 of
the Agreement (the "Fund") and First Data Investor Services Group, Inc.
("FDISG").
WITNESSETH
WHEREAS, the Fund and FDISG desire to further amend the Agreement to
reflect certain changes thereto.
NOW THEREFORE, in consideration of the mutual covenants contained
herein, the parties agree that as of the date first referenced above, the
Agreement shall be amended as follows:
1. Exhibit 1 of the Agreement is hereby deleted and replaced with the
Attached revised Exhibit 1.
2. Section III "Additional Fees" of Schedule C "Fee Schedule" is hereby
amended to add the following new subsection h:
"h. Fees for IMPRESS Plus COLD:
(i) IMPRESS Plus COLD Software License Fees - The Fund shall pay an
initial license fee of $302,469 (the "License Fee) based on 512
IMPRESS Plus COLD seats licensed, which includes the use of the
INSCI Software. The initial License Fee shall be financed over a
period of 36 months and be payable monthly in arrears in amounts of
$8,401.66. Thereafter, the then current monthly License Fee
payments shall continue so long as the Fund continues to license
and use the IMPRESS Plus COLD Software. License Fee payments shall
commence on the earlier of a) first production usage of IMPRESS
Plus COLD software or b) September 1, 1998.
(ii) IMPRESS Plus Software Usage Fees. In addition to the License
Fee set forth above, the Fund shall pay a monthly usage fee of
$9,728.00 (the "Usage Fee") based on 512 IMPRESS Plus COLD seats
licensed, which includes the use of the INSCI Software. The Usage
Fee shall commence on the earlier of a) first production usage of
IMPRESS Plus COLD software or b) September 1, 1998.
(iii) IMPRESS Plus COLD Installation Fees. - Thirty (30) days
following the execution of Amendment Number 4 to the Agreement and
receipt of an invoice, the Fund shall pay to FDISG one-time
installation fee of $140,000. Installation
<PAGE> 2
covers 3 line data application and 1 Intelligent Data Stream
application. Installation activities include:
o Hardware installation at FDISG site
o IMPRESS Plus COLD application installation
o IMPRESS Plus COLD third party software installation
o Network Design Assistance
o Project Management
o Post Installation Support
(iv) Additional IMPRESS Plus COLD Fees:
o One-time fee for each additional Line Data Application - $10,000
o One-time fee for each additional Intelligent Data Stream
Application - $20,000
o Application Enhancements - $150/hr
(v) Maintenance and Support for IMPRESS Plus COLD includes items
listed in Section III.b above and the following:
o Report conversion to Express Delivery/IMPRESS Plus COLD
o Hardware support and maintenance
(v) IMPRESS Plus COLD License and Usage and IMPRESS Plus COLD
Installation Fees do not include the following:
o Hardware
o Network and Server Software not listed in Exhibit 1 of
Schedule G
o Customization or application integration
o Support for IMPRESS Plus COLD applications customized or built
by the Fund (see Section 3 of Exhibit 3 of Schedule G)
o Installation, Integration and On-going Support of hardware,
network, and software components not included in Schedule G
o Travel Expenses for install and support staff for on-site
visits (billed separately per Schedule D)
o Application Source Code
(vi) IMPRESS Plus COLD Hardware and Network Fees:
<TABLE>
<CAPTION>
One-time* Monthly Support Fee*
--------- --------------------
(Due Upon Execution)
<S> <C> <C>
Hardware $308,729.52 $3276.27
</TABLE>
* Fee is subject to change based on actual vendor costs"
<PAGE> 3
3. Section 1.3 of Schedule G is amended by adding the following:
"Notwithstanding the foregoing provisions of this Section 1.3 to the
contrary, FDISG shall install and maintain the equipment associated
with FDISG's IMPRESS Plus COLD product set forth in Exhibit 2.3 of this
Schedule G at its facility for the fees set forth in Section III.h. of
Schedule C. At the expense of the Fund, upon termination of the
Agreement or at the request of the Funds FDISG shall deliver to the
Fund such equipment."
4. Exhibit 1 of Schedule G is hereby amended as follows:
(a) Section 1.1 is amended by adding "IMPRESS Plus COLD Release 6.0" to
the list of IMPRESS Plus software products.
(b) Section 2.1 "FDISG Provided Third Party Software" is amended by
adding the following new section 2.1.3:
"2.1.3 INSCI Software. The following Third Party Software is
licensed directly to the Fund by FDISG subject to the terms and
conditions set forth in this Agreement:
Advanced COINSERV Software w/Hierarchical Storage Mgr.
WINCOINS Software
Vector Forms Software
Jukebox Driver Software, Two, 12" Drives
Metacode Server License
CDP Metacode Viewer, 300 Concurrent Users
Metacode Desktop & Converter
Operating Kit (Includes Dial-In for Trouble Shooting)"
5. Exhibit 1.1 of Schedule G "Specifications" is hereby amended to add the
IMPRESS Plus COLD Specifications attached hereto as Exhibit 1.1a of Schedule G.
The Agreement, as previously amended and as amended by this Amendment,
("Modified Agreement") constitutes the entire agreement between the parties with
respect to the subject matter hereof. The Modified Agreement supersedes all
prior and contemporaneous agreements between the parties in connection with the
subject matter hereof. No officer, employee, servant or other agent of either
party is authorized to make any representation, warranty, or other promises not
expressly contained herein with respect to the subject matter hereof.
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their duly authorized officers, as of the day and year first
above written.
On behalf of the Funds and respective Portfolios and Classes set forth in
Exhibit 1 attached hereto as may be amended from time to time.
By: /s/ [ILLEGIBLE]
-----------------------------------
Title: Senior Vice President
--------------------------------
FMT DATA INVESTOR SERVICES GROUP, INC.
By: /s/ [ILLEGIBLE]
-----------------------------------
Title: Executive VP
--------------------------------
<PAGE> 5
EXHIBIT 1
List of Funds
<TABLE>
<CAPTION>
Fund# Fund Name
<S> <C>
1 AIM WEINGARTEN FUND - CLASS A
2 AIM CONSTELLATION FUND - CLASS A
6 AIM BALANCED FUND - CLASS A
7 AIM LIMITED MATURITY TREASURY FUND - CL
8 AIM TAX-FREE INTERMEDIATE SHARES
10 AIM CHARTER FUND - CLASS A
16 AIM INTERNATIONAL EQUITY FUND - CLASS A
17 AIM HIGH INCOME MUNICIPAL FUND - CLASS
30 AIM EUROPEAN DEVELOPMENT FUND - CLASS A
31 AIM ASIAN GROWTH FUND - CLASS A
34 AIM SMALL CAP OPPORTUNITIES FUND - CLASS
81 AIM GLOBAL AGGRESSIVE GROWTH FUND - CLASS
82 AIM GLOBAL GROWTH FUND - CLASS A
83 AIM GLOBAL INCOME FUND - CLASS A
301 AIM WEINGARTEN FUND - CLASS C
302 AIM CONSTELLATION FUND - CLASS C
303 AIM MUNICIPAL BOND FUND - CLASS C
305 AIM VALUE FUND - CLASS C
306 AIM BALANCED FUND - CLASS C
308 AIM GLOBAL UTILITIES FUND - CLASS C
310 AIM CHARTER FUND - CLASS C
314 AIM CAPITAL DEVELOPMENT FUND - CLASS C
315 AIM BLUE CHIP FUND - CLASS C
316 AIM INTERNATIONAL EQUITY FUND - CLASS C
317 AIM HIGH INCOME MUNICIPAL FUND - CLASS
320 AIM ADVISOR LARGE CAP VALUE FUND - CLASS
321 AIM ADVISOR INCOME FUND - CLASS C
322 AIM ADVISOR FLEX FUND - CLASS C
323 AIM ADVISOR CASH MANAGEMENT FUND - CLASS
324 AIM ADVISOR MULTIFLEX FUND - CLASS C
325 AIM ADVISOR REAL ESTATE FUND - CLASS C
326 AIM ADVISOR INTERNATIONAL VALUE FUND -
330 AIM EUROPEAN DEVELOPMENT FUND - CLASS C
331 AIM ASIAN GROWTH FUND - CLASS C
350 AIM SELECT GROWTH FUND - CLASS C
360 AIM INTERMEDIATE GOVERNMENT FUND - CLASS
365 AIM INCOME FUND - CLASS C
375 AIM HIGH YIELD FUND - CLASS C
380 AIM MONEY MARKET FUND - CLASS C
381 AIM GLOBAL AGGRESSIVE GROWTH FUND - CLASS
382 AIM GLOBAL GROWTH FUND - CLASS C
383 AIM GLOBAL INCOME FUND - CLASS C
384 AIM NEW DIMENSION FUND - CLASS C
401 AIM MONEY MARKET FUND - CLASS A
402 AIM INCOME FUND - CLASS A
403 AIM MUNICIPAL BOND FUND - CLASS A
404 AIM INTERMEDIATE GOVERNMENT FUND - CLASS
405 AIM VALUE FUND - CLASS A
</TABLE>
Page 1
<PAGE> 6
EXHIBIT 1
List of Funds
<TABLE>
<S> <C>
406 AIM SELECT GROWTH FUND - CLASS A
407 AIM AGGRESSIVE GROWTH FUND - CLASS A
408 AIM GLOBAL UTILITIES FUND - CLASS A
421 AIM CASH RESERVE SHARES
422 AIM TAX-EXEMPT CASH FUND
425 AIM HIGH YIELD FUND - CLASS A
430 CG GUARANTEED ACCT 71-73
431 CG GUARANTEED ACCT 74-77
432 CG GUARANTEED ACCT 1978
433 CG GUARANTEED ACCT 1979
434 CG GUARANTEED ACCT 1980
435 CG GUARANTEED ACCT 1981
436 CG GUARANTEED ACCT 1982
437 CG GUARANTEED ACCT 1983
438 CG GUARANTEED ACCT 1984
439 CG GUARANTEED ACCT 1985
440 CG GUARANTEED ACCT 1985A
441 CG GUARANTEED ACCT 1985B
442 CG GUARANTEED ACCT 1986
443 CG GUARANTEED ACCT 1986A
444 CG GUARANTEED ACCT 1987
445 CG GUARANTEED ACCT 1988
446 CG GUARANTEED ACCT 1989
447 CG GUARANTEED ACCT 1990
448 CG GUARANTEED ACCT 1991
449 CG GUARANTEED ACCT 1992
460 AIM TAX-EXEMPT BOND FUND OF CONNECTICUT
514 AIM CAPITAL DEVELOPMENT FUND - CLASS A
515 AIM BLUE CHIP FUND - CLASS A
520 AIM ADVISOR LARGE CAP VALUE FUND - CLASS
521 AIM ADVISOR INCOME FUND - CLASS A
522 AIM ADVISOR FLEX FUND - CLASS A
523 AIM ADVISOR CASH MANAGEMENT FUND - CLASS
524 AIM ADVISOR MULTIFLEX FUND - CLASS A
525 AIM ADVISOR REAL ESTATE FUND - CLASS A
526 AIM ADVISOR INTERNATIONAL VALUE FUND -
541 AIM DOLLAR FUND CLASS A
542 AIM NEW PACIFIC GROWTH FUND CLASS A
543 AIM EUROPE GROWTH FUND CLASS A
544 AIM JAPAN GROWTH FUND CLASS A
546 AIM MID CAP GROWTH FUND CLASS A
547 AIM WORLDWIDE GROWTH FUND CLASS A
548 AIM STRATEGIC INCOME FUND CLASS A
549 AIM GLOBAL GOVERNMENT INCOME FUND CLASS
551 AIM GLOBAL HEALTH CARE FUND CLASS A
553 AIM LATIN AMERICAN GROWTH FUND CLASS A
556 AIM EMERGING MARKETS FUND CLASS A
557 AIM FINANCIAL SERVICES FUND CLASS A
558 AIM GLOBAL HIGH INCOME - CLASS A
</TABLE>
Page 2
<PAGE> 7
EXHIBIT 1
List of Funds
<TABLE>
<S> <C>
559 AIM GLOBAL INFRASTRUCTURE - CLASS A
561 AIM GLOBAL RESOURCES - CLASS A
562 AIM GLOBAL CONSUMER PRODUCTS & SERVICES
563 AIM AMERICA VALUE FUND - CLASS A
564 AIM SMALL CAP EQUITY FUND - CLASS A
576 AIM DEVELOPING MARKETS FUND - CLASS A
577 AIM INTERNATIONAL GROWTH FUND - CLASS A
578 AIM GLOBAL GROWTH AND INCOME FUND - CLASS
579 AIM GLOBAL TELECOMMUNICATIONS FUND - CLASS
584 AIM NEW DEVELOPING MARKETS FUND - CLASS
602 AIM CONSTELLATION FUND - CLASS B
614 AIM CAPITAL DEVELOPMENT FUND - CLASS B
615 AIM BLUE CHIP FUND - CLASS B
617 AIM HIGH INCOME MUNICIPAL FUND - CLASS
620 AIM ADVISOR LARGE CAP VALUE FUND - CLASS
622 AIM ADVISOR FLEX FUND - CLASS B
624 AIM ADVISOR MULTIFLEX FUND - CLASS B
625 AIM ADVISOR REAL ESTATE FUND - CLASS B
626 AIM ADVISOR INTERNATIONAL VALUE FUND - CLASS
630 AIM EUROPEAN DEVELOPMENT FUND - CLASS B
631 AIM ASIAN GROWTH FUND - CLASS B
634 AIM SMALL CAP OPPORTUNITIES - CLASS B
640 AIM WEINGARTEN FUND - CLASS B
641 AIM DOLLAR FUND CLASS B
642 AIM NEW PACIFIC GROWTH FUND CLASS B
643 AIM EUROPE GROWTH FUND CLASS B
644 AIM JAPAN GROWTH FUND CLASS B
645 AIM CHARTER FUND - CLASS B
646 AIM MID CAP GROWTH FUND CLASS B
647 AIM WORLDWIDE GROWTH FUND CLASS B
648 AIM STRATEGIC INCOME FUND CLASS B
649 AIM GLOBAL GOVERNMENT INCOME FUND CLASS
650 AIM SELECT GROWTH FUND - CLASS B
651 AIM GLOBAL HEALTH CARE FUND CLASS B
653 AIM LATIN AMERICAN GROWTH FUND CLASS B
655 AIM GLOBAL UTILITIES FUND - CLASS B
656 AIM EMERGING MARKETS FUND CLASS B
657 AIM GLOBAL FINANCIAL SERVICES FUND CLASS
658 AIM GLOBAL HIGH INCOME FUND CLASS B
659 AIM GLOBAL INFRASTRUCTURE FUND CLASS B
660 AIM INTERMEDIATE GOVERNMENT FUND - CLASS
661 AIM GLOBAL RESOURCES FUND CLASS B
662 AIM GLOBAL CONSUMER PRODUCTS AND SERVICE
663 AIM AMERICA VALUE FUND CLASS B
664 AIM SMALL CAP EQUITY FUND CLASS B
665 AIM INCOME FUND - CLASS B
670 AIM MUNICIPAL BOND FUND - CLASS B
675 AIM HIGH YIELD FUND - CLASS B
676 AIM DEVELOPING MARKETS FUND CLASS B
</TABLE>
Page 3
<PAGE> 8
EXHIBIT I
List of Funds
<TABLE>
<S> <C>
677 AIM INTERNATIONAL GROWTH FUND CLASS B
678 AIM GLOBAL GROWTH AND INCOME FUND CLASS
679 AIM GLOBAL TELECOMMUNICATIONS FUND CLASS
680 AIM MONEY MARKET FUND - CLASS B
684 AIM NEW DIMENSION FUND CLASS B
685 AIM BALANCED FUND - CLASS B
690 AIM VALUE FUND - CLASS B
691 AIM GLOBAL AGGRESSIVE GROWTH FUND - CLASS
692 AIM GLOBAL GROWTH FUND - CLASS B
693 AIM GLOBAL INCOME FUND - CLASS B
694 AIM INTERNATIONAL EQUITY FUND. - CLASS B
695 AIM FLOATING RATE FUND
800 SHORT-TERM INVESTMENTS TRUST - TREASURY
841 AIM DOLLAR FUND ADVISOR CLASS
842 AIM NEW PACIFIC GROWTH ADVISOR CLASS
843 AIM EUROPE GROWTH ADVISOR CLASS
844 AIM JAPAN GROWTH ADVISOR CLASS
846 AIM MID CAP GROWTH ADVISOR CLASS
847 AIM WORLDWIDE GROWTH ADVISOR CLASS
848 AIM STRATEGIC INCOME ADVISOR CLASS
849 AIM GLOBAL GOVT INCOME ADVISOR CLASS
851 AIM GLOBAL HEALTH CARE ADVISOR CLASS
853 AIM LATIN AMERICAN GROWTH ADVISOR CLASS
856 AIM EMERGING MARKETS ADVISOR CLASS
857 AIM GLOBAL FINANCIAL SERVICES ADVISOR CLASS
858 AIM GLOBAL HIGH INCOME ADVISOR CLASS
859 AIM GLOBAL INFRASTRUCTURE ADVISOR CLASS
861 AIM GLOBAL RESOURCES ADVISOR CLASS
862 AIM GLOBAL CONSUMER PRODUCTS & SERVICES
863 AIM AMERICAN VALUE FUND ADVISOR CLASS
864 AIM SMALL CAP EQUITY ADVISOR CLASS
876 AIM DEVELOPING MARKETS ADVISOR CLASS
877 AIM INTERNATIONAL GROWTH ADVISOR CLASS
878 AIM GLOBAL GROWTH & INCOME ADVISOR CLASS
879 AIM GLOBAL TELECOMMUNICATIONS ADVISOR CLASS
884 AIM NEW DIMENSION ADVISOR CLASS
</TABLE>
Page 4
<PAGE> 9
EXHIBIT 1.1a OF SCHEDULE G
SPECIFICATIONS
TABLE OF CONTENTS
III. HIGH LEVEL OVERVIEW OF IMPRESS PLUS FUNCTIONALITY
E. Computer Output to Laser Disc (COLD)
This item is the property of First Data Investor Services Group (First Data) of
Boston, Massachusetts, and contains confidential and trade secret information.
This Item may not be transferred from the custody or control of First Data
except as authorized by, and then only by way of loan for limited purposes. It
must be returned to First Data upon request and, in all events, upon completion
of the purpose of the loan. Neither this item nor the information it contains
may be used or disclosed to persons not having a need for such use or disclosure
consistent with the purpose of the loan, without the prior written consent of
First Data.
Copyright First Data Investor Services Group
1994,1995,1996,1997
ALL RIGHTS RESERVED
This media contains unpublished, confidential, and proprietary information of
First Data Investor Services Group. No disclosure or use of any portion of these
materials may be made without the express written consent of First Data Investor
Services Group.
<PAGE> 10
COMPUTER OUTPUT TO LASER DISC (COLD)
IMPRESS PLUS COMPUTER OUTPUT TO LASER DISC (COLD)
The IMPRESS Plus COLD module is a client/server based, graphical user interface
(GUI) system designed to provide an intelligent real-time application to enable
clients to improve the quality of the service provided to both shareholders and
broker dealers. This system provides functionality in the following areas:
STATEMENTS AND TAX FORMS
IMPRESS Plus COLD provides the client with on-line access to shareholder and
broker statements and tax forms. The print mail output stream is stored on
optical platters for retrieval and printing later. The forms and statements can
be searched for on-line through a common browse window integrated with the
IMPRESS Plus Imaging application. Daily output journals can also be migrated to
on-line access eliminating microfiche.
TECHNICAL OVERVIEW
IMPRESS Plus Cold is a high-speed, electronic document storage and retrieval
system which utilizes the high-density, low-cost storage capabilities of optical
and RAID disks. IMPRESS Plus COLD operates in a true client-server environment
and has the capability to simultaneously store multiple document types in a
single system. Among these document types are traditional Line Data; AFP;
Metacode; DJDE; Scanned Images, etc. Each of these data types can be stored on a
single system and are all viewed with a common viewer.
IMPRESS Plus utilizes third-party Metacode composition software from Gentext,
Inc. and third-party viewing software from CDP for local viewing and Adobe
Intranet/Internet viewing.
<PAGE> 11
EXHIBIT 2.3 OF SCHEDULE C
IMPRESS PLUS COLD
EQUIPMENT LIST AND NETWORK CONFIGURATION
<TABLE>
<CAPTION>
QUANTITY CATEGORY DESCRIPTION
=================================================================================
<S> <C> <C>
1 JUKEBOX Phillips 12Gb Tower Drive w/onsite installation
- ---------------------------------------------------------------------------------
2 JUKEBOX Phillips 6000 series media (10 to a box)
- ---------------------------------------------------------------------------------
1 JUKEBOX Cygnet 1802-2 with Philips Drives and SCSI Robotics
- ---------------------------------------------------------------------------------
1 JUKEBOX COLD Feet
- ---------------------------------------------------------------------------------
1 SUN CPU SUN Ultra 3000 base, CD-ROM, Solaris license, Cooling
package, (2) 25OMHZ Cpu's 4mb Cache, (1) CPU/Memory
Board/SharedApp
- ---------------------------------------------------------------------------------
2 SUN CPU SUN Sbus I/0 Board
- ---------------------------------------------------------------------------------
2 SUN CPU SUN 256Mb RAM Kit
- ---------------------------------------------------------------------------------
2 SUN CPU SUN 7200 RPM 9.1Gb Internal Hard Drive
- ---------------------------------------------------------------------------------
2 SUN CPU Enterprise Power/Cooling Module 300W
- ---------------------------------------------------------------------------------
1 SUN CPU Second Peripheral Power Supply
- ---------------------------------------------------------------------------------
2 SUN CPU X1052A Fast Differential/Buffered E-Net Card (SCSI
Controller)
- ---------------------------------------------------------------------------------
2 SUN CPU X1062A fast Wide Differential Sbus Card (SCSI Controller)
- ---------------------------------------------------------------------------------
1 SUN CPU SUN 17" Color Monitor and TGX Card
- ---------------------------------------------------------------------------------
1 SUN CPU SUN DLT7000 35-7OGb External Tape Drive w/50-68 pin
cable
- ---------------------------------------------------------------------------------
1 IBM Netfiniity Rack Cabinet with Power Supply
- ---------------------------------------------------------------------------------
1 DISK SUB Data General Clarion 2900D Raid Array w/2 SPs, and 3 PS's
(20) Drive Chassis
- ---------------------------------------------------------------------------------
1 DISK SUB DG Clarion 64mb mirrored cache upgrade
- ---------------------------------------------------------------------------------
2 DISK SUB Solaris Interface Kit
- ---------------------------------------------------------------------------------
5 DISK SUB Data General 7200 RPM 18Gb Disk Drives
- ---------------------------------------------------------------------------------
1 UPS Exide Electronics Powerware Plus 12 10 Kva UPS for SUN
CPU, DISK SUB and JUKEBOX
- ---------------------------------------------------------------------------------
1 UPS Exide Power Distribution Module for Powerware Plus 12
W/(1) L5.30 and (3) 5-15 receptacles
- ---------------------------------------------------------------------------------
1 NDM NOM TCP-IP 2 Concurrent Sessions SUN
- ---------------------------------------------------------------------------------
3 PREPRO PC Config #1
- ---------------------------------------------------------------------------------
1 SUPPORT PC Config #1/software/modem
- ---------------------------------------------------------------------------------
2 CABLES 25' Differential SCSI Cables (M) HD68 Thumbscrews (M)
- ---------------------------------------------------------------------------------
2 CABLES Active Differential Terminators Min DB-50
=================================================================================
</TABLE>
<PAGE> 1
EXHIBIT (i)(1)
KIRKPATRICK & LOCKHART LLP
1800 MASSACHUSETTS AVENUE, N.W.
WASHINGTON, DC 20036-1800
TELEPHONE: 202/778-9000
ARTHUR J. BROWN
(202) 778-9046
[email protected]
December 30, 1998
AIM Investment Funds
11 Greenway Plaza
Suite 100
Houston, Texas 77046
Ladies and Gentlemen:
We have acted as counsel to AIM Investment Funds, a Delaware business
trust (the "Trust"), in connection with Post-Effective Amendment No. 56 ("PEA")
to the Trust's Registration Statement on Form N-1A (File No. 33-19338) relating
to the issuance and sale of Shares of the Trust. You have requested our opinion
with respect to the matters set forth below.
In this opinion letter, the term "Shares" refers to the Class C shares
of beneficial interest in each series of the Trust listed in Schedule A attached
to this opinion letter (each, a "Portfolio"), that may be issued during the time
that the PEA is effective and has not been superseded by another post-effective
amendment.
In connection with rendering the opinions set forth below, we have
examined copies, believed by us to be genuine, of the Trust's Agreement and
Declaration of Trust dated as of May 7, 1998 (the "Agreement"), and Bylaws, and
any amendments thereto, and such other documents relating to its organization
and operation as we have deemed relevant to our opinions, as set forth herein.
With respect to matters governed by the laws of the State of Delaware (excluding
the securities laws thereof), we have relied solely on the opinion letter of
Potter Anderson & Corroon LLP, special Delaware counsel to the Trust, an
executed copy of which is appended hereto as Exhibit A.
The opinions set forth in this letter are limited to the laws and facts
in existence on the date hereof, and are further limited to the laws (other than
laws relating to choice of law) of the State of Delaware that in our experience
are normally applicable to the issuance of shares of beneficial interest by
business trusts and to the Securities Act of 1933, as amended (the "1933 Act"),
the Investment Company Act of 1940, as amended (the "1940 Act"), and the rules
and regulations of the Securities and Exchange Commission (the "SEC")
thereunder.
<PAGE> 2
AIM Investment Funds
December 30, 1998
Page 2
Based on and subject to the foregoing, and the additional
qualifications and other matters set forth below, it is our opinion that as of
the date hereof the Shares, when sold in accordance with the terms contemplated
by the PEA, including receipt by the Trust of full payment for the Shares and
compliance with the 1933 Act and 1940 Act, will have been validly issued and
will be fully paid and non-assessable.
We are furnishing this opinion letter to you solely in connection with
the issuance of the Shares. You may not rely on this opinion letter in any other
connection, and it may not be furnished to or relied upon by any other person
for any purpose, without specific prior written consent.
The foregoing opinions are rendered as of the date of this letter,
except as otherwise indicated. We assume no obligation to update or supplement
our opinions to reflect any changes of law or fact that may occur.
We hereby consent to this opinion letter accompanying the PEA when it
is filed with the SEC and to the reference to our firm in the statements of
additional information that are being filed as part of such PEA.
Very truly yours,
KIRKPATRICK & LOCKHART LLP
By: /s/ ARTHUR J. BROWN
------------------------------------
Arthur J. Brown
<PAGE> 3
SCHEDULE A
AIM INVESTMENT FUNDS
AIM Developing Markets Fund
AIM Global Growth & Income Fund
AIM Latin American Growth Fund
AIM Global Consumer Products and Services Fund
AIM Global Financial Services Fund
AIM Global Health Care Fund
AIM Global Infrastructure Fund
AIM Global Resources Fund
AIM Global Telecommunications Fund
AIM Global Government Income Fund
AIM Emerging Markets Debt Fund
AIM Strategic Income Fund
<PAGE> 1
EXHIBIT (i) (2)(ii)
December 30, 1998
AIM Investment Funds
11 Greenway Plaza
Suite 100
Houston, Texas 77046
Re: ISSUANCE OF CLASS C SHARES
Ladies and Gentlemen:
We have acted as special Delaware counsel for AIM Investment Funds
("Fund"), a Delaware business trust (the "Trust"), in connection with the
proposed issuance of Class C shares (collectively, the "Shares") in each series
of the Trust referred to in Schedule A attached hereto (each, a "Portfolio").
Initially capitalized terms used herein and not otherwise defined are used
herein as defined in that certain Agreement and Declaration of Trust dated as of
May 7, 1998, entered into among William J. Guilfoyle, C. Derek Anderson, Frank
S. Bayley, Arthur C. Patterson, and Ruth H. Quigley, as Trustees, and the
Shareholders of the Trust (the "Declaration").
For purposes of giving the opinions hereinafter set forth, we have examined
only the following documents and have conducted no independent factual
investigation of our own:
1. The Certificate of Trust for the Trust, dated as of May 7, 1998, as
filed in the Office of the Secretary of State of the State of Delaware (the
"Secretary of State") on May 7, 1998;
2. The Declaration; 3. Schedule A to the Declaration as in effect on the
date hereof; 4. The By-laws of the Trust; 5. Resolutions of the Trustees
approving the issuance of the Shares; and
<PAGE> 2
AIM Investment Funds
December 30, 1998
Page 2
6. A Certificate of Good Standing for the Trust, dated December 30, 1998,
obtained from the Secretary of State. As to certain facts material to the
opinions expressed herein, we have relied upon the representations and
warranties contained in the documents examined by us.
Based upon the foregoing, and upon an examination of such questions of law
of the State of Delaware as we have considered necessary or appropriate, and
subject to the assumptions, qualifications, limitations and exceptions set forth
herein, we are of the opinion that:
1. The Trust has been duly created and is validly existing in good standing
as a business trust under the Delaware Act.
2. Each Portfolio has been duly created and is validly existing as a series
under Section 3804 of the Delaware Act.
3. The Declaration constitutes the legal, valid and binding obligation of
the Trustees, enforceable against the Trustees, in accordance with its terms.
4. Subject to the other qualifications set forth herein, the Shares have
been duly authorized and when the Shares shall have been issued in accordance
with the Declaration, the Resolutions, and the By-laws, such Shares will be
validly issued, fully paid, and non-assessable undivided beneficial interests in
the assets of the Portfolios of which they form a part, as the case may be.
5. When and if the actions referred to in paragraph 4 have occurred, the
holders of the Shares as beneficial owners of the Shares will be entitled to the
same limitation of personal liability extended to stockholders of private
corporations for profit organized under the General Corporation Law of the State
of Delaware. In addition to the assumptions and qualifications set forth above,
all of the foregoing opinions contained herein are subject to the following
assumptions, qualifications, limitations and exceptions:
a. The foregoing opinions are limited to the laws of the State of
Delaware presently in effect, excluding the securities laws thereof. We
have not considered and express no opinion on the laws of any other
jurisdiction, including, without limitation, federal laws and rules and
regulations relating thereto.
b. We have assumed that the issuance of Shares does not contravene
(i) any contractual restriction binding on the Trust or the Portfolios thereof,
or (ii) any law, rule or regulation applicable to the Trust or such Portfolio,
as the case may be (exclusive of any
<PAGE> 3
AIM Investment Funds
December 30, 1998
Page 3
Delaware law, rule or regulation). In addition, we have assumed the legal
capacity of any natural persons who are parties to any of the documents examined
by us.
c. The foregoing opinion regarding the enforceability of the
Declaration is subject to (i) applicable bankruptcy, insolvency, moratorium,
fraudulent conveyance, fraudulent transfer and similar laws relating to or
affecting creditors rights generally including, without limitation, the Delaware
Uniform Fraudulent Conveyance Act, the provisions of the United States
Bankruptcy Code and the Delaware insolvency statutes, (ii) principles of equity
including, without limitation, concepts of materiality, good faith, fair
dealing, conscionability and reasonableness (regardless of whether such
enforceability is considered in a proceeding in equity or at law), (iii)
applicable law relating to fiduciary duties, and (iv) public policy limitations
with respect to exculpation, contribution and indemnity provisions.
d. We have assumed that all signatures on documents examined by us
are genuine, that all documents submitted to us as originals are authentic and
that all documents submitted to us as copies conform with the originals.
e. We have assumed that the Declaration, the By-laws, and the
Resolutions, collectively, constitute the entire agreement with respect to the
subject matter thereof, including (i) the terms applicable to the Shares, and
(ii) the power and authority of the Trustees.
f. We have assumed that no event set forth in Section 9.3(a) of the
Declaration has occurred with respect to the Trust or any Portfolio.
g. Notwithstanding any provision in the Declaration to the contrary,
we note that upon the occurrence of an event set forth in Section 9.3(a)
thereof, with respect to the Trust or a Portfolio, as the case may be, the Trust
or such Portfolio, as applicable, cannot make any payments or distributions to
the Shareholders thereof until their respective creditors' claims are either
paid in full or reasonable provision for payment thereof has been made.
h. With respect to the enforceability of any provision of the
Declaration wherein the parties provide for the appointment of a liquidator, we
note that upon the application of any beneficial owner, the Delaware Court of
Chancery has the power, upon cause shown, to wind up the affairs of a Delaware
business trust or series thereof and in connection therewith to appoint a
liquidating trustee other than the one agreed to by the beneficial owners
thereof.
i. We have assumed that none of the By-laws or the Resolutions has
been amended, modified, or revoked in any manner from the date of its adoption,
and that each of the By-laws and the Resolutions remains in full force and
effect on the date hereof.
<PAGE> 4
AIM Investment Funds
December 30, 1998
Page 4
j. We have assumed that the Trust maintains separate and distinct
records for each Portfolio and that the Trust and the Trustees hold and account
for the assets belonging to each such Portfolio separately from the other assets
of any other Portfolio and the assets of the Trust generally, if any.
k. We note that we do not assume responsibility for the contents of
any registration statement pursuant to which the shares have been, are, or may
be sold.
This opinion is rendered solely for your benefit in connection with the
matters set forth herein and, without our prior written consent, may not be
furnished (except that it may be filed as part of the Fund's Registration
Statement on Form N-1A and may be otherwise furnished to any federal, state or
local regulatory agencies or regulators having appropriate jurisdiction and
entitled to such disclosure) or quoted to, or relied upon by, any other person
or entity for any purpose. Kirkpatrick & Lockhart LLP may rely on this opinion
with respect to the matters set forth herein in connection with its opinion
being delivered on even date herewith.
Very truly yours,
/s/ POTTER ANDERSON & CORROON LLP
---------------------------------
<PAGE> 5
AIM Investment Funds
December 30, 1998
Page 5
SCHEDULE A
AIM Investment Funds
AIM Developing Markets Fund
AIM Global Growth & Income Fund
AIM Latin American Growth Fund
AIM Global Consumer Products and Services Fund
AIM Global Financial Services Fund
AIM Global Health Care Fund
AIM Global Infrastructure Fund
AIM Global Resources Fund
AIM Global Telecommunications Fund
AIM Global Government Income Fund
AIM Emerging Markets Debt Fund
AIM Strategic Income Fund
<PAGE> 1
EXHIBIT m(1)(i)
DISTRIBUTION PLAN
OF
AIM INVESTMENT FUNDS
(CLASS A SHARES)
SECTION 1. AIM Investment Funds, a Delaware business trust (the
"Fund"), on behalf of the series of shares of beneficial interest set forth in
Schedule A to this plan (the "Portfolios"), may act as a distributor of the
Class A Shares of such Portfolios as described in Schedule A to this plan (the
"Shares") of which the Fund is the issuer, pursuant to Rule 12b-1 under the
Investment Company Act of 1940 (the "1940 Act"), according to the terms of this
Distribution Plan (the "Plan").
SECTION 2. The Fund may incur as a distributor of the Shares, expenses
at the rates set forth in Schedule A per annum of the average daily net assets
of the Fund attributable to the Shares, subject to any applicable limitations
imposed from time to time by applicable rules of the NASD Regulation, Inc.
SECTION 3. Amounts set forth in Schedule A may be expended when and if
authorized in advance by the Fund's Board of Trustees. Such amounts may be used
to finance any activity which is primarily intended to result in the sale of
the Shares, including, but not limited to, expenses of organizing and
conducting sales seminars, advertising programs, finders fees, printing
prospectuses and statements of additional information (and supplements thereto)
and reports for other than existing shareholders, preparation and distribution
of advertising material and sales literature, supplemental payments to dealers
and other institutions as asset-based sales charges. Amounts set forth on
Schedule A may also be used to finance payments of service fees under a
shareholder service arrangement to be established by A I M Distributors, Inc.
("Distributors") as the Fund's distributor in accordance with Section 4, and
the costs of administering the Plan. To the extent that amounts paid hereunder
are not used specifically to reimburse Distributors for any such expense, such
amounts may be treated as compensation for distribution-related services of
Distributors or the Fund's former distributor, GT Global, Inc. All amounts
expended pursuant to the Plan shall be paid to Distributors and are the legal
obligation of the Fund and not of Distributors. That portion of the amounts
paid under the Plan that is not paid or advanced by Distributors to dealers or
other institutions that provide personal continuing shareholder service as a
service fee pursuant to Section 4 shall be deemed an asset-based sales charge.
No provision of this Plan shall be interpreted to prohibit any payments by the
Fund during periods when the Fund has suspended or otherwise limited sales.
<PAGE> 2
SECTION 4.
(a) Amounts expended by the Fund under the Plan shall be used in part for
the implementation by Distributors of shareholder service
arrangements. The maximum service fee paid to any service provider
shall be twenty-five one-hundredths of one percent (0.25%), or such
lower rate for the Portfolio and Class as is specified on Schedule A,
per annum of the average daily net assets of the Fund attributable to
the Shares owned by the customers of such service provider.
(b) Pursuant to this program, Distributors may enter into agreements
substantially in the form attached hereto as Exhibit A ("Service
Agreements") with such broker-dealers ("Dealers") as may be selected
from time to time by Distributors for the provision of
distribution-related, personal shareholder services in connection with
the sale of Shares to the Dealers' clients and customers ("Customers")
who may from time to time directly or beneficially own Shares. The
distribution-related personal continuing shareholder services to be
rendered by Dealers under the Service Agreements may include, but
shall not be limited to, the following: (i) distributing sales
literature; (ii) answering routine Customer inquiries concerning the
Fund and the Shares; (iii) assisting Customers in changing dividend
options, account designations and addresses, and in enrolling into any
of several retirement plans offered in connection with the purchase of
the Shares; (iv) assisting in the establishment and maintenance of
customer accounts and records, and in the processing of purchase and
redemption transactions; (v) investing dividends and capital gains
distributions automatically in Shares; and (vi) providing such other
information and services as the Fund or the Customer may reasonably
request.
(c) Distributors may also enter into Bank Shareholder Service Agreements
substantially in the form attached hereto as Exhibit B ("Bank
Agreements") with selected banks acting in an agency capacity for
their customers ("Banks"). Banks acting in such capacity will provide
some or all of the shareholder services to their customers as set
forth in the Bank Agreements from time to time.
(d) Distributors may also enter into Agency Pricing Agreements
substantially in the form attached hereto as Exhibit C ("Pricing
Agreements") with selected retirement plan service providers acting in
an agency capacity for their customers ("Retirement Plan Providers").
Retirement Plan Providers acting in such a capacity will provide some
or all of the shareholders services to their customers as set forth in
the Pricing Agreements from time to time.
(e) Distributors may also enter into Shareholder Service Agreements
substantially in the form attached hereto as Exhibit D ("Bank Trust
<PAGE> 3
Department Agreements and Brokers for Bank Trust Department
Agreements") with selected bank trust departments and brokers for bank
trust departments. Such bank trust departments and brokers for bank
trust departments will provide some or all of the shareholder services
to their customers as set forth in the Bank Trust Department
Agreements and Brokers for Bank Trust Department Agreements.
SECTION 5. Any amendment to this Plan that requires the approval of the
shareholders of a Class pursuant to Rule 12b-1 under the 1940 Act shall become
effective as to such Class upon approval of such amendment by a "majority of the
outstanding voting securities" (as defined in the 1940 Act) of such Class,
provided that the Board of Trustees of the Fund has approved such amendment in
accordance with the provisions of Section 6 of this Plan.
SECTION 6. This Plan, any amendment to this Plan and any agreements
related to this Plan shall become effective with respect to any Class of any
Portfolio immediately upon receipt by the Fund of both (a) the affirmative vote
of a majority of the Board of Trustees of the Fund, and (b) the affirmative
vote of a majority of those Trustees of the Fund who are not "interested
persons" of the Fund (as defined in the 1940 Act) and have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the "Disinterested Trustees"), cast in person at a meeting
called for the purpose of voting on this Plan or such agreements.
Notwithstanding the foregoing, no such amendment that requires the approval of
the shareholders of a Class of a Portfolio shall become effective as to such
Class until such amendment has been approved by the shareholders of such Class
in accordance with the provisions of Section 5 of this Plan.
SECTION 7. Unless sooner terminated pursuant to Section 9, this Plan
shall continue in effect until May 29, 1999 and thereafter shall continue in
effect so long as such continuance is specifically approved, at least annually,
in the manner provided for approval of this Plan in Section 6.
SECTION 8. Distributors shall provide to the Fund's Board of Trustees
and the Board of Trustees shall review, at least quarterly, a written report of
the amounts so expended and the purposes for which such expenditures were made.
SECTION 9. This Plan may be terminated with respect to the shares of
any Class of any Portfolio at any time by vote of a majority of the
Disinterested Trustees, or by a vote of a majority of the outstanding voting
securities of such Class of such Portfolio. Upon termination of this Plan with
respect to any or all such Classes, the obligation of the Fund to make payments
pursuant to this Plan with respect to such Classes shall terminate, and the
Fund shall not be required to make payments hereunder beyond such termination
date with respect to expenses incurred in connection with shares of such
Classes sold prior to such termination date.
<PAGE> 4
SECTION 10. Any agreement related to this Plan shall be made in
writing, and shall provide:
(a) that such agreement may be terminated with respect to the shares
of any Class of any Portfolio at any time, without payment of any
penalty, by vote of a majority of the Disinterested Trustees or
by a vote of the outstanding voting securities of such Class of
such Portfolio, on not more than sixty (60) days' written notice
to any other party to the agreement; and
(b) that such agreement shall terminate automatically in the event of
its assignment.
SECTION 11. This Plan may not be amended with respect to the shares of
any Class of any Portfolio to increase materially the amount of distribution
expenses provided for in Section 2 hereof unless such amendment is approved by
such Class in the manner provided in Section 5 hereof, and no material
amendment to the Plan with respect to the shares of any Class of any Portfolio
shall be made unless approved in the manner provided for in Section 6 hereof.
AIM INVESTMENT FUNDS
(on behalf of its Class A Shares)
ATTEST: /s/ SAMUEL D. SIRKO By: /s/ ROBERT H. GRAHAM
--------------------------- ---------------------------------
Samuel D. Sirko Robert H. Graham
Assistant Secretary President
Effective as of September 8, 1998.
<PAGE> 5
SCHEDULE A
TO
DISTRIBUTION PLAN
OF
AIM INVESTMENT FUNDS
The Fund shall pay the Distributor as full compensation for all
services rendered and all facilities furnished under the Distribution Plan for
each Portfolio (or Class thereof) designated below, a Distribution Fee*
determined by applying the annual rate set forth below as to each Portfolio (or
Class thereof) to the average daily net assets of the Portfolio (or Class
thereof) for the plan year, computed in a manner used for the determination of
the offering price of shares of the Portfolio.
<TABLE>
<CAPTION>
PORTFOLIO (CLASS A SHARES) MAXIMUM MAXIMUM MAXIMUM
- -------------------------- ------- ------- -------
ASSET-BASED SERVICE FEE AGGREGATE FEE
----------- ----------- -------------
SALES CHARGE
------------
<S> <C> <C> <C>
AIM Global Consumer Products and Services Fund 0.25% 0.25% 0.50%
AIM Global Financial Services Fund 0.25% 0.25% 0.50%
AIM Global Health Care Fund 0.25% 0.25% 0.50%
AIM Global Infrastructure Fund 0.25% 0.25% 0.50%
AIM Global Resources Fund 0.25% 0.25% 0.50%
AIM Global Telecommunications Fund 0.25% 0.25% 0.50%
AIM Emerging Markets Fund 0.25% 0.25% 0.50%
AIM Latin American Growth Fund 0.25% 0.25% 0.50%
AIM Global Growth & Income Fund 0.10% 0.25% 0.35%
AIM Global Government Income Fund 0.10% 0.25% 0.35%
AIM Emerging Markets Debt Fund 0.10% 0.25% 0.35%
AIM Strategic Income Fund 0.10% 0.25% 0.35%
AIM Developing Markets Fund 0.25% 0.25% 0.50%
</TABLE>
The Distributor will waive part or all of its Distribution Fee as to a
Portfolio (or Class thereof) to the extent that the ordinary business expenses
of the Portfolio exceed the expense limitation as to the Portfolio (if any) as
contained in the Investment Advisory Agreement between the Company and A I M
Advisors, Inc.
THIS PLAN REFERS TO EXHIBITS A-D, WHICH RELATE TO AGREEMENTS THAT THE
DISTRIBUTOR MAY ENTER INTO WITH THIRD PARTIES. FORMS OF THESE AGREEMENTS HAVE
NOT BEEN INCLUDED WITH THIS PLAN.
- -----------------------
* The Distribution Fee is payable apart from the sales charge, if any, as
stated in the current prospectus for the applicable Portfolio (or Class
thereof).
<PAGE> 1
EXHIBIT m(1)(ii)
MASTER DISTRIBUTION PLAN
OF
AIM INVESTMENT FUNDS
(CLASS A AND CLASS C SHARES)
SECTION 1. AIM Investment Funds (the "Fund") on behalf of the series of
the Shares of beneficial interest set forth in Appendix A attached hereto (the
"Portfolios") may act as a distributor of the Class A shares and Class C shares
of such Portfolios (the "Shares") of which the Fund is the issuer, pursuant to
Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act"), according
to the terms of this Distribution Plan (the "Plan").
SECTION 2. The Fund may incur pursuant to the terms of this Master
Distribution Plan expenses at the rates set forth in Appendix A per annum of the
average daily net assets of the Fund attributable to the Shares, subject to any
applicable limitations imposed from time to time by applicable rules of the
National Association of Securities Dealers, Inc.
SECTION 3. Amounts set forth in Appendix A may be used to finance any
activity which is primarily intended to result in the sale of the Shares,
including, but not limited to, expenses of organizing and conducting sales
seminars, advertising programs, finders fees, printing of prospectuses and
statements of additional information (and supplements thereto) and reports for
other than existing shareholders, preparation and distribution of advertising
material and sales literature, overhead, supplemental payments to dealers and
other institutions as asset-based sales charges. Amounts set forth in Appendix A
may also be used to finance payments of service fees under a shareholder service
arrangement to be established by A I M Distributors, Inc. ("Distributors") as
the Fund's distributor in accordance with Section 4, and the costs of
administering the Plan. To the extent that amounts paid hereunder are not used
specifically to reimburse Distributors for any such expense, such amounts may be
treated as compensation for Distributors' distribution-related services. All
amounts expended pursuant to the Plan shall be paid to Distributors and are the
legal obligation of the Fund and not of Distributors. That portion of the
amounts paid under the Plan that is not paid or advanced by Distributors to
dealers or other institutions that provide personal continuing shareholder
service as a service fee pursuant to Section 4 shall be deemed an asset-based
sales charge. The distribution agreement with any Distributor shall provide that
the portion of the amounts set forth in Appendix A that is an asset based sales
charge with respect to Class C Shares shall be deemed to be paid for services
rendered by the Distributor or any Dealers in placing the Class C Shares, which
services are fully performed upon the settlement of each sale of a Class C Share
(or share of another portfolio from which the Class C Share derives). No
provision of this Plan shall be interpreted to prohibit any payments by the Fund
during periods when the Fund has suspended or otherwise limited sales.
SECTION 4.
(a) Amounts expended by the Fund under the Plan shall
be used in part for the implementation by Distributors of
shareholder service arrangements with respect to the Shares.
The maximum service fee paid to any service provider shall be
twenty-five one-hundredths of one percent (0.25%) per annum of
the average daily net assets of the Fund attributable to the
Shares owned by the customers of such service provider.
-1-
<PAGE> 2
(b) Pursuant to this program, Distributors may enter
into agreements substantially in the form attached hereto as
Exhibit A ("Service Agreements") with such broker-dealers
("Dealers") as may be selected from time to time by
Distributors for the provision of distribution-related
personal shareholder services in connection with the sale of
Shares to the Dealers' clients and customers ("Customers") who
may from time to time directly or beneficially own Shares. The
distribution-related personal continuing shareholder services
to be rendered by Dealers under the Service Agreements may
include, but shall not be limited to, the following: (I)
distributing sales literature; (ii) answering routine Customer
inquiries concerning the Fund and the Shares; (iii) assisting
Customers in changing dividend options, account designations
and addresses, and in enrolling into any of several retirement
plans offered in connection with the purchase of Shares; (iv)
assisting in the establishment and maintenance of customer
accounts and records, and in the processing of purchase and
redemption transactions; (v) investing dividends and capital
gains distributions automatically in Shares; and (vi)
providing such other information and services as the Fund or
the Customer may reasonably request.
(c) Distributors may also enter into Bank Shareholder
Service Agreements substantially in the form attached hereto
as Exhibit B ("Bank Agreements") with selected banks acting in
an agency capacity for their customers ("Banks"). Banks acting
in such capacity will provide some or all of the shareholder
services to their customers as set forth in the Bank
Agreements from time to time.
(d) Distributors may also enter into Agency Pricing
Agreements substantially in the form attached hereto as
Exhibit C ("Pricing Agreements") with selected retirement plan
service providers acting in an agency capacity for their
customers ("Retirement Plan Providers"). Retirement Plan
Providers acting in such capacity will provide some or all of
the shareholder services to their customers as set forth in
the Pricing Agreements from time to time.
(e) Distributors may also enter into Shareholder
Service Agreements substantially in the form attached hereto
as Exhibit D ("Bank Trust Department Agreements and Brokers
for Bank Trust Department Agreements") with selected bank
trust departments and brokers for bank trust departments. Such
bank trust departments and brokers for bank trust departments
will provide some or all of the shareholder services to their
customers as set forth in the Bank Trust Department Agreements
and Brokers for Bank Trust Department Agreements from time to
time.
SECTION 5. Any amendment to this Plan that requires the approval of the
shareholders of a Class pursuant to Rule 12b-1 under the 1940 Act shall become
effective as to such Class upon the approval of such amendment by a "majority of
the outstanding voting securities" (as defined in the 1940 Act) of such Class,
provided that the Board of Trustees of the Fund has approved such amendment in
accordance with the provisions of Section 6 of this Plan.
SECTION 6. This Plan, any amendment to this Plan and any agreements
related to this Plan shall become effective immediately upon the receipt by the
Fund of both (a) the affirmative vote of a majority of the Board of Trustees of
the Fund, and (b) the affirmative vote of a majority of those trustees of the
Fund who are not "interested persons" of the Fund (as defined in the 1940 Act)
and have no direct or indirect financial interest in the operation of this Plan
or any agreements related to it (the "Dis-interested Trustees"), cast in person
at a meeting called for the purpose of voting on
-2-
<PAGE> 3
this Plan or such agreements. Notwithstanding the foregoing, no such amendment
that requires the approval of the shareholders of a Class of a Fund shall become
effective as to such Class until such amendment has been approved by the
shareholders of such Class in accordance with the provisions of Section 5 of
this Plan.
SECTION 7. Unless sooner terminated pursuant to Section 9, this Plan
shall continue in effect until June 30, 1999 and thereafter shall continue in
effect so long as such continuance is specifically approved, at least annually,
in the manner provided for approval of this Plan in Section 6.
SECTION 8. Distributors shall provide to the Fund's Board of Trustees
and the Board of Trustees shall review, at least quarterly, a written report of
the amounts so expended and the purposes for which such expenditures were made.
SECTION 9. This Plan may be terminated at any time by vote of a
majority of the Disinterested Trustees, or by vote of a majority of the
outstanding voting securities of the Shares . If this Plan is terminated, the
obligation of the Fund to make payments pursuant to this Plan will also cease
and the Fund will not be required to make any payments beyond the termination
date even with respect to expenses incurred prior to the termination date.
SECTION 10. Any agreement related to this Plan shall be made in
writing, and shall provide:
(a) that such agreement may be terminated at any
time, without payment of any penalty, by vote of a majority of
the Dis-interested Trustees or by a vote of the outstanding
voting securities of the Fund attributable to the Shares, on
not more than sixty (60) days' written notice to any other
party to the agreement; and
(b) that such agreement shall terminate automatically
in the event of its assignment.
SECTION 11. This Plan may not be amended to increase materially the
amount of distribution expenses provided for in Section 2 hereof unless such
amendment is approved in the manner provided in Section 5 hereof, and no
material amendment to the Plan shall be made unless approved in the manner
provided for in Section 6 hereof.
AIM INVESTMENT FUNDS
(on behalf of its Class A and
Class C Shares)
Attest: By:
---------------------------- ---------------------------
Assistant Secretary President
Effective as of , 1999
-----------
-3-
<PAGE> 4
APPENDIX A
TO
MASTER DISTRIBUTION PLAN
OF
AIM INVESTMENT FUNDS
(CLASS A AND CLASS C SHARES)
(DISTRIBUTION FEE)
The Fund shall pay the Distributor as full compensation for all
services rendered and all facilities furnished under the Distribution Plan for
each Portfolio as designated below, a Distribution Fee* determined by applying
the annual rate set forth below as to each Portfolio (or Class A or Class C
thereof) to the average daily net assets of the Portfolio (or Class A or Class C
thereof) for the plan year, computed in a manner used for the determination of
the offering price of shares of the Portfolio (or Class A or Class C thereof).
<TABLE>
<CAPTION>
MAXIMUM
ASSET-BASED SERVICE AGGREGATE
FUND SALES CHARGE FEE ANNUAL FEE
---- ------------ --- ----------
<S> <C> <C> <C>
Class A Shares
AIM Global Consumer Products and Services Fund 0.25% 0.25% 0.50%
AIM Global Financial Services Fund 0.25% 0.25% 0.50%
AIM Global Health Care Fund 0.25% 0.25% 0.50%
AIM Global Infrastructure Fund 0.25% 0.25% 0.50%
AIM Global Resources Fund 0.25% 0.25% 0.50%
AIM Global Telecommunications Fund 0.25% 0.25% 0.50%
AIM Emerging Markets Fund 0.25% 0.25% 0.50%
AIM Latin American Growth Fund 0.25% 0.25% 0.50%
AIM Global Growth & Income Fund 0.10% 0.25% 0.35%
AIM Global Government Income Fund 0.10% 0.25% 0.35%
AIM Emerging Markets Debt Fund 0.10% 0.25% 0.35%
AIM Strategic Income Fund 0.10% 0.25% 0.35%
AIM Developing Markets Fund 0.25% 0.25% 0.50%
Class C Shares
AIM Global Consumer Products and Services Fund 0.75% 0.25% 1.00%
AIM Global Financial Services Fund 0.75% 0.25% 1.00%
AIM Global Health Care Fund 0.75% 0.25% 1.00%
AIM Global Infrastructure Fund 0.75% 0.25% 1.00%
AIM Global Resources Fund 0.75% 0.25% 1.00%
AIM Global Telecommunications Fund 0.75% 0.25% 1.00%
AIM Latin American Growth Fund 0.75% 0.25% 1.00%
AIM Global Growth & Income Fund 0.75% 0.25% 1.00%
AIM Global Government Income Fund 0.75% 0.25% 1.00%
AIM Emerging Markets Debt Fund 0.75% 0.25% 1.00%
AIM Strategic Income Fund 0.75% 0.25% 1.00%
AIM Developing Markets Fund 0.75% 0.25% 1.00%
</TABLE>
- ---------------
* The Distribution Fee is payable apart from the sales charge, if
any, as stated in the current prospectus for the applicable
Class and the applicable Portfolio.
-4-
<PAGE> 1
EXHIBIT m(2)
DISTRIBUTION PLAN
OF
AIM INVESTMENT FUNDS
(CLASS B SHARES)
SECTION 1. AIM Investment Funds, a Delaware business trust (the "Fund"), on
behalf of the series of beneficial interest set forth in Schedule A to this plan
(the "Portfolios"), may pay for distribution of the Class B Shares of such
Portfolios (the "Shares") which the Fund issues from time to time, pursuant to
Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act"), according
to the terms of this Distribution Plan (the "Plan").
SECTION 2. The Fund may incur expenses for and pay any institution selected to
act as the Fund's agent for distribution of the Shares of any portfolio from
time to time (each, a "Distributor") at the rates set forth in Schedule A hereto
based on the average daily net assets of each class of Shares subject to any
applicable limitations imposed by the Conduct Rules of the NASD Regulation, Inc.
in effect from time to time (the "Conduct Rules"). All such payments are the
legal obligation of the Fund and not of any Distributor or its designee.
SECTION 3.
(a) Amounts set forth in Section 2 may be used to finance any activity
which is primarily intended to result in the sale of the Shares, including, but
not limited to, expenses of organizing and conducting sales seminars and running
advertising programs, payment of finders fees, printing of prospectuses and
statements of additional information (and supplements thereto) and reports for
other than existing shareholders, preparation and distribution of advertising
material and sales literature, payment of overhead and supplemental payments to
dealers and other institutions as asset-based sales charges. Amounts set forth
in Section 2 may also be used to finance payments of service fees under a
shareholder service arrangement, which may be established by each Distributor in
accordance with Section 4, and the costs of administering the Plan. To the
extent that amounts paid hereunder are not used specifically to reimburse the
Distributor for any such expense, such amounts may be treated as compensation
for the Distributor's distribution-related services. No provision of this Plan
shall be interpreted to prohibit any payments by the Fund during periods when
the Fund has suspended or otherwise limited sales.
(b) Subject to the provisions in Sections 8 and 9 hereof, amounts
payable pursuant to Section 2 in respect of Shares of each Portfolio shall be
paid by the Fund to the Distributor in respect of such Shares or, if more than
one institution has acted or is acting as Distributor in respect of such
Shares, then amounts payable pursuant to Section 2 in respect of such Shares
shall be paid to each such Distributor in proportion to the number of such
Shares sold by or attributable to such Distributor's distribution efforts in
respect of such
<PAGE> 2
Shares in accordance with allocation provisions of each Distributor's
distribution agreement (the "Distributor's 12b-1 Share") notwithstanding that
such Distributor's distribution agreement with the fund may have been
terminated. The Distributor's 12b-1 Share shall include amounts payable pursuant
to Section 2 in respect of Shares sold by or attributable to distribution
efforts of GT Global, Inc. That portion of the amounts paid under the Plan that
is not paid or advanced by the Distributor to dealers or other institutions that
provide personal continuing shareholder service as a service fee pursuant to
Section 4 shall be deemed an asset-based sales charge.
(c) Any Distributor may assign, transfer or pledge ("Transfer") to one
or more designees (each an "Assignee"), its rights to all or a designated
portion of its Distributor's 12b-1 Share from time to time (but not such
Distributor's duties and obligations pursuant hereto or pursuant to any
distribution agreement in effect from time to time, if any, between such
Distributor and the Fund), free and clear of any offsets or claims the Fund may
have against such Distributor. Each such Assignee's ownership interest in a
Transfer of a specific designated portion of a Distributor's 12b-1 Share is
hereafter referred to as an "Assignee's 12b-1 Portion." A Transfer pursuant to
this Section 3(c) shall not reduce or extinguish any claims of the Fund against
the Distributor.
(d) Each Distributor shall promptly notify the Fund in writing of each
such Transfer by providing the Fund with the name and address of each such
Assignee.
(e) A Distributor may direct the Fund to pay an Assignee's 12b-1
Portion directly to such Assignee. In such event, the Distributor shall provide
the Fund with a monthly calculation of the amount of (i) the Distributor's 12b-1
Share, and (ii) each Assignee's 12b-1 Portion, if any, for such month (the
"Monthly Calculation"). In such event, the Fund shall, upon receipt of such
notice and Monthly Calculation from the Distributor, make all payments required
under such distribution agreement directly to the Assignee in accordance with
the information provided in such notice and Monthly Calculation upon the same
terms and conditions as if such payments were to be paid to the Distributor.
(f) Alternatively, in connection with a Transfer, a Distributor may
direct the Fund to pay all of such Distributor's 12b-1 Share from time to time
to a depository or collection agent designated by any assignee, which
depository or collection agent may be delegated the duty of dividing such
Distributor's 12b-1 Share between the Assignee's 12b-1 Portion and the balance
of the Distributor's 12b-1 Share (such balance, when distributed to the
Distributor by the depository or collection agent, the "Distributor's 12b-1
Portion"), in which case only the Distributor's 12b-1 Portion may be subject to
offsets or claims the Fund may have against such Distributor.
<PAGE> 3
SECTION 4.
(a) Amounts expended by the Fund under the Plan shall be used in part
for the implementation by the Distributor of shareholder service arrangements
with respect to the Shares. The maximum service fee payable to any provider of
such shareholder service shall be twenty-five one-hundredths of one percent
(0.25%) per annum of the daily net assets of the Shares attributable to the
customers of such service provider. All such payments are the legal obligation
of the Fund and not of any Distributor or its designee.
(b) Pursuant to this Plan, the Distributor may enter into agreements
substantially in the form attached hereto as Exhibit A ("Service Agreements")
with such broker-dealers ("Dealers") as may be selected from time to time by
the Distributor for the provision of continuing shareholder services in
connection with Shares held by such Dealers' clients and customers ("Customers")
who may from time to time directly or beneficially own Shares. The personal
continuing shareholder services to be rendered by Dealers under the Service
Agreements may include, but shall not be limited to, some or all of the
following: (i) distributing sales literature; (ii) answering routine Customer
inquiries concerning the Fund and the Shares. (iii) assisting Customers in
changing dividend options, account designations and addresses, and in enrolling
in any of several retirement plans offered in connection with the purchase of
Shares; (iv) assisting in the establishment and maintenance of Customer
accounts and records, and in the processing of purchase and redemption
transactions; (v) investing dividends and capital gains distributions
automatically in Shares; (vi) performing sub-accounting; (vii) providing
periodic statements showing a Customer's shareholder account balance and the
integration of such statements with those of other transactions and balances in
the customer's account serviced by such institution; (viii) forwarding
applicable prospectuses, proxy statements, reports and notices to Customers who
hold Shares; and (ix) providing such other information and administrative
services as the Fund or the Customer may reasonably request.
(c) The Distributor may also enter into Bank Shareholder Service
Agreements substantially in the form attached hereto as Exhibit B ("Bank
Agreements") with selected banks and financial institutions acting in an agency
capacity for their customers ("Banks"). Banks acting in such capacity will
provide some or all of the shareholder services to their customers as set forth
in the Bank Agreements from time to time.
(d) The Distributor may also enter into Agency Pricing Agreements
substantially in the form attached hereto as Exhibit C ("Pricing Agreements")
with selected retirement plan service providers acting in an agency capacity
for their customers ("Retirement Plan Providers"). Retirement Plan Providers
acting in such capacity will provide some or all of the shareholder services to
their customers as set forth in the Pricing Agreements from time to time.
<PAGE> 4
(e) The Distributor may also enter into Shareholder Service Agreements
substantially in the form attached hereto as Exhibit D ("Bank Trust Department
Agreements and Brokers for Bank Trust Department Agreements") with selected
bank trust departments and brokers for bank trust departments. Such bank trust
departments and brokers for bank trust departments will provide some or all of
the shareholder services to their customers as set forth in the Bank Trust
Department Agreements and Brokers for Bank Trust Department Agreements from
time to time.
SECTION 5. This Plan shall not take effect with respect to any Shares of any
Portfolio until (i) it has been approved, together with any related agreements,
by votes of the majority of both (a) the Board of Trustees of the Fund, and (b)
those Trustees of the Fund who are not "interested persons" of the Fund (as
defined in the 1940 Act) and have no direct or indirect financial interest in
the operation of this Plan or any agreements related to it (the "Disinterested
Trustees"), cast in person at a meeting called for the purpose of voting on
this Plan or such agreements, and (ii) the execution by the Fund and A I M
Distributors, Inc. of a Master Distribution Agreement in respect of the Shares
of such Portfolio.
SECTION 6. Unless sooner terminated pursuant to Section 8, this Plan shall
continue in effect until May 29, 1999 and thereafter shall continue in effect
so long as such continuance is specifically approved, at least annually, in the
manner provided for approval of this Plan in Section 5.
SECTION 7. Each Distributor shall provide the Fund's Board of Trustees and the
Board of Trustees shall review, at least quarterly, a written report of the
amounts expended for distribution of the Shares and the purposes for which such
expenditures were made.
SECTION 8. This Plan may be terminated with respect to the Shares of any
Portfolio at any time by vote of a majority of the Disinterested Trustees, or
by a vote of a majority of outstanding Shares of such Portfolio. Upon
termination of this Plan with respect to any or all such classes, the
obligation of the Fund to make payments pursuant to this Plan with respect to
such classes shall terminate, and the Fund shall not be required to make
payments hereunder beyond such termination date with respect to expenses
incurred in connection with Shares sold prior to such termination date,
provided, in each case that each of the requirements of a Complete Termination
of the Plan in respect of such class, as defined below, are met. A termination
of this Plan with respect to any or all shares of any or all Portfolios shall
not affect the obligation of the Fund to withhold and pay to any Distributor
contingent deferred sales changes to which such distributor is entitled pursuant
to any distribution agreement. For purposes of this Section 8, a "Complete
Termination" of this Plan in respect of any Portfolio shall mean a termination
of this Plan in respect of such portfolio, provided that: (i) the Disinterested
Trustees of the Fund shall have acted in good faith and shall have determined
that such termination is in the best interest of the Fund and the shareholders
of such Portfolio; (ii) the Fund does not alter the term of the contingent
deferred sales charges applicable to shares outstanding at the time of such
termination; and (iii) unless the applicable Distributor at the time of such
termination was in material breach under the distribution agreement in respect
of such Portfolio, the Fund shall not, in respect
<PAGE> 5
of such Portfolio, pay to any person or entity, other than such Distributor or
its designee, either the asset-based sales charge or the service fee (or any
similar fee) in respect of the Shares sold by such Distributor prior to such
termination.
SECTION 9. Any agreement related to this Plan shall be made in writing, and
shall provide:
(a) that such agreement may be terminated with respect to the Shares of
any or all Portfolios at any time, without payment of any penalty, by vote of a
majority of the Disinterested Trustees or by a vote of the majority of the
outstanding Shares of such Portfolio, on not more than sixty (60) days' written
notice to any other party to the agreement; and
(b) that such agreement shall terminate automatically in the event of
its assignment; provided, however, that, subject to the provisions of Section 8
hereof, if such agreement is terminated for any reason, the obligation of the
Fund to make payments of (i) the Distributor's 12b-1 Share in accordance with
the directions of the Distributor pursuant to Section 3(e) or (f) hereof if
there exist Assignees for all or any portion of such Distributor's 12b-1 Share,
and (ii) the remainder of such Distributor's 12b-1 Shares to such Distributor if
there are no Assignees for such Distributor's Share, pursuant to such agreement
and this Plan will continue with respect to the Shares until such Shares are
redeemed or automatically converted into another class of shares of the Fund.
SECTION 10. This Plan may not be amended with respect to the shares of any
Portfolio to increase materially the amount of distribution expenses provided
for in Section 2 hereof unless such amendment is approved by a vote of at least
a "majority of the outstanding voting securities" (as defined in the 1940 Act)
of the Shares of such Portfolio, and no material amendment to the Plan with
respect to the shares of any Portfolio shall be made unless approved in the
manner provided for in Section 5 hereof.
AIM INVESTMENT FUNDS
(on behalf of its Class B Shares)
Attest: /s/ SAMUEL D. SIRKO By: /s/ ROBERT H. GRAHAM
-------------------------- ----------------------------------
Samuel D. Sirko Robert H. Graham
Assistant Secretary President
Effective as of September 8, 1998.
<PAGE> 6
SCHEDULE A
TO
DISTRIBUTION PLAN
OF
AIM INVESTMENT FUNDS
<TABLE>
<CAPTION>
CLASS B SHARES MAXIMUM MAXIMUM MAXIMUM
- -------------- ASSET-BASED SERVICE FEE AGGREGATE FEE
SALES CHARGE ----------- -------------
------------
<S> <C> <C> <C>
AIM Global Consumer Products and Services Fund 0.75% 0.25% 1.00%
AIM Global Financial Services Fund 0.75% 0.25% 1.00%
AIM Global Health Care Fund 0.75% 0.25% 1.00%
AIM Global Infrastructure Fund 0.75% 0.25% 1.00%
AIM Global Resources Fund 0.75% 0.25% 1.00%
AIM Global Telecommunications Fund 0.75% 0.25% 1.00%
AIM Emerging Markets Fund 0.75% 0.25% 1.00%
AIM Latin American Growth Fund 0.75% 0.25% 1.00%
AIM Global Growth & Income Fund 0.75% 0.25% 1.00%
AIM Global Government Income Fund 0.75% 0.25% 1.00%
AIM Emerging Markets Debt Fund 0.75% 0.25% 1.00%
AIM Strategic Income Fund 0.75% 0.25% 1.00%
ARA Developing Markets Fund 0.75% 0.25% 1.00%
</TABLE>
<PAGE> 1
EXHIBIT m(3)(i)
[LOGO ONLY]
A I M Distributors, Inc.
SHAREHOLDER SERVICE AGREEMENT
FOR SALE OF SHARES
OF THE AIM MUTUAL FUNDS
This Shareholder Service Agreement (the "Agreement") has been adopted pursuant
to Rule 12b-1 under the Investment Company Act of 1940, by each of the
AIM-managed mutual funds (or designated classes of such funds) listed in
Schedule A, which may be amended from time to time by AIM Distributors, Inc.
("Distributors") to this Agreement (the "Funds"), under a Distribution Plan (the
"Plan") adopted pursuant to said Rule. This Agreement, being made between
Distributors, solely as agent for such Funds and the undersigned authorized
dealer, defines the services to be provided by the authorized dealer for which
it is to receive payments pursuant to the Plan adopted by each of the Funds. The
Plan and the Agreement have been approved by a majority of the directors of each
of the Funds, including a majority of the directors who are not interested
persons of such Funds, and who have no direct or indirect financial interest in
the operation of the Plan or related agreements (the "Dis-interested
Directors"), by votes cast in person at a meeting called for the purpose of
voting on the Plan. Such approval included a determination that in the exercise
of their reasonable business judgement and in light of their fiduciary duties,
there is a reasonable likelihood that the Plan will benefit such Fund and its
shareholders.
1. To the extent that you provide distribution-related and continuing
personal shareholder services to customers who may, from time to time,
directly or beneficially own shares of the Funds, including but not
limited to, distributing sales literature, answering routine customer
inquiries regarding the Funds, assisting customers in changing dividend
options, account designations and addresses, and in enrolling into any
of several special investment plans offered in connection with the
purchase of the Funds' shares, assisting in the establishment and
maintenance of customer accounts and records and in the processing of
purchase and redemption transactions, investing dividends and capital
gains distributions automatically in shares and providing such other
services as the Funds or the customer may reasonably request, we,
solely as agent for the Funds, shall pay you a fee periodically or
arrange for such fee to be paid to you.
2. The fee paid with respect to each Fund will be calculated at the end of
each payment period (as indicated in Schedule A) for each business day
of the Fund during such payment period at the annual rate set forth in
Schedule A as applied to the average net asset value of the shares of
such Fund purchased or acquired through exchange on or after the Plan
Calculation Date shown for such Fund on Schedule A. Fees calculated in
this manner shall be paid to you only if your firm is the dealer of
record at the close of business on the last business day of the
applicable payment period, for the account in which such shares are
held (the "Subject Shares"). In cases where Distributors has advanced
payment to you of the first year's fee for shares sold at net asset
value and subject to a contingent deferred sales charge, no additional
payments will be made to you during the first year the Subject Shares
are held.
11/98
<PAGE> 2
3. The total of the fees calculated for all of the Funds listed on
Schedule A for any period with respect to which calculations are made
shall be paid to you within 45 days after the close of such period.
4. We reserve the right to withhold payment with respect to the Subject
Shares purchased by you and redeemed or repurchased by the Fund or by
us as Agent within seven (7) business days after the date of our
confirmation of such purchase. We reserve the right at any time to
impose minimum fee payment requirements before any periodic payments
will be made to you hereunder.
5. This Agreement and Schedule A does not require any broker-dealer to
provide transfer agency and recordkeeping related services as nominee
for its customers.
6. You shall furnish us and the Funds with such information as shall
reasonably be requested either by the directors of the Funds or by us
with respect to the fees paid to you pursuant to this Agreement.
7. We shall furnish the directors of the Funds, for their review on a
quarterly basis, a written report of the amounts expended under the
Plan by us and the purposes for which such expenditures were made.
8. Neither you nor any of your employees or agents are authorized to make
any representation concerning shares of the Funds except those
contained in the then current Prospectus or Statement of Additional
Information for the Funds, and you shall have no authority to act as
agent for the Funds or for Distributors.
9. We may enter into other similar Shareholder Service Agreements with any
other person without your consent.
10. This Agreement may be amended at any time without your consent by
Distributors mailing a copy of an amendment to you at address set forth
below. Such amendment shall become effective on the date specified in
such amendment unless you elect to terminate this Agreement within
thirty (30) days of your receipt of such amendment.
11. This Agreement may be terminated with respect to any Fund at any time
without payment of any penalty by the vote of a majority of the
directors of such Fund who are Disinterested Directors or by a vote of
a majority of the Fund's outstanding shares, on sixty (60) days'
written notice. It will be terminated by any act which terminates
either the Selected Dealer Agreement between your firm and us or the
Fund's Distribution Plan, and in any event, it shall terminate
automatically in the event of its assignment as that term is defined in
the 1940 Act.
12. The provisions of the Distribution Agreement between any Fund and us,
insofar as they relate to the Plan, are incorporated herein by
reference. This Agreement shall become effective upon execution and
delivery hereof and shall continue in full force and effect as long as
the continuance of the Plan and this related Agreement are approved at
least annually by a vote of the directors, including a majority of the
Dis-interested Directors, cast in person at a meeting called for the
purpose of voting thereon. All communications to us should be sent to
the address of Distributors as shown at the bottom of this
11/98
<PAGE> 3
Agreement. Any notice to you shall be duly given if mailed or
telegraphed to you at the address specified by you below.
13. You represent that you provide to your customers who own shares of the
Funds personal services as defined from time to time in applicable
regulations of the National Association of Securities Dealers, Inc.,
and that you will continue to accept payments under this Agreement only
so long as you provide such services.
14. This Agreement shall be construed in accordance with the laws of the
State of Texas.
A I M DISTRIBUTORS, INC.
Date: By:
------------------ -----------------------------------
The undersigned agrees to abide by the foregoing terms and conditions.
Date: By:
------------------ --------------------------------------------
Signature
--------------------------------------------
Print Name Title
--------------------------------------------
Dealer's Name
--------------------------------------------
Address
--------------------------------------------
City State Zip
--------------------------------------------
Telephone
Please sign both copies and return one copy of each to:
A I M Distributors, Inc.
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
11/98
<PAGE> 4
SCHEDULE "A" TO
SHAREHOLDER SERVICE AGREEMENT
<TABLE>
<CAPTION>
Fund Fee Rate* Plan Calculation Date
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
AIM Advisor Flex Fund A Shares 0.25 August 4, 1997
AIM Advisor Flex Fund B Shares 0.25 March 3, 1998
AIM Advisor Flex Fund C Shares 1.00** August 4, 1997
AIM Advisor International Value Fund A Shares 0.25 August 4, 1997
AIM Advisor International Value Fund B Shares 0.25 March 3, 1998
AIM Advisor International Value Fund C Shares 1.00** August 4, 1997
AIM Advisor Large Cap Value Fund A Shares 0.25 August 4, 1997
AIM Advisor Large Cap Value Fund B Shares 0.25 March 3, 1998
AIM Advisor Large Cap Value Fund C Shares 1.00** August 4, 1997
AIM Advisor MultiFlex Fund A Shares 0.25 August 4, 1997
AIM Advisor MultiFlex Fund B Shares 0.25 March 3, 1998
AIM Advisor MultiFlex Fund C Shares 1.00** August 4, 1997
AIM Advisor Real Estate Fund A Shares 0.25 August 4, 1997
AIM Advisor Real Estate Fund B Shares 0.25 March 3, 1998
AIM Advisor Real Estate Fund C Shares 1.00** August 4, 1997
AIM Aggressive Growth Fund A Shares 0.25 July 1, 1992
AIM Asian Growth Fund A Shares 0.25 November 1, 1997
AIM Asian Growth Fund B Shares 0.25 November 1, 1997
AIM Asian Growth Fund C Shares 1.00** November 1, 1997
AIM Balanced Fund A Shares 0.25 October 18, 1993
AIM Balanced Fund B Shares 0.25 October 18, 1993
AIM Balanced Fund C Shares 1.00** August 4, 1997
AIM Blue Chip Fund A Shares 0.25 June 3, 1996
AIM Blue Chip Fund B Shares 0.25 October 1, 1996
AIM Blue Chip Fund C Shares 1.00** August 4, 1997
AIM Capital Development Fund A Shares 0.25 June 17, 1996
AIM Capital Development Fund B Shares 0.25 October 1, 1996
AIM Capital Development Fund C Shares 1.00** August 4, 1997
AIM Charter Fund A Shares 0.25 November 18, 1986
AIM Charter Fund B Shares 0.25 June 15, 1995
AIM Charter Fund C Shares 1.00** August 4, 1997
AIM Constellation Fund A Shares 0.25 September 9, 1986
AIM Constellation Fund B Shares 0.25 November 3, 1997
AIM Constellation Fund C Shares 1.00** August 4, 1997
AIM European Development Fund A Shares 0.25 November 1, 1997
AIM European Development Fund B Shares 0.25 November 1, 1997
AIM European Development Fund C Shares 1.00** November 1, 1997
AIM Global Aggressive Growth Fund A Shares 0.50** September 15, 1994
AIM Global Aggressive Growth Fund B Shares 0.25 September 15, 1994
AIM Global Aggressive Growth Fund C Shares 1.00** August 4, 1997
</TABLE>
11/98
<PAGE> 5
<TABLE>
<S> <C> <C>
AIM Global Growth Fund A Shares 0.50** September 15, 1994
AIM Global Growth Fund B Shares 0.25 September 15, 1994
<CAPTION>
Fund Fee Rate* Plan Calculation Date
- --------------------------------------------------------------------------------------------------
AIM Global Growth Fund C Shares 1.00** August 4, 1997
AIM Global Income Fund A Shares 0.50** September 15, 1994
AIM Global Income Fund B Shares 0.25 September 15, 1994
AIM Global Income Fund C Shares 1.00** August 4, 1997
AIM Global Utilities Fund A Shares 0.25 July 1, 1992
AIM Global Utilities Fund B Shares 0.25 September 1, 1993
AIM Global Utilities Fund C Shares 1.00** August 4, 1997
AIM High Income Municipal Fund A Shares 0.25 December 22, 1997
AIM High Income Municipal Fund B Shares 0.25 December 22, 1997
AIM High Income Municipal Fund C Shares 1.00** December 22, 1997
AIM High Yield Fund A Shares 0.25 July 1, 1992
AIM High Yield Fund B Shares 0.25 September 1, 1993
AIM High Yield Fund C Shares 1.00** August 4, 1997
AIM High Yield Fund II A Shares 0.25 October 1, 1998
AIM High Yield Fund II B Shares 0.25 November 20, 1998
AIM High Yield Fund II C Shares 1.00** November 20, 1998
AIM Income Fund A Shares 0.25 July 1, 1992
AIM Income Fund B Shares 0.25 September 1, 1993
AIM Income Fund C Shares 1.00** August 4, 1997
AIM Intermediate Government Fund A Shares 0.25 July 1, 1992
AIM Intermediate Government Fund B Shares 0.25 September 1, 1993
AIM Intermediate Government Fund C Shares 1.00** August 4, 1997
AIM International Equity Fund A Shares 0.25 May 21, 1992
AIM International Equity Fund B Shares 0.25 September 15, 1994
AIM International Equity Fund C Shares 1.00** August 4, 1997
AIM Limited Maturity Treasury Fund 0.15 December 2, 1987
AIM Money Market Fund A Shares 0.25 October 18, 1993
AIM Money Market Fund B Shares 0.25 October 18, 1993
AIM Money Market Fund C Shares 1.00** August 4, 1997
AIM Money Market Fund Cash Reserve Shares 0.25 October 18, 1993
AIM Municipal Bond Fund A Shares 0.25 July 1, 1992
AIM Municipal Bond Fund B Shares 0.25 September 1, 1993
AIM Municipal Bond Fund C Shares 1.00** August 4, 1997
AIM Select Growth Fund A Shares 0.25 July 1, 1992
AIM Select Growth Fund B Shares 0.25 September 1,1993
AIM Select Growth Fund C Shares 1.00** August 4, 1997
AIM Small Cap Opportunities Fund A Shares 0.25 June 29, 1998
AIM Small Cap Opportunities Fund B Shares 0.25 July 13, 1998
AIM Tax-Exempt Bond Fund of Connecticut A Shares 0.25 July 1, 1992
AIM Tax-Exempt Cash Fund A Shares 0.10 July 1, 1992
AIM Value Fund A Shares 0.25 July 1, 1992
AIM Value Fund B Shares 0.25 October 18, 1993
AIM Value Fund C Shares 1.00** August 4, 1997
</TABLE>
11/98
<PAGE> 6
<TABLE>
<S> <C> <C>
AIM Weingarten Fund A Shares 0.25 September 9, 1986
AIM Weingarten Fund B Shares 0.25 June 15, 1995
AIM Weingarten Fund C Shares 1.00** August 4, 1997
</TABLE>
*Frequency of Payments: Quarterly, B and C share payments begin after an initial
12 month holding period. Where the broker dealer or financial institution waives
the 1% up-front commission on Class C shares, payments commence immediately.
**Of this amount, 0.25% is paid as a shareholder servicing fee and the remainder
is paid as an asset-based sales charge, as those terms are defined under the
rules of the National Association of Securities Dealers, Inc.
Minimum Payments: $50 (with respect to all funds in the aggregate.)
No payment pursuant to this Schedule is payable to a dealer, bank or other
service provider for the first year with respect to sales of $1 million or more,
at no load, in cases where A I M Distributors, Inc. has advanced the service fee
to the dealer, bank or other service provider.
THE FOLLOWING FUNDS ARE ADDED AS OF THE CLOSE OF BUSINESS MAY 29, 1998:
<TABLE>
<CAPTION>
Fund Fee Rate* Plan Calculation Date
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
AIM Basic Value Fund A Shares 0.25 May 29, 1998
AIM Basic Value Fund B Shares 0.25 May 29, 1998
AIM Developing Markets Fund A Shares 0.25 May 29, 1998
AIM Developing Markets Fund B Shares 0.25 May 29, 1998
AIM Emerging Markets Fund A Shares 0.40** May 29, 1998
AIM Emerging Markets Fund B Shares 0.25 May 29, 1998
AIM Europe Growth Fund A Shares 0.25 May 29, 1998
AIM Europe Growth Fund B Shares 0.25 May 29, 1998
AIM Global Consumer Products and
Services Fund A Shares 0.40** May 29, 1998
AIM Global Consumer Products and
Services Fund B Shares 0.25 May 29, 1998
AIM Global Financial Services Fund A Shares 0.40** May 29, 1998
AIM Global Financial Services Fund B Shares 0.25 May 29, 1998
AIM Global Government Income Fund A Shares 0.25 May 29, 1998
AIM Global Government Income Fund B Shares 0.25 May 29, 1998
AIM Global Growth & Income Fund A Shares 0.25 May 29, 1998
AIM Global Growth & Income Fund B Shares 0.25 May 29, 1998
AIM Global Health Care Fund A Shares 0.40** May 29, 1998
AIM Global Health Care Fund B Shares 0.25 May 29, 1998
AIM Emerging Markets Debt Fund A Shares 0.25 May 29, 1998
AIM Emerging Markets Debt Fund B Shares 0.25 May 29, 1998
AIM Global Infrastructure Fund A Shares 0.40** May 29, 1998
AIM Global Infrastructure Fund B Shares 0.25 May 29, 1998
AIM Global Resources Fund A Shares 0.40** May 29, 1998
</TABLE>
11/98
<PAGE> 7
<TABLE>
<S> <C> <C> <C>
AIM Global Resources Fund B Shares 0.25 May 29, 1998
AIM Global Telecommunications Fund A Shares 0.40** May 29, 1998
AIM Global Telecommunications Fund B Shares 0.25 May 29, 1998
<CAPTION>
Fund Fee Rate* Plan Calculation Date
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
AIM International Growth Fund A Shares 0.25 May 29, 1998
AIM International Growth Fund B Shares 0.25 May 29, 1998
AIM Japan Growth Fund A Shares 0.25 May 29, 1998
AIM Japan Growth Fund B Shares 0.25 May 29, 1998
AIM Latin American Growth Fund A Shares 0.40** May 29, 1998
AIM Latin American Growth Fund B Shares 0.25 May 29, 1998
AIM Mid Cap Equity Fund A Shares 0.25 May 29, 1998
AIM Mid Cap Equity Fund B Shares 0.25 May 29, 1998
AIM Global Trends Fund A Shares 0.40** May 29, 1998
AIM Global Trends Fund B Shares 0.25 May 29, 1998
AIM Global Trends Fund C Shares 1.00** May 29, 1998
AIM New Pacific Growth Fund A Shares 0.25 May 29, 1998
AIM New Pacific Growth Fund B Shares 0.25 May 29, 1998
AIM Small Cap Growth Fund A Shares 0.25 May 29, 1998
AIM Small Cap Growth Fund B Shares 0.25 May 29, 1998
AIM Strategic Income Fund A Shares 0.25 May 29, 1998
AIM Strategic Income Fund B Shares 0.25 May 29, 1998
AIM Worldwide Growth Fund A Shares 0.25 May 29, 1998
AIM Worldwide Growth Fund B Shares 0.25 May 29, 1998
</TABLE>
*Frequency of Payments:
EFFECTIVE UNTIL JUNE 30, 1998: Class A and B share payments commence immediately
and are paid quarterly. Class C share payments commence after an initial twelve
month holding period and are paid quarterly.
**Of this amount, 0.25% is paid as a shareholder servicing fee and the remainder
is paid as an asset-based sales charge, as those terms are defined under the
rules of the National Association of Securities Dealers, Inc.
EFFECTIVE JULY 1, 1998: B share payments, like C share payments, will begin
after an initial 12 month holding period and are paid quarterly. Where the
broker dealer or financial institution waives the 1% up- front commission on
Class C shares, payments commence immediately.
**Of this amount, 0.25% is paid as a shareholder servicing fee and the remainder
is paid as an asset-based sales charge, as those terms are defined under the
rules of the National Association of Securities Dealers, Inc.
Minimum Payments: $50 (with respect to all funds in the aggregate.)
11/98
<PAGE> 8
No payment pursuant to this Schedule is payable to a dealer, bank or other
service provider for the first year with respect to sales of $1 million or more,
at no load, in cases where A I M Distributors, Inc. has advanced the service fee
to the dealer, bank or other service provider.
11/98
<PAGE> 1
EXHIBIT m(3)(ii)
[LOGO ONLY]
BANK SHAREHOLDER
SERVICE AGREEMENT
AIM Distributors, Inc.
We desire to enter into an Agreement with A I M Distributors, Inc. (the
"Company") acting as agent for the "AIM Funds", for servicing of our agency
clients who are shareholders of, and the administration of such shareholder
accounts in the shares of the AIM Funds (hereinafter referred to as the
"Shares"). Subject to the Company's acceptance of this Agreement, the terms and
conditions of this Agreement shall be as follows:
1. We shall provide continuing personal shareholder and administration
services for holders of the Shares who are also our clients. Such
services to our clients may include, without limitation, some or all of
the following: answering shareholder inquiries regarding the Shares and
the AIM Funds; performing subaccounting; establishing and maintaining
shareholder accounts and records; processing and bunching 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 us; forwarding applicable AIM
Funds prospectuses, proxy statements, reports and notices to our
clients who are holders of Shares; and such other administrative
services as you reasonably may request, to the extent we are permitted
by applicable statute, rule or regulations to provide such services. We
represent that we shall accept fees hereunder only so long as we
continue to provide personal shareholder services to our clients.
2. Shares purchased by us as agents for our clients will be registered
(choose one) (in our name or in the name of our nominee) (in the names
of our clients). The client will be the beneficial owner of the Shares
purchased and held by us in accordance with the client's instructions
and the client may exercise all applicable rights of a holder of such
Shares. We agree to transmit to the AIM Funds' transfer agent in a
timely manner, all purchase orders and redemption requests of our
clients and to forward to each client any proxy statements, periodic
shareholder reports and other communications received form the Company
by us on behalf of our clients. The Company agrees to pay all
out-of-pocket expenses actually incurred by us in connection with the
transfer by us of such proxy statements and reports to our clients as
required by applicable law or regulation. We agree to transfer record
ownership of a client's Shares to the client promptly upon the request
of a client. In addition, record ownership will be promptly transferred
to the client in the event that the person or entity ceases to be our
client.
3. Within three (3) business days of placing a purchase order we agree to
send (i) a cashiers check to the Company, or (ii) a wire transfer to
the AIM Funds' transfer agent, in an amount equal to the amount of all
purchase orders placed by us on behalf of our clients and accepted by
the Company.
4. We agree to make available to the Company, upon the Company's request,
such information relating to our clients who are beneficial owners of
Shares and their transactions in such Shares as may be required by
applicable laws and regulations or as may be reasonably requested by
the
11/98
<PAGE> 2
Bank Shareholder Service Agreement Page 2
Company. The names of our customers shall remain our sole property and
shall not be used by the Company for any other purpose except as needed
for servicing and information mailings in the normal course of business
to holders of the Shares.
5. We shall provide such facilities and personnel (which may be all or any
part of the facilities currently used in our business, or all or any
personnel employed by us) as may be necessary or beneficial in carrying
out the purposes of this Agreement.
6. Except as may be provided in a separate written agreement between the
Company and us, neither we nor any of our employees or agents are
authorized to assist in distribution of any of the AIM Funds' shares
except those contained in the then current Prospectus applicable to the
Shares; and we shall have no authority to act as agent for the Company
or the AIM Funds. Neither the AIM Funds, A I M Advisors, Inc. nor A I M
Distributors, Inc. will be a party, nor will they be represented as a
party, to any agreement that we may enter into with our clients.
7. In consideration of the services and facilities described herein, we
shall receive from the Company on behalf of the AIM Funds an annual
service fee, payable at such intervals as may be set forth in Schedule
A hereto, of a percentage of the aggregate average net asset value of
the Shares owned beneficially by our clients during each payment
period, as set forth in Schedule A hereto, which may be amended from
time to time by the Company. We understand that this Agreement and the
payment of such service fees has been authorized and approved by the
Boards of Directors/Trustees of the AIM Funds, and is subject to
limitations imposed by the National Association of Securities Dealers,
Inc. In cases where the Company has advanced payments to us of the
first year's fee for shares sold with a contingent deferred sales
charge, no payments will be made to us during the first year the
subject Shares are held.
8. The AIM Funds reserve the right, at their discretion and without
notice, to suspend the sale of any Shares or withdraw the sale of
Shares.
9. We understand that the Company reserves the right to amend this
Agreement or Schedule A hereto at any time without our consent by
mailing a copy of an amendment to us at the address set forth below.
Such amendment shall become effective on the date specified in such
amendment unless we elect to terminate this Agreement within thirty
(30) days of our receipt of such amendment.
10. This Agreement may be terminated at any time by the Company on not less
than 15 days' written notice to us at our principal place of business.
We, on 15 days' written notice addressed to the Company at its
principal place of business, may terminate this Agreement, said
termination to become effective on the date of mailing notice to
Company of such termination. The Company's failure to terminate for any
cause shall not constitute a waiver of the Company's right to terminate
at a later date for any such cause. This Agreement shall terminate
automatically in the event of its assignment, the term "assignment" for
this purpose having the meaning defined in Section 2(a)(4) of the
Investment Company Act of 1940, as amended.
11/98
<PAGE> 3
Bank Shareholder Service Agreement Page 3
11. All communications to the Company shall be sent to it at Eleven
Greenway Plaza, Suite 100, Houston, Texas, 77046-1173. Any notice to us
shall be duly given if mailed or telegraphed to us at this address
shown on this Agreement.
12. This Agreement shall become effective as of the date when it is
executed and dated below by the Company. This Agreement and all rights
and obligations of the parties hereunder shall be governed by and
construed under the laws of the State of Texas.
A I M DISTRIBUTORS, INC.
Date: By:X
---------------------- -------------------------------------
The undersigned agrees to abide by the foregoing terms and conditions.
Date: By:X
---------------------- -------------------------------------
Signature
-------------------------------------
Print Name Title
-------------------------------------
Dealer's Name
-------------------------------------
Address
-------------------------------------
City State Zip
Please sign both copies and return one copy of each to:
A I M Distributors, Inc.
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
11/98
<PAGE> 4
Bank Shareholder Service Agreement Page 4
SCHEDULE "A" TO
SHAREHOLDER SERVICE AGREEMENT
<TABLE>
<CAPTION>
Fund Fee Rate* Plan Calculation Date
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
AIM Advisor Flex Fund A Shares 0.25 August 4, 1997
AIM Advisor Flex Fund B Shares 0.25 March 3, 1998
AIM Advisor Flex Fund C Shares 1.00** August 4, 1997
AIM Advisor International Value Fund A Shares 0.25 August 4, 1997
AIM Advisor International Value Fund B Shares 0.25 March 3, 1998
AIM Advisor International Value Fund C Shares 1.00** August 4, 1997
AIM Advisor Large Cap Value Fund A Shares 0.25 August 4, 1997
AIM Advisor Large Cap Value Fund B Shares 0.25 March 3, 1998
AIM Advisor Large Cap Value Fund C Shares 1.00** August 4, 1997
AIM Advisor MultiFlex Fund A Shares 0.25 August 4, 1997
AIM Advisor MultiFlex Fund B Shares 0.25 March 3, 1998
AIM Advisor MultiFlex Fund C Shares 1.00** August 4, 1997
AIM Advisor Real Estate Fund A Shares 0.25 August 4, 1997
AIM Advisor Real Estate Fund B Shares 0.25 March 3, 1998
AIM Advisor Real Estate Fund C Shares 1.00** August 4, 1997
AIM Aggressive Growth Fund A Shares 0.25 July 1, 1992
AIM Asian Growth Fund A Shares 0.25 November 1, 1997
AIM Asian Growth Fund B Shares 0.25 November 1, 1997
AIM Asian Growth Fund C Shares 1.00** November 1, 1997
AIM Balanced Fund A Shares 0.25 October 18, 1993
AIM Balanced Fund B Shares 0.25 October 18, 1993
AIM Balanced Fund C Shares 1.00** August 4, 1997
AIM Blue Chip Fund A Shares 0.25 June 3, 1996
AIM Blue Chip Fund B Shares 0.25 October 1, 1996
AIM Blue Chip Fund C Shares 1.00** August 4, 1997
AIM Capital Development Fund A Shares 0.25 June 17, 1996
AIM Capital Development Fund B Shares 0.25 October 1, 1996
AIM Capital Development Fund C Shares 1.00** August 4, 1997
AIM Charter Fund A Shares 0.25 November 18, 1986
AIM Charter Fund B Shares 0.25 June 15, 1995
AIM Charter Fund C Shares 1.00** August 4, 1997
AIM Constellation Fund A Shares 0.25 September 9, 1986
AIM Constellation Fund B Shares 0.25 November 3, 1997
AIM Constellation Fund C Shares 1.00** August 4, 1997
AIM European Development Fund A Shares 0.25 November 1, 1997
AIM European Development Fund B Shares 0.25 November 1, 1997
AIM European Development Fund C Shares 1.00** November 1, 1997
AIM Global Aggressive Growth Fund A Shares 0.50** September 15, 1994
AIM Global Aggressive Growth Fund B Shares 0.25 September 15, 1994
</TABLE>
-44-
11/98
<PAGE> 5
Bank Shareholder Service Agreement Page 5
<TABLE>
<CAPTION>
Fund Fee Rate* Plan Calculation Date
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
AIM Global Aggressive Growth Fund C Shares 1.00** August 4, 1997
AIM Global Growth Fund A Shares 0.50 September 15, 1994
AIM Global Growth Fund B Shares 0.25 September 15, 1994
AIM Global Growth Fund C Shares 1.00** August 4, 1997
AIM Global Income Fund A Shares 0.50 September 15, 1994
AIM Global Income Fund B Shares 0.25 September 15, 1994
AIM Global Income Fund C Shares 1.00** August 4, 1997
AIM Global Utilities Fund A Shares 0.25 July 1, 1992
AIM Global Utilities Fund B Shares 0.25 September 1, 1993
AIM Global Utilities Fund C Shares 1.00** August 4, 1997
AIM High Income Municipal Fund A Shares 0.25 December 22, 1997
AIM High Income Municipal Fund B Shares 0.25 December 22, 1997
AIM High Income Municipal Fund C Shares 1.00** December 22, 1997
AIM High Yield Fund A Shares 0.25 July 1, 1992
AIM High Yield Fund B Shares 0.25 September 1, 1993
AIM High Yield Fund C Shares 1.00** August 4, 1997
AIM High Yield Fund II A Shares 0.25 October 1, 1998
AIM High Yield Fund II B Shares 0.25 November 20, 1998
AIM High Yield Fund II C Shares 1.00** November 20, 1998
AIM Income Fund A Shares 0.25 July 1, 1992
AIM Income Fund B Shares 0.25 September 1, 1993
AIM Income Fund C Shares 1.00** August 4, 1997
AIM Intermediate Government Fund A Shares 0.25 July 1, 1992
AIM Intermediate Government Fund B Shares 0.25 September 1, 1993
AIM Intermediate Government Fund C Shares 1.00** August 4, 1997
AIM International Equity Fund A Shares 0.25 May 21, 1992
AIM International Equity Fund B Shares 0.25 September 15, 1994
AIM International Equity Fund C Shares 1.00** August 4, 1997
AIM Limited Maturity Treasury Fund 0.15 December 2, 1987
AIM Money Market Fund A Shares 0.25 October 18, 1993
AIM Money Market Fund B Shares 0.25 October 18, 1993
AIM Money Market Fund C Shares 1.00** August 4, 1997
AIM Money Market Fund Cash Reserve Shares 0.25 October 18, 1993
AIM Municipal Bond Fund A Shares 0.25 July 1, 1992
AIM Municipal Bond Fund B Shares 0.25 September 1, 1993
AIM Municipal Bond Fund C Shares 1.00** August 4, 1997
AIM Select Growth Fund A Shares 0.25 July 1, 1992
AIM Select Growth Fund B Shares 0.25 September 1,1993
AIM Select Growth Fund C Shares 1.00** August 4, 1997
AIM Small Cap Opportunities Fund A Shares 0.25 June 29, 1998
AIM Small Cap Opportunities Fund B Shares 0.25 July 13, 1998
AIM Tax-Exempt Bond Fund of Connecticut A Shares 0.25 July 1, 1992
</TABLE>
11/98
<PAGE> 6
Bank Shareholder Service Agreement Page 6
<TABLE>
<CAPTION>
Fund Fee Rate* Plan Calculation Date
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
AIM Tax-Exempt Cash Fund A Shares 0.10 July 1, 1992
AIM Value Fund A Shares 0.25 July 1, 1992
AIM Value Fund B Shares 0.25 October 18, 1993
AIM Value Fund C Shares 1.00** August 4, 1997
AIM Weingarten Fund A Shares 0.25 September 9, 1986
AIM Weingarten Fund B Shares 0.25 June 15, 1995
AIM Weingarten Fund C Shares 1.00** August 4, 1997
</TABLE>
*Frequency of Payments: Quarterly, B and C share payments begin after an initial
12 month holding period. Where the broker dealer or financial institution waives
the 1% up-front commission on Class C shares, payments commence immediately.
**Of this amount, 0.25% is paid as a shareholder servicing fee and the remainder
is paid as an asset-based sales charge, as those terms are defined under the
rules of the National Association of Securities Dealers, Inc.
Minimum Payments: $50 (with respect to all funds in the aggregate.)
No payment pursuant to this Schedule is payable to a dealer, bank or other
service provider for the first year with respect to sales of $1 million or more,
at no load, in cases where A I M Distributors, Inc. has advanced the service fee
to the dealer, bank or other service provider.
THE FOLLOWING FUNDS ARE ADDED AS OF THE CLOSE OF BUSINESS MAY 29, 1998:
<TABLE>
<CAPTION>
Fund Fee Rate* Plan Calculation Date
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
AIM Basic Value Fund A Shares 0.25 May 29, 1998
AIM Basic Value Fund B Shares 0.25 May 29, 1998
AIM Developing Markets Fund A Shares 0.25 May 29, 1998
AIM Developing Markets Fund B Shares 0.25 May 29, 1998
AIM Emerging Markets Fund A Shares 0.40** May 29, 1998
AIM Emerging Markets Fund B Shares 0.25 May 29, 1998
AIM Europe Growth Fund A Shares 0.25 May 29, 1998
AIM Europe Growth Fund B Shares 0.25 May 29, 1998
AIM Global Consumer Products and
Services Fund A Shares 0.40** May 29, 1998
AIM Global Consumer Products and
Services Fund B Shares 0.25 May 29, 1998
AIM Global Financial Services Fund A Shares 0.40** May 29, 1998
</TABLE>
11/98
<PAGE> 7
Bank Shareholder Service Agreement Page 7
<TABLE>
<CAPTION>
Fund Fee Rate* Plan Calculation Date
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
AIM Global Financial Services Fund B Shares 0.25 May 29, 1998
AIM Global Government Income Fund A Shares 0.25 May 29, 1998
AIM Global Government Income Fund B Shares 0.25 May 29, 1998
AIM Global Growth & Income Fund A Shares 0.25 May 29, 1998
AIM Global Growth & Income Fund B Shares 0.25 May 29, 1998
AIM Global Health Care Fund A Shares 0.40** May 29, 1998
AIM Global Health Care Fund B Shares 0.25 May 29, 1998
AIM Emerging Markets Debt Fund A Shares 0.25 May 29, 1998
AIM Emerging Markets Debt Fund B Shares 0.25 May 29, 1998
AIM Global Infrastructure Fund A Shares 0.40** May 29, 1998
AIM Global Infrastructure Fund B Shares 0.25 May 29, 1998
AIM Global Resources Fund A Shares 0.40** May 29, 1998
AIM Global Resources Fund B Shares 0.25 May 29, 1998
AIM Global Telecommunications Fund A Shares 0.40** May 29, 1998
AIM Global Telecommunications Fund B Shares 0.25 May 29, 1998
AIM International Growth Fund A Shares 0.25 May 29, 1998
AIM International Growth Fund B Shares 0.25 May 29, 1998
AIM Japan Growth Fund A Shares 0.25 May 29, 1998
AIM Japan Growth Fund B Shares 0.25 May 29, 1998
AIM Latin American Growth Fund A Shares 0.40** May 29, 1998
AIM Latin American Growth Fund B Shares 0.25 May 29, 1998
AIM Mid Cap Equity Fund A Shares 0.25 May 29, 1998
AIM Mid Cap Equity Fund B Shares 0.25 May 29, 1998
AIM Global Trends Fund A Shares 0.40** May 29, 1998
AIM Global Trends Fund B Shares 0.25 May 29, 1998
AIM Global Trends Fund C Shares 1.00** May 29, 1998
AIM New Pacific Growth Fund A Shares 0.25 May 29, 1998
AIM New Pacific Growth Fund B Shares 0.25 May 29, 1998
AIM Small Cap Growth Fund A Shares 0.25 May 29, 1998
AIM Small Cap Growth Fund B Shares 0.25 May 29, 1998
AIM Strategic Income Fund A Shares 0.25 May 29, 1998
AIM Strategic Income Fund B Shares 0.25 May 29, 1998
AIM Worldwide Growth Fund A Shares 0.25 May 29, 1998
AIM Worldwide Growth Fund B Shares 0.25 May 29, 1998
</TABLE>
*Frequency of Payments:
11/98
<PAGE> 8
Bank Shareholder Service Agreement Page 8
EFFECTIVE UNTIL JUNE 30, 1998: Class A and B share payments commence immediately
and are paid quarterly. Class C share payments commence after an initial twelve
month holding period and are paid quarterly.
**Of this amount, 0.25% is paid as a shareholder servicing fee and the remainder
is paid as an asset-based sales charge, as those terms are defined under the
rules of the National Association of Securities Dealers, Inc.
EFFECTIVE JULY 1, 1998: B share payments, like C share payments, will begin
after an initial 12 month holding period and are paid quarterly. Where the
broker dealer or financial institution waives the 1% up- front commission on
Class C shares, payments commence immediately.
**Of this amount, 0.25% is paid as a shareholder servicing fee and the remainder
is paid as an asset-based sales charge, as those terms are defined under the
rules of the National Association of Securities Dealers, Inc.
Minimum Payments: $50 (with respect to all funds in the aggregate.)
No payment pursuant to this Schedule is payable to a dealer, bank or other
service provider for the first year with respect to sales of $1 million or more,
at no load, in cases where A I M Distributors, Inc. has advanced the service fee
to the dealer, bank or other service provider.
11/98
<PAGE> 1
EXHIBIT m(3)(iii)
[LOGO ONLY]
A I M DISTRIBUTORS, INC.
SHAREHOLDER SERVICE AGREEMENT
A I M Distributors, Inc. (BANK TRUST DEPARTMENTS)
_____________, 19____
A I M Distributors, Inc.
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
Gentlemen:
We desire to enter into an Agreement with A I M Distributors, Inc. ("AIM
Distributors") as agent on behalf of the funds listed on Schedule A hereto (the
"Funds"), for the servicing of our clients who are shareholders of, and the
administration of accounts in, the Funds. We understand that this Shareholder
Service Agreement (the "Agreement") has been adopted pursuant to Rule 12b-1
under the Investment Company Act of 1940 (the "1940 Act") by each of the Funds,
under a Distribution Plan (the "Plan") adopted pursuant to said Rule, and is
subject to applicable rules of the National Association of Securities Dealers,
Inc. ("NASD"). This Agreement defines the services to be provided by us for
which we are to receive payments pursuant to the Plan. The Plan and the
Agreement have been approved by a majority of the directors or trustees of the
applicable Fund, including a majority of directors or trustees who are not
interested persons of the applicable Fund, and who have no direct or indirect
financial interest in the operation of the Plan or related agreements, by votes
cast in person at a meeting called for the purpose of voting on the Plan. Such
approval included a determination by the directors or trustees of the applicable
Fund, in the exercise of their reasonable business judgement and in light of
their fiduciary duties, that there is a reasonable likelihood that the Plan will
benefit the Fund and the holders of its Shares. The terms and conditions of this
Agreement shall be as follows:
1. To the extent that we provide continuing personal shareholder services
and administrative support services to our customers who may from time
to time own shares of the Funds of record or beneficially, including but
not limited to, forwarding sales literature, answering routine customer
inquiries regarding the Funds, assisting customers in changing dividend
options, account designations and addresses, and in enrolling into any
of several special investment plans offered in connection with the
purchase of the Funds' shares, assisting in the establishment and
maintenance of customer accounts and records and in the processing of
purchase and redemption transactions, investing dividends and capital
gains distributions automatically in shares of the Funds and providing
such other services as AIM Distributors or the customer may reasonably
request, you shall pay us a fee periodically. We represent that we shall
accept fees hereunder only so long as we continue to provide such
personal shareholder services.
2. We agree to transmit to AIM Distributors in a timely manner, all
purchase orders and redemption requests of our clients and to forward to
each client all proxy statements, periodic shareholder reports and other
communications received from AIM Distributors by us relating
<PAGE> 2
Shareholder Service Agreement Page 2
(Bank Trust Departments)
to shares of the Funds owned by our clients. AIM Distributors, on behalf
of the Funds, agrees to pay all out-of-pocket expenses actually incurred
by us in connection with the transfer by us of such proxy statements and
reports to our clients as required under applicable laws or regulations.
3. We agree to make available upon AIM Distributors's request, such
information relating to our clients who are beneficial owners of Fund
shares and their transactions in such shares as may be required by
applicable laws and regulations or as may be reasonably requested by AIM
Distributors.
4. We agree to transfer record ownership of a client's Fund shares to the
client promptly upon the request of a client. In addition, record
ownership will be promptly transferred to the client in the event that
the person or entity ceases to be our client.
5. Neither we nor any of our employees or agents are authorized to make any
representation to our clients concerning the Funds except those
contained in the then current prospectuses applicable to the Funds,
copies of which will be supplied to us by AIM Distributors; and we shall
have no authority to act as agent for any Fund or AIM Distributors.
Neither a Fund, nor A I M Advisors, Inc. ("AIM") will be a party, nor
will they be represented as a party, to any agreement that we may enter
into with our clients and neither a Fund nor AIM shall participate,
directly or indirectly, in any compensation that we may receive from our
clients in connection with our acting on their behalf with respect to
this Agreement.
6. In consideration of the services and facilities described herein, we
shall receive a maximum annual service fee and asset-based sales charge,
payable monthly, as set forth on Schedule A hereto. We understand that
this Agreement and the payment of such service fees and asset-based
sales charge has been authorized and approved by the Board of Directors
or Trustees of the applicable Fund, and that the payment of fees
thereunder is subject to limitations imposed by the rules of the NASD.
7. AIM Distributors reserves the right, in its discretion and without
notice, to suspend the sale of any Fund or withdraw the sale of shares
of a Fund, or upon notice to us, to amend this Agreement. We agree that
any order to purchase shares of the Funds placed by us after notice of
any amendment to this Agreement has been sent to us shall constitute our
agreement to any such amendment.
8. All communications to AIM Distributors shall be duly given if mailed to
A I M Distributors, Inc., 11 Greenway Plaza, Suite 100, Houston, Texas
77046-1173. Any notice to us shall be duly given if mailed to us at the
address specified by us in this Agreement or to such other address as we
shall have designated in writing to AIM Distributors.
9. This Agreement may be terminated at any time by AIM Distributors on not
less than 60 days' written notice to us at our principal place of
business. We, on 60 days' written notice addressed to AIM Distributors
at its principal place of business, may terminate this Agreement. AIM
Distributors may also terminate this Agreement for cause on violation by
us of any of the provisions of this Agreement, said termination to
become effective on the date of mailing notice to us of such
termination. AIM Distributors's failure to terminate for any cause shall
not constitute a waiver of AIM Distributors's right to terminate at a
later date for
<PAGE> 3
Shareholder Service Agreement Page 3
(Bank Trust Departments)
any such cause. This Agreement may be terminated with respect to any
Fund at any time by the vote of a majority of the directors or trustees
of such Fund who are disinterested directors or by a vote of a majority
of the Fund's outstanding shares, on not less than 60 days' written
notice to us at our principal place of business. This Agreement will be
terminated by any act which terminates the Agreement for Purchase of
Shares of The AIM Family of Funds(R) between us and AIM Distributors or
a Fund's Distribution Plan, and in any event, it shall terminate
automatically in the event of its assignment by us, the term
"assignment" for this purpose having the meaning defined in Section
2(a)(4) of the 1940 Act.
10. We represent that our activities on behalf of our clients and pursuant
to this Agreement either (i) are not such as to require our registration
as a broker-dealer in the state(s) in which we engage in such
activities, or (ii) we are registered as a broker-dealer in the state(s)
in which we engage in such activities. We represent that we are
registered as a broker-dealer with the NASD if required under applicable
law.
11. This Agreement and the Agreement for Purchase of Shares of The AIM
Family of Funds(R) through Bank Trust Departments constitute the entire
agreement between us and AIM Distributors and supersede all prior oral
or written agreements between the parties hereto. This Agreement may be
executed in counterparts, each of which shall be deemed an original but
all of which shall constitute the same instrument.
12. This Agreement and all rights and obligations of the parties hereunder
shall be governed by and construed under the laws of the State of Texas.
13. This Agreement shall become effective as of the date when it is executed
and dated by AIM Distributors.
<PAGE> 4
Shareholder Service Agreement Page 4
(Bank Trust Departments)
The undersigned agrees to abide by the foregoing terms and conditions.
--------------------------------------------
(Firm Name)
--------------------------------------------
(Address)
--------------------------------------------
City/State/Zip/County
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
Dated:
--------------------------------------
ACCEPTED:
A I M DISTRIBUTORS, INC.
By:
----------------------------
Name:
----------------------------
Title:
----------------------------
Dated:
----------------------------
Please sign both copies and return to:
A I M Distributors, Inc.
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
<PAGE> 5
Shareholder Service Agreement Page 5
(Bank Trust Departments)
SCHEDULE A
<TABLE>
<CAPTION>
Funds Fees
----- ----
<S> <C>
AIM Advisor Funds, Inc.
AIM Advisor Flex Fund
AIM Advisor International Value Fund
AIM Advisor Large Cap Value Fund
AIM Advisor MultiFlex Fund
AIM Advisor Real Estate Fund
AIM Equity Funds, Inc.
AIM Blue Chip Fund
AIM Capital Development Fund
AIM Charter Fund (Retail Class)
AIM Constellation Fund (Retail Class)
AIM Weingarten Fund (Retail Class)
AIM Aggressive Growth Fund*
AIM Funds Group
AIM Balanced Fund
AIM Global Utilities Fund
AIM High Yield Fund
AIM Income Fund
AIM Intermediate Government Fund
AIM Money Market Fund
AIM Municipal Bond Fund
AIM Select Growth Fund
AIM Value Fund
AIM Growth Series
AIM Basic Value Fund
AIM Europe Growth Fund
AIM International Growth Fund
AIM Japan Growth Fund
AIM Mid Cap Equity Fund
AIM New Pacific Growth Fund
AIM Small Cap Growth Fund
AIM Worldwide Growth Fund
AIM International Funds, Inc.
AIM Asian Growth Fund
AIM European Development Fund
AIM Global Aggressive Growth Fund
AIM Global Growth Fund
AIM Global Income Fund
AIM International Equity Fund
</TABLE>
- -----------------------
* Shares of AIM Aggressive Growth Fund may only be sold to current
shareholders who maintain open accounts in AIM Aggressive Growth Fund.
<PAGE> 6
Shareholder Service Agreement Page 6
(Bank Trust Departments)
AIM Investment Funds
AIM Developing Markets Fund
AIM Emerging Markets Fund
AIM Emerging Markets Debt Fund
AIM Global Consumer Products and Services Fund
AIM Global Financial Services Fund
AIM Global Government Income Fund
AIM Global Growth & Income Fund
AIM Global Health Care Fund
AIM Global Infrastructure Fund
AIM Global Resources Fund
AIM Global Telecommunications Fund
AIM Latin American Growth Fund AIM Strategic Income Fund
AIM Investment Securities Funds
AIM Limited Maturity Treasury Fund
AIM High Yield Fund II
AIM Series Trust
AIM Global Trends Fund
AIM Special Opportunities Funds
AIM Small Cap Opportunities Fund
AIM Tax-Exempt Funds, Inc.
AIM High Income Municipal Fund
AIM Tax-Exempt Cash Fund
AIM Tax-Exempt Bond Fund of Connecticut
<PAGE> 1
EXHIBIT m(3)(iv)
AGENCY PRICING AGREEMENT
(THE AIM FAMILY OF FUNDS--Registered Trademark--)
This Agreement is entered into as of the ___ of _____________, 19__,
between _________________________ (the "Plan Provider") and A I M Distributors,
Inc. (the "Distributor").
RECITAL
Plan Provider acts as a trustee and/or servicing agent for defined
contribution plans and/or deferred compensation plans (the "Plans") and invests
and reinvests such Plans' assets as specified by an investment advisor, sponsor
or administrative committee of the Plan (a "Plan Representative") generally upon
the direction of Plan beneficiaries (the "Participants").
Plan Provider and Distributor desire to facilitate the purchase and
redemption of shares (the "Shares") of the funds listed on Exhibit A hereto
which may be amended from time to time by Distributor (the "Fund" or "Funds"),
registered investment companies distributed by Distributor, on behalf of the
Plans, through one or more accounts (not to exceed one per Plan) in each Fund
(individually an "Account" and collectively the "Accounts"), subject to the
terms and conditions of this Agreement. Distributor shall, on behalf of the
Funds, pay to Plan Provider a fee in accordance with Exhibit A hereto.
AGREEMENT
1. SERVICES
Plan Provider shall provide shareholder and administration services for the
Plans and/or their Participants, including, without limitation: answering
questions about the Funds; assisting in changing dividend options, account
designations and addresses; establishing and maintaining shareholder
accounts and records; and assisting in processing purchase and redemption
transactions (the "Services"). Plan Provider shall comply with all
applicable laws, rules and regulations, including requirements regarding
prospectus delivery and maintenance and preservation of records. To the
extent allowed by law, Plan Provider shall provide Distributor with copies
of all records that Distributor may reasonably request. Distributor or its
affiliate will recognize each Plan as an unallocated account in each Fund,
and will not maintain separate accounts in each Fund for each Participant.
Except to the extent provided in Section 3, all Services performed by Plan
Provider shall be as an independent contractor and not as an employee or
agent of Distributor or any of the Funds. Plan Provider and Plan
Representatives, and not Distributor, shall take all necessary action so
that the transactions contemplated by this Agreement shall not be
"Prohibited Transactions" under section 406 of the Employee Retirement
Income Security Act of 1974, or section 4975 of the Internal Revenue Code.
2. PRICING INFORMATION
Each Fund or its designee will furnish Plan Provider on each business day
that the New York Stock Exchange is open for business ("Business Day"),
with (i) net asset value information as of the close of trading (currently
4:00 p.m. Eastern Time) on the New York
<PAGE> 2
Stock Exchange or as at such later times at which a Fund's net asset value
is calculated as specified in such Fund's prospectus ("Close of Trading"),
(ii) dividend and capital gains information as it becomes available, and
(iii) in the case of income Funds, the daily accrual or interest rate
factor (mil rate). The Funds shall use their best efforts to provide such
information to Plan Provider by 6:00 p.m. Central Time on the same Business
Day.
Distributor or its affiliate will provide Plan Provider (a) daily
confirmations of Account activity within five Business Days after each day
on which a purchase or redemption of Shares is effected for the particular
Account, (b) if requested by Plan Provider, quarterly statements detailing
activity in each Account within fifteen Business Days after the end of each
quarter, and (c) such other reports as may be reasonably requested by Plan
Provider.
3. ORDERS AND SETTLEMENT
If Plan Provider receives instructions in proper form from Participants or
Plan Representatives before the Close of Trading on a Business Day, Plan
Provider will process such instructions that same evening. On the next
Business Day, Plan Provider will transmit orders for net purchases or
redemptions of Shares to Distributor or its designee by 9:00 a.m. Central
Time and wire payment for net purchases by 2:00 p.m. Central Time.
Distributor or its affiliate will wire payment for net redemptions on the
Business Day following the day the order is executed for the Accounts. In
doing so, Plan Provider will be considered the Funds' agent, and Shares
will be purchased and redeemed as of the Business Day on which Plan
Provider receives the instructions. Plan Provider will record time and date
of receipt of instructions and will, upon request, provide such
instructions and other records relating to the Services to Distributor's
auditors. If Plan Provider receives instructions in proper form after the
Close of Trading on a Business Day, Plan Provider will treat the
instructions as if received on the next Business Day.
4. REPRESENTATIONS WITH RESPECT TO THE DISTRIBUTOR AND THE FUNDS
Plan Provider and its agents shall limit representations concerning a Fund
or Shares to those contained in the then current prospectus of such Fund,
in current sales literature furnished by Distributor to Plan Provider, in
publicly available databases, such as those databases created by Standard &
Poor's and Morningstar, and in current sales literature created by Plan
Provider and submitted to and approved in writing by Distributor prior to
its use.
5. USE OF NAMES
Plan Provider and its affiliates will not, without the prior written
approval of Distributor, make public references to A I M Management Group
Inc. or any of its subsidiaries, or to the Funds. For purposes of this
provision, the public does not include Plan Providers' representatives who
are actively engaged in promoting the Funds. Any brochure or other
communication to the public that mentions the Funds shall be submitted to
Distributor for written approval prior to use. Plan Provider shall provide
copies of its regulatory filings that include any reference to A I M
Management Group Inc. or its subsidiaries or the Funds to Distributor. If
Plan Provider or its affiliates should make unauthorized references or
representations, Plan Provider agrees to indemnify and hold harmless the
Funds, A I M Management Group
-2-
<PAGE> 3
Inc. and its subsidiaries from any claims, losses, expenses or liability
arising in any way out of or connected in any way with such references or
representations.
6. TERMINATION
(a) This Agreement may be terminated with respect to any Fund at any time
without any penalty by the vote of a majority of the directors of such
Fund who are "disinterested directors", as that term is defined in the
Investment Company Act of 1940, as amended (the "1940 Act"), or by a
vote of a majority of the Fund's outstanding shares, on sixty (60)
days' written notice. It will be terminated by any act which
terminates either the Fund's Distribution Plan, or any related
agreement thereunder, and in any event, it shall terminate
automatically in the event of its assignment as that term is defined
in the 1940 Act.
(b) Either party may terminate this Agreement upon ninety (90) days' prior
written notice to the other party at the address specified below.
7. INDEMNIFICATION
(a) Plan Provider agrees to indemnify and hold harmless the Distributor,
its affiliates, the Funds, the Funds' investment advisors, and each of
their directors, officers, employees, agents and each person, if any,
who controls them within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"), (the "Distributor Indemnitees")
against any losses, claims, damages, liabilities or expenses to which
a Distributor Indemnitee may become subject insofar as those losses,
claims, damages, liabilities or expenses or actions in respect
thereof, arise out of or are based upon (i) Plan Provider's negligence
or willful misconduct in performing the Services, (ii) any breach by
Plan Provider of any material provision of this Agreement, or (iii)
any breach by Plan Provider of a representation, warranty or covenant
made in this Agreement; and Plan Provider will reimburse the
Distributor Indemnitee for any legal or other expenses reasonably
incurred, as incurred, by them in connection with investigating or
defending such loss, claim or action. This indemnity agreement will be
in addition to any liability which Plan Provider may otherwise have.
(b) Distributor agrees to indemnify and hold harmless Plan Provider and
its affiliates, and each of its directors, officers, employees, agents
and each person, if any, who controls Plan Provider within the meaning
of the Securities Act (the "Plan Provider Indemnitees") against any
losses, claims, damages, liabilities or expenses to which a Plan
Provider Indemnitee may become subject insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) arise
out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement
or Prospectus of a Fund, or the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make statements therein not misleading, (ii) any breach
by Distributor of any material provision of this Agreement, (iii)
Distributor's negligence or willful misconduct in carrying out its
duties and responsibilities under this Agreement, or (iv) any breach
by Distributor of a representation, warranty or covenant made in this
Agreement; and Distributor will reimburse the Plan Provider
Indemnitees for any
-3-
<PAGE> 4
legal or other expenses reasonably incurred, as incurred, by them, in
connection with investigating or defending any such loss, claim or action.
This indemnity agreement will be in addition to any liability which
Distributor may otherwise have.
(c) If any third party threatens to commence or commences any action for
which one party (the "Indemnifying Party") may be required to
indemnify another person hereunder (the "Indemnified Party"), the
Indemnified Party shall promptly give notice thereof to the
Indemnifying Party. The Indemnifying Party shall be entitled, at its
own expense and without limiting its obligations to indemnify the
Indemnified Party, to assume control of the defense of such action
with counsel selected by the Indemnifying Party which counsel shall be
reasonably satisfactory to the Indemnified Party. If the Indemnifying
Party assumes the control of the defense, the Indemnified Party may
participate in the defense of such claim at its own expense. Without
the prior written consent of the Indemnified Party, which consent
shall not be withheld unreasonably, the Indemnifying Party may not
settle or compromise the liability of the Indemnified Party in such
action or consent to or permit the entry of any judgment in respect
thereof unless in connection with such settlement, compromise or
consent each Indemnified Party receives from such claimant an
unconditional release from all liability in respect of such claim.
8. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
internal laws of the State of Texas applicable to agreements fully executed
and to be performed therein.
9. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS
Each party represents that it is free to enter into this Agreement and that
by doing so it will not breach or otherwise impair any other agreement or
understanding with any other person, corporation or other entity. Each
party represents that it has full power and authority under applicable law,
and has taken all action necessary to enter into and perform this Agreement
and the person executing this Agreement on its behalf is duly authorized
and empowered to execute and deliver this Agreement. Additionally, each
party represents that this Agreement, when executed and delivered, shall
constitute its valid, legal and binding obligation, enforceable in
accordance with its terms.
Plan Provider further represents, warrants, and covenants that:
(a) it is registered as a transfer agent pursuant to Section 17A of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), or is
not required to be registered as such;
(b) the arrangements provided for in this Agreement will be disclosed to
the Plan Representatives; and
(c) it is registered as a broker-dealer under the 1934 Act or any
applicable state securities laws, or, including as a result of
entering into and performing the services set forth in this Agreement,
is not required to be registered as such.
-4-
<PAGE> 5
Distributor further represents, warrants and covenants, that:
(a) it is registered as a broker-dealer under the 1934 Act and any
applicable state securities laws; and
(b) the Funds' advisors are registered as investment advisors under the
Investment Advisers Act of 1940, the Funds are registered as
investment companies under the 1940 Act and Fund Shares are registered
under the Securities Act.
10. MODIFICATION
This Agreement and Exhibit A may be amended at any time by Distributor
without Plan Provider's consent by Distributor mailing a copy of an
amendment to Plan Provider at the address set forth below. Such amendment
shall become effective thirty (30) days from the date of mailing unless
this Agreement is terminated by the Plan Provider within such thirty (30)
days.
11. ASSIGNMENT
This Agreement shall not be assigned by a party hereto, without the prior
written consent of the other parties hereto, except that a party may assign
this Agreement to an affiliate having the same ultimate ownership as the
assigning party without such consent.
12. SURVIVAL
The provisions of Sections 1, 5 and 7 shall survive termination of this
Agreement.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the undersigned have executed this Agreement by their duly
authorized officers as of the date first above written.
--------------------------------------
(PLAN PROVIDER)
By:
-----------------------------------
Print Name:
--------------------------
Title:
-------------------------------
Address:
------------------------------
A I M DISTRIBUTORS, INC. (DISTRIBUTOR)
By:
----------------------------------
Print Name:
---------------------------
Title:
-------------------------------
11 Greenway Plaza
Suite 100
Houston, Texas 77210
<PAGE> 7
EXHIBIT A
For the term of this Agreement, Distributor, or its affiliates, shall
pay Plan Provider the following amounts for each of the following Funds with
respect to the average daily net asset value of the Class A Shares of the Plans'
balances for the prior quarter:
<TABLE>
<CAPTION>
FUND ANNUAL FEE
- ---- ----------
<S> <C>
AIM Advisor Funds, Inc. (Class A Shares Only)
AIM Advisor Flex Fund .25%
AIM Advisor International Value Fund .25%
AIM Advisor Large Cap Value Fund .25%
AIM Advisor MultiFlex Fund .25%
AIM Advisor Real Estate Fund .25%
AIM Equity Funds, Inc. (Class A Shares Only)
AIM Aggressive Growth Fund* .25%
AIM Blue Chip Fund .25%
AIM Capital Development Fund .25%
AIM Charter Fund .25%
AIM Constellation Fund .25%
AIM Weingarten Fund .25%
AIM Funds Group (Class A Shares Only)
AIM Balanced Fund .25%
AIM Global Utilities Fund .25%
AIM High Yield Fund .25%
AIM Income Fund .25%
AIM Intermediate Government Fund .25%
AIM Municipal Bond Fund .25%
AIM Select GrowthFund .25%
AIM Value Fund .25%
AIM Growth Series (Class A Shares Only)
AIM Basic Value Fund .25%
AIM Europe Growth Fund .25%
AIM International Growth Fund .25%
AIM Japan Growth Fund .25%
AIM Mid Cap Equity Fund .25%
AIM New Pacific Growth Fund .25%
AIM Small Cap Growth Fund .25%
AIM Worldwide Growth Fund .25%
</TABLE>
<PAGE> 8
<TABLE>
<S> <C>
AIM International Funds, Inc. (Class A Shares Only)
AIM Asian Growth Fund .25%
AIM European Development Fund .25%
AIM Global Aggressive Growth Fund .25%
AIM Global Growth Fund .25%
AIM Global Income Fund .25%
AIM International Equity Fund .25%
AIM Investment Funds (Class A Shares Only)
AIM Developing Markets Fund .25%
AIM Emerging Markets Fund .25%
AIM Emerging Markets Debt Fund .25%
AIM Global Consumer Products and Services Fund .25%
AIM Global Financial Services Fund .25%
AIM Global Government Income Fund .25%
AIM Global Growth & Income Fund .25%
AIM Global Health Care Fund .25%
AIM Global Infrastructure Fund .25%
AIM Global Resources Fund .25%
AIM Global Telecommunications Fund .25%
AIM Latin American Growth Fund .25%
AIM Strategic Income Fund .25%
AIM Investment Securities Funds (Class A Shares Only)
AIM High Yield Fund II .25%
AIM Limited Maturity Treasury Fund .15%
AIM Series Trust (Class A Shares Only)
AIM Global Trends Fund .25%
AIM Special Opportunities Funds (Class A Shares Only)
AIM Small Cap Opportunities Fund .25%
</TABLE>
Distributor or its affiliates shall calculate the amount of quarterly
payment and shall deliver to Plan Provider a quarterly statement showing the
calculation of the quarterly amounts payable to Plan Provider. Distributor
reserves the right at any time to impose minimum fee payment requirements before
any quarterly payments will be made to Plan Provider. Payment to Plan Provider
shall occur within 30 days following the end of each quarter. All parties agree
that the payments referred to herein are for record keeping and administrative
services only and are not for legal, investment advisory or distribution
services.
Minimum Payments: $50 (with respect to all Funds in the aggregate.)
