<PAGE> 1
As filed with the Securities and Exchange Commission on February 22, 1999
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. 57 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 58 [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
Robert H. Graham
11 Greenway Plaza, Suite 100, Houston, TX 77046
---------------------------------------------------
(Name and Address of Agent of Service)
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)
[X] on March 1, 1999, pursuant to paragraph (b)
[ ] 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 Beneficial Interest
(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. 57 includes
manually executed signature pages for two master trusts, Emerging Markets Debt
Portfolio and Global Investment Portfolio.
<PAGE> 3
AIM DEVELOPING MARKETS FUND
- -------------------------------------------------------------------------------
AIM Developing Markets Fund seeks to provide long-term growth of capital
with a secondary objective of income, to the extent consistent with
seeking growth of capital.
PROSPECTUS
MARCH 1, 1999
This prospectus contains important
information about the Class A, B and
C shares of the fund. Please read it
before investing and keep it for
future reference.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE--Registered
Trademark--
<PAGE> 4
Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE
FUND 2
- - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 3
- - - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 3
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
- - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 4
Expense Example 4
FUND MANAGEMENT 5
- - - - - - - - - - - - - - - - - - - - - - - - -
The Advisors 5
Advisor Compensation 5
Portfolio Managers 5
OTHER INFORMATION 5
- - - - - - - - - - - - - - - - - - - - - - - - -
Sales Charges 5
Dividends and Distributions 5
FINANCIAL HIGHLIGHTS 6
- - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - -
Choosing a Share Class A-1
Purchasing Shares A-3
Redeeming Shares A-4
Exchanging Shares A-6
Pricing of Shares A-7
Taxes A-8
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK, AIM Institutional Funds, aimfunds.com, La
Familia AIM de Fondos, La Familia AIM de Fondos and Design and Invest with
Discipline are registered service marks and AIM Bank Connection is a service
mark of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 5
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AIM DEVELOPING MARKETS FUND
---------------------------
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 meet these 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 (1)
organized under the laws of a developing country or have a principal office in a
developing country; (2) that derive 50% or more, alone or on a consolidated
basis, of their total revenues from business in developing countries; or (3)
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 invest no more than 25% of its
assets in issuers in any one country. The fund also may hold no 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 non-diversified. 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
instrument or high-quality debt securities. As a result, the fund may not
achieve its investment objectives.
1
<PAGE> 6
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AIM DEVELOPING MARKETS FUND
---------------------------
Principal Risks of Investing in the Fund
- --------------------------------------------------------------------------------
There is a risk that you could lose all or a portion of your investment in the
fund and that the income you may receive from your investment may vary. The
value of your investment in the fund will go up and down with the prices of the
securities in which the fund invests. The prices of equity securities change in
response to many factors including the historical and prospective earnings of
the issuer, the value of its assets, general economic conditions, interest
rates, investor perceptions, and market liquidity. Debt securities are
particularly vulnerable to credit risk and interest rate fluctuations. When
interest rates rise, bond prices fall; the longer a bond's duration, the more
sensitive it is to this risk.
The prices of foreign securities may be further affected by other factors,
including:
- - Currency exchange rates--The dollar value of the fund's foreign investments
will be affected by changes in the exchange rates between the dollar and the
currencies in which those investments are traded.
- - Political and economic conditions--The value of the fund's foreign investments
may be adversely affected by political and social instability in their home
countries and by changes in economic or taxation policies in those countries.
- - Regulations--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available information
about foreign companies than about U.S. companies.
- - Markets--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and more volatile than U.S. securities.
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.
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 junk bonds 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.
During those times, the bonds would be difficult to value or to sell at a fair
price. Credit ratings on junk bonds do not necessarily reflect their actual
market risk.
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.
The value of your shares could be adversely affected if the computer systems
used by the fund's investment advisor and the fund's other service providers are
unable to distinguish the year 2000 from the year 1900.
The fund's investment advisor and independent technology consultants are
working to avoid year 2000-related problems in its systems and to obtain
assurances that other service providers are taking similar steps. Year 2000
problems may also affect issuers in whose securities the fund invests.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
2
<PAGE> 7
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AIM DEVELOPING MARKETS FUND
---------------------------
Performance Information
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
The following bar chart shows changes in the performance of the fund's Class A
shares from year to year. The bar chart does not reflect sales loads. If it did,
the annual total returns shown would be lower.
[GRAPH]
<TABLE>
<CAPTION>
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURN
- ----------- ------
<S> <C>
1995 ....................................... -(.95)
1996 ....................................... 23.59
1997 ....................................... -(8.49)
1998 ....................................... -(35.32)
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
15.38% (quarter ended June 30, 1995) and the lowest quarterly return was
(27.81)% (quarter ended September 30, 1998).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(for the periods ended SINCE INCEPTION
December 31, 1998) 1 YEAR INCEPTION DATE
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Class A (38.38)% (9.98)% 1/11/94
Class B (38.96) (35.70) 11/3/97
Class C -- -- 3/1/99
MSCI Emerging Markets Free Index(1) (25.34) (9.27)(2) 12/31/93(2)
- -----------------------------------------------------------------------------
</TABLE>
(1) The Morgan Stanley Capital International Emerging Markets Free Index is a
market value-weighted average of the performance of securities listed on the
exchanges of 26 countries. The index excludes shares that are not readily
purchased by non-local investors.
(2) The average annual total return given is since the date closest to the
inception date of the class with the longest performance history.
3
<PAGE> 8
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AIM DEVELOPING MARKETS FUND
---------------------------
Fee Table and Expense Example
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from
your investment) CLASS A CLASS B CLASS C
- --------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) 4.75% None None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase
price or redemption
proceeds, whichever
is less) None(1) 5.00 1.00
- -------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets) CLASS A CLASS B CLASS C
- -------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.98% 0.98% 0.98%
Distribution and/or
Service (12b-1) Fees 0.50 1.00 1.00
Other Expenses
Other 0.93 0.93 0.93
Interest 0.20 0.20 0.20
Total Other Expenses 1.13 1.13 1.13
Total Annual Fund
Operating Expenses 2.61 3.11 3.11
Expense
Reimbursement(2) 0.41 0.41 0.41
Net Expenses 2.20 2.70 2.70
- -------------------------------------------------------
</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 has agreed to limit net expenses through May 31,
2000. The waiver may not be terminated.
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 net 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 $687 $1,130 $1,599 $2,889
Class B 773 1,138 1,630 2,912
Class C 373 838 1,430 3,032
- ----------------------------------------------
</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 $687 $1,130 $1,599 $2,889
Class B 273 838 1,430 2,912
Class C 273 838 1,430 3,032
- ----------------------------------------------
</TABLE>
4
<PAGE> 9
---------------------------
AIM DEVELOPING MARKETS FUND
---------------------------
Fund Management
- --------------------------------------------------------------------------------
THE ADVISORS
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor.
INVESCO Asset Management Limited (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 advisor since its organization in 1976,
and the subadvisor has acted as an investment advisor since 1967. Today, the
advisor, together with its subsidiaries, advises or manages over 110 investment
portfolios, including the fund, encompassing a broad range of investment
objectives.
ADVISOR COMPENSATION
During the fiscal year ended October 31, 1998, the advisor and Chancellor LGT
Asset Management, Inc., (the advisor for the period November 1, 1997 through May
28, 1998) together received compensation of 0.616% of average daily net assets,
consisting of a management and administrative fee of 0.59% and an accounting fee
of 0.026%.
PORTFOLIO MANAGERS
The advisors use a team approach to investment management. The individual
members of the team who are primarily responsible for the day-to-day management
of the fund's portfolio are
- - Francesco Bertoni, Portfolio Manager, who has been responsible for the fund
since 1998 and has been associated with the advisor and/or its affiliates
since 1990.
- - Craig Munro, Portfolio Manager, who has been responsible for the fund since
1999 and has been associated with the advisor and/or its affiliates since
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.
- - Christine Rowley, Portfolio Manager, who has been responsible for the fund
since 1999 and has been associated with the advisor and/or its affiliates
since 1991.
Other Information
- --------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM Developing Markets 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. Purchases of Class B and Class C shares are subject
to the contingent deferred sales charges listed in that section.
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS
The fund generally declares and pays dividends, if any, annually.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains (including
any net gains from foreign currency transactions), if any, annually.
5
<PAGE> 10
---------------------------
AIM DEVELOPING MARKETS FUND
---------------------------
Financial Highlights
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
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(a)
----------------------------------------------------------------------
YEAR TEN MONTHS
ENDED ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, DECEMBER 31, JANUARY 11, TO
1998(b) 1997(c) 1996(c) 1995(c) DECEMBER 31, 1994(c)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 12.56 $ 13.84 $ 11.60 $ 12.44 $ 15.00
Income from investment operations:
Net investment income 0.39(d)(e) 0.25 0.53 0.72 0.35
Net realized and unrealized gain (loss) on
investments (5.10) (1.53) 2.19 (0.84) (2.46)
Net increase (decrease) from investment
operations (4.71) (1.28) 2.72 (0.12) (2.11)
Redemption fees retained 0.28 -- -- -- --
Distributions to shareholders:
From net investment income (0.60) -- (0.48) (0.72) (0.35)
From net realized gain on investments -- -- -- -- (0.10)
Total distributions (0.60) -- (0.48) (0.72) (0.45)
Net asset value, end of period $ 7.53 $ 12.56 $ 13.84 $ 11.60 $ 12.44
Market value, end of period N/A $ 11.81 $ 11.63 $ 9.75 $ 9.75
Total investment return (based on market value) N/A 1.62%(f) 24.18% 6.60% (32.16)%(f)
Total investment return (based on net asset
value) (37.09)%(g) (9.25)%(f) 23.59% (0.95)% (14.07)%(f)
- ------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
Net assets, end of period (in 000s) $87,517 $457,379 $504,012 $422,348 $452,872
Ratio of net investment income to average net
assets:
With expense reductions and reimbursement 3.84% 2.03%(h) 4.07% 6.33% 2.75%(h)
Without expense reductions and reimbursement 3.43% 1.95%(h) 4.04% 6.30% 2.75%(h)
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions and reimbursement 1.73% 1.75%(h) 1.82% 1.77% 2.01%(h)
Without expense reductions and reimbursement 2.14% 1.83%(h) 1.85% 1.80% 2.01%(h)
Ratio of interest expense to average net
assets(i) 0.20% N/A N/A N/A N/A
Portfolio turnover rate(i) 111% 184%(h) 138% 75% 56%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) All capital shares issued and outstanding of the predecessor fund on October
31, 1997 were reclassified as Class A shares.
(b) These selected per share data were calculated based upon average shares
outstanding during the period.
(c) These financial highlights provide per share information of G.T. Global
Developing Markets Fund, Inc. ("predecessor fund") for the period January
11, 1994 (commencement of operations) up to and including October 31, 1997.
The fees and expenses of the fund differ from those of the predecessor fund.
(d) Net investment income per share reflects an interest payment received from
the conversion of Vnesheconombank loan agreements of $0.14 per share.
(e) Before reimbursement the net investment income per share would have been
reduced by $0.04.
(f) Not annualized
(g) Total investment return does not include sales charges.
(h)Annualized
(i) Portfolio turnover rates and ratio of interest expense to average net assets
are calculated on the basis of the fund as whole without distinguishing
between the classes of shares issued.
N/A Not applicable.
6
<PAGE> 11
---------------------------
AIM DEVELOPING MARKETS FUND
---------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B(a)
----------------------
YEAR ENDED OCTOBER 31,
1998(b)
- ------------------------------------------------------------------------------------
<S> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 12.56
Income from investment operations:
Net investment income 0.31(c)(d)
Net realized and unrealized gain (loss) on investments (5.07)
Net increase (decrease) from investment operations (4.76)
Redemption fees retained 0.28
Distributions to shareholders:
From net investment income (0.59)
From net realized gain on investments --
Total distributions (0.59)
Net asset value, end of period $ 7.49
Total investment return (based on net asset value) (39.76)%(e)
- ------------------------------------------------------------------------------------
Ratios and supplemental data:
Net assets, end of period (in 000s) $154
Ratio of net investment income to average net assets:
With expense reductions and reimbursement 3.09%
Without expense reductions and reimbursement 2.68%
Ratio of expenses to average net assets excluding interest
expense:
With expense reductions and reimbursement 2.48%
Without expense reductions and reimbursement 2.89%
Ratio of interest expense to average net assets(f) 0.20%
Portfolio turnover rate(f) 111%
- ------------------------------------------------------------------------------------
</TABLE>
(a)Commencing November 1, 1997, the fund began offering Class B shares.
(b)These selected per share data were calculated based upon the average shares
outstanding during the period.
(c)Net investment income per share reflects an interest payment received from
the conversion of Vnesheconombank loan agreements of $0.14 per share.
(d)Before reimbursement the net investment income per share would have been
reduced by $0.04.
(e)Total investment return does not include sales charges.
(f)Portfolio turnover rates and ratio of interest expense to average net assets
are calculated on the basis of the fund as whole without distinguishing
between the classes of shares issued.
7
<PAGE> 12
-------------
THE AIM FUNDS
-------------
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>
- - Initial sales charge - No initial sales charge - No initial sales charge
- - Reduced or waived initial sales - Contingent deferred sales - Contingent deferred sales
charge for certain purchases charge on redemptions within six charge on redemptions within
years one year
- - Lower distribution and service - 12b-1 fee of 1.00% - 12b-1 fee of 1.00%
(12b-1) fee than Class B or
Class C shares (See "Fee Table
and Expense Example")
- Converts to Class A shares - Does not convert to Class A
after eight years along with a shares
pro rata portion of its
reinvested dividends and
distributions*
- - Generally more appropriate for - Purchase orders limited to - Generally more appropriate
long-term investors amounts less than $250,000 for short-term investors
</TABLE>
* AIM Money Market Fund: Class B shares convert to AIM Cash Reserve
Shares.
AIM Global Trends Fund: If you held Class B shares on May 29,
1998 and continue to hold them, those shares will convert to
Class A shares of that fund seven years after your date of
purchase. If you exchange those shares for Class B shares of
another AIM Fund, the shares into which you exchanged will not
convert to Class A shares until eight years after your date of
purchase of the original shares.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12b-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund) has adopted 12b-1 plans
that allow the AIM Fund to pay distribution fees to A I M Distributors, Inc.
(the distributor) for the sale and distribution of its shares and fees for
services provided to shareholders, all or a substantial portion of which are
paid to the dealer of record. Because the AIM Fund pays these fees out of its
assets on an ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
MCF-03/99
A-1
<PAGE> 13
-------------
THE AIM FUNDS
-------------
SALES CHARGES
Generally, you will not pay a sales charge on purchases or redemptions of Class
A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money
Market Fund. You may be charged a contingent deferred sales charge if you redeem
AIM Cash Reserve Shares of AIM Money Market Fund acquired through certain
exchanges. Sales charges on all other AIM Funds and classes of those Funds are
detailed below. As used below, the term "offering price" with respect to all
categories of Class A shares includes the initial sales charge.
INITIAL SALES CHARGES
The AIM Funds are grouped into three categories with respect to initial sales
charges. The "Other Information" section of your prospectus will tell you in
what category your particular AIM Fund is classified.
<TABLE>
<CAPTION>
CATEGORY I INITIAL SALES CHARGES
- --------------------------------
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
- ----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY II INITIAL SALES CHARGES
- ---------------------------------
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
- ----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY III INITIAL SALES CHARGES
- ----------------------------------
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 100,000 1.00% 1.01%
$ 100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
- ----------------------------------------------------------
</TABLE>
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES
You can purchase $1,000,000 or more of Class A shares at net asset value.
However, if you purchase shares of that amount in Categories I or II, they will
be subject to a contingent deferred sales charge (CDSC) of 1% if you redeem them
prior to 18 months after the date of purchase. The distributor may pay a dealer
concession and/or a service fee for purchases of $1,000,000 or more.
CONTINGENT DEFERRED SALES CHARGES FOR
CLASS B AND CLASS C SHARES
You can purchase Class B and Class C shares at their net asset value per share.
However, when you redeem them, they are subject to a CDSC in the following
percentages:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
- ----------------------------------------------------------
<S> <C> <C>
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
- ----------------------------------------------------------
</TABLE>
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you have redeemed shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify
for these reductions or exceptions, you or your financial consultant must
provide sufficient information at the time of purchase to verify that your
purchase qualifies for such treatment.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Rights of Accumulation
You may combine your new purchases of Class A shares with Class A shares
currently owned for the purpose of qualifying for the lower initial sales charge
rates that apply to larger purchases. The applicable initial sales charge for
the new purchase is based on the total of your current purchase and the current
value of all Class A shares you own.
Letters of Intent
Under a Letter of Intent (LOI), you commit to purchase a specified dollar amount
of Class A shares of AIM Funds during a
A-2
<PAGE> 14
-------------
THE AIM FUNDS
-------------
13-month period. The amount you agree to purchase determines the initial sales
charge you pay. If the full face amount of the LOI is not invested by the end of
the 13-month period, your account will be adjusted to the higher initial sales
charge level for the amount actually invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- - on shares purchased by reinvesting dividends and distributions;
- - when exchanging shares among certain AIM Funds;
- - when using the reinstatement privilege; and
- - when a merger, consolidation, or acquisition of assets of an AIM Fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- - if you redeem Class B shares you held for more than six years;
- - if you redeem Class C shares you held for more than one year;
- - if you redeem shares acquired through reinvestment of dividends and
distributions; and
- - on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares
at reduced or without sales charges. Consult the fund's Statement of Additional
Information for details.
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
The minimum investments for AIM Fund accounts (except for investments in AIM
Small Cap Opportunities Fund) are as follows:
<TABLE>
<CAPTION>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing $ 0 ($25 per AIM Fund investment for $25
plans, 401(k) plans, Simplified Employee Pension salary deferrals from Savings Plans)
(SEP) accounts, Salary Reduction (SARSEP)
accounts, Savings Incentive Match Plans for
Employee IRA (Simple IRA) accounts, 403(b) or
457 plans)
Automatic Investment Plans 50 50
IRA, Education IRA or Roth IRA 250 50
All other accounts 500 50
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below.
PURCHASE OPTIONS
- -
<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 Application Mail your check and the remittance
and purchase payment to the slip from your confirmation
transfer agent, statement to the transfer agent.
A I M Fund Services, Inc.,
P.O. Box 4739,
Houston, TX 77210-4739.
By Wire Mail completed Account Application Call the transfer agent to receive
to the transfer agent. Call the a reference number. Then, use the
transfer agent at (800) 959-4246 to wire instructions at left.
receive a reference number. Then,
use the following wire
instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number:
00100366807
Beneficiary Account Name: A I M
Fund Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank
methods described above. Connection(SM) form to the transfer
agent. Once the transfer agent has
received the form, call the
transfer agent to place your
purchase.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
A-3
<PAGE> 15
-------------
THE AIM FUNDS
-------------
SPECIAL PLANS
AUTOMATIC INVESTMENT PLAN
You can arrange for periodic investments in any of the AIM Funds by authorizing
the AIM Fund to withdraw the amount of your investment from your bank account on
a day or dates you specify and in an amount of at least $50. You may stop the
Automatic Investment Plan at any time by giving the transfer agent notice ten
days prior to your next scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one AIM Fund account to one or more other AIM Fund
accounts with the identical registration. The account from which exchanges are
to be made must have a minimum balance of $5,000 before you can use this option.
Exchanges will occur on (or about) the 10th or 25th day of the month, whichever
you specify, in the amount you specify. The minimum amount you can exchange to
another AIM Fund is $50.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
AIM Fund at net asset value. Unless you specify otherwise, your dividends and
distributions will automatically be reinvested in the same AIM Fund. You may
invest your dividends and distributions (1) into another AIM Fund in the same
class of shares; or (2) from Class A shares into AIM Cash Reserve Shares of AIM
Money Market Fund, or vice versa.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend must be at
least $5,000; or (b) in the AIM Fund receiving the dividend must be at least
$500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends into
another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this Program, you can designate how the
total value of your AIM Fund holdings should be rebalanced, on a percentage
basis, between two and ten of your AIM Funds on a quarterly, semiannual or
annual basis. Your portfolio will be rebalanced through the exchange of shares
in one or more of your AIM Funds for shares of the same class of one or more
other AIM Funds in your portfolio. If you wish to participate in the Program,
make changes or cancel the Program, the transfer agent must receive your request
to participate, changes or cancellation in good order at least five business
days prior to the next rebalancing date, which is normally the 28th day of the
last month of the period you choose. We may modify, suspend or terminate the
Program at any time on 60 days' prior written notice.
RETIREMENT PLANS
Shares of most of the AIM Funds can be purchased through
tax-sheltered retirement plans made available to corporations, individuals and
employees of non-profit organizations and public schools. A plan document must
be adopted to establish a retirement plan. You may use AIM Funds-sponsored
retirement plans, which include IRAs, Education IRAs, Roth IRAs, 403(b) plans,
401(k) plans, SIMPLE IRA plans, SEP/SARSEP plans and Money Purchase/Profit
Sharing plans, or another sponsor's retirement plan. The plan custodian of the
AIM Funds-sponsored retirement plan assesses an annual maintenance fee of $10.
Contact your financial consultant for details.
REDEEMING SHARES
REDEMPTION FEES
We will not charge you any fees to redeem your shares; however, your broker or
financial consultant may charge service fees for handling these transactions.
Your shares may be subject to a contingent deferred sales charge (CDSC).
REDEMPTION OF AIM CASH RESERVE SHARES OF
AIM MONEY MARKET FUND ACQUIRED BY EXCHANGE
If you redeem AIM Cash Reserve Shares acquired by exchange from Class A shares
subject to a CDSC within 18 months of the purchase of the Class A shares,
you will be charged a CDSC.
REDEMPTION OF CLASS B SHARES ACQUIRED BY
EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM
Floating Rate Fund, the early withdrawal charge applicable to shares of AIM
Floating Rate Fund will be applied instead of the CDSC normally applicable to
Class B shares.
A-4
<PAGE> 16
-------------
THE AIM FUNDS
-------------
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
Consultant
By Mail Send a written request to the transfer agent. Requests must
include (1) original signatures of all registered owners;
(2) the name of the AIM Fund and your account number; (3) if
the transfer agent does not hold your shares, endorsed share
certificates or share certificates accompanied by an
executed stock power; and (4) signature guarantees, if
necessary (see below). The transfer agent may require that
you provide additional information, such as corporate
resolutions or powers of attorney, if applicable. If you are
redeeming from an IRA account, you must include a statement
of whether or not you are at least 59 1/2 years old and
whether you wish to have federal income tax withheld from
your proceeds. The transfer agent may require certain other
information before you can redeem from an employer-sponsored
retirement plan. Contact your employer for details.
By Telephone Call the transfer agent. You will be allowed to redeem by
telephone if (1) the proceeds are to be mailed to the
address on record with us or transferred electronically to a
pre-authorized checking account; (2) the address on record
with us has not been changed within the last 30 days;
(3) you do not hold physical share certificates; (4) you can
provide proper identification information; (5) the proceeds
of the redemption do not exceed $50,000; and (6) you have
not previously declined the telephone redemption privilege.
Certain accounts, including retirement accounts and 403(b)
plans, may not redeem by telephone. The transfer agent must
receive your call during the hours the NYSE is open for
business in order to effect the redemption at that day's
closing price.
</TABLE>
- --------------------------------------------------------------------------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds to the address on record with us.
If your request is not in good order, you may have to provide us with additional
documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
PAYMENT FOR SYSTEMATIC WITHDRAWALS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. You also may make annual withdrawals if you own Class A shares.
We will redeem enough shares from your account to cover the amount withdrawn.
You must have an account balance of at least $5,000 to establish a Systematic
Withdrawal Plan. You can stop this plan at any time by giving ten days prior
notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM Cash Reserve Shares of AIM Money Market Fund only)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of trading
on the 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.
A-5
<PAGE> 17
-------------
THE AIM FUNDS
-------------
REINSTATEMENT PRIVILEGE (Class A shares only)
You may, within 90 days after you sell Class A shares (except Class A shares of
AIM Tax-Exempt Cash Fund), reinvest all or part of your redemption proceeds in
Class A shares of any AIM Fund at net asset value in an identically registered
account. If you sold Class A shares of AIM Limited Maturity Treasury Fund or AIM
Tax-Free Intermediate Fund, you will incur an initial sales charge reflecting
the difference between the initial sales charges on those Funds and the ones in
which you will be investing. In addition, if you paid a contingent deferred
sales charge (CDSC) on any reinstated amount, you will not be subject to a CDSC
if you later redeem that amount. You must notify the transfer agent in writing
at the time you reinstate that you are exercising your reinstatement privilege.
You may exercise this privilege only once per year.
REDEMPTIONS BY THE AIM FUNDS
If your account has been open at least one year, you have not made an additional
purchase in the account during the past six calendar months, and the value of
your account falls below $500 for three consecutive months due to redemptions or
exchanges (excluding retirement accounts), the AIM Funds have the right to
redeem the account after giving you 60 days' prior written notice. You may avoid
having your account redeemed during the notice period by bringing the account
value up to $500 or by utilizing the Automatic Investment Plan.
If an AIM Fund determines that you have provided incorrect information in
opening an account or in the course of conducting subsequent transactions, the
AIM Fund may, at its discretion, redeem the account and distribute the proceeds
to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one AIM Fund for those
of another AIM Fund. Before requesting an exchange, review the prospectus of the
AIM Fund you wish to acquire. Exchange privileges also apply to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992.
PERMITTED EXCHANGES
Except as otherwise stated below, you may exchange your shares for shares of the
same class of another AIM Fund. You also may exchange AIM Cash Reserve Shares of
AIM Money Market Fund for Class A shares of another AIM Fund, or vice versa. You
may be required to pay an initial sales charge when exchanging from a Fund with
a lower initial sales charge than the one into which you are exchanging. If you
exchange from Class A shares not subject to a CDSC into Class A shares subject
to those charges, you will be charged a CDSC when you redeem the exchanged
shares. The CDSC charged on redemption of those shares will be calculated
starting on the date you acquired those shares through exchange.
You also may exchange AIM Cash Reserve Shares of AIM Money Market Fund for
Advisor Class shares, but only if you acquired the AIM Cash Reserve Shares
through an exchange from Advisor Class shares.
YOU WILL NOT PAY A SALES CHARGE WHEN EXCHANGING:
(1) Class A shares with an initial sales charge (except for Class A shares of
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
Class A shares of another AIM Fund or AIM Cash Reserve Shares of AIM Money
Market Fund;
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund for
(a) one another;
(b) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of
AIM Tax-Exempt Cash Fund; or
(c) Class A shares of another AIM Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way of
an exchange from shares with higher sales charges;
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) one another;
(b) Class A shares of an AIM Fund subject to an initial sales charge (except
for Class A shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund), but only if you acquired the original
shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to an
initial sales charge;
(ii) on or after May 1, 1994 by exchange from Class A shares subject to
an initial sales charge (except for Class A shares of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund); or
(c) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund, but only if you acquired the original shares by
exchange from Class A shares subject to an initial sales charge; or
(4) Class B shares for other Class B shares, and Class C shares for other Class
C shares.
EXCHANGES NOT PERMITTED
You may not exchange Class A shares subject to contingent deferred sales charges
for Class A shares of AIM Limited Maturity Treasury Fund, AIM Tax-Free
Intermediate Fund or AIM Tax-Exempt Cash Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be qualified for sale in your
state of residence;
A-6
<PAGE> 18
-------------
THE AIM FUNDS
-------------
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - Shares must have been held for at least one day prior to the exchange; and
- - If you have physical share certificates, you must return them to the transfer
agent prior to the exchange.
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.
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. TO PROTECT THE INTERESTS OF
INVESTORS, EACH AIM FUND AND THE DISTRIBUTOR MAY REJECT ANY ORDER CONSIDERED
MARKET-TIMING ACTIVITY.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. AIM Money
Market Fund and AIM Tax-Exempt Cash Fund value all of their securities at
amortized cost. AIM High Income Municipal Fund, AIM Municipal Bond Fund, AIM
Tax-Exempt Bond Fund of Connecticut and AIM Tax-Free Intermediate Fund value
variable rate securities that have an unconditional demand or put feature
exercisable within seven days or less at par, which reflects the market value of
such securities.
The AIM Funds value all other securities and assets at their fair value.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day. In addition, if,
between the time trading ends on a particular security and the close of the 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.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours 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. An AIM Fund may postpone the right of redemption only under unusual
circumstances, as allowed by the Securities and Exchange Commission, such as
when the NYSE restricts or suspends trading.
A-7
<PAGE> 19
-------------
THE AIM FUNDS
-------------
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund holds
its assets. Different tax rates apply to ordinary income and long-term capital
gain distributions, regardless of how long you have held your shares. Every
year, you will be sent information showing the amount of dividends and
distributions you received from each AIM Fund during the prior year.
Any long-term or short-term capital gains realized from redemptions of AIM
Fund shares will be subject to federal income tax. Exchanges of shares for
shares of another AIM Fund are treated as a sale, and any gain realized on the
transaction will generally be subject to federal income tax.
The foreign, state and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
A-8
<PAGE> 20
---------------------------
AIM DEVELOPING MARKETS FUND
---------------------------
Obtaining Additional Information
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us
- ---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Distributors, Inc.
11 Greenway Plaza, Suite
100
Houston, TX 77046-1173
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
- ---------------------------------------------------------
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, DC, on the SEC's website
(http://www.sec.gov), or by sending a letter, including a duplicating fee, to
the SEC's Public Reference Section, Washington, DC 20549-6009. Please call the
SEC at 1-800-SEC-0330 for information about the Public Reference Room.
- -------------------------------------
AIM Developing Markets Fund
SEC 1940 Act file number: 811-05426
- -------------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com DVM-PRO-1 INVEST WITH DISCIPLINE
<PAGE> 21
AIM DEVELOPING MARKETS FUND
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Advisor Class
AIM Developing Markets Fund seeks to provide long-term growth of capital
with a secondary objective of income, to the extent consistent with
seeking growth of capital.
PROSPECTUS
MARCH 1, 1999
This prospectus contains important
information. Please read it before
investing and keep it for future
reference.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE--Registered
Trademark--
<PAGE> 22
Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE
FUND 2
- - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 3
- - - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 3
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
- - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 4
Expense Example 4
FUND MANAGEMENT 5
- - - - - - - - - - - - - - - - - - - - - - - - -
The Advisors 5
Advisor Compensation 5
Portfolio Managers 5
OTHER INFORMATION 5
- - - - - - - - - - - - - - - - - - - - - - - - -
Dividends and Distributions 5
FINANCIAL HIGHLIGHTS 6
- - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - -
Purchasing Shares A-1
Redeeming Shares A-2
Exchanging Shares A-3
Pricing of Shares A-4
Taxes A-4
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK, AIM Institutional Funds, aimfunds.com, La
Familia AIM de Fondos, La Familia AIM de Fondos and Design and Invest with
Discipline are registered service marks and AIM Bank Connection is a service
mark of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 23
---------------------------
AIM DEVELOPING MARKETS FUND
---------------------------
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 meet these 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 (1)
organized under the laws of a developing country or have a principal office in a
developing country; (2) that derive 50% or more, alone or on a consolidated
basis, of their total revenues from business in developing countries; or (3)
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; it may invest up to 25% of its assets in
issuers in any one country. The fund also may hold up to 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 non-diversified. 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
instruments, bonds or high-quality debt securities. As a result, the fund may
not achieve its investment objective.
1
<PAGE> 24
---------------------------
AIM DEVELOPING MARKETS FUND
---------------------------
Principal Risks of Investing in the Fund
- --------------------------------------------------------------------------------
There is a risk that you could lose all or a portion of your investment in the
fund and that the income you may receive from your investment may vary. The
value of your investment in the fund will go up and down with the prices of the
securities in which the fund invests. The prices of equity securities change in
response to many factors including the historical and prospective earnings of
the issuer, the value of its assets, general economic conditions, interest
rates, investor perceptions, and market liquidity. Debt securities are
particularly vulnerable to credit risk and interest rate fluctuations. When
interest rates rise, bond prices fall; the longer a bond's duration, the more
sensitive it is to this risk.
The prices of foreign securities may be further affected by other factors,
including:
- - Currency exchange rates--The dollar value of the fund's foreign investments
will be affected by changes in the exchange rates between the dollar and the
currencies in which those investments are traded.
- - Political and economic conditions--The value of the fund's foreign investments
may be adversely affected by political and social instability in their home
countries and by changes in economic or taxation policies in those countries.
- - Regulations--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available information
about foreign companies than about U.S. companies.
- - Markets--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and more volatile than U.S. securities.
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.
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 junk bonds 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.
During those times, the bonds could be difficult to value or to sell at a fair
price. Credit ratings on junk bonds do not necessarily reflect their actual
market risk.
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.
The value of your shares could be adversely affected if the computer systems
used by the fund's investment advisor and the fund's other service providers are
unable to distinguish the year 2000 from the year 1900.
The fund's investment advisor and independent technology consultants are
working to avoid year 2000-related problems in its systems and to obtain
assurances that other service providers are taking similar steps. Year 2000
problems may also affect issuers in whose securities the fund invests.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
2
<PAGE> 25
---------------------------
AIM DEVELOPING MARKETS FUND
---------------------------
Performance Information
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
The following bar chart shows changes in the performance of the fund's Advisor
Class shares from year to year.
[GRAPH]
<TABLE>
<CAPTION>
YEAR ENDED ANNUAL TOTAL
DECEMBER 31 RETURN
- ----------- ------------
<S> <C>
1998 ....................................... -35.12%
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
9.38% (quarter ended December 31, 1998) and the lowest quarterly return was
(27.68)% (quarter ended September 30, 1998).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(for the period ending SINCE INCEPTION
December 31, 1998) 1 YEAR INCEPTION DATE
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Advisor Class (35.12)% (32.83)% 11/04/97
MSCI Emerging Markets Free Index(1) (25.34) (23.04)(2) 10/31/97(2)
- -----------------------------------------------------------------------------
</TABLE>
(1 )The Morgan Stanley Capital International Emerging Markets Free Index is a
market value-weighted average of the performance of securities listed on the
exchanges of 26 countries. The index excludes shares that are not readily
purchased by non-local investors.
(2 )The average annual total return is given since the date closest to the
inception date of the Advisor Class.
3
<PAGE> 26
---------------------------
AIM DEVELOPING MARKETS FUND
---------------------------
Fee Table and Expense Example
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from
your investment) ADVISOR CLASS
- ---------------------------------------------------
<S> <C> <C>
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
- ---------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets) ADVISOR CLASS
- ---------------------------------------------------
<S> <C> <C>
Management Fees 0.98%
Distribution and/or Service
(12b-1) Fees None
Other Expenses
Other 0.93
Interest 0.20
Total Other Expenses 1.13
Total Annual Fund Operating
Expenses 2.11
Expense Reimbursement(1) (0.41)
Net Expenses 1.70
- ---------------------------------------------------
</TABLE>
(1) The investment advisor has agreed to limit net expenses through May 31,
2000. The waiver may not be terminated.
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 net 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 $173 $536 $923 $2,009
- ----------------------------------------------------
</TABLE>
4
<PAGE> 27
---------------------------
AIM DEVELOPING MARKETS FUND
---------------------------
Fund Management
- --------------------------------------------------------------------------------
THE ADVISORS
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor.
INVESCO Asset Management Limited (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 advisor since its organization in 1976,
and the subadvisor has acted as an investment advisor since 1967. Today, the
advisor, together with its subsidiaries, advises or manages over 110 investment
portfolios, including the fund, encompassing a broad range of investment
objectives.
ADVISOR COMPENSATION
During the fiscal year ended October 31, 1998, the advisor and Chancellor LGT
Asset Management, Inc., (the advisor for the period November 1, 1997 through May
28, 1998) together received compensation of 0.616% of average daily net assets,
consisting of a management and administrative fee of 0.59% and an accounting fee
of 0.026%.
PORTFOLIO MANAGERS
The advisors use a team approach to investment management. The individual
members of the team who are primarily responsible for the day-to-day management
of the fund's portfolio, are
- - Francesco Bertoni, Portfolio Manager, who has been responsible for the fund
since 1998 and has been associated with the advisor and/or its affiliates
since 1998.
- - Craig Munro, Portfolio Manager, who has been responsible for the fund since
1999 and has been associated with the advisor and/or its affiliates since
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.
- - Christine Rowley, Portfolio Manager, who has been responsible for the fund
since 1999 and has been associated with the advisor and/or its affiliates
since 1991.
Other Information
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS
The fund generally declares and pays dividends, if any, annually.
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.
5
<PAGE> 28
---------------------------
AIM DEVELOPING MARKETS FUND
---------------------------
Financial Highlights
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
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(A)
------------------------------
YEAR ENDED OCTOBER 31, 1998(B)
- ----------------------------------------------------------------------------------------------
<S> <C>
Per Share Operating Performance:
Net asset value, beginning of period $12.56
Income from investment operations:
Net investment income 0.40(c)(d)
Net realized and unrealized gain (loss) on investments (5.09)
Net increase (decrease) from investment operations (4.69)
Redemption fees retained 0.28
Distributions to shareholders:
From net investment income (0.60)
From net realized gain on investments --
Total distributions (0.60)
Net asset value, end of period $ 7.55
Total investment return (based on net asset value) (42.63)%(e)
- ----------------------------------------------------------------------------------------------
Ratios and supplemental data:
Net assets, end of period (in 000s) $ 29
Ratio of net investment income to average net assets:
With expense reductions and reimbursement 4.09%
Without expense reductions and reimbursement 3.68%
Ratio of expenses to average net assets excluding interest
expense:
With expense reductions and reimbursement 1.48%
Without expense reductions and reimbursement 1.89%
Ratio of interest expense to average net assets(f) 0.20%
Portfolio turnover rate(f) 111%
- ----------------------------------------------------------------------------------------------
</TABLE>
(a) Commencing November 1, 1997, the fund began offering Advisor Class shares.
(b) These selected per share data were calculated based upon the average shares
outstanding during the period.
(c) Net investment income per share reflects an interest payment received from
the conversion of Vnesheconombank loan agreements of $0.14 per share.
(d) Before reimbursement the net investment income per share would have been
reduced by $0.04.
(e) Total investment return does not include sales charges.
(f) Portfolio turnover rates and ratio of interest expense to average net assets
are calculated on the basis of the fund as a whole without distinguishing
between the classes of shares issued.
6
<PAGE> 29
-------------
THE AIM FUNDS
-------------
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 of the funds advised by the
advisor (the AIM Funds), your financial consultant, on your behalf, must submit
a fully completed new account application form directly to the transfer agent.
You may purchase shares using one of the options below.
PURCHASE OPTIONS
- -
<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 Call the transfer agent to receive
a completed account application to a reference number. Then, use the
the transfer agent. You or your wire instructions at left.
financial 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 #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank
methods described above. Connection(SM) form to the transfer
agent. Once the transfer agent has
received the form, call the
transfer agent to place your
purchase order.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
A- 1 ADV--03/99
<PAGE> 30
-------------
THE AIM FUNDS
-------------
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.
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. TO PROTECT THE INTERESTS OF
INVESTORS, EACH AIM FUND AND THE DISTRIBUTOR MAY REJECT ANY ORDER CONSIDERED
MARKET TIMING ACTIVITY.
REDEEMING SHARES
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.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
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 New York Stock Exchange (NYSE) is open for business in
order to effect the redemption at that day's closing price.
</TABLE>
- --------------------------------------------------------------------------------
ADV--03/99 A- 2
<PAGE> 31
-------------
THE AIM FUNDS
-------------
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
(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.
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. You also may exchange Advisor
Class shares for AIM Cash Reserve shares of AIM Money Market 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:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be qualified for sale in your
state of residence;
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - The AIM Fund from which you are exchanging must have received the full amount
of the purchase price for the shares being exchanged;
- - 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
- - 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
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 New York Stock Exchange (NYSE) is open for business;
however, you still will be
A- 3 ADV--03/99
<PAGE> 32
-------------
THE AIM FUNDS
-------------
allowed to exchange by telephone even if you have changed your address of record
within the preceding 30 days.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. 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 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.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours 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. An AIM Fund may postpone the right of redemption only under unusual
circumstances, as allowed by the Securities and Exchange Commission, such as
when the NYSE restricts or suspends trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund holds
its assets. Different rates of tax apply to ordinary income and long-term
capital gain distributions. Every year, you will be sent information 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, and any gain realized on the
transaction will generally be subject to federal income tax.
The foreign, state, and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
ADV--03/99 A- 4
<PAGE> 33
---------------------------
AIM DEVELOPING MARKETS FUND
---------------------------
Obtaining Additional Information
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us
- ---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Distributors, Inc.
11 Greenway Plaza, Suite
100
Houston, TX 77046-1173
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
- ---------------------------------------------------------
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, DC, on the SEC's website
(http://www.sec.gov), or by sending a letter, including a duplicating fee, to
the SEC's Public Reference Section, Washington, DC 20549-6009. Please call the
SEC at 1-800-SEC-0330 for information about the Public Reference Room.
- -------------------------------------
AIM Developing Markets Fund
SEC 1940 Act file number: 811-05426
- -------------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com
DVM-PRO-2 INVEST WITH DISCIPLINE--Registered Trademark--
<PAGE> 34
AIM EMERGING MARKETS DEBT FUND
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
AIM Emerging Markets Debt Fund primarily seeks high current income and,
secondarily, growth of capital.
PROSPECTUS
MARCH 1, 1999
This Prospectus contains important
information about the Class A, B and
C shares of the fund. Please read it
before investing and keep it for
future reference.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE--Registered Trademark--
<PAGE> 35
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE
FUND 2
- - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 3
- - - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 3
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
- - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 4
Expense Example 4
FUND MANAGEMENT 5
- - - - - - - - - - - - - - - - - - - - - - - - -
The Advisors 5
Advisor Compensation 5
Portfolio Managers 5
OTHER INFORMATION 5
- - - - - - - - - - - - - - - - - - - - - - - - -
Sales Charges 5
Dividends and Distributions 5
FINANCIAL HIGHLIGHTS 6
- - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - -
Choosing a Share Class A-1
Purchasing Shares A-3
Redeeming Shares A-4
Exchanging Shares A-6
Pricing of Shares A-7
Taxes A-8
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK, AIM Institutional Funds, aimfunds.com, La
Familia AIM de Fondos, La Familia AIM de Fondos and Design and Invest with
Discipline are registered service marks and AIM Bank Connection is a service
mark of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 36
------------------------------
AIM EMERGING MARKETS DEBT FUND
------------------------------
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 meet these objectives by investing all of its investable
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 portfolio 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 (1) debt
securities issued or guaranteed by the governments of developing countries, or
their agencies or instrumentalities; (2) securities issued or guaranteed by the
central banks of emerging market countries; (3) securities issued by other banks
and companies in such countries; and (4) 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. 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 instruments or high-quality 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.
If the fund's Board of Trustees determines that it is in the best interests of
the fund and its shareholders, the fund may redeem its investment in the
portfolio.
1
<PAGE> 37
------------------------------
AIM EMERGING MARKETS DEBT FUND
------------------------------
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 longer a bond's duration, the more sensitive it is
to this risk.
The prices of foreign securities may be further affected by other factors,
including:
- - Currency exchange rates--The dollar value of the fund's foreign investments
will be affected by changes in the exchange rates between the dollar and the
currencies in which those investments are traded.
- - Political and economic conditions--The value of the fund's foreign investments
may be adversely affected by political and social instability in their home
countries and by changes in economic or taxation policies in those countries.
- - Regulations--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available information
about emerging market companies than about U.S. companies.
- - Markets--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and more volatile than U.S. securities.
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.
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 junk bonds 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.
During those times, the bonds could be difficult to value or to sell at a fair
price. Credit ratings on junk bonds do not necessarily reflect their actual
market risk.
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.
The value of your shares could be adversely affected if the computer systems
used by the portfolio's investment advisor and other service providers are
unable to distinguish the year 2000 from the year 1900.
The portfolio's investment advisor and independent technology consultants are
working to avoid year 2000-related problems in its systems and to obtain
assurances that other service providers are taking similar steps. Year 2000
problems may also affect issuers in whose securities the portfolio invests.
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.
2
<PAGE> 38
------------------------------
AIM EMERGING MARKETS DEBT FUND
------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
The following bar chart shows changes in the performance of the fund's Class A
shares from year to year. The bar chart does not reflect sales loads. If it did,
the annual total returns shown would be lower.
<TABLE>
<CAPTION>
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURN
- ----------- ------
<S> <C>
1993 ............................... 51.57%
1994 ............................... -19.24%
1995 ............................... 20.19%
1996 ............................... 36.78%
1997 ............................... 11.89%
1998 ............................... -28.91%
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
18.61% (quarter ended June 30, 1995) and the lowest quarterly return was
(33.02)% (quarter ended September 30, 1998).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(for the periods ended SINCE INCEPTION
December 31, 1998) 1 YEAR 5 YEARS INCEPTION DATE
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A (32.28)% 0.11% 7.34% 10/22/92
Class B (32.50)% 0.26% 7.50% 10/22/92
Class C -- -- -- 03/01/99
J.P. Morgan EMBI (Brady) Index(1) (11.04) 7.53 12.72(2) 10/31/92(2)
- --------------------------------------------------------------------------------------
</TABLE>
(1) The J.P. Morgan Emerging Markets Bond Index (Brady) Index is a market
value-weighted average of Brady Bonds from ten emerging bond markets.
(2) The average annual total return given is since the date closest to the
inception date of the class with the longest performance history.
3
<PAGE> 39
------------------------------
AIM EMERGING MARKETS DEBT FUND
------------------------------
FEE TABLE AND EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from
your investment) CLASS A CLASS B CLASS C
- -------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) 4.75% None None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase
price or redemption
proceeds, whichever
is less) None(1) 5.00 1.00
- -------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets)(2) CLASS A CLASS B CLASS C
- -------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.90% 0.90% 0.90%
Distribution and/or
Service (12b-1) Fees 0.35 1.00 1.00
Other Expenses 0.49 0.49 0.49
Total Annual Fund
Operating Expenses 1.74 2.39 2.39
- -------------------------------------------------------
</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) This fee table, and the expense example below, reflect the expenses of both
the fund and the portfolio.
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>
Class A $643 $ 997 $1,374 $2,429
Class B 742 1,045 1,475 2,565
Class C 342 745 1,275 2,726
- ----------------------------------------------
</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 $643 $997 $1,374 $2,429
Class B 242 745 1,275 2,565
Class C 242 745 1,275 2,726
- ----------------------------------------------
</TABLE>
4
<PAGE> 40
------------------------------
AIM EMERGING MARKETS DEBT FUND
------------------------------
FUND MANAGEMENT
- --------------------------------------------------------------------------------
THE ADVISORS
A I M Advisors, Inc. (the advisor) serves as the investment advisor of Emerging
Markets Debt Portfolio (the portfolio). INVESCO Asset Management Limited (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 advisor since its organization in 1976,
and the subadvisor has acted as an investment advisor since 1967. Today, the
advisor, together with its subsidiaries, advises or manages over 110 investment
portfolios, including the portfolio, encompassing a broad range of investment
objectives.
ADVISOR COMPENSATION
During the fiscal year ended October 31, 1998, the advisor and Chancellor LGT
Asset Management, Inc., (the advisor for the period November 1, 1997 through May
28, 1998) together received compensation of 0.926% of average daily net assets,
consisting of a management and administrative fee of 0.90% and an accounting fee
of 0.026%.
PORTFOLIO MANAGERS
The advisors use 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 are
- - John Cleary, Portfolio Manager, who has been responsible for the fund since
1999 and has been associated with the advisor and/or its affiliates since
1998. From 1997 to 1998, he was Manager of a global emerging markets fixed
income fund for West Merchant Bank Ltd. From 1994 to 1996 he was enrolled in
graduate school.
- - 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. 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.
Other Information
- --------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM Emerging Markets Debt 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. Purchases of Class B and Class C shares are subject
to the contingent deferred sales charges listed in that section.
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS
The fund generally declares and pays dividends, if any, monthly.
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.
5
<PAGE> 41
------------------------------
AIM EMERGING MARKETS DEBT FUND
------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
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
- --------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
- --------------------------------------------------------------------------------------------------------
1998(a) 1997(a) 1996(a) 1995 1994(a)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 15.56 $ 14.85 $ 11.70 $ 12.56 $ 14.92
Income from investment operations:
Net investment income 1.35(b) 1.19 1.27 1.35 0.94
Net realized and unrealized gain (loss) on
investments and foreign currencies (4.80) 0.93 3.09 (1.09) (1.87)
Net increase (decrease) from investment
operations (3.45) 2.12 4.36 0.26 (0.93)
Distributions to shareholders:
From net investment income (1.06) (1.18) (1.11) (1.03) (0.94)
From net realized gain on investments (2.83) (0.23) (0.10) (0.03) (0.27)
In excess of net realized gain on investments -- -- -- -- (0.22)
Return of capital (0.36) -- -- (0.06) --
Total distributions (4.25) (1.41) (1.21) (1.12) (1.43)
Net asset value, end of period $ 7.86 $ 15.56 $ 14.85 $ 11.70 $ 12.56
Total investment return(c) (30.07)% 14.46% 39.05% 2.81% (6.45)%
- --------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
Net assets, end of period (in 000s) $69,321 $133,973 $178,318 $142,002 $167,974
Ratio of net investment income to average net
assets 11.27% 7.39% 9.52% 11.85% 7.00%
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions 1.74% 1.53% 1.69% 1.75% 1.57%
Without expense reductions 1.74% 1.58% 1.69% 1.75% 1.57%
Ratio of interest expense to average net
assets(d) N/A N/A 0.04% N/A 0.22%
Portfolio turnover rate(d) 339% 214% 290% 213% 178%
- -----------------------------------------------------------------------------------------------------
</TABLE>
(a) These selected per share operating data were calculated based upon average
shares outstanding during the period.
(b) Net investment income per share reflects an interest payment received from
the conversion of Vnesheconombank loan agreements of $0.21 per share.
(c) Total investment return does not include sales charges.
(d) Portfolio turnover rates and ratio of interest expense to average net assets
are calculated on the basis of the fund as a whole without distinguishing
among the classes of shares issued.
N/A Not applicable.
6
<PAGE> 42
------------------------------
AIM EMERGING MARKETS DEBT FUND
------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B
- ------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
- ------------------------------------------------------------------------------------------------------------
1998(a) 1997(a) 1996(a) 1995 1994(a)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 15.54 $ 14.83 $ 11.69 $ 12.56 $ 14.90
Income from investment operations:
Net investment income 1.28(b) 1.09 1.17 1.27 0.86
Net realized and unrealized gain (loss) on
investments and foreign currencies (4.79) 0.93 3.09 (1.09) (1.85)
Net increase (decrease) from investment
operations (3.51) 2.02 4.26 0.18 (0.99)
Distributions to shareholders:
From net investment income (0.98) (1.08) (1.03) (0.96) (0.86)
From net realized gain on investments (2.83) (0.23) (0.09) (0.03) (0.27)
In excess of net realized gain on investments -- -- -- -- (0.22)
Return of capital (0.36) -- -- (0.06) --
Total distributions (4.17) (1.31) (1.12) (1.05) (1.35)
Net asset value, end of period $ 7.86 $ 15.54 $ 14.83 $ 11.69 $ 12.56
Total investment return(c) (30.49)% 13.77% 38.16% 2.07% (6.99)%
- ------------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
Net assets, end of period (in 000s) $109,406 $228,101 $251,002 $214,897 $232,423
Ratio of net investment income to average net
assets 10.62% 6.74% 8.87% 11.20% 6.35%
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions 2.39% 2.18% 2.34% 2.40% 2.22%
Without expense reductions 2.39% 2.23% 2.34% 2.40% 2.22%
Ratio of interest expense to average net
assets(d) N/A N/A 0.04% N/A 0.22%
Portfolio turnover rate(d) 339% 214% 290% 213% 178%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(a) These selected per share operating data were calculated based upon average
shares outstanding during the period.
(b) Net investment income per share reflects an interest payment received from
the conversion of Vnesheconombank loan agreements of $0.21 per share.
(c) Total investment return does not include sales charges.
(d) Portfolio turnover rates and ratio of interest expense to average net assets
are calculated on the basis of the fund as a whole without distinguishing
among the classes of shares issued.
N/A Not applicable.
7
<PAGE> 43
-------------
THE AIM FUNDS
-------------
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>
- - Initial sales charge - No initial sales charge - No initial sales charge
- - Reduced or waived initial sales - Contingent deferred sales - Contingent deferred sales
charge for certain purchases charge on redemptions within six charge on redemptions within
years one year
- - Lower distribution and service - 12b-1 fee of 1.00% - 12b-1 fee of 1.00%
(12b-1) fee than Class B or
Class C shares (See "Fee Table
and Expense Example")
- Converts to Class A shares - Does not convert to Class A
after eight years along with a shares
pro rata portion of its
reinvested dividends and
distributions*
- - Generally more appropriate for - Purchase orders limited to - Generally more appropriate
long-term investors amounts less than $250,000 for short-term investors
</TABLE>
* AIM Money Market Fund: Class B shares convert to AIM Cash Reserve
Shares.
AIM Global Trends Fund: If you held Class B shares on May 29,
1998 and continue to hold them, those shares will convert to
Class A shares of that fund seven years after your date of
purchase. If you exchange those shares for Class B shares of
another AIM Fund, the shares into which you exchanged will not
convert to Class A shares until eight years after your date of
purchase of the original shares.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12b-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund) has adopted 12b-1 plans
that allow the AIM Fund to pay distribution fees to A I M Distributors, Inc.
(the distributor) for the sale and distribution of its shares and fees for
services provided to shareholders, all or a substantial portion of which are
paid to the dealer of record. Because the AIM Fund pays these fees out of its
assets on an ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
MCF-03/99
A-1
<PAGE> 44
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THE AIM FUNDS
-------------
SALES CHARGES
Generally, you will not pay a sales charge on purchases or redemptions of Class
A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money
Market Fund. You may be charged a contingent deferred sales charge if you redeem
AIM Cash Reserve Shares of AIM Money Market Fund acquired through certain
exchanges. Sales charges on all other AIM Funds and classes of those Funds are
detailed below. As used below, the term "offering price" with respect to all
categories of Class A shares includes the initial sales charge.
INITIAL SALES CHARGES
The AIM Funds are grouped into three categories with respect to initial sales
charges. The "Other Information" section of your prospectus will tell you in
what category your particular AIM Fund is classified.
<TABLE>
<CAPTION>
CATEGORY I INITIAL SALES CHARGES
- --------------------------------
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
- ----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY II INITIAL SALES CHARGES
- ---------------------------------
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
- ----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY III INITIAL SALES CHARGES
- ----------------------------------
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 100,000 1.00% 1.01%
$ 100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
- ----------------------------------------------------------
</TABLE>
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES
You can purchase $1,000,000 or more of Class A shares at net asset value.
However, if you purchase shares of that amount in Categories I or II, they will
be subject to a contingent deferred sales charge (CDSC) of 1% if you redeem them
prior to 18 months after the date of purchase. The distributor may pay a dealer
concession and/or a service fee for purchases of $1,000,000 or more.
CONTINGENT DEFERRED SALES CHARGES FOR
CLASS B AND CLASS C SHARES
You can purchase Class B and Class C shares at their net asset value per share.
However, when you redeem them, they are subject to a CDSC in the following
percentages:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
- ----------------------------------------------------------
<S> <C> <C>
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
- ----------------------------------------------------------
</TABLE>
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you have redeemed shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify
for these reductions or exceptions, you or your financial consultant must
provide sufficient information at the time of purchase to verify that your
purchase qualifies for such treatment.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Rights of Accumulation
You may combine your new purchases of Class A shares with Class A shares
currently owned for the purpose of qualifying for the lower initial sales charge
rates that apply to larger purchases. The applicable initial sales charge for
the new purchase is based on the total of your current purchase and the current
value of all Class A shares you own.
Letters of Intent
Under a Letter of Intent (LOI), you commit to purchase a specified dollar amount
of Class A shares of AIM Funds during a
A-2
<PAGE> 45
-------------
THE AIM FUNDS
-------------
13-month period. The amount you agree to purchase determines the initial sales
charge you pay. If the full face amount of the LOI is not invested by the end of
the 13-month period, your account will be adjusted to the higher initial sales
charge level for the amount actually invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- - on shares purchased by reinvesting dividends and distributions;
- - when exchanging shares among certain AIM Funds;
- - when using the reinstatement privilege; and
- - when a merger, consolidation, or acquisition of assets of an AIM Fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- - if you redeem Class B shares you held for more than six years;
- - if you redeem Class C shares you held for more than one year;
- - if you redeem shares acquired through reinvestment of dividends and
distributions; and
- - on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares
at reduced or without sales charges. Consult the fund's Statement of Additional
Information for details.
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
The minimum investments for AIM Fund accounts (except for investments in AIM
Small Cap Opportunities Fund) are as follows:
<TABLE>
<CAPTION>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing $ 0 ($25 per AIM Fund investment for $25
plans, 401(k) plans, Simplified Employee Pension salary deferrals from Savings Plans)
(SEP) accounts, Salary Reduction (SARSEP)
accounts, Savings Incentive Match Plans for
Employee IRA (Simple IRA) accounts, 403(b) or
457 plans)
Automatic Investment Plans 50 50
IRA, Education IRA or Roth IRA 250 50
All other accounts 500 50
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below.
PURCHASE OPTIONS
- -
<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 Application Mail your check and the remittance
and purchase payment to the slip from your confirmation
transfer agent, statement to the transfer agent.
A I M Fund Services, Inc.,
P.O. Box 4739,
Houston, TX 77210-4739.
By Wire Mail completed Account Application Call the transfer agent to receive
to the transfer agent. Call the a reference number. Then, use the
transfer agent at (800) 959-4246 to wire instructions at left.
receive a reference number. Then,
use the following wire
instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number:
00100366807
Beneficiary Account Name: A I M
Fund Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank
methods described above. Connection(SM) form to the transfer
agent. Once the transfer agent has
received the form, call the
transfer agent to place your
purchase.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
A-3
<PAGE> 46
-------------
THE AIM FUNDS
-------------
SPECIAL PLANS
AUTOMATIC INVESTMENT PLAN
You can arrange for periodic investments in any of the AIM Funds by authorizing
the AIM Fund to withdraw the amount of your investment from your bank account on
a day or dates you specify and in an amount of at least $50. You may stop the
Automatic Investment Plan at any time by giving the transfer agent notice ten
days prior to your next scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one AIM Fund account to one or more other AIM Fund
accounts with the identical registration. The account from which exchanges are
to be made must have a minimum balance of $5,000 before you can use this option.
Exchanges will occur on (or about) the 10th or 25th day of the month, whichever
you specify, in the amount you specify. The minimum amount you can exchange to
another AIM Fund is $50.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
AIM Fund at net asset value. Unless you specify otherwise, your dividends and
distributions will automatically be reinvested in the same AIM Fund. You may
invest your dividends and distributions (1) into another AIM Fund in the same
class of shares; or (2) from Class A shares into AIM Cash Reserve Shares of AIM
Money Market Fund, or vice versa.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend must be at
least $5,000; or (b) in the AIM Fund receiving the dividend must be at least
$500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends into
another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this Program, you can designate how the
total value of your AIM Fund holdings should be rebalanced, on a percentage
basis, between two and ten of your AIM Funds on a quarterly, semiannual or
annual basis. Your portfolio will be rebalanced through the exchange of shares
in one or more of your AIM Funds for shares of the same class of one or more
other AIM Funds in your portfolio. If you wish to participate in the Program,
make changes or cancel the Program, the transfer agent must receive your request
to participate, changes or cancellation in good order at least five business
days prior to the next rebalancing date, which is normally the 28th day of the
last month of the period you choose. We may modify, suspend or terminate the
Program at any time on 60 days' prior written notice.
RETIREMENT PLANS
Shares of most of the AIM Funds can be purchased through
tax-sheltered retirement plans made available to corporations, individuals and
employees of non-profit organizations and public schools. A plan document must
be adopted to establish a retirement plan. You may use AIM Funds-sponsored
retirement plans, which include IRAs, Education IRAs, Roth IRAs, 403(b) plans,
401(k) plans, SIMPLE IRA plans, SEP/SARSEP plans and Money Purchase/Profit
Sharing plans, or another sponsor's retirement plan. The plan custodian of the
AIM Funds-sponsored retirement plan assesses an annual maintenance fee of $10.
Contact your financial consultant for details.
REDEEMING SHARES
REDEMPTION FEES
We will not charge you any fees to redeem your shares; however, your broker or
financial consultant may charge service fees for handling these transactions.
Your shares may be subject to a contingent deferred sales charge (CDSC).
REDEMPTION OF AIM CASH RESERVE SHARES OF
AIM MONEY MARKET FUND ACQUIRED BY EXCHANGE
If you redeem AIM Cash Reserve Shares acquired by exchange from Class A shares
subject to a CDSC within 18 months of the purchase of the Class A shares,
you will be charged a CDSC.
REDEMPTION OF CLASS B SHARES ACQUIRED BY
EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM
Floating Rate Fund, the early withdrawal charge applicable to shares of AIM
Floating Rate Fund will be applied instead of the CDSC normally applicable to
Class B shares.
A-4
<PAGE> 47
-------------
THE AIM FUNDS
-------------
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
Consultant
By Mail Send a written request to the transfer agent. Requests must
include (1) original signatures of all registered owners;
(2) the name of the AIM Fund and your account number; (3) if
the transfer agent does not hold your shares, endorsed share
certificates or share certificates accompanied by an
executed stock power; and (4) signature guarantees, if
necessary (see below). The transfer agent may require that
you provide additional information, such as corporate
resolutions or powers of attorney, if applicable. If you are
redeeming from an IRA account, you must include a statement
of whether or not you are at least 59 1/2 years old and
whether you wish to have federal income tax withheld from
your proceeds. The transfer agent may require certain other
information before you can redeem from an employer-sponsored
retirement plan. Contact your employer for details.
By Telephone Call the transfer agent. You will be allowed to redeem by
telephone if (1) the proceeds are to be mailed to the
address on record with us or transferred electronically to a
pre-authorized checking account; (2) the address on record
with us has not been changed within the last 30 days;
(3) you do not hold physical share certificates; (4) you can
provide proper identification information; (5) the proceeds
of the redemption do not exceed $50,000; and (6) you have
not previously declined the telephone redemption privilege.
Certain accounts, including retirement accounts and 403(b)
plans, may not redeem by telephone. The transfer agent must
receive your call during the hours the NYSE is open for
business in order to effect the redemption at that day's
closing price.
</TABLE>
- --------------------------------------------------------------------------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds to the address on record with us.
If your request is not in good order, you may have to provide us with additional
documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
PAYMENT FOR SYSTEMATIC WITHDRAWALS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. You also may make annual withdrawals if you own Class A shares.
We will redeem enough shares from your account to cover the amount withdrawn.
You must have an account balance of at least $5,000 to establish a Systematic
Withdrawal Plan. You can stop this plan at any time by giving ten days prior
notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM Cash Reserve Shares of AIM Money Market Fund only)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of trading
on the 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.
A-5
<PAGE> 48
-------------
THE AIM FUNDS
-------------
REINSTATEMENT PRIVILEGE (Class A shares only)
You may, within 90 days after you sell Class A shares (except Class A shares of
AIM Tax-Exempt Cash Fund), reinvest all or part of your redemption proceeds in
Class A shares of any AIM Fund at net asset value in an identically registered
account. If you sold Class A shares of AIM Limited Maturity Treasury Fund or AIM
Tax-Free Intermediate Fund, you will incur an initial sales charge reflecting
the difference between the initial sales charges on those Funds and the ones in
which you will be investing. In addition, if you paid a contingent deferred
sales charge (CDSC) on any reinstated amount, you will not be subject to a CDSC
if you later redeem that amount. You must notify the transfer agent in writing
at the time you reinstate that you are exercising your reinstatement privilege.
You may exercise this privilege only once per year.
REDEMPTIONS BY THE AIM FUNDS
If your account has been open at least one year, you have not made an additional
purchase in the account during the past six calendar months, and the value of
your account falls below $500 for three consecutive months due to redemptions or
exchanges (excluding retirement accounts), the AIM Funds have the right to
redeem the account after giving you 60 days' prior written notice. You may avoid
having your account redeemed during the notice period by bringing the account
value up to $500 or by utilizing the Automatic Investment Plan.
If an AIM Fund determines that you have provided incorrect information in
opening an account or in the course of conducting subsequent transactions, the
AIM Fund may, at its discretion, redeem the account and distribute the proceeds
to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one AIM Fund for those
of another AIM Fund. Before requesting an exchange, review the prospectus of the
AIM Fund you wish to acquire. Exchange privileges also apply to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992.
PERMITTED EXCHANGES
Except as otherwise stated below, you may exchange your shares for shares of the
same class of another AIM Fund. You also may exchange AIM Cash Reserve Shares of
AIM Money Market Fund for Class A shares of another AIM Fund, or vice versa. You
may be required to pay an initial sales charge when exchanging from a Fund with
a lower initial sales charge than the one into which you are exchanging. If you
exchange from Class A shares not subject to a CDSC into Class A shares subject
to those charges, you will be charged a CDSC when you redeem the exchanged
shares. The CDSC charged on redemption of those shares will be calculated
starting on the date you acquired those shares through exchange.
You also may exchange AIM Cash Reserve Shares of AIM Money Market Fund for
Advisor Class shares, but only if you acquired the AIM Cash Reserve Shares
through an exchange from Advisor Class shares.
YOU WILL NOT PAY A SALES CHARGE WHEN EXCHANGING:
(1) Class A shares with an initial sales charge (except for Class A shares of
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
Class A shares of another AIM Fund or AIM Cash Reserve Shares of AIM Money
Market Fund;
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund for
(a) one another;
(b) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of
AIM Tax-Exempt Cash Fund; or
(c) Class A shares of another AIM Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way of
an exchange from shares with higher sales charges;
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) one another;
(b) Class A shares of an AIM Fund subject to an initial sales charge (except
for Class A shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund), but only if you acquired the original
shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to an
initial sales charge;
(ii) on or after May 1, 1994 by exchange from Class A shares subject to
an initial sales charge (except for Class A shares of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund); or
(c) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund, but only if you acquired the original shares by
exchange from Class A shares subject to an initial sales charge; or
(4) Class B shares for other Class B shares, and Class C shares for other Class
C shares.
EXCHANGES NOT PERMITTED
You may not exchange Class A shares subject to contingent deferred sales charges
for Class A shares of AIM Limited Maturity Treasury Fund, AIM Tax-Free
Intermediate Fund or AIM Tax-Exempt Cash Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be qualified for sale in your
state of residence;
A-6
<PAGE> 49
-------------
THE AIM FUNDS
-------------
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - Shares must have been held for at least one day prior to the exchange; and
- - If you have physical share certificates, you must return them to the transfer
agent prior to the exchange.
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.
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. TO PROTECT THE INTERESTS OF
INVESTORS, EACH AIM FUND AND THE DISTRIBUTOR MAY REJECT ANY ORDER CONSIDERED
MARKET-TIMING ACTIVITY.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. AIM Money
Market Fund and AIM Tax-Exempt Cash Fund value all of their securities at
amortized cost. AIM High Income Municipal Fund, AIM Municipal Bond Fund, AIM
Tax-Exempt Bond Fund of Connecticut and AIM Tax-Free Intermediate Fund value
variable rate securities that have an unconditional demand or put feature
exercisable within seven days or less at par, which reflects the market value of
such securities.
The AIM Funds value all other securities and assets at their fair value.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day. In addition, if,
between the time trading ends on a particular security and the close of the 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.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours 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. An AIM Fund may postpone the right of redemption only under unusual
circumstances, as allowed by the Securities and Exchange Commission, such as
when the NYSE restricts or suspends trading.
A-7
<PAGE> 50
-------------
THE AIM FUNDS
-------------
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund holds
its assets. Different tax rates apply to ordinary income and long-term capital
gain distributions, regardless of how long you have held your shares. Every
year, you will be sent information showing the amount of dividends and
distributions you received from each AIM Fund during the prior year.
Any long-term or short-term capital gains realized from redemptions of AIM
Fund shares will be subject to federal income tax. Exchanges of shares for
shares of another AIM Fund are treated as a sale, and any gain realized on the
transaction will generally be subject to federal income tax.
The foreign, state and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
A-8
<PAGE> 51
------------------------------
AIM EMERGING MARKETS DEBT FUND
------------------------------
OBTAINING ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies
of the fund's current SAI or annual or semiannual reports, please contact us
- ---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Distributors, Inc.
11 Greenway Plaza, Suite
100
Houston, TX 77046-1173
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
- ---------------------------------------------------------
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, DC, on the SEC's website
(http://www.sec.gov), or by sending a letter, including a duplicating fee, to
the SEC's Public Reference Section, Washington, DC 20549-6009. Please call the
SEC at 1-800-SEC-0330 for information about the Public Reference Room.
- -------------------------------------
AIM Emerging Markets Debt Fund
SEC 1940 Act file number: 811-05426
- -------------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com GHI-PRO-1 INVEST WITH DISCIPLINE
--Registered Trademark--
<PAGE> 52
AIM EMERGING MARKETS DEBT FUND
-----------------------------------------------------------------------
Advisor Class
AIM Emerging Markets Debt Fund primarily seeks high current income and,
secondarily, growth of capital.
PROSPECTUS
MARCH 1, 1999
This prospectus contains important
information. Please read it before
investing and keep it for future
reference.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE--Registered Trademark--
<PAGE> 53
Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE
FUND 2
- - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 3
- - - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 3
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
- - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 4
Expense Example 4
FUND MANAGEMENT 5
- - - - - - - - - - - - - - - - - - - - - - - - -
The Advisors 5
Advisor Compensation 5
Portfolio Managers 5
OTHER INFORMATION 5
- - - - - - - - - - - - - - - - - - - - - - - - -
Dividends and Distributions 5
FINANCIAL HIGHLIGHTS 6
- - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - -
Purchasing Shares A-1
Redeeming Shares A-2
Exchanging Shares A-3
Pricing of Shares A-4
Taxes A-4
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK, AIM Institutional Funds, aimfunds.com, La
Familia AIM de Fondos, La Familia AIM de Fondos and Design and Invest with
Discipline are registered service marks and AIM Bank Connection is a service
mark of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 54
------------------------------
AIM EMERGING MARKETS DEBT FUND
------------------------------
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 meet these objectives by investing all of its investable
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 portfolio 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 (1) debt
securities issued or guaranteed by the governments of developing countries, or
their agencies or instrumentalities; (2) securities issued or guaranteed by the
central banks of emerging market countries; (3) securities issued by other banks
and companies in such countries; and (4) 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. 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 instruments, or high-quality 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.
If the fund's Board of Trustees determines that it is in the best interests of
the fund and its shareholders, the fund may redeem its investment in the
portfolio.
1
<PAGE> 55
------------------------------
AIM EMERGING MARKETS DEBT FUND
------------------------------
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 longer a bond's duration, the more sensitive it is
to this risk.
The prices of foreign securities may be further affected by other factors,
including:
- - Currency exchange rates--The dollar value of the fund's foreign investments
will be affected by changes in the exchange rates between the dollar and the
currencies in which those investments are traded.
- - Political and economic conditions--The value of the fund's foreign investments
may be adversely affected by political and social instability in their home
countries and by changes in economic or taxation policies in those countries.
- - Regulations--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available information
about emerging market companies than about U.S. companies.
- - Markets--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and more volatile than U.S. securities.
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.
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 junk bonds 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.
During those times, the bonds could be difficult to value or to sell at a fair
price. Credit ratings on junk bonds do not necessarily reflect their actual
market risk.
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.
The value of your shares could be adversely affected if the computer systems
used by the portfolio's investment advisor and other service providers are
unable to distinguish the year 2000 from the year 1900.
The portfolio's investment advisor and independent technology consultants are
working to avoid year 2000-related problems in its systems and to obtain
assurances that other service providers are taking similar steps. Year 2000
problems may also affect issuers in whose securities the portfolio invests.
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.
2
<PAGE> 56
------------------------------
AIM EMERGING MARKETS DEBT FUND
------------------------------
Performance Information
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
The following bar chart shows changes in the performance of the fund's Advisor
Class shares from year to year.
[GRAPH]
<TABLE>
<CAPTION>
%
December 31 Return
- ----------- ------
<S> <C>
1996 ....................................... 37.10
1997 ....................................... 12.24
1998 ....................................... -28.64
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
12.97% (quarter ended September 30, 1996) and the lowest quarterly return was
(32.99)% (quarter ended September 30, 1998).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(for the periods ended SINCE INCEPTION
December 31, 1998) 1 YEAR INCEPTION DATE
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Advisor Class (28.64)% 6.53% 06/01/95
J.P. Morgan EMBI (Brady)(1) (11.04) 14.98(2) 05/31/95(2)
- ------------------------------------------------------------------------
</TABLE>
(1) The J.P. Morgan Emerging Markets Bond Index (Brady) is a market
value-weighted average of Brady Bonds from ten emerging bond markets.
(2) The average annual return given is since the date closest to the inception
date of the Advisor Class.
3
<PAGE> 57
------------------------------
AIM EMERGING MARKETS DEBT FUND
------------------------------
Fee Table and Expense Example
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from
your investment) ADVISOR CLASS
- ---------------------------------------------------
<S> <C> <C>
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
- ---------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets) ADVISOR CLASS
- ---------------------------------------------------
<S> <C> <C>
Management Fees 0.90%
Distribution and/or Service
(12b-1) Fees None
Other Expenses 0.49
Total Annual Fund Operating
Expenses 1.39
- ---------------------------------------------------
</TABLE>
(1) This fee table, and the expense example below, reflect the expenses of both
the fund and the portfolio.
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>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------
<S> <C> <C> <C> <C>
Advisor Class $142 $440 $761 $1,669
- ----------------------------------------------------
</TABLE>
4
<PAGE> 58
------------------------------
AIM EMERGING MARKETS DEBT FUND
------------------------------
Fund Management
- --------------------------------------------------------------------------------
THE ADVISORS
A I M Advisors, Inc. (the advisor) serves as the investment advisor of Emerging
Markets Debt Portfolio (the portfolio). INVESCO Asset Management Limited (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 advisor since its organization in 1976,
and the subadvisor has acted as an investment advisor since 1967. Today, the
advisor, together with its subsidiaries, advises or manages over 110 investment
portfolios, including the portfolio, encompassing a broad range of investment
objectives.
ADVISOR COMPENSATION
During the fiscal year ended October 31, 1998, the advisor and Chancellor LGT
Asset Management, Inc., (the advisor for the period November 1, 1997 through May
28, 1998) together received compensation of 0.926% of average daily net assets,
consisting of a management and administrative fee of 0.90% and an accounting fee
of 0.026%.
PORTFOLIO MANAGERS
The advisors use 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 are
- - John Cleary, Portfolio Manager, who has been responsible for the fund since
1999 and has been associated with the advisor and/or its affiliates since
1998. From 1997 to 1998 he was Manager of a global markets fixed income fund
for West Merchant Bank Ltd. From 1994 to 1996 he was enrolled in graduate
school.
- - 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. 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.
Other Information
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS
The fund generally declares and pays dividends, if any, monthly.
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.
5
<PAGE> 59
------------------------------
AIM EMERGING MARKETS DEBT FUND
------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
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(a)
------------------------------------------
JUNE 1, 1995
TO
YEAR ENDED OCTOBER 31, OCTOBER 31,
1998(b) 1997(b) 1996(b) 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $15.52 $14.83 $11.71 $11.44
Income from investment operations:
Net investment income 1.40(c) 1.22 1.34 0.57
Net realized and unrealized gain (loss) on
investments and foreign currencies (4.79) 0.93 3.05 0.17
Net increase (decrease) from investment
operations (3.39) 2.15 4.39 0.74
Distributions to shareholders:
From net investment income (1.11) (1.23) (1.16) (0.44)
From net realized gain on investments (2.83) (0.23) (0.11) --
In excess of net realized gain on investments -- -- -- --
Return of capital (0.36) -- -- (0.03)
Total distributions (4.30) (1.46) (1.27) (0.47)
Net asset value, end of period $ 7.83 $15.52 $14.83 $11.71
Total investment return(d) (29.79)% 14.72% 39.38% 6.54%(e)
- --------------------------------------------------------------------------------------------
Ratios and supplemental data:
Net assets, end of period (in 000s) $1,596 $3,719 $15,298 $1,463
Ratio of net investment income to average net
assets 11.62% 7.74% 9.87% 12.20%(f)
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions 1.39% 1.18% 1.34% 1.40%(f)
Without expense reductions 1.39% 1.23% 1.34% 1.40%(f)
Ratio of interest expense to average net
assets(g) N/A N/A 0.04% N/A
Portfolio turnover rate(g) 339% 214% 290% 213%(f)
- --------------------------------------------------------------------------------------------
</TABLE>
(a) Commencing June 1, 1995, the fund began offering Advisor Class shares.
(b) These selected per share operating data were calculated based upon average
shares outstanding during this period.
(c) Net investment income per share reflects an interest payment received from
the conversion of Vnesheconombank loan agreements of $0.21 per share.
(d) Total investment return does not include sales charges.
(e) Not annualized
(f) Annualized
(g) Portfolio turnover rates and ratio of interest expense to average net assets
are calculated on the basis of the fund as a whole without distinguishing
among the classes of shares issued.
N/A Not applicable
6
<PAGE> 60
-------------
THE AIM FUNDS
-------------
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 of the funds advised by the
advisor (the AIM Funds), your financial consultant, on your behalf, must submit
a fully completed new account application form directly to the transfer agent.
You may purchase shares using one of the options below.
PURCHASE OPTIONS
- -
<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 Call the transfer agent to receive
a completed account application to a reference number. Then, use the
the transfer agent. You or your wire instructions at left.
financial 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 #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank
methods described above. Connection(SM) form to the transfer
agent. Once the transfer agent has
received the form, call the
transfer agent to place your
purchase order.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
A- 1 ADV--03/99
<PAGE> 61
-------------
THE AIM FUNDS
-------------
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.
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. TO PROTECT THE INTERESTS OF
INVESTORS, EACH AIM FUND AND THE DISTRIBUTOR MAY REJECT ANY ORDER CONSIDERED
MARKET TIMING ACTIVITY.
REDEEMING SHARES
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.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
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 New York Stock Exchange (NYSE) is open for business in
order to effect the redemption at that day's closing price.
</TABLE>
- --------------------------------------------------------------------------------
ADV--03/99 A- 2
<PAGE> 62
-------------
THE AIM FUNDS
-------------
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
(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.
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. You also may exchange Advisor
Class shares for AIM Cash Reserve shares of AIM Money Market 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:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be qualified for sale in your
state of residence;
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - The AIM Fund from which you are exchanging must have received the full amount
of the purchase price for the shares being exchanged;
- - 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
- - 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
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 New York Stock Exchange (NYSE) is open for business;
however, you still will be
A- 3 ADV--03/99
<PAGE> 63
-------------
THE AIM FUNDS
-------------
allowed to exchange by telephone even if you have changed your address of record
within the preceding 30 days.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. 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 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.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours 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. An AIM Fund may postpone the right of redemption only under unusual
circumstances, as allowed by the Securities and Exchange Commission, such as
when the NYSE restricts or suspends trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund holds
its assets. Different rates of tax apply to ordinary income and long-term
capital gain distributions. Every year, you will be sent information 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, and any gain realized on the
transaction will generally be subject to federal income tax.
The foreign, state, and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
ADV--03/99 A- 4
<PAGE> 64
------------------------------
AIM EMERGING MARKETS DEBT FUND
------------------------------
Obtaining Additional Information
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registration Mark-- or your account, or wish to obtain free copies of the
fund's current SAI or annual or semiannual reports, please contact us
- ---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Distributors, Inc.
11 Greenway Plaza, Suite
100
Houston, TX 77046-1173
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
- ---------------------------------------------------------
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, DC, on the SEC's website
(http://www.sec.gov), or by sending a letter, including a duplicating fee, to
the SEC's Public Reference Section, Washington, DC 20549-6009. Please call the
SEC at 1-800-SEC-0330 for information about the Public Reference Room.
-----------------------------------
AIM Emerging Markets Debt Fund
SEC 1940 Act file number: 811-05426
-----------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com
GHI-PRO-2 INVEST WITH DISCIPLINE--Registered Trademark--
<PAGE> 65
AIM GLOBAL CONSUMER PRODUCTS AND SERVICES FUND
-----------------------------------------------------------------------
AIM Global Consumer Products and Services Fund seeks to provide
long-term growth of capital.
PROSPECTUS
MARCH 1, 1999
This prospectus contains important
information about the Class A, B and
C shares of the fund. Please read it
before investing and keep it for
future reference.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE--Registered
Trademark--
<PAGE> 66
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE FUND 2
- - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 3
- - - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 3
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
- - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 4
Expense Example 4
FUND MANAGEMENT 5
- - - - - - - - - - - - - - - - - - - - - - - - -
The Advisor 5
Advisor Compensation 5
Portfolio Manager 5
OTHER INFORMATION 5
- - - - - - - - - - - - - - - - - - - - - - - - -
Sales Charges 5
Dividends and Distributions 5
FINANCIAL HIGHLIGHTS 6
- - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - -
Choosing a Share Class A-1
Purchasing Shares A-3
Redeeming Shares A-4
Exchanging Shares A-6
Pricing of Shares A-7
Taxes A-8
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK, AIM Institutional Funds, aimfunds.com, La
Familia AIM de Fondos, La Familia AIM de Fondos and Design and Invest with
Discipline are registered service marks and AIM Bank Connection is a service
mark of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 67
----------------------------------------------
AIM GLOBAL CONSUMER PRODUCTS AND SERVICES FUND
----------------------------------------------
Investment Objective and Strategies
- --------------------------------------------------------------------------------
The fund's investment objective is long-term growth of capital.
The fund seeks to meet this objective by investing all of its investable
assets in the Global Consumer Products and 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 consumer products and services companies. The portfolio considers a
"consumer products or services" company to be one that (1) derives at least 50%
of either its revenues or earnings from activities related to consumer products
or services; or (2) 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 in 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 invest no 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 lower-quality debt
securities, i.e., "junk bonds."
The portfolio manager allocates 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 manager 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. The
portfolio manager usually sells 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 instruments, or hiqh-quality 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.
If the fund's Board of Trustees determines that it is in the best interests of
the fund and its shareholders, the fund may redeem its investment in the
portfolio.
1
<PAGE> 68
----------------------------------------------
AIM GLOBAL CONSUMER PRODUCTS AND SERVICES FUND
----------------------------------------------
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 prices of equity
securities change 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 industries, 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.
The prices of foreign securities may be further affected by other factors,
including:
- - Currency exchange rates--The dollar value of the fund's foreign investments
will be affected by changes in the exchange rates between the dollar and the
currencies in which those investments are traded.
- - Political and economic conditions--The value of the fund's foreign investments
may be adversely affected by political and social instability in their home
countries and by changes in economic or taxation policies in those countries.
- - Regulations--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available information
about foreign companies than about U.S. companies.
- - Markets--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and their prices may be more volatile than U.S. securities.
The value of your shares could be adversely affected if the computer systems
used by the portfolio's investment advisor and other service providers are
unable to distinguish the year 2000 from the year 1900.
The portfolio's investment advisor and independent technology consultants are
working to avoid year 2000-related problems in its systems and to obtain
assurances that other service providers are taking similar steps. Year 2000
problems may also affect issuers in whose securities the portfolio invests.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
2
<PAGE> 69
----------------------------------------------
AIM GLOBAL CONSUMER PRODUCTS AND SERVICES FUND
----------------------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
The following bar chart shows changes in the performance of the fund's Class A
shares from year to year. The bar chart does not reflect sales loads. If it did,
the annual total returns shown would be lower.
[GRAPH]
<TABLE>
<CAPTION>
TOTAL
YEAR ENDED ANNUAL
DECEMBER 31 RETURN
- ----------- ------
<S> <C>
1995.................................. 35.37%
1996.................................. 38.30%
1997.................................. 17.55%
1998.................................. 22.80%
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
21.15% (quarter ended December 31, 1998) and the lowest quarterly return was
(15.69)% (quarter ended September 30, 1998).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(for the periods ended SINCE INCEPTION
December 31, 1998) 1 YEAR INCEPTION DATE
- --------------------------------------------------------------
<S> <C> <C> <C>
Class A 16.94% 26.64% 12/30/94
Class B 17.13 27.31 12/30/94
Class C -- -- 03/01/99
MSCI AC World Index(1) 21.72 16.88(2) 12/31/94
- --------------------------------------------------------------
</TABLE>
(1) The Morgan Stanley Capital International All Country World Index is a market
value-weighted average of the performance of securities listed on the major
world stock exchanges of 47 markets, including both developed and emerging
markets.
(2) The average annual total return given is since the date closest to the
inception date of the class with the longest history.
3
<PAGE> 70
----------------------------------------------
AIM GLOBAL CONSUMER PRODUCTS AND SERVICES FUND
----------------------------------------------
FEE TABLE AND EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from
your investment) CLASS A CLASS B CLASS C
- -------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) 4.75% None None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase
price or redemption
proceeds, whichever
is less) None(1) 5.00 1.00
- -------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets)(2) CLASS A CLASS B CLASS C
- -------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees 0.98% 0.98% 0.98%
Distribution and/or
Service (12b-1) Fees 0.50 1.00 1.00
Other Expenses 0.47 0.47 0.47
Total Annual Fund
Operating Expenses 1.95 2.45 2.45
- -------------------------------------------------------
</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) This fee table, and the expense example below, reflect the expenses of both
the fund and the portfolio.
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>
Class A $ 664 $1,058 $1,477 $2,642
Class B 748 1,064 1,506 2,663
Class C 348 764 1,306 2,786
- ----------------------------------------------
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------
<S> <C> <C> <C> <C>
Class A $ 664 $1,058 $1,477 $2,642
Class B 248 764 1,306 2,663
Class C 248 764 1,306 2,786
- ----------------------------------------------
</TABLE>
4
<PAGE> 71
----------------------------------------------
AIM GLOBAL CONSUMER PRODUCTS AND SERVICES FUND
----------------------------------------------
FUND MANAGEMENT
- --------------------------------------------------------------------------------
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the investment advisor 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 provides 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 advisor since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 110
investment portfolios, including the portfolio, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended October 31, 1998, the advisor and Chancellor LGT
Asset Management, Inc., (the advisor for the period November 1, 1997 through May
28, 1998) together received compensation of 1.006% of average daily net assets,
consisting of a management and administrative fee of 0.98% and an accounting fee
of 0.026%.
PORTFOLIO MANAGER
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
- - 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.
OTHER INFORMATION
- --------------------------------------------------------------------------------
INITIAL SALES CHARGES FOR CLASS A SHARES
Purchases of Class A shares of AIM Global Consumer Products and Services Fund
are subject to the maximum 4.75% initial sales charge as listed under the
heading "CATEGORY II Initial Sales Charges" in the "Shareholder
Information--Choosing a Share Class" section of this prospectus. Purchases of
Class B and Class C shares are subject to the contingent deferred sales charges
listed in that section.
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS
The fund generally declares and pays dividends, if any, annually.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains (including
any net gains from foreign currency transactions), if any, annually.
5
<PAGE> 72
----------------------------------------------
AIM GLOBAL CONSUMER PRODUCTS AND SERVICES FUND
----------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
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
----------------------------------------------------
YEAR ENDED OCTOBER 31, DECEMBER 30, 1994 TO
1998(a) 1997(a) 1996(a) OCTOBER 31, 1995(a)(b)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 22.19 $ 20.98 $ 14.59 $ 11.43
Income from investment operations:
Net investment income (loss) (0.19) (0.15) (0.22) 0.02(c)
Net realized and unrealized gain on
investments 2.05 2.27 7.13 3.14
Net increase from investment operations 1.86 2.12 6.91 3.16
Distributions to shareholders:
From net realized gain on investments (1.89) (0.91) (0.52) --
Total distributions (1.89) (0.91) (0.52) --
Net asset value, end of period $ 22.16 $ 22.19 $ 20.98 $ 14.59
Total investment return(d) 8.66% 10.55% 48.82% 27.65%(e)
- ------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
Net assets, end of period (in 000s) $59,880 $62,637 $76,900 $ 4,082
Ratio of net investment income (loss) to average
net assets:
With expense reductions and/or reimbursement (0.81)% (0.72)% (1.14)% 0.20%(f)
Without expense reductions and reimbursement (0.83)% (0.87)% (1.24)% (11.11)%(f)
Ratio of expenses to average net assets:
With expense reductions and/or reimbursement 1.93% 1.84% 2.24% 2.32%(f)
Without expense reductions and/or
reimbursement 1.95% 1.99% 2.34% 13.63%(f)
Portfolio turnover rate(g) 221% 392% 169% 240%(f)
- ------------------------------------------------------------------------------------------------------
</TABLE>
(a) These selected per share operating data were calculated based upon average
shares outstanding during the period.
(b) The fund commenced operations on December 30, 1994.
(c) Before reimbursement the net investment income (loss) per share would have
been reduced (increased) by $1.12.
(d) Total investment return does not include sales charges.
(e) Not annualized
(f) Annualized
(g) Portfolio turnover is calculated on the basis of the portfolio as a whole
without distinguishing between the classes of shares issued.
6
<PAGE> 73
----------------------------------------------
AIM GLOBAL CONSUMER PRODUCTS AND SERVICES FUND
----------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------
YEAR ENDED OCTOBER 31, DECEMBER 30, 1994 TO
1998(a) 1997(a) 1996(a) OCTOBER 31, 1995(a)(b)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 21.86 $ 20.79 $ 14.53 $ 11.43
Income from investment operations:
Net investment income (loss) (0.30) (0.24) (0.31) (0.04)(c)
Net realized and unrealized gain on
investments 2.03 2.22 7.09 3.14
Net increase from investment operations 1.73 1.98 6.78 3.10
Distributions to shareholders:
From net realized gain on investments (1.89) (0.91) (0.52) --
Total distributions (1.89) (0.91) (0.52) --
Net asset value, end of period $ 21.70 $ 21.86 $ 20.79 $ 14.53
Total investment return(d) 8.16% 9.95% 48.11% 27.12%(e)
- ------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
Net assets, end of period (in 000s) $91,613 $93,978 $87,904 $ 2,959
Ratio of net investment income (loss) to average
net assets:
With expense reductions and/or reimbursement (1.31)% (1.22)% (1.64)% (0.30)%(f)
Without expense reductions and/or
reimbursement (1.33)% (1.37)% (1.74)% (11.61)%(f)
Ratio of expenses to average net assets:
With expense reductions and/or reimbursement 2.43% 2.34% 2.74% 2.82%(f)
Without expense reductions and/or
reimbursement 2.45% 2.49% 2.84% 14.13%(f)
Portfolio turnover rate(g) 221% 392% 169% 240%(f)
- ------------------------------------------------------------------------------------------------------
</TABLE>
(a) These selected per share operating data were calculated based upon average
shares outstanding during the period.
(b) The fund commenced operations on December 30, 1994.
(c) Before reimbursement net investment income (loss) per share would have been
reduced (increased) by $1.04.
(d) Total investment return does not include sales charges.
(e) Not annualized
(f) Annualized
(g) Portfolio turnover is calculated on the basis of the portfolio as a whole
without distinguishing between the classes of shares issued.
7
<PAGE> 74
-------------
THE AIM FUNDS
-------------
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>
- - Initial sales charge - No initial sales charge - No initial sales charge
- - Reduced or waived initial sales - Contingent deferred sales - Contingent deferred sales
charge for certain purchases charge on redemptions within six charge on redemptions within
years one year
- - Lower distribution and service - 12b-1 fee of 1.00% - 12b-1 fee of 1.00%
(12b-1) fee than Class B or
Class C shares (See "Fee Table
and Expense Example")
- Converts to Class A shares - Does not convert to Class A
after eight years along with a shares
pro rata portion of its
reinvested dividends and
distributions*
- - Generally more appropriate for - Purchase orders limited to - Generally more appropriate
long-term investors amounts less than $250,000 for short-term investors
</TABLE>
* AIM Money Market Fund: Class B shares convert to AIM Cash Reserve
Shares.
AIM Global Trends Fund: If you held Class B shares on May 29,
1998 and continue to hold them, those shares will convert to
Class A shares of that fund seven years after your date of
purchase. If you exchange those shares for Class B shares of
another AIM Fund, the shares into which you exchanged will not
convert to Class A shares until eight years after your date of
purchase of the original shares.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12b-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund) has adopted 12b-1 plans
that allow the AIM Fund to pay distribution fees to A I M Distributors, Inc.
(the distributor) for the sale and distribution of its shares and fees for
services provided to shareholders, all or a substantial portion of which are
paid to the dealer of record. Because the AIM Fund pays these fees out of its
assets on an ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
MCF-03/99
A-1
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THE AIM FUNDS
-------------
SALES CHARGES
Generally, you will not pay a sales charge on purchases or redemptions of Class
A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money
Market Fund. You may be charged a contingent deferred sales charge if you redeem
AIM Cash Reserve Shares of AIM Money Market Fund acquired through certain
exchanges. Sales charges on all other AIM Funds and classes of those Funds are
detailed below. As used below, the term "offering price" with respect to all
categories of Class A shares includes the initial sales charge.
INITIAL SALES CHARGES
The AIM Funds are grouped into three categories with respect to initial sales
charges. The "Other Information" section of your prospectus will tell you in
what category your particular AIM Fund is classified.
<TABLE>
<CAPTION>
CATEGORY I INITIAL SALES CHARGES
- --------------------------------
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
- ----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY II INITIAL SALES CHARGES
- ---------------------------------
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
- ----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY III INITIAL SALES CHARGES
- ----------------------------------
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 100,000 1.00% 1.01%
$ 100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
- ----------------------------------------------------------
</TABLE>
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES
You can purchase $1,000,000 or more of Class A shares at net asset value.
However, if you purchase shares of that amount in Categories I or II, they will
be subject to a contingent deferred sales charge (CDSC) of 1% if you redeem them
prior to 18 months after the date of purchase. The distributor may pay a dealer
concession and/or a service fee for purchases of $1,000,000 or more.
CONTINGENT DEFERRED SALES CHARGES FOR
CLASS B AND CLASS C SHARES
You can purchase Class B and Class C shares at their net asset value per share.
However, when you redeem them, they are subject to a CDSC in the following
percentages:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
- ----------------------------------------------------------
<S> <C> <C>
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
- ----------------------------------------------------------
</TABLE>
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you have redeemed shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify
for these reductions or exceptions, you or your financial consultant must
provide sufficient information at the time of purchase to verify that your
purchase qualifies for such treatment.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Rights of Accumulation
You may combine your new purchases of Class A shares with Class A shares
currently owned for the purpose of qualifying for the lower initial sales charge
rates that apply to larger purchases. The applicable initial sales charge for
the new purchase is based on the total of your current purchase and the current
value of all Class A shares you own.
Letters of Intent
Under a Letter of Intent (LOI), you commit to purchase a specified dollar amount
of Class A shares of AIM Funds during a
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<PAGE> 76
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THE AIM FUNDS
-------------
13-month period. The amount you agree to purchase determines the initial sales
charge you pay. If the full face amount of the LOI is not invested by the end of
the 13-month period, your account will be adjusted to the higher initial sales
charge level for the amount actually invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- - on shares purchased by reinvesting dividends and distributions;
- - when exchanging shares among certain AIM Funds;
- - when using the reinstatement privilege; and
- - when a merger, consolidation, or acquisition of assets of an AIM Fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- - if you redeem Class B shares you held for more than six years;
- - if you redeem Class C shares you held for more than one year;
- - if you redeem shares acquired through reinvestment of dividends and
distributions; and
- - on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares
at reduced or without sales charges. Consult the fund's Statement of Additional
Information for details.
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
The minimum investments for AIM Fund accounts (except for investments in AIM
Small Cap Opportunities Fund) are as follows:
<TABLE>
<CAPTION>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing $ 0 ($25 per AIM Fund investment for $25
plans, 401(k) plans, Simplified Employee Pension salary deferrals from Savings Plans)
(SEP) accounts, Salary Reduction (SARSEP)
accounts, Savings Incentive Match Plans for
Employee IRA (Simple IRA) accounts, 403(b) or
457 plans)
Automatic Investment Plans 50 50
IRA, Education IRA or Roth IRA 250 50
All other accounts 500 50
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below.
PURCHASE OPTIONS
- -
<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 Application Mail your check and the remittance
and purchase payment to the slip from your confirmation
transfer agent, statement to the transfer agent.
A I M Fund Services, Inc.,
P.O. Box 4739,
Houston, TX 77210-4739.
By Wire Mail completed Account Application Call the transfer agent to receive
to the transfer agent. Call the a reference number. Then, use the
transfer agent at (800) 959-4246 to wire instructions at left.
receive a reference number. Then,
use the following wire
instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number:
00100366807
Beneficiary Account Name: A I M
Fund Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank
methods described above. Connection(SM) form to the transfer
agent. Once the transfer agent has
received the form, call the
transfer agent to place your
purchase.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 77
-------------
THE AIM FUNDS
-------------
SPECIAL PLANS
AUTOMATIC INVESTMENT PLAN
You can arrange for periodic investments in any of the AIM Funds by authorizing
the AIM Fund to withdraw the amount of your investment from your bank account on
a day or dates you specify and in an amount of at least $50. You may stop the
Automatic Investment Plan at any time by giving the transfer agent notice ten
days prior to your next scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one AIM Fund account to one or more other AIM Fund
accounts with the identical registration. The account from which exchanges are
to be made must have a minimum balance of $5,000 before you can use this option.
Exchanges will occur on (or about) the 10th or 25th day of the month, whichever
you specify, in the amount you specify. The minimum amount you can exchange to
another AIM Fund is $50.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
AIM Fund at net asset value. Unless you specify otherwise, your dividends and
distributions will automatically be reinvested in the same AIM Fund. You may
invest your dividends and distributions (1) into another AIM Fund in the same
class of shares; or (2) from Class A shares into AIM Cash Reserve Shares of AIM
Money Market Fund, or vice versa.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend must be at
least $5,000; or (b) in the AIM Fund receiving the dividend must be at least
$500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends into
another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this Program, you can designate how the
total value of your AIM Fund holdings should be rebalanced, on a percentage
basis, between two and ten of your AIM Funds on a quarterly, semiannual or
annual basis. Your portfolio will be rebalanced through the exchange of shares
in one or more of your AIM Funds for shares of the same class of one or more
other AIM Funds in your portfolio. If you wish to participate in the Program,
make changes or cancel the Program, the transfer agent must receive your request
to participate, changes or cancellation in good order at least five business
days prior to the next rebalancing date, which is normally the 28th day of the
last month of the period you choose. We may modify, suspend or terminate the
Program at any time on 60 days' prior written notice.
RETIREMENT PLANS
Shares of most of the AIM Funds can be purchased through
tax-sheltered retirement plans made available to corporations, individuals and
employees of non-profit organizations and public schools. A plan document must
be adopted to establish a retirement plan. You may use AIM Funds-sponsored
retirement plans, which include IRAs, Education IRAs, Roth IRAs, 403(b) plans,
401(k) plans, SIMPLE IRA plans, SEP/SARSEP plans and Money Purchase/Profit
Sharing plans, or another sponsor's retirement plan. The plan custodian of the
AIM Funds-sponsored retirement plan assesses an annual maintenance fee of $10.
Contact your financial consultant for details.
REDEEMING SHARES
REDEMPTION FEES
We will not charge you any fees to redeem your shares; however, your broker or
financial consultant may charge service fees for handling these transactions.
Your shares may be subject to a contingent deferred sales charge (CDSC).
REDEMPTION OF AIM CASH RESERVE SHARES OF
AIM MONEY MARKET FUND ACQUIRED BY EXCHANGE
If you redeem AIM Cash Reserve Shares acquired by exchange from Class A shares
subject to a CDSC within 18 months of the purchase of the Class A shares,
you will be charged a CDSC.
REDEMPTION OF CLASS B SHARES ACQUIRED BY
EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM
Floating Rate Fund, the early withdrawal charge applicable to shares of AIM
Floating Rate Fund will be applied instead of the CDSC normally applicable to
Class B shares.
A-4
<PAGE> 78
-------------
THE AIM FUNDS
-------------
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
Consultant
By Mail Send a written request to the transfer agent. Requests must
include (1) original signatures of all registered owners;
(2) the name of the AIM Fund and your account number; (3) if
the transfer agent does not hold your shares, endorsed share
certificates or share certificates accompanied by an
executed stock power; and (4) signature guarantees, if
necessary (see below). The transfer agent may require that
you provide additional information, such as corporate
resolutions or powers of attorney, if applicable. If you are
redeeming from an IRA account, you must include a statement
of whether or not you are at least 59 1/2 years old and
whether you wish to have federal income tax withheld from
your proceeds. The transfer agent may require certain other
information before you can redeem from an employer-sponsored
retirement plan. Contact your employer for details.
By Telephone Call the transfer agent. You will be allowed to redeem by
telephone if (1) the proceeds are to be mailed to the
address on record with us or transferred electronically to a
pre-authorized checking account; (2) the address on record
with us has not been changed within the last 30 days;
(3) you do not hold physical share certificates; (4) you can
provide proper identification information; (5) the proceeds
of the redemption do not exceed $50,000; and (6) you have
not previously declined the telephone redemption privilege.
Certain accounts, including retirement accounts and 403(b)
plans, may not redeem by telephone. The transfer agent must
receive your call during the hours the NYSE is open for
business in order to effect the redemption at that day's
closing price.
</TABLE>
- --------------------------------------------------------------------------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds to the address on record with us.
If your request is not in good order, you may have to provide us with additional
documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
PAYMENT FOR SYSTEMATIC WITHDRAWALS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. You also may make annual withdrawals if you own Class A shares.
We will redeem enough shares from your account to cover the amount withdrawn.
You must have an account balance of at least $5,000 to establish a Systematic
Withdrawal Plan. You can stop this plan at any time by giving ten days prior
notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM Cash Reserve Shares of AIM Money Market Fund only)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of trading
on the 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.
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<PAGE> 79
-------------
THE AIM FUNDS
-------------
REINSTATEMENT PRIVILEGE (Class A shares only)
You may, within 90 days after you sell Class A shares (except Class A shares of
AIM Tax-Exempt Cash Fund), reinvest all or part of your redemption proceeds in
Class A shares of any AIM Fund at net asset value in an identically registered
account. If you sold Class A shares of AIM Limited Maturity Treasury Fund or AIM
Tax-Free Intermediate Fund, you will incur an initial sales charge reflecting
the difference between the initial sales charges on those Funds and the ones in
which you will be investing. In addition, if you paid a contingent deferred
sales charge (CDSC) on any reinstated amount, you will not be subject to a CDSC
if you later redeem that amount. You must notify the transfer agent in writing
at the time you reinstate that you are exercising your reinstatement privilege.
You may exercise this privilege only once per year.
REDEMPTIONS BY THE AIM FUNDS
If your account has been open at least one year, you have not made an additional
purchase in the account during the past six calendar months, and the value of
your account falls below $500 for three consecutive months due to redemptions or
exchanges (excluding retirement accounts), the AIM Funds have the right to
redeem the account after giving you 60 days' prior written notice. You may avoid
having your account redeemed during the notice period by bringing the account
value up to $500 or by utilizing the Automatic Investment Plan.
If an AIM Fund determines that you have provided incorrect information in
opening an account or in the course of conducting subsequent transactions, the
AIM Fund may, at its discretion, redeem the account and distribute the proceeds
to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one AIM Fund for those
of another AIM Fund. Before requesting an exchange, review the prospectus of the
AIM Fund you wish to acquire. Exchange privileges also apply to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992.
PERMITTED EXCHANGES
Except as otherwise stated below, you may exchange your shares for shares of the
same class of another AIM Fund. You also may exchange AIM Cash Reserve Shares of
AIM Money Market Fund for Class A shares of another AIM Fund, or vice versa. You
may be required to pay an initial sales charge when exchanging from a Fund with
a lower initial sales charge than the one into which you are exchanging. If you
exchange from Class A shares not subject to a CDSC into Class A shares subject
to those charges, you will be charged a CDSC when you redeem the exchanged
shares. The CDSC charged on redemption of those shares will be calculated
starting on the date you acquired those shares through exchange.
You also may exchange AIM Cash Reserve Shares of AIM Money Market Fund for
Advisor Class shares, but only if you acquired the AIM Cash Reserve Shares
through an exchange from Advisor Class shares.
YOU WILL NOT PAY A SALES CHARGE WHEN EXCHANGING:
(1) Class A shares with an initial sales charge (except for Class A shares of
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
Class A shares of another AIM Fund or AIM Cash Reserve Shares of AIM Money
Market Fund;
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund for
(a) one another;
(b) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of
AIM Tax-Exempt Cash Fund; or
(c) Class A shares of another AIM Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way of
an exchange from shares with higher sales charges;
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) one another;
(b) Class A shares of an AIM Fund subject to an initial sales charge (except
for Class A shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund), but only if you acquired the original
shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to an
initial sales charge;
(ii) on or after May 1, 1994 by exchange from Class A shares subject to
an initial sales charge (except for Class A shares of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund); or
(c) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund, but only if you acquired the original shares by
exchange from Class A shares subject to an initial sales charge; or
(4) Class B shares for other Class B shares, and Class C shares for other Class
C shares.
EXCHANGES NOT PERMITTED
You may not exchange Class A shares subject to contingent deferred sales charges
for Class A shares of AIM Limited Maturity Treasury Fund, AIM Tax-Free
Intermediate Fund or AIM Tax-Exempt Cash Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be qualified for sale in your
state of residence;
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<PAGE> 80
-------------
THE AIM FUNDS
-------------
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - Shares must have been held for at least one day prior to the exchange; and
- - If you have physical share certificates, you must return them to the transfer
agent prior to the exchange.
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.
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. TO PROTECT THE INTERESTS OF
INVESTORS, EACH AIM FUND AND THE DISTRIBUTOR MAY REJECT ANY ORDER CONSIDERED
MARKET-TIMING ACTIVITY.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. AIM Money
Market Fund and AIM Tax-Exempt Cash Fund value all of their securities at
amortized cost. AIM High Income Municipal Fund, AIM Municipal Bond Fund, AIM
Tax-Exempt Bond Fund of Connecticut and AIM Tax-Free Intermediate Fund value
variable rate securities that have an unconditional demand or put feature
exercisable within seven days or less at par, which reflects the market value of
such securities.
The AIM Funds value all other securities and assets at their fair value.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day. In addition, if,
between the time trading ends on a particular security and the close of the 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.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours 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. An AIM Fund may postpone the right of redemption only under unusual
circumstances, as allowed by the Securities and Exchange Commission, such as
when the NYSE restricts or suspends trading.
A-7
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-------------
THE AIM FUNDS
-------------
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund holds
its assets. Different tax rates apply to ordinary income and long-term capital
gain distributions, regardless of how long you have held your shares. Every
year, you will be sent information showing the amount of dividends and
distributions you received from each AIM Fund during the prior year.
Any long-term or short-term capital gains realized from redemptions of AIM
Fund shares will be subject to federal income tax. Exchanges of shares for
shares of another AIM Fund are treated as a sale, and any gain realized on the
transaction will generally be subject to federal income tax.
The foreign, state and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
A-8
<PAGE> 82
----------------------------------------------
AIM GLOBAL CONSUMER PRODUCTS AND SERVICES FUND
----------------------------------------------
OBTAINING ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us
- ---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Distributors, Inc.
11 Greenway Plaza, Suite
100
Houston, TX 77046-1173
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
- ---------------------------------------------------------
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, DC, on the SEC's website
(http://www.sec.gov), or by sending a letter, including a duplicating fee, to
the SEC's Public Reference Section, Washington, DC. 20549-6009. Please call the
SEC at 1-800-SEC-0330 for information about the Public Reference Room.
- ------------------------------------------------
AIM Global Consumer Products and Services Fund
SEC 1940 Act file number: 811-05426
- ------------------------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com GCPS-PRO-1 INVEST WITH DISCIPLINE
--Registered Trademark--
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AIM GLOBAL CONSUMER PRODUCTS AND SERVICES FUND
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ADVISOR CLASS
AIM Global Consumer Products and Services Fund seeks to provide
long-term growth of capital.
PROSPECTUS
MARCH 1, 1999
This prospectus contains important
information. Please read it before
investing and keep it for future
reference.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE--Registered
Trademark--
<PAGE> 84
TABLE OF CONTENTS
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<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES 1
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PRINCIPAL RISKS OF INVESTING IN THE FUND 2
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PERFORMANCE INFORMATION 3
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Annual Total Returns 3
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
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Fee Table 4
Expense Example 4
FUND MANAGEMENT 5
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The Advisor 5
Advisor Compensation 5
Portfolio Manager 5
OTHER INFORMATION 5
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Dividends and Distributions 5
FINANCIAL HIGHLIGHTS 6
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SHAREHOLDER INFORMATION A-1
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Purchasing Shares A-1
Redeeming Shares A-2
Exchanging Shares A-3
Pricing of Shares A-4
Taxes A-4
OBTAINING ADDITIONAL INFORMATION Back Cover
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</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.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
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AIM GLOBAL CONSUMER PRODUCTS AND SERVICES FUND
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INVESTMENT OBJECTIVE AND STRATEGIES
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The fund's investment objective is long-term growth of capital.
The fund seeks to meet this objective by investing all of its investable
assets in the Global Consumer Products and 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 consumer products and services companies. The portfolio considers a
"consumer products or services" company to be one that (1) derives at least 50%
of either its revenues or earnings from activities related to consumer products
or services; or (2) 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 in 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 invest no 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 lower-quality debt
securities, i.e., "junk bonds."
The portfolio manager allocates 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 manager 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. The
portfolio manager usually sells 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 instruments or high-quality 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.
If the fund's Board of Trustees determines that it is in the best interests of
the fund and its shareholders, the fund may redeem its investment in the
portfolio.
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AIM GLOBAL CONSUMER PRODUCTS AND SERVICES FUND
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PRINCIPAL RISKS OF INVESTING IN THE FUND
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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 equity
securities change 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 industries, 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.
The prices of foreign securities may be further affected by other factors,
including:
- - Currency exchange rates--The dollar value of the fund's foreign investments
will be affected by changes in the exchange rates between the dollar and the
currencies in which those investments are traded.
- - Political and economic conditions--The value of the fund's foreign investments
may be adversely affected by political and social instability in their
countries and by changes in economic or taxation policies in those countries.
- - Regulations--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available information
about foreign companies than about U.S. companies.
- - Markets--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and their prices may be more volatile than U.S. securities.
The value of your shares could be adversely affected if the computer systems
used by the portfolio's investment advisor and other service providers are
unable to distinguish the year 2000 from the year 1900.
The portfolio's investment advisor and independent technology consultants are
working to avoid year 2000-related problems in its systems and to obtain
assurances that other service providers are taking similar steps. Year 2000
problems may also affect issuers in whose securities the portfolio invests.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
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AIM GLOBAL CONSUMER PRODUCTS AND SERVICES FUND
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PERFORMANCE INFORMATION
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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
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The following bar chart shows changes in the performance of the fund's Advisor
Class shares from year to year.
[GRAPH]
<TABLE>
<CAPTION>
TOTAL
YEAR ENDED ANNUAL
DECEMBER 31 RETURN
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<S> <C>
1996 ....................................... 39.01%
1997 ....................................... 18.19%
1998 ....................................... 23.35%
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
21.29% (quarter ended December 31, 1998) and the lowest quarterly return was
(15.56)% (quarter ended September 30, 1998).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
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(for the periods ended SINCE INCEPTION
December 31, 1998) 1 YEAR INCEPTION DATE
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<S> <C> <C> <C>
Advisor Class 23.35% 31.34% 06/01/95
MSCI AC World Index(1) 21.72 16.55(2) 05/31/95(2)
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</TABLE>
(1) The Morgan Stanley Capital International All Country World Index is a market
value-weighted average of the performance of securities listed on the major
world stock exchanges of 47 markets, including both developed and emerging
markets.
(2) The average annual total return given is since the date closest to the
inception date of the Advisor Class.
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FEE TABLE AND EXPENSE EXAMPLE
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FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from
your investment) ADVISOR CLASS
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<S> <C> <C>
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
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</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets)(1) ADVISOR CLASS
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<S> <C> <C>
Management Fees 0.98%
Distribution and/or
Service (12b-1) Fees None
Other Expenses 0.47
Total Annual Fund Operating
Expenses 1.45
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</TABLE>
(1) This fee table, and the expense example below, reflect the expenses of both
the fund and the portfolio.
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>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
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<S> <C> <C> <C> <C>
Advisor Class $148 $459 $792 $1,735
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</TABLE>
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AIM GLOBAL CONSUMER PRODUCTS AND SERVICES FUND
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FUND MANAGEMENT
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THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the investment advisor 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 provides 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 advisor since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 110
investment portfolios, including the portfolio, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended October 31, 1998, the advisor and Chancellor LGT
Asset Management, Inc., (the advisor for the period November 1, 1997 through May
28, 1998) together received compensation of 1.006% of average daily net assets,
consisting of a management and administrative fee of 0.98% and an accounting fee
of 0.026%.
PORTFOLIO MANAGER
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
- - 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.
Other Information
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DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS
The fund generally declares and pays dividends, if any, annually.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains (including
any net gains from foreign currency transactions), if any, annually.
5
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AIM GLOBAL CONSUMER PRODUCTS AND SERVICES FUND
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FINANCIAL HIGHLIGHTS
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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).
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(a)
-------------------------------------------------
YEAR ENDED OCTOBER 31, JUNE 1,
--------------------------- TO
1998(b) 1997(b) 1996(b) OCTOBER 31, 1995(b)
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<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 22.50 $21.15 $14.64 $ 11.84
Income from investment operations:
Net investment income (loss) (0.08) (0.04) (0.13) 0.04(c)
Net realized and unrealized gain on
investments 2.08 2.30 7.16 2.76
Net increase from investment operations 2.00 2.26 7.03 2.80
Distributions to shareholders:
From net realized gain on investments (1.89) (0.91) (0.52) --
Total distributions (1.89) (0.91) (0.52) --
Net asset value, end of period $ 22.61 $22.50 $21.15 $ 14.64
Total investment return(d) 9.20% 11.15% 49.50% 23.65%(e)
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Ratios and supplemental data:
Net assets, end of period (in 000s) $14,523 $6,047 $7,446 $ 164
Ratio of net investment income (loss) to average
net assets:
With expense reductions and/or reimbursement (0.31)% (0.22)% (0.64)% 0.70%(f)
Without expense reductions and/or reimbursement (0.33)% (0.37)% (0.74)% (10.61)%(f)
Ratio of expenses to average net assets:
With expense reductions and/or reimbursement 1.43% 1.34% 1.74% 1.82%(f)
Without expense reductions and/or reimbursement 1.45% 1.49% 1.84% 13.13%(f)
Portfolio turnover rate(g) 221% 392% 169% 240%(f)
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</TABLE>
(a) Commencing June 1, 1995, the fund began offering Advisor Class shares.
(b) These selected per share operating data were calculated based upon average
shares outstanding during the period.
(c) Before reimbursement the net investment income (loss) per share would have
been reduced (increased) $0.61.
(d) Total investment return does not include sales charges.
(e) Not annualized
(f) Annualized
(g) Portfolio turnover is calculated on the basis of the portfolio as a whole
without distinguishing between the classes of shares issued.
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Shareholder Information for Advisor Class Shares
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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 of the funds advised by the
advisor (the AIM Funds), your financial consultant, on your behalf, must submit
a fully completed new account application form directly to the transfer agent.
You may purchase shares using one of the options below.
PURCHASE OPTIONS
- -
<TABLE>
<CAPTION>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
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<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 Call the transfer agent to receive
a completed account application to a reference number. Then, use the
the transfer agent. You or your wire instructions at left.
financial 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 #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank
methods described above. Connection(SM) form to the transfer
agent. Once the transfer agent has
received the form, call the
transfer agent to place your
purchase order.
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</TABLE>
A- 1 ADV--03/99
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THE AIM FUNDS
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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.
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. TO PROTECT THE INTERESTS OF
INVESTORS, EACH AIM FUND AND THE DISTRIBUTOR MAY REJECT ANY ORDER CONSIDERED
MARKET TIMING ACTIVITY.
REDEEMING SHARES
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.
HOW TO REDEEM SHARES
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<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
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 New York Stock Exchange (NYSE) is open for business in
order to effect the redemption at that day's closing price.
</TABLE>
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ADV--03/99 A- 2
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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
(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.
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. You also may exchange Advisor
Class shares for AIM Cash Reserve shares of AIM Money Market 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:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be qualified for sale in your
state of residence;
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - The AIM Fund from which you are exchanging must have received the full amount
of the purchase price for the shares being exchanged;
- - 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
- - 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
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 New York Stock Exchange (NYSE) is open for business;
however, you still will be
A- 3 ADV--03/99
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THE AIM FUNDS
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allowed to exchange by telephone even if you have changed your address of record
within the preceding 30 days.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. 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 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.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours 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. An AIM Fund may postpone the right of redemption only under unusual
circumstances, as allowed by the Securities and Exchange Commission, such as
when the NYSE restricts or suspends trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund holds
its assets. Different rates of tax apply to ordinary income and long-term
capital gain distributions. Every year, you will be sent information 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, and any gain realized on the
transaction will generally be subject to federal income tax.
The foreign, state, and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
ADV--03/99 A- 4
<PAGE> 95
----------------------------------------------
AIM GLOBAL CONSUMER PRODUCTS AND SERVICES FUND
----------------------------------------------
Obtaining Additional Information
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us
- ---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Distributors, Inc.
11 Greenway Plaza, Suite
100
Houston, TX 77046-1173
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
- ---------------------------------------------------------
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, DC, on the SEC's website
(http://www.sec.gov), or by sending a letter, including a duplicating fee, to
the SEC's Public Reference Section, Washington, DC 20549-6009. Please call the
SEC at 1-800-SEC-0330 for information about the Public Reference Room.
- -----------------------------------------------
AIM Global Consumer Products and Services Fund
SEC 1940 Act file number: 811-05426
- -----------------------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com GCPS-PRO-2 INVEST WITH DISCIPLINE
--Registered Trademark--
<PAGE> 96
AIM GLOBAL FINANCIAL SERVICES FUND
------------------------------------------------------------------------
AIM Global Financial Services Fund seeks to provide long-term capital
growth.
PROSPECTUS
MARCH 1, 1999
This prospectus contains important
information about the Class A, B and
C shares of the fund. Please read it
before investing and keep it for
future reference.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE--Registered
Trademark--
<PAGE> 97
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE FUND 2
- - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 3
- - - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 3
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
- - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 4
Expense Example 4
FUND MANAGEMENT 5
- - - - - - - - - - - - - - - - - - - - - - - - -
The Advisor 5
Advisor Compensation 5
Portfolio Manager 5
OTHER INFORMATION 5
- - - - - - - - - - - - - - - - - - - - - - - - -
Sales Charges 5
Dividends and Distributions 5
FINANCIAL HIGHLIGHTS 6
- - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - -
Choosing a Share Class A-1
Purchasing Shares A-3
Redeeming Shares A-4
Exchanging Shares A-6
Pricing of Shares A-7
Taxes A-8
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK, AIM Institutional Funds, aimfunds.com, La
Familia AIM de Fondos, La Familia AIM de Fondos and Design and Invest with
Discipline are registered service marks and AIM Bank Connection is a service
mark of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 98
----------------------------------
AIM GLOBAL FINANCIAL SERVICES FUND
----------------------------------
INVESTMENT OBJECTIVE AND STRATEGIES
- --------------------------------------------------------------------------------
The fund's investment objective is long-term growth of capital.
The fund seeks to meet this objective by investing all of its investable
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 (1) derives at least 50% of its revenues or earnings from
financial services activities; or (2) 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 in equity and debt
securities of companies outside the financial services industry, which, in the
opinion of the portfolio manager, 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 invest no more than 40% of its total assets in
securities of issuers in any one country, other than the U.S.
The portfolio manager allocates 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 manager 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. The
portfolio manager usually sells 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 instruments or high-quality debt securities. As a result, the fund or the
portfolio may not achieve its investment objective.
If the fund's Board of Trustees determines that it is in the best interests of
the fund and its shareholders, the fund may redeem its investment in the
portfolio.
1
<PAGE> 99
----------------------------------
AIM GLOBAL FINANCIAL SERVICES FUND
----------------------------------
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 securities in which the portfolio invests. The prices of equity
securities change in response to many factors including the historical and
prospective earnings of the issuer, the value of its assets, general economic
conditions, interest rates, investor perceptions, and market liquidity.
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.
The prices of foreign securities may be further affected by other factors,
including:
- - Currency exchange rates--The dollar value of the fund's foreign investments
will be affected by changes in the exchange rates between the dollar and the
currencies in which those investments are traded.
- - Political and economic conditions--The value of the fund's foreign investments
may be adversely affected by political and social instability in their home
countries and by changes in economic or taxation policies in those countries.
- - Regulations--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available information
about foreign companies than about U.S. companies.
- - Markets--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and more volatile than U.S. securities.
The value of your shares could be adversely affected if the computer systems
used by the portfolio's investment advisor and other service providers are
unable to distinguish the year 2000 from the year 1900.
The portfolio's investment advisor and independent technology consultants are
working to avoid year 2000-related problems in its systems and to obtain
assurances that other service providers are taking similar steps. Year 2000
problems may also affect issuers in whose securities the portfolio invests.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
2
<PAGE> 100
----------------------------------
AIM GLOBAL FINANCIAL SERVICES FUND
----------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
The following bar chart shows changes in the performance of the fund's Class A
shares from year to year. The bar chart does not reflect sales loads. If it did,
the annual total returns shown would be lower.
[GRAPH]
<TABLE>
<CAPTION>
TOTAL
YEAR ENDED ANNUAL
DECEMBER 31 RETURN
- ----------- ------
<S> <C>
1995 ....................................... 19.06%
1996 ....................................... 15.21%
1997 ....................................... 30.32%
1998 ....................................... 13.13%
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
24.04% (quarter ended December 31, 1998) and the lowest quarterly return was
(21.49)% (quarter ended September 30, 1998).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(for the periods ended SINCE INCEPTION
December 31, 1998) 1 YEAR INCEPTION DATE
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Class A 7.74% 14.15% 05/31/94
Class B 7.53 14.54 05/31/94
Class C -- -- 03/01/99
MSCI AGP World Index(1) 21.72 14.98(2) 05/31/94
- ------------------------------------------------------------------------
</TABLE>
(1) The Morgan Stanley Capital International All Country World Index is a market
value-weighted average of the performance of securities listed on the major
world stock exchanges of 47 markets, including both developed and emerging
markets.
(2) The average annual total return given is since the inception date of the
class with the longest performance history.
3
<PAGE> 101
----------------------------------
AIM GLOBAL FINANCIAL SERVICES FUND
----------------------------------
FEE TABLE AND EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from
your investment) CLASS A CLASS B CLASS C
- -------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) 4.75% None None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase
price or redemption
proceeds, whichever is less) None(1) 5.00 1.00
- -------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets)(2) CLASS A CLASS B CLASS C
- -------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees 0.98% 0.98% 0.98%
Distribution and/or
Service (12b-1) Fees 0.50 1.00 1.00
Other Expenses 0.51 0.51 0.51
Total Annual Fund
Operating Expenses 1.99 2.49 2.49
- -------------------------------------------------------
</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) This fee table, and the expense example below, reflect the expenses of both
the fund and the portfolio.
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>
Class A $667 $1,070 $1,497 $2,682
Class B 752 1,076 1,526 2,703
Class C 352 776 1,326 2,826
- ----------------------------------------------
</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 $667 $1,070 $1,497 $2,682
Class B 252 776 1,326 2,703
Class C 252 776 1,326 2,826
- ----------------------------------------------
</TABLE>
4
<PAGE> 102
----------------------------------
AIM GLOBAL FINANCIAL SERVICES FUND
----------------------------------
FUND MANAGEMENT
- --------------------------------------------------------------------------------
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the investment advisor 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 advisor since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 110
investment portfolios, including the portfolio, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended October 31, 1998, the advisor and Chancellor LGT
Asset Management, Inc., (the advisor for the period November 1, 1997 through May
28, 1998) together received compensation of 1.006% of average daily net assets,
consisting of a management and administrative fee of 0.98% and an accounting fee
of 0.026%.
PORTFOLIO MANAGER
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
- - 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.
OTHER INFORMATION
- --------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM Global Financial Services Fund are subject to
the maximum 4.75% initial sales charge as listed under the heading "CATEGORY II
Initial Sales Charges" in the "Shareholder Information--Choosing a Share Class"
section of this prospectus. Purchases of Class B and Class C shares are subject
to the contingent deferred sales charges listed in that section.
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS
The fund generally declares and pays dividends, if any, annually.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains (including
any net gains from foreign currency transactions), if any, annually.
5
<PAGE> 103
----------------------------------
AIM GLOBAL FINANCIAL SERVICES FUND
----------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
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
-----------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------- MAY 31, TO
1998(a) 1997(a) 1996(a) 1995(a) OCTOBER 31, 1994(b)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 17.22 $ 14.20 $ 11.92 $ 11.62 $ 11.43
Income from investment operations:
Net investment income (loss) 0.07 0.04 0.05(c) 0.17(d) 0.02(e)
Net realized and unrealized gain on
investments 0.37 3.97 2.36 0.13 0.17
Net increase from investment operations 0.44 4.01 2.41 0.30 0.19
Distributions to shareholders:
From net investment income (0.01) -- (0.12) -- --
From net realized gain on investments (0.60) (0.99) (0.01) -- --
Total distributions (0.61) (0.99) (0.13) -- --
Net asset value, end of period $ 17.05 $ 17.22 $ 14.20 $ 11.92 $ 11.62
Total investment return(f) 2.53% 29.91% 20.21% 2.58% 1.66%(g)
- -------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
Net assets, end of period (in 000s) $ 28,433 $ 29,639 $ 7,302 $ 5,687 $ 3,175
Ratio of net investment income (loss) to average
net assets:
With expense reductions and/or reimbursement 0.37% 0.23% 0.41% 1.46% 0.66%(h)
Without expense reductions and/or
reimbursement 0.35% 0.16% (0.66)% (5.34)% (7.26)%(h)
Ratio of expenses to average net assets:
With expense reductions and/or reimbursement 1.97% 2.29% 2.32% 2.34% 2.40%(h)
Without expense reductions and/or
reimbursement 1.99% 2.36% 3.39% 9.14% 10.32%(h)
Portfolio turnover rate(i) 111% 91% 103% 170% 53%(h)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a)These selected per share data were calculated based upon average shares
outstanding during the period.
(b)The fund commenced operations on May 31, 1994.
(c)Before reimbursement the net investment income per share would have been
reduced by $0.13.
(d)Before reimbursement the net investment income per share would have been
reduced by $0.59.
(e)Before reimbursement the net investment income per share would have been
reduced by $0.23.
(f)Total investment return does not include sales charges.
(g)Not annualized
(h)Annualized
(i)Portfolio turnover rates are calculated on the basis of the portfolio as a
whole without distinguishing between the classes of shares issued.
6
<PAGE> 104
----------------------------------
AIM GLOBAL FINANCIAL SERVICES FUND
----------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------- MAY 31, TO
1998(a) 1997(a) 1996(a) 1995(a) OCTOBER 31, 1994(b)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 16.97 $ 14.06 $ 11.83 $ 11.60 $ 11.43
Income from investment operations:
Net investment income (loss) (0.02) (0.04) (0.01)(c) 0.11(d) 0.00(e)
Net realized and unrealized gain on
investments 0.37 3.94 2.34 0.12 0.17
Net increase from investment operations 0.35 3.90 2.33 0.23 0.17
Distributions to shareholders:
From net investment income (0.01) -- (0.09) -- --
From net realized gains on investments (0.60) (0.99) (0.01) -- --
Total distributions (0.61) (0.99) (0.10) -- --
Net asset value, end of period $ 16.71 $ 16.97 $ 14.06 $ 11.83 $ 11.60
Total investment return(f) 2.08% 29.13% 19.81% 1.98% 1.49%(g)
- -------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
Net assets, end of period (in 000s) $ 48,785 $ 47,585 $ 9,886 $ 4,548 $ 2,235
Ratio of net investment income (loss) to average
net assets:
With expense reductions and/or reimbursement (0.13)% (0.27)% (0.09)% 0.96% 0.16%(h)
Without expense reductions and/or
reimbursement (0.15)% (0.34)% (1.16)% (5.84)% (7.76)%(h)
Ratio of expenses to average net assets:
With expense reductions and/or reimbursement 2.47% 2.79% 2.82% 2.84% 2.90%(h)
Without expense reductions and/or
reimbursement 2.49% 2.86% 3.89% 9.64% 10.82%(h)
Portfolio turnover rate(i) 111% 91% 103% 170% 53%(h)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a)These selected per share data were calculated based upon average shares
outstanding during the period.
(b)The fund commenced operations on May 31, 1994.
(c)Before reimbursement the net investment income per share would have been
reduced by $0.13.
(d)Before reimbursement the net investment income per share would have been
reduced by $0.59.
(e)Before reimbursement the net investment income per share would have been
reduced by $0.23.
(f)Total investment return does not include sales charges.
(g)Not annualized
(h)Annualized
(i)Portfolio turnover rates are calculated on the basis of the portfolio as a
whole without distinguishing between the classes of shares issued.
7
<PAGE> 105
-------------
THE AIM FUNDS
-------------
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>
- - Initial sales charge - No initial sales charge - No initial sales charge
- - Reduced or waived initial sales - Contingent deferred sales - Contingent deferred sales
charge for certain purchases charge on redemptions within six charge on redemptions within
years one year
- - Lower distribution and service - 12b-1 fee of 1.00% - 12b-1 fee of 1.00%
(12b-1) fee than Class B or
Class C shares (See "Fee Table
and Expense Example")
- Converts to Class A shares - Does not convert to Class A
after eight years along with a shares
pro rata portion of its
reinvested dividends and
distributions*
- - Generally more appropriate for - Purchase orders limited to - Generally more appropriate
long-term investors amounts less than $250,000 for short-term investors
</TABLE>
* AIM Money Market Fund: Class B shares convert to AIM Cash Reserve
Shares.
AIM Global Trends Fund: If you held Class B shares on May 29,
1998 and continue to hold them, those shares will convert to
Class A shares of that fund seven years after your date of
purchase. If you exchange those shares for Class B shares of
another AIM Fund, the shares into which you exchanged will not
convert to Class A shares until eight years after your date of
purchase of the original shares.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12b-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund) has adopted 12b-1 plans
that allow the AIM Fund to pay distribution fees to A I M Distributors, Inc.
(the distributor) for the sale and distribution of its shares and fees for
services provided to shareholders, all or a substantial portion of which are
paid to the dealer of record. Because the AIM Fund pays these fees out of its
assets on an ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
MCF-03/99
A-1
<PAGE> 106
-------------
THE AIM FUNDS
-------------
SALES CHARGES
Generally, you will not pay a sales charge on purchases or redemptions of Class
A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money
Market Fund. You may be charged a contingent deferred sales charge if you redeem
AIM Cash Reserve Shares of AIM Money Market Fund acquired through certain
exchanges. Sales charges on all other AIM Funds and classes of those Funds are
detailed below. As used below, the term "offering price" with respect to all
categories of Class A shares includes the initial sales charge.
INITIAL SALES CHARGES
The AIM Funds are grouped into three categories with respect to initial sales
charges. The "Other Information" section of your prospectus will tell you in
what category your particular AIM Fund is classified.
<TABLE>
<CAPTION>
CATEGORY I INITIAL SALES CHARGES
- --------------------------------
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
- ----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY II INITIAL SALES CHARGES
- ---------------------------------
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
- ----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY III INITIAL SALES CHARGES
- ----------------------------------
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 100,000 1.00% 1.01%
$ 100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
- ----------------------------------------------------------
</TABLE>
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES
You can purchase $1,000,000 or more of Class A shares at net asset value.
However, if you purchase shares of that amount in Categories I or II, they will
be subject to a contingent deferred sales charge (CDSC) of 1% if you redeem them
prior to 18 months after the date of purchase. The distributor may pay a dealer
concession and/or a service fee for purchases of $1,000,000 or more.
CONTINGENT DEFERRED SALES CHARGES FOR
CLASS B AND CLASS C SHARES
You can purchase Class B and Class C shares at their net asset value per share.
However, when you redeem them, they are subject to a CDSC in the following
percentages:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
- ----------------------------------------------------------
<S> <C> <C>
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
- ----------------------------------------------------------
</TABLE>
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you have redeemed shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify
for these reductions or exceptions, you or your financial consultant must
provide sufficient information at the time of purchase to verify that your
purchase qualifies for such treatment.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Rights of Accumulation
You may combine your new purchases of Class A shares with Class A shares
currently owned for the purpose of qualifying for the lower initial sales charge
rates that apply to larger purchases. The applicable initial sales charge for
the new purchase is based on the total of your current purchase and the current
value of all Class A shares you own.
Letters of Intent
Under a Letter of Intent (LOI), you commit to purchase a specified dollar amount
of Class A shares of AIM Funds during a
A-2
<PAGE> 107
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THE AIM FUNDS
-------------
13-month period. The amount you agree to purchase determines the initial sales
charge you pay. If the full face amount of the LOI is not invested by the end of
the 13-month period, your account will be adjusted to the higher initial sales
charge level for the amount actually invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- - on shares purchased by reinvesting dividends and distributions;
- - when exchanging shares among certain AIM Funds;
- - when using the reinstatement privilege; and
- - when a merger, consolidation, or acquisition of assets of an AIM Fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- - if you redeem Class B shares you held for more than six years;
- - if you redeem Class C shares you held for more than one year;
- - if you redeem shares acquired through reinvestment of dividends and
distributions; and
- - on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares
at reduced or without sales charges. Consult the fund's Statement of Additional
Information for details.
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
The minimum investments for AIM Fund accounts (except for investments in AIM
Small Cap Opportunities Fund) are as follows:
<TABLE>
<CAPTION>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing $ 0 ($25 per AIM Fund investment for $25
plans, 401(k) plans, Simplified Employee Pension salary deferrals from Savings Plans)
(SEP) accounts, Salary Reduction (SARSEP)
accounts, Savings Incentive Match Plans for
Employee IRA (Simple IRA) accounts, 403(b) or
457 plans)
Automatic Investment Plans 50 50
IRA, Education IRA or Roth IRA 250 50
All other accounts 500 50
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below.
PURCHASE OPTIONS
- -
<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 Application Mail your check and the remittance
and purchase payment to the slip from your confirmation
transfer agent, statement to the transfer agent.
A I M Fund Services, Inc.,
P.O. Box 4739,
Houston, TX 77210-4739.
By Wire Mail completed Account Application Call the transfer agent to receive
to the transfer agent. Call the a reference number. Then, use the
transfer agent at (800) 959-4246 to wire instructions at left.
receive a reference number. Then,
use the following wire
instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number:
00100366807
Beneficiary Account Name: A I M
Fund Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank
methods described above. Connection(SM) form to the transfer
agent. Once the transfer agent has
received the form, call the
transfer agent to place your
purchase.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
A-3
<PAGE> 108
-------------
THE AIM FUNDS
-------------
SPECIAL PLANS
AUTOMATIC INVESTMENT PLAN
You can arrange for periodic investments in any of the AIM Funds by authorizing
the AIM Fund to withdraw the amount of your investment from your bank account on
a day or dates you specify and in an amount of at least $50. You may stop the
Automatic Investment Plan at any time by giving the transfer agent notice ten
days prior to your next scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one AIM Fund account to one or more other AIM Fund
accounts with the identical registration. The account from which exchanges are
to be made must have a minimum balance of $5,000 before you can use this option.
Exchanges will occur on (or about) the 10th or 25th day of the month, whichever
you specify, in the amount you specify. The minimum amount you can exchange to
another AIM Fund is $50.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
AIM Fund at net asset value. Unless you specify otherwise, your dividends and
distributions will automatically be reinvested in the same AIM Fund. You may
invest your dividends and distributions (1) into another AIM Fund in the same
class of shares; or (2) from Class A shares into AIM Cash Reserve Shares of AIM
Money Market Fund, or vice versa.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend must be at
least $5,000; or (b) in the AIM Fund receiving the dividend must be at least
$500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends into
another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this Program, you can designate how the
total value of your AIM Fund holdings should be rebalanced, on a percentage
basis, between two and ten of your AIM Funds on a quarterly, semiannual or
annual basis. Your portfolio will be rebalanced through the exchange of shares
in one or more of your AIM Funds for shares of the same class of one or more
other AIM Funds in your portfolio. If you wish to participate in the Program,
make changes or cancel the Program, the transfer agent must receive your request
to participate, changes or cancellation in good order at least five business
days prior to the next rebalancing date, which is normally the 28th day of the
last month of the period you choose. We may modify, suspend or terminate the
Program at any time on 60 days' prior written notice.
RETIREMENT PLANS
Shares of most of the AIM Funds can be purchased through
tax-sheltered retirement plans made available to corporations, individuals and
employees of non-profit organizations and public schools. A plan document must
be adopted to establish a retirement plan. You may use AIM Funds-sponsored
retirement plans, which include IRAs, Education IRAs, Roth IRAs, 403(b) plans,
401(k) plans, SIMPLE IRA plans, SEP/SARSEP plans and Money Purchase/Profit
Sharing plans, or another sponsor's retirement plan. The plan custodian of the
AIM Funds-sponsored retirement plan assesses an annual maintenance fee of $10.
Contact your financial consultant for details.
REDEEMING SHARES
REDEMPTION FEES
We will not charge you any fees to redeem your shares; however, your broker or
financial consultant may charge service fees for handling these transactions.
Your shares may be subject to a contingent deferred sales charge (CDSC).
REDEMPTION OF AIM CASH RESERVE SHARES OF
AIM MONEY MARKET FUND ACQUIRED BY EXCHANGE
If you redeem AIM Cash Reserve Shares acquired by exchange from Class A shares
subject to a CDSC within 18 months of the purchase of the Class A shares,
you will be charged a CDSC.
REDEMPTION OF CLASS B SHARES ACQUIRED BY
EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM
Floating Rate Fund, the early withdrawal charge applicable to shares of AIM
Floating Rate Fund will be applied instead of the CDSC normally applicable to
Class B shares.
A-4
<PAGE> 109
-------------
THE AIM FUNDS
-------------
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
Consultant
By Mail Send a written request to the transfer agent. Requests must
include (1) original signatures of all registered owners;
(2) the name of the AIM Fund and your account number; (3) if
the transfer agent does not hold your shares, endorsed share
certificates or share certificates accompanied by an
executed stock power; and (4) signature guarantees, if
necessary (see below). The transfer agent may require that
you provide additional information, such as corporate
resolutions or powers of attorney, if applicable. If you are
redeeming from an IRA account, you must include a statement
of whether or not you are at least 59 1/2 years old and
whether you wish to have federal income tax withheld from
your proceeds. The transfer agent may require certain other
information before you can redeem from an employer-sponsored
retirement plan. Contact your employer for details.
By Telephone Call the transfer agent. You will be allowed to redeem by
telephone if (1) the proceeds are to be mailed to the
address on record with us or transferred electronically to a
pre-authorized checking account; (2) the address on record
with us has not been changed within the last 30 days;
(3) you do not hold physical share certificates; (4) you can
provide proper identification information; (5) the proceeds
of the redemption do not exceed $50,000; and (6) you have
not previously declined the telephone redemption privilege.
Certain accounts, including retirement accounts and 403(b)
plans, may not redeem by telephone. The transfer agent must
receive your call during the hours the NYSE is open for
business in order to effect the redemption at that day's
closing price.
</TABLE>
- --------------------------------------------------------------------------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds to the address on record with us.
If your request is not in good order, you may have to provide us with additional
documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
PAYMENT FOR SYSTEMATIC WITHDRAWALS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. You also may make annual withdrawals if you own Class A shares.
We will redeem enough shares from your account to cover the amount withdrawn.
You must have an account balance of at least $5,000 to establish a Systematic
Withdrawal Plan. You can stop this plan at any time by giving ten days prior
notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM Cash Reserve Shares of AIM Money Market Fund only)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of trading
on the 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.
A-5
<PAGE> 110
-------------
THE AIM FUNDS
-------------
REINSTATEMENT PRIVILEGE (Class A shares only)
You may, within 90 days after you sell Class A shares (except Class A shares of
AIM Tax-Exempt Cash Fund), reinvest all or part of your redemption proceeds in
Class A shares of any AIM Fund at net asset value in an identically registered
account. If you sold Class A shares of AIM Limited Maturity Treasury Fund or AIM
Tax-Free Intermediate Fund, you will incur an initial sales charge reflecting
the difference between the initial sales charges on those Funds and the ones in
which you will be investing. In addition, if you paid a contingent deferred
sales charge (CDSC) on any reinstated amount, you will not be subject to a CDSC
if you later redeem that amount. You must notify the transfer agent in writing
at the time you reinstate that you are exercising your reinstatement privilege.
You may exercise this privilege only once per year.
REDEMPTIONS BY THE AIM FUNDS
If your account has been open at least one year, you have not made an additional
purchase in the account during the past six calendar months, and the value of
your account falls below $500 for three consecutive months due to redemptions or
exchanges (excluding retirement accounts), the AIM Funds have the right to
redeem the account after giving you 60 days' prior written notice. You may avoid
having your account redeemed during the notice period by bringing the account
value up to $500 or by utilizing the Automatic Investment Plan.
If an AIM Fund determines that you have provided incorrect information in
opening an account or in the course of conducting subsequent transactions, the
AIM Fund may, at its discretion, redeem the account and distribute the proceeds
to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one AIM Fund for those
of another AIM Fund. Before requesting an exchange, review the prospectus of the
AIM Fund you wish to acquire. Exchange privileges also apply to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992.
PERMITTED EXCHANGES
Except as otherwise stated below, you may exchange your shares for shares of the
same class of another AIM Fund. You also may exchange AIM Cash Reserve Shares of
AIM Money Market Fund for Class A shares of another AIM Fund, or vice versa. You
may be required to pay an initial sales charge when exchanging from a Fund with
a lower initial sales charge than the one into which you are exchanging. If you
exchange from Class A shares not subject to a CDSC into Class A shares subject
to those charges, you will be charged a CDSC when you redeem the exchanged
shares. The CDSC charged on redemption of those shares will be calculated
starting on the date you acquired those shares through exchange.
You also may exchange AIM Cash Reserve Shares of AIM Money Market Fund for
Advisor Class shares, but only if you acquired the AIM Cash Reserve Shares
through an exchange from Advisor Class shares.
YOU WILL NOT PAY A SALES CHARGE WHEN EXCHANGING:
(1) Class A shares with an initial sales charge (except for Class A shares of
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
Class A shares of another AIM Fund or AIM Cash Reserve Shares of AIM Money
Market Fund;
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund for
(a) one another;
(b) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of
AIM Tax-Exempt Cash Fund; or
(c) Class A shares of another AIM Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way of
an exchange from shares with higher sales charges;
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) one another;
(b) Class A shares of an AIM Fund subject to an initial sales charge (except
for Class A shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund), but only if you acquired the original
shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to an
initial sales charge;
(ii) on or after May 1, 1994 by exchange from Class A shares subject to
an initial sales charge (except for Class A shares of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund); or
(c) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund, but only if you acquired the original shares by
exchange from Class A shares subject to an initial sales charge; or
(4) Class B shares for other Class B shares, and Class C shares for other Class
C shares.
EXCHANGES NOT PERMITTED
You may not exchange Class A shares subject to contingent deferred sales charges
for Class A shares of AIM Limited Maturity Treasury Fund, AIM Tax-Free
Intermediate Fund or AIM Tax-Exempt Cash Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be qualified for sale in your
state of residence;
A-6
<PAGE> 111
-------------
THE AIM FUNDS
-------------
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - Shares must have been held for at least one day prior to the exchange; and
- - If you have physical share certificates, you must return them to the transfer
agent prior to the exchange.
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.
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. TO PROTECT THE INTERESTS OF
INVESTORS, EACH AIM FUND AND THE DISTRIBUTOR MAY REJECT ANY ORDER CONSIDERED
MARKET-TIMING ACTIVITY.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. AIM Money
Market Fund and AIM Tax-Exempt Cash Fund value all of their securities at
amortized cost. AIM High Income Municipal Fund, AIM Municipal Bond Fund, AIM
Tax-Exempt Bond Fund of Connecticut and AIM Tax-Free Intermediate Fund value
variable rate securities that have an unconditional demand or put feature
exercisable within seven days or less at par, which reflects the market value of
such securities.
The AIM Funds value all other securities and assets at their fair value.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day. In addition, if,
between the time trading ends on a particular security and the close of the 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.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours 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. An AIM Fund may postpone the right of redemption only under unusual
circumstances, as allowed by the Securities and Exchange Commission, such as
when the NYSE restricts or suspends trading.
A-7
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-------------
THE AIM FUNDS
-------------
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund holds
its assets. Different tax rates apply to ordinary income and long-term capital
gain distributions, regardless of how long you have held your shares. Every
year, you will be sent information showing the amount of dividends and
distributions you received from each AIM Fund during the prior year.
Any long-term or short-term capital gains realized from redemptions of AIM
Fund shares will be subject to federal income tax. Exchanges of shares for
shares of another AIM Fund are treated as a sale, and any gain realized on the
transaction will generally be subject to federal income tax.
The foreign, state and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
A-8
<PAGE> 113
----------------------------------
AIM GLOBAL FINANCIAL SERVICES FUND
----------------------------------
OBTAINING ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us
- ---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Distributors, Inc.
11 Greenway Plaza, Suite
100
Houston, TX 77046-1173
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
- ---------------------------------------------------------
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, DC, on the SEC's website
(http://www.sec.gov), or by sending a letter, including a duplicating fee, to
the SEC's Public Reference Section, Washington, DC 20549-6009. Please call the
SEC at 1-800-SEC-0330 for information about the Public Reference Room.
- -------------------------------------
AIM Global Financial Services Fund
SEC 1940 Act file number: 811-05426
- -------------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com
GFS-PRO-1 INVEST WITH DISCIPLINE--Registered Trademark--
<PAGE> 114
AIM GLOBAL FINANCIAL SERVICES FUND
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Advisor Class
AIM Global Financial Services Fund seeks to provide long-term capital
growth.
PROSPECTUS
MARCH 1, 1999
This prospectus contains important
information. Please read it before
investing and keep it for future
reference.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE--Registered
Trademark--
<PAGE> 115
Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE
FUND 2
- - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 3
- - - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 3
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
- - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 4
Expense Example 4
FUND MANAGEMENT 5
- - - - - - - - - - - - - - - - - - - - - - - - -
The Advisor 5
Advisor Compensation 5
Portfolio Manager 5
OTHER INFORMATION 5
- - - - - - - - - - - - - - - - - - - - - - - - -
Dividends and Distributions 5
FINANCIAL HIGHLIGHTS 6
- - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - -
Purchasing Shares A-1
Redeeming Shares A-2
Exchanging Shares A-3
Pricing of Shares A-4
Taxes A-4
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK, AIM Institutional Funds, aimfunds.com, La
Familia AIM de Fondos, La Familia AIM de Fondos and Design and Invest with
Discipline are registered service marks and AIM Bank Connection is a service
mark of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 116
----------------------------------
AIM GLOBAL FINANCIAL SERVICES FUND
----------------------------------
Investment Objective and Strategies
- --------------------------------------------------------------------------------
The fund's investment objective is long-term growth of capital.
The fund seeks to meet this objective by investing all of its investable
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 (1) derives at least 50% of its revenues or earnings from
financial services activities; or (2) 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 manager, stand to benefit from developments in the
financial services industry. 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 manager allocates 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 manager 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. The
portfolio manager usually sells 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 instrument or high quality debt securities. As a result, the fund or the
portfolio may not achieve its investment objective.
If the fund's Board of Trustees determines that it is in the best interest of
the fund and its shareholders, the fund may redeem its investment in the
portfolio.
1
<PAGE> 117
----------------------------------
AIM GLOBAL FINANCIAL SERVICES FUND
----------------------------------
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 prices of equity
securities change in response to many factors including the historical and
prospective earnings of the issuer, the value of its assets, general economic
conditions, interest rates, investor perceptions, and market liquidity.
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.
The prices of foreign securities may be further affected by other factors,
including:
- - Currency exchange rates--The dollar value of the fund's foreign investments
will be affected by changes in the exchange rates between the dollar and the
currencies in which those investments are traded.
- - Political and economic conditions--The value of the fund's foreign investments
may be adversely affected by political and social instability in their home
countries and by changes in economic or taxation policies in those countries.
- - Regulations--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available information
about foreign companies than about U.S. companies.
- - Markets--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and more volatile than U.S. securities.
The value of your shares could be adversely affected if the computer systems
used by the portfolio's investment advisor and portfolio's other service
providers are unable to distinguish the year 2000 from the year 1900.
The portfolio's investment advisor and independent technology consultants are
working to avoid year 2000-related problems in its systems and to obtain
assurances that other service providers are taking similar steps. Year 2000
problems may also affect issuers in whose securities the portfolio invests.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
2
<PAGE> 118
----------------------------------
AIM GLOBAL FINANCIAL SERVICES FUND
----------------------------------
Performance Information
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
The following bar chart shows changes in the performance of the fund's Advisor
Class shares from year to year.
[GRAPH]
<TABLE>
<CAPTION>
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURN
- ----------- ------
<S> <C>
1996 ....................................... 15.83
1997 ....................................... 30.91
1998 ....................................... 13.68
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
24.21% (quarter ended December 31, 1998) and the lowest quarterly return was
(21.35)% (quarter ended September 30, 1998).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(for the periods ended SINCE INCEPTION
December 31, 1998) 1 YEAR INCEPTION DATE
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Advisor Class 13.68% 21.40% 06/01/95
MSCI All Country World Index(1) 21.72 16.55(2) 05/31/95(2)
- ------------------------------------------------------------------------
</TABLE>
(1) The Morgan Stanley Capital International All Country World Index is a market
value-weighted average of the performance of securities listed on the major
world stock exchanges of 47 markets, including both developed and emerging
markets.
(2) The average annual total return given is since the date closest to the
inception date of the Advisor Class.
3
<PAGE> 119
----------------------------------
AIM GLOBAL FINANCIAL SERVICES FUND
----------------------------------
Fee Table and Expense Example
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from
your investment) ADVISOR CLASS
- ---------------------------------------------------
<S> <C> <C>
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
- ---------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets)(1) ADVISOR CLASS
- ---------------------------------------------------
<S> <C> <C>
Management Fees 0.98%
Distribution and/or
Service (12b-1) Fees None
Other Expenses 0.51
Total Annual Fund Operating
Expenses 1.49
- ---------------------------------------------------
</TABLE>
(1) This fee table, and the expense example below, reflect the expenses of both
the fund and the portfolio.
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>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------
<S> <C> <C> <C> <C>
Advisor Class $152 $471 $813 $1,779
- ------------------------------------------------------
</TABLE>
4
<PAGE> 120
----------------------------------
AIM GLOBAL FINANCIAL SERVICES FUND
----------------------------------
Fund Management
- --------------------------------------------------------------------------------
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the investment advisor 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 provides 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 advisor since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 110
investment portfolios, including the portfolio, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended October 31, 1998, the advisor and Chancellor LGT
Asset Management, Inc., (the advisor for the period November 1, 1997 through May
28, 1998) together received compensation of 1.006% of average daily net assets,
consisting of a management and administrative fee of 0.98% and an accounting fee
of 0.026%.
PORTFOLIO MANAGER
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
- - 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.
Other Information
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS
The fund generally declares and pays dividends, if any, annually.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains (including
any net gains from foreign currency transactions), if any, annually.
5
<PAGE> 121
----------------------------------
AIM GLOBAL FINANCIAL SERVICES FUND
----------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
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(a)
--------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------- JUNE 1, TO
1998(b) 1997 1996 OCTOBER 31, 1995(b)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $17.40 $14.26 $11.95 $11.09
Income from investment operations:
Net investment income (loss) 0.17 0.12 0.12(c) 0.09(d)
Net realized and unrealized gain on investments 0.15 4.01 2.36 0.77
Net increase from investment operations 0.52 4.13 2.48 0.86
Distributions to shareholders:
From net investment income (0.01) -- (0.16) --
From net realized gain on investments (0.60) (0.99) (0.01) --
Total distributions (0.61) (0.99) (0.17) --
Net asset value, end of period $17.31 $17.40 $14.26 $11.95
====== ====== ====== ======
Total investment return(e) 3.03% 30.52% 20.87% 7.75%(f)
- ----------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
Net assets, end of period (in 000s) $9,276 $3,738 $ 72 $ 31
Ratio of net investment income (loss) to average net assets:
With expense reductions and/or reimbursement 0.87% 0.73% 0.91% 1.96%(g)
Without expense reductions and/or reimbursement 0.85% 0.66% (0.16)% (4.84)%(g)
Ratio of expenses to average net assets:
With expense reduction and/or reimbursement 1.47% 1.79% 1.82% 1.84%(g)
Without expense reductions and/or reimbursement 1.49% 1.86% 2.89% 8.64%(g)
Portfolio turnover rate(h) 111% 91% 103% 170%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Commencing June 1, 1995, the fund began offering Advisor Class shares.
(b) These selected per share data were calculated based upon average shares
outstanding during the period.
(c) Before reimbursement the net investment income per share would have been
reduced by $0.13.
(d) Before reimbursement the net investment income per share would have been
reduced by $0.30.
(e) Total investment return does not include sales charges.
(f) Not annualized
(g) Annualized
(h) Portfolio turnover rates are calculated on the basis of the portfolio as a
whole without distinguishing between the classes of shares issued.
6
<PAGE> 122
-------------
THE AIM FUNDS
-------------
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 of the funds advised by the
advisor (the AIM Funds), your financial consultant, on your behalf, must submit
a fully completed new account application form directly to the transfer agent.
You may purchase shares using one of the options below.
PURCHASE OPTIONS
- -
<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 Call the transfer agent to receive
a completed account application to a reference number. Then, use the
the transfer agent. You or your wire instructions at left.
financial 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 #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank
methods described above. Connection(SM) form to the transfer
agent. Once the transfer agent has
received the form, call the
transfer agent to place your
purchase order.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
A- 1 ADV--03/99
<PAGE> 123
-------------
THE AIM FUNDS
-------------
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.
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. TO PROTECT THE INTERESTS OF
INVESTORS, EACH AIM FUND AND THE DISTRIBUTOR MAY REJECT ANY ORDER CONSIDERED
MARKET TIMING ACTIVITY.
REDEEMING SHARES
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.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
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 New York Stock Exchange (NYSE) is open for business in
order to effect the redemption at that day's closing price.
</TABLE>
- --------------------------------------------------------------------------------
ADV--03/99 A- 2
<PAGE> 124
-------------
THE AIM FUNDS
-------------
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
(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.
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. You also may exchange Advisor
Class shares for AIM Cash Reserve shares of AIM Money Market 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:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be qualified for sale in your
state of residence;
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - The AIM Fund from which you are exchanging must have received the full amount
of the purchase price for the shares being exchanged;
- - 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
- - 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
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 New York Stock Exchange (NYSE) is open for business;
however, you still will be
A- 3 ADV--03/99
<PAGE> 125
-------------
THE AIM FUNDS
-------------
allowed to exchange by telephone even if you have changed your address of record
within the preceding 30 days.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. 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 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.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours 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. An AIM Fund may postpone the right of redemption only under unusual
circumstances, as allowed by the Securities and Exchange Commission, such as
when the NYSE restricts or suspends trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund holds
its assets. Different rates of tax apply to ordinary income and long-term
capital gain distributions. Every year, you will be sent information 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, and any gain realized on the
transaction will generally be subject to federal income tax.
The foreign, state, and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
ADV--03/99 A- 4
<PAGE> 126
----------------------------------
AIM GLOBAL FINANCIAL SERVICES FUND
----------------------------------
Obtaining Additional Information
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us
- ---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Distributors, Inc.
11 Greenway Plaza, Suite
100
Houston, TX 77046-1173
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
- ---------------------------------------------------------
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, DC, on the SEC's website
(http://www.sec.gov), or by sending a letter, including a duplicating fee, to
the SEC's Public Reference Section, Washington, DC. 20549-6009. Please call the
SEC at 1-800-SEC-0330 for information about the Public Reference Room.
- ------------------------------------
AIM Global Financial Services Fund
SEC 1940 Act file number: 811-05426
- ------------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com
GFS-PRO-2 INVEST WITH DISCIPLINE--Registered Trademark--
<PAGE> 127
AIM GLOBAL GOVERNMENT INCOME FUND
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
AIM Global Government Income Fund primarily seeks high current income
and, secondarily, growth of capital and protection of principal.
PROSPECTUS
MARCH 1, 1999
This prospectus contains important
information about Class A, B and C
shares of the fund. Please read it
before investing and keep it for
future reference.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE--Registered Trademark--
<PAGE> 128
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE FUND 2
- - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 3
- - - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 3
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
- - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 4
Expense Example 4
FUND MANAGEMENT 5
- - - - - - - - - - - - - - - - - - - - - - - - -
The Advisors 5
Advisor Compensation 5
Portfolio Managers 5
OTHER INFORMATION 5
- - - - - - - - - - - - - - - - - - - - - - - - -
Sales Charges 5
Dividends and Distributions 5
FINANCIAL HIGHLIGHTS 6
- - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - -
Choosing a Share Class A-1
Purchasing Shares A-3
Redeeming Shares A-4
Exchanging Shares A-6
Pricing of Shares A-7
Taxes A-8
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK, AIM Institutional Funds, aimfunds.com, La
Familia AIM de Fondos, La Familia AIM de Fondos and Design and Invest with
Discipline are registered service marks and AIM Bank Connection is a service
mark of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 129
---------------------------------
AIM GLOBAL GOVERNMENT INCOME FUND
---------------------------------
INVESTMENT OBJECTIVES AND STRATEGIES
- --------------------------------------------------------------------------------
The fund's primary investment objective is high current income, and its
secondary investment objectives are growth of capital and protection of
principal.
The fund seeks to meet these 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 the portfolio managers 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 (1) 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; (2) 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); (3) privately issued mortgage-backed and asset-backed
securities that are rated at least investment grade, or deemed by the portfolio
manager to be of comparable quality; and (4) common stocks, preferred stocks and
warrants, provided that the fund will invest no 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 invest no
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 portfolio managers consider 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. 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
investments or high-quality 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.
1
<PAGE> 130
---------------------------------
AIM GLOBAL GOVERNMENT INCOME FUND
---------------------------------
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 a 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.
The prices of foreign securities may be further affected by other factors,
including:
- - Currency exchange rates--The dollar value of the fund's foreign investments
will be affected by changes in the exchange rates between the dollar and the
currencies in which those investments are traded.
- - Political and economic conditions--The value of the fund's foreign investments
may be adversely affected by political and social instability in their home
countries and by changes in economic or taxation policies in those countries.
- - Regulations--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available information
about foreign companies than about U.S. companies.
- - Markets--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and more volatile than U.S. securities.
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.
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. During those times, the bonds would be difficult to value or
to sell at a fair price. Credit ratings on junk bonds do not necessarily reflect
their actual market risk.
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.
The value of your shares could be adversely affected if the computer systems
used by the fund's investment advisor and the fund's other service providers are
unable to distinguish the year 2000 from the year 1900.
The fund's investment advisor and independent technology consultants are
working to avoid year 2000-related problems in its systems and to obtain
assurances that other service providers are taking similar steps. Year 2000
problems may also affect issuers in whose securities the fund invests.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
2
<PAGE> 131
---------------------------------
AIM GLOBAL GOVERNMENT INCOME FUND
---------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
The following bar chart shows changes in the performance of the fund's Class A
shares from year to year. The bar chart does not reflect sales loads. If it did,
the annual total returns shown would be lower.
[GRAPH]
<TABLE>
<CAPTION>
YEAR ENDED ANNUAL %
DECEMBER 31 TOTAL RETURN
- ----------- ------------
<S> <C>
1989 ....................................... 11.13%
1990 ....................................... 8.77%
1991 ....................................... 13.67%
1992 ....................................... 1.95%
1993 ....................................... 25.52%
1994 ....................................... -13.95%
1995 ....................................... 15.63%
1996 ....................................... 6.06%
1997 ....................................... 3.37%
1998 ....................................... 12.13%
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
7.01% (quarter ended September 30, 1998) and the lowest quarterly return was
(8.76)% (quarter ended March 31, 1994).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(for the periods ended SINCE INCEPTION
December 31, 1998) 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A 6.80 3.10 7.44 7.00 3/29/88
Class B 6.32 3.10 -- 6.44 10/22/92
Class C -- -- -- -- 03/01/99
J.P. Morgan Global Government Bond Index(1) 15.31 8.08 9.08 8.69(2) 03/31/88(2)
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) The J.P. Morgan Global Government Bond Index is a market value-weighted
average of government bonds from 13 major bond markets.
(2) The average annual total return given is since the date closest to the
inception date of the class with the longest performance history.
3
<PAGE> 132
---------------------------------
AIM GLOBAL GOVERNMENT INCOME FUND
---------------------------------
FEE TABLE AND EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from
your investment) CLASS A CLASS B CLASS C
- -------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) 4.75% None None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase
price or redemption
proceeds, whichever is less) None(1) 5.00 1.00
- -------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets) CLASS A CLASS B CLASS C
- -------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees 0.73% 0.73% 0.73%
Distribution and/or
Service (12b-1) Fees 0.35 1.00 1.00
Other Expenses
Other 0.44 0.44 0.44
Interest 0.29 0.29 0.29
---- ---- ----
Total Other Expenses 0.73 0.73 0.73
---- ---- ----
Total Annual Fund
Operating Expenses 1.52 2.46 2.46
- -------------------------------------------------------
</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.
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>
Class A $650 $1,017 $1,408 $2,501
Class B 752 1,076 1,526 2,659
Class C 349 767 1,311 2,796
- ----------------------------------------------
</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 $650 $1,017 $1,408 $2,501
Class B 252 776 1,326 2,659
Class C 249 767 1,311 2,796
- ----------------------------------------------
</TABLE>
4
<PAGE> 133
---------------------------------
AIM GLOBAL GOVERNMENT INCOME FUND
---------------------------------
FUND MANAGEMENT
- --------------------------------------------------------------------------------
THE ADVISORS
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor.
INVESCO Asset Management Limited (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 advisor since its organization in 1976,
and the subadvisor has acted as an investment advisor since 1967. Today, the
advisor, together with its subsidiaries, advises or manages over 110 investment
portfolios, including the fund, encompassing a broad range of investment
objectives.
ADVISOR COMPENSATION
During the fiscal year ended October 31, 1998, the advisor and Chancellor LGT
Asset Management, Inc., (the advisor for the period November 1, 1997 through May
28, 1998) together received compensation of 0.756% of average daily net assets,
consisting of a management and administrative fee of 0.73% and an accounting fee
of 0.026%.
PORTFOLIO MANAGERS
The advisors use a team approach to investment management. The individual
members of the team who are primarily responsible for the day-to-day management
of the fund's portfolio are
- - Thomas J. Berger, Portfolio Manager, has been responsible for the fund since
1999 and has been associated with the advisor and/or its affiliates since
1997. From 1993 to 1997 he was Director of Mercury Asset Management PLC.
- - Paul Griffiths, Portfolio Manager, has been responsible for the fund since
1999 and has been associated with the advisor and/or its affiliates since
1994.
- - David B. Hughes, Portfolio Manager, has been responsible for the fund since
1998 and has been associated with the advisor and/or its affiliates since
1995. From 1994 to 1995, he was Assistant Vice President of Fiduciary Trust
Company International.
OTHER INFORMATION
- --------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM Global Government Income Fund are subject to
the maximum 4.75% initial sales charge as listed under the heading "CATEGORY II
initial Sales Charges" in the "Shareholder Information--Choosing a Share Class"
section of this prospectus. Purchases of Class B and Class C shares are subject
to the contingent deferred sales charges listed in that section.
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS
The fund generally declares and pays dividends, if any, monthly.
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.
5
<PAGE> 134
---------------------------------
AIM GLOBAL GOVERNMENT INCOME FUND
---------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
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
----------------------------------------------------
YEAR ENDED OCTOBER 31,
1998(a) 1997(a) 1996(a) 1995(a) 1994(a)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 8.62 $ 8.74 $ 8.81 $ 8.63 $ 11.07
Income from investment operations:
Net investment income 0.54 0.52 0.57 0.62 0.65
Net realized and unrealized gain (loss) on
investments 0.32 (0.13) 0.03 0.15 (1.52)
Net increase (decrease) from investment
operations 0.86 0.39 0.60 0.77 (0.87)
Distributions to shareholders:
From net investment income (0.16) (0.31) (0.57) (0.59) (0.65)
From net realized gain on investments -- -- (0.10) -- (0.27)
In excess of net investment income (0.35) (0.20) -- -- --
In excess of net realized gain on investments -- -- -- -- (0.55)
Return of capital -- -- -- -- (0.10)
Total distributions (0.51) (0.51) (0.67) (0.59) (1.57)
Net asset value, end of period $ 8.97 $ 8.62 $ 8.74 $ 8.81 $ 8.63
Total investment return(b) 10.20% 4.78% 7.11% 9.22% (8.87)%
- ------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
- ------------------------------------------------------------------------------------------------------
Net assets, end of period (in 000s) $121,268 $154,272 $240,945 $385,404 $502,094
Ratio of net investment income to average net
assets 6.06% 6.04% 6.52% 6.98% 6.87%
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions 1.52% 1.34% 1.34% 1.35% 1.33%
Without expense reductions 1.52% 1.51% 1.39% 1.38% N/A
Ratio of interest expense to average net
assets(c) 0.29% N/A N/A N/A N/A
Portfolio turnover rate(c) 305% 241% 268% 385% 625%
- ------------------------------------------------------------------------------------------------------
</TABLE>
(a) These selected per share data were calculated based upon average shares
outstanding during the period.
(b) Total investment return does not include sales charges.
(c) Portfolio turnover rates and ratio of interest expense to average net assets
are calculated on the basis of the fund as a whole without distinguishing
between the classes of shares.
N/A Not applicable.
6
<PAGE> 135
---------------------------------
AIM GLOBAL GOVERNMENT INCOME FUND
---------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------
YEAR ENDED OCTOBER 31,
1998(a) 1997(a) 1996(a) 1995(a) 1994(a)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 8.62 $ 8.74 $ 8.80 $ 8.64 $ 11.07
Income from investment operations:
Net investment income 0.47 0.46 0.51 0.55 0.59
Net realized and unrealized gain (loss) on
investments 0.34 (0.12) 0.04 0.14 (1.52)
Net increase (decrease) from investment
operations 0.81 0.34 0.55 0.69 (0.93)
Distributions to shareholders:
From net investment income (0.11) (0.28) (0.51) (0.53) (0.59)
From net realized gain on investments -- -- (0.10) -- (0.27)
In excess of net investment income (0.35) (0.18) -- -- --
In excess of net realized gain on investments -- -- -- -- (0.54)
Return of capital -- -- -- -- (0.10)
Total distributions (0.46) (0.46) (0.61) (0.53) (1.50)
Net asset value, end of period $ 8.97 $ 8.62 $ 8.74 $ 8.80 $ 8.64
Total investment return(b) 9.65% 4.00% 6.54% 8.22% (9.39)%
- ---------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
- ---------------------------------------------------------------------------------------------------------
Net assets, end of period (in 000s) $91,852 $127,722 $166,577 $235,481 $262,405
Ratio of net investment income to average net
assets 5.41% 5.39% 5.87% 6.33% 6.22%
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions 2.17% 1.99% 1.99% 2.00% 1.98%
Without expense reductions 2.17% 2.16% 2.04% 2.03% N/A
Ratio of interest expense to average net
assets(c) 0.29% N/A N/A N/A N/A
Portfolio turnover rate(c) 305% 241% 268% 385% 625%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(a) These selected per share data were calculated based upon average shares
outstanding during the period.
(b) Total investment return does not include sales charges.
(c) Portfolio turnover rates and ratio of interest expense to average net assets
are calculated on the basis of the fund as a whole without distinguishing
between the classes of shares.
N/A Not applicable.
7
<PAGE> 136
-------------
THE AIM FUNDS
-------------
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>
- - Initial sales charge - No initial sales charge - No initial sales charge
- - Reduced or waived initial sales - Contingent deferred sales - Contingent deferred sales
charge for certain purchases charge on redemptions within six charge on redemptions within
years one year
- - Lower distribution and service - 12b-1 fee of 1.00% - 12b-1 fee of 1.00%
(12b-1) fee than Class B or
Class C shares (See "Fee Table
and Expense Example")
- Converts to Class A shares - Does not convert to Class A
after eight years along with a shares
pro rata portion of its
reinvested dividends and
distributions*
- - Generally more appropriate for - Purchase orders limited to - Generally more appropriate
long-term investors amounts less than $250,000 for short-term investors
</TABLE>
* AIM Money Market Fund: Class B shares convert to AIM Cash Reserve
Shares.
AIM Global Trends Fund: If you held Class B shares on May 29,
1998 and continue to hold them, those shares will convert to
Class A shares of that fund seven years after your date of
purchase. If you exchange those shares for Class B shares of
another AIM Fund, the shares into which you exchanged will not
convert to Class A shares until eight years after your date of
purchase of the original shares.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12b-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund) has adopted 12b-1 plans
that allow the AIM Fund to pay distribution fees to A I M Distributors, Inc.
(the distributor) for the sale and distribution of its shares and fees for
services provided to shareholders, all or a substantial portion of which are
paid to the dealer of record. Because the AIM Fund pays these fees out of its
assets on an ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
MCF-03/99
A-1
<PAGE> 137
-------------
THE AIM FUNDS
-------------
SALES CHARGES
Generally, you will not pay a sales charge on purchases or redemptions of Class
A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money
Market Fund. You may be charged a contingent deferred sales charge if you redeem
AIM Cash Reserve Shares of AIM Money Market Fund acquired through certain
exchanges. Sales charges on all other AIM Funds and classes of those Funds are
detailed below. As used below, the term "offering price" with respect to all
categories of Class A shares includes the initial sales charge.
INITIAL SALES CHARGES
The AIM Funds are grouped into three categories with respect to initial sales
charges. The "Other Information" section of your prospectus will tell you in
what category your particular AIM Fund is classified.
<TABLE>
<CAPTION>
CATEGORY I INITIAL SALES CHARGES
- --------------------------------
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
- ----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY II INITIAL SALES CHARGES
- ---------------------------------
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
- ----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY III INITIAL SALES CHARGES
- ----------------------------------
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 100,000 1.00% 1.01%
$ 100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
- ----------------------------------------------------------
</TABLE>
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES
You can purchase $1,000,000 or more of Class A shares at net asset value.
However, if you purchase shares of that amount in Categories I or II, they will
be subject to a contingent deferred sales charge (CDSC) of 1% if you redeem them
prior to 18 months after the date of purchase. The distributor may pay a dealer
concession and/or a service fee for purchases of $1,000,000 or more.
CONTINGENT DEFERRED SALES CHARGES FOR
CLASS B AND CLASS C SHARES
You can purchase Class B and Class C shares at their net asset value per share.
However, when you redeem them, they are subject to a CDSC in the following
percentages:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
- ----------------------------------------------------------
<S> <C> <C>
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
- ----------------------------------------------------------
</TABLE>
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you have redeemed shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify
for these reductions or exceptions, you or your financial consultant must
provide sufficient information at the time of purchase to verify that your
purchase qualifies for such treatment.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Rights of Accumulation
You may combine your new purchases of Class A shares with Class A shares
currently owned for the purpose of qualifying for the lower initial sales charge
rates that apply to larger purchases. The applicable initial sales charge for
the new purchase is based on the total of your current purchase and the current
value of all Class A shares you own.
Letters of Intent
Under a Letter of Intent (LOI), you commit to purchase a specified dollar amount
of Class A shares of AIM Funds during a
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THE AIM FUNDS
-------------
13-month period. The amount you agree to purchase determines the initial sales
charge you pay. If the full face amount of the LOI is not invested by the end of
the 13-month period, your account will be adjusted to the higher initial sales
charge level for the amount actually invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- - on shares purchased by reinvesting dividends and distributions;
- - when exchanging shares among certain AIM Funds;
- - when using the reinstatement privilege; and
- - when a merger, consolidation, or acquisition of assets of an AIM Fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- - if you redeem Class B shares you held for more than six years;
- - if you redeem Class C shares you held for more than one year;
- - if you redeem shares acquired through reinvestment of dividends and
distributions; and
- - on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares
at reduced or without sales charges. Consult the fund's Statement of Additional
Information for details.
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
The minimum investments for AIM Fund accounts (except for investments in AIM
Small Cap Opportunities Fund) are as follows:
<TABLE>
<CAPTION>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing $ 0 ($25 per AIM Fund investment for $25
plans, 401(k) plans, Simplified Employee Pension salary deferrals from Savings Plans)
(SEP) accounts, Salary Reduction (SARSEP)
accounts, Savings Incentive Match Plans for
Employee IRA (Simple IRA) accounts, 403(b) or
457 plans)
Automatic Investment Plans 50 50
IRA, Education IRA or Roth IRA 250 50
All other accounts 500 50
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below.
PURCHASE OPTIONS
- -
<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 Application Mail your check and the remittance
and purchase payment to the slip from your confirmation
transfer agent, statement to the transfer agent.
A I M Fund Services, Inc.,
P.O. Box 4739,
Houston, TX 77210-4739.
By Wire Mail completed Account Application Call the transfer agent to receive
to the transfer agent. Call the a reference number. Then, use the
transfer agent at (800) 959-4246 to wire instructions at left.
receive a reference number. Then,
use the following wire
instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number:
00100366807
Beneficiary Account Name: A I M
Fund Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank
methods described above. Connection(SM) form to the transfer
agent. Once the transfer agent has
received the form, call the
transfer agent to place your
purchase.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
A-3
<PAGE> 139
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THE AIM FUNDS
-------------
SPECIAL PLANS
AUTOMATIC INVESTMENT PLAN
You can arrange for periodic investments in any of the AIM Funds by authorizing
the AIM Fund to withdraw the amount of your investment from your bank account on
a day or dates you specify and in an amount of at least $50. You may stop the
Automatic Investment Plan at any time by giving the transfer agent notice ten
days prior to your next scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one AIM Fund account to one or more other AIM Fund
accounts with the identical registration. The account from which exchanges are
to be made must have a minimum balance of $5,000 before you can use this option.
Exchanges will occur on (or about) the 10th or 25th day of the month, whichever
you specify, in the amount you specify. The minimum amount you can exchange to
another AIM Fund is $50.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
AIM Fund at net asset value. Unless you specify otherwise, your dividends and
distributions will automatically be reinvested in the same AIM Fund. You may
invest your dividends and distributions (1) into another AIM Fund in the same
class of shares; or (2) from Class A shares into AIM Cash Reserve Shares of AIM
Money Market Fund, or vice versa.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend must be at
least $5,000; or (b) in the AIM Fund receiving the dividend must be at least
$500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends into
another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this Program, you can designate how the
total value of your AIM Fund holdings should be rebalanced, on a percentage
basis, between two and ten of your AIM Funds on a quarterly, semiannual or
annual basis. Your portfolio will be rebalanced through the exchange of shares
in one or more of your AIM Funds for shares of the same class of one or more
other AIM Funds in your portfolio. If you wish to participate in the Program,
make changes or cancel the Program, the transfer agent must receive your request
to participate, changes or cancellation in good order at least five business
days prior to the next rebalancing date, which is normally the 28th day of the
last month of the period you choose. We may modify, suspend or terminate the
Program at any time on 60 days' prior written notice.
RETIREMENT PLANS
Shares of most of the AIM Funds can be purchased through
tax-sheltered retirement plans made available to corporations, individuals and
employees of non-profit organizations and public schools. A plan document must
be adopted to establish a retirement plan. You may use AIM Funds-sponsored
retirement plans, which include IRAs, Education IRAs, Roth IRAs, 403(b) plans,
401(k) plans, SIMPLE IRA plans, SEP/SARSEP plans and Money Purchase/Profit
Sharing plans, or another sponsor's retirement plan. The plan custodian of the
AIM Funds-sponsored retirement plan assesses an annual maintenance fee of $10.
Contact your financial consultant for details.
REDEEMING SHARES
REDEMPTION FEES
We will not charge you any fees to redeem your shares; however, your broker or
financial consultant may charge service fees for handling these transactions.
Your shares may be subject to a contingent deferred sales charge (CDSC).
REDEMPTION OF AIM CASH RESERVE SHARES OF
AIM MONEY MARKET FUND ACQUIRED BY EXCHANGE
If you redeem AIM Cash Reserve Shares acquired by exchange from Class A shares
subject to a CDSC within 18 months of the purchase of the Class A shares,
you will be charged a CDSC.
REDEMPTION OF CLASS B SHARES ACQUIRED BY
EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM
Floating Rate Fund, the early withdrawal charge applicable to shares of AIM
Floating Rate Fund will be applied instead of the CDSC normally applicable to
Class B shares.
A-4
<PAGE> 140
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THE AIM FUNDS
-------------
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
Consultant
By Mail Send a written request to the transfer agent. Requests must
include (1) original signatures of all registered owners;
(2) the name of the AIM Fund and your account number; (3) if
the transfer agent does not hold your shares, endorsed share
certificates or share certificates accompanied by an
executed stock power; and (4) signature guarantees, if
necessary (see below). The transfer agent may require that
you provide additional information, such as corporate
resolutions or powers of attorney, if applicable. If you are
redeeming from an IRA account, you must include a statement
of whether or not you are at least 59 1/2 years old and
whether you wish to have federal income tax withheld from
your proceeds. The transfer agent may require certain other
information before you can redeem from an employer-sponsored
retirement plan. Contact your employer for details.
By Telephone Call the transfer agent. You will be allowed to redeem by
telephone if (1) the proceeds are to be mailed to the
address on record with us or transferred electronically to a
pre-authorized checking account; (2) the address on record
with us has not been changed within the last 30 days;
(3) you do not hold physical share certificates; (4) you can
provide proper identification information; (5) the proceeds
of the redemption do not exceed $50,000; and (6) you have
not previously declined the telephone redemption privilege.
Certain accounts, including retirement accounts and 403(b)
plans, may not redeem by telephone. The transfer agent must
receive your call during the hours the NYSE is open for
business in order to effect the redemption at that day's
closing price.
</TABLE>
- --------------------------------------------------------------------------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds to the address on record with us.
If your request is not in good order, you may have to provide us with additional
documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
PAYMENT FOR SYSTEMATIC WITHDRAWALS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. You also may make annual withdrawals if you own Class A shares.
We will redeem enough shares from your account to cover the amount withdrawn.
You must have an account balance of at least $5,000 to establish a Systematic
Withdrawal Plan. You can stop this plan at any time by giving ten days prior
notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM Cash Reserve Shares of AIM Money Market Fund only)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of trading
on the 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.
A-5
<PAGE> 141
-------------
THE AIM FUNDS
-------------
REINSTATEMENT PRIVILEGE (Class A shares only)
You may, within 90 days after you sell Class A shares (except Class A shares of
AIM Tax-Exempt Cash Fund), reinvest all or part of your redemption proceeds in
Class A shares of any AIM Fund at net asset value in an identically registered
account. If you sold Class A shares of AIM Limited Maturity Treasury Fund or AIM
Tax-Free Intermediate Fund, you will incur an initial sales charge reflecting
the difference between the initial sales charges on those Funds and the ones in
which you will be investing. In addition, if you paid a contingent deferred
sales charge (CDSC) on any reinstated amount, you will not be subject to a CDSC
if you later redeem that amount. You must notify the transfer agent in writing
at the time you reinstate that you are exercising your reinstatement privilege.
You may exercise this privilege only once per year.
REDEMPTIONS BY THE AIM FUNDS
If your account has been open at least one year, you have not made an additional
purchase in the account during the past six calendar months, and the value of
your account falls below $500 for three consecutive months due to redemptions or
exchanges (excluding retirement accounts), the AIM Funds have the right to
redeem the account after giving you 60 days' prior written notice. You may avoid
having your account redeemed during the notice period by bringing the account
value up to $500 or by utilizing the Automatic Investment Plan.
If an AIM Fund determines that you have provided incorrect information in
opening an account or in the course of conducting subsequent transactions, the
AIM Fund may, at its discretion, redeem the account and distribute the proceeds
to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one AIM Fund for those
of another AIM Fund. Before requesting an exchange, review the prospectus of the
AIM Fund you wish to acquire. Exchange privileges also apply to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992.
PERMITTED EXCHANGES
Except as otherwise stated below, you may exchange your shares for shares of the
same class of another AIM Fund. You also may exchange AIM Cash Reserve Shares of
AIM Money Market Fund for Class A shares of another AIM Fund, or vice versa. You
may be required to pay an initial sales charge when exchanging from a Fund with
a lower initial sales charge than the one into which you are exchanging. If you
exchange from Class A shares not subject to a CDSC into Class A shares subject
to those charges, you will be charged a CDSC when you redeem the exchanged
shares. The CDSC charged on redemption of those shares will be calculated
starting on the date you acquired those shares through exchange.
You also may exchange AIM Cash Reserve Shares of AIM Money Market Fund for
Advisor Class shares, but only if you acquired the AIM Cash Reserve Shares
through an exchange from Advisor Class shares.
YOU WILL NOT PAY A SALES CHARGE WHEN EXCHANGING:
(1) Class A shares with an initial sales charge (except for Class A shares of
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
Class A shares of another AIM Fund or AIM Cash Reserve Shares of AIM Money
Market Fund;
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund for
(a) one another;
(b) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of
AIM Tax-Exempt Cash Fund; or
(c) Class A shares of another AIM Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way of
an exchange from shares with higher sales charges;
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) one another;
(b) Class A shares of an AIM Fund subject to an initial sales charge (except
for Class A shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund), but only if you acquired the original
shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to an
initial sales charge;
(ii) on or after May 1, 1994 by exchange from Class A shares subject to
an initial sales charge (except for Class A shares of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund); or
(c) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund, but only if you acquired the original shares by
exchange from Class A shares subject to an initial sales charge; or
(4) Class B shares for other Class B shares, and Class C shares for other Class
C shares.
EXCHANGES NOT PERMITTED
You may not exchange Class A shares subject to contingent deferred sales charges
for Class A shares of AIM Limited Maturity Treasury Fund, AIM Tax-Free
Intermediate Fund or AIM Tax-Exempt Cash Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be qualified for sale in your
state of residence;
A-6
<PAGE> 142
-------------
THE AIM FUNDS
-------------
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - Shares must have been held for at least one day prior to the exchange; and
- - If you have physical share certificates, you must return them to the transfer
agent prior to the exchange.
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.
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. TO PROTECT THE INTERESTS OF
INVESTORS, EACH AIM FUND AND THE DISTRIBUTOR MAY REJECT ANY ORDER CONSIDERED
MARKET-TIMING ACTIVITY.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. AIM Money
Market Fund and AIM Tax-Exempt Cash Fund value all of their securities at
amortized cost. AIM High Income Municipal Fund, AIM Municipal Bond Fund, AIM
Tax-Exempt Bond Fund of Connecticut and AIM Tax-Free Intermediate Fund value
variable rate securities that have an unconditional demand or put feature
exercisable within seven days or less at par, which reflects the market value of
such securities.
The AIM Funds value all other securities and assets at their fair value.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day. In addition, if,
between the time trading ends on a particular security and the close of the 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.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours 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. An AIM Fund may postpone the right of redemption only under unusual
circumstances, as allowed by the Securities and Exchange Commission, such as
when the NYSE restricts or suspends trading.
A-7
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THE AIM FUNDS
-------------
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund holds
its assets. Different tax rates apply to ordinary income and long-term capital
gain distributions, regardless of how long you have held your shares. Every
year, you will be sent information showing the amount of dividends and
distributions you received from each AIM Fund during the prior year.
Any long-term or short-term capital gains realized from redemptions of AIM
Fund shares will be subject to federal income tax. Exchanges of shares for
shares of another AIM Fund are treated as a sale, and any gain realized on the
transaction will generally be subject to federal income tax.
The foreign, state and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
A-8
<PAGE> 144
---------------------------------
AIM GLOBAL GOVERNMENT INCOME FUND
---------------------------------
OBTAINING ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies
of the fund's current SAI or annual or semiannual reports, please contact us
- ---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Distributors, Inc.
11 Greenway Plaza, Suite
100
Houston, TX 77046-1173
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
- ---------------------------------------------------------
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, DC, on the SEC's website
(http://www.sec.gov), or by sending a letter, including a duplicating fee, to
the SEC's Public Reference Section, Washington, DC 20549-6009. Please call the
SEC at 1-800-SEC-0330 for information about the Public Reference Room.
- ------------------------------------
AIM Global Government Income Fund
SEC 1940 Act file number: 811-05426
- ------------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com GGVI-PRO-1 INVEST WITH DISCIPLINE
--Registered Trademark--
<PAGE> 145
AIM GLOBAL GOVERNMENT INCOME FUND
------------------------------------------------------------------------
ADVISOR CLASS
AIM Global Government Income Fund seeks to provide high current income
and, secondarily, growth of capital and protection of principal.
PROSPECTUS
MARCH 1, 1999
This prospectus contains important
information. Please read it before
investing and keep it for future
reference.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE--Registered Trademark--
<PAGE> 146
Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE
FUND 2
- - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 3
- - - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 3
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
- - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 4
Expense Example 4
FUND MANAGEMENT 5
- - - - - - - - - - - - - - - - - - - - - - - - -
The Advisors 5
Advisor Compensation 5
Portfolio Managers 5
OTHER INFORMATION 5
- - - - - - - - - - - - - - - - - - - - - - - - -
Dividends and Distributions 5
FINANCIAL HIGHLIGHTS 6
- - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - -
Purchasing Shares A-1
Redeeming Shares A-2
Exchanging Shares A-3
Pricing of Shares A-4
Taxes A-4
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK, AIM Institutional Funds, aimfunds.com, La
Familia AIM de Fondos, La Familia AIM de Fondos and Design and Invest with
Discipline are registered service marks and AIM Bank Connection is a service
mark of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 147
---------------------------------
AIM GLOBAL GOVERNMENT INCOME FUND
---------------------------------
Investment Objectives and Strategies
- --------------------------------------------------------------------------------
The fund's primary investment objective is high current income, and its
secondary investment objectives are growth of capital and protection of
principal.
The fund seeks to meet these 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 the portfolio managers 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 (1) 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; (2) 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); (3) privately issued mortgage-backed and asset-backed
securities that are rated at least investment grade, or deemed by the portfolio
managers to be of comparable quality; and (4) common stocks, preferred stocks
and warrants, provided that the fund will invest no 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 invest no
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 portfolio managers consider 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 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 non-diversified. 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
instruments or high-quality 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.
1
<PAGE> 148
---------------------------------
AIM GLOBAL GOVERNMENT INCOME FUND
---------------------------------
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 a 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.
The prices of foreign securities may be further affected by other factors,
including:
- - Currency exchange rates--The dollar value of the fund's foreign investments
will be affected by changes in the exchange rates between the dollar and the
currencies in which those investments are traded.
- - Political and economic conditions--The value of the fund's foreign investments
may be adversely affected by political and social instability in their home
countries and by changes in economic or taxation policies in those countries.
- - Regulations--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available information
about foreign companies than about U.S. companies.
- - Markets--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and more volatile than U.S. securities.
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.
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.
During those times, the bonds should be difficult to value or to sell at a
fair price. Credit ratings on junk bonds do not necessarily reflect their actual
market risk.
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.
The value of your shares could be adversely affected if the computer systems
used by the fund's investment advisor and the fund's other service providers are
unable to distinguish the year 2000 from the year 1900.
The fund's investment advisor and independent technology consultants are
working to avoid year 2000-related problems in its systems and to obtain
assurances that other service providers are taking similar steps. Year 2000
problems may also affect issuers in whose securities the fund invests.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
2
<PAGE> 149
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AIM GLOBAL GOVERNMENT INCOME FUND
---------------------------------
Performance Information
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
The following bar chart shows changes in the performance of the fund's Advisor
Class shares from year to year.
GRAPH
YEAR ENDED ANNUAL TOTAL
DECEMBER 31 RETURN
----------- ------------
1996 ........................................... 6.43%
1997 ........................................... 3.98%
1998 ........................................... 12.73%
During the periods shown in the bar chart, the highest quarterly return was
7.07% (quarter ended September 30, 1998) and the lowest quarterly return was
(2.56)% (quarter ended March 31, 1997).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(for the periods ended SINCE INCEPTION
December 31, 1998) 1 YEAR INCEPTION DATE
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Advisor Class 12.73% 7.52% 06/01/95
J.P. Morgan Global Government Bond Index(1) 15.31 6.85(2) 05/31/95(2)
- ----------------------------------------------------------------------------
</TABLE>
(1) J.P. Morgan Global Government Bond Index is a market value-weighted average
of government bonds from 13 major bond markets.
(2) The average annual total return given is since the date closest to the
inception date of the Advisor Class.
3
<PAGE> 150
---------------------------------
AIM GLOBAL GOVERNMENT INCOME FUND
---------------------------------
Fee Table and Expense Example
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from
your investment) ADVISOR CLASS
- ---------------------------------------------------
<S> <C> <C>
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
- ---------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets) ADVISOR CLASS
- ---------------------------------------------------
<S> <C> <C>
Management Fees 0.73%
Distribution and/or
Service (12b-1) Fees None
Other Expenses
Other 0.44
Interest 0.29
----
Total Other Expenses 0.73
----
Total Annual Fund Operating
Expenses 1.46
- ---------------------------------------------------
</TABLE>
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>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------
<S> <C> <C> <C> <C>
Advisor Class $149 $462 $797 $1,746
- ----------------------------------------------------
</TABLE>
4
<PAGE> 151
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---------------------------------
Fund Management
- --------------------------------------------------------------------------------
THE ADVISORS
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor.
INVESCO Asset Management Limited (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 advisor since its organization in 1976,
and the subadvisor has acted as an investment advisor since 1967. Today, the
advisor, together with its subsidiaries, advises or manages over 110 investment
portfolios, including the fund, encompassing a broad range of investment
objectives.
ADVISOR COMPENSATION
During the fiscal year ended October 31, 1998, the advisor and Chancellor LGT
Asset Management, Inc., (the advisor for the period November 1, 1997 through
May 28, 1998) together received compensation of 0.756% of average daily net
assets, consisting of a management and administrative fee of 0.73% and an
accounting fee of 0.026%.
PORTFOLIO MANAGERS
The advisors use a team approach to investment management. The individual
members of the team who are primarily responsible for the day-to-day management
of the fund's portfolio are
- - Thomas J. Berger, Portfolio Manager, has been responsible for the fund since
1999 and has been associated with the advisor and/or its affiliates since
1997. From 1993 to 1997 he was Director of Mercury Asset Management PLC.
- - Paul Griffiths, Portfolio Manager, has been responsible for the fund since
1999 and has been associated with the advisor and/or its affiliates since
1994.
- - David B. Hughes, Portfolio Manager, has been responsible for the fund since
1998 and has been associated with the advisor and/or its affiliates since
1995. From 1994 to 1995, he was Assistant Vice President of Fiduciary Trust
Company International.
Other Information
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS
The fund generally declares and pays dividends, if any, monthly.
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.
5
<PAGE> 152
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---------------------------------
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).
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(a)
-------------------------------------------------
JUNE 1, 1995
YEAR ENDED OCTOBER 31, TO
--------------------------- OCTOBER 31,
1998(b) 1997(b) 1996(b) 1995(b)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 8.61 $ 8.73 $ 8.80 $ 8.98
Income from investment operations:
Net investment income 0.56 0.55 0.60 0.26
Net realized and unrealized gain (loss) on
investments 0.37 (0.13) 0.03 (0.19)
Net increase (decrease) from investment
operations 0.93 0.42 0.63 0.07
Distributions to shareholders:
From net investment income (0.19) (0.33) (0.60) (0.25)
From net realized gain on investments -- -- (0.10) --
In excess of net investment income (0.35) (0.21) -- --
In excess of net realized gain on investments -- -- -- --
Return of capital -- -- -- --
Total distributions (0.54) (0.54) (0.70) (0.25)
Net asset value, end of period $ 9.00 $ 8.61 $ 8.73 $ 8.80
Total investment return(c) 11.18% 5.15% 7.49% (0.83)%(d)
- ---------------------------------------------------------------------------------------------------
Ratios and supplemental data:
- ---------------------------------------------------------------------------------------------------
Net assets, end of period (in 000's) $ 421 $ 116 $ 86 $ 131
Ratio of net investment income to average net
assets 6.41% 6.39% 6.87% 7.33%
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions 1.17% 0.99% 0.99% 1.00%(e)
Without expense reductions 1.17% 1.16% 1.04% 1.03%(e)
Ratio of interest expense to average net
assets(f) 0.29% N/A N/A N/A
Portfolio turnover rate(f) 305% 241% 268% 385%
- ---------------------------------------------------------------------------------------------------
</TABLE>
(a) Commencing June 1, 1995, the fund began offering Advisor Class shares.
(b) These selected per share data were calculated based upon average shares
outstanding during the period.
(c) Total investment return does not include sales charges.
(d) Not annualized
(e) Annualized
(f) Portfolio turnover rates and ratio of interest expense to average net assets
are calculated on the basis of the fund as a whole without distinguishing
between the classes of shares.
N/A Not applicable.
6
<PAGE> 153
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THE AIM FUNDS
-------------
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 of the funds advised by the
advisor (the AIM Funds), your financial consultant, on your behalf, must submit
a fully completed new account application form directly to the transfer agent.
You may purchase shares using one of the options below.
PURCHASE OPTIONS
- -
<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 Call the transfer agent to receive
a completed account application to a reference number. Then, use the
the transfer agent. You or your wire instructions at left.
financial 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 #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank
methods described above. Connection(SM) form to the transfer
agent. Once the transfer agent has
received the form, call the
transfer agent to place your
purchase order.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
A- 1 ADV--03/99
<PAGE> 154
-------------
THE AIM FUNDS
-------------
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.
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. TO PROTECT THE INTERESTS OF
INVESTORS, EACH AIM FUND AND THE DISTRIBUTOR MAY REJECT ANY ORDER CONSIDERED
MARKET TIMING ACTIVITY.
REDEEMING SHARES
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.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
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 New York Stock Exchange (NYSE) is open for business in
order to effect the redemption at that day's closing price.
</TABLE>
- --------------------------------------------------------------------------------
ADV--03/99 A- 2
<PAGE> 155
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THE AIM FUNDS
-------------
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
(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.
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. You also may exchange Advisor
Class shares for AIM Cash Reserve shares of AIM Money Market 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:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be qualified for sale in your
state of residence;
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - The AIM Fund from which you are exchanging must have received the full amount
of the purchase price for the shares being exchanged;
- - 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
- - 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
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 New York Stock Exchange (NYSE) is open for business;
however, you still will be
A- 3 ADV--03/99
<PAGE> 156
-------------
THE AIM FUNDS
-------------
allowed to exchange by telephone even if you have changed your address of record
within the preceding 30 days.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. 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 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.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours 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. An AIM Fund may postpone the right of redemption only under unusual
circumstances, as allowed by the Securities and Exchange Commission, such as
when the NYSE restricts or suspends trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund holds
its assets. Different rates of tax apply to ordinary income and long-term
capital gain distributions. Every year, you will be sent information 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, and any gain realized on the
transaction will generally be subject to federal income tax.
The foreign, state, and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
ADV--03/99 A- 4
<PAGE> 157
---------------------------------
AIM GLOBAL GOVERNMENT INCOME FUND
---------------------------------
Obtaining Additional Information
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registration Mark-- or your account, or wish to obtain free copies of the
fund's current SAI or annual or semiannual reports, please contact us
- ---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Distributors, Inc.
11 Greenway Plaza, Suite
100
Houston, TX 77046-1173
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
- ---------------------------------------------------------
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, DC, on the SEC's website
(http://www.sec.gov), or by sending a letter, including a duplicating fee, to
the SEC's Public Reference Section, Washington, DC 20549-6009. Please call the
SEC at 1-800-SEC-0330 for information about the Public Reference Room.
AIM Global Government Income Fund
SEC 1940 Act file number: 811-05426
[AIM LOGO APPEARS HERE] www.aimfunds.com GGVI-PRO-2 INVEST WITH
DISCIPLINE--Registration Mark--
<PAGE> 158
AIM GLOBAL GROWTH & INCOME FUND
------------------------------------------------------------------------
AIM Global Growth & Income Fund seeks to provide long-term growth of
capital together with current income.
PROSPECTUS
MARCH 1, 1999
This prospectus contains important
information about the Class A, B and
C shares of the fund. Please read it
before investing and keep it for
future reference.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE--Registered Trademark--
<PAGE> 159
Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE FUND 2
- - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 3
- - - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 3
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
- - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 4
Expense Example 4
FUND MANAGEMENT 5
- - - - - - - - - - - - - - - - - - - - - - - - -
The Advisors 5
Advisor Compensation 5
Portfolio Managers 5
OTHER INFORMATION 5
- - - - - - - - - - - - - - - - - - - - - - - - -
Sales Charges 5
Dividends and Distributions 5
FINANCIAL HIGHLIGHTS 6
- - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - -
Choosing a Share Class A-1
Purchasing Shares A-3
Redeeming Shares A-4
Exchanging Shares A-6
Pricing of Shares A-7
Taxes A-8
OBTAINING ADDITIONAL INFORMATION Back
Cover
- - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK, AIM Institutional Funds, aimfunds.com, La
Familia AIM de Fondos, La Familia AIM de Fondos and Design and Invest with
Discipline are registered service marks and AIM Bank Connection is a service
mark of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 160
-------------------------------
AIM GLOBAL GROWTH & INCOME FUND
-------------------------------
Investment Objective and Strategies
- --------------------------------------------------------------------------------
The fund's investment objective is long-term growth of capital together with
current income.
The fund seeks to meet this objective by investing, normally, 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 (1) 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 International World Index; and (2) 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 the portfolio managers 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 portfolio managers 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 invest no 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 non-diversified. 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
instruments or high-quality debt securities. As a result, the fund may not
achieve its investment objective.
1
<PAGE> 161
-------------------------------
AIM GLOBAL GROWTH & INCOME FUND
-------------------------------
Principal Risks of Investing in the Fund
- --------------------------------------------------------------------------------
There is a risk that you could lose all or a portion of your investment in the
fund and that the income you may receive from your investment may vary. The
value of your investment in the fund will go up and down with the prices of the
securities in which the fund invests. The prices of equity securities change in
response to many factors including the historical and prospective earnings of
the issuer, the value of its assets, general economic conditions, interest
rates, investor perceptions, and market liquidity. Debt securities are
particularly vulnerable to credit risk and interest rate fluctuations. When
interest rates rise, bond prices fall; the longer a bond's duration, the more
sensitive it is to this risk.
The prices of foreign securities may be further affected by other factors,
including:
- - Currency exchange rates--The dollar value of the fund's foreign investments
will be affected by changes in the exchange rates between the dollar and the
currencies in which those investments are traded.
- - Political and economic conditions--The value of the fund's foreign investments
may be adversely affected by political and social instability in their home
countries and by changes in economic or taxation policies in those countries.
- - Regulations--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available information
about foreign companies than about U.S. companies.
- - Markets--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and more volatile than U.S. securities.
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.
The value of your shares could be adversely affected if the computer systems
used by the fund's investment advisor and the fund's other service providers are
unable to distinguish the year 2000 from the year 1900.
The fund's investment advisor and independent technology consultants are
working to avoid year 2000-related problems in its systems and to obtain
assurances that other service providers are taking similar steps. Year 2000
problems may also affect issuers in whose securities the fund invests.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
2
<PAGE> 162
-------------------------------
AIM GLOBAL GROWTH & INCOME FUND
-------------------------------
Performance Information
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
The following bar chart shows changes in the performance of the fund's Class A
shares from year to year. The bar chart does not reflect sales loads. If it did,
the annual total returns shown would be lower.
[GRAPH]
<TABLE>
<CAPTION>
YEAR ENDED ANNUAL 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 .................................... 20.45%
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
12.27% (quarter ended December 31, 1998) and the lowest quarterly return was
(7.69)% (quarter ended September 30, 1998).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(for the periods ended SINCE INCEPTION
December 31, 1998) 1 YEAR 5 YEARS INCEPTION DATE
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A 13.78% 11.86% 13.15% 09/25/90
Class B 14.58 12.10 14.40 10/22/92
Class C -- -- -- 03/01/99
MSCI AC World Index(1) 21.72 14.48 14.70(2) 09/30/90(2)
- ------------------------------------------------------------------------
</TABLE>
(1) The Morgan Stanley Capital International All Country World Index measures
the performance of securities listed on the major world stock exchanges of
47 markets, including both developed and emerging markets.
(2) The average annual total return given is since the date closest to the
inception date of the class with the longest performance history.
3
<PAGE> 163
-------------------------------
AIM GLOBAL GROWTH & INCOME FUND
-------------------------------
Fee Table and Expense Example
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from
your investment) CLASS A CLASS B CLASS C
- -------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) 4.75% None None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase
price or redemption
proceeds, whichever
is less) None(1) 5.00 1.00
- -------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets) CLASS A CLASS B CLASS C
- -------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.97% 0.97% 0.97%
Distribution and/or
Service (12b-1) Fees 0.35 1.00 1.00
Other Expenses 0.33 0.33 0.33
Total Annual Fund
Operating Expenses 1.65 2.30 2.30
- -------------------------------------------------------
</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.
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>
Class A $635 $ 971 $1,329 $2,337
Class B $733 $1,018 $1,430 $2,473
Class C $333 $ 718 $1,230 $2,636
- ----------------------------------------------
</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 $635 $971 $1,329 $2,337
Class B $233 $718 $1,230 $2,473
Class C $233 $718 $1,230 $2,636
- ----------------------------------------------
</TABLE>
4
<PAGE> 164
-------------------------------
AIM GLOBAL GROWTH & INCOME FUND
-------------------------------
Fund Management
- --------------------------------------------------------------------------------
THE ADVISORS
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor.
INVESCO Asset Management Limited (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 advisor since its organization in 1976,
and the subadvisor has acted as an investment advisor since 1967. Today, the
advisor, together with its subsidiaries, advises or manages over 110 investment
portfolios, including the fund, encompassing a broad range of investment
objectives.
ADVISOR COMPENSATION
During the fiscal year ended October 31, 1998, the advisor and Chancellor LGT
Asset Management, Inc., (the advisor for the period November 1, 1997 through May
28, 1998) together received compensation of 0.996% of average net assets,
consisting of a management and administrative fee of 0.97% and an accounting fee
of 0.026%.
PORTFOLIO MANAGERS
The advisors use a team approach to investment management. The individual
members of the team who are primarily responsible for the day-to-day management
of the fund's portfolio are
- - 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.
- - 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.
- - 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.
Other Information
- --------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM Global Growth & Income Fund are subject to
the maximum 4.75% initial sales charge as listed under the heading "CATEGORY II
Initial Sales Charges" in the "Shareholder Information--Choosing a Share Class"
section of this prospectus. Purchases of Class B and Class C shares are subject
to the contingent deferred sales charges listed in that section.
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS
The fund generally declares and pays dividends, if any, quarterly.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains (including
any net gains from foreign currency transactions), if any, annually.
5
<PAGE> 165
-------------------------------
AIM GLOBAL GROWTH & INCOME FUND
-------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
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
----------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------
1998(a) 1997(a) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 8.21 $ 7.11 $ 6.35 $ 6.21 $ 6.29
Income from investment operations:
Net investment income 0.17 0.21 0.22 0.24 0.22
Net realized and unrealized gain (loss) on
investments 1.25 1.12 0.82 0.13 (0.03)
Net increase from investment operations 1.42 1.33 1.04 0.37 0.19
Distributions to shareholders:
From net investment income (0.13) (0.21) (0.24) (0.22) (0.21)
From net realized gain on investments (0.24) (0.02) (0.04) (0.01) (0.06)
Total distributions (0.37) (0.23) (0.28) (0.23) (0.27)
Net asset value, end of period $ 9.26 $ 8.21 $ 7.11 $ 6.35 $ 6.21
Total investment return(b) 17.76% 19.01% 16.80% 6.27% 3.14%
- ------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
Net assets, end of period (in 000s) $306,279 $292,528 $286,203 $284,069 $317,847
Ratio of net investment income to average net
assets 1.87% 2.74% 3.17% 3.85% 3.30%
Ratio of expenses to average net assets:
With expense reductions 1.64% 1.50% 1.59% 1.70% 1.67%
Without expense reductions 1.65% 1.64% 1.66% 1.74% N/A
Portfolio turnover rate(c) 92% 50% 39% 83% 117%
- ------------------------------------------------------------------------------------------------------
</TABLE>
(a) These selected per share data were calculated based upon average shares
outstanding during the period.
(b) Total investment return does not include sales charges.
(c) Portfolio turnover rates are calculated on the basis of the fund as a whole
without distinguishing between the class of shares issued.
N/A Not applicable.
6
<PAGE> 166
-------------------------------
AIM GLOBAL GROWTH & INCOME FUND
-------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B
- -----------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
- -----------------------------------------------------------------------------------------------------------
1998(a) 1997(a) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 8.21 $ 7.11 $ 6.35 $ 6.21 $ 6.29
Income from investment operations:
Net investment income 0.11 0.16 0.17 0.20 0.18
Net realized and unrealized gain (loss) on
investments 1.25 1.13 0.82 0.13 (0.03)
Net increase from investment operations 1.36 1.29 0.99 0.33 0.15
Distributions to shareholders:
From net investment income (0.08) (0.17) (0.20) (0.18) (0.17)
From net realized gain on investments (0.24) (0.02) (0.03) (0.01) (0.06)
Total distributions (0.32) (0.19) (0.23) (0.19) (0.23)
Net asset value, end of period $ 9.25 $ 8.21 $ 7.11 $ 6.35 $ 6.21
Total investment return(b) 16.93% 18.28% 16.06% 5.57% 2.48%
- -----------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
Net assets, end of period (in 000s) $483,307 $456,893 $383,966 $356,796 $359,242
Ratio of net investment income to average net
assets 1.22% 2.09% 2.52% 3.20% 2.65%
Ratio of expenses to average net assets:
With expense reductions 2.29% 2.15% 2.24% 2.35% 2.32%
Without expense reductions 2.30% 2.29% 2.31% 2.39% N/A
Portfolio turnover rate(c) 92% 50% 39% 83% 117%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(a) These selected per share data were calculated based upon average shares
outstanding during the period.
(b) Total investment return does not include sales charges.
(c) Portfolio turnover rates are calculated on the basis of the fund as a whole
without distinguishing between the class of shares issued.
N/A Not applicable.
7
<PAGE> 167
-------------
THE AIM FUNDS
-------------
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>
- - Initial sales charge - No initial sales charge - No initial sales charge
- - Reduced or waived initial sales - Contingent deferred sales - Contingent deferred sales
charge for certain purchases charge on redemptions within six charge on redemptions within
years one year
- - Lower distribution and service - 12b-1 fee of 1.00% - 12b-1 fee of 1.00%
(12b-1) fee than Class B or
Class C shares (See "Fee Table
and Expense Example")
- Converts to Class A shares - Does not convert to Class A
after eight years along with a shares
pro rata portion of its
reinvested dividends and
distributions*
- - Generally more appropriate for - Purchase orders limited to - Generally more appropriate
long-term investors amounts less than $250,000 for short-term investors
</TABLE>
* AIM Money Market Fund: Class B shares convert to AIM Cash Reserve
Shares.
AIM Global Trends Fund: If you held Class B shares on May 29,
1998 and continue to hold them, those shares will convert to
Class A shares of that fund seven years after your date of
purchase. If you exchange those shares for Class B shares of
another AIM Fund, the shares into which you exchanged will not
convert to Class A shares until eight years after your date of
purchase of the original shares.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12b-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund) has adopted 12b-1 plans
that allow the AIM Fund to pay distribution fees to A I M Distributors, Inc.
(the distributor) for the sale and distribution of its shares and fees for
services provided to shareholders, all or a substantial portion of which are
paid to the dealer of record. Because the AIM Fund pays these fees out of its
assets on an ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
MCF-03/99
A-1
<PAGE> 168
-------------
THE AIM FUNDS
-------------
SALES CHARGES
Generally, you will not pay a sales charge on purchases or redemptions of Class
A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money
Market Fund. You may be charged a contingent deferred sales charge if you redeem
AIM Cash Reserve Shares of AIM Money Market Fund acquired through certain
exchanges. Sales charges on all other AIM Funds and classes of those Funds are
detailed below. As used below, the term "offering price" with respect to all
categories of Class A shares includes the initial sales charge.
INITIAL SALES CHARGES
The AIM Funds are grouped into three categories with respect to initial sales
charges. The "Other Information" section of your prospectus will tell you in
what category your particular AIM Fund is classified.
<TABLE>
<CAPTION>
CATEGORY I INITIAL SALES CHARGES
- --------------------------------
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
- ----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY II INITIAL SALES CHARGES
- ---------------------------------
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
- ----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY III INITIAL SALES CHARGES
- ----------------------------------
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 100,000 1.00% 1.01%
$ 100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
- ----------------------------------------------------------
</TABLE>
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES
You can purchase $1,000,000 or more of Class A shares at net asset value.
However, if you purchase shares of that amount in Categories I or II, they will
be subject to a contingent deferred sales charge (CDSC) of 1% if you redeem them
prior to 18 months after the date of purchase. The distributor may pay a dealer
concession and/or a service fee for purchases of $1,000,000 or more.
CONTINGENT DEFERRED SALES CHARGES FOR
CLASS B AND CLASS C SHARES
You can purchase Class B and Class C shares at their net asset value per share.
However, when you redeem them, they are subject to a CDSC in the following
percentages:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
- ----------------------------------------------------------
<S> <C> <C>
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
- ----------------------------------------------------------
</TABLE>
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you have redeemed shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify
for these reductions or exceptions, you or your financial consultant must
provide sufficient information at the time of purchase to verify that your
purchase qualifies for such treatment.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Rights of Accumulation
You may combine your new purchases of Class A shares with Class A shares
currently owned for the purpose of qualifying for the lower initial sales charge
rates that apply to larger purchases. The applicable initial sales charge for
the new purchase is based on the total of your current purchase and the current
value of all Class A shares you own.
Letters of Intent
Under a Letter of Intent (LOI), you commit to purchase a specified dollar amount
of Class A shares of AIM Funds during a
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THE AIM FUNDS
-------------
13-month period. The amount you agree to purchase determines the initial sales
charge you pay. If the full face amount of the LOI is not invested by the end of
the 13-month period, your account will be adjusted to the higher initial sales
charge level for the amount actually invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- - on shares purchased by reinvesting dividends and distributions;
- - when exchanging shares among certain AIM Funds;
- - when using the reinstatement privilege; and
- - when a merger, consolidation, or acquisition of assets of an AIM Fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- - if you redeem Class B shares you held for more than six years;
- - if you redeem Class C shares you held for more than one year;
- - if you redeem shares acquired through reinvestment of dividends and
distributions; and
- - on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares
at reduced or without sales charges. Consult the fund's Statement of Additional
Information for details.
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
The minimum investments for AIM Fund accounts (except for investments in AIM
Small Cap Opportunities Fund) are as follows:
<TABLE>
<CAPTION>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing $ 0 ($25 per AIM Fund investment for $25
plans, 401(k) plans, Simplified Employee Pension salary deferrals from Savings Plans)
(SEP) accounts, Salary Reduction (SARSEP)
accounts, Savings Incentive Match Plans for
Employee IRA (Simple IRA) accounts, 403(b) or
457 plans)
Automatic Investment Plans 50 50
IRA, Education IRA or Roth IRA 250 50
All other accounts 500 50
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below.
PURCHASE OPTIONS
- -
<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 Application Mail your check and the remittance
and purchase payment to the slip from your confirmation
transfer agent, statement to the transfer agent.
A I M Fund Services, Inc.,
P.O. Box 4739,
Houston, TX 77210-4739.
By Wire Mail completed Account Application Call the transfer agent to receive
to the transfer agent. Call the a reference number. Then, use the
transfer agent at (800) 959-4246 to wire instructions at left.
receive a reference number. Then,
use the following wire
instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number:
00100366807
Beneficiary Account Name: A I M
Fund Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank
methods described above. Connection(SM) form to the transfer
agent. Once the transfer agent has
received the form, call the
transfer agent to place your
purchase.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
A-3
<PAGE> 170
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THE AIM FUNDS
-------------
SPECIAL PLANS
AUTOMATIC INVESTMENT PLAN
You can arrange for periodic investments in any of the AIM Funds by authorizing
the AIM Fund to withdraw the amount of your investment from your bank account on
a day or dates you specify and in an amount of at least $50. You may stop the
Automatic Investment Plan at any time by giving the transfer agent notice ten
days prior to your next scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one AIM Fund account to one or more other AIM Fund
accounts with the identical registration. The account from which exchanges are
to be made must have a minimum balance of $5,000 before you can use this option.
Exchanges will occur on (or about) the 10th or 25th day of the month, whichever
you specify, in the amount you specify. The minimum amount you can exchange to
another AIM Fund is $50.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
AIM Fund at net asset value. Unless you specify otherwise, your dividends and
distributions will automatically be reinvested in the same AIM Fund. You may
invest your dividends and distributions (1) into another AIM Fund in the same
class of shares; or (2) from Class A shares into AIM Cash Reserve Shares of AIM
Money Market Fund, or vice versa.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend must be at
least $5,000; or (b) in the AIM Fund receiving the dividend must be at least
$500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends into
another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this Program, you can designate how the
total value of your AIM Fund holdings should be rebalanced, on a percentage
basis, between two and ten of your AIM Funds on a quarterly, semiannual or
annual basis. Your portfolio will be rebalanced through the exchange of shares
in one or more of your AIM Funds for shares of the same class of one or more
other AIM Funds in your portfolio. If you wish to participate in the Program,
make changes or cancel the Program, the transfer agent must receive your request
to participate, changes or cancellation in good order at least five business
days prior to the next rebalancing date, which is normally the 28th day of the
last month of the period you choose. We may modify, suspend or terminate the
Program at any time on 60 days' prior written notice.
RETIREMENT PLANS
Shares of most of the AIM Funds can be purchased through
tax-sheltered retirement plans made available to corporations, individuals and
employees of non-profit organizations and public schools. A plan document must
be adopted to establish a retirement plan. You may use AIM Funds-sponsored
retirement plans, which include IRAs, Education IRAs, Roth IRAs, 403(b) plans,
401(k) plans, SIMPLE IRA plans, SEP/SARSEP plans and Money Purchase/Profit
Sharing plans, or another sponsor's retirement plan. The plan custodian of the
AIM Funds-sponsored retirement plan assesses an annual maintenance fee of $10.
Contact your financial consultant for details.
REDEEMING SHARES
REDEMPTION FEES
We will not charge you any fees to redeem your shares; however, your broker or
financial consultant may charge service fees for handling these transactions.
Your shares may be subject to a contingent deferred sales charge (CDSC).
REDEMPTION OF AIM CASH RESERVE SHARES OF
AIM MONEY MARKET FUND ACQUIRED BY EXCHANGE
If you redeem AIM Cash Reserve Shares acquired by exchange from Class A shares
subject to a CDSC within 18 months of the purchase of the Class A shares,
you will be charged a CDSC.
REDEMPTION OF CLASS B SHARES ACQUIRED BY
EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM
Floating Rate Fund, the early withdrawal charge applicable to shares of AIM
Floating Rate Fund will be applied instead of the CDSC normally applicable to
Class B shares.
A-4
<PAGE> 171
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THE AIM FUNDS
-------------
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
Consultant
By Mail Send a written request to the transfer agent. Requests must
include (1) original signatures of all registered owners;
(2) the name of the AIM Fund and your account number; (3) if
the transfer agent does not hold your shares, endorsed share
certificates or share certificates accompanied by an
executed stock power; and (4) signature guarantees, if
necessary (see below). The transfer agent may require that
you provide additional information, such as corporate
resolutions or powers of attorney, if applicable. If you are
redeeming from an IRA account, you must include a statement
of whether or not you are at least 59 1/2 years old and
whether you wish to have federal income tax withheld from
your proceeds. The transfer agent may require certain other
information before you can redeem from an employer-sponsored
retirement plan. Contact your employer for details.
By Telephone Call the transfer agent. You will be allowed to redeem by
telephone if (1) the proceeds are to be mailed to the
address on record with us or transferred electronically to a
pre-authorized checking account; (2) the address on record
with us has not been changed within the last 30 days;
(3) you do not hold physical share certificates; (4) you can
provide proper identification information; (5) the proceeds
of the redemption do not exceed $50,000; and (6) you have
not previously declined the telephone redemption privilege.
Certain accounts, including retirement accounts and 403(b)
plans, may not redeem by telephone. The transfer agent must
receive your call during the hours the NYSE is open for
business in order to effect the redemption at that day's
closing price.
</TABLE>
- --------------------------------------------------------------------------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds to the address on record with us.
If your request is not in good order, you may have to provide us with additional
documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
PAYMENT FOR SYSTEMATIC WITHDRAWALS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. You also may make annual withdrawals if you own Class A shares.
We will redeem enough shares from your account to cover the amount withdrawn.
You must have an account balance of at least $5,000 to establish a Systematic
Withdrawal Plan. You can stop this plan at any time by giving ten days prior
notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM Cash Reserve Shares of AIM Money Market Fund only)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of trading
on the 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.
A-5
<PAGE> 172
-------------
THE AIM FUNDS
-------------
REINSTATEMENT PRIVILEGE (Class A shares only)
You may, within 90 days after you sell Class A shares (except Class A shares of
AIM Tax-Exempt Cash Fund), reinvest all or part of your redemption proceeds in
Class A shares of any AIM Fund at net asset value in an identically registered
account. If you sold Class A shares of AIM Limited Maturity Treasury Fund or AIM
Tax-Free Intermediate Fund, you will incur an initial sales charge reflecting
the difference between the initial sales charges on those Funds and the ones in
which you will be investing. In addition, if you paid a contingent deferred
sales charge (CDSC) on any reinstated amount, you will not be subject to a CDSC
if you later redeem that amount. You must notify the transfer agent in writing
at the time you reinstate that you are exercising your reinstatement privilege.
You may exercise this privilege only once per year.
REDEMPTIONS BY THE AIM FUNDS
If your account has been open at least one year, you have not made an additional
purchase in the account during the past six calendar months, and the value of
your account falls below $500 for three consecutive months due to redemptions or
exchanges (excluding retirement accounts), the AIM Funds have the right to
redeem the account after giving you 60 days' prior written notice. You may avoid
having your account redeemed during the notice period by bringing the account
value up to $500 or by utilizing the Automatic Investment Plan.
If an AIM Fund determines that you have provided incorrect information in
opening an account or in the course of conducting subsequent transactions, the
AIM Fund may, at its discretion, redeem the account and distribute the proceeds
to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one AIM Fund for those
of another AIM Fund. Before requesting an exchange, review the prospectus of the
AIM Fund you wish to acquire. Exchange privileges also apply to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992.
PERMITTED EXCHANGES
Except as otherwise stated below, you may exchange your shares for shares of the
same class of another AIM Fund. You also may exchange AIM Cash Reserve Shares of
AIM Money Market Fund for Class A shares of another AIM Fund, or vice versa. You
may be required to pay an initial sales charge when exchanging from a Fund with
a lower initial sales charge than the one into which you are exchanging. If you
exchange from Class A shares not subject to a CDSC into Class A shares subject
to those charges, you will be charged a CDSC when you redeem the exchanged
shares. The CDSC charged on redemption of those shares will be calculated
starting on the date you acquired those shares through exchange.
You also may exchange AIM Cash Reserve Shares of AIM Money Market Fund for
Advisor Class shares, but only if you acquired the AIM Cash Reserve Shares
through an exchange from Advisor Class shares.
YOU WILL NOT PAY A SALES CHARGE WHEN EXCHANGING:
(1) Class A shares with an initial sales charge (except for Class A shares of
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
Class A shares of another AIM Fund or AIM Cash Reserve Shares of AIM Money
Market Fund;
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund for
(a) one another;
(b) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of
AIM Tax-Exempt Cash Fund; or
(c) Class A shares of another AIM Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way of
an exchange from shares with higher sales charges;
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) one another;
(b) Class A shares of an AIM Fund subject to an initial sales charge (except
for Class A shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund), but only if you acquired the original
shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to an
initial sales charge;
(ii) on or after May 1, 1994 by exchange from Class A shares subject to
an initial sales charge (except for Class A shares of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund); or
(c) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund, but only if you acquired the original shares by
exchange from Class A shares subject to an initial sales charge; or
(4) Class B shares for other Class B shares, and Class C shares for other Class
C shares.
EXCHANGES NOT PERMITTED
You may not exchange Class A shares subject to contingent deferred sales charges
for Class A shares of AIM Limited Maturity Treasury Fund, AIM Tax-Free
Intermediate Fund or AIM Tax-Exempt Cash Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be qualified for sale in your
state of residence;
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<PAGE> 173
-------------
THE AIM FUNDS
-------------
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - Shares must have been held for at least one day prior to the exchange; and
- - If you have physical share certificates, you must return them to the transfer
agent prior to the exchange.
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.
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. TO PROTECT THE INTERESTS OF
INVESTORS, EACH AIM FUND AND THE DISTRIBUTOR MAY REJECT ANY ORDER CONSIDERED
MARKET-TIMING ACTIVITY.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. AIM Money
Market Fund and AIM Tax-Exempt Cash Fund value all of their securities at
amortized cost. AIM High Income Municipal Fund, AIM Municipal Bond Fund, AIM
Tax-Exempt Bond Fund of Connecticut and AIM Tax-Free Intermediate Fund value
variable rate securities that have an unconditional demand or put feature
exercisable within seven days or less at par, which reflects the market value of
such securities.
The AIM Funds value all other securities and assets at their fair value.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day. In addition, if,
between the time trading ends on a particular security and the close of the 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.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours 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. An AIM Fund may postpone the right of redemption only under unusual
circumstances, as allowed by the Securities and Exchange Commission, such as
when the NYSE restricts or suspends trading.
A-7
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-------------
THE AIM FUNDS
-------------
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund holds
its assets. Different tax rates apply to ordinary income and long-term capital
gain distributions, regardless of how long you have held your shares. Every
year, you will be sent information showing the amount of dividends and
distributions you received from each AIM Fund during the prior year.
Any long-term or short-term capital gains realized from redemptions of AIM
Fund shares will be subject to federal income tax. Exchanges of shares for
shares of another AIM Fund are treated as a sale, and any gain realized on the
transaction will generally be subject to federal income tax.
The foreign, state and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
A-8
<PAGE> 175
-------------------------------
AIM GLOBAL GROWTH & INCOME FUND
-------------------------------
Obtaining Additional Information
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us
- ---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Distributors, Inc.
11 Greenway Plaza, Suite
100
Houston, TX 77046-1173
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
- ---------------------------------------------------------
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, DC, on the SEC's website
(http://www.sec.gov), or by sending a letter, including a duplicating fee, to
the SEC's Public Reference Section, Washington, DC 20549-6009. Please call the
SEC at 1-800-SEC-0330 for information about the Public Reference Room.
AIM Global Growth & Income Fund
SEC 1940 Act file number: 811-05426
[AIM LOGO APPEARS HERE] www.aimfunds.com GGI-PRO-1 INVEST WITH
DISCIPLINE--Registered Trademark--
<PAGE> 176
AIM GLOBAL GROWTH & INCOME FUND
-----------------------------------------------------------------------
ADVISOR CLASS
AIM Global Growth & Income Fund seeks to provide long-term growth of
capital together with current income.
PROSPECTUS
MARCH 1, 1999
This prospectus contains important
information. Please read it before
investing and keep it for future
reference.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE--Registered
Trademark--
<PAGE> 177
Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE FUND 2
- - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 3
- - - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 3
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
- - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 4
Expense Example 4
FUND MANAGEMENT 5
- - - - - - - - - - - - - - - - - - - - - - - - -
The Advisors 5
Advisor Compensation 5
Portfolio Managers 5
OTHER INFORMATION 5
- - - - - - - - - - - - - - - - - - - - - - - - -
Dividends and Distributions 5
FINANCIAL HIGHLIGHTS 6
- - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - -
Purchasing Shares A-1
Redeeming Shares A-2
Exchanging Shares A-3
Pricing of Shares A-4
Taxes A-4
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK, AIM Institutional Funds, aimfunds.com, La
Familia AIM de Fondos, La Familia AIM de Fondos and Design and Invest with
Discipline are registered service marks and AIM Bank Connection is a service
mark of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 178
-------------------------------
AIM GLOBAL GROWTH & INCOME FUND
-------------------------------
Investment Objective and Strategies
- --------------------------------------------------------------------------------
The fund's investment objective is long-term growth of capital together with
current income.
The fund seeks to meet this objective by investing, normally, 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 (1) 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 International World Index; and (2) 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 the portfolio managers 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 portfolio managers 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 invest no 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 non-diversified. 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
instruments or high-quality debt securities. As a result, the fund may not
achieve its investment objective.
1
<PAGE> 179
-------------------------------
AIM GLOBAL GROWTH & INCOME FUND
-------------------------------
Principal Risks of Investing in the Fund
- --------------------------------------------------------------------------------
There is a risk that you could lose all or a portion of your investment in the
fund and that the income you may receive from your investment may vary. The
value of your investment in the fund will go up and down with the prices of the
securities in which the fund invests. The prices of equity securities change in
response to many factors, including the historical and prospective earnings of
the issuer, the value of its assets, general economic conditions, interest
rates, investor perceptions, and market liquidity. 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 foreign securities may be further affected by other factors,
including:
- - Currency exchange rates--The dollar value of the fund's foreign investments
will be affected by changes in the exchange rates between the dollar and the
currencies in which those investments are traded.
- - Political and economic conditions--The value of the fund's foreign investments
may be adversely affected by political and social instability in their home
countries and by changes in economic or taxation policies in those countries.
- - Regulations--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available information
about foreign companies than about U.S. companies.
- - Markets--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and more volatile than U.S. securities.
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.
The value of your shares could be adversely affected if the computer systems
used by the fund's investment advisor and the fund's other service providers are
unable to distinguish the year 2000 from the year 1900.
The fund's investment advisor and independent technology consultants are
working to avoid year 2000-related problems in its systems and to obtain
assurances that other service providers are taking similar steps. Year 2000
problems may also affect issuers in whose securities the fund invests.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
2
<PAGE> 180
-------------------------------
AIM GLOBAL GROWTH & INCOME FUND
-------------------------------
Performance Information
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
The following bar chart shows changes in the performance of the fund's Advisor
Class shares from year to year.
[GRAPH]
<TABLE>
<CAPTION>
%
December 31 Return
- ----------- ------
<S> <C>
1996........................................ 17.42
1997........................................ 18.38
1998........................................ 20.74
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
12.13% (quarter ended December 31, 1998) and the lowest quarterly return was
(7.61)% (quarter ended September 30, 1998).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(for the periods ended SINCE INCEPTION
December 31, 1998) 1 YEAR INCEPTION DATE
- ---------------------------------------------------------------
<S> <C> <C> <C>
Advisor Class 20.74% 18.13% 06/01/95
MSCI AC World Index(1) 21.72 16.55(2) 05/31/95(2)
- ---------------------------------------------------------------
</TABLE>
(1) The Morgan Stanley Capital International All Country World Index measures
the performance of securities listed on the major world stock exchanges of
47 markets, including both developed and emerging markets.
(2) The average annual total return given is since the date closest to the
inception date of the Advisor Class.
3
<PAGE> 181
-------------------------------
AIM GLOBAL GROWTH & INCOME FUND
-------------------------------
Fee Table and Expense Example
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from your
investment) ADVISOR CLASS
- ---------------------------------------------------
<S> <C> <C>
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
- ---------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets) ADVISOR CLASS
- ---------------------------------------------------
<S> <C> <C>
Management Fees 0.97 %
Distribution and/or Service
(12b-1) Fees None
Other Expenses 0.33
Total Annual Fund Operating
Expenses 1.30
- ---------------------------------------------------
</TABLE>
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>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------
<S> <C> <C> <C> <C>
Advisor Class $132 $412 $713 $1,568
- ----------------------------------------------------
</TABLE>
4
<PAGE> 182
-------------------------------
AIM GLOBAL GROWTH & INCOME FUND
-------------------------------
Fund Management
- --------------------------------------------------------------------------------
THE ADVISORS
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor.
INVESCO Asset Management Limited (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 advisor since its organization in 1976,
and the subadvisor has acted as an investment advisor since 1967. Today, the
advisor, together with its subsidiaries, advises or manages over 110 investment
portfolios, including the fund, encompassing a broad range of investment
objectives.
ADVISOR COMPENSATION
During the fiscal year ended October 31, 1998, the advisor and Chancellor LGT
Asset Management, Inc., (the advisor for the period November 1, 1997 through May
28, 1998) together received compensation of 0.996% of average net assets,
consisting of a management and administrative fee of 0.97% and an accounting fee
of 0.026%.
PORTFOLIO MANAGERS
The advisors use a team approach to investment management. The individual
members of the team who are primarily responsible for the day-to-day management
of the fund's portfolio are
- - 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.
- - 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.
- - 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.
Other Information
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS
The fund generally declares and pays dividends, if any, quarterly.
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.
5
<PAGE> 183
-------------------------------
AIM GLOBAL GROWTH & INCOME FUND
-------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
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(a)
---------------------------------------------------------------
YEAR ENDED OCTOBER 31, JUNE 1,
-------------------------------------- THROUGH
1998(b) 1997(b) 1996 OCTOBER 31, 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 8.20 $ 7.10 $ 6.35 $ 6.24
Income from investment operations:
Net investment income 0.21 0.23 0.23 0.11
Net realized and unrealized gain (loss) on
investments 1.25 1.13 0.82 0.13
Net increase from investment operations 1.46 1.36 1.05 0.24
Distributions to shareholders:
From net investment income (0.16) (0.24) (0.26) (0.13)
From net realized gain on investments (0.24 (0.02) (0.04) --
Total distributions (0.40) (0.26) (0.30) (0.13)
Net asset value, end of period $ 9.26 $ 8.20 $ 7.10 $ 6.35
Total investment return(c) 18.27% 19.23% 17.19% 3.83%(d)
- -----------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
Net assets, end of period (in 000s) $7,239 $3,057 $3,085 $ 944
Ratio of net investment income to average net assets 2.22% 3.09% 3.52% 4.20%(e)
Ratio of expenses to average net assets:
With expense reductions 1.29% 1.15% 1.24% 1.35%(e)
Without expense reductions 1.30% 1.29% 1.31% 1.39%(e)
Portfolio turnover rate(f) 92% 50% 39% 83%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Commencing June 1, 1995, the fund began offering Advisor Class shares.
(b) These selected per share data were calculated based upon average shares
outstanding during the period.
(c) Total investment return does not include sales charges.
(d) Not annualized.
(e) Annualized.
(f) Portfolio turnover rates are calculated on the basis of the fund as a whole
without distinguishing between the class of shares issued.
6
<PAGE> 184
-------------
THE AIM FUNDS
-------------
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 of the funds advised by the
advisor (the AIM Funds), your financial consultant, on your behalf, must submit
a fully completed new account application form directly to the transfer agent.
You may purchase shares using one of the options below.
PURCHASE OPTIONS
- -
<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 Call the transfer agent to receive
a completed account application to a reference number. Then, use the
the transfer agent. You or your wire instructions at left.
financial 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 #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank
methods described above. Connection(SM) form to the transfer
agent. Once the transfer agent has
received the form, call the
transfer agent to place your
purchase order.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
A- 1 ADV--03/99
<PAGE> 185
-------------
THE AIM FUNDS
-------------
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.
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. TO PROTECT THE INTERESTS OF
INVESTORS, EACH AIM FUND AND THE DISTRIBUTOR MAY REJECT ANY ORDER CONSIDERED
MARKET TIMING ACTIVITY.
REDEEMING SHARES
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.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
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 New York Stock Exchange (NYSE) is open for business in
order to effect the redemption at that day's closing price.
</TABLE>
- --------------------------------------------------------------------------------
ADV--03/99 A- 2
<PAGE> 186
-------------
THE AIM FUNDS
-------------
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
(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.
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. You also may exchange Advisor
Class shares for AIM Cash Reserve shares of AIM Money Market 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:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be qualified for sale in your
state of residence;
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - The AIM Fund from which you are exchanging must have received the full amount
of the purchase price for the shares being exchanged;
- - 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
- - 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
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 New York Stock Exchange (NYSE) is open for business;
however, you still will be
A- 3 ADV--03/99
<PAGE> 187
-------------
THE AIM FUNDS
-------------
allowed to exchange by telephone even if you have changed your address of record
within the preceding 30 days.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. 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 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.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours 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. An AIM Fund may postpone the right of redemption only under unusual
circumstances, as allowed by the Securities and Exchange Commission, such as
when the NYSE restricts or suspends trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund holds
its assets. Different rates of tax apply to ordinary income and long-term
capital gain distributions. Every year, you will be sent information 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, and any gain realized on the
transaction will generally be subject to federal income tax.
The foreign, state, and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
ADV--03/99 A- 4
<PAGE> 188
-------------------------------
AIM GLOBAL GROWTH & INCOME FUND
-------------------------------
Obtaining Additional Information
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registration Mark-- or your account, or wish to obtain free copies of the
fund's current SAI or annual or semiannual reports, please contact us
- ---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Distributors, Inc.
11 Greenway Plaza, Suite
100
Houston, TX 77046-1173
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
- ---------------------------------------------------------
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, DC, on the SEC's website
(http://www.sec.gov), or by sending a letter, including a duplicating fee, to
the SEC's Public Reference Section, Washington, DC 20549-6009. Please call the
SEC at 1-800-SEC-0330 for information about the Public Reference Room.
- ------------------------------------
AIM Global Growth & Income Fund
SEC 1940 Act file number: 811-05426
- ------------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com GGI-PRO-2 INVEST WITH DISCIPLINE
--Registration Mark--
<PAGE> 189
AIM GLOBAL HEALTH CARE FUND
-----------------------------------------------------------------------
AIM Global Health Care Fund seeks to provide long-term growth of
capital.
PROSPECTUS
MARCH 1, 1999
This prospectus contains important
information about the Class A, B and
C shares of the fund. Please read it
before investing and keep it for
future reference.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE--Registered
Trademark--
<PAGE> 190
Table of Contents
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<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE FUND 2
- - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 3
- - - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 3
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
- - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 4
Expense Example 4
FUND MANAGEMENT 5
- - - - - - - - - - - - - - - - - - - - - - - - -
The Advisor 5
Advisor Compensation 5
Portfolio Manager 5
OTHER INFORMATION 5
- - - - - - - - - - - - - - - - - - - - - - - - -
Sales Charges 5
Dividends and Distributions 5
FINANCIAL HIGHLIGHTS 6
- - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - -
Choosing a Share Class A-1
Purchasing Shares A-3
Redeeming Shares A-4
Exchanging Shares A-6
Pricing of Shares A-7
Taxes A-8
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK, AIM Institutional Funds, aimfunds.com, La
Familia AIM de Fondos, La Familia AIM de Fondos and Design and Invest with
Discipline are registered service marks and AIM Bank Connection is a service
mark of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 191
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AIM GLOBAL HEALTH CARE FUND
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Investment Objective and Strategies
- --------------------------------------------------------------------------------
The fund's investment objective is long-term growth of capital.
The fund seeks to meet this objective by investing, normally, 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 (1) derives
at least 50% of its revenues or earnings from health care activities; or (2)
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 in equity and debt securities of other
companies the portfolio manager believes will benefit from developments in the
health care industry.
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 invest no 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 fund may invest in companies located in developing countries, i.e., those
that are in the initial stages of their industrial cycles. The fund may also
invest up to 5% of its total assets in lower-quality debt securities, i.e.,
"junk bonds."
The portfolio manager allocates 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 manager 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. The
portfolio manager usually sells 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
instruments or high-quality 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.
1
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AIM GLOBAL HEALTH CARE FUND
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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 prices of equity
securities change in response to many factors, including the historical and
prospective earnings of the issuer, the value of its assets, general economic
conditions, interest rates, investor perceptions, and market liquidity.
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 impact the demand for products and services offered by health
care companies. Also, 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 industry, the value of your fund shares may rise and fall more than
the value of shares of a fund that invests more broadly.
The prices of foreign securities may be further affected by other factors,
including:
- - Currency exchange rates--The dollar value of the fund's foreign investments
will be affected by changes in the exchange rates between the dollar and the
currencies in which those investments are traded.
- - Political and economic conditions--The value of the fund's foreign investments
may be adversely affected by political and social instability in their home
countries and by changes in economic or taxation policies in those countries.
- - Regulations--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available information
about foreign companies than about U.S. companies.
- - Markets--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and their prices may be more volatile than U.S. securities.
The value of your shares could be adversely affected if the computer systems
used by the fund's investment advisor and the fund's other service providers are
unable to distinguish the year 2000 from the year 1900.
The fund's investment advisor and independent technology consultants are
working to avoid year 2000-related problems in its systems and to obtain
assurances that other service providers are taking similar steps. Year 2000
problems may also affect issuers in whose securities the fund invests.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
2
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AIM GLOBAL HEALTH CARE FUND
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Performance Information
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
ANNUAL TOTAL RETURNS
The following bar chart shows changes in the performance of the fund's Class A
shares from year to year. The bar chart does not reflect sales loads. If it did,
the annual total returns shown would be lower.
[GRAPH]
<TABLE>
<CAPTION>
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURN
- ----------- ------
<S> <C>
1990.................................. 13.14
1991.................................. 57.88
1992.................................. -13.51
1993.................................. 2.61
1994.................................. 0.29
1995.................................. 36.96
1996.................................. 23.84
1997.................................. 7.96
1998.................................. 18.43
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
22.13% (quarter ended March 31, 1991) and the lowest quarterly return was
(14.87)% (quarter ended March 31, 1993).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(for the periods ended SINCE INCEPTION
December 31, 1998) 1 YEAR 5 YEARS INCEPTION DATE
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A 12.81% 15.68% 14.51% 08/07/89
Class B 12.84 16.02 17.84 04/01/93
Class C -- -- -- 03/01/99
MSCI All Country World
Index(1) 21.72 14.48 9.92 07/31/89(2)
- -----------------------------------------------------------------------
</TABLE>
(1) The Morgan Stanley Capital International All Country World Index measures
the performance of securities listed on the major world stock exchanges of
47 markets, including both developed and emerging markets.
(2) The average annual total return given is since the date closest to the
inception date of the class with the longest performance history.
3
<PAGE> 194
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AIM GLOBAL HEALTH CARE FUND
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Fee Table and Expense Example
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from
your investment) CLASS A CLASS B CLASS C
- -------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) 4.75% None None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase
price or redemption
proceeds, whichever is less) None(1) 5.00 1.00
- -------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets) CLASS A CLASS B CLASS C
- -------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees 0.97% 0.97% 0.97%
Distribution and/or
Service (12b-1) Fees 0.50 1.00 1.00
Other Expenses 0.37 0.37 0.37
Total Annual Fund
Operating Expenses 1.84 2.34 2.34
- -------------------------------------------------------
</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.
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>
Class A $653 $1,026 $1,423 $2,531
Class B 737 1,030 1,450 2,552
Class C 337 730 1,250 2,676
- ----------------------------------------------
</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 $653 $1,026 $1,423 $2,531
Class B 237 730 1,250 2,552
Class C 237 730 1,250 2,676
- ----------------------------------------------
</TABLE>
4
<PAGE> 195
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AIM GLOBAL HEALTH CARE FUND
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Fund Management
- --------------------------------------------------------------------------------
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor 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 provides 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 advisor since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 110
investment portfolios, including the fund, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended October 31, 1998, the advisor and Chancellor LGT
Asset Management, Inc., (the advisor for the period November 1, 1997 through May
28, 1998) together received compensation of 0.996% of average daily net assets,
consisting of a management and administrative fee of 0.97% and an accounting fee
of 0.026%.
PORTFOLIO MANAGER
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
- - 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.
Other Information
- --------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM Global Health Care Fund are subject to the
maximum 4.75% initial sales charge as listed under the heading "CATEGORY II
Initial Sales Charges" in the "Shareholder Information--Choosing a Share Class"
section of this prospectus. Purchases of Class B and Class C shares are subject
to the contingent deferred sales charges listed in that section.
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS
The fund generally declares and pays dividends, if any, annually.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains (including
any net gains from foreign currency transactions), if any, annually.
5
<PAGE> 196
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AIM GLOBAL HEALTH CARE FUND
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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).
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
- ---------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
- ---------------------------------------------------------------------------------------------------------------------
1998(a) 1997(a) 1996(a) 1995 1994(a)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 27.98 $ 23.60 $ 21.84 $ 19.60 $ 17.86
Income from investment operations:
Net investment loss (0.21) (0.25) (0.17) (0.15) (0.22)
Net realized and unrealized gain (loss) on
investments (0.91) 6.48 4.79 3.73 2.02
Net increase (decrease) from investment
operations (1.12) 6.23 4.62 3.58 1.80
Distributions to shareholders:
From net realized gain on investments (6.70) (1.85) (2.86) (1.34) --
In excess of net realized gain on investments (0.01) -- -- -- (0.06)
Total distributions (6.71) (1.85) (2.86) (1.34) (0.06)
Net asset value, end of period $ 20.15 $ 27.98 $ 23.60 $ 21.84 $ 19.60
Total investment return(b) (4.71)% 28.36% 23.14% 19.79% 10.11%
- ---------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
Net assets, end of period (in 000s) $357,534 $ 472,083 $ 467,861 $ 426,380 $ 438,940
Ratio of net investment loss to average net
assets:
With expense reductions (0.97)% (1.00)% (0.71)% (0.72)% (1.23)%
Without expense reductions (0.98)% (1.03)% (0.75)% (0.78)% N/A
Ratio of expenses to average net assets:
With expense reductions 1.83% 1.77% 1.80% 1.85% 1.98%
Without expense reductions 1.84% 1.80% 1.84% 1.91% N/A
Portfolio turnover rate(c) 187% 149% 157% 99% 64%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) These selected per share data were calculated based upon average shares
outstanding during the period.
(b) Total investment return does not include sales charges.
(c) Portfolio turnover rates are calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
N/A Not applicable.
6
<PAGE> 197
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AIM GLOBAL HEALTH CARE FUND
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Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B
- ----------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
- ----------------------------------------------------------------------------------------------------
1998(a) 1997(a) 1996(a) 1995 1994(a)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 27.27 $ 23.15 $ 21.56 $ 19.46 $ 17.80
Income from investment operations:
Net investment loss (0.30) (0.37) (0.27) (0.25) (0.32)
Net realized and unrealized gain (loss) on
investments (0.89) 6.34 4.72 3.69 2.02
Net increase (decrease) from investment
operations (1.19) 5.97 4.45 3.44 1.70
Distributions to shareholders:
From net realized gain on investments (6.70) (1.85) (2.86) (1.34) --
In excess of net realized gain on investments (0.01) -- -- -- (0.04)
Total distributions (6.71) (1.85) (2.86) (1.34) (0.04)
Net asset value, end of period $ 19.37 $ 27.27 $ 23.15 $ 21.56 $ 19.46
Total investment return(b) (5.20)% 27.75% 22.59% 19.17% 9.55%
- ----------------------------------------------------------------------------------------------------
Ratios and supplemental data:
Net assets, end of period (in 000s) $100,311 $147,440 $107,622 $70,740 $39,100
Ratio of net investment loss to average net
assets:
With expense reductions (1.47)% (1.50)% (1.21)% (1.22)% (1.73)%
Without expense reductions (1.48)% (1.53)% (1.25)% (1.28)% N/A
Ratio of expenses to average net assets:
With expense reductions 2.33% 2.27% 2.30% 2.35% 2.48%
Without expense reductions 2.34% 2.30% 2.34% 2.41% N/A
Portfolio turnover rate(c) 187% 149% 157% 99% 64%
- ----------------------------------------------------------------------------------------------------
</TABLE>
(a) These selected per share data were calculated based upon average shares
outstanding during the period.
(b) Total investment return does not include sales charges.
(c) Portfolio turnover rates are calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
N/A Not applicable.
7
<PAGE> 198
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THE AIM FUNDS
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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>
- - Initial sales charge - No initial sales charge - No initial sales charge
- - Reduced or waived initial sales - Contingent deferred sales - Contingent deferred sales
charge for certain purchases charge on redemptions within six charge on redemptions within
years one year
- - Lower distribution and service - 12b-1 fee of 1.00% - 12b-1 fee of 1.00%
(12b-1) fee than Class B or
Class C shares (See "Fee Table
and Expense Example")
- Converts to Class A shares - Does not convert to Class A
after eight years along with a shares
pro rata portion of its
reinvested dividends and
distributions*
- - Generally more appropriate for - Purchase orders limited to - Generally more appropriate
long-term investors amounts less than $250,000 for short-term investors
</TABLE>
* AIM Money Market Fund: Class B shares convert to AIM Cash Reserve
Shares.
AIM Global Trends Fund: If you held Class B shares on May 29,
1998 and continue to hold them, those shares will convert to
Class A shares of that fund seven years after your date of
purchase. If you exchange those shares for Class B shares of
another AIM Fund, the shares into which you exchanged will not
convert to Class A shares until eight years after your date of
purchase of the original shares.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12b-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund) has adopted 12b-1 plans
that allow the AIM Fund to pay distribution fees to A I M Distributors, Inc.
(the distributor) for the sale and distribution of its shares and fees for
services provided to shareholders, all or a substantial portion of which are
paid to the dealer of record. Because the AIM Fund pays these fees out of its
assets on an ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
MCF-03/99
A-1
<PAGE> 199
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THE AIM FUNDS
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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.
<TABLE>
<CAPTION>
CATEGORY I INITIAL SALES CHARGES
- --------------------------------
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
- ----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY II INITIAL SALES CHARGES
- ---------------------------------
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
- ----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY III INITIAL SALES CHARGES
- ----------------------------------
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 100,000 1.00% 1.01%
$ 100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
- ----------------------------------------------------------
</TABLE>
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES
You can purchase $1,000,000 or more of Class A shares at net asset value.
However, if you purchase shares of that amount in Categories I or II, they will
be subject to a contingent deferred sales charge (CDSC) of 1% if you redeem them
prior to 18 months after the date of purchase. The distributor may pay a dealer
concession and/or a service fee for purchases of $1,000,000 or more.
CONTINGENT DEFERRED SALES CHARGES FOR
CLASS B AND CLASS C SHARES
You can purchase Class B and Class C shares at their net asset value per share.
However, when you redeem them, they are subject to a CDSC in the following
percentages:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
- ----------------------------------------------------------
<S> <C> <C>
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
- ----------------------------------------------------------
</TABLE>
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you have redeemed shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify
for these reductions or exceptions, you or your financial consultant must
provide sufficient information at the time of purchase to verify that your
purchase qualifies for such treatment.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Rights of Accumulation
You may combine your new purchases of Class A shares with Class A shares
currently owned for the purpose of qualifying for the lower initial sales charge
rates that apply to larger purchases. The applicable initial sales charge for
the new purchase is based on the total of your current purchase and the current
value of all Class A shares you own.
Letters of Intent
Under a Letter of Intent (LOI), you commit to purchase a specified dollar amount
of Class A shares of AIM Funds during a
A-2
<PAGE> 200
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THE AIM FUNDS
-------------
13-month period. The amount you agree to purchase determines the initial sales
charge you pay. If the full face amount of the LOI is not invested by the end of
the 13-month period, your account will be adjusted to the higher initial sales
charge level for the amount actually invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- - on shares purchased by reinvesting dividends and distributions;
- - when exchanging shares among certain AIM Funds;
- - when using the reinstatement privilege; and
- - when a merger, consolidation, or acquisition of assets of an AIM Fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- - if you redeem Class B shares you held for more than six years;
- - if you redeem Class C shares you held for more than one year;
- - if you redeem shares acquired through reinvestment of dividends and
distributions; and
- - on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares
at reduced or without sales charges. Consult the fund's Statement of Additional
Information for details.
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
The minimum investments for AIM Fund accounts (except for investments in AIM
Small Cap Opportunities Fund) are as follows:
<TABLE>
<CAPTION>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing $ 0 ($25 per AIM Fund investment for $25
plans, 401(k) plans, Simplified Employee Pension salary deferrals from Savings Plans)
(SEP) accounts, Salary Reduction (SARSEP)
accounts, Savings Incentive Match Plans for
Employee IRA (Simple IRA) accounts, 403(b) or
457 plans)
Automatic Investment Plans 50 50
IRA, Education IRA or Roth IRA 250 50
All other accounts 500 50
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below.
PURCHASE OPTIONS
- -
<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 Application Mail your check and the remittance
and purchase payment to the slip from your confirmation
transfer agent, statement to the transfer agent.
A I M Fund Services, Inc.,
P.O. Box 4739,
Houston, TX 77210-4739.
By Wire Mail completed Account Application Call the transfer agent to receive
to the transfer agent. Call the a reference number. Then, use the
transfer agent at (800) 959-4246 to wire instructions at left.
receive a reference number. Then,
use the following wire
instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number:
00100366807
Beneficiary Account Name: A I M
Fund Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank
methods described above. Connection(SM) form to the transfer
agent. Once the transfer agent has
received the form, call the
transfer agent to place your
purchase.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
A-3
<PAGE> 201
-------------
THE AIM FUNDS
-------------
SPECIAL PLANS
AUTOMATIC INVESTMENT PLAN
You can arrange for periodic investments in any of the AIM Funds by authorizing
the AIM Fund to withdraw the amount of your investment from your bank account on
a day or dates you specify and in an amount of at least $50. You may stop the
Automatic Investment Plan at any time by giving the transfer agent notice ten
days prior to your next scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one AIM Fund account to one or more other AIM Fund
accounts with the identical registration. The account from which exchanges are
to be made must have a minimum balance of $5,000 before you can use this option.
Exchanges will occur on (or about) the 10th or 25th day of the month, whichever
you specify, in the amount you specify. The minimum amount you can exchange to
another AIM Fund is $50.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
AIM Fund at net asset value. Unless you specify otherwise, your dividends and
distributions will automatically be reinvested in the same AIM Fund. You may
invest your dividends and distributions (1) into another AIM Fund in the same
class of shares; or (2) from Class A shares into AIM Cash Reserve Shares of AIM
Money Market Fund, or vice versa.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend must be at
least $5,000; or (b) in the AIM Fund receiving the dividend must be at least
$500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends into
another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this Program, you can designate how the
total value of your AIM Fund holdings should be rebalanced, on a percentage
basis, between two and ten of your AIM Funds on a quarterly, semiannual or
annual basis. Your portfolio will be rebalanced through the exchange of shares
in one or more of your AIM Funds for shares of the same class of one or more
other AIM Funds in your portfolio. If you wish to participate in the Program,
make changes or cancel the Program, the transfer agent must receive your request
to participate, changes or cancellation in good order at least five business
days prior to the next rebalancing date, which is normally the 28th day of the
last month of the period you choose. We may modify, suspend or terminate the
Program at any time on 60 days' prior written notice.
RETIREMENT PLANS
Shares of most of the AIM Funds can be purchased through
tax-sheltered retirement plans made available to corporations, individuals and
employees of non-profit organizations and public schools. A plan document must
be adopted to establish a retirement plan. You may use AIM Funds-sponsored
retirement plans, which include IRAs, Education IRAs, Roth IRAs, 403(b) plans,
401(k) plans, SIMPLE IRA plans, SEP/SARSEP plans and Money Purchase/Profit
Sharing plans, or another sponsor's retirement plan. The plan custodian of the
AIM Funds-sponsored retirement plan assesses an annual maintenance fee of $10.
Contact your financial consultant for details.
REDEEMING SHARES
REDEMPTION FEES
We will not charge you any fees to redeem your shares; however, your broker or
financial consultant may charge service fees for handling these transactions.
Your shares may be subject to a contingent deferred sales charge (CDSC).
REDEMPTION OF AIM CASH RESERVE SHARES OF
AIM MONEY MARKET FUND ACQUIRED BY EXCHANGE
If you redeem AIM Cash Reserve Shares acquired by exchange from Class A shares
subject to a CDSC within 18 months of the purchase of the Class A shares,
you will be charged a CDSC.
REDEMPTION OF CLASS B SHARES ACQUIRED BY
EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM
Floating Rate Fund, the early withdrawal charge applicable to shares of AIM
Floating Rate Fund will be applied instead of the CDSC normally applicable to
Class B shares.
A-4
<PAGE> 202
-------------
THE AIM FUNDS
-------------
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
Consultant
By Mail Send a written request to the transfer agent. Requests must
include (1) original signatures of all registered owners;
(2) the name of the AIM Fund and your account number; (3) if
the transfer agent does not hold your shares, endorsed share
certificates or share certificates accompanied by an
executed stock power; and (4) signature guarantees, if
necessary (see below). The transfer agent may require that
you provide additional information, such as corporate
resolutions or powers of attorney, if applicable. If you are
redeeming from an IRA account, you must include a statement
of whether or not you are at least 59 1/2 years old and
whether you wish to have federal income tax withheld from
your proceeds. The transfer agent may require certain other
information before you can redeem from an employer-sponsored
retirement plan. Contact your employer for details.
By Telephone Call the transfer agent. You will be allowed to redeem by
telephone if (1) the proceeds are to be mailed to the
address on record with us or transferred electronically to a
pre-authorized checking account; (2) the address on record
with us has not been changed within the last 30 days;
(3) you do not hold physical share certificates; (4) you can
provide proper identification information; (5) the proceeds
of the redemption do not exceed $50,000; and (6) you have
not previously declined the telephone redemption privilege.
Certain accounts, including retirement accounts and 403(b)
plans, may not redeem by telephone. The transfer agent must
receive your call during the hours the NYSE is open for
business in order to effect the redemption at that day's
closing price.
</TABLE>
- --------------------------------------------------------------------------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds to the address on record with us.
If your request is not in good order, you may have to provide us with additional
documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
PAYMENT FOR SYSTEMATIC WITHDRAWALS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. You also may make annual withdrawals if you own Class A shares.
We will redeem enough shares from your account to cover the amount withdrawn.
You must have an account balance of at least $5,000 to establish a Systematic
Withdrawal Plan. You can stop this plan at any time by giving ten days prior
notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM Cash Reserve Shares of AIM Money Market Fund only)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of trading
on the 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.
A-5
<PAGE> 203
-------------
THE AIM FUNDS
-------------
REINSTATEMENT PRIVILEGE (Class A shares only)
You may, within 90 days after you sell Class A shares (except Class A shares of
AIM Tax-Exempt Cash Fund), reinvest all or part of your redemption proceeds in
Class A shares of any AIM Fund at net asset value in an identically registered
account. If you sold Class A shares of AIM Limited Maturity Treasury Fund or AIM
Tax-Free Intermediate Fund, you will incur an initial sales charge reflecting
the difference between the initial sales charges on those Funds and the ones in
which you will be investing. In addition, if you paid a contingent deferred
sales charge (CDSC) on any reinstated amount, you will not be subject to a CDSC
if you later redeem that amount. You must notify the transfer agent in writing
at the time you reinstate that you are exercising your reinstatement privilege.
You may exercise this privilege only once per year.
REDEMPTIONS BY THE AIM FUNDS
If your account has been open at least one year, you have not made an additional
purchase in the account during the past six calendar months, and the value of
your account falls below $500 for three consecutive months due to redemptions or
exchanges (excluding retirement accounts), the AIM Funds have the right to
redeem the account after giving you 60 days' prior written notice. You may avoid
having your account redeemed during the notice period by bringing the account
value up to $500 or by utilizing the Automatic Investment Plan.
If an AIM Fund determines that you have provided incorrect information in
opening an account or in the course of conducting subsequent transactions, the
AIM Fund may, at its discretion, redeem the account and distribute the proceeds
to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one AIM Fund for those
of another AIM Fund. Before requesting an exchange, review the prospectus of the
AIM Fund you wish to acquire. Exchange privileges also apply to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992.
PERMITTED EXCHANGES
Except as otherwise stated below, you may exchange your shares for shares of the
same class of another AIM Fund. You also may exchange AIM Cash Reserve Shares of
AIM Money Market Fund for Class A shares of another AIM Fund, or vice versa. You
may be required to pay an initial sales charge when exchanging from a Fund with
a lower initial sales charge than the one into which you are exchanging. If you
exchange from Class A shares not subject to a CDSC into Class A shares subject
to those charges, you will be charged a CDSC when you redeem the exchanged
shares. The CDSC charged on redemption of those shares will be calculated
starting on the date you acquired those shares through exchange.
You also may exchange AIM Cash Reserve Shares of AIM Money Market Fund for
Advisor Class shares, but only if you acquired the AIM Cash Reserve Shares
through an exchange from Advisor Class shares.
YOU WILL NOT PAY A SALES CHARGE WHEN EXCHANGING:
(1) Class A shares with an initial sales charge (except for Class A shares of
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
Class A shares of another AIM Fund or AIM Cash Reserve Shares of AIM Money
Market Fund;
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund for
(a) one another;
(b) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of
AIM Tax-Exempt Cash Fund; or
(c) Class A shares of another AIM Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way of
an exchange from shares with higher sales charges;
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) one another;
(b) Class A shares of an AIM Fund subject to an initial sales charge (except
for Class A shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund), but only if you acquired the original
shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to an
initial sales charge;
(ii) on or after May 1, 1994 by exchange from Class A shares subject to
an initial sales charge (except for Class A shares of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund); or
(c) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund, but only if you acquired the original shares by
exchange from Class A shares subject to an initial sales charge; or
(4) Class B shares for other Class B shares, and Class C shares for other Class
C shares.
EXCHANGES NOT PERMITTED
You may not exchange Class A shares subject to contingent deferred sales charges
for Class A shares of AIM Limited Maturity Treasury Fund, AIM Tax-Free
Intermediate Fund or AIM Tax-Exempt Cash Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be qualified for sale in your
state of residence;
A-6
<PAGE> 204
-------------
THE AIM FUNDS
-------------
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - Shares must have been held for at least one day prior to the exchange; and
- - If you have physical share certificates, you must return them to the transfer
agent prior to the exchange.
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.
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. TO PROTECT THE INTERESTS OF
INVESTORS, EACH AIM FUND AND THE DISTRIBUTOR MAY REJECT ANY ORDER CONSIDERED
MARKET-TIMING ACTIVITY.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. AIM Money
Market Fund and AIM Tax-Exempt Cash Fund value all of their securities at
amortized cost. AIM High Income Municipal Fund, AIM Municipal Bond Fund, AIM
Tax-Exempt Bond Fund of Connecticut and AIM Tax-Free Intermediate Fund value
variable rate securities that have an unconditional demand or put feature
exercisable within seven days or less at par, which reflects the market value of
such securities.
The AIM Funds value all other securities and assets at their fair value.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day. In addition, if,
between the time trading ends on a particular security and the close of the 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.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours 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. An AIM Fund may postpone the right of redemption only under unusual
circumstances, as allowed by the Securities and Exchange Commission, such as
when the NYSE restricts or suspends trading.
A-7
<PAGE> 205
-------------
THE AIM FUNDS
-------------
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund holds
its assets. Different tax rates apply to ordinary income and long-term capital
gain distributions, regardless of how long you have held your shares. Every
year, you will be sent information showing the amount of dividends and
distributions you received from each AIM Fund during the prior year.
Any long-term or short-term capital gains realized from redemptions of AIM
Fund shares will be subject to federal income tax. Exchanges of shares for
shares of another AIM Fund are treated as a sale, and any gain realized on the
transaction will generally be subject to federal income tax.
The foreign, state and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
A-8
<PAGE> 206
---------------------------
AIM GLOBAL HEALTH CARE FUND
---------------------------
Obtaining Additional Information
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us
- ---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Distributors, Inc.
11 Greenway Plaza, Suite
100
Houston, TX 77046-1173
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
- ---------------------------------------------------------
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, DC, on the SEC's website
(http://www.sec.gov), or by sending a letter, including a duplicating fee, to
the SEC's Public Reference Section, Washington, DC 20549-6009. Please call the
SEC at 1-800-SEC-0330 for information about the Public Reference Room.
- ------------------------------------
AIM Global Health Care Fund
SEC 1940 Act file number: 811-05426
- ------------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com
GHC-PRO-1 INVEST WITH DISCIPLINE--Registered Trademark--
<PAGE> 207
AIM GLOBAL HEALTH CARE FUND
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
ADVISOR CLASS
AIM Global Health Care Fund seeks to provide long-term growth of
capital.
PROSPECTUS
MARCH 1, 1999
This prospectus contains important
information. Please read it before
investing and keep it for future
reference.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE--Registered Trademark--
<PAGE> 208
Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE
FUND 2
- - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 3
- - - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 3
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
- - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 4
Expense Example 4
FUND MANAGEMENT 5
- - - - - - - - - - - - - - - - - - - - - - - - -
The Advisor 5
Advisor Compensation 5
Portfolio Manager 5
OTHER INFORMATION 5
- - - - - - - - - - - - - - - - - - - - - - - - -
Dividends and Distributions 5
FINANCIAL HIGHLIGHTS 6
- - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - -
Purchasing Shares A-1
Redeeming Shares A-2
Exchanging Shares A-3
Pricing of Shares A-4
Taxes A-4
OBTAINING ADDITIONAL INFORMATION Back
Cover
- - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK, AIM Institutional Funds, aimfunds.com, La
Familia AIM de Fondos, La Familia AIM de Fondos and Design and Invest with
Discipline are registered service marks and AIM Bank Connection is a service
mark of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 209
---------------------------
AIM GLOBAL HEALTH CARE FUND
---------------------------
Investment Objective and Strategies
- --------------------------------------------------------------------------------
The fund's investment objective is long-term growth of capital.
The fund seeks to meet its objective by investing, normally, 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 (1) derives
at least 50% of its revenues or earnings from health care activities; or (2)
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 in equity and debt securities of other
companies the portfolio manager believes will benefit from developments in the
health care industry.
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 fund may invest in companies located in developing countries, i.e., those
that are in the initial stages of their industrial cycles. The fund may also
invest up to 5% of its total assets in lower-quality debt securities, i.e.,
"junk bonds."
The portfolio manager allocates 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 manager 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. The
portfolio manager usually sells 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
investments or high-quality 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.
1
<PAGE> 210
---------------------------
AIM GLOBAL HEALTH CARE FUND
---------------------------
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 prices of equity
securities change in response to many factors, including the historical and
prospective earnings of the issuer, the value of its assets, general economic
conditions, interest rates, investor perceptions, and market liquidity.
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 impact the demand for products and services offered by health
care companies. Also, 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 industry, the value of your fund shares may rise and fall more than
the value of shares of a fund that invests more broadly.
The prices of foreign securities may be further affected by other factors,
including:
- - Currency exchange rates--The dollar value of the fund's foreign investments
will be affected by changes in the exchange rates between the dollar and the
currencies in which those investments are traded.
- - Political and economic conditions--The value of the fund's foreign investments
may be adversely affected by political and social instability in their home
countries and by changes in economic or taxation policies in those countries.
- - Regulations--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available information
about foreign companies than about U.S. companies.
- - Markets--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and more volatile than U.S. securities.
The value of your shares could be adversely affected if the computer systems
used by the fund's investment advisor and the fund's other service providers are
unable to distinguish the year 2000 from the year 1900.
The fund's investment advisor and independent technology consultants are
working to avoid year 2000-related problems in its systems and to obtain
assurances that other service providers are taking similar steps. Year 2000
problems may also affect issuers in whose securities the fund invests.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
2
<PAGE> 211
---------------------------
AIM GLOBAL HEALTH CARE FUND
---------------------------
Performance Information
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
The following bar chart shows changes in the performance of the fund's Advisor
Class shares from year to year.
[GRAPH]
<TABLE>
<CAPTION>
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURN
- ----------- ------
<S> <C>
1996 ............................ 24.48%
1997 ............................ 8.51%
1998 ............................ 19.09%
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
21.92% (quarter ended December 31, 1998) and the lowest quarterly return was
(11.24)% (quarter ended September 30, 1998).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(for the periods ended SINCE INCEPTION
December 31, 1998) 1 YEAR INCEPTION DATE
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Advisor Class 19.09% 22.76% 06/01/95
MSCI All Country World Index(1) 21.72 16.55(2) 05/31/95(2)
- ------------------------------------------------------------------------
</TABLE>
(1) The Morgan Stanley Capital International All Country World Index measures
the performance of securities listed on the major world stock exchanges of
47 markets, including both developed and emerging markets.
(2) The average annual total return given is since the date closest to the
inception date of the Advisor Class.
3
<PAGE> 212
---------------------------
AIM GLOBAL HEALTH CARE FUND
---------------------------
Fee Table and Expense Example
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from
your investment) ADVISOR CLASS
- ---------------------------------------------------
<S> <C> <C>
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
- ---------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets) ADVISOR CLASS
- ---------------------------------------------------
<S> <C> <C>
Management Fees 0.97%
Distribution and/or
Service (12b-1) Fees None
Other Expenses 0.37
Total Annual Fund Operating
Expenses 1.34
- ---------------------------------------------------
</TABLE>
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>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------
<S> <C> <C> <C> <C>
Advisor Class $136 $425 $734 $1,613
- -------------------------------
</TABLE>
4
<PAGE> 213
---------------------------
AIM GLOBAL HEALTH CARE FUND
---------------------------
Fund Management
- --------------------------------------------------------------------------------
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor 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 provides 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 advisor since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 110
investment portfolios, including the fund, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended October 31, 1998, the advisor and Chancellor LGT
Asset Management, Inc., (the advisor for the period November 1, 1997 through May
28, 1998) together received compensation of 0.996% of average daily net assets,
consisting of a management and administrative fee of 0.97% and an accounting fee
of 0.026%.
PORTFOLIO MANAGER
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
- - 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.
Other Information
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS
The fund generally declares and pays dividends, if any, annually.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains (including
any net gains from foreign currency transactions), if any, annually.
5
<PAGE> 214
---------------------------
AIM GLOBAL HEALTH CARE FUND
---------------------------
Financial Highlights
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
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(A)
----------------------------------------------
YEAR ENDED OCTOBER 31, JUNE 1,
--------------------------- TO
1998(B) 1997(B) 1996(B) OCTOBER 31, 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $28.34 $23.77 $21.88 $ 18.66
Income from investment operations:
Net investment loss (0.10) (0.12) (0.05) (0.02)
Net realized and unrealized gain (loss) on
investments (0.94) 6.54 4.80 3.24
Net increase (decrease) from investment
operations (1.04) 6.42 4.75 3.22
Distributions to shareholders:
From net realized gain on investments (6.70) (1.85) (2.86) --
In excess of net realized gain on investments (0.01) -- -- --
Total distributions (6.71) (1.85) (2.86) --
Net asset value, end of period $20.59 $28.34 $23.77 $ 21.88
Total investment return(c) (4.28)% 29.00% 23.82% 17.10%(d)
- ------------------------------------------------------------------------------------------------
Ratios and supplemental data:
Net assets, end of period (in 000s) $5,892 $6,819 $1,152 $ 539
Ratio of net investment loss to average net
assets:
With expense reductions (0.47)% (0.50)% (0.21)% (0.22)%(e)
Without expense reductions (0.48)% (0.53)% (0.25)% (0.28)%(e)
Ratio of expenses to average net assets:
With expense reductions 1.33% 1.27% 1.30% 1.35%(e)
Without expense reductions 1.34% 1.30% 1.34% 1.41%(e)
Portfolio turnover rate(f) 187% 149% 157% 99%(e)
- ------------------------------------------------------------------------------------------------
</TABLE>
(a) Commencing June 1, 1995, the fund began offering Advisor Class shares.
(b) These selected per share data were calculated based upon average shares
outstanding during the period.
(c) Total investment return does not include sales charges.
(d) Not annualized
(e) Annualized
(f) Portfolio turnover rates are calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
6
<PAGE> 215
-------------
THE AIM FUNDS
-------------
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 of the funds advised by the
advisor (the AIM Funds), your financial consultant, on your behalf, must submit
a fully completed new account application form directly to the transfer agent.
You may purchase shares using one of the options below.
PURCHASE OPTIONS
- -
<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 Call the transfer agent to receive
a completed account application to a reference number. Then, use the
the transfer agent. You or your wire instructions at left.
financial 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 #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank
methods described above. Connection(SM) form to the transfer
agent. Once the transfer agent has
received the form, call the
transfer agent to place your
purchase order.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
A- 1 ADV--03/99
<PAGE> 216
-------------
THE AIM FUNDS
-------------
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.
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. TO PROTECT THE INTERESTS OF
INVESTORS, EACH AIM FUND AND THE DISTRIBUTOR MAY REJECT ANY ORDER CONSIDERED
MARKET TIMING ACTIVITY.
REDEEMING SHARES
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.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
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 New York Stock Exchange (NYSE) is open for business in
order to effect the redemption at that day's closing price.
</TABLE>
- --------------------------------------------------------------------------------
ADV--03/99 A- 2
<PAGE> 217
-------------
THE AIM FUNDS
-------------
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
(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.
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. You also may exchange Advisor
Class shares for AIM Cash Reserve shares of AIM Money Market 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:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be qualified for sale in your
state of residence;
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - The AIM Fund from which you are exchanging must have received the full amount
of the purchase price for the shares being exchanged;
- - 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
- - 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
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 New York Stock Exchange (NYSE) is open for business;
however, you still will be
A- 3 ADV--03/99
<PAGE> 218
-------------
THE AIM FUNDS
-------------
allowed to exchange by telephone even if you have changed your address of record
within the preceding 30 days.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. 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 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.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours 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. An AIM Fund may postpone the right of redemption only under unusual
circumstances, as allowed by the Securities and Exchange Commission, such as
when the NYSE restricts or suspends trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund holds
its assets. Different rates of tax apply to ordinary income and long-term
capital gain distributions. Every year, you will be sent information 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, and any gain realized on the
transaction will generally be subject to federal income tax.
The foreign, state, and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
ADV--03/99 A- 4
<PAGE> 219
---------------------------
AIM GLOBAL HEALTH CARE FUND
---------------------------
Obtaining Additional Information
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registration Mark-- or your account, or wish to obtain free copies of the
fund's current SAI or annual or semiannual reports, please contact us
- ---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Distributors, Inc.
11 Greenway Plaza, Suite
100
Houston, TX 77046-1173
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
- ---------------------------------------------------------
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, DC, on the SEC's website
(http://www.sec.gov), or by sending a letter, including a duplicating fee, to
the SEC's Public Reference Section, Washington, DC 20549-6009. Please call the
SEC at 1-800-SEC-0330 for information about the Public Reference Room.
- -------------------------------------
AIM Global Health Care Fund
SEC 1940 Act file number: 811-05426
- -------------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com GHC-PRO-2 INVEST WITH DISCIPLINE
--Registered Trademark--
<PAGE> 220
AIM GLOBAL INFRASTRUCTURE FUND
------------------------------------------------------------------------
AIM Global Infrastructure Fund seeks to provide long-term growth of
capital.
PROSPECTUS
MARCH 1, 1999
This prospectus contains important
information about the Class A, B and
C shares of the fund. Please read it
before investing and keep it for
future reference.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE--Registered
Trademark--
<PAGE> 221
Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE FUND 2
- - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 3
- - - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 3
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
- - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 4
Expense Example 4
FUND MANAGEMENT 5
- - - - - - - - - - - - - - - - - - - - - - - - -
The Advisor 5
Advisor Compensation 5
Portfolio Manager 5
OTHER INFORMATION 5
- - - - - - - - - - - - - - - - - - - - - - - - -
Sales Charges 5
Dividends and Distributions 5
FINANCIAL HIGHLIGHTS 6
- - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - -
Choosing a Share Class A-1
Purchasing Shares A-3
Redeeming Shares A-4
Exchanging Shares A-6
Pricing of Shares A-7
Taxes A-8
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK, AIM Institutional Funds, aimfunds.com, La
Familia AIM de Fondos, La Familia AIM de Fondos and Design and Invest with
Discipline are registered service marks and AIM Bank Connection is a service
mark of A I M Management Group Inc.
No dealer, sales person or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 222
------------------------------
AIM GLOBAL INFRASTRUCTURE FUND
------------------------------
Investment Objective and Strategies
- --------------------------------------------------------------------------------
The fund's investment objective is long-term growth of capital.
The fund seeks to meet this objective by investing all of its investable
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 (1) derives at least 50% of its revenues
or earnings from infrastructure activities; or (2) 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 in equity and
debt securities of other companies the portfolio manager believes will benefit
from developments in the infrastructure industry.
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 invest no 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
substantially in securities denominated in one or more currencies. The portfolio
may invest in companies located in developing countries, i.e., those that are in
the initial stages of their industrial cycles. The portfolio may also invest up
to 20% of its total assets in lower-quality debt securities, i.e., "junk bonds."
The portfolio manager allocates 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 manager 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. The
portfolio manager usually sells 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 instruments or high-quality debt securities. As a result, the fund or the
portfolio may not achieve its investment objective.
If the fund's Board of Trustees determines that it is in the best interests of
the fund and its shareholders, the fund may redeem its investment in the
portfolio.
1
<PAGE> 223
------------------------------
AIM GLOBAL INFRASTRUCTURE FUND
------------------------------
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 prices of equity
securities changes in response to many factors, including the historical and
prospective earnings of the issuer, the value of its assets, general economic
conditions, interest rates, investor perceptions, and market liquidity.
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 industry,
the value of your fund shares may rise and fall more than the value of shares of
a fund that invests more broadly.
The prices of foreign securities may be further affected by other factors,
including:
- - Currency exchange rates--The dollar value of the fund's foreign investments
will be affected by changes in the exchange rates between the dollar and the
currencies in which those investments are traded.
- - Political and economic conditions--The value of the fund's foreign investments
may be adversely affected by political and social instability in their home
countries and by changes in economic or taxation policies in those countries.
- - Regulations--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available information
about foreign companies than about U.S. companies.
- - Markets--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and their prices may be more volatile than U.S. securities.
These factors may affect the prices 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.
The value of your shares could be adversely affected if the computer systems
used by the portfolio's investment advisor and other service providers are
unable to distinguish the year 2000 from the year 1900.
The portfolio's investment advisor and independent technology consultants are
working to avoid year 2000-related problems in its systems and to obtain
assurances that other service providers are taking similar steps. Year 2000
problems may also affect issuers in whose securities the portfolio invests.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
2
<PAGE> 224
------------------------------
AIM GLOBAL INFRASTRUCTURE FUND
------------------------------
Performance Information
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
The following bar chart shows changes in the performance of the fund's Class A
shares from year to year. The bar chart does not reflect sales loads. If it did,
the annual total returns shown would be lower.
[GRAPH]
<TABLE>
<CAPTION>
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURN
- ----------- ------
<S> <C>
1995 ....................................... 6.11
1996 ....................................... 22.56
1997 ....................................... 3.10
1998 ....................................... 4.38
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
14.22% (quarter ended December 31, 1998) and the lowest quarterly return was
(15.23)% (quarter ended September 30, 1998).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(for the periods ended SINCE INCEPTION
December 31, 1998) 1 YEAR INCEPTION DATE
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Class A (0.58)% 7.17% 05/31/94
Class B (1.10) 7.44 05/31/94
Class C -- -- 05/01/99
MSCI AC World Index(1) 21.72 14.98(2) 05/31/94(2)
- -----------------------------------------------------------------------
</TABLE>
(1) The Morgan Stanley Capital International Country World Index measures the
performance of securities listed on the major world stock exchanges of 47
markets, including both developed and emerging markets.
(2) The average annual total return given is since the inception date of the
class with the longest performance history.
3
<PAGE> 225
------------------------------
AIM GLOBAL INFRASTRUCTURE FUND
------------------------------
Fee Table and Expense Example
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from
your investment) CLASS A CLASS B CLASS C
- -------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) 4.75% None None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase
price or redemption
proceeds, whichever is less) None(1) 5.00 1.00
- -------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets)(2) CLASS A CLASS B CLASS C
- -------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.98% 0.98% 0.98%
Distribution and/or
Service (12b-1) Fees 0.50 1.00 1.00
Other Expenses 0.75 0.75 0.75
Total Annual Fund
Operating Expenses 2.23 2.73 2.73
Expense
Reimbursement(3) 0.23 0.23 0.23
Net Expenses 2.00 2.50 2.50
- -------------------------------------------------------
</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) This fee table, and the expense example below, reflect the expenses of both
the fund and the portfolio.
(3) The investment advisor has agreed to limit net expenses through May 31,
2000. The waiver may not be terminated.
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 net 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 $668 $1,073 $1,502 $2,692
Class B 753 1,079 1,531 2,713
Class C 353 779 1,331 2,836
- ----------------------------------------------
</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 $668 $1,073 $1,502 $2,692
Class B 253 779 1,331 2,713
Class C 253 779 1,331 2,836
- ----------------------------------------------
</TABLE>
4
<PAGE> 226
------------------------------
AIM GLOBAL INFRASTRUCTURE FUND
------------------------------
Fund Management
- --------------------------------------------------------------------------------
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the investment advisor 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 provides 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 advisor since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 110
investment portfolios, including the portfolio, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended October 31, 1998, the advisor and Chancellor LGT
Asset Management, Inc., (the advisor for the period November 1, 1997 through May
28, 1998) together received compensation of 0.776% of average daily net assets,
consisting of a management and administrative fee of 0.75% and an accounting
fee of 0.026%.
PORTFOLIO MANAGER
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
- - 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.
Other Information
- --------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM Global Infrastructure Fund are subject to the
maximum 4.75% initial sales charge as listed under the heading "CATEGORY II
Initial Sales Charges" in the "Shareholder Information--Choosing a Share Class"
section of this prospectus. Purchases of Class B and Class C shares are subject
to the contingent deferred sales charges listed in that section.
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS
The fund generally declares and pays dividends, if any, annually.
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.
5
<PAGE> 227
------------------------------
AIM GLOBAL INFRASTRUCTURE FUND
------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
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
---------------------------------------------------
YEAR ENDED OCTOBER 31, MAY 31, TO
------------------------------------- OCTOBER 31,
1998(a) 1997(a) 1996(a) 1995 1994(b)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 15.01 $ 14.42 $ 12.11 $ 12.47 $ 11.43
Income from investment operations:
Net investment income (loss) 0.07(c) (0.01) (0.03) (0.03)(d) 0.01(e)
Net realized and unrealized gain (loss) on
investments (0.79) 1.32 2.34 (0.33) 1.03
Net increase (decrease) from investment
operations (0.72) 1.31 2.31 (0.36) 1.04
Distributions to shareholders:
From net realized gain on investments (0.11) (0.72) -- -- --
Total distributions (0.11) (0.72) -- -- --
Net asset value, end of period $ 14.18 $ 15.01 $ 14.42 $ 12.11 $ 12.47
Total investment return(f) (4.82)% 9.38% 19.08% (2.89)% 9.10%(g)
- -----------------------------------------------------------------------------------------------------
Ratios and supplemental data:
- -----------------------------------------------------------------------------------------------------
Net assets, end of period (in 000s) $23,531 $38,281 $38,397 $36,241 $23,615
Ratio of net investment income (loss) to average
net assets:
With expense reductions and reimbursement 0.52% (0.09)% (0.19)% (0.32)% 0.41%(h)
Without expense reductions and reimbursement 0.28% (0.17)% (0.30)% (0.58)% (0.47)%(h)
Ratio of expenses to average net assets:
With expense reductions and reimbursement 1.99% 2.00% 2.14% 2.36% 2.40%(h)
Without expense reductions and reimbursement 2.23% 2.08% 2.25% 2.62% 3.28%(h)
Portfolio turnover rate(i) 96% 41% 41% 45% 18%
- -----------------------------------------------------------------------------------------------------
</TABLE>
(a) These selected per share data were calculated based upon average shares
outstanding during the period.
(b) The fund commenced operations on May 31, 1994.
(c) Before reimbursement the net investment income per share would have been
reduced by $0.03.
(d) Before reimbursement the net investment income per share would have been
reduced by $0.03.
(e) Before reimbursement the net investment income per share would have been
reduced by $0.02.
(f) Total investment return does not include sales charges.
(g) Not annualized
(h) Annualized
(i) Portfolio turnover rates are calculated on the basis of the portfolio as a
whole without distinguishing between the classes of shares issued.
6
<PAGE> 228
------------------------------
AIM GLOBAL INFRASTRUCTURE FUND
------------------------------
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------------------
MAY 31, 1994 TO
YEAR ENDED OCTOBER 31, OCTOBER 31,
1998(a) 1997(a) 1996(a) 1995 1994(b)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 14.75 $ 14.24 $ 12.03 $ 12.45 $ 11.43
Income from investment operations:
Net investment income (loss) --(c) (0.09) (0.09) (0.09)(d) (0.01)(e)
Net realized and unrealized gain (loss) on
investments (0.77) 1.32 2.30 (0.33) 1.03
Net increase (decrease) from investment
operations (0.77) 1.23 2.21 (0.42) 1.02
Distributions to shareholders:
From net realized gain on investments (0.11) (0.72) -- -- --
Total distributions (0.11) (0.72) -- -- --
Net asset value, end of period $ 13.87 $ 14.75 $ 14.24 $ 12.03 $ 12.45
Total investment return(f) (5.31)% 8.83% 18.37% (3.37)% 8.92%(g)
- -----------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
Net assets, end of period (in 000s) $32,349 $57,199 $53,678 $50,181 $30,954
Ratio of net investment income (loss) to average
net assets:
With expense reductions and reimbursement 0.02% (0.59)% (0.69)% (0.82)% (0.09)%(h)
Without expense reductions and reimbursements (0.22)% (0.67)% (0.80)% (1.08)% (0.97)%(h)
Ratio of expenses to average net assets:
With expense reductions and reimbursement 2.49% 2.50% 2.64% 2.86% 2.90%(h)
Without expense reductions and reimbursement 2.73% 2.58% 2.75% 3.12% 3.78%(h)
Portfolio turnover rate(i) 96% 41% 41% 45% 18%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(a) These selected per share data were calculated based upon average shares
outstanding during the period.
(b) The fund commenced operations on May 31, 1994.
(c) Before reimbursement the net investment income per share would have been
reduced by $0.03.
(d) Before reimbursement the net investment income per share would have been
reduced by $0.03.
(e) Before reimbursement the net investment income per share would have been
reduced by $0.02.
(f) Total investment return does not include sales charges.
(g) Not annualized
(h) Annualized
(i) Portfolio turnover rates are calculated on the basis of the portfolio as a
whole without distinguishing between the classes of shares issued.
7
<PAGE> 229
-------------
THE AIM FUNDS
-------------
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>
- - Initial sales charge - No initial sales charge - No initial sales charge
- - Reduced or waived initial sales - Contingent deferred sales - Contingent deferred sales
charge for certain purchases charge on redemptions within six charge on redemptions within
years one year
- - Lower distribution and service - 12b-1 fee of 1.00% - 12b-1 fee of 1.00%
(12b-1) fee than Class B or
Class C shares (See "Fee Table
and Expense Example")
- Converts to Class A shares - Does not convert to Class A
after eight years along with a shares
pro rata portion of its
reinvested dividends and
distributions*
- - Generally more appropriate for - Purchase orders limited to - Generally more appropriate
long-term investors amounts less than $250,000 for short-term investors
</TABLE>
* AIM Money Market Fund: Class B shares convert to AIM Cash Reserve
Shares.
AIM Global Trends Fund: If you held Class B shares on May 29,
1998 and continue to hold them, those shares will convert to
Class A shares of that fund seven years after your date of
purchase. If you exchange those shares for Class B shares of
another AIM Fund, the shares into which you exchanged will not
convert to Class A shares until eight years after your date of
purchase of the original shares.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12b-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund) has adopted 12b-1 plans
that allow the AIM Fund to pay distribution fees to A I M Distributors, Inc.
(the distributor) for the sale and distribution of its shares and fees for
services provided to shareholders, all or a substantial portion of which are
paid to the dealer of record. Because the AIM Fund pays these fees out of its
assets on an ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
MCF-03/99
A-1
<PAGE> 230
-------------
THE AIM FUNDS
-------------
SALES CHARGES
Generally, you will not pay a sales charge on purchases or redemptions of Class
A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money
Market Fund. You may be charged a contingent deferred sales charge if you redeem
AIM Cash Reserve Shares of AIM Money Market Fund acquired through certain
exchanges. Sales charges on all other AIM Funds and classes of those Funds are
detailed below. As used below, the term "offering price" with respect to all
categories of Class A shares includes the initial sales charge.
INITIAL SALES CHARGES
The AIM Funds are grouped into three categories with respect to initial sales
charges. The "Other Information" section of your prospectus will tell you in
what category your particular AIM Fund is classified.
<TABLE>
<CAPTION>
CATEGORY I INITIAL SALES CHARGES
- --------------------------------
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
- ----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY II INITIAL SALES CHARGES
- ---------------------------------
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
- ----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY III INITIAL SALES CHARGES
- ----------------------------------
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 100,000 1.00% 1.01%
$ 100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
- ----------------------------------------------------------
</TABLE>
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES
You can purchase $1,000,000 or more of Class A shares at net asset value.
However, if you purchase shares of that amount in Categories I or II, they will
be subject to a contingent deferred sales charge (CDSC) of 1% if you redeem them
prior to 18 months after the date of purchase. The distributor may pay a dealer
concession and/or a service fee for purchases of $1,000,000 or more.
CONTINGENT DEFERRED SALES CHARGES FOR
CLASS B AND CLASS C SHARES
You can purchase Class B and Class C shares at their net asset value per share.
However, when you redeem them, they are subject to a CDSC in the following
percentages:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
- ----------------------------------------------------------
<S> <C> <C>
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
- ----------------------------------------------------------
</TABLE>
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you have redeemed shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify
for these reductions or exceptions, you or your financial consultant must
provide sufficient information at the time of purchase to verify that your
purchase qualifies for such treatment.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Rights of Accumulation
You may combine your new purchases of Class A shares with Class A shares
currently owned for the purpose of qualifying for the lower initial sales charge
rates that apply to larger purchases. The applicable initial sales charge for
the new purchase is based on the total of your current purchase and the current
value of all Class A shares you own.
Letters of Intent
Under a Letter of Intent (LOI), you commit to purchase a specified dollar amount
of Class A shares of AIM Funds during a
A-2
<PAGE> 231
-------------
THE AIM FUNDS
-------------
13-month period. The amount you agree to purchase determines the initial sales
charge you pay. If the full face amount of the LOI is not invested by the end of
the 13-month period, your account will be adjusted to the higher initial sales
charge level for the amount actually invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- - on shares purchased by reinvesting dividends and distributions;
- - when exchanging shares among certain AIM Funds;
- - when using the reinstatement privilege; and
- - when a merger, consolidation, or acquisition of assets of an AIM Fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- - if you redeem Class B shares you held for more than six years;
- - if you redeem Class C shares you held for more than one year;
- - if you redeem shares acquired through reinvestment of dividends and
distributions; and
- - on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares
at reduced or without sales charges. Consult the fund's Statement of Additional
Information for details.
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
The minimum investments for AIM Fund accounts (except for investments in AIM
Small Cap Opportunities Fund) are as follows:
<TABLE>
<CAPTION>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing $ 0 ($25 per AIM Fund investment for $25
plans, 401(k) plans, Simplified Employee Pension salary deferrals from Savings Plans)
(SEP) accounts, Salary Reduction (SARSEP)
accounts, Savings Incentive Match Plans for
Employee IRA (Simple IRA) accounts, 403(b) or
457 plans)
Automatic Investment Plans 50 50
IRA, Education IRA or Roth IRA 250 50
All other accounts 500 50
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below.
PURCHASE OPTIONS
- -
<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 Application Mail your check and the remittance
and purchase payment to the slip from your confirmation
transfer agent, statement to the transfer agent.
A I M Fund Services, Inc.,
P.O. Box 4739,
Houston, TX 77210-4739.
By Wire Mail completed Account Application Call the transfer agent to receive
to the transfer agent. Call the a reference number. Then, use the
transfer agent at (800) 959-4246 to wire instructions at left.
receive a reference number. Then,
use the following wire
instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number:
00100366807
Beneficiary Account Name: A I M
Fund Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank
methods described above. Connection(SM) form to the transfer
agent. Once the transfer agent has
received the form, call the
transfer agent to place your
purchase.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
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THE AIM FUNDS
-------------
SPECIAL PLANS
AUTOMATIC INVESTMENT PLAN
You can arrange for periodic investments in any of the AIM Funds by authorizing
the AIM Fund to withdraw the amount of your investment from your bank account on
a day or dates you specify and in an amount of at least $50. You may stop the
Automatic Investment Plan at any time by giving the transfer agent notice ten
days prior to your next scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one AIM Fund account to one or more other AIM Fund
accounts with the identical registration. The account from which exchanges are
to be made must have a minimum balance of $5,000 before you can use this option.
Exchanges will occur on (or about) the 10th or 25th day of the month, whichever
you specify, in the amount you specify. The minimum amount you can exchange to
another AIM Fund is $50.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
AIM Fund at net asset value. Unless you specify otherwise, your dividends and
distributions will automatically be reinvested in the same AIM Fund. You may
invest your dividends and distributions (1) into another AIM Fund in the same
class of shares; or (2) from Class A shares into AIM Cash Reserve Shares of AIM
Money Market Fund, or vice versa.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend must be at
least $5,000; or (b) in the AIM Fund receiving the dividend must be at least
$500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends into
another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this Program, you can designate how the
total value of your AIM Fund holdings should be rebalanced, on a percentage
basis, between two and ten of your AIM Funds on a quarterly, semiannual or
annual basis. Your portfolio will be rebalanced through the exchange of shares
in one or more of your AIM Funds for shares of the same class of one or more
other AIM Funds in your portfolio. If you wish to participate in the Program,
make changes or cancel the Program, the transfer agent must receive your request
to participate, changes or cancellation in good order at least five business
days prior to the next rebalancing date, which is normally the 28th day of the
last month of the period you choose. We may modify, suspend or terminate the
Program at any time on 60 days' prior written notice.
RETIREMENT PLANS
Shares of most of the AIM Funds can be purchased through
tax-sheltered retirement plans made available to corporations, individuals and
employees of non-profit organizations and public schools. A plan document must
be adopted to establish a retirement plan. You may use AIM Funds-sponsored
retirement plans, which include IRAs, Education IRAs, Roth IRAs, 403(b) plans,
401(k) plans, SIMPLE IRA plans, SEP/SARSEP plans and Money Purchase/Profit
Sharing plans, or another sponsor's retirement plan. The plan custodian of the
AIM Funds-sponsored retirement plan assesses an annual maintenance fee of $10.
Contact your financial consultant for details.
REDEEMING SHARES
REDEMPTION FEES
We will not charge you any fees to redeem your shares; however, your broker or
financial consultant may charge service fees for handling these transactions.
Your shares may be subject to a contingent deferred sales charge (CDSC).
REDEMPTION OF AIM CASH RESERVE SHARES OF
AIM MONEY MARKET FUND ACQUIRED BY EXCHANGE
If you redeem AIM Cash Reserve Shares acquired by exchange from Class A shares
subject to a CDSC within 18 months of the purchase of the Class A shares,
you will be charged a CDSC.
REDEMPTION OF CLASS B SHARES ACQUIRED BY
EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM
Floating Rate Fund, the early withdrawal charge applicable to shares of AIM
Floating Rate Fund will be applied instead of the CDSC normally applicable to
Class B shares.
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HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
Consultant
By Mail Send a written request to the transfer agent. Requests must
include (1) original signatures of all registered owners;
(2) the name of the AIM Fund and your account number; (3) if
the transfer agent does not hold your shares, endorsed share
certificates or share certificates accompanied by an
executed stock power; and (4) signature guarantees, if
necessary (see below). The transfer agent may require that
you provide additional information, such as corporate
resolutions or powers of attorney, if applicable. If you are
redeeming from an IRA account, you must include a statement
of whether or not you are at least 59 1/2 years old and
whether you wish to have federal income tax withheld from
your proceeds. The transfer agent may require certain other
information before you can redeem from an employer-sponsored
retirement plan. Contact your employer for details.
By Telephone Call the transfer agent. You will be allowed to redeem by
telephone if (1) the proceeds are to be mailed to the
address on record with us or transferred electronically to a
pre-authorized checking account; (2) the address on record
with us has not been changed within the last 30 days;
(3) you do not hold physical share certificates; (4) you can
provide proper identification information; (5) the proceeds
of the redemption do not exceed $50,000; and (6) you have
not previously declined the telephone redemption privilege.
Certain accounts, including retirement accounts and 403(b)
plans, may not redeem by telephone. The transfer agent must
receive your call during the hours the NYSE is open for
business in order to effect the redemption at that day's
closing price.
</TABLE>
- --------------------------------------------------------------------------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds to the address on record with us.
If your request is not in good order, you may have to provide us with additional
documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
PAYMENT FOR SYSTEMATIC WITHDRAWALS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. You also may make annual withdrawals if you own Class A shares.
We will redeem enough shares from your account to cover the amount withdrawn.
You must have an account balance of at least $5,000 to establish a Systematic
Withdrawal Plan. You can stop this plan at any time by giving ten days prior
notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM Cash Reserve Shares of AIM Money Market Fund only)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of trading
on the 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.
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THE AIM FUNDS
-------------
REINSTATEMENT PRIVILEGE (Class A shares only)
You may, within 90 days after you sell Class A shares (except Class A shares of
AIM Tax-Exempt Cash Fund), reinvest all or part of your redemption proceeds in
Class A shares of any AIM Fund at net asset value in an identically registered
account. If you sold Class A shares of AIM Limited Maturity Treasury Fund or AIM
Tax-Free Intermediate Fund, you will incur an initial sales charge reflecting
the difference between the initial sales charges on those Funds and the ones in
which you will be investing. In addition, if you paid a contingent deferred
sales charge (CDSC) on any reinstated amount, you will not be subject to a CDSC
if you later redeem that amount. You must notify the transfer agent in writing
at the time you reinstate that you are exercising your reinstatement privilege.
You may exercise this privilege only once per year.
REDEMPTIONS BY THE AIM FUNDS
If your account has been open at least one year, you have not made an additional
purchase in the account during the past six calendar months, and the value of
your account falls below $500 for three consecutive months due to redemptions or
exchanges (excluding retirement accounts), the AIM Funds have the right to
redeem the account after giving you 60 days' prior written notice. You may avoid
having your account redeemed during the notice period by bringing the account
value up to $500 or by utilizing the Automatic Investment Plan.
If an AIM Fund determines that you have provided incorrect information in
opening an account or in the course of conducting subsequent transactions, the
AIM Fund may, at its discretion, redeem the account and distribute the proceeds
to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one AIM Fund for those
of another AIM Fund. Before requesting an exchange, review the prospectus of the
AIM Fund you wish to acquire. Exchange privileges also apply to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992.
PERMITTED EXCHANGES
Except as otherwise stated below, you may exchange your shares for shares of the
same class of another AIM Fund. You also may exchange AIM Cash Reserve Shares of
AIM Money Market Fund for Class A shares of another AIM Fund, or vice versa. You
may be required to pay an initial sales charge when exchanging from a Fund with
a lower initial sales charge than the one into which you are exchanging. If you
exchange from Class A shares not subject to a CDSC into Class A shares subject
to those charges, you will be charged a CDSC when you redeem the exchanged
shares. The CDSC charged on redemption of those shares will be calculated
starting on the date you acquired those shares through exchange.
You also may exchange AIM Cash Reserve Shares of AIM Money Market Fund for
Advisor Class shares, but only if you acquired the AIM Cash Reserve Shares
through an exchange from Advisor Class shares.
YOU WILL NOT PAY A SALES CHARGE WHEN EXCHANGING:
(1) Class A shares with an initial sales charge (except for Class A shares of
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
Class A shares of another AIM Fund or AIM Cash Reserve Shares of AIM Money
Market Fund;
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund for
(a) one another;
(b) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of
AIM Tax-Exempt Cash Fund; or
(c) Class A shares of another AIM Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way of
an exchange from shares with higher sales charges;
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) one another;
(b) Class A shares of an AIM Fund subject to an initial sales charge (except
for Class A shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund), but only if you acquired the original
shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to an
initial sales charge;
(ii) on or after May 1, 1994 by exchange from Class A shares subject to
an initial sales charge (except for Class A shares of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund); or
(c) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund, but only if you acquired the original shares by
exchange from Class A shares subject to an initial sales charge; or
(4) Class B shares for other Class B shares, and Class C shares for other Class
C shares.
EXCHANGES NOT PERMITTED
You may not exchange Class A shares subject to contingent deferred sales charges
for Class A shares of AIM Limited Maturity Treasury Fund, AIM Tax-Free
Intermediate Fund or AIM Tax-Exempt Cash Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be qualified for sale in your
state of residence;
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<PAGE> 235
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THE AIM FUNDS
-------------
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - Shares must have been held for at least one day prior to the exchange; and
- - If you have physical share certificates, you must return them to the transfer
agent prior to the exchange.
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.
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. TO PROTECT THE INTERESTS OF
INVESTORS, EACH AIM FUND AND THE DISTRIBUTOR MAY REJECT ANY ORDER CONSIDERED
MARKET-TIMING ACTIVITY.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. AIM Money
Market Fund and AIM Tax-Exempt Cash Fund value all of their securities at
amortized cost. AIM High Income Municipal Fund, AIM Municipal Bond Fund, AIM
Tax-Exempt Bond Fund of Connecticut and AIM Tax-Free Intermediate Fund value
variable rate securities that have an unconditional demand or put feature
exercisable within seven days or less at par, which reflects the market value of
such securities.
The AIM Funds value all other securities and assets at their fair value.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day. In addition, if,
between the time trading ends on a particular security and the close of the 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.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours 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. An AIM Fund may postpone the right of redemption only under unusual
circumstances, as allowed by the Securities and Exchange Commission, such as
when the NYSE restricts or suspends trading.
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THE AIM FUNDS
-------------
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund holds
its assets. Different tax rates apply to ordinary income and long-term capital
gain distributions, regardless of how long you have held your shares. Every
year, you will be sent information showing the amount of dividends and
distributions you received from each AIM Fund during the prior year.
Any long-term or short-term capital gains realized from redemptions of AIM
Fund shares will be subject to federal income tax. Exchanges of shares for
shares of another AIM Fund are treated as a sale, and any gain realized on the
transaction will generally be subject to federal income tax.
The foreign, state and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
A-8
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AIM GLOBAL INFRASTRUCTURE FUND
------------------------------
Obtaining Additional Information
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of Funds
or your account, or wish to obtain free copies of the fund's current SAI or
annual or semiannual reports, please contact us
- ---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Distributors, Inc.
11 Greenway Plaza, Suite
100
Houston, TX 77046-1173
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
- ---------------------------------------------------------
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, DC, on the SEC's website
(http://www.sec.gov), or by sending a letter, including a duplicating fee, to
the SEC's Public Reference Section, Washington, DC 20549-6009. Please call the
SEC at 1-800-SEC-0330 for information about the Public Reference Room.
- -------------------------------------
AIM Global Infrastructure Fund
SEC 1940 Act file number: 811-05426
- -------------------------------------
<TABLE>
<S> <C> <C> <C>
[AIM LOGO APPEARS HERE] www.aimfunds.com GIF-PRO-1 INVEST WITH DISCIPLINE--Registered Trademark--
</TABLE>
<PAGE> 238
AIM GLOBAL
INFRASTRUCTURE FUND
-----------------------------------------------------------------------
Advisor Class
AIM Global Infrastructure Fund seeks to provide long-term growth of
capital.
PROSPECTUS
MARCH 1, 1999
This prospectus contains important
information. Please read it before
investing and keep it for future
reference.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE--Registered Trademark--
<PAGE> 239
Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE
FUND 2
- - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 3
- - - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 3
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
- - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 4
Expense Example 4
FUND MANAGEMENT 5
- - - - - - - - - - - - - - - - - - - - - - - - -
The Advisor 5
Advisor Compensation 5
Portfolio Manager 5
OTHER INFORMATION 5
- - - - - - - - - - - - - - - - - - - - - - - - -
Dividends and Distributions 5
FINANCIAL HIGHLIGHTS 6
- - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - -
Purchasing Shares A-1
Redeeming Shares A-2
Exchanging Shares A-3
Pricing of Shares A-4
Taxes A-4
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK, AIM Institutional Funds, aimfunds.com, La
Familia AIM de Fondos, La Familia AIM de Fondos and Design and Invest with
Discipline are registered service marks and AIM Bank Connection is a service
mark of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 240
------------------------------
AIM GLOBAL INFRASTRUCTURE FUND
------------------------------
Investment Objective and Strategies
- --------------------------------------------------------------------------------
The fund's investment objective is long-term growth of capital.
The fund seeks to meet this objective by investing all of its investable
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 (1) derives at least 50% of its revenues
or earnings from infrastructure activities; or (2) 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 in equity and
debt securities of other companies the portfolio manager believes will benefit
from developments in the infrastructure industry.
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 invest no 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
substantially in securities denominated in one or more currencies. The portfolio
may invest in companies located in developing countries, i.e., those that are in
the initial stages of their industrial cycles. The portfolio may also invest up
to 20% of its total assets in lower-quality debt securities, 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 manager 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. The
portfolio manager usually sells 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 instruments or high-quality debt securities. As a result, the fund or the
portfolio may not achieve its investment objective. If the fund's Board of
Trustees determines that it is in the best interests of the fund and its
shareholders, the fund may redeem its investment in the portfolio.
1
<PAGE> 241
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AIM GLOBAL INFRASTRUCTURE FUND
------------------------------
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 prices of equity
securities changes in response to many factors, including the historical and
prospective earnings of the issuer, the value of its assets, general economic
conditions, interest rates, investor perceptions, and market liquidity.
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 industry,
the value of your fund shares may rise and fall more than the value of shares of
a fund that invests more broadly.
The prices of foreign securities may be further affected by other factors,
including:
- - Currency exchange rates--The dollar value of the fund's foreign investments
will be affected by changes in the exchange rates between the dollar and the
currencies in which those investments are traded.
- - Political and economic conditions--The value of the fund's foreign investments
may be adversely affected by political and social instability in their home
countries and by changes in economic or taxation policies in those countries.
- - Regulations--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available information
about foreign companies than about U.S. companies.
- - Markets--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and their prices may be more volatile than U.S. securities.
These factors may affect the prices 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.
The value of your shares could be adversely affected if the computer systems
used by the portfolio's investment advisor and other service providers are
unable to distinguish the year 2000 from the year 1900.
The portfolio's investment advisor and independent technology consultants are
working to avoid year 2000-related problems in its systems and to obtain
assurances that other service providers are taking similar steps. Year 2000
problems may also affect issuers in whose securities the portfolio invests.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
2
<PAGE> 242
------------------------------
AIM GLOBAL INFRASTRUCTURE FUND
------------------------------
Performance Information
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
The following bar chart shows changes in the performance of the fund's Advisor
Class shares from year to year.
[GRAPH]
<TABLE>
<CAPTION>
YEAR ENDED ANNUAL TOTAL
DECEMBER 31 RETURN
- ----------- ------
<S> <C>
1996 ....................................... 23.13
1997 ....................................... 3.83
1998 ....................................... 4.86
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
14.32% (quarter ended December 31, 1998) and the lowest quarterly return was
(15.14)% (quarter ended September 30, 1998).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(for the periods ended SINCE INCEPTION
December 31, 1998) 1 YEAR INCEPTION DATE
- --------------------------------------------------------
<S> <C> <C> <C>
Advisor Class 4.86% 9.74% 06/01/95
MSCI AC World Index(1) 21.72 16.55(2) 05/31/95(2)
- --------------------------------------------------------
</TABLE>
(1) The Morgan Stanley Capital Investment All Country World Index measures the
performance of securities listed on the major world stock exchanges of 47
markets, including both developed and emerging markets.
(2) The average annual total return given is since the date closest to the
inception date of the Advisor Class.
3
<PAGE> 243
------------------------------
AIM GLOBAL INFRASTRUCTURE FUND
------------------------------
Fee Table and Expense Example
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from
your investment) ADVISOR CLASS
- ---------------------------------------------------
<S> <C> <C>
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
- ---------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets)(1) ADVISOR CLASS
- ---------------------------------------------------
<S> <C> <C>
Management Fees 0.98%
Distribution and/or Service
(12b-1) Fees None
Other Expenses: 0.75
Total Annual Fund Operating
Expenses 1.73
Expense Reimbursement(2) 0.23
Net Expenses 1.50
- ---------------------------------------------------
</TABLE>
(1) This fee table, and the expense example below, reflect the expenses of both
the fund and the portfolio.
(2) The investment advisor has agreed to limit net expenses through May 31,
2000. The waiver may not be terminated.
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 net 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 $153 $474 $818 $1,791
- ----------------------------------------------------
</TABLE>
4
<PAGE> 244
------------------------------
AIM GLOBAL INFRASTRUCTURE FUND
------------------------------
Fund Management
- --------------------------------------------------------------------------------
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the investment advisor 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 provides 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 advisor since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 110
investment portfolios, including the portfolio, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended October 31, 1998, the advisor and Chancellor LGT
Asset Management, Inc., (the advisor for the period November 1, 1997 through May
28, 1998) together received compensation of 0.776% of average daily net assets,
consisting of a management and administrative fee of 0.75% and an accounting fee
of 0.026%.
PORTFOLIO MANAGER
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
- - 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.
Other Information
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS
The fund generally declares and pays dividends, if any, annually.
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.
5
<PAGE> 245
------------------------------
AIM GLOBAL INFRASTRUCTURE FUND
------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
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(a)
----------------------------------------------
YEAR ENDED OCTOBER 31, JUNE 1, 1995
--------------------------- TO
1998(b) 1997(b) 1996(b) OCTOBER 31, 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $15.23 $14.52 $12.14 $ 12.00
Income from investment operations:
Net investment income (loss) 0.16(c) 0.05 0.04 0.02(d)
Net realized and unrealized gain (loss) on
investments (0.82) 1.38 2.34 0.12
Net increase (decrease) from investment
operations (0.66) 1.43 2.38 0.14
Distributions to shareholders:
From net realized gains on investments (0.11) (0.72) -- --
Total distributions (0.11) (0.72) -- --
Net asset value, end of period $14.46 $15.23 $14.52 $ 12.14
Total investment return(e) (4.35)% 10.10% 19.60% 1.17%(f)
- ------------------------------------------------------------------------------------------------
Ratios and supplemental data:
Net assets, end of period (in 000s) $6,997 $2,539 $ 344 $ 216
Ratio of net investment income (loss) to average
net assets:
With expense reductions and reimbursement 1.02% 0.41% 0.31% 0.18%(g)
Without expense reductions and reimbursement 0.78% 0.33% 0.20% (0.08)%(g)
Ratio of expenses to average net assets:
With expense reductions and reimbursement 1.49% 1.50% 1.64% 1.86%(g)
Without expense reductions and reimbursement 1.73% 1.58% 1.75% 2.12%(g)
Portfolio turnover rate(h) 96% 41% 41% 45%
- ------------------------------------------------------------------------------------------------
</TABLE>
(a)Commencing June 1, 1995, the fund began offering Advisor Class shares.
(b)These selected per share data were calculated based upon average shares
outstanding during the period.
(c)Before reimbursement the net investment income per share would have been
reduced by $0.04.
(d)Before reimbursement the net investment income per share would have been
reduced by $0.02.
(e)Total investment return does not include sales charges.
(f)Not annualized
(g)Annualized
(h)Portfolio turnover rates are calculated on the basis of the portfolio as a
whole without distinguishing between the classes of shares issued.
6
<PAGE> 246
-------------
THE AIM FUNDS
-------------
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 of the funds advised by the
advisor (the AIM Funds), your financial consultant, on your behalf, must submit
a fully completed new account application form directly to the transfer agent.
You may purchase shares using one of the options below.
PURCHASE OPTIONS
- -
<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 Call the transfer agent to receive
a completed account application to a reference number. Then, use the
the transfer agent. You or your wire instructions at left.
financial 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 #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank
methods described above. Connection(SM) form to the transfer
agent. Once the transfer agent has
received the form, call the
transfer agent to place your
purchase order.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
A- 1 ADV--03/99
<PAGE> 247
-------------
THE AIM FUNDS
-------------
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.
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. TO PROTECT THE INTERESTS OF
INVESTORS, EACH AIM FUND AND THE DISTRIBUTOR MAY REJECT ANY ORDER CONSIDERED
MARKET TIMING ACTIVITY.
REDEEMING SHARES
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.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
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 New York Stock Exchange (NYSE) is open for business in
order to effect the redemption at that day's closing price.
</TABLE>
- --------------------------------------------------------------------------------
ADV--03/99 A- 2
<PAGE> 248
-------------
THE AIM FUNDS
-------------
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
(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.
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. You also may exchange Advisor
Class shares for AIM Cash Reserve shares of AIM Money Market 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:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be qualified for sale in your
state of residence;
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - The AIM Fund from which you are exchanging must have received the full amount
of the purchase price for the shares being exchanged;
- - 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
- - 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
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 New York Stock Exchange (NYSE) is open for business;
however, you still will be
A- 3 ADV--03/99
<PAGE> 249
-------------
THE AIM FUNDS
-------------
allowed to exchange by telephone even if you have changed your address of record
within the preceding 30 days.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. 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 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.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours 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. An AIM Fund may postpone the right of redemption only under unusual
circumstances, as allowed by the Securities and Exchange Commission, such as
when the NYSE restricts or suspends trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund holds
its assets. Different rates of tax apply to ordinary income and long-term
capital gain distributions. Every year, you will be sent information 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, and any gain realized on the
transaction will generally be subject to federal income tax.
The foreign, state, and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
ADV--03/99 A- 4
<PAGE> 250
------------------------------
AIM GLOBAL INFRASTRUCTURE FUND
------------------------------
Obtaining Additional Information
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us
- ---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Distributors, Inc.
11 Greenway Plaza, Suite
100
Houston, TX 77046-1173
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
- ---------------------------------------------------------
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, DC, on the SEC's website
(http://www.sec.gov), or by sending a letter, including a duplicating fee, to
the SEC's Public Reference Section, Washington, DC 20549-6009. Please call the
SEC at 1-800-SEC-0330 for information about the Public Reference Room.
- ------------------------------------
AIM Global Infrastructure Fund
SEC 1940 Act file number: 811-05426
- ------------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com
GIF-PRO-2 INVEST WITH DISCIPLINE--Registered Trademark--
<PAGE> 251
AIM GLOBAL RESOURCES FUND
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
AIM Global Resources Fund seeks to provide long-term growth of capital.
PROSPECTUS
MARCH 1, 1999
This prospectus contains important
information about the Class A, B and
C shares of the fund. Please read it
before investing and keep it for
future reference.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE--Registered
Trademark--
<PAGE> 252
Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE
FUND 2
- - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 3
- - - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 3
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
- - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 4
Expense Example 4
FUND MANAGEMENT 5
- - - - - - - - - - - - - - - - - - - - - - - - -
The Advisor 5
Advisor Compensation 5
Portfolio Manager 5
OTHER INFORMATION 5
- - - - - - - - - - - - - - - - - - - - - - - - -
Sales Charges 5
Dividends and Distributions 5
FINANCIAL HIGHLIGHTS 6
- - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - -
Choosing a Share Class A-1
Purchasing Shares A-3
Redeeming Shares A-4
Exchanging Shares A-6
Pricing of Shares A-7
Taxes A-8
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK, AIM Institutional Funds, aimfunds.com, La
Familia AIM de Fondos, La Familia AIM de Fondos and Design and Invest with
Discipline are registered service marks and AIM Bank Connection is a service
mark of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 253
-------------------------
AIM GLOBAL RESOURCES FUND
-------------------------
Investment Objective and Strategies
- --------------------------------------------------------------------------------
The fund's investment objective is long-term growth of capital.
The fund seeks to meet this 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 (1) derives at least 50% of its revenues or earnings from
natural resource activities; or (2) 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 in
equity and debt securities of other companies the portfolio manager believes
will benefit from developments in the natural resources industry.
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 invest no 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 in
companies located in developing countries, i.e., those that are in the initial
stages of their industrial cycles. 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 lower-quality debt securities, i.e., "junk bonds."
The portfolio manager allocates 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 manager 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. The
portfolio manager usually sells 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 instruments, or high-quality 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.
If the fund's Board of Trustees determines that it is in the best interests of
the fund and its shareholders, the fund may redeem its investment in the
portfolio.
1
<PAGE> 254
-------------------------
AIM GLOBAL RESOURCES FUND
-------------------------
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 prices of equity
securities change in response to many factors including the historical and
prospective earnings of the issuer, the value of its assets, general economic
conditions, interest rates, investor perceptions, and market liquidity.
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 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
industry, the value of your fund shares may rise and fall more than the value of
shares of a fund that invests more broadly.
The prices of foreign securities may be further affected by other factors,
including:
- - Currency exchange rates--The dollar value of the fund's foreign investments
will be affected by changes in the exchange rates between the dollar and the
currencies in which those investments are traded.
- - Political and economic conditions--The value of the fund's foreign investments
may be adversely affected by political and social instability in their home
countries and by changes in economic or taxation policies in those countries.
- - Regulations--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available information
about foreign companies than about U.S. companies.
- - Markets--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and their prices may be more volatile than U.S. securities.
The value of your shares could be adversely affected if the computer systems
used by the portfolio's investment advisor and other service providers are
unable to distinguish the year 2000 from the year 1900.
The portfolio's investment advisor and independent technology consultants are
working to avoid year 2000-related problems in its systems and to obtain
assurances that other service providers are taking similar steps. Year 2000
problems may also affect issuers in whose securities the portfolio invests.
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.
2
<PAGE> 255
-------------------------
AIM GLOBAL RESOURCES FUND
-------------------------
Performance Information
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
The following bar chart shows changes in the performance of the fund's Class A
shares from year to year. The bar chart does not reflect sales loads. If it did,
the annual total returns shown would be lower.
[GRAPH]
<TABLE>
<CAPTION>
YEAR ENDED ANNUAL TOTAL
DECEMBER 31 RETURN
- ----------- ------
<S> <C>
1995 ....................................... 7.05
1996 ....................................... 47.19
1997 ....................................... -1.51
1998 ....................................... -34.31
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
31.87% (quarter ended September 30, 1997) and the lowest quarterly return was
(21.61)% (quarter ended September 30, 1998).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(for the periods ended SINCE INCEPTION
December 31, 1998) 1 YEAR INCEPTION DATE
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Class A (37.42)% (0.26)% 05/31/94
Class B (37.92) (0.12) 05/31/94
Class C -- -- 03/01/99
MSCI World Index(1) 21.72 14.98 05/31/94(2)
- ----------------------------------------------------------------------------
</TABLE>
(1) The Morgan Stanley Capital International All Country World Index is a market
value-weighted average of the performance of securities listed on the major
world stock exchanges of 47 markets, including both developed and emerging
markets.
(2) The average annual total return given is since the date closest to the
inception date of the class with the longest performance history.
3
<PAGE> 256
-------------------------
AIM GLOBAL RESOURCES FUND
-------------------------
Fee Table and Expense Example
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from
your investment) CLASS A CLASS B CLASS C
- -------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) 4.75% None None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase
price or redemption
proceeds, whichever
is less) None(1) 5.00 1.00
- -------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets)(2) CLASS A CLASS B CLASS C
- -------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees 0.98% 0.98% 0.98%
Distribution and/or
Service (12b-1) Fees 0.50 1.00 1.00
Other Expenses 0.81 0.81 0.81
Total Annual Fund
Operating Expenses 2.29 2.79 2.79
Expense
Reimbursement(3) 0.29 0.29 0.29
Net Expenses 2.00 2.50 2.50
- -------------------------------------------------------
</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) This fee table, and the expense example below, reflect the expenses of both
the fund and the portfolio.
(3) The investment advisor has agreed to limit net expenses through May 31,
2000. The waiver may not be terminated.
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 net 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 $668 $1,073 $1,502 $2,692
Class B 753 1,079 1,531 2,713
Class C 353 779 1,331 2,836
- ----------------------------------------------
</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 $668 $1,073 $1,502 $2,692
Class B 253 779 1,331 2,713
Class C 253 779 1,331 2,836
- ----------------------------------------------
</TABLE>
4
<PAGE> 257
-------------------------
AIM GLOBAL RESOURCES FUND
-------------------------
Fund Management
- --------------------------------------------------------------------------------
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the investment advisor 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 provides 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 advisor since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 110
investment portfolios, including the portfolio, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended October 31, 1998, the advisor and Chancellor LGT
Asset Management, Inc., (the advisor for the period November 1, 1997 through
May 28, 1998) together received compensation of 0.716% of average daily net
assets, consisting of a management and administrative fee of 0.69% and an
accounting fee of 0.026%.
PORTFOLIO MANAGER
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
- - 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.
Other Information
- --------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM Global Resources Fund are subject to the
maximum 4.75% initial sales charge as listed under the heading "CATEGORY II
Initial Sales Charges" in the "Shareholder Information--Choosing a Share Class"
section of this prospectus. Purchases of Class B and Class C shares are subject
to the contingent deferred sales charges listed in that section.
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS
The fund generally declares and pays dividends, if any, annually.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains (including
any net gains from foreign currency transactions), if any, annually.
5
<PAGE> 258
-------------------------
AIM GLOBAL RESOURCES FUND
-------------------------
Financial Highlights
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
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
-------------------------------------------------------
YEAR ENDED OCTOBER 31, MAY 31, TO
----------------------------------------- OCTOBER 31,
1998(a) 1997(a) 1996(a) 1995 1994(b)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 20.65 $ 17.43 $ 11.44 $ 12.41 $ 11.43
Income from investment operations:
Net investment income (loss) (0.11)(c) (0.25) (0.24) (0.04)(d) 0.06(e)
Net realized and unrealized gain (loss) on
investments (8.91) 4.08 6.28 (0.98) 0.92
Net increase (decrease) from investment
operations (9.02) 3.83 6.04 (0.94) 0.98
Distributions to shareholders:
From net investment income (0.19) -- (0.04) (0.03) --
From net realized gain on investments (0.49) (0.61) (0.01) -- --
Total distributions (0.68) (0.61) (0.05) (0.03) --
Net asset value, end of period $ 10.95 $ 20.65 $ 17.43 $ 11.44 $ 12.41
Total investment return(f) (45.02)% 22.64% 53.04% (7.58)% 8.57%(g)
- ---------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
Net assets, end of period (in 000s) $ 19,463 $ 69,975 $ 48,729 $ 12,598 $14,797
Ratio of net investment income (loss) to average
net assets:
With expense reductions and/or reimbursement (0.75)% (1.41)% (1.55)% 0.41% 2.63%(h)
Without expense reductions and/or
reimbursement (1.06)% (1.51)% (1.65)% (0.69)% 0.65%(h)
Ratio of expenses to average net assets:
With expense reductions and/or reimbursement 1.98% 2.03% 2.20% 2.37% 2.40%(h)
Without expense reductions and/or
reimbursement 2.29% 2.13% 2.30% 3.47% 4.38%(h)
Portfolio turnover rate(i) 201% 321% 94% 87% 137%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(a) These selected per share data were calculated based upon average shares
outstanding during the period.
(b) The fund commenced operations on May 31, 1994.
(c) Before reimbursement the net investment loss per share would have been
increased by $0.04.
(d) Before reimbursement the net investment income (loss) per share would have
been reduced (increased) by $0.14.
(e) Before reimbursement the net investment income per share would have been
reduced by $0.04.
(f) Total investment return does not include sales charges.
(g) Not annualized
(h) Annualized
(i) Portfolio turnover rates are calculated on the basis of the portfolio as a
whole without distinguishing between the classes of shares issued.
6
<PAGE> 259
-------------------------
AIM GLOBAL RESOURCES FUND
-------------------------
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------------
YEAR ENDED OCTOBER 31, MAY 31, TO
----------------------------------------- OCTOBER 31,
1998(a) 1997(a) 1996(a) 1995 1994(b)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 20.37 $ 17.29 $ 11.36 $ 12.38 $ 11.43
Income from investment operations:
Net investment income (loss) (0.18)(c) (0.33) (0.31) (0.02)(d) 0.03(e)
Net realized and unrealized gain (loss) on
investments (8.76) 4.02 6.25 (0.98) 0.92
Net increase (decrease) from investment
operations (8.94) 3.69 5.94 (1.00) 0.95
Distributions to shareholders:
From net investment income (0.19) -- -- (0.02) --
From net realized gain on investments (0.49) (0.61) (0.01) -- --
Total distributions (0.68) (0.61) (0.01) (0.02) --
Net asset value, end of period $ 10.75 $ 20.37 $ 17.29 $ 11.36 $ 12.38
Total investment return(f) (45.25)% 21.99% 52.39% (8.05)% 8.31%(g)
- ---------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
Net assets, end of period (in 000s) $ 28,996 $ 86,812 $ 57,749 $ 13,978 $13,404
Ratio of net investment income (loss) to average
net assets:
With expense reductions and/or reimbursement (1.25)% (1.91)% (2.05)% (0.09)% 2.13%(h)
Without expense reductions and/or
reimbursement (1.56)% (2.01)% (2.15)% (1.19)% 0.15%(h)
Ratio of expenses to average net assets:
With expense reductions and/or reimbursement 2.48% 2.53% 2.70% 2.87% 2.90%(h)
Without expense reductions and/or
reimbursement 2.79% 2.63% 2.80% 3.97% 4.88%(h)
Portfolio turnover rate(i) 201% 321% 94% 87% 137%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(a) These selected per share data were calculated based upon average shares
outstanding during the period.
(b) The fund commenced operations on May 31, 1994.
(c) Before reimbursement the net investment loss per share would have been
increased by $0.04.
(d) Before reimbursement the net investment income (loss) per share would have
been reduced (increased) by $0.13.
(e) Before reimbursement the net investment income per share would have been
reduced by $0.04.
(f) Total investment return does not include sales charges.
(g) Not annualized.
(h) Annualized.
(i) Portfolio turnover rates are calculated on the basis of the portfolio as a
whole without distinguishing between the classes of shares issued.
7
<PAGE> 260
-------------
THE AIM FUNDS
-------------
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>
- - Initial sales charge - No initial sales charge - No initial sales charge
- - Reduced or waived initial sales - Contingent deferred sales - Contingent deferred sales
charge for certain purchases charge on redemptions within six charge on redemptions within
years one year
- - Lower distribution and service - 12b-1 fee of 1.00% - 12b-1 fee of 1.00%
(12b-1) fee than Class B or
Class C shares (See "Fee Table
and Expense Example")
- Converts to Class A shares - Does not convert to Class A
after eight years along with a shares
pro rata portion of its
reinvested dividends and
distributions*
- - Generally more appropriate for - Purchase orders limited to - Generally more appropriate
long-term investors amounts less than $250,000 for short-term investors
</TABLE>
* AIM Money Market Fund: Class B shares convert to AIM Cash Reserve
Shares.
AIM Global Trends Fund: If you held Class B shares on May 29,
1998 and continue to hold them, those shares will convert to
Class A shares of that fund seven years after your date of
purchase. If you exchange those shares for Class B shares of
another AIM Fund, the shares into which you exchanged will not
convert to Class A shares until eight years after your date of
purchase of the original shares.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12b-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund) has adopted 12b-1 plans
that allow the AIM Fund to pay distribution fees to A I M Distributors, Inc.
(the distributor) for the sale and distribution of its shares and fees for
services provided to shareholders, all or a substantial portion of which are
paid to the dealer of record. Because the AIM Fund pays these fees out of its
assets on an ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
MCF-03/99
A-1
<PAGE> 261
-------------
THE AIM FUNDS
-------------
SALES CHARGES
Generally, you will not pay a sales charge on purchases or redemptions of Class
A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money
Market Fund. You may be charged a contingent deferred sales charge if you redeem
AIM Cash Reserve Shares of AIM Money Market Fund acquired through certain
exchanges. Sales charges on all other AIM Funds and classes of those Funds are
detailed below. As used below, the term "offering price" with respect to all
categories of Class A shares includes the initial sales charge.
INITIAL SALES CHARGES
The AIM Funds are grouped into three categories with respect to initial sales
charges. The "Other Information" section of your prospectus will tell you in
what category your particular AIM Fund is classified.
<TABLE>
<CAPTION>
CATEGORY I INITIAL SALES CHARGES
- --------------------------------
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
- ----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY II INITIAL SALES CHARGES
- ---------------------------------
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
- ----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY III INITIAL SALES CHARGES
- ----------------------------------
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 100,000 1.00% 1.01%
$ 100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
- ----------------------------------------------------------
</TABLE>
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES
You can purchase $1,000,000 or more of Class A shares at net asset value.
However, if you purchase shares of that amount in Categories I or II, they will
be subject to a contingent deferred sales charge (CDSC) of 1% if you redeem them
prior to 18 months after the date of purchase. The distributor may pay a dealer
concession and/or a service fee for purchases of $1,000,000 or more.
CONTINGENT DEFERRED SALES CHARGES FOR
CLASS B AND CLASS C SHARES
You can purchase Class B and Class C shares at their net asset value per share.
However, when you redeem them, they are subject to a CDSC in the following
percentages:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
- ----------------------------------------------------------
<S> <C> <C>
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
- ----------------------------------------------------------
</TABLE>
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you have redeemed shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify
for these reductions or exceptions, you or your financial consultant must
provide sufficient information at the time of purchase to verify that your
purchase qualifies for such treatment.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Rights of Accumulation
You may combine your new purchases of Class A shares with Class A shares
currently owned for the purpose of qualifying for the lower initial sales charge
rates that apply to larger purchases. The applicable initial sales charge for
the new purchase is based on the total of your current purchase and the current
value of all Class A shares you own.
Letters of Intent
Under a Letter of Intent (LOI), you commit to purchase a specified dollar amount
of Class A shares of AIM Funds during a
A-2
<PAGE> 262
-------------
THE AIM FUNDS
-------------
13-month period. The amount you agree to purchase determines the initial sales
charge you pay. If the full face amount of the LOI is not invested by the end of
the 13-month period, your account will be adjusted to the higher initial sales
charge level for the amount actually invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- - on shares purchased by reinvesting dividends and distributions;
- - when exchanging shares among certain AIM Funds;
- - when using the reinstatement privilege; and
- - when a merger, consolidation, or acquisition of assets of an AIM Fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- - if you redeem Class B shares you held for more than six years;
- - if you redeem Class C shares you held for more than one year;
- - if you redeem shares acquired through reinvestment of dividends and
distributions; and
- - on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares
at reduced or without sales charges. Consult the fund's Statement of Additional
Information for details.
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
The minimum investments for AIM Fund accounts (except for investments in AIM
Small Cap Opportunities Fund) are as follows:
<TABLE>
<CAPTION>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing $ 0 ($25 per AIM Fund investment for $25
plans, 401(k) plans, Simplified Employee Pension salary deferrals from Savings Plans)
(SEP) accounts, Salary Reduction (SARSEP)
accounts, Savings Incentive Match Plans for
Employee IRA (Simple IRA) accounts, 403(b) or
457 plans)
Automatic Investment Plans 50 50
IRA, Education IRA or Roth IRA 250 50
All other accounts 500 50
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below.
PURCHASE OPTIONS
- -
<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 Application Mail your check and the remittance
and purchase payment to the slip from your confirmation
transfer agent, statement to the transfer agent.
A I M Fund Services, Inc.,
P.O. Box 4739,
Houston, TX 77210-4739.
By Wire Mail completed Account Application Call the transfer agent to receive
to the transfer agent. Call the a reference number. Then, use the
transfer agent at (800) 959-4246 to wire instructions at left.
receive a reference number. Then,
use the following wire
instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number:
00100366807
Beneficiary Account Name: A I M
Fund Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank
methods described above. Connection(SM) form to the transfer
agent. Once the transfer agent has
received the form, call the
transfer agent to place your
purchase.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
A-3
<PAGE> 263
-------------
THE AIM FUNDS
-------------
SPECIAL PLANS
AUTOMATIC INVESTMENT PLAN
You can arrange for periodic investments in any of the AIM Funds by authorizing
the AIM Fund to withdraw the amount of your investment from your bank account on
a day or dates you specify and in an amount of at least $50. You may stop the
Automatic Investment Plan at any time by giving the transfer agent notice ten
days prior to your next scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one AIM Fund account to one or more other AIM Fund
accounts with the identical registration. The account from which exchanges are
to be made must have a minimum balance of $5,000 before you can use this option.
Exchanges will occur on (or about) the 10th or 25th day of the month, whichever
you specify, in the amount you specify. The minimum amount you can exchange to
another AIM Fund is $50.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
AIM Fund at net asset value. Unless you specify otherwise, your dividends and
distributions will automatically be reinvested in the same AIM Fund. You may
invest your dividends and distributions (1) into another AIM Fund in the same
class of shares; or (2) from Class A shares into AIM Cash Reserve Shares of AIM
Money Market Fund, or vice versa.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend must be at
least $5,000; or (b) in the AIM Fund receiving the dividend must be at least
$500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends into
another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this Program, you can designate how the
total value of your AIM Fund holdings should be rebalanced, on a percentage
basis, between two and ten of your AIM Funds on a quarterly, semiannual or
annual basis. Your portfolio will be rebalanced through the exchange of shares
in one or more of your AIM Funds for shares of the same class of one or more
other AIM Funds in your portfolio. If you wish to participate in the Program,
make changes or cancel the Program, the transfer agent must receive your request
to participate, changes or cancellation in good order at least five business
days prior to the next rebalancing date, which is normally the 28th day of the
last month of the period you choose. We may modify, suspend or terminate the
Program at any time on 60 days' prior written notice.
RETIREMENT PLANS
Shares of most of the AIM Funds can be purchased through
tax-sheltered retirement plans made available to corporations, individuals and
employees of non-profit organizations and public schools. A plan document must
be adopted to establish a retirement plan. You may use AIM Funds-sponsored
retirement plans, which include IRAs, Education IRAs, Roth IRAs, 403(b) plans,
401(k) plans, SIMPLE IRA plans, SEP/SARSEP plans and Money Purchase/Profit
Sharing plans, or another sponsor's retirement plan. The plan custodian of the
AIM Funds-sponsored retirement plan assesses an annual maintenance fee of $10.
Contact your financial consultant for details.
REDEEMING SHARES
REDEMPTION FEES
We will not charge you any fees to redeem your shares; however, your broker or
financial consultant may charge service fees for handling these transactions.
Your shares may be subject to a contingent deferred sales charge (CDSC).
REDEMPTION OF AIM CASH RESERVE SHARES OF
AIM MONEY MARKET FUND ACQUIRED BY EXCHANGE
If you redeem AIM Cash Reserve Shares acquired by exchange from Class A shares
subject to a CDSC within 18 months of the purchase of the Class A shares,
you will be charged a CDSC.
REDEMPTION OF CLASS B SHARES ACQUIRED BY
EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM
Floating Rate Fund, the early withdrawal charge applicable to shares of AIM
Floating Rate Fund will be applied instead of the CDSC normally applicable to
Class B shares.
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HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
Consultant
By Mail Send a written request to the transfer agent. Requests must
include (1) original signatures of all registered owners;
(2) the name of the AIM Fund and your account number; (3) if
the transfer agent does not hold your shares, endorsed share
certificates or share certificates accompanied by an
executed stock power; and (4) signature guarantees, if
necessary (see below). The transfer agent may require that
you provide additional information, such as corporate
resolutions or powers of attorney, if applicable. If you are
redeeming from an IRA account, you must include a statement
of whether or not you are at least 59 1/2 years old and
whether you wish to have federal income tax withheld from
your proceeds. The transfer agent may require certain other
information before you can redeem from an employer-sponsored
retirement plan. Contact your employer for details.
By Telephone Call the transfer agent. You will be allowed to redeem by
telephone if (1) the proceeds are to be mailed to the
address on record with us or transferred electronically to a
pre-authorized checking account; (2) the address on record
with us has not been changed within the last 30 days;
(3) you do not hold physical share certificates; (4) you can
provide proper identification information; (5) the proceeds
of the redemption do not exceed $50,000; and (6) you have
not previously declined the telephone redemption privilege.
Certain accounts, including retirement accounts and 403(b)
plans, may not redeem by telephone. The transfer agent must
receive your call during the hours the NYSE is open for
business in order to effect the redemption at that day's
closing price.
</TABLE>
- --------------------------------------------------------------------------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds to the address on record with us.
If your request is not in good order, you may have to provide us with additional
documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
PAYMENT FOR SYSTEMATIC WITHDRAWALS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. You also may make annual withdrawals if you own Class A shares.
We will redeem enough shares from your account to cover the amount withdrawn.
You must have an account balance of at least $5,000 to establish a Systematic
Withdrawal Plan. You can stop this plan at any time by giving ten days prior
notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM Cash Reserve Shares of AIM Money Market Fund only)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of trading
on the 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.
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THE AIM FUNDS
-------------
REINSTATEMENT PRIVILEGE (Class A shares only)
You may, within 90 days after you sell Class A shares (except Class A shares of
AIM Tax-Exempt Cash Fund), reinvest all or part of your redemption proceeds in
Class A shares of any AIM Fund at net asset value in an identically registered
account. If you sold Class A shares of AIM Limited Maturity Treasury Fund or AIM
Tax-Free Intermediate Fund, you will incur an initial sales charge reflecting
the difference between the initial sales charges on those Funds and the ones in
which you will be investing. In addition, if you paid a contingent deferred
sales charge (CDSC) on any reinstated amount, you will not be subject to a CDSC
if you later redeem that amount. You must notify the transfer agent in writing
at the time you reinstate that you are exercising your reinstatement privilege.
You may exercise this privilege only once per year.
REDEMPTIONS BY THE AIM FUNDS
If your account has been open at least one year, you have not made an additional
purchase in the account during the past six calendar months, and the value of
your account falls below $500 for three consecutive months due to redemptions or
exchanges (excluding retirement accounts), the AIM Funds have the right to
redeem the account after giving you 60 days' prior written notice. You may avoid
having your account redeemed during the notice period by bringing the account
value up to $500 or by utilizing the Automatic Investment Plan.
If an AIM Fund determines that you have provided incorrect information in
opening an account or in the course of conducting subsequent transactions, the
AIM Fund may, at its discretion, redeem the account and distribute the proceeds
to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one AIM Fund for those
of another AIM Fund. Before requesting an exchange, review the prospectus of the
AIM Fund you wish to acquire. Exchange privileges also apply to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992.
PERMITTED EXCHANGES
Except as otherwise stated below, you may exchange your shares for shares of the
same class of another AIM Fund. You also may exchange AIM Cash Reserve Shares of
AIM Money Market Fund for Class A shares of another AIM Fund, or vice versa. You
may be required to pay an initial sales charge when exchanging from a Fund with
a lower initial sales charge than the one into which you are exchanging. If you
exchange from Class A shares not subject to a CDSC into Class A shares subject
to those charges, you will be charged a CDSC when you redeem the exchanged
shares. The CDSC charged on redemption of those shares will be calculated
starting on the date you acquired those shares through exchange.
You also may exchange AIM Cash Reserve Shares of AIM Money Market Fund for
Advisor Class shares, but only if you acquired the AIM Cash Reserve Shares
through an exchange from Advisor Class shares.
YOU WILL NOT PAY A SALES CHARGE WHEN EXCHANGING:
(1) Class A shares with an initial sales charge (except for Class A shares of
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
Class A shares of another AIM Fund or AIM Cash Reserve Shares of AIM Money
Market Fund;
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund for
(a) one another;
(b) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of
AIM Tax-Exempt Cash Fund; or
(c) Class A shares of another AIM Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way of
an exchange from shares with higher sales charges;
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) one another;
(b) Class A shares of an AIM Fund subject to an initial sales charge (except
for Class A shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund), but only if you acquired the original
shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to an
initial sales charge;
(ii) on or after May 1, 1994 by exchange from Class A shares subject to
an initial sales charge (except for Class A shares of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund); or
(c) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund, but only if you acquired the original shares by
exchange from Class A shares subject to an initial sales charge; or
(4) Class B shares for other Class B shares, and Class C shares for other Class
C shares.
EXCHANGES NOT PERMITTED
You may not exchange Class A shares subject to contingent deferred sales charges
for Class A shares of AIM Limited Maturity Treasury Fund, AIM Tax-Free
Intermediate Fund or AIM Tax-Exempt Cash Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be qualified for sale in your
state of residence;
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THE AIM FUNDS
-------------
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - Shares must have been held for at least one day prior to the exchange; and
- - If you have physical share certificates, you must return them to the transfer
agent prior to the exchange.
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.
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. TO PROTECT THE INTERESTS OF
INVESTORS, EACH AIM FUND AND THE DISTRIBUTOR MAY REJECT ANY ORDER CONSIDERED
MARKET-TIMING ACTIVITY.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. AIM Money
Market Fund and AIM Tax-Exempt Cash Fund value all of their securities at
amortized cost. AIM High Income Municipal Fund, AIM Municipal Bond Fund, AIM
Tax-Exempt Bond Fund of Connecticut and AIM Tax-Free Intermediate Fund value
variable rate securities that have an unconditional demand or put feature
exercisable within seven days or less at par, which reflects the market value of
such securities.
The AIM Funds value all other securities and assets at their fair value.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day. In addition, if,
between the time trading ends on a particular security and the close of the 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.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours 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. An AIM Fund may postpone the right of redemption only under unusual
circumstances, as allowed by the Securities and Exchange Commission, such as
when the NYSE restricts or suspends trading.
A-7
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THE AIM FUNDS
-------------
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund holds
its assets. Different tax rates apply to ordinary income and long-term capital
gain distributions, regardless of how long you have held your shares. Every
year, you will be sent information showing the amount of dividends and
distributions you received from each AIM Fund during the prior year.
Any long-term or short-term capital gains realized from redemptions of AIM
Fund shares will be subject to federal income tax. Exchanges of shares for
shares of another AIM Fund are treated as a sale, and any gain realized on the
transaction will generally be subject to federal income tax.
The foreign, state and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
A-8
<PAGE> 268
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AIM GLOBAL RESOURCES FUND
-------------------------
Obtaining Additional Information
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us
- ---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Distributors, Inc.
11 Greenway Plaza, Suite
100
Houston, TX 77046-1173
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
- ---------------------------------------------------------
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, DC, on the SEC's website
(http://www.sec.gov), or by sending a letter, including a duplicating fee, to
the SEC's Public Reference Section, Washington, DC 20549-6009. Please call the
SEC at 1-800-SEC-0330 for information about the Public Reference Room.
- ------------------------------------
AIM Global Resources Fund
SEC 1940 Act file number: 811-05426
- ------------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com
GRS-PRO-1 INVEST WITH DISCIPLINE--Registered Trademark--
<PAGE> 269
AIM GLOBAL RESOURCES FUND
-----------------------------------------------------------------------
ADVISOR CLASS
AIM Global Resources Fund seeks to provide long-term growth of capital.
PROSPECTUS
MARCH 1, 1999
This prospectus contains important
information. Please read it before
investing and keep it for future
reference.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE--Registered
Trademark--
<PAGE> 270
Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE FUND 2
- - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 3
- - - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 3
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
- - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 4
Expense Example 4
FUND MANAGEMENT 5
- - - - - - - - - - - - - - - - - - - - - - - - -
The Advisor 5
Advisor Compensation 5
Portfolio Manager 5
OTHER INFORMATION 5
- - - - - - - - - - - - - - - - - - - - - - - - -
Dividends and Distributions 5
FINANCIAL HIGHLIGHTS 6
- - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - -
Purchasing Shares A-1
Redeeming Shares A-2
Exchanging Shares A-3
Pricing of Shares A-4
Taxes A-4
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK, AIM Institutional Funds, aimfunds.com, La
Familia AIM de Fondos, La Familia AIM de Fondos and Design and Invest with
Discipline are registered service marks and AIM Bank Connection is a service
mark of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 271
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AIM GLOBAL RESOURCES FUND
-------------------------
Investment Objective and Strategies
- --------------------------------------------------------------------------------
The fund's investment objective is long-term growth of capital.
The fund seeks to meet this 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 (1) derives at least 50% of its revenues or earnings from
natural resource activities, or (2) 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 manager believes
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 invest no 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 in
companies located in developing countries, i.e., those that are in the initial
stages of their industrial cycles. 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 lower-quality debt securities, i.e., "junk bonds."
The portfolio manager allocates 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 manager 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. The
portfolio manager usually sells 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 instruments, or high-quality 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.
If the fund's Board of Trustees determines that it is in the best interests of
the fund and its shareholders, the fund may redeem its investment in the
portfolio.
1
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AIM GLOBAL RESOURCES FUND
-------------------------
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 prices of equity
securities change in response to many factors, including the historical and
prospective earnings of the issuer, the value of its assets, general economic
conditions, interest rates, investor perceptions, and market liquidity.
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 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
industry, the value of your fund shares may rise and fall more than the value of
shares of a fund that invests more broadly.
The prices of foreign securities may be further affected by other factors,
including:
- - Currency exchange rates--The dollar value of the fund's foreign investments
will be affected by changes in the exchange rates between the dollar and the
currencies in which those investments are traded.
- - Political and economic conditions--The value of the fund's foreign investments
may be adversely affected by political and social instability in their home
countries and by changes in economic or taxation policies in those countries.
- - Regulations--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available information
about foreign companies than about U.S. companies.
- - Markets--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and their prices may be more volatile than U.S. securities.
The value of your shares could be adversely affected if the computer systems
used by the portfolio's investment advisor and other service providers are
unable to distinguish the year 2000 from the year 1900.
The portfolio's investment advisor and independent technology consultants are
working to avoid year 2000-related problems in its systems and to obtain
assurances that other service providers are taking similar steps. Year 2000
problems may also affect issuers in whose securities the portfolio invests.
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.
2
<PAGE> 273
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AIM GLOBAL RESOURCES FUND
-------------------------
Performance Information
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
The following bar chart shows changes in the performance of the fund's Advisor
Class shares from year to year.
[GRAPH]
<TABLE>
<CAPTION>
%
December 31 Return
- ----------- ------
<S> <C>
1996 ....................................... 48.04
1997 ....................................... -1.05
1998 ....................................... -34.09
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
31.92% (quarter ended September 30, 1997) and the lowest quarterly return was
(21.48)% (quarter ended September 30, 1998).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(for the periods ended SINCE INCEPTION
December 31, 1998) 1 YEAR INCEPTION DATE
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Advisor Class (34.09)% 1.25% 06/01/95
MSCI World Index(1) 21.72 16.55(2) 05/31/95(2)
- -------------------------------------------------------------------------
</TABLE>
(1) The Morgan Stanley Capital International All Country World Index is a market
value-weighted average of the performance of securities listed on the major
world stock exchanges of 47 markets, including both developed and emerging
markets.
(2) The average annual total return given is since the date closest to the
inception date of the Advisor Class.
3
<PAGE> 274
-------------------------
AIM GLOBAL RESOURCES FUND
-------------------------
Fee Table and Expense Example
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from
your investment) ADVISOR CLASS
- ---------------------------------------------------
<S> <C> <C>
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
- ---------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets)(1) ADVISOR CLASS
- ---------------------------------------------------
<S> <C> <C>
Management Fees 0.98%
Distribution and/or
Service (12b-1) Fees None
Other Expenses 0.81
Total Annual Fund 1.79
Operating Expenses
Expense Reimbursement(2) 0.29
Net Expenses 1.50
- ---------------------------------------------------
</TABLE>
(1) This fee table, and the expense example below, reflect the expenses of both
the fund and the portfolio.
(2) The investment advisor has agreed to limit net expenses through May 31,
2000. The waiver may not be terminated.
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 net 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 $153 $474 $818 $1,791
- ----------------------------------------------------
</TABLE>
4
<PAGE> 275
-------------------------
AIM GLOBAL RESOURCES FUND
-------------------------
Fund Management
- --------------------------------------------------------------------------------
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the investment advisor 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 provides 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 advisor since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 110
investment portfolios, including the portfolio, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended October 31, 1998, the advisor and Chancellor LGT
Asset Management, Inc., (the advisor for the period November 1, 1997 through
May 28, 1998) together received compensation of 0.716% of average daily net
assets, consisting of a management and administrative fee of 0.69% and an
accounting fee of 0.026%.
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
- - 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.
Other Information
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS
The fund generally declares and pays dividends, if any, annually.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains (including
any net gains from foreign currency transactions), if any, annually.
5
<PAGE> 276
-------------------------
AIM GLOBAL RESOURCES FUND
-------------------------
Financial Highlights
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
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(a)
-----------------------------------------------
YEAR ENDED OCTOBER 31, JUNE 1,
--------------------------- TO
1998(b) 1997(b) 1996(b) OCTOBER 31, 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $20.80 $ 17.47 $11.47 $11.45
------ ------- ------ ------
Income from investment operations:
Net investment income (loss) (0.03)(e) (0.14) (0.17) 0.11(d)
Net realized and unrealized gain (loss) on
investments (9.01) 4.08 6.28 (0.09)
------ ------- ------ ------
Net increase (decrease) from investment
operations (9.04) 3.94 6.11 0.02
------ ------- ------ ------
Distributions to shareholders:
From net investment income (0.19) -- (0.10) --
From net realized gain on investments (0.49) (0.61) (0.01) --
------ ------- ------ ------
Total distributions (0.68) (0.61) (0.11) --
------ ------- ------ ------
Net asset value, end of period $11.08 $ 20.80 $17.47 $11.47
====== ======= ====== ======
Total investment return(e) (44.79)% 23.23% 53.76% 0.17%(f)
- -------------------------------------------------------------------------------------------------
Ratios and supplemental data:
Net assets, end of period (in 000s) $5,089 $14,886 $5,502 $ 95
Ratio of net investment income (loss) to average
net assets:
With expense reductions and/or reimbursement (0.25)% (0.91)% (1.05)% 0.91%(g)
Without expense reductions and/or
reimbursement (0.56)% (1.01)% (1.15)% (0.19)%(g)
Ratio of expense to average net assets:
With expense reductions and/or reimbursement 1.48% 1.53% 1.70% 1.87%(g)
Without expense reductions and/or
reimbursement 1.79% 1.63% 1.80% 2.97%(g)
Portfolio turnover rate(h) 201% 321% 94% 87%
- -------------------------------------------------------------------------------------------------
</TABLE>
(a) Commencing June 1, 1995, the fund began offering Advisor Class shares.
(b) These selected per share data were calculated based upon average shares
outstanding during the period.
(c) Before reimbursement the net investment loss per share would have been
increased by $0.04.
(d) Before reimbursement the net investment income (loss) per share would have
been reduced (increased) by $0.12.
(e) Total investment return does not include sales charges.
(f) Not annualized
(g) Annualized
(h) Portfolio turnover rates are calculated on the basis of the portfolio as a
whole without distinguishing between the classes of shares issued.
6
<PAGE> 277
-------------
THE AIM FUNDS
-------------
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 of the funds advised by the
advisor (the AIM Funds), your financial consultant, on your behalf, must submit
a fully completed new account application form directly to the transfer agent.
You may purchase shares using one of the options below.
PURCHASE OPTIONS
- -
<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 Call the transfer agent to receive
a completed account application to a reference number. Then, use the
the transfer agent. You or your wire instructions at left.
financial 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 #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank
methods described above. Connection(SM) form to the transfer
agent. Once the transfer agent has
received the form, call the
transfer agent to place your
purchase order.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
A- 1 ADV--03/99
<PAGE> 278
-------------
THE AIM FUNDS
-------------
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.
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. TO PROTECT THE INTERESTS OF
INVESTORS, EACH AIM FUND AND THE DISTRIBUTOR MAY REJECT ANY ORDER CONSIDERED
MARKET TIMING ACTIVITY.
REDEEMING SHARES
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.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
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 New York Stock Exchange (NYSE) is open for business in
order to effect the redemption at that day's closing price.
</TABLE>
- --------------------------------------------------------------------------------
ADV--03/99 A- 2
<PAGE> 279
-------------
THE AIM FUNDS
-------------
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
(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.
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. You also may exchange Advisor
Class shares for AIM Cash Reserve shares of AIM Money Market 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:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be qualified for sale in your
state of residence;
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - The AIM Fund from which you are exchanging must have received the full amount
of the purchase price for the shares being exchanged;
- - 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
- - 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
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 New York Stock Exchange (NYSE) is open for business;
however, you still will be
A- 3 ADV--03/99
<PAGE> 280
-------------
THE AIM FUNDS
-------------
allowed to exchange by telephone even if you have changed your address of record
within the preceding 30 days.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. 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 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.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours 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. An AIM Fund may postpone the right of redemption only under unusual
circumstances, as allowed by the Securities and Exchange Commission, such as
when the NYSE restricts or suspends trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund holds
its assets. Different rates of tax apply to ordinary income and long-term
capital gain distributions. Every year, you will be sent information 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, and any gain realized on the
transaction will generally be subject to federal income tax.
The foreign, state, and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
ADV--03/99 A- 4
<PAGE> 281
-------------------------
AIM GLOBAL RESOURCES FUND
-------------------------
Obtaining Additional Information
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registration Mark-- or your account, or wish to obtain free copies of the
fund's current SAI or annual or semiannual reports, please contact us
- ---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Distributors, Inc.
11 Greenway Plaza, Suite
100
Houston, TX 77046-1173
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
- ---------------------------------------------------------
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, DC, on the SEC's website
(http://www.sec.gov), or by sending a letter, including a duplicating fee, to
the SEC's Public Reference Section, Washington, DC 20549-6009. Please call the
SEC at 1-800-SEC-0330 for information about the Public Reference Room.
- ------------------------------------
AIM Global Resources Fund
SEC 1940 Act file number: 811-05426
- ------------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com GRS-PRO-2 INVEST WITH DISCIPLINE
--Registered Trademark--
<PAGE> 282
AIM GLOBAL TELECOMMUNICATIONS FUND
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
AIM Global Telecommunications Fund seeks to provide long-term growth of
capital.
PROSPECTUS
MARCH 1, 1999
This prospectus contains important
information about the Class A, B and
C shares of the fund. Please read it
before investing and keep it for
future reference.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
[AIM LOGO APPEAR HERE] INVEST WITH DISCIPLINE--Registered Trademark--
<PAGE> 283
Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE FUND 2
- - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 3
- - - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 3
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
- - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 4
Expense Example 4
FUND MANAGEMENT 5
- - - - - - - - - - - - - - - - - - - - - - - - -
The Advisor 5
Advisor Compensation 5
Portfolio Managers 5
OTHER INFORMATION 5
- - - - - - - - - - - - - - - - - - - - - - - - -
Sales Charges 5
Dividends and Distributions 5
FINANCIAL HIGHLIGHTS 6
- - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - -
Choosing a Share Class A-1
Purchasing Shares A-3
Redeeming Shares A-4
Exchanging Shares A-6
Pricing of Shares A-7
Taxes A-8
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK, AIM Institutional Funds, aimfunds.com, La
Familia AIM de Fondos, La Familia AIM de Fondos and Design and Invest with
Discipline are registered service marks and AIM Bank Connection is a service
mark of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 284
----------------------------------
AIM GLOBAL TELECOMMUNICATIONS FUND
----------------------------------
Investment Objective and Strategies
- --------------------------------------------------------------------------------
The fund's investment objective is long-term growth of capital.
The fund seeks to meet this 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 (1)
derives at least 50% of its revenues or earnings from telecommunications
activities; or (2) 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 in equity and debt securities of other
companies the portfolio managers believe will benefit from developments in the
telecommunications industry.
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 invest no 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 fund may invest in companies located in developing countries, i.e., those
that are in the initial stages of their industrial cycles. The fund may also
invest up to 5% of its total assets in lower-quality debt securities, i.e.,
"junk bonds."
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
instruments or high-quality debt securities. As a result, the fund may not
achieve its investment objective.
1
<PAGE> 285
----------------------------------
AIM GLOBAL TELECOMMUNICATIONS FUND
----------------------------------
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 prices of equity
securities change in response to many factors, including the historical and
prospective earnings of the issuer, the value of its assets, general economic
conditions, interest rates, investor perceptions, and market liquidity.
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.
The prices of foreign securities may be further affected by other factors,
including:
- - Currency exchange rates--The dollar value of the fund's foreign investments
will be affected by changes in the exchange rates between the dollar and the
currencies in which those investments are traded.
- - Political and economic conditions--The value of the fund's foreign investments
may be adversely affected by political and social instability in their home
countries and by changes in economic or taxation policies in those countries.
- - Regulations--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available information
about foreign companies than about U.S. companies.
- - Markets--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and more volatile than U.S. securities.
These factors may affect the prices 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.
The value of your shares could be adversely affected if the computer systems
used by the fund's investment advisor and the fund's other service providers are
unable to distinguish the year 2000 from the year 1900.
The fund's investment advisor and independent technology consultants are
working to avoid year 2000-related problems in its systems and to obtain
assurances that other service providers are taking similar steps. Year 2000
problems may also affect issuers in whose securities the fund invests.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
2
<PAGE> 286
----------------------------------
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----------------------------------
Performance Information
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
The following bar chart shows changes in the performance of the fund's Class A
shares from year to year. The bar chart does not reflect sales loads. If it did,
the annual total returns shown would be lower.
[GRAPH]
<TABLE>
<CAPTION>
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURN
- ----------- ------
<S> <C>
1993................................................ 47.66
1994................................................ - 4.40
1995................................................ 8.59
1996................................................ 5.24
1997................................................ 13.18
1998................................................ 18.14
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
26.80% (quarter ended December 31, 1998) and the lowest quarterly return was
(23.98)% (quarter ended September 30, 1998).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of
broad-based securities market index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(for the periods ended SINCE INCEPTION
December 31, 1998) 1 YEAR 5 YEARS INCEPTION DATE
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A 12.52% 6.82% 11.71% 01/27/92
Class B 12.54% 7.04% 12.27% 04/01/93
Class C -- -- -- 03/01/99
MSCI AC World Index(1) 21.72 14.48 13.41(2) 01/31/92(2)
- ------------------------------------------------------------------------
</TABLE>
(1) The Morgan Stanley Capital International All Country World Index is a market
value-weighted average of the performance of securities listed on the major
world stock exchanges of 47 markets, including both developed and emerging
markets.
(2) The average annual total return given is since the date closest to the
inception date of the class with the longest performance history.
3
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----------------------------------
AIM GLOBAL TELECOMMUNICATIONS FUND
----------------------------------
Fee Table and Expense Example
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from
your investment) CLASS A CLASS B CLASS C
- -------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) 4.75% None None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase
price or redemption
proceeds, whichever
is less) None(1) 5.00 1.00
- -------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets) CLASS A CLASS B CLASS C
- -------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.94% 0.94% 0.94%
Distribution and/or
Service (12b-1) Fees 0.50 1.00 1.00
Other Expenses 0.44 0.44 0.44
Total Annual Fund
Operating Expenses 1.88 2.38 2.38
- -------------------------------------------------------
</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.
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>
Class A $657 $1,038 $1,443 $2,571
Class B 741 1,042 1,470 2,592
Class C 341 742 1,270 2,716
- ----------------------------------------------
</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 $657 $1,038 $1,443 $2,571
Class B 241 742 1,270 2,592
Class C 241 742 1,270 2,716
- ----------------------------------------------
</TABLE>
4
<PAGE> 288
----------------------------------
AIM GLOBAL TELECOMMUNICATIONS FUND
----------------------------------
Fund Management
- --------------------------------------------------------------------------------
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor 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 provides 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 advisor since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 110
investment portfolios, including the fund, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended October 31, 1998, the advisor and Chancellor LGT
Asset Management, Inc., (the advisor for the period November 1, 1997 through May
28, 1998) together received compensation of 0.966% of average daily net assets,
consisting of a management and administrative fee of 0.94% and an accounting fee
of 0.026%.
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 A I M Capital Management,
Inc., a wholly owned subsidiary of the advisor are
- - Jonathan C. Schoolar, Senior Portfolio Manager, who has been responsible for
the fund since 1999 and has been associated with the advisor and/or its
affiliates since 1986.
- - Claude C. Cody IV, Portfolio Manager, who has been responsible for the fund
since 1999 and has been associated with the advisor and/or its affiliates
since 1992.
- - Paul A. Rogge, Senior Portfolio Manager, who has been responsible for the fund
since 1999 and has been associated with the advisor and/or its affiliates
since 1991.
- - David P. Barnard, Senior Portfolio Manager, who has been responsible for the
fund since 1999 and has been associated with the advisor and/or its affiliates
since 1982.
- - Kenneth A. Zschappel, Senior Portfolio Manager, who has been responsible for
the fund since 1999 and has been associated with the advisor and/or its
affiliates since 1990.
- - Robert M. Kippes, Senior Portfolio Manager, who has been responsible for the
fund since 1999 and has been associated with the advisor and/or its affiliates
since 1989.
Other Information
- --------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM Global Telecommunications Fund are subject to
the maximum 4.75% initial sales charge as listed under the heading "CATEGORY II
Initial Sales Charges" in the "Shareholder Information--Choosing a Share Class"
section of this prospectus. Purchases of Class B and Class C shares are subject
to the contingent deferred sales charges listed in that section.
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS
The fund generally declares and pays dividends, if any, annually.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains (including
any net gains from foreign currency transactions), if any, annually.
5
<PAGE> 289
----------------------------------
AIM GLOBAL TELECOMMUNICATIONS FUND
----------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
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
--------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
1998(a) 1997(a) 1996(a) 1995 1994(a)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 18.04 $ 16.69 $ 16.42 $ 17.80 $ 16.92
Income from investment operations:
Net investment income (loss) (0.17) (0.17) (0.13) (0.09) (0.01)
Net realized and unrealized gain (loss) on
investments (0.39) 2.93 1.22 (0.43) 1.17
Net increase (decrease) from investment
operations (0.56) 2.76 1.09 (0.52) 1.16
Distributions to shareholders:
From net investment income -- -- -- -- (0.01)
From net realized gain on investments (1.20) (1.41) (0.82) (0.86) (0.27)
Total distributions (1.20) (1.41) (0.82) (0.86) (0.28)
Net asset value, end of period $ 16.28 $ 18.04 $ 16.69 $ 16.42 $ 17.80
Total investment return(b) (3.16)% 17.70% 7.00% (2.88)% 7.02%
- ----------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
Net assets, end of period (in 000s) $713,904 $910,801 $1,204,428 $1,353,722 $1,644,402
Ratio of net investment income (loss) to average
net assets:
With expense reductions (0.92)% (1.01)% (0.84)% (0.49)% (0.02)%
Without expense reductions (0.93)% (1.06)% (0.89)% (0.55)% N/A
Ratio of expenses to average net assets:
With expense reductions 1.87% 1.79% 1.74% 1.77% 1.80%
Without expense reductions 1.88% 1.84% 1.79% 1.83% N/A
Portfolio turnover rate(c) 75% 35% 37% 62% 57%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) These selected per share data were calculated based upon the average shares
outstanding during the period.
(b) Total investment return does not include sales charge.
(c) Portfolio turnover rates are calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
N/A Not applicable.
6
<PAGE> 290
----------------------------------
AIM GLOBAL TELECOMMUNICATIONS FUND
----------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
1998(a) 1997(a) 1996(a) 1995 1994(a)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 17.58 $ 16.37 $ 16.20 $ 17.66 $ 16.87
Income from investment operations:
Net investment income (loss) (0.25) (0.25) (0.23) (0.17) (0.10)
Net realized and unrealized gain (loss) on
investments (0.37) 2.87 1.22 (0.43) 1.17
Net increase (decrease) from investment
operations (0.62) 2.62 0.99 (0.60) 1.07
Distributions to shareholders:
From net investment income -- -- -- -- (0.01)
From net realized gain on investments (1.20) (1.41) (0.82) (0.86) (0.27)
Total distributions (1.20) (1.41) (0.82) (0.86) (0.28)
Net asset value, end of period $ 15.76 $ 17.58 $ 16.37 $ 16.20 $ 17.66
Total investment return(b) (3.67)% 17.15% 6.46% (3.37)% 6.50%
- -------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
Net assets, end of period (in 000s) $614,715 $805,535 $1,007,654 $1,111,520 $1,184,081
Ratio of net investment income (loss) to average
net assets:
With expense reductions (1.42)% (1.51)% (1.34)% (0.99)% (0.52)%
Without expense reductions (1.43)% (1.56)% (1.39)% (1.05)% N/A
Ratio of expenses to average net assets:
With expense reductions 2.37% 2.29% 2.24% 2.27% 2.30%
Without expense reductions 2.38% 2.34% 2.29% 2.33% N/A
Portfolio turnover rate(c) 75% 35% 37% 62% 57%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) These selected per share data were calculated based upon the average shares
outstanding during the period.
(b) Total investment return does not include sales charge.
(c) Portfolio turnover rates are calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
N/A Not applicable.
7
<PAGE> 291
-------------
THE AIM FUNDS
-------------
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>
- - Initial sales charge - No initial sales charge - No initial sales charge
- - Reduced or waived initial sales - Contingent deferred sales - Contingent deferred sales
charge for certain purchases charge on redemptions within six charge on redemptions within
years one year
- - Lower distribution and service - 12b-1 fee of 1.00% - 12b-1 fee of 1.00%
(12b-1) fee than Class B or
Class C shares (See "Fee Table
and Expense Example")
- Converts to Class A shares - Does not convert to Class A
after eight years along with a shares
pro rata portion of its
reinvested dividends and
distributions*
- - Generally more appropriate for - Purchase orders limited to - Generally more appropriate
long-term investors amounts less than $250,000 for short-term investors
</TABLE>
* AIM Money Market Fund: Class B shares convert to AIM Cash Reserve
Shares.
AIM Global Trends Fund: If you held Class B shares on May 29,
1998 and continue to hold them, those shares will convert to
Class A shares of that fund seven years after your date of
purchase. If you exchange those shares for Class B shares of
another AIM Fund, the shares into which you exchanged will not
convert to Class A shares until eight years after your date of
purchase of the original shares.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12b-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund) has adopted 12b-1 plans
that allow the AIM Fund to pay distribution fees to A I M Distributors, Inc.
(the distributor) for the sale and distribution of its shares and fees for
services provided to shareholders, all or a substantial portion of which are
paid to the dealer of record. Because the AIM Fund pays these fees out of its
assets on an ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
MCF-03/99
A-1
<PAGE> 292
-------------
THE AIM FUNDS
-------------
SALES CHARGES
Generally, you will not pay a sales charge on purchases or redemptions of Class
A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money
Market Fund. You may be charged a contingent deferred sales charge if you redeem
AIM Cash Reserve Shares of AIM Money Market Fund acquired through certain
exchanges. Sales charges on all other AIM Funds and classes of those Funds are
detailed below. As used below, the term "offering price" with respect to all
categories of Class A shares includes the initial sales charge.
INITIAL SALES CHARGES
The AIM Funds are grouped into three categories with respect to initial sales
charges. The "Other Information" section of your prospectus will tell you in
what category your particular AIM Fund is classified.
<TABLE>
<CAPTION>
CATEGORY I INITIAL SALES CHARGES
- --------------------------------
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
- ----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY II INITIAL SALES CHARGES
- ---------------------------------
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
- ----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY III INITIAL SALES CHARGES
- ----------------------------------
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 100,000 1.00% 1.01%
$ 100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
- ----------------------------------------------------------
</TABLE>
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES
You can purchase $1,000,000 or more of Class A shares at net asset value.
However, if you purchase shares of that amount in Categories I or II, they will
be subject to a contingent deferred sales charge (CDSC) of 1% if you redeem them
prior to 18 months after the date of purchase. The distributor may pay a dealer
concession and/or a service fee for purchases of $1,000,000 or more.
CONTINGENT DEFERRED SALES CHARGES FOR
CLASS B AND CLASS C SHARES
You can purchase Class B and Class C shares at their net asset value per share.
However, when you redeem them, they are subject to a CDSC in the following
percentages:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
- ----------------------------------------------------------
<S> <C> <C>
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
- ----------------------------------------------------------
</TABLE>
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you have redeemed shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify
for these reductions or exceptions, you or your financial consultant must
provide sufficient information at the time of purchase to verify that your
purchase qualifies for such treatment.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Rights of Accumulation
You may combine your new purchases of Class A shares with Class A shares
currently owned for the purpose of qualifying for the lower initial sales charge
rates that apply to larger purchases. The applicable initial sales charge for
the new purchase is based on the total of your current purchase and the current
value of all Class A shares you own.
Letters of Intent
Under a Letter of Intent (LOI), you commit to purchase a specified dollar amount
of Class A shares of AIM Funds during a
A-2
<PAGE> 293
-------------
THE AIM FUNDS
-------------
13-month period. The amount you agree to purchase determines the initial sales
charge you pay. If the full face amount of the LOI is not invested by the end of
the 13-month period, your account will be adjusted to the higher initial sales
charge level for the amount actually invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- - on shares purchased by reinvesting dividends and distributions;
- - when exchanging shares among certain AIM Funds;
- - when using the reinstatement privilege; and
- - when a merger, consolidation, or acquisition of assets of an AIM Fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- - if you redeem Class B shares you held for more than six years;
- - if you redeem Class C shares you held for more than one year;
- - if you redeem shares acquired through reinvestment of dividends and
distributions; and
- - on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares
at reduced or without sales charges. Consult the fund's Statement of Additional
Information for details.
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
The minimum investments for AIM Fund accounts (except for investments in AIM
Small Cap Opportunities Fund) are as follows:
<TABLE>
<CAPTION>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing $ 0 ($25 per AIM Fund investment for $25
plans, 401(k) plans, Simplified Employee Pension salary deferrals from Savings Plans)
(SEP) accounts, Salary Reduction (SARSEP)
accounts, Savings Incentive Match Plans for
Employee IRA (Simple IRA) accounts, 403(b) or
457 plans)
Automatic Investment Plans 50 50
IRA, Education IRA or Roth IRA 250 50
All other accounts 500 50
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below.
PURCHASE OPTIONS
- -
<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 Application Mail your check and the remittance
and purchase payment to the slip from your confirmation
transfer agent, statement to the transfer agent.
A I M Fund Services, Inc.,
P.O. Box 4739,
Houston, TX 77210-4739.
By Wire Mail completed Account Application Call the transfer agent to receive
to the transfer agent. Call the a reference number. Then, use the
transfer agent at (800) 959-4246 to wire instructions at left.
receive a reference number. Then,
use the following wire
instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number:
00100366807
Beneficiary Account Name: A I M
Fund Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank
methods described above. Connection(SM) form to the transfer
agent. Once the transfer agent has
received the form, call the
transfer agent to place your
purchase.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
A-3
<PAGE> 294
-------------
THE AIM FUNDS
-------------
SPECIAL PLANS
AUTOMATIC INVESTMENT PLAN
You can arrange for periodic investments in any of the AIM Funds by authorizing
the AIM Fund to withdraw the amount of your investment from your bank account on
a day or dates you specify and in an amount of at least $50. You may stop the
Automatic Investment Plan at any time by giving the transfer agent notice ten
days prior to your next scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one AIM Fund account to one or more other AIM Fund
accounts with the identical registration. The account from which exchanges are
to be made must have a minimum balance of $5,000 before you can use this option.
Exchanges will occur on (or about) the 10th or 25th day of the month, whichever
you specify, in the amount you specify. The minimum amount you can exchange to
another AIM Fund is $50.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
AIM Fund at net asset value. Unless you specify otherwise, your dividends and
distributions will automatically be reinvested in the same AIM Fund. You may
invest your dividends and distributions (1) into another AIM Fund in the same
class of shares; or (2) from Class A shares into AIM Cash Reserve Shares of AIM
Money Market Fund, or vice versa.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend must be at
least $5,000; or (b) in the AIM Fund receiving the dividend must be at least
$500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends into
another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this Program, you can designate how the
total value of your AIM Fund holdings should be rebalanced, on a percentage
basis, between two and ten of your AIM Funds on a quarterly, semiannual or
annual basis. Your portfolio will be rebalanced through the exchange of shares
in one or more of your AIM Funds for shares of the same class of one or more
other AIM Funds in your portfolio. If you wish to participate in the Program,
make changes or cancel the Program, the transfer agent must receive your request
to participate, changes or cancellation in good order at least five business
days prior to the next rebalancing date, which is normally the 28th day of the
last month of the period you choose. We may modify, suspend or terminate the
Program at any time on 60 days' prior written notice.
RETIREMENT PLANS
Shares of most of the AIM Funds can be purchased through
tax-sheltered retirement plans made available to corporations, individuals and
employees of non-profit organizations and public schools. A plan document must
be adopted to establish a retirement plan. You may use AIM Funds-sponsored
retirement plans, which include IRAs, Education IRAs, Roth IRAs, 403(b) plans,
401(k) plans, SIMPLE IRA plans, SEP/SARSEP plans and Money Purchase/Profit
Sharing plans, or another sponsor's retirement plan. The plan custodian of the
AIM Funds-sponsored retirement plan assesses an annual maintenance fee of $10.
Contact your financial consultant for details.
REDEEMING SHARES
REDEMPTION FEES
We will not charge you any fees to redeem your shares; however, your broker or
financial consultant may charge service fees for handling these transactions.
Your shares may be subject to a contingent deferred sales charge (CDSC).
REDEMPTION OF AIM CASH RESERVE SHARES OF
AIM MONEY MARKET FUND ACQUIRED BY EXCHANGE
If you redeem AIM Cash Reserve Shares acquired by exchange from Class A shares
subject to a CDSC within 18 months of the purchase of the Class A shares,
you will be charged a CDSC.
REDEMPTION OF CLASS B SHARES ACQUIRED BY
EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM
Floating Rate Fund, the early withdrawal charge applicable to shares of AIM
Floating Rate Fund will be applied instead of the CDSC normally applicable to
Class B shares.
A-4
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-------------
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
Consultant
By Mail Send a written request to the transfer agent. Requests must
include (1) original signatures of all registered owners;
(2) the name of the AIM Fund and your account number; (3) if
the transfer agent does not hold your shares, endorsed share
certificates or share certificates accompanied by an
executed stock power; and (4) signature guarantees, if
necessary (see below). The transfer agent may require that
you provide additional information, such as corporate
resolutions or powers of attorney, if applicable. If you are
redeeming from an IRA account, you must include a statement
of whether or not you are at least 59 1/2 years old and
whether you wish to have federal income tax withheld from
your proceeds. The transfer agent may require certain other
information before you can redeem from an employer-sponsored
retirement plan. Contact your employer for details.
By Telephone Call the transfer agent. You will be allowed to redeem by
telephone if (1) the proceeds are to be mailed to the
address on record with us or transferred electronically to a
pre-authorized checking account; (2) the address on record
with us has not been changed within the last 30 days;
(3) you do not hold physical share certificates; (4) you can
provide proper identification information; (5) the proceeds
of the redemption do not exceed $50,000; and (6) you have
not previously declined the telephone redemption privilege.
Certain accounts, including retirement accounts and 403(b)
plans, may not redeem by telephone. The transfer agent must
receive your call during the hours the NYSE is open for
business in order to effect the redemption at that day's
closing price.
</TABLE>
- --------------------------------------------------------------------------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds to the address on record with us.
If your request is not in good order, you may have to provide us with additional
documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
PAYMENT FOR SYSTEMATIC WITHDRAWALS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. You also may make annual withdrawals if you own Class A shares.
We will redeem enough shares from your account to cover the amount withdrawn.
You must have an account balance of at least $5,000 to establish a Systematic
Withdrawal Plan. You can stop this plan at any time by giving ten days prior
notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM Cash Reserve Shares of AIM Money Market Fund only)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of trading
on the 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.
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THE AIM FUNDS
-------------
REINSTATEMENT PRIVILEGE (Class A shares only)
You may, within 90 days after you sell Class A shares (except Class A shares of
AIM Tax-Exempt Cash Fund), reinvest all or part of your redemption proceeds in
Class A shares of any AIM Fund at net asset value in an identically registered
account. If you sold Class A shares of AIM Limited Maturity Treasury Fund or AIM
Tax-Free Intermediate Fund, you will incur an initial sales charge reflecting
the difference between the initial sales charges on those Funds and the ones in
which you will be investing. In addition, if you paid a contingent deferred
sales charge (CDSC) on any reinstated amount, you will not be subject to a CDSC
if you later redeem that amount. You must notify the transfer agent in writing
at the time you reinstate that you are exercising your reinstatement privilege.
You may exercise this privilege only once per year.
REDEMPTIONS BY THE AIM FUNDS
If your account has been open at least one year, you have not made an additional
purchase in the account during the past six calendar months, and the value of
your account falls below $500 for three consecutive months due to redemptions or
exchanges (excluding retirement accounts), the AIM Funds have the right to
redeem the account after giving you 60 days' prior written notice. You may avoid
having your account redeemed during the notice period by bringing the account
value up to $500 or by utilizing the Automatic Investment Plan.
If an AIM Fund determines that you have provided incorrect information in
opening an account or in the course of conducting subsequent transactions, the
AIM Fund may, at its discretion, redeem the account and distribute the proceeds
to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one AIM Fund for those
of another AIM Fund. Before requesting an exchange, review the prospectus of the
AIM Fund you wish to acquire. Exchange privileges also apply to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992.
PERMITTED EXCHANGES
Except as otherwise stated below, you may exchange your shares for shares of the
same class of another AIM Fund. You also may exchange AIM Cash Reserve Shares of
AIM Money Market Fund for Class A shares of another AIM Fund, or vice versa. You
may be required to pay an initial sales charge when exchanging from a Fund with
a lower initial sales charge than the one into which you are exchanging. If you
exchange from Class A shares not subject to a CDSC into Class A shares subject
to those charges, you will be charged a CDSC when you redeem the exchanged
shares. The CDSC charged on redemption of those shares will be calculated
starting on the date you acquired those shares through exchange.
You also may exchange AIM Cash Reserve Shares of AIM Money Market Fund for
Advisor Class shares, but only if you acquired the AIM Cash Reserve Shares
through an exchange from Advisor Class shares.
YOU WILL NOT PAY A SALES CHARGE WHEN EXCHANGING:
(1) Class A shares with an initial sales charge (except for Class A shares of
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
Class A shares of another AIM Fund or AIM Cash Reserve Shares of AIM Money
Market Fund;
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund for
(a) one another;
(b) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of
AIM Tax-Exempt Cash Fund; or
(c) Class A shares of another AIM Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way of
an exchange from shares with higher sales charges;
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) one another;
(b) Class A shares of an AIM Fund subject to an initial sales charge (except
for Class A shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund), but only if you acquired the original
shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to an
initial sales charge;
(ii) on or after May 1, 1994 by exchange from Class A shares subject to
an initial sales charge (except for Class A shares of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund); or
(c) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund, but only if you acquired the original shares by
exchange from Class A shares subject to an initial sales charge; or
(4) Class B shares for other Class B shares, and Class C shares for other Class
C shares.
EXCHANGES NOT PERMITTED
You may not exchange Class A shares subject to contingent deferred sales charges
for Class A shares of AIM Limited Maturity Treasury Fund, AIM Tax-Free
Intermediate Fund or AIM Tax-Exempt Cash Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be qualified for sale in your
state of residence;
A-6
<PAGE> 297
-------------
THE AIM FUNDS
-------------
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - Shares must have been held for at least one day prior to the exchange; and
- - If you have physical share certificates, you must return them to the transfer
agent prior to the exchange.
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.
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. TO PROTECT THE INTERESTS OF
INVESTORS, EACH AIM FUND AND THE DISTRIBUTOR MAY REJECT ANY ORDER CONSIDERED
MARKET-TIMING ACTIVITY.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. AIM Money
Market Fund and AIM Tax-Exempt Cash Fund value all of their securities at
amortized cost. AIM High Income Municipal Fund, AIM Municipal Bond Fund, AIM
Tax-Exempt Bond Fund of Connecticut and AIM Tax-Free Intermediate Fund value
variable rate securities that have an unconditional demand or put feature
exercisable within seven days or less at par, which reflects the market value of
such securities.
The AIM Funds value all other securities and assets at their fair value.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day. In addition, if,
between the time trading ends on a particular security and the close of the 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.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours 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. An AIM Fund may postpone the right of redemption only under unusual
circumstances, as allowed by the Securities and Exchange Commission, such as
when the NYSE restricts or suspends trading.
A-7
<PAGE> 298
-------------
THE AIM FUNDS
-------------
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund holds
its assets. Different tax rates apply to ordinary income and long-term capital
gain distributions, regardless of how long you have held your shares. Every
year, you will be sent information showing the amount of dividends and
distributions you received from each AIM Fund during the prior year.
Any long-term or short-term capital gains realized from redemptions of AIM
Fund shares will be subject to federal income tax. Exchanges of shares for
shares of another AIM Fund are treated as a sale, and any gain realized on the
transaction will generally be subject to federal income tax.
The foreign, state and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
A-8
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----------------------------------
AIM GLOBAL TELECOMMUNICATIONS FUND
----------------------------------
Obtaining Additional Information
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus
(is legally a part of this prospectus). Annual and semiannual reports to
shareholders contain additional information about the fund's investments. The
fund's annual report also discusses the market conditions and investment
strategies that significantly affected the fund's performance during its last
fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us
- ---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Distributors, Inc.
11 Greenway Plaza, Suite
100
Houston, TX 77046-1173
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
- -----------------------------------------------------
</TABLE>
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, DC, on the SEC's website
(http://www.sec.gov), or by sending a letter, including a duplicating fee, to
the SEC's Public Reference Section, Washington, DC 20549-6009. Please call the
SEC at 1-800-SEC-0330 for information about the Public Reference Room.
- ------------------------------------
AIM Global Telecommunications Fund
SEC 1940 Act file number: 811-05426
- ------------------------------------
<TABLE>
<S> <C> <C> <C>
[AIM LOGO APPEARS HERE] www.aimfunds.com
GTL-PRO-1 INVEST WITH DISCIPLINE--Registered Trademark--
</TABLE>
<PAGE> 300
AIM GLOBAL TELECOMMUNICATIONS FUND
-----------------------------------------------------------------------
ADVISOR CLASS
AIM Global Telecommunications Fund seeks to provide long-term growth of
capital.
PROSPECTUS
MARCH 1, 1999
This prospectus contains important
information. Please read it before
investing and keep it for future
reference.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE--Registered Trademark--
<PAGE> 301
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE
FUND 2
- - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 3
- - - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 3
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
- - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 4
Expense Example 4
FUND MANAGEMENT 5
- - - - - - - - - - - - - - - - - - - - - - - - -
The Advisor 5
Advisor Compensation 5
Portfolio Managers 5
OTHER INFORMATION 5
- - - - - - - - - - - - - - - - - - - - - - - - -
Dividends and Distributions 5
FINANCIAL HIGHLIGHTS 6
- - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - -
Purchasing Shares A-1
Redeeming Shares A-2
Exchanging Shares A-3
Pricing of Shares A-4
Taxes A-4
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK, AIM Institutional Funds, aimfunds.com, La
Familia AIM de Fondos, La Familia AIM de Fondos and Design and Invest with
Discipline are registered service marks and AIM Bank Connection is a service
mark of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 302
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AIM GLOBAL TELECOMMUNICATIONS FUND
----------------------------------
INVESTMENT OBJECTIVE AND STRATEGIES
- --------------------------------------------------------------------------------
The fund's investment objective is long-term growth of capital.
The fund seeks to meet this 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 (1)
derives at least 50% of its revenues or earnings from telecommunications
activities; or (2) 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 in equity and debt securities of other
companies the portfolio managers believe will benefit from developments in the
telecommunications industry.
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 invest no 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 fund may invest in companies located in developing countries, i.e., those
that are in the initial stages of their industrial cycles. The fund may also
invest up to 5% of its total assets in lower-quality debt securities, i.e.,
"junk bonds."
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
instruments or high-quality debt securities. As a result, the fund may not
achieve its investment objective.
1
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----------------------------------
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 prices of equity
securities change in response to many factors, including the historical and
prospective earnings of the issuer, the value of its assets, general economic
conditions, interest rates, investor perceptions, and market liquidity.
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.
The prices of foreign securities may be further affected by other factors,
including:
- - Currency exchange rates--The dollar value of the fund's foreign investments
will be affected by changes in the exchange rates between the dollar and the
currencies in which those investments are traded.
- - Political and economic conditions--The value of the fund's foreign investments
may be adversely affected by political and social instability in their home
countries and by changes in economic or taxation policies in those countries.
- - Regulations--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available information
about foreign companies than about U.S. companies.
- - Markets--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and more volatile than U.S. securities.
These factors may affect the prices 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.
The value of your shares could be adversely affected if the computer systems
used by the fund's investment advisor and the fund's other service providers are
unable to distinguish the year 2000 from the year 1900.
The fund's investment advisor and independent technology consultants are
working to avoid year 2000-related problems in its systems and to obtain
assurances that other service providers are taking similar steps. Year 2000
problems may also affect issuers in whose securities the fund invests.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
2
<PAGE> 304
----------------------------------
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----------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
The following bar chart shows changes in the performance of the fund's Advisor
Class shares from year to year.
[GRAPH]
<TABLE>
<CAPTION>
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURN
- ----------- ------
<S> <C>
1996 ....................................... 5.85%
1997 ....................................... 13.69%
1998 ....................................... 18.76%
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
26.91% (quarter ended December 31, 1998) and the lowest quarterly return was
(23.84)% (quarter ended September 30, 1998).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(for the periods ended SINCE INCEPTION
December 31, 1998) 1 YEAR INCEPTION DATE
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Advisor Class 18.76% 13.55 % 06/01/95
MSCIAC World Index(1) 21.72 16.55 (2) 05/31/95(2)
- ----------------------------------------------------------------------------
</TABLE>
(1) The Morgan Stanley Capital International All Country World Index is a market
value-weighted average of the performance of securities listed on the major
world stock exchanges of 47 markets, including both developed and emerging
markets.
(2) The average annual total return given is since the date closest to the
inception date of the Advisor Class.
3
<PAGE> 305
----------------------------------
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----------------------------------
FEE TABLE AND EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from your
investment) ADVISOR CLASS
- -------------------------------------------------
<S> <C>
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
- -------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets) ADVISOR CLASS
- -------------------------------------------------
<S> <C>
Management Fees 0.94%
Distribution and/or
Service (12b-1) Fees None
Other Expenses 0.44
Total Annual Fund Operating
Expenses 1.38
- -------------------------------------------------
</TABLE>
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>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -----------------------------------------------------
<S> <C> <C> <C> <C>
Advisor Class $141 $437 $755 $1,657
- -----------------------------------------------------
</TABLE>
4
<PAGE> 306
----------------------------------
AIM GLOBAL TELECOMMUNICATIONS FUND
----------------------------------
FUND MANAGEMENT
- --------------------------------------------------------------------------------
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor 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 provides 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 advisor since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 110
investment portfolios, including the fund, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended October 31, 1998, the advisor and Chancellor LGT
Asset Management, Inc., (the advisor for the period November 1, 1997 through May
28, 1998) together received compensation of 0.966% of average daily net assets,
consisting of a management and administrative fee of 0.94% and an accounting fee
of 0.026%.
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 A I M Capital Management,
Inc., a wholly owned subsidiary of the advisor, are
- - David P. Barnard, Senior Portfolio Manager, who has been responsible for the
fund since 1999 and has been associated with the advisor and/or its affiliates
since 1982.
- - Claude C. Cody IV, Portfolio Manager, who has been responsible for the fund
since 1999 and has been associated with the advisor and/or its affiliates
since 1992.
- - Robert M. Kippes, Senior Portfolio Manager, who has been responsible for the
fund since 1999 and has been associated with the advisor and/or its affiliates
since 1989.
- - Paul A. Rogge, Senior Portfolio Manager, who has been responsible for the fund
since 1999 and has been associated with the advisor and/or its affiliates
since 1991.
- - Jonathan C. Schoolar, Senior Portfolio Manager, who has been responsible for
the fund since 1999 and has been associated with the advisor and/or its
affiliates since 1986.
- - Kenneth A. Zschappel, Senior Portfolio Manager, who has been responsible for
the fund since 1999 and has been associated with the advisor and/or its
affiliates since 1990.
OTHER INFORMATION
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS
The fund generally declares and pays dividends, if any, annually.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains (including
any net gains from foreign currency transactions), if any, annually.
5
<PAGE> 307
----------------------------------
AIM GLOBAL TELECOMMUNICATIONS FUND
----------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
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(a)
----------------------------------------------------------
JUNE 1, 1995
YEAR ENDED OCTOBER 31, TO
1998(b) 1997(b) 1996(b) OCTOBER 31, 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $18.28 $16.81 $16.46 $15.24
Income from investment operations:
Net investment income (loss) (0.08) (0.09) (0.05) --
Net realized and unrealized gain (loss) on investments (0.39) 2.97 1.22 1.22
Net increase (decrease) from investment operations (0.47) 2.88 1.17 1.22
Distributions to shareholders:
From net investment income -- -- -- --
From net realized gain on investments (1.20) (1.41) (0.82) --
Total distributions (1.20) (1.41) (0.82) --
Net asset value, end of period $16.61 $18.28 $16.81 $16.46
Total investment return(c) (2.59)% 18.33% 7.49% 7.94%(d)
- ------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
Net assets, end of period (in 000s) $4,757 $4,783 $ 945 $ 681
Ratio of net investment income (loss) to average net assets:
With expense reductions (0.42)% (0.51)% (0.34)% 0.01%(e)
Without expense reductions (0.43)% (0.56)% (0.39)% (0.05)%(e)
Ratio of expenses to average net assets:
With expense reductions 1.37% 1.29% 1.24% 1.27%(e)
Without expense reductions 1.38% 1.34% 1.29% 1.33%(e)
Portfolio turnover rate(f) 75% 35% 37% 62%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Commencing June 1, 1995, the fund began offering Advisor Class shares.
(b) These selected per share data were calculated based upon the average shares
outstanding during the period.
(c) Total investment return does not include sales charge.
(d) Not annualized
(e) Annualized
(f) Portfolio turnover rates are calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
6
<PAGE> 308
-------------
THE AIM FUNDS
-------------
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 of the funds advised by the
advisor (the AIM Funds), your financial consultant, on your behalf, must submit
a fully completed new account application form directly to the transfer agent.
You may purchase shares using one of the options below.
PURCHASE OPTIONS
- -
<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 Call the transfer agent to receive
a completed account application to a reference number. Then, use the
the transfer agent. You or your wire instructions at left.
financial 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 #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank
methods described above. Connection(SM) form to the transfer
agent. Once the transfer agent has
received the form, call the
transfer agent to place your
purchase order.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
A- 1 ADV--03/99
<PAGE> 309
-------------
THE AIM FUNDS
-------------
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.
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. TO PROTECT THE INTERESTS OF
INVESTORS, EACH AIM FUND AND THE DISTRIBUTOR MAY REJECT ANY ORDER CONSIDERED
MARKET TIMING ACTIVITY.
REDEEMING SHARES
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.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
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 New York Stock Exchange (NYSE) is open for business in
order to effect the redemption at that day's closing price.
</TABLE>
- --------------------------------------------------------------------------------
ADV--03/99 A- 2
<PAGE> 310
-------------
THE AIM FUNDS
-------------
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
(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.
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. You also may exchange Advisor
Class shares for AIM Cash Reserve shares of AIM Money Market 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:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be qualified for sale in your
state of residence;
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - The AIM Fund from which you are exchanging must have received the full amount
of the purchase price for the shares being exchanged;
- - 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
- - 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
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 New York Stock Exchange (NYSE) is open for business;
however, you still will be
A- 3 ADV--03/99
<PAGE> 311
-------------
THE AIM FUNDS
-------------
allowed to exchange by telephone even if you have changed your address of record
within the preceding 30 days.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. 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 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.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours 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. An AIM Fund may postpone the right of redemption only under unusual
circumstances, as allowed by the Securities and Exchange Commission, such as
when the NYSE restricts or suspends trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund holds
its assets. Different rates of tax apply to ordinary income and long-term
capital gain distributions. Every year, you will be sent information 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, and any gain realized on the
transaction will generally be subject to federal income tax.
The foreign, state, and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
ADV--03/99 A- 4
<PAGE> 312
----------------------------------
AIM GLOBAL TELECOMMUNICATIONS FUND
----------------------------------
OBTAINING ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us
- ---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Distributors, Inc.
11 Greenway Plaza, Suite
100
Houston, TX 77046-1173
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
- ---------------------------------------------------------
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, DC, on the SEC's website
(http://www.sec.gov), or by sending a letter, including a duplicating fee, to
the SEC's Public Reference Section, Washington, DC 20549-6009. Please call the
SEC at 1-800-SEC-0330 for information about the Public Reference Room.
AIM Global Telecommunications Fund
SEC 1940 Act file number: 811-05426
[AIM LOGO APPEARS HERE] www.aimfunds.com
GTL-PRO-2 INVEST WITH DISCIPLINE--Registered Trademark--
<PAGE> 313
AIM LATIN AMERICAN
GROWTH FUND
------------------------------------------------------------------------
AIM Latin American Growth Fund seeks to provide growth of capital.
PROSPECTUS
MARCH 1, 1999
This prospectus contains important
information about the Class A, B and
C shares of the fund. Please read it
before investing and keep it for
future reference.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE--Registered Trademark--
<PAGE> 314
Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE
FUND 2
- - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 3
- - - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 3
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
- - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 4
Expense Example 4
FUND MANAGEMENT 5
- - - - - - - - - - - - - - - - - - - - - - - - -
The Advisors 5
Advisor Compensation 5
Portfolio Manager 5
OTHER INFORMATION 5
- - - - - - - - - - - - - - - - - - - - - - - - -
Sales Charges 5
Dividends and Distributions 5
FINANCIAL HIGHLIGHTS 6
- - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - -
Choosing a Share Class A-1
Purchasing Shares A-3
Redeeming Shares A-4
Exchanging Shares A-6
Pricing of Shares A-7
Taxes A-8
OBTAINING ADDITIONAL INFORMATION Back
Cover
- - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK, AIM Institutional Funds, aimfunds.com, La
Familia AIM de Fondos, La Familia AIM de Fondos and Design and Invest with
Discipline are registered service marks and AIM Bank Connection is a service
mark of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 315
------------------------------
AIM LATIN AMERICAN GROWTH FUND
------------------------------
Investment Objective and Strategies
- --------------------------------------------------------------------------------
The fund's investment objective is growth of capital.
The fund seeks to achieve its objective by investing, normally 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 (1) securities
of companies organized under the laws of, or having a principal office located
in, a Latin American country; (2) securities of companies that derive 50% or
more of their total revenues from business in Latin America, provided that, in
the view of the portfolio manager, the value of such issuers' securities reflect
Latin American developments to a greater extent than developments elsewhere; (3)
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; (4) U.S. dollar-denominated securities or securities denominated
in a Latin American currency issued by companies to finance operations in Latin
America; and (5) 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, many of which are considered
developing countries, i.e., those that are in the initial stages of their
industrial cycles.
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 expects to
invest no more than 60% of its total assets in any one country.
In allocating investments among the various Latin American countries, the
portfolio manager 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. Further, the portfolio manager selects 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
manager usually sells a particular security when any of those factors materially
changes.
The fund is non-diversified. 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 instruments, or high-quality debt securities. As a result, the fund may
not achieve its investment objective.
1
<PAGE> 316
------------------------------
AIM LATIN AMERICAN GROWTH FUND
------------------------------
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 prices of equity
securities change in response to many factors including the historical and
prospective earnings of the issuer, the value of its assets, general economic
conditions, interest rates, investor perceptions, and market liquidity. Debt
securities are particularly vulnerable to credit risk and interest rate
fluctuations. When interest rates rise, bond prices fall; the longer a bond's
duration, the more sensitive it is to this risk.
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.
The prices of foreign securities may be further affected by other factors,
including:
- - Currency exchange rates--The dollar value of the fund's foreign investments
will be affected by changes in the exchange rates between the dollar and the
currencies in which those investments are traded.
- - Political and economic conditions--The value of the fund's foreign investments
may be adversely affected by political and social instability in their home
countries and by changes in economic or taxation policies in those countries.
- - Regulations--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available information
about foreign companies than about U.S. companies.
- - Markets--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and their prices may be more volatile than U.S. securities.
These factors may affect the price of common stocks 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.
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.
The value of your shares could be adversely affected if the computer systems
used by the fund's investment advisor and the fund's other service providers are
unable to distinguish the year 2000 from the year 1900.
The fund's investment advisor and independent technology consultants are
working to avoid year 2000-related problems in its systems and to obtain
assurances that other service providers are taking similar steps. Year 2000
problems may also affect issuers in whose securities the fund invests.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
2
<PAGE> 317
------------------------------
AIM LATIN AMERICAN GROWTH FUND
------------------------------
Performance Information
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
The following bar chart shows changes in the performance of the fund's Class A
shares from year to year. The bar chart does not reflect sales loads. If it did,
the annual total returns shown would be lower.
[GRAPH]
<TABLE>
<CAPTION>
YEAR ENDED ANNUAL 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 ......................................... -44.27
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
31.04% (quarter ended September 30, 1994) and the lowest quarterly return was
(34.35)% (quarter ended September 30, 1998).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- -----------------------------------------------------------------------
(for the periods ended SINCE INCEPTION
December 31, 1998) 1 YEAR 5 YEARS INCEPTION DATE
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A (46.92) (12.18) (0.89) 08/13/91
Class B (47.29) (12.07) (4.54) 04/01/93
Class C -- -- -- 03/01/99
MSCI Emerging Latin America
Index(1) 8.82(2) 07/31/91(2)
- -----------------------------------------------------------------------
</TABLE>
1 The Morgan Stanley Capital International Emerging Latin America Index measures
companies listed in Argentina, Brazil, Chile, Colombia, Mexico, Peru and
Venezuela. The index has an aggregate market capitalization of $318.95
billion.
2 The average annual total return given is since the date closest to the
inception date of the class with the longest performance history.
3
<PAGE> 318
------------------------------
AIM LATIN AMERICAN GROWTH FUND
------------------------------
Fee Table and Expense Example
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from
your investment) CLASS A CLASS B CLASS C
- -------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) 4.75% None None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase
price or redemption
proceeds, whichever
is less) None(1) 5.00 1.00
- -------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets) CLASS A CLASS B CLASS C
- -------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.98% 0.98% 0.98%
Distribution and/or
Service (12b-1) Fees 0.50 1.00 1.00
Other Expenses
Other 0.66 0.66 0.66
Interest 0.17 0.17 0.17
Total Other Expenses 0.83 0.83 0.83
Total Annual Fund
Operating Expenses 2.31 2.81 2.81
Expense
Reimbursement(2) 0.14 0.14 0.14
Net Expenses 2.17 2.67 2.67
- -------------------------------------------------------
</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 has agreed to limit net expenses through May 31,
2000. The waiver may not be terminated.
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 net 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 $685 $1,122 $1,584 $2,859
Class B 770 1,129 1,615 2,882
Class C 370 829 1,415 3,003
- ----------------------------------------------
</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 $685 $1,122 $1,584 $2,859
Class B 270 829 1,415 2,882
Class C 270 829 1,415 3,003
- ----------------------------------------------
</TABLE>
4
<PAGE> 319
------------------------------
AIM LATIN AMERICAN GROWTH FUND
------------------------------
Fund Management
- --------------------------------------------------------------------------------
THE ADVISORS
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor.
INVESCO Asset Management Limited (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 advisor since its organization in 1976,
and the subadvisor has acted as an investment adviser since 1967. Today, the
advisor, together with its subsidiaries, advises or manages over 110 investment
portfolios, including the fund, encompassing a broad range of investment
objectives.
ADVISOR COMPENSATION
During the fiscal year ended October 31, 1998, the advisor and Chancellor LGT
Asset Management, Inc., (the advisor for the period November 1, 1997 through May
28, 1998) together received compensation of 0.866% of average daily net assets,
consisting of a management and administrative fee of 0.840% and an accounting
fee of 0.026%.
PORTFOLIO MANAGER
The advisors use 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
- - David Manuel, Portfolio Manager, who has been responsible for the fund since
1997 and has been associated with the advisor and/or its affiliates since
1997. From 1987 to 1997, he was an Investment Analyst and Portfolio Manager
for Abbey Life Investment Services Ltd. (Bournemouth), and Head of Latin
American Equities from 1994 to 1997.
Other Information
- --------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM Latin American Growth Fund are subject to the
maximum 4.75% initial sales charge as listed under the heading "CATEGORY II
Initial Sales Charges" in the "Shareholder Information--Choosing a Share Class"
section of this prospectus. Purchases of Class B and Class C shares are subject
to the contingent deferred sales charges listed in that section.
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS
The fund generally declares and pays dividends, if any, annually.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains (including
any net gains from foreign currency transactions), if any, annually.
5
<PAGE> 320
------------------------------
AIM LATIN AMERICAN GROWTH FUND
------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
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
----------------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------
1998(a) 1997(a) 1996(a) 1995(a) 1994(a)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 19.50 $17.95 $15.38 $ 26.11 $19.78
Income from investment operations:
Net investment income (loss) 0.13(b) 0.11 0.09 0.15 (0.08)
Net realized and unrealized gain (loss) on
investments (7.90) 1.44 2.59 (9.28) 6.75
Net increase (decrease) from investment
operations (7.77) 1.55 2.68 (9.13) 6.67
Distributions to shareholders:
From net investment income (0.03) -- (0.08) -- (0.19)
From net realized gain on investments -- -- -- (1.60) (0.15)
In excess of net investment income -- -- (0.03) -- --
Total distributions (0.03) -- (0.11) (1.60) (0.34)
Net asset value, end of period $ 11.70 $19.50 $17.95 $ 15.38 $26.11
Total investment return(c) (39.86)% 8.52% 17.52% (37.16)% 34.10%
- ------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
Net assets, end of period (in 000s) $60,720 $159,496 $177,373 $182,462 $336,960
Ratio of net investment income (loss) to average
net assets:
With expense reductions and/or reimbursement 0.78% 0.52% 0.46% 0.86% (0.29)%
Without expense reductions and/or
reimbursement 0.64% 0.42% 0.39% 0.85% N/A
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions and/or reimbursement 2.00% 1.96% 2.03% 2.11% 2.04%
Without expense reductions and/or
reimbursement 2.14% 2.06% 2.10% 2.12% N/A
Ratio of interest expenses to average net
assets(d) 0.17% N/A N/A N/A N/A
Portfolio turnover rate(d) 39% 130% 101% 125% 155%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(a)These selected per share data were calculated based upon average shares
outstanding during the period.
(b)Before reimbursement the net investment income per share would have been
reduced by $0.02.
(c)Total investment return does not include sales charges.
(d)Portfolio turnover rates and ratio of interest expense to average net assets
are calculated on the basis of the fund as a whole without distinguishing
between the classes of shares issued.
N/A Not applicable.
6
<PAGE> 321
------------------------------
AIM LATIN AMERICAN GROWTH FUND
------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------------
1998(a) 1997(a) 1996(a) 1995(a) 1994(a)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 19.23 $ 17.78 $ 15.21 $ 25.94 $ 19.75
Income from investment operations:
Net investment income (loss) 0.04(b) 0.01 (0.00) 0.06 (0.22)
Net realized and unrealized gain (loss) on
investments (7.78) 1.44 2.59 (9.19) 6.74
Net increase (decrease) from investment
operations (7.74) 1.45 2.59 (9.13) 6.52
Distributions to shareholders:
From net investment income -- -- (0.01) -- (0.18)
From net realized gain on investments -- -- -- (1.60) (0.15)
In excess of net investment income -- -- (0.01) -- --
Total distributions -- -- (0.02) (1.60) (0.33)
Net asset value, end of period $ 11.49 $ 19.23 $ 17.78 $ 15.21 $ 25.94
Total investment return(c) (40.19)% 8.04% 17.02% (37.42)% 33.33%
- -------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
Net assets, end of period (in 000s) $46,599 $133,448 $137,400 $134,527 $211,673
Ratio of net investment income (loss) to average
net assets:
With expense reductions and/or reimbursement 0.28% 0.02% (0.04)% 0.36% (0.79)%
Without expense reductions and/or
reimbursement 0.14% (0.08)% (0.11)% 0.35% N/A
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions and/or reimbursement 2.50% 2.46% 2.53% 2.61% 2.54%
Without expense reductions and/or
reimbursement 2.64% 2.56% 2.60% 2.62% N/A
Ratio of interest expenses to average net
assets(d) 0.17% N/A N/A N/A N/A
Portfolio turnover rate(d) 39% 130% 101% 125% 155%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a)These selected per share data were calculated based upon average shares
outstanding during the period.
(b)Before reimbursement the net investment income per share would have been
reduced by $0.02.
(c)Total investment return does not include sales charges.
(d)Portfolio turnover rates and ratio of interest expense to average net assets
are calculated on the basis of the fund as a whole without distinguishing
between the classes of shares issued.
N/A Not applicable.
7
<PAGE> 322
-------------
THE AIM FUNDS
-------------
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>
- - Initial sales charge - No initial sales charge - No initial sales charge
- - Reduced or waived initial sales - Contingent deferred sales - Contingent deferred sales
charge for certain purchases charge on redemptions within six charge on redemptions within
years one year
- - Lower distribution and service - 12b-1 fee of 1.00% - 12b-1 fee of 1.00%
(12b-1) fee than Class B or
Class C shares (See "Fee Table
and Expense Example")
- Converts to Class A shares - Does not convert to Class A
after eight years along with a shares
pro rata portion of its
reinvested dividends and
distributions*
- - Generally more appropriate for - Purchase orders limited to - Generally more appropriate
long-term investors amounts less than $250,000 for short-term investors
</TABLE>
* AIM Money Market Fund: Class B shares convert to AIM Cash Reserve
Shares.
AIM Global Trends Fund: If you held Class B shares on May 29,
1998 and continue to hold them, those shares will convert to
Class A shares of that fund seven years after your date of
purchase. If you exchange those shares for Class B shares of
another AIM Fund, the shares into which you exchanged will not
convert to Class A shares until eight years after your date of
purchase of the original shares.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12b-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund) has adopted 12b-1 plans
that allow the AIM Fund to pay distribution fees to A I M Distributors, Inc.
(the distributor) for the sale and distribution of its shares and fees for
services provided to shareholders, all or a substantial portion of which are
paid to the dealer of record. Because the AIM Fund pays these fees out of its
assets on an ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
MCF-03/99
A-1
<PAGE> 323
-------------
THE AIM FUNDS
-------------
SALES CHARGES
Generally, you will not pay a sales charge on purchases or redemptions of Class
A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money
Market Fund. You may be charged a contingent deferred sales charge if you redeem
AIM Cash Reserve Shares of AIM Money Market Fund acquired through certain
exchanges. Sales charges on all other AIM Funds and classes of those Funds are
detailed below. As used below, the term "offering price" with respect to all
categories of Class A shares includes the initial sales charge.
INITIAL SALES CHARGES
The AIM Funds are grouped into three categories with respect to initial sales
charges. The "Other Information" section of your prospectus will tell you in
what category your particular AIM Fund is classified.
<TABLE>
<CAPTION>
CATEGORY I INITIAL SALES CHARGES
- --------------------------------
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
- ----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY II INITIAL SALES CHARGES
- ---------------------------------
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
- ----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY III INITIAL SALES CHARGES
- ----------------------------------
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 100,000 1.00% 1.01%
$ 100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
- ----------------------------------------------------------
</TABLE>
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES
You can purchase $1,000,000 or more of Class A shares at net asset value.
However, if you purchase shares of that amount in Categories I or II, they will
be subject to a contingent deferred sales charge (CDSC) of 1% if you redeem them
prior to 18 months after the date of purchase. The distributor may pay a dealer
concession and/or a service fee for purchases of $1,000,000 or more.
CONTINGENT DEFERRED SALES CHARGES FOR
CLASS B AND CLASS C SHARES
You can purchase Class B and Class C shares at their net asset value per share.
However, when you redeem them, they are subject to a CDSC in the following
percentages:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
- ----------------------------------------------------------
<S> <C> <C>
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
- ----------------------------------------------------------
</TABLE>
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you have redeemed shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify
for these reductions or exceptions, you or your financial consultant must
provide sufficient information at the time of purchase to verify that your
purchase qualifies for such treatment.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Rights of Accumulation
You may combine your new purchases of Class A shares with Class A shares
currently owned for the purpose of qualifying for the lower initial sales charge
rates that apply to larger purchases. The applicable initial sales charge for
the new purchase is based on the total of your current purchase and the current
value of all Class A shares you own.
Letters of Intent
Under a Letter of Intent (LOI), you commit to purchase a specified dollar amount
of Class A shares of AIM Funds during a
A-2
<PAGE> 324
-------------
THE AIM FUNDS
-------------
13-month period. The amount you agree to purchase determines the initial sales
charge you pay. If the full face amount of the LOI is not invested by the end of
the 13-month period, your account will be adjusted to the higher initial sales
charge level for the amount actually invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- - on shares purchased by reinvesting dividends and distributions;
- - when exchanging shares among certain AIM Funds;
- - when using the reinstatement privilege; and
- - when a merger, consolidation, or acquisition of assets of an AIM Fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- - if you redeem Class B shares you held for more than six years;
- - if you redeem Class C shares you held for more than one year;
- - if you redeem shares acquired through reinvestment of dividends and
distributions; and
- - on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares
at reduced or without sales charges. Consult the fund's Statement of Additional
Information for details.
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
The minimum investments for AIM Fund accounts (except for investments in AIM
Small Cap Opportunities Fund) are as follows:
<TABLE>
<CAPTION>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing $ 0 ($25 per AIM Fund investment for $25
plans, 401(k) plans, Simplified Employee Pension salary deferrals from Savings Plans)
(SEP) accounts, Salary Reduction (SARSEP)
accounts, Savings Incentive Match Plans for
Employee IRA (Simple IRA) accounts, 403(b) or
457 plans)
Automatic Investment Plans 50 50
IRA, Education IRA or Roth IRA 250 50
All other accounts 500 50
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below.
PURCHASE OPTIONS
- -
<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 Application Mail your check and the remittance
and purchase payment to the slip from your confirmation
transfer agent, statement to the transfer agent.
A I M Fund Services, Inc.,
P.O. Box 4739,
Houston, TX 77210-4739.
By Wire Mail completed Account Application Call the transfer agent to receive
to the transfer agent. Call the a reference number. Then, use the
transfer agent at (800) 959-4246 to wire instructions at left.
receive a reference number. Then,
use the following wire
instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number:
00100366807
Beneficiary Account Name: A I M
Fund Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank
methods described above. Connection(SM) form to the transfer
agent. Once the transfer agent has
received the form, call the
transfer agent to place your
purchase.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
A-3
<PAGE> 325
-------------
THE AIM FUNDS
-------------
SPECIAL PLANS
AUTOMATIC INVESTMENT PLAN
You can arrange for periodic investments in any of the AIM Funds by authorizing
the AIM Fund to withdraw the amount of your investment from your bank account on
a day or dates you specify and in an amount of at least $50. You may stop the
Automatic Investment Plan at any time by giving the transfer agent notice ten
days prior to your next scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one AIM Fund account to one or more other AIM Fund
accounts with the identical registration. The account from which exchanges are
to be made must have a minimum balance of $5,000 before you can use this option.
Exchanges will occur on (or about) the 10th or 25th day of the month, whichever
you specify, in the amount you specify. The minimum amount you can exchange to
another AIM Fund is $50.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
AIM Fund at net asset value. Unless you specify otherwise, your dividends and
distributions will automatically be reinvested in the same AIM Fund. You may
invest your dividends and distributions (1) into another AIM Fund in the same
class of shares; or (2) from Class A shares into AIM Cash Reserve Shares of AIM
Money Market Fund, or vice versa.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend must be at
least $5,000; or (b) in the AIM Fund receiving the dividend must be at least
$500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends into
another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this Program, you can designate how the
total value of your AIM Fund holdings should be rebalanced, on a percentage
basis, between two and ten of your AIM Funds on a quarterly, semiannual or
annual basis. Your portfolio will be rebalanced through the exchange of shares
in one or more of your AIM Funds for shares of the same class of one or more
other AIM Funds in your portfolio. If you wish to participate in the Program,
make changes or cancel the Program, the transfer agent must receive your request
to participate, changes or cancellation in good order at least five business
days prior to the next rebalancing date, which is normally the 28th day of the
last month of the period you choose. We may modify, suspend or terminate the
Program at any time on 60 days' prior written notice.
RETIREMENT PLANS
Shares of most of the AIM Funds can be purchased through
tax-sheltered retirement plans made available to corporations, individuals and
employees of non-profit organizations and public schools. A plan document must
be adopted to establish a retirement plan. You may use AIM Funds-sponsored
retirement plans, which include IRAs, Education IRAs, Roth IRAs, 403(b) plans,
401(k) plans, SIMPLE IRA plans, SEP/SARSEP plans and Money Purchase/Profit
Sharing plans, or another sponsor's retirement plan. The plan custodian of the
AIM Funds-sponsored retirement plan assesses an annual maintenance fee of $10.
Contact your financial consultant for details.
REDEEMING SHARES
REDEMPTION FEES
We will not charge you any fees to redeem your shares; however, your broker or
financial consultant may charge service fees for handling these transactions.
Your shares may be subject to a contingent deferred sales charge (CDSC).
REDEMPTION OF AIM CASH RESERVE SHARES OF
AIM MONEY MARKET FUND ACQUIRED BY EXCHANGE
If you redeem AIM Cash Reserve Shares acquired by exchange from Class A shares
subject to a CDSC within 18 months of the purchase of the Class A shares,
you will be charged a CDSC.
REDEMPTION OF CLASS B SHARES ACQUIRED BY
EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM
Floating Rate Fund, the early withdrawal charge applicable to shares of AIM
Floating Rate Fund will be applied instead of the CDSC normally applicable to
Class B shares.
A-4
<PAGE> 326
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THE AIM FUNDS
-------------
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
Consultant
By Mail Send a written request to the transfer agent. Requests must
include (1) original signatures of all registered owners;
(2) the name of the AIM Fund and your account number; (3) if
the transfer agent does not hold your shares, endorsed share
certificates or share certificates accompanied by an
executed stock power; and (4) signature guarantees, if
necessary (see below). The transfer agent may require that
you provide additional information, such as corporate
resolutions or powers of attorney, if applicable. If you are
redeeming from an IRA account, you must include a statement
of whether or not you are at least 59 1/2 years old and
whether you wish to have federal income tax withheld from
your proceeds. The transfer agent may require certain other
information before you can redeem from an employer-sponsored
retirement plan. Contact your employer for details.
By Telephone Call the transfer agent. You will be allowed to redeem by
telephone if (1) the proceeds are to be mailed to the
address on record with us or transferred electronically to a
pre-authorized checking account; (2) the address on record
with us has not been changed within the last 30 days;
(3) you do not hold physical share certificates; (4) you can
provide proper identification information; (5) the proceeds
of the redemption do not exceed $50,000; and (6) you have
not previously declined the telephone redemption privilege.
Certain accounts, including retirement accounts and 403(b)
plans, may not redeem by telephone. The transfer agent must
receive your call during the hours the NYSE is open for
business in order to effect the redemption at that day's
closing price.
</TABLE>
- --------------------------------------------------------------------------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds to the address on record with us.
If your request is not in good order, you may have to provide us with additional
documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
PAYMENT FOR SYSTEMATIC WITHDRAWALS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. You also may make annual withdrawals if you own Class A shares.
We will redeem enough shares from your account to cover the amount withdrawn.
You must have an account balance of at least $5,000 to establish a Systematic
Withdrawal Plan. You can stop this plan at any time by giving ten days prior
notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM Cash Reserve Shares of AIM Money Market Fund only)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of trading
on the 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.
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<PAGE> 327
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THE AIM FUNDS
-------------
REINSTATEMENT PRIVILEGE (Class A shares only)
You may, within 90 days after you sell Class A shares (except Class A shares of
AIM Tax-Exempt Cash Fund), reinvest all or part of your redemption proceeds in
Class A shares of any AIM Fund at net asset value in an identically registered
account. If you sold Class A shares of AIM Limited Maturity Treasury Fund or AIM
Tax-Free Intermediate Fund, you will incur an initial sales charge reflecting
the difference between the initial sales charges on those Funds and the ones in
which you will be investing. In addition, if you paid a contingent deferred
sales charge (CDSC) on any reinstated amount, you will not be subject to a CDSC
if you later redeem that amount. You must notify the transfer agent in writing
at the time you reinstate that you are exercising your reinstatement privilege.
You may exercise this privilege only once per year.
REDEMPTIONS BY THE AIM FUNDS
If your account has been open at least one year, you have not made an additional
purchase in the account during the past six calendar months, and the value of
your account falls below $500 for three consecutive months due to redemptions or
exchanges (excluding retirement accounts), the AIM Funds have the right to
redeem the account after giving you 60 days' prior written notice. You may avoid
having your account redeemed during the notice period by bringing the account
value up to $500 or by utilizing the Automatic Investment Plan.
If an AIM Fund determines that you have provided incorrect information in
opening an account or in the course of conducting subsequent transactions, the
AIM Fund may, at its discretion, redeem the account and distribute the proceeds
to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one AIM Fund for those
of another AIM Fund. Before requesting an exchange, review the prospectus of the
AIM Fund you wish to acquire. Exchange privileges also apply to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992.
PERMITTED EXCHANGES
Except as otherwise stated below, you may exchange your shares for shares of the
same class of another AIM Fund. You also may exchange AIM Cash Reserve Shares of
AIM Money Market Fund for Class A shares of another AIM Fund, or vice versa. You
may be required to pay an initial sales charge when exchanging from a Fund with
a lower initial sales charge than the one into which you are exchanging. If you
exchange from Class A shares not subject to a CDSC into Class A shares subject
to those charges, you will be charged a CDSC when you redeem the exchanged
shares. The CDSC charged on redemption of those shares will be calculated
starting on the date you acquired those shares through exchange.
You also may exchange AIM Cash Reserve Shares of AIM Money Market Fund for
Advisor Class shares, but only if you acquired the AIM Cash Reserve Shares
through an exchange from Advisor Class shares.
YOU WILL NOT PAY A SALES CHARGE WHEN EXCHANGING:
(1) Class A shares with an initial sales charge (except for Class A shares of
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
Class A shares of another AIM Fund or AIM Cash Reserve Shares of AIM Money
Market Fund;
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund for
(a) one another;
(b) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of
AIM Tax-Exempt Cash Fund; or
(c) Class A shares of another AIM Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way of
an exchange from shares with higher sales charges;
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) one another;
(b) Class A shares of an AIM Fund subject to an initial sales charge (except
for Class A shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund), but only if you acquired the original
shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to an
initial sales charge;
(ii) on or after May 1, 1994 by exchange from Class A shares subject to
an initial sales charge (except for Class A shares of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund); or
(c) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund, but only if you acquired the original shares by
exchange from Class A shares subject to an initial sales charge; or
(4) Class B shares for other Class B shares, and Class C shares for other Class
C shares.
EXCHANGES NOT PERMITTED
You may not exchange Class A shares subject to contingent deferred sales charges
for Class A shares of AIM Limited Maturity Treasury Fund, AIM Tax-Free
Intermediate Fund or AIM Tax-Exempt Cash Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be qualified for sale in your
state of residence;
A-6
<PAGE> 328
-------------
THE AIM FUNDS
-------------
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - Shares must have been held for at least one day prior to the exchange; and
- - If you have physical share certificates, you must return them to the transfer
agent prior to the exchange.
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.
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. TO PROTECT THE INTERESTS OF
INVESTORS, EACH AIM FUND AND THE DISTRIBUTOR MAY REJECT ANY ORDER CONSIDERED
MARKET-TIMING ACTIVITY.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. AIM Money
Market Fund and AIM Tax-Exempt Cash Fund value all of their securities at
amortized cost. AIM High Income Municipal Fund, AIM Municipal Bond Fund, AIM
Tax-Exempt Bond Fund of Connecticut and AIM Tax-Free Intermediate Fund value
variable rate securities that have an unconditional demand or put feature
exercisable within seven days or less at par, which reflects the market value of
such securities.
The AIM Funds value all other securities and assets at their fair value.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day. In addition, if,
between the time trading ends on a particular security and the close of the 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.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours 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. An AIM Fund may postpone the right of redemption only under unusual
circumstances, as allowed by the Securities and Exchange Commission, such as
when the NYSE restricts or suspends trading.
A-7
<PAGE> 329
-------------
THE AIM FUNDS
-------------
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund holds
its assets. Different tax rates apply to ordinary income and long-term capital
gain distributions, regardless of how long you have held your shares. Every
year, you will be sent information showing the amount of dividends and
distributions you received from each AIM Fund during the prior year.
Any long-term or short-term capital gains realized from redemptions of AIM
Fund shares will be subject to federal income tax. Exchanges of shares for
shares of another AIM Fund are treated as a sale, and any gain realized on the
transaction will generally be subject to federal income tax.
The foreign, state and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
A-8
<PAGE> 330
------------------------------
AIM LATIN AMERICAN GROWTH FUND
------------------------------
Obtaining Additional Information
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registration Trademark-- or your account, or wish to obtain free copies
of the fund's current SAI or annual or semiannual reports, please contact us
- ---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Distributors, Inc.
11 Greenway Plaza, Suite
100
Houston, TX 77046-1173
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
- ---------------------------------------------------------
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, DC, on the SEC's website
(http://www.sec.gov), or by sending a letter, including a duplicating fee, to
the SEC's Public Reference Section, Washington, DC 20549-6009. Please call the
SEC at 1-800-SEC-0330 for information about the Public Reference Room.
-----------------------------------
AIM Latin American Growth Fund
SEC 1940 Act file number: 811-05426
-----------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com LAG-PRO-1 INVEST WITH DISCIPLINE
<PAGE> 331
AIM LATIN AMERICAN GROWTH FUND
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Advisor Class
AIM Latin American Growth Fund seeks to provide growth of capital.
PROSPECTUS
MARCH 1, 1999
This prospectus contains important
information. Please read it before
investing and keep it for future
reference.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE--Registered
Trademark--
<PAGE> 332
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE
FUND 2
- - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 3
- - - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 3
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
- - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 4
Expense Example 4
FUND MANAGEMENT 5
- - - - - - - - - - - - - - - - - - - - - - - - -
The Advisors 5
Advisor Compensation 5
Portfolio Manager 5
OTHER INFORMATION 5
- - - - - - - - - - - - - - - - - - - - - - - - -
Dividends and Distributions 5
FINANCIAL HIGHLIGHTS 6
- - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - -
Purchasing Shares A-1
Redeeming Shares A-2
Exchanging Shares A-3
Pricing of Shares A-4
Taxes A-4
OBTAINING ADDITIONAL INFORMATION Back
Cover
- - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK, AIM Institutional Funds, aimfunds.com, La
Familia AIM de Fondos, La Familia AIM de Fondos and Design and Invest with
Discipline are registered service marks and AIM Bank Connection is a service
mark of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 333
------------------------------
AIM LATIN AMERICAN GROWTH FUND
------------------------------
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 (1) securities of
companies organized under the laws of, or having a principal office located in,
a Latin American country; (2) securities of companies that derive 50% or more of
their total revenues from business in Latin America, provided that, in the view
of the portfolio manager, the value of such issuers' securities reflect Latin
American developments to a greater extent than developments elsewhere; (3)
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; (4) U.S. dollar-denominated securities or securities denominated
in a Latin American currency issued by companies to finance operations in Latin
America; and (5) 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, many of which are considered
developing countries, i.e., those that are in the initial stages of their
industrial cycles.
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 expects to
invest no more than 60% of its total assets in any one country.
In allocating investments among the various Latin American countries, the
portfolio manager 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. Further, the portfolio manager selects 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
manager usually sells a particular security when any of those factors materially
changes.
The fund is non-diversified. 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 instruments or high-quality debt securities. As a result, the fund may
not achieve its investment objective.
1
<PAGE> 334
------------------------------
AIM LATIN AMERICAN GROWTH FUND
------------------------------
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 prices of equity
securities change 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.
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.
The prices of foreign securities may be further affected by other factors,
including:
- - Currency exchange rates--The dollar value of the fund's foreign investments
will be affected by changes in the exchange rates between the dollar and the
currencies in which those investments are traded.
- - Political and economic conditions--The value of the fund's foreign investments
may be adversely affected by political and social instability in their home
countries and by changes in economic or taxation policies in those countries.
- - Regulations--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available information
about foreign companies than about U.S. companies.
- - Markets--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and their prices may be more volatile than U.S. securities.
These factors may affect the price of common stocks 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.
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.
The value of your shares could be adversely affected if the computer systems
used by the fund's investment advisor and the fund's other service providers are
unable to distinguish the year 2000 from the year 1900.
The fund's investment advisor and independent technology consultants are
working to avoid year 2000-related problems in its systems and to obtain
assurances that other service providers are taking similar steps. Year 2000
problems may also affect issuers in whose securities the fund invests.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
2
<PAGE> 335
------------------------------
AIM LATIN AMERICAN GROWTH FUND
------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
ANNUAL TOTAL RETURNS
The following bar chart shows changes in the performance of the fund's Advisor
Class shares from year to year over a four-year period.
<TABLE>
<CAPTION>
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURN
- ----------- ------
<S> <C>
1996 .............................. 17.51%
1997 .............................. 14.80%
1998 .............................. -43.98%
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
15.07% (quarter ended June 30, 1997) and the lowest quarterly return was
(34.25)% (quarter ended September 30, 1998).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(for the periods ended SINCE INCEPTION
December 31, 1998) 1 YEAR INCEPTION DATE
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Advisor Class (43.98)% (7.54)% 06/01/95
MSCI Emerging Latin America Index(1) (35.29) 1.53(2) 05/31/95(2)
- -----------------------------------------------------------------------
</TABLE>
1 The Morgan Stanley Capital International Emerging Latin America Index measures
companies listed in Argentina, Brazil, Chile, Colombia, Mexico, Peru and
Venezuela. The index has an aggregate market capitalization of $318.95
billion.
2 The average annual total return given is since the date closest to the
inception date of the Advisor Class.
3
<PAGE> 336
------------------------------
AIM LATIN AMERICAN GROWTH FUND
------------------------------
FEE TABLE AND EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from
your investment) ADVISOR CLASS
- -------------------------------------------------
<S> <C>
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
- -------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets) ADVISOR CLASS
- -------------------------------------------------
<S> <C>
Management Fees 0.98%
Distribution and/or
Service (12b-1) Fees None
Other Expenses
Other 0.66%
Interest 0.17
Total Other Expenses 0.83
Total Annual Fund Operating
Expenses 1.81
Expense Reimbursement(1) 0.14
Net Expenses 1.67
- -------------------------------------------------
</TABLE>
(1) The investment advisor has agreed to limit net expenses through May 31,
2000. The waiver may not be terminated.
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 net 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 $170 $526 $907 $1,976
- ----------------------------------------------------
</TABLE>
4
<PAGE> 337
------------------------------
AIM LATIN AMERICAN GROWTH FUND
------------------------------
FUND MANAGEMENT
- --------------------------------------------------------------------------------
THE ADVISORS
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor.
INVESCO Asset Management Limited (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 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 advisor since its organization in 1976,
and the subadvisor has acted as an investment advisor in 1967. Today, the
advisor, together with its subsidiaries, advises or manages over 110 investment
portfolios, including the fund, encompassing a broad range of investment
objectives.
ADVISOR COMPENSATION
During the fiscal year ended October 31, 1998, the advisor and Chancellor LGT
Asset Management, Inc., (the advisor for the period November 1, 1997 through May
28, 1998) together received compensation of 0.866% of average daily net assets,
consisting of a management and administrative fee of 0.840% and an accounting
fee of 0.026%.
PORTFOLIO MANAGER
The advisors use 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
- - David Manuel, Portfolio Manager, who has been responsible for the fund since
1997 and has been associated with the advisor and/or its affiliates since
November 1997. From 1987 to 1997, he was an Investment Analyst and Portfolio
Manager for Abbey Life Investment Services Ltd. (Bournemouth), and as Head of
Latin American Equities from 1994 to 1997.
OTHER INFORMATION
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS
The fund generally declares and pays dividends, if any, annually.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains (including
any net gains from foreign currency transactions), if any, annually.
5
<PAGE> 338
------------------------------
AIM LATIN AMERICAN GROWTH FUND
------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
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(f)
---------------------------------------------
YEAR ENDED OCTOBER 31, JUNE 1, 1995
--------------------------- TO
1998(d) 1997(d) 1996(d) OCTOBER 1, 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $19.57 $17.94 $15.40 $15.95
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.21(e) 0.19 0.17 0.09
Net realized and unrealized gain (loss) on
investments (7.92) 1.44 2.58 (0.64)
Net increase (decrease) from investment
operations (7.71) 1.63 2.75 (0.55)
- -----------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income (0.15) -- (0.14) --
From net realized gain on investments -- -- -- --
In excess of net investment income -- -- (0.07) --
Total distributions (0.15) -- (0.21) --
- -----------------------------------------------------------------------------------------------
Net asset value, end of period $11.71 $19.57 $17.94 $15.40
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Total investment return(d) (39.67)% 8.91% 18.16% (3.45)%(b)
Ratios and supplemental data:
Net assets, end of period (in 000's) $ 365 $ 636 $ 818 $ 369
Ratio of net investment income (loss) to average
net assets:
With expense reductions and/or reimbursement 1.28% 1.02% 0.96% 1.36%(a)
Without expense reductions and/or
reimbursement 1.14% 0.92% 0.89% 1.35%(a)
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions and/or reimbursement 1.50% 1.46% 1.53% 1.61%(a)
Without expense reductions and/or
reimbursement 1.64% 1.56% 1.60% 1.62%(a)
Ratio of interest expenses to average net
assets(g) 0.17% N/A N/A N/A
Portfolio turnover rate(g) 39% 130% 101% 125%
- -----------------------------------------------------------------------------------------------
</TABLE>
(a) Commencing June 1, 1995, the fund began offering Advisor Class shares.
(b) These selected per share data were calculated based upon average shares
outstanding during the period.
(c) Before reimbursement the net investment income per share would have been
reduced by $0.02.
(d) Total investment return does not include sales charges.
(e) Not annualized
(f) Annualized
(g) Portfolio turnover rates and ratio of interest expense to average net assets
are calculated on the basis of the fund as a whole without distinguishing
between the classes of shares issued.
N/A Not applicable.
6
<PAGE> 339
-------------
THE AIM FUNDS
-------------
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 of the funds advised by the
advisor (the AIM Funds), your financial consultant, on your behalf, must submit
a fully completed new account application form directly to the transfer agent.
You may purchase shares using one of the options below.
PURCHASE OPTIONS
- -
<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 Call the transfer agent to receive
a completed account application to a reference number. Then, use the
the transfer agent. You or your wire instructions at left.
financial 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 #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank
methods described above. Connection(SM) form to the transfer
agent. Once the transfer agent has
received the form, call the
transfer agent to place your
purchase order.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
A- 1 ADV--03/99
<PAGE> 340
-------------
THE AIM FUNDS
-------------
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.
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. TO PROTECT THE INTERESTS OF
INVESTORS, EACH AIM FUND AND THE DISTRIBUTOR MAY REJECT ANY ORDER CONSIDERED
MARKET TIMING ACTIVITY.
REDEEMING SHARES
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.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
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 New York Stock Exchange (NYSE) is open for business in
order to effect the redemption at that day's closing price.
</TABLE>
- --------------------------------------------------------------------------------
ADV--03/99 A- 2
<PAGE> 341
-------------
THE AIM FUNDS
-------------
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
(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.
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. You also may exchange Advisor
Class shares for AIM Cash Reserve shares of AIM Money Market 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:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be qualified for sale in your
state of residence;
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - The AIM Fund from which you are exchanging must have received the full amount
of the purchase price for the shares being exchanged;
- - 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
- - 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
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 New York Stock Exchange (NYSE) is open for business;
however, you still will be
A- 3 ADV--03/99
<PAGE> 342
-------------
THE AIM FUNDS
-------------
allowed to exchange by telephone even if you have changed your address of record
within the preceding 30 days.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. 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 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.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours 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. An AIM Fund may postpone the right of redemption only under unusual
circumstances, as allowed by the Securities and Exchange Commission, such as
when the NYSE restricts or suspends trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund holds
its assets. Different rates of tax apply to ordinary income and long-term
capital gain distributions. Every year, you will be sent information 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, and any gain realized on the
transaction will generally be subject to federal income tax.
The foreign, state, and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
ADV--03/99 A- 4
<PAGE> 343
------------------------------
AIM LATIN AMERICAN GROWTH FUND
------------------------------
OBTAINING ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us
- ---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Distributors, Inc.
11 Greenway Plaza, Suite
100
Houston, TX 77046-1173
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
- ---------------------------------------------------------
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, DC, on the SEC's website
(http://www.sec.gov), or by sending a letter, including a duplicating fee, to
the SEC's Public Reference Section, Washington, DC 20549-6009. Please call the
SEC at 1-800-SEC-0330 for information about the Public Reference Room.
AIM Latin American Growth Fund
SEC 1940 Act file number: 811-05426
[AIM LOGO APPEARS HERE] www.aimfunds.com
LAG-PRO-2 INVEST WITH DISCIPLINE--Registered Trademark--
<PAGE> 344
AIM STRATEGIC INCOME FUND
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
AIM Strategic Income Fund primarily seeks high current income and,
secondarily, seeks growth of capital.
PROSPECTUS
MARCH 1, 1999
This prospectus contains important
information about the Class A, B and
C shares of the fund. Please read it
before investing and keep it for
future reference.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE--Registered
Trademark--
<PAGE> 345
Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE
FUND 2
- - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 3
- - - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 3
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
- - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 4
Expense Example 4
FUND MANAGEMENT 5
- - - - - - - - - - - - - - - - - - - - - - - - -
The Advisors 5
Advisor Compensation 5
Portfolio Managers 5
OTHER INFORMATION 5
- - - - - - - - - - - - - - - - - - - - - - - - -
Sales Charges 5
Dividends and Distributions 5
FINANCIAL HIGHLIGHTS 6
- - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - -
Choosing a Share Class A-1
Purchasing Shares A-3
Redeeming Shares A-4
Exchanging Shares A-6
Pricing of Shares A-7
Taxes A-8
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK, AIM Institutional Funds, aimfunds.com, La
Familia AIM de Fondos, La Familia AIM de Fondos and Design and Invest with
Discipline are registered service marks and AIM Bank Connection is a service
mark of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 346
-------------------------
AIM STRATEGIC INCOME FUND
-------------------------
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 meet these 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 the fund's portfolio managers,
believe 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 portfolio managers believe 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 non-diversified. 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
instruments or high-quality 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.
1
<PAGE> 347
-------------------------
AIM STRATEGIC INCOME FUND
-------------------------
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 prices of foreign securities may be further affected by other factors,
including:
- - Currency exchange rates--The dollar value of the fund's foreign investments
will be affected by changes in the exchange rates between the dollar and the
currencies in which those investments are traded.
- - Political and economic conditions--The value of the fund's foreign investments
may be adversely affected by political and social instability in their home
countries and by changes in economic or taxation policies in those countries.
- - Regulations--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available information
about foreign companies than about U.S. companies.
- - Markets--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and more volatile than U.S. securities.
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.
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 junk bonds 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.
During those times, the bonds should be difficult to value or to sell at a fair
price. Credit ratings on junk bonds do not necessarily reflect their actual
market risk.
Because it is non-diversified, the fund may invest in fewer issuers than if it
were 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.
The value of your shares could be adversely affected if the computer systems
used by the fund's investment advisor and the fund's other service providers are
unable to distinguish the year 2000 from the year 1900.
The fund's investment advisor and independent technology consultants are
working to avoid year 2000-related problems in its systems and to obtain
assurances that other service providers are taking similar steps. Year 2000
problems may also affect issuers in whose securities the fund invests.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
2
<PAGE> 348
-------------------------
AIM STRATEGIC INCOME FUND
-------------------------
Performance Information
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
The following bar chart shows changes in the performance of the fund's Class A
shares from year to year. The bar chart does not reflect sales loads. If it did,
the annual total returns shown would be lower.
[GRAPH]
<TABLE>
<CAPTION>
YEAR ENDED ANNUAL TOTAL
DECEMBER 31 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%
1998 ...................................... -1.81%
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
11.43% (quarter ended December 31, 1993) and the lowest quarterly return was
(18.16)% (quarter ended March 31, 1994).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(for the periods ended SINCE INCEPTION
December 31, 1998) 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A (6.45)% 2.31 8.49 7.99% 03/29/88
Class B (7.03) 2.37 -- 8.10 10/22/92
Class C -- -- -- -- 03/01/99
Lehman Brothers Aggregate Bond
Index(1) 8.69 7.27 9.26 8.98(2) 03/31/88(2)
- ----------------------------------------------------------------------------------
</TABLE>
(1) The Lehman Aggregate Bond Index is an unmanaged index generally considered
representative of treasury issues, agency issues, corporate bond issues and
mortgage-backed securities.
(2) The average annual total return given is since the date closest to the
inception date of the class with the longest performance history.
3
<PAGE> 349
-------------------------
AIM STRATEGIC INCOME FUND
-------------------------
Fee Table and Expense Example
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from
your investment) CLASS A CLASS B CLASS C
- -------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) 4.75% None None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase
price or redemption
proceeds, whichever is less) None(1) 5.00 1.00
- -------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets) CLASS A CLASS B CLASS C
- -------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees 0.73% 0.73% 0.73%
Distribution and/or
Service (12b-1) Fees 0.35 1.00 1.00
Other Expenses 0.48 0.48 0.48
Total Annual Fund
Operating Expenses 1.56 2.21 2.21
- -------------------------------------------------------
</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.
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>
Class A $626 $944 $1,285 $2,243
Class B 724 991 1,385 2,380
Class C 324 691 1,185 2,544
- ----------------------------------------------
</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 $626 $944 $1,285 $2,243
Class B 224 691 1,185 2,380
Class C 224 691 1,185 2,544
- ----------------------------------------------
</TABLE>
4
<PAGE> 350
-------------------------
AIM STRATEGIC INCOME FUND
-------------------------
Fund Management
- --------------------------------------------------------------------------------
THE ADVISORS
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor.
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 advisor since its organization in 1976,
and the subadvisor has acted as an investment advisor since 1969. Today, the
advisor, together with its subsidiaries, advises or manages over 110 investment
portfolios, including the fund, encompassing a broad range of investment
objectives.
ADVISOR COMPENSATION
During the fiscal year ended October 31, 1998, the advisor and Chancellor LGT
Asset Management, Inc., (the advisor for the period November 1, 1997 through May
28, 1998) together received compensation of 0.756% of average daily net assets,
consisting of a management and administrative fee of 0.73% and an accounting fee
of 0.026%.
PORTFOLIO MANAGERS
The advisors use a team approach to investment management. The individual
members of the team who are primarily responsible for the day-to-day management
of the fund's portfolio are
- - 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. From 1993 to 1995, he was Senior Vice President and Senior Portfolio
Manager for Fiduciary Trust Company International.
- - 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. From 1994 to 1995, he was Assistant Vice President of Fiduciary
Trust Company International.
- - 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. 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.
Other Information
- --------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM Strategic Income Fund are subject to the
maximum 4.75% initial sales charge as listed under the heading "CATEGORY II
Initial Sales Charges" in the "Shareholder Information--Choosing a Share Class"
section of this prospectus.
Purchases of Class B and Class C shares are subject to the contingent deferred
sales charges listed in that section.
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS
The fund generally declares and pays dividends, if any, monthly.
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.
5
<PAGE> 351
-------------------------
AIM STRATEGIC INCOME FUND
-------------------------
Financial Highlights
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
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
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
- ------------------------------------------------------------------------------------------------------------------------
1998(a) 1997 1996(a) 1995(a) 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 12.00 $ 11.76 $ 10.32 $ 10.88 $ 13.61
Income from investment operations:
Net investment income 0.91(b) 0.74 0.89 0.97 0.79
Net realized and unrealized gain (loss) on
investments and foreign currencies (1.27) 0.34 1.44 (0.69) (2.14)
Net increase (decrease) from investment
operations (0.36) 1.08 2.33 0.28 (1.35)
Distributions to shareholders:
From net investment income (0.65) (0.78) (0.82) (0.80) (0.79)
From net realized gain on investments -- -- -- -- (0.38)
In excess of net investment income -- (0.06) (0.07) -- --
Return of capital (0.19) -- -- (0.04) (0.21)
Total distributions (0.84) (0.84) (0.89) (0.84) (1.38)
Net asset value, end of period $ 10.80 $ 12.00 $ 11.76 $ 10.32 $ 10.88
Total investment return(c) (3.41)% 9.40% 23.00% 3.06% (10.44)%
- -------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
Net assets, end of period (in 000s) $ 102,280 $ 138,715 $ 185,126 $ 188,165 $ 275,241
Ratio of net investment income to average net
assets 7.73% 6.18% 8.09% 9.64% 6.74%
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions 1.56% 1.35% 1.38% 1.42% 1.40%
Without expense reductions 1.56% 1.44% 1.40% 1.45% N/A
Ratio of interest expense to average net
assets(d) N/A N/A N/A N/A 0.10%
Portfolio turnover rate(d) 306% 149% 177% 238% 583%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) These selected per share data were calculated based upon average shares
outstanding during the period.
(b) Net investment income per share reflects an interest payment received from
the conversion of Vnesheconombank loan agreements of $0.11 per share.
(c) Total investment return does not include sales charges.
(d) Portfolio turnover rates and ratio of interest expense to average net assets
are calculated on the basis of the fund as a whole without distinguishing
between the classes of shares issued.
N/A Not applicable.
6
<PAGE> 352
-------------------------
AIM STRATEGIC INCOME FUND
-------------------------
<TABLE>
<CAPTION>
CLASS B
- -------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
- -------------------------------------------------------------------------------------------------------------------------------
1998(a) 1997 1996(a) 1995(a) 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 12.01 $ 11.77 $ 10.33 $ 10.88 $ 13.60
Income from investment operations:
Net investment income 0.84(b) 0.67 0.82 0.91 0.73
Net realized and unrealized gain (loss) on
investments and foreign currencies (1.28) 0.33 1.44 (0.69) (2.14)
Net increase (decrease) from investment
operations (0.44) 1.00 2.26 0.22 (1.41)
Distributions to shareholders:
From net investment income (0.57) (0.71) (0.75) (0.73) (0.72)
From net realized gain on investments -- -- -- -- (0.38)
In excess of net investment income -- (0.05) (0.07) -- --
Return of capital (0.19) -- -- (0.04) (0.21)
Total distributions (0.76) (0.76) (0.82) (0.77) (1.31)
Net asset value, end of period $ 10.81 $ 12.01 $ 11.77 $ 10.33 $ 10.88
Total investment return(c) (4.04)% 8.70% 22.15% 2.48% (11.02)%
- -------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
Net assets, end of period (in 000's) $ 188,660 $ 281,376 $ 333,178 $ 357,852 $ 458,550
Ratio of net investment income to average net
assets 7.08% 5.53% 7.44% 8.99% 6.09%
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions 2.21% 2.00% 2.03% 2.07% 2.05%
Without expense reductions 2.21% 2.09% 2.05% 2.10% N/A
Ratio of interest expense to average net
assets(d) N/A N/A N/A N/A 0.10%
Portfolio turnover rate(d) 306% 149% 177% 238% 583%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) These selected per share data were calculated based upon average shares
outstanding during the period.
(b) Net investment income per share reflects an interest payment received from
the conversion of Vnesheconombank loan agreements of $0.11 per share.
(c) Total investment return does not include sales charges.
(d) Portfolio turnover rates and ratio of interest expense to average net assets
are calculated on the basis of the fund as a whole without distinguishing
between the classes of shares issued.
N/A Not applicable
7
<PAGE> 353
-------------
THE AIM FUNDS
-------------
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>
- - Initial sales charge - No initial sales charge - No initial sales charge
- - Reduced or waived initial sales - Contingent deferred sales - Contingent deferred sales
charge for certain purchases charge on redemptions within six charge on redemptions within
years one year
- - Lower distribution and service - 12b-1 fee of 1.00% - 12b-1 fee of 1.00%
(12b-1) fee than Class B or
Class C shares (See "Fee Table
and Expense Example")
- Converts to Class A shares - Does not convert to Class A
after eight years along with a shares
pro rata portion of its
reinvested dividends and
distributions*
- - Generally more appropriate for - Purchase orders limited to - Generally more appropriate
long-term investors amounts less than $250,000 for short-term investors
</TABLE>
* AIM Money Market Fund: Class B shares convert to AIM Cash Reserve
Shares.
AIM Global Trends Fund: If you held Class B shares on May 29,
1998 and continue to hold them, those shares will convert to
Class A shares of that fund seven years after your date of
purchase. If you exchange those shares for Class B shares of
another AIM Fund, the shares into which you exchanged will not
convert to Class A shares until eight years after your date of
purchase of the original shares.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12b-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund) has adopted 12b-1 plans
that allow the AIM Fund to pay distribution fees to A I M Distributors, Inc.
(the distributor) for the sale and distribution of its shares and fees for
services provided to shareholders, all or a substantial portion of which are
paid to the dealer of record. Because the AIM Fund pays these fees out of its
assets on an ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
MCF-03/99
A-1
<PAGE> 354
-------------
THE AIM FUNDS
-------------
SALES CHARGES
Generally, you will not pay a sales charge on purchases or redemptions of Class
A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money
Market Fund. You may be charged a contingent deferred sales charge if you redeem
AIM Cash Reserve Shares of AIM Money Market Fund acquired through certain
exchanges. Sales charges on all other AIM Funds and classes of those Funds are
detailed below. As used below, the term "offering price" with respect to all
categories of Class A shares includes the initial sales charge.
INITIAL SALES CHARGES
The AIM Funds are grouped into three categories with respect to initial sales
charges. The "Other Information" section of your prospectus will tell you in
what category your particular AIM Fund is classified.
<TABLE>
<CAPTION>
CATEGORY I INITIAL SALES CHARGES
- --------------------------------
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
- ----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY II INITIAL SALES CHARGES
- ---------------------------------
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
- ----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY III INITIAL SALES CHARGES
- ----------------------------------
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 100,000 1.00% 1.01%
$ 100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
- ----------------------------------------------------------
</TABLE>
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES
You can purchase $1,000,000 or more of Class A shares at net asset value.
However, if you purchase shares of that amount in Categories I or II, they will
be subject to a contingent deferred sales charge (CDSC) of 1% if you redeem them
prior to 18 months after the date of purchase. The distributor may pay a dealer
concession and/or a service fee for purchases of $1,000,000 or more.
CONTINGENT DEFERRED SALES CHARGES FOR
CLASS B AND CLASS C SHARES
You can purchase Class B and Class C shares at their net asset value per share.
However, when you redeem them, they are subject to a CDSC in the following
percentages:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
- ----------------------------------------------------------
<S> <C> <C>
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
- ----------------------------------------------------------
</TABLE>
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you have redeemed shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify
for these reductions or exceptions, you or your financial consultant must
provide sufficient information at the time of purchase to verify that your
purchase qualifies for such treatment.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Rights of Accumulation
You may combine your new purchases of Class A shares with Class A shares
currently owned for the purpose of qualifying for the lower initial sales charge
rates that apply to larger purchases. The applicable initial sales charge for
the new purchase is based on the total of your current purchase and the current
value of all Class A shares you own.
Letters of Intent
Under a Letter of Intent (LOI), you commit to purchase a specified dollar amount
of Class A shares of AIM Funds during a
A-2
<PAGE> 355
-------------
THE AIM FUNDS
-------------
13-month period. The amount you agree to purchase determines the initial sales
charge you pay. If the full face amount of the LOI is not invested by the end of
the 13-month period, your account will be adjusted to the higher initial sales
charge level for the amount actually invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- - on shares purchased by reinvesting dividends and distributions;
- - when exchanging shares among certain AIM Funds;
- - when using the reinstatement privilege; and
- - when a merger, consolidation, or acquisition of assets of an AIM Fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- - if you redeem Class B shares you held for more than six years;
- - if you redeem Class C shares you held for more than one year;
- - if you redeem shares acquired through reinvestment of dividends and
distributions; and
- - on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares
at reduced or without sales charges. Consult the fund's Statement of Additional
Information for details.
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
The minimum investments for AIM Fund accounts (except for investments in AIM
Small Cap Opportunities Fund) are as follows:
<TABLE>
<CAPTION>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing $ 0 ($25 per AIM Fund investment for $25
plans, 401(k) plans, Simplified Employee Pension salary deferrals from Savings Plans)
(SEP) accounts, Salary Reduction (SARSEP)
accounts, Savings Incentive Match Plans for
Employee IRA (Simple IRA) accounts, 403(b) or
457 plans)
Automatic Investment Plans 50 50
IRA, Education IRA or Roth IRA 250 50
All other accounts 500 50
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below.
PURCHASE OPTIONS
- -
<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 Application Mail your check and the remittance
and purchase payment to the slip from your confirmation
transfer agent, statement to the transfer agent.
A I M Fund Services, Inc.,
P.O. Box 4739,
Houston, TX 77210-4739.
By Wire Mail completed Account Application Call the transfer agent to receive
to the transfer agent. Call the a reference number. Then, use the
transfer agent at (800) 959-4246 to wire instructions at left.
receive a reference number. Then,
use the following wire
instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number:
00100366807
Beneficiary Account Name: A I M
Fund Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank
methods described above. Connection(SM) form to the transfer
agent. Once the transfer agent has
received the form, call the
transfer agent to place your
purchase.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
A-3
<PAGE> 356
-------------
THE AIM FUNDS
-------------
SPECIAL PLANS
AUTOMATIC INVESTMENT PLAN
You can arrange for periodic investments in any of the AIM Funds by authorizing
the AIM Fund to withdraw the amount of your investment from your bank account on
a day or dates you specify and in an amount of at least $50. You may stop the
Automatic Investment Plan at any time by giving the transfer agent notice ten
days prior to your next scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one AIM Fund account to one or more other AIM Fund
accounts with the identical registration. The account from which exchanges are
to be made must have a minimum balance of $5,000 before you can use this option.
Exchanges will occur on (or about) the 10th or 25th day of the month, whichever
you specify, in the amount you specify. The minimum amount you can exchange to
another AIM Fund is $50.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
AIM Fund at net asset value. Unless you specify otherwise, your dividends and
distributions will automatically be reinvested in the same AIM Fund. You may
invest your dividends and distributions (1) into another AIM Fund in the same
class of shares; or (2) from Class A shares into AIM Cash Reserve Shares of AIM
Money Market Fund, or vice versa.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend must be at
least $5,000; or (b) in the AIM Fund receiving the dividend must be at least
$500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends into
another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this Program, you can designate how the
total value of your AIM Fund holdings should be rebalanced, on a percentage
basis, between two and ten of your AIM Funds on a quarterly, semiannual or
annual basis. Your portfolio will be rebalanced through the exchange of shares
in one or more of your AIM Funds for shares of the same class of one or more
other AIM Funds in your portfolio. If you wish to participate in the Program,
make changes or cancel the Program, the transfer agent must receive your request
to participate, changes or cancellation in good order at least five business
days prior to the next rebalancing date, which is normally the 28th day of the
last month of the period you choose. We may modify, suspend or terminate the
Program at any time on 60 days' prior written notice.
RETIREMENT PLANS
Shares of most of the AIM Funds can be purchased through
tax-sheltered retirement plans made available to corporations, individuals and
employees of non-profit organizations and public schools. A plan document must
be adopted to establish a retirement plan. You may use AIM Funds-sponsored
retirement plans, which include IRAs, Education IRAs, Roth IRAs, 403(b) plans,
401(k) plans, SIMPLE IRA plans, SEP/SARSEP plans and Money Purchase/Profit
Sharing plans, or another sponsor's retirement plan. The plan custodian of the
AIM Funds-sponsored retirement plan assesses an annual maintenance fee of $10.
Contact your financial consultant for details.
REDEEMING SHARES
REDEMPTION FEES
We will not charge you any fees to redeem your shares; however, your broker or
financial consultant may charge service fees for handling these transactions.
Your shares may be subject to a contingent deferred sales charge (CDSC).
REDEMPTION OF AIM CASH RESERVE SHARES OF
AIM MONEY MARKET FUND ACQUIRED BY EXCHANGE
If you redeem AIM Cash Reserve Shares acquired by exchange from Class A shares
subject to a CDSC within 18 months of the purchase of the Class A shares,
you will be charged a CDSC.
REDEMPTION OF CLASS B SHARES ACQUIRED BY
EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM
Floating Rate Fund, the early withdrawal charge applicable to shares of AIM
Floating Rate Fund will be applied instead of the CDSC normally applicable to
Class B shares.
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HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
Consultant
By Mail Send a written request to the transfer agent. Requests must
include (1) original signatures of all registered owners;
(2) the name of the AIM Fund and your account number; (3) if
the transfer agent does not hold your shares, endorsed share
certificates or share certificates accompanied by an
executed stock power; and (4) signature guarantees, if
necessary (see below). The transfer agent may require that
you provide additional information, such as corporate
resolutions or powers of attorney, if applicable. If you are
redeeming from an IRA account, you must include a statement
of whether or not you are at least 59 1/2 years old and
whether you wish to have federal income tax withheld from
your proceeds. The transfer agent may require certain other
information before you can redeem from an employer-sponsored
retirement plan. Contact your employer for details.
By Telephone Call the transfer agent. You will be allowed to redeem by
telephone if (1) the proceeds are to be mailed to the
address on record with us or transferred electronically to a
pre-authorized checking account; (2) the address on record
with us has not been changed within the last 30 days;
(3) you do not hold physical share certificates; (4) you can
provide proper identification information; (5) the proceeds
of the redemption do not exceed $50,000; and (6) you have
not previously declined the telephone redemption privilege.
Certain accounts, including retirement accounts and 403(b)
plans, may not redeem by telephone. The transfer agent must
receive your call during the hours the NYSE is open for
business in order to effect the redemption at that day's
closing price.
</TABLE>
- --------------------------------------------------------------------------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds to the address on record with us.
If your request is not in good order, you may have to provide us with additional
documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
PAYMENT FOR SYSTEMATIC WITHDRAWALS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. You also may make annual withdrawals if you own Class A shares.
We will redeem enough shares from your account to cover the amount withdrawn.
You must have an account balance of at least $5,000 to establish a Systematic
Withdrawal Plan. You can stop this plan at any time by giving ten days prior
notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM Cash Reserve Shares of AIM Money Market Fund only)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of trading
on the 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.
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-------------
REINSTATEMENT PRIVILEGE (Class A shares only)
You may, within 90 days after you sell Class A shares (except Class A shares of
AIM Tax-Exempt Cash Fund), reinvest all or part of your redemption proceeds in
Class A shares of any AIM Fund at net asset value in an identically registered
account. If you sold Class A shares of AIM Limited Maturity Treasury Fund or AIM
Tax-Free Intermediate Fund, you will incur an initial sales charge reflecting
the difference between the initial sales charges on those Funds and the ones in
which you will be investing. In addition, if you paid a contingent deferred
sales charge (CDSC) on any reinstated amount, you will not be subject to a CDSC
if you later redeem that amount. You must notify the transfer agent in writing
at the time you reinstate that you are exercising your reinstatement privilege.
You may exercise this privilege only once per year.
REDEMPTIONS BY THE AIM FUNDS
If your account has been open at least one year, you have not made an additional
purchase in the account during the past six calendar months, and the value of
your account falls below $500 for three consecutive months due to redemptions or
exchanges (excluding retirement accounts), the AIM Funds have the right to
redeem the account after giving you 60 days' prior written notice. You may avoid
having your account redeemed during the notice period by bringing the account
value up to $500 or by utilizing the Automatic Investment Plan.
If an AIM Fund determines that you have provided incorrect information in
opening an account or in the course of conducting subsequent transactions, the
AIM Fund may, at its discretion, redeem the account and distribute the proceeds
to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one AIM Fund for those
of another AIM Fund. Before requesting an exchange, review the prospectus of the
AIM Fund you wish to acquire. Exchange privileges also apply to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992.
PERMITTED EXCHANGES
Except as otherwise stated below, you may exchange your shares for shares of the
same class of another AIM Fund. You also may exchange AIM Cash Reserve Shares of
AIM Money Market Fund for Class A shares of another AIM Fund, or vice versa. You
may be required to pay an initial sales charge when exchanging from a Fund with
a lower initial sales charge than the one into which you are exchanging. If you
exchange from Class A shares not subject to a CDSC into Class A shares subject
to those charges, you will be charged a CDSC when you redeem the exchanged
shares. The CDSC charged on redemption of those shares will be calculated
starting on the date you acquired those shares through exchange.
You also may exchange AIM Cash Reserve Shares of AIM Money Market Fund for
Advisor Class shares, but only if you acquired the AIM Cash Reserve Shares
through an exchange from Advisor Class shares.
YOU WILL NOT PAY A SALES CHARGE WHEN EXCHANGING:
(1) Class A shares with an initial sales charge (except for Class A shares of
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
Class A shares of another AIM Fund or AIM Cash Reserve Shares of AIM Money
Market Fund;
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund for
(a) one another;
(b) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of
AIM Tax-Exempt Cash Fund; or
(c) Class A shares of another AIM Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way of
an exchange from shares with higher sales charges;
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) one another;
(b) Class A shares of an AIM Fund subject to an initial sales charge (except
for Class A shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund), but only if you acquired the original
shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to an
initial sales charge;
(ii) on or after May 1, 1994 by exchange from Class A shares subject to
an initial sales charge (except for Class A shares of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund); or
(c) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund, but only if you acquired the original shares by
exchange from Class A shares subject to an initial sales charge; or
(4) Class B shares for other Class B shares, and Class C shares for other Class
C shares.
EXCHANGES NOT PERMITTED
You may not exchange Class A shares subject to contingent deferred sales charges
for Class A shares of AIM Limited Maturity Treasury Fund, AIM Tax-Free
Intermediate Fund or AIM Tax-Exempt Cash Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be qualified for sale in your
state of residence;
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THE AIM FUNDS
-------------
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - Shares must have been held for at least one day prior to the exchange; and
- - If you have physical share certificates, you must return them to the transfer
agent prior to the exchange.
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.
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. TO PROTECT THE INTERESTS OF
INVESTORS, EACH AIM FUND AND THE DISTRIBUTOR MAY REJECT ANY ORDER CONSIDERED
MARKET-TIMING ACTIVITY.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. AIM Money
Market Fund and AIM Tax-Exempt Cash Fund value all of their securities at
amortized cost. AIM High Income Municipal Fund, AIM Municipal Bond Fund, AIM
Tax-Exempt Bond Fund of Connecticut and AIM Tax-Free Intermediate Fund value
variable rate securities that have an unconditional demand or put feature
exercisable within seven days or less at par, which reflects the market value of
such securities.
The AIM Funds value all other securities and assets at their fair value.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day. In addition, if,
between the time trading ends on a particular security and the close of the 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.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours 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. An AIM Fund may postpone the right of redemption only under unusual
circumstances, as allowed by the Securities and Exchange Commission, such as
when the NYSE restricts or suspends trading.
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THE AIM FUNDS
-------------
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund holds
its assets. Different tax rates apply to ordinary income and long-term capital
gain distributions, regardless of how long you have held your shares. Every
year, you will be sent information showing the amount of dividends and
distributions you received from each AIM Fund during the prior year.
Any long-term or short-term capital gains realized from redemptions of AIM
Fund shares will be subject to federal income tax. Exchanges of shares for
shares of another AIM Fund are treated as a sale, and any gain realized on the
transaction will generally be subject to federal income tax.
The foreign, state and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
A-8
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AIM STRATEGIC INCOME FUND
-------------------------
Obtaining Additional Information
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of Funds
or your account, or wish to obtain free copies of the fund's current SAI or
annual or semiannual reports, please contact us:
- ---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Distributors, Inc.
11 Greenway Plaza, Suite
100
Houston, TX 77046-1173
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
- ---------------------------------------------------------
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, DC, on the SEC's website
(http://www.sec.gov), or by sending a letter, including a duplicating fee, to
the SEC's Public Reference Section, Washington, DC 20549-6009. Please call the
SEC at 1-800-SEC-0330 for information about the Public Reference Room.
AIM Strategic Income Fund
SEC 1940 Act file number: 811-05426
[AIM LOGO APPEARS HERE] www.aimfunds.com SINC-PRO-1 INVEST WITH DISCIPLINE
--Registered Trademark--
<PAGE> 362
AIM STRATEGIC INCOME FUND
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
ADVISOR CLASS
AIM Strategic Income Fund seeks to provide high current income and,
secondarily, seeks growth of capital.
PROSPECTUS
MARCH 1, 1999
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.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE--Registered
Trademark--
<PAGE> 363
Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE FUND 2
- - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 3
- - - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 3
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
- - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 4
Expense Example 4
FUND MANAGEMENT 5
- - - - - - - - - - - - - - - - - - - - - - - - -
The Advisors 5
Advisor Compensation 5
Portfolio Managers 5
OTHER INFORMATION 5
- - - - - - - - - - - - - - - - - - - - - - - - -
Dividends and Distributions 5
FINANCIAL HIGHLIGHTS 6
- - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - -
Purchasing Shares A-1
Redeeming Shares A-2
Exchanging Shares A-3
Pricing of Shares A-4
Taxes A-4
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK, AIM Institutional Funds, aimfunds.com, La
Familia AIM de Fondos, La Familia AIM de Fondos and Design and Invest with
Discipline are registered service marks and AIM Bank Connection is a service
mark of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 364
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AIM STRATEGIC INCOME FUND
-------------------------
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 meet these 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 and 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 the fund's portfolio
managers, believe 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 portfolio managers believe 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 non-diversified. 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
instruments or high-quality 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.
1
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AIM STRATEGIC INCOME FUND
-------------------------
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 prices of foreign securities may be further affected by other factors
including:
- - Currency exchange rates--The dollar value of the fund's foreign investments
will be affected by changes in the exchange rates between the dollar and the
currencies in which those investments are traded.
- - Political and economic conditions--The value of the fund's foreign investments
may be adversely affected by political and social instability in their home
countries and by changes in economic or taxation policies in those countries.
- - Regulations--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available information
about foreign companies than about U.S. companies.
- - Markets--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and more volatile than U.S. securities.
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 junk bonds 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.
During those times, the bonds could be different to value or to sell at a fair
price. Credit ratings on junk bonds do not necessarily reflect their actual
market risk.
Because it is non-diversified, the fund may invest in fewer issuers than if it
were 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.
The value of your shares could be adversely affected if the computer systems
used by the fund's investment advisor and the fund's other service providers are
unable to distinguish the year 2000 from the year 1900.
The fund's investment advisor and independent technology consultants are
working to avoid year 2000-related problems in its systems and to obtain
assurances that other service providers are taking similar steps. Year 2000
problems may also affect issuers in whose securities the fund invests.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
2
<PAGE> 366
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AIM STRATEGIC INCOME FUND
-------------------------
Performance Information
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
The following bar chart shows changes in the performance of the fund's Advisor
Class shares from year to year.
<TABLE>
<CAPTION>
YEAR ENDED ANNUAL TOTAL
DECEMBER 31 RETURN
- ----------- ------
<S> <C>
1996 ....................................... 21.63
1997 ....................................... 7.30
1998 ....................................... -1.28
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
7.69% (quarter ended September 30, 1996) and the lowest quarterly return was
(5.85)% (quarter ended September 30, 1998).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(for the periods ended SINCE INCEPTION
December 31, 1998) 1 YEAR INCEPTION DATE
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Advisor Class (1.28) 10.01% 06/01/95
Lehman Brothers Aggregate Bond Index(1) 8.69 8.12(2) 05/31/95(2)
- -----------------------------------------------------------------------
</TABLE>
(1) THE LEHMAN AGGREGATE BOND INDEX is an unmanaged index generally considered
representative of treasury issues, agency issues, corporate bond issues and
mortgage-backed securities.
(2) The average annual total return given is since the date closest to the
inception of the advisor class.
3
<PAGE> 367
-------------------------
AIM STRATEGIC INCOME FUND
-------------------------
Fee Table and Expense Example
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from
your investment) ADVISOR CLASS
- ---------------------------------------------------
<S> <C> <C>
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
- ---------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets) ADVISOR CLASS
- ---------------------------------------------------
<S> <C> <C>
Management Fees 0.73%
Distribution and/or
Service (12b-1) Fees None
Other Expenses 0.48
Total Annual Fund
Operating Expenses 1.21
- ---------------------------------------------------
</TABLE>
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>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------
<S> <C> <C> <C> <C>
Advisor Class $123 $384 $665 $1,466
- ----------------------------------------------------
</TABLE>
4
<PAGE> 368
-------------------------
AIM STRATEGIC INCOME FUND
-------------------------
Fund Management
- --------------------------------------------------------------------------------
THE ADVISORS
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor.
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 advisor since its organization in 1976,
and the subadvisor has acted as an investment advisor since 1969. Today, the
advisor, together with its subsidiaries, advises or manages over 110 investment
portfolios, including the fund, encompassing a broad range of investment
objectives.
ADVISOR COMPENSATION
During the fiscal year ended October 31, 1998, the advisor and Chancellor LGT
Asset Management, Inc., (the advisor for the period November 1, 1997 through May
28, 1998) together received compensation of 0.756% of average daily net assets,
consisting of a management and administrative fee of 0.73% and an accounting fee
of 0.026%.
PORTFOLIO MANAGERS
The advisors use a team approach to investment management. The individual
members of the team who are primarily responsible for the day-to-day management
of the fund's portfolio, are
- - 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. From 1993 to 1995, he was Senior Vice President and Senior Portfolio
Manager for Fiduciary Trust Company International.
- - 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. From 1994 to 1995, he was Assistant Vice President of Fiduciary
Trust Company International.
- - 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. 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.
Other Information
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS
The fund generally declares and pays dividends, if any, monthly.
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.
5
<PAGE> 369
-------------------------
AIM STRATEGIC INCOME FUND
-------------------------
Financial Highlights
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
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(a)
---------------------------------------------
JUNE 1, TO
YEAR ENDED OCTOBER 31, OCTOBER 31,
1998(b) 1997 1996(b) 1995(b)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $12.02 $11.77 $10.33 $ 10.32
Income from investment operations:
Net investment income 0.95(c) 0.79 0.93 0.41
Net realized and unrealized gain (loss) on
investments and foreign currencies (1.26) 0.34 1.44 (0.04)
Net increase (decrease) from investment
operations (0.31) 1.13 2.37 0.37
Distributions to shareholders:
From net investment income (0.69) (0.82) (0.86) (0.34)
From net realized gain on investments -- -- -- --
In excess of net investment income -- (0.06) (0.07) --
Return of capital (0.19) -- -- (0.02)
Total distributions (0.88) (0.88) (0.93) (0.36)
Net asset value, end of period $10.83 $12.02 $11.77 $ 10.33
Total investment return(d) (2.97)% 9.86% 23.39% 3.72%(e)
- -----------------------------------------------------------------------------------------------
Ratios and supplemental data:
- -----------------------------------------------------------------------------------------------
Net assets, end of period (in 000s) $ 847 $ 533 $ 479 $ 443
Ratio of net investment income to average net
assets 8.08% 6.53% 8.44% 9.99%(f)
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions 1.21% 1.00% 1.03% 1.07%(f)
Without expense reductions 1.21% 1.09% 1.05% 1.10%(f)
Ratio of interest expense to average net
assets(g) N/A N/A N/A N/A
Portfolio turnover rate(g) 306% 149% 177% 238%
- -----------------------------------------------------------------------------------------------
</TABLE>
(a) Commencing June 1, 1995, the fund began offering Advisor Class shares.
(b) These selected per share data were calculated based upon average shares
outstanding during the period.
(c) Net investment income per share reflects an interest payment received from
the conversion of Vnesheconombank loan agreements of $0.11 per share.
(d) Total investment return does not include sales charges.
(e) Not annualized
(f) Annualized
(g) Portfolio turnover rates and ratio of interest expense to average net assets
are calculated on the basis of the fund as a whole without distinguishing
between the classes of shares issued.
N/A Not applicable
6
<PAGE> 370
-------------
THE AIM FUNDS
-------------
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 of the funds advised by the
advisor (the AIM Funds), your financial consultant, on your behalf, must submit
a fully completed new account application form directly to the transfer agent.
You may purchase shares using one of the options below.
PURCHASE OPTIONS
- -
<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 Call the transfer agent to receive
a completed account application to a reference number. Then, use the
the transfer agent. You or your wire instructions at left.
financial 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 #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank
methods described above. Connection(SM) form to the transfer
agent. Once the transfer agent has
received the form, call the
transfer agent to place your
purchase order.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
A- 1 ADV--03/99
<PAGE> 371
-------------
THE AIM FUNDS
-------------
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.
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. TO PROTECT THE INTERESTS OF
INVESTORS, EACH AIM FUND AND THE DISTRIBUTOR MAY REJECT ANY ORDER CONSIDERED
MARKET TIMING ACTIVITY.
REDEEMING SHARES
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.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
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 New York Stock Exchange (NYSE) is open for business in
order to effect the redemption at that day's closing price.
</TABLE>
- --------------------------------------------------------------------------------
ADV--03/99 A- 2
<PAGE> 372
-------------
THE AIM FUNDS
-------------
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
(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.
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. You also may exchange Advisor
Class shares for AIM Cash Reserve shares of AIM Money Market 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:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be qualified for sale in your
state of residence;
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - The AIM Fund from which you are exchanging must have received the full amount
of the purchase price for the shares being exchanged;
- - 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
- - 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
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 New York Stock Exchange (NYSE) is open for business;
however, you still will be
A- 3 ADV--03/99
<PAGE> 373
-------------
THE AIM FUNDS
-------------
allowed to exchange by telephone even if you have changed your address of record
within the preceding 30 days.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. 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 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.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours 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. An AIM Fund may postpone the right of redemption only under unusual
circumstances, as allowed by the Securities and Exchange Commission, such as
when the NYSE restricts or suspends trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund holds
its assets. Different rates of tax apply to ordinary income and long-term
capital gain distributions. Every year, you will be sent information 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, and any gain realized on the
transaction will generally be subject to federal income tax.
The foreign, state, and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
ADV--03/99 A- 4
<PAGE> 374
-------------------------
AIM STRATEGIC INCOME FUND
-------------------------
Obtaining Additional Information
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registration Mark-- or your account, or wish to obtain free copies of the
fund's current SAI or annual or semiannual reports, please contact us
- ---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Distributors, Inc.
11 Greenway Plaza, Suite
100
Houston, TX 77046-1173
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
- ---------------------------------------------------------
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, DC, on the SEC's website
(http://www.sec.gov), or by sending a letter, including a duplicating fee, to
the SEC's Public Reference Section, Washington, DC 20549-6009. Please call the
SEC at 1-800-SEC-0330 for information about the Public Reference Room.
- ------------------------------------
AIM Strategic Income Fund
SEC 1940 Act file number: 811-05426
- ------------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com SINC-PRO-2 INVEST WITH DISCIPLINE
--Registered Trademark--
<PAGE> 375
STATEMENT OF
ADDITIONAL INFORMATION
CLASS A, CLASS B AND CLASS C SHARES OF
AIM DEVELOPING 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,
AND THE AIM LATIN AMERICAN GROWTH FUND PROSPECTUS DATED MARCH 1, 1999
<PAGE> 376
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<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
Privatizations............................................ 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 and Reverse Repurchase Agreements............... 11
Short Sales............................................... 11
Temporary Defensive Strategies............................ 12
Samurai and Yankee Bonds.................................. 12
Debt Conversions.......................................... 12
Debt Securities........................................... 13
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.................................... 19
Purchasing Call Options................................... 19
Index Options............................................. 20
Interest Rate, Currency and Stock Index Futures........... 21
Options on Futures Contracts.............................. 23
Limitations on Use of Futures, Options on Futures and
Certain Options on Currencies.......................... 23
Forward Contracts......................................... 23
Foreign Currency Strategies -- Special Considerations..... 24
Cover..................................................... 25
RISK FACTORS................................................ 25
General................................................... 25
Non-Diversified Classification............................ 25
Illiquid Securities....................................... 25
Debt Securities........................................... 26
</TABLE>
2
<PAGE> 377
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Loan Participations and Assignments....................... 27
Foreign Securities........................................ 28
INVESTMENT LIMITATIONS...................................... 35
Developing Markets Fund................................... 35
Latin American Fund....................................... 36
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...................................... 42
The Class A and C Plan.................................... 42
The Class B Plan.......................................... 43
Both Plans................................................ 43
THE DISTRIBUTOR............................................. 46
Expenses of the Funds..................................... 47
Sales Charges and Dealer Concessions...................... 47
REDUCTIONS IN INITIAL SALES CHARGES......................... 49
Purchases At Net Asset Value.............................. 51
Contingent Deferred Sales Charge Exceptions............... 52
HOW TO PURCHASE AND REDEEM SHARES........................... 53
Backup Withholding........................................ 53
NET ASSET VALUE DETERMINATION............................... 55
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS.................... 55
Reinvestment of Dividends and Distributions............... 55
Tax Matters............................................... 56
General................................................... 56
Reinstatement Privilege................................... 56
Foreign Taxes............................................. 56
Passive Foreign Investment Companies...................... 57
Non-U.S. Shareholders..................................... 57
Options, Futures and Foreign Currency Transactions........ 57
SHAREHOLDER INFORMATION..................................... 58
Timing of Purchase Orders................................. 58
Share Certificates........................................ 58
Systematic Withdrawal Plan................................ 58
Terms and Conditions of Exchanges......................... 58
Exchanges by Telephone.................................... 58
Redemptions by Telephone.................................. 59
Signature Guarantees...................................... 59
Dividends and Distributions............................... 59
MISCELLANEOUS INFORMATION................................... 60
Charges for Certain Account Information................... 60
Custodian and Transfer Agent.............................. 60
Independent Accountants................................... 60
Legal Matters............................................. 60
Shareholder Liability..................................... 60
Control Persons and Principal Holders of Securities....... 61
</TABLE>
3
<PAGE> 378
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INVESTMENT RESULTS.......................................... 62
Total Return Quotations................................... 62
Performance Information................................... 64
APPENDIX.................................................... 67
Description of Bond Ratings............................... 67
Description of Commercial Paper Ratings................... 68
Absence of Rating......................................... 68
FINANCIAL STATEMENTS........................................ FS
</TABLE>
4
<PAGE> 379
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") 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 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 Limited (the "Sub-advisor")
serves as the investment sub-advisor 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, 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 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 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 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 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 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 of Class B shares to Class A shares, there are no conversion rights.
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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. 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 growth of capital. 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.
In determining what countries constitute emerging markets with respect to
Developing Market 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").
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Developing 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 considers 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 Prospectus and 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 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 growth
of capital. Latin American Fund will normally invest at least 65% of its total
assets in securities of a broad range of Latin American issuers. 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
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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 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. Latin American Fund may invest up to 35% of its total assets in
a combination of equity and debt securities of U.S. issuers. 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
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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.
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, 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 ("Affiliated
Funds") within the limits of the 1940 Act. These investments are subject to the
limitations imposed by the 1940 Act, which currently provide that, in general,
each Fund may purchase shares of an 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 and multiple layering of fees and expenses and
is subject to limitations under the 1940 Act and market availability. 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 or sales charges. As a shareholder in another
investment company, each fund would bear its ratable share of that company's
expenses, including its advisory and administration fees. At the same time, each
fund would continue to pay its own management fees and expenses. 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, AIM and the Sub-advisor waive
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 Latin American countries and 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
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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 Latin American 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.
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. Each
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
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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 Fund may make secured
loans of portfolio securities amounting to not more than 30% of its total
assets, measured at the time any such loan is made. 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 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 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.
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BORROWING AND REVERSE REPURCHASE AGREEMENTS
Neither 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. Each Fund will segregate with a custodian,
liquid assets in an amount sufficient to cover its obligations and reverse
repurchase agreements with broker/dealers. No segregation is required for
reverse repurchase agreements with banks.
SHORT SALES
Each 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.
Each 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% 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.
Latin American Fund will not 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, Latin American Fund may engage
in short sales only with respect to securities listed on a national securities
exchange. Latin American Fund 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
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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 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
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 Developing Markets Fund
to invest in Samurai or Yankee bond issues only after taking into account
considerations of quality and liquidity, as well as yield.
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
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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 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.
Under normal circumstances, the Latin American Fund may invest up to 50% of
its total assets in debt securities. There is no limitation on the percentage of
its assets that may be invested in debt securities that are rated below
investment grade. Investment in below investment grade debt securities involves
a high degree of risk and can be speculative. These debt securities are the
equivalent of high yield, high risk bonds, commonly known as "junk bonds." Most
debt securities in which the fund will invest are not rated; if rated, it is
expected that such ratings would be below investment grade. However, the Fund
will not invest in debt securities that are in default in payment as to
principal or interest.
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.
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. The receipt of income from debt securities
owned by Latin American Fund is incidental to its objective of growth of
capital.
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
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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. 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
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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 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
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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, 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. Each Fund may enter into forward currency
contracts either with respect to specific transactions or with respect to its
portfolio positions. Each 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.
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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
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.
Although each Fund is authorized to enter into options, futures and forward
currency transactions, it might not enter into any such 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.
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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.
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
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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 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
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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 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
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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 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.
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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.
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.
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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
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.
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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.
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
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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 either Fund will achieve its investment objectives.
Investing in a Fund entails a substantial degree of risk, and an investment in
each 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.
Each 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 held 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 they were 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 may invest up to 15% of its net assets, and Latin
American Fund may invest 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. Illiquid securities may be harder to value than liquid
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
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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 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 in debt
securities rated below investment grade. All 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
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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.
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 (including
those in Latin American 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.
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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. 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
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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. 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.
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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 is known as the "euro." Each participating
country 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 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 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, (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
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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 "Dividends, Distributions and Tax Matters."
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.
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
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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 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 invest and
adversely affect the value of such Fund's assets. In addition, asset
expropriations or future confiscatory levels of taxation possibly may affect the
Fund.
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 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
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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 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
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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 emerging market and 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 a moratorium 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 emerging market and 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.
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.
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INVESTMENT LIMITATIONS
DEVELOPING MARKETS FUND
Developing Markets Fund has adopted the following investment limitations as
fundamental policies which 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 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
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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.
LATIN AMERICAN FUND
Latin American Fund has adopted the following investment limitations as
fundamental policies which 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 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
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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.
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.
38
<PAGE> 413
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, 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 $1,409,401, 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, Latin American Fund paid aggregate
brokerage commissions of $700,006, $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 111%, and for the
fiscal years ended October 31, 1997 and 1996, the Predecessor Fund's portfolio
turnover rates were 184% and 138%, respectively. Latin American Fund's portfolio
turnover rates for the fiscal years ended October 31, 1998, 1997 and 1996 were
39%, 130% and 101%, respectively.
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.''
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<PAGE> 414
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); and Director, "R"
Homes, Inc. and various other
companies.
FRANK S. BAYLEY (59) Trustee Partner, law firm of Baker & McKenzie;
Two Embarcadero Center and Director and Chairman, C.D. Stimson
Suite 2400 Company (a private investment company).
San Francisco, CA 94111
ARTHUR C. PATTERSON (54) Trustee Managing Partner, Accel Partners (a
428 University Avenue venture capital firm); and Director,
Palo Alto, CA 94301 Viasoft and PageMart, Inc. (both public
software companies) and several other
privately held software and
communications companies.
RUTH H. QUIGLEY (63) Trustee Private investor; and President,
1055 California Street Quigley Friedlander & Co., Inc. (a
San Francisco, CA 94108 financial advisory services firm) from
1984 to 1986.
+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.
</TABLE>
- ---------------
*A Trustee who is an "interested person" of the Trust and A I M Advisors, Inc.,
as defined in the 1940 Act.
+Mr. Arthur and Ms. Relihan are married to each other.
40
<PAGE> 415
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITIONS HELD WITH REGISTRANT PRINCIPAL OCCUPATION WITH REGISTRANT
--------------------- ------------------------------ ------------------------------------
<S> <C> <C>
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.
SAMUEL D. SIRKO (39) Vice President and Secretary Vice President, Assistant General
Counsel and Assistant Secretary, A I M
Advisors, Inc.; and Assistant General
Counsel and Assistant Secretary, A I M
Management Group Inc., A I M Capital
Management, Inc., A I M Distributors,
Inc., A I M Fund Services, Inc. and
Fund Management Company.
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 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 $46,350,
$43,350, $47,700 and $48,000, 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
$97,600, $97,500, $105,450 and
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<PAGE> 416
$106,350, 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 February
1, 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, 11 Greenway Plaza, Suite 100, Houston, Texas 77046, was organized in 1976
and, together with its subsidiaries, manages or advises approximately 110
investment portfolios encompassing a broad range of investment objectives.
INVESCO Asset Management Limited, 11 Devonshire Square, London, EC2M 4YR,
England, has provided investment management and/or administrative services to
pension funds, insurance funds, index funds, unit trusts, offshore funds and a
variety of institutional accounts since 1967. AIM, the Sub-advisor and their
world-wide asset management affiliates provide investment management and/or
administrative services to institutional, corporate and individual clients
around the world.
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.
AIM Management, AIM and the Sub-Advisor are indirect wholly owned subsidiaries
of AMVESCAP PLC, 11 Devonshire Square, London, EC2M 4YR, England. AMVESCAP PLC
and its subsidiaries are an independent 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 and London offices,
AIM and the Sub-advisor draw upon the expertise, personnel, data and systems of
other offices in Atlanta, Boston, Dallas, Denver, Louisville, Miami, New York,
Portland (Oregon), Frankfurt, Hong Kong, London, Singapore, Sydney, Tokyo and
Toronto. In managing the Funds and the Portfolio, the Sub-advisors employ a team
approach, taking advantage of its investment resources around the world.
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 to each
Fund under a sub-advisory 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 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%, 2.50% and 2.50% of the average daily net assets of each Fund's Class A,
Class B and Class C shares, respectively, until May 31, 2000.
AIM may from time to time waive or reduce its fee. Voluntary fee waivers or
reductions may be rescinded at any time without further notice to investors.
During periods of voluntary fee waivers or reductions, AIM will retain its
ability to be
42
<PAGE> 417
reimbursed for such fee prior to the end of each fiscal year. Contractual fee
waivers or reductions set forth in the Fee Tables in the Prospectus may not be
terminated without the approval of the Board of Trustees.
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.
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.
For the fiscal years ended October 31, 1998, 1997 and 1996, each Fund paid the
former Sub-advisor the following investment management and administration fees:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Developing Markets Fund*.......................... $1,740,733 $7,383,823 $7,864,840
Latin American Fund............................... 2,036,326 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, 1997 and 1996.
THE DISTRIBUTION PLANS
THE CLASS A AND C PLAN
The Trust has adopted a Master Distribution Plan pursuant to Rule 12b-1 under
the 1940 Act relating to the Class A and Class C shares of the Funds (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 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
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<PAGE> 418
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.
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.
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
44
<PAGE> 419
customers of such dealers or financial institutions, and by imposing a cap on
the total sales charges, including asset based sales charges, that may be paid
by the Funds and their respective classes.
AIM Distributors may from time to time waive or reduce any portion of its
12b-1 fee for Class A and Class C shares. Voluntary fee waivers or reductions
may be rescinded at any time without further notice to investors. During periods
of voluntary fee waivers or reductions, AIM Distributors will retain its ability
to be reimbursed for such fee prior to the end of each fiscal year. Contractual
fee waivers or reductions set forth in the Fee Table in the Prospectus may not
be terminated without the approval of the Board of Trustees.
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.
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.
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.
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 Plan:
<TABLE>
<CAPTION>
% OF CLASS
AVERAGE DAILY
1998 NET ASSETS
-------------------- -----------------
CLASS A CLASS B
-------- --------
<S> <C> <C> <C> <C>
Developing Markets Fund(1).................... $326,807 $ 866 .50% 1.00%
Latin American Growth Fund.................... $400,705 $690,316 .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......................... $127,747 $ 710 .50% 1.00%
Latin American Fund............................. 159,413 269,578 .50% 1.00%
</TABLE>
An estimate by category of actual fees paid by each Fund with regard to the
Class A shares during the fiscal year ended October 31, 1998 follows:
<TABLE>
<CAPTION>
DEVELOPING LATIN
MARKETS FUND AMERICAN FUND
------------ -------------
<S> <C> <C>
CLASS A
Advertising.............................................. $306,327 $ 60,045
Printing and Mailing prospectuses, semi-annual reports
and annual reports (other than to current
shareholders)......................................... 45,773 8,480
Seminars................................................. 19,561 8,566
Compensation to Underwriters to partially offset other
marketing expenses.................................... 0 0
Compensation to Dealers including Finder's Fees.......... 17,635 481,434
Compensation to Sales Personnel.......................... 0 0
Annual Report Total...................................... 389,296 558,525
</TABLE>
45
<PAGE> 420
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 LATIN
MARKETS FUND AMERICAN FUND
------------ -------------
<S> <C> <C>
CLASS B
Advertising.............................................. $ 26 $ 8,153
Printing and Mailing prospectuses, semi-annual reports
and annual reports (other than to current
shareholders)......................................... 0 1,161
Seminars................................................. 0 717
Compensation to Underwriters to partially offset other
marketing expenses.................................... 1,184 718,195
Compensation to Dealers.................................. 369 229,367
Compensation to Sales Personnel.......................... 0 0
Annual Report Total...................................... 1,579 957,593
</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 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 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.
46
<PAGE> 421
THE DISTRIBUTOR
A Master Distribution Agreement with AIM Distributors relating to the Class B
shares of the Funds was approved by the Board of Trustees on May 7, 1998. A
Master Distribution Agreement with AIM Distributors relating to Class A and C
shares of the Funds was approved by the Board on December 10, 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.
From time to time, AIM Distributors may transfer and sell its right to
payments under the Distribution Agreement relating to Class B shares in order to
finance distribution expenditures in respect of Class B shares.
The following chart reflects the total sales charges paid in connection with
the sale of Class A shares of each Fund and the amount retained by 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......... $ 0 $ 0 $ N/A $ N/A $ N/A $ N/A
Latin American Fund............. $47,006 $16,513 $168,598 $50,871 $262,651 $98,352
</TABLE>
Developing Markets Fund and Latin American Fund pay AIM Distributors sales
charges on sales of Class A shares of the Funds, retains certain amounts of such
charges and reallows other amounts of such charges to brokers/dealers who sell
shares.
47
<PAGE> 422
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..................................... $ 819 $ 770
Latin American Fund......................................... $10,956 $10,703
</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............................. $ 4,252 $ N/A $ N/A
Latin American Fund................................. $791,308 $923,769 $843,024
</TABLE>
Developing Markets Fund and Latin American Fund pay AIM Distributors a
contingent deferred sales charge with respect to redemptions of Class B shares
and certain Class A shares.
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.
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 Japan Growth Fund, AIM Large Cap Growth
48
<PAGE> 423
Fund, AIM Mid Cap Equity Fund, AIM Mid Cap Opportunities Fund, AIM New Pacific
Growth Fund, AIM Select Growth Fund, AIM Small Cap Growth Fund, AIM Small Cap
Opportunities Fund, AIM Value Fund and AIM Weingarten Fund.
<TABLE>
<CAPTION>
DEALER
CONCESSION
INVESTOR'S SALES CHARGE ----------
-------------------------- AS A
AS A AS A PERCENTAGE
PERCENTAGE PERCENTAGE OF THE
OF THE PUBLIC OF THE NET PUBLIC
AMOUNT OF INVESTMENT IN OFFERING AMOUNT OFFERING
SINGLE TRANSACTION PRICE INVESTED PRICE
----------------------- ------------- ---------- ----------
<S> <C> <C> <C>
Less than $25,000........................................... 5.50% 5.82% 4.75%
$25,000 but less than $50,000............................... 5.25 5.54 4.50
$50,000 but less than $100,000.............................. 4.75 4.99 4.00
$100,000 but less than $250,000............................. 3.75 3.90 3.00
$250,000 but less than $500,000............................. 3.00 3.09 2.50
$500,000 but less than $1,000,000........................... 2.00 2.04 1.60
</TABLE>
CATEGORY II. Certain AIM Funds are currently sold with a sales charge ranging
from 4.75% to 2.00% of the offering price on purchases of less than $1,000,000.
These AIM Funds are: the Class A shares of each of AIM Advisor Real Estate Fund,
AIM Balanced Fund, AIM Developing Markets Fund, AIM Emerging Markets Debt Fund,
AIM Global Aggressive Growth Fund, AIM Global Consumer Products and Services
Fund, AIM Global Financial Services Fund, AIM Global Government Income Fund, AIM
Global Growth Fund, AIM Global Health Care Fund, AIM Global Income Fund, AIM
Global Infrastructure Fund, AIM Global Resources Fund, AIM Global
Telecommunications 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>
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.
49
<PAGE> 424
In addition to amounts paid to dealers as a dealer concession out of the
initial sales charge paid by investors, AIM Distributors may, from time to time,
at its expense or as an expense for which it may be compensated under a
distribution plan, if applicable, pay a bonus or other consideration or
incentive to dealers who sell a minimum dollar amount of the shares of the AIM
Funds during a specified period of time. At the 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.
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.
50
<PAGE> 425
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 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.
51
<PAGE> 426
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(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 approved fee-based programs;
- Employee benefit plans designated as purchasers as defined above, and
non-qualified plans offered in conjunction therewith, provided the initial
investment in the plan(s) is at least $1 million; the sponsor signs a $1
million LOI;
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the employer-sponsored plan(s) has at least 100 eligible employees; or all
plan transactions are executed through a single omnibus account per Fund and
the financial institution or service organization has entered into the
appropriate agreements with the distributor. Section 403(b) plans sponsored
by public educational institutions are not eligible for a sales charge
exception based on the aggregate investment made by the plan or the number
of eligible employees. Purchases of AIM Small Cap Opportunities Fund by such
plans are subject to initial sales charges;
- Shareholders of record or discretionary advised clients of any investment
advisor holding shares of AIM Weingarten Fund or AIM Constellation Fund on
September 8, 1986, or of AIM Charter Fund on November 17, 1986, who have
continuously owned shares having a market value of at least $500 and who
purchase additional shares of the same Fund;
- Shareholders of record of Advisor Class shares of AIM International Growth
Fund or AIM Worldwide Growth Fund on February 12, 1999 who have continuously
owned shares of the AIM Funds.
- Unitholders of G/SET series unit investment trusts investing proceeds from
such trusts in shares of AIM Weingarten Fund or AIM Constellation Fund;
provided, however, prior to the termination date of the trusts, a unitholder
may invest proceeds from the redemption or repurchase of his units only when
the investment in shares of AIM Weingarten Fund and AIM Constellation Fund
is effected within 30 days of the redemption or repurchase;
- 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 each Fund may be
purchased appears in the Prospectus under the heading "Purchasing 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 set forth under the caption "Reductions in Initial Sales
Charges -- Purchases At Net Asset Value."
Complete information concerning the method of exchanging shares of the Funds
for shares of the other AIM Funds is set forth in the Prospectus under the
heading "Exchanging Shares."
Information concerning redemption of each Fund's shares is set forth in the
Prospectus under the caption "Redeeming 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: (800) 347-4246 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 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 generally 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.
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 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.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
Income dividends and capital gains distributions are automatically reinvested
in additional shares of the same class of each Fund unless the shareholder has
requested in writing to receive such dividends and distributions in cash or that
they be invested in shares of another AIM Fund, subject to the terms and
conditions set forth in each Fund's Prospectus under the caption "Shareholder
Information -- Dividends and Distributions." If a shareholder's account does not
have any shares in it on a dividend or capital gains distribution payment date,
the dividend or distribution will be paid in cash whether or not the shareholder
has elected to have such dividends or distributions reinvested.
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TAX MATTERS
The following is only a summary of certain additional tax considerations
generally affecting the Funds and their shareholders that are not described in
the Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of each Fund or its shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning.
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.
REINSTATEMENT PRIVILEGE
For federal income tax purposes, exercise of your reinstatement privilege may
increase the amount of gain or reduce the amount of loss recognized in the
original redemption transaction, because the initial sales charge will not be
taken into account in determining such gain or loss to the extent there has been
a reduction in the initial sales charge payable upon reinstatement.
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.
SHARE CERTIFICATES. AIM Funds will issue share certificates upon written
request to the Transfer Agent. 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),
59
<PAGE> 434
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. 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.
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.
60
<PAGE> 435
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.
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.
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.
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.
61
<PAGE> 436
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 February 1, 1999, 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 Dean Witter Reynolds Cust for 15.33% -0-
Fund -- Class B Thomas H. Lentz
IRA Std Dtd 4/12/82
9 Endicott Ct
Sharpsburg, GA 30277-9271
Donaldson Lufkin Jenrette 10.76% -0-
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-9998
First Clearing Corporation 8.34% -0-
A/C 2628-5056
David Daniel
12197 Deer Flat Road
Nampa, ID 83686-9119
Raymond James & Assoc Inc CSDN 7.98% -0-
Mary Lynn James IRA
1215 W Los Angeles Cir
Broken Arrow, OK 74011-4215
Smith Barney Inc. 5.39% -0-
00150926032
388 Greenwich Street
New York, NY 10013-2339
SBC Warburg Dillon Read LLC 5.28% -0-
SUB A/C 558 00386
120 Wall Street
New York, NY 10005
James E Sweeney 11 and 5.23% -0-
Patricia B Sweeney Jt Ten
2 Sleepy Hollow Rd
Chittenango, NY 13037-1423
Developing Markets LGT Asset Management 97.55% -0-
Fund -- Advisor Class 401(K) Plan
11 Greenway Plaza Suite 100
Houston, TX 77046-1173
Latin American Fund -- MLPF&S 6.22% -0-
Class A for the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive East 2nd Floor
Jacksonville, FL 32246
Latin American Fund -- MLPF&S 11.79% -0-
Class B for the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive East 2nd Floor
Jacksonville, FL 32246
Latin American Fund -- LGT Asset Management 42.30% -0-
Advisor Class 401(K) Plan
11 Greenway Plaza Suite 100
Houston, TX 77046-1173
LGT Asset Management 6.56% -0-
SERP Plan
Attn: Debbie Nettles A/C 5000201000
11 Greenway Plaza Suite 100
Houston, TX 77046-1173
</TABLE>
- ---------------
* The Trust has no knowledge as to whether all or any portion of the shares
owned of record are also owned beneficially.
62
<PAGE> 437
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 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 Class A and Class B shares of Developing Markets
Fund, stated as average annualized total returns for the periods shown, were as
follows. Standard total returns for Class A shares reflect, where appropriate,
the fees and expenses of the Predecessor Fund and are recomputed to reflect the
deduction of the maximum sales charge of 4.75%.
<TABLE>
<CAPTION>
ONE FIVE TEN SINCE
YEAR YEAR YEAR INCEPTION*
---- ---- ---- ----------
<S> <C> <C> <C> <C>
Developing Markets Fund -- Class A.................... (38.38) N/A N/A (9.98)
Developing Markets Fund -- Class B.................... (38.96) N/A N/A (35.70)
</TABLE>
- ---------------
* The inception dates for Developing Markets Fund Class A shares is 01/11/94 and
Developing Markets Class B shares is 11/03/97.
The standard total returns for the Class A shares of Latin American Fund,
stated as average annualized total returns for the periods shown, were:
<TABLE>
<CAPTION>
ONE FIVE TEN SINCE
YEAR YEAR YEAR INCEPTION*
---- ---- ---- ----------
<S> <C> <C> <C> <C>
Latin American Fund................................. (46.92) (12.18) N/A (.89)
</TABLE>
- ---------------
* The inception date for Class A shares of Latin American Fund is 08/13/91.
The standard total returns for Class B shares of Latin American Fund, stated
as average annualized total returns for the periods shown, were:
<TABLE>
<CAPTION>
ONE FIVE TEN SINCE
YEAR YEAR YEAR INCEPTION*
---- ---- ---- ----------
<S> <C> <C> <C> <C>
Latin American Fund................................. (47.29) (12.07) N/A (4.54)
</TABLE>
- ---------------
* The inception date for Class B shares of Latin American Fund is 04/01/93.
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>
63
<PAGE> 438
The average annual non-standard total returns of Class A and Class B shares of
Developing Markets Fund, stated as average annualized total returns for the
periods shown, were as follows. Non-standard total returns for Class A shares
reflect, where appropriate, the fees and expenses of the Predecessor Fund.
<TABLE>
<CAPTION>
ONE FIVE TEN SINCE
YEAR YEAR YEAR INCEPTION*
---- ---- ---- ----------
<S> <C> <C> <C> <C>
Developing Markets Fund -- Class A.................... (35.32) N/A N/A (9.09)
Developing Markets Fund -- Class B.................... (35.79) N/A N/A (33.53)
</TABLE>
- ---------------
* The inception dates for Developing Markets Fund Class A shares is 01/11/94 and
Developing Markets Class B shares is 11/03/97.
The average annual non-standard total returns for the Class A shares of Latin
American Fund, stated as average annualized total returns for the periods shown,
were:
<TABLE>
<CAPTION>
ONE FIVE TEN SINCE
YEAR YEAR YEAR INCEPTION*
---- ---- ---- ----------
<S> <C> <C> <C> <C>
Latin American Fund................................. (44.27) (11.32) N/A (.24)
</TABLE>
- ---------------
* The inception date for Class A shares of Latin American Fund is 08/13/91.
The average annual non-standard total returns for Class B shares of Latin
American Fund, stated as average annualized total returns for the periods shown,
were:
<TABLE>
<CAPTION>
ONE FIVE TEN SINCE
YEAR YEAR YEAR INCEPTION*
---- ---- ---- ----------
<S> <C> <C> <C> <C>
Latin American Fund................................. (44.52) (11.74) N/A (4.39)
</TABLE>
- ---------------
* The inception date for Class B shares of Latin American Fund is 04/01/93.
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 returns of Class A and Class B shares of Developing
Markets Fund (not taking sales charges into account) for the periods shown were
as follows. The cumulative total returns for Class A shares reflects, where
appropriate, the fees and expenses of the Predecessor Fund.
<TABLE>
<CAPTION>
ONE FIVE TEN SINCE
YEAR YEAR YEAR INCEPTION*
------- ---- ---- ----------
<S> <C> <C> <C> <C>
Developing Markets Fund -- Class A................... (37.09)% N/A N/A (39.94)%
Developing Markets Fund -- Class B................... N/A N/A N/A (39.76)%
</TABLE>
The cumulative total returns of Class A and Class B shares of Developing
Markets Fund (taking sales charges into account) for the periods shown were as
follows. The cumulative total returns for Class A shares reflects, where
appropriate, the fees and expenses of the Predecessor Fund and are recomputed to
reflect the deduction of the maximum sales charge of 4.75%.
<TABLE>
<CAPTION>
ONE FIVE TEN SINCE
YEAR YEAR YEAR INCEPTION*
------- ---- ---- ----------
<S> <C> <C> <C> <C>
Developing Markets Fund -- Class A................... (40.09)% N/A N/A (42.80)%
Developing Markets Fund -- Class B................... N/A N/A N/A (42.63)%
</TABLE>
64
<PAGE> 439
The cumulative total returns (not taking sales charges into account) for the
Class A shares of Latin American Fund, stated as aggregate total returns for the
periods shown, were:
<TABLE>
<CAPTION>
ONE FIVE TEN SINCE
YEAR YEAR YEAR INCEPTION*
---- ---- ---- ----------
<S> <C> <C> <C> <C>
Latin American Fund................................. (44.27) (45.16) N/A (1.76)
</TABLE>
- ---------------
* The inception date for Class A shares of Latin American Fund is 08/13/91.
The cumulative total returns (not taking sales charges into account) for Class
B shares of Latin American Fund, stated as aggregate total returns for the
periods shown, were:
<TABLE>
<CAPTION>
ONE FIVE TEN SINCE
YEAR YEAR YEAR INCEPTION*
---- ---- ---- ----------
<S> <C> <C> <C> <C>
Latin American Fund................................. (44.52) (46.45) N/A (22.74)
</TABLE>
- ---------------
* The inception date for Class B shares of Latin American Fund is 04/01/93.
The aggregate cumulative total returns (taking sales charges into account) for
the Class A shares of Latin American Fund, stated as aggregate total returns for
the periods shown, were:
<TABLE>
<CAPTION>
ONE FIVE TEN SINCE
YEAR YEAR YEAR INCEPTION*
---- ---- ---- ----------
<S> <C> <C> <C> <C>
Latin American Fund................................. (46.92) (47.76) N/A (6.41)
</TABLE>
- ---------------
* The inception date for Class A shares of Latin American Fund is 08/13/91.
The aggregate cumulative total returns (taking sales charges into account) for
the Class B shares of Latin American Fund, stated as aggregate total returns for
the periods shown, were:
<TABLE>
<CAPTION>
ONE FIVE TEN SINCE
YEAR YEAR YEAR INCEPTION*
---- ---- ---- ----------
<S> <C> <C> <C> <C>
Latin American Fund................................. (47.29) (47.45) N/A (23.45)
</TABLE>
- ---------------
* The inception date for Class B shares of Latin American Fund is 04/01/93.
PERFORMANCE INFORMATION
All advertisements of a Fund will disclose the maximum sales charge (including
deferred sales charges) imposed on purchases of the Fund's shares. If any
advertised performance data does not reflect the maximum sales charge (if any),
such advertisement will disclose that the sales charge has not been deducted in
computing the performance data, and that, if reflected, the maximum sales charge
would reduce the performance quoted. See the Statement of Additional Information
for further details concerning performance comparisons used in advertisements by
the Fund. Further information regarding the Fund's performance is contained in
the Fund's annual report to shareholders, which is available upon request and
without charge.
A Fund's total return is calculated in accordance with a standardized
formula for computation of annualized total return. Standardized total return
for Class A shares reflects the deduction of the Fund's maximum front-end sales
charge at the time of purchase. Standardized total return for Class B shares
reflects the deduction of the maximum applicable contingent deferred sales
charge on a redemption of shares held for the period.
A Fund's total return shows its overall change in value, including changes
in share price and assuming all the Fund's dividends and capital gain
distributions are reinvested. A cumulative total return reflects the Fund's
performance over a stated period of time. An average annual total return
reflects the hypothetical compounded annual rate of return that would have
produced the same cumulative total return if the Fund's performance had been
constant over the entire period. BECAUSE AVERAGE ANNUAL RETURNS TEND TO EVEN OUT
VARIATIONS IN THE FUND'S RETURN, INVESTORS SHOULD RECOGNIZE THAT SUCH RETURNS
ARE NOT THE SAME AS ACTUAL YEAR-BY-YEAR RESULTS. To illustrate the components of
overall performance, the Fund may separate its cumulative and average annual
returns into income results and capital gains or losses.
65
<PAGE> 440
From time to time and in its discretion, AIM or its affiliates may waive all
or a portion of their fees and/or assume certain expenses of any Fund. Voluntary
fee waivers or reductions or commitments to assume expenses may be rescinded at
any time without further notice to investors. During periods of voluntary fee
waivers or reductions or commitments to assume expenses, AIM will retain its
ability to be reimbursed for such fee prior to the end of each fiscal year.
Contractual fee waivers or reductions or reimbursement of expenses set forth in
the Fee Table in the Prospectus may not be terminated without the approval of
the Board of Trustees.
A practice of waiving or reducing fees or reimbursing expenses will have the
effect of increasing that Fund's yield and total return. The performance of each
Fund will vary from time to time and past results are not necessarily indicative
of future results. A Fund's performance is a function of its portfolio
management in selecting the type and quality of portfolio securities and is
affected by operating expenses of the Fund and market conditions. A
shareholder's investment in a Fund is not insured or guaranteed. These factors
should be carefully considered by the investor before making an investment in
any Fund.
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
66
<PAGE> 441
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.
67
<PAGE> 442
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.
68
<PAGE> 443
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.
69
<PAGE> 444
FINANCIAL STATEMENTS
FS
<PAGE> 445
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders of AIM Developing Markets Fund (formerly GT Global
Developing Markets Fund) and Board of Trustees of AIM Investment Funds (formerly
G.T. Investment Funds, Inc.):
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Developing Markets Fund at
October 31, 1998, and the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
------------------------------
PRICEWATERHOUSECOOPERS LLP
BOSTON, MASSACHUSETTS
DECEMBER 11, 1998
FS-1
<PAGE> 446
PORTFOLIO OF INVESTMENTS
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Services (20.2%)
Telecomunicacoes Brasileiras S.A. (Telebras) Preferred -
ADR{\/} ................................................... BRZL 49,291 $ 3,743,034 4.3
TELEPHONE NETWORKS
Telefonos de Mexico, S.A. de C.V. "L" - ADR{\/} ............ MEX 50,583 2,671,415 3.0
TELEPHONE NETWORKS
Hellenic Telecommunication Organization S.A. (OTE) ......... GREC 74,322 1,690,938 1.9
TELEPHONE NETWORKS
Magyar Tavkozlesi Rt. - ADR{\/} ............................ HGRY 59,100 1,588,313 1.8
TELEPHONE NETWORKS
Telefonica del Peru S.A. - ADR{\/} ......................... PERU 80,900 1,051,700 1.2
TELEPHONE NETWORKS
Cifra, S.A. de C.V. "V"-/- ................................. MEX 748,662 1,015,210 1.2
RETAILERS-OTHER
Telefonica de Argentina S.A. - ADR{\/} ..................... ARG 27,528 910,145 1.0
TELEPHONE NETWORKS
Telecomunicacoes de Sao Paulo S.A. (TELESP): ............... BRZL -- -- 0.9
TELEPHONE - REGIONAL/LOCAL
Common-/- ................................................ -- 7,001,000 760,144 --
Preferred ................................................ -- 150,157 25,177 --
Grupo Televisa, S.A. de C.V. - GDR-/- {\/} ................. MEX 26,700 724,238 0.8
BROADCASTING & PUBLISHING
STET Hellas Telecommunications S.A. - ADR-/- {\/} .......... GREC 24,976 655,620 0.7
WIRELESS COMMUNICATIONS
Mahanagar Telephone Nigam Ltd. ............................. IND 143,500 620,816 0.7
TELECOM - OTHER
Companhia de Saneamento Basico do Estado de Sao Paulo -
SABESP .................................................... BRZL 7,132,127 574,014 0.7
BUSINESS & PUBLIC SERVICES
Videsh Sanchar Nigam Ltd. - Reg S GDR-/- {c} {\/} .......... IND 37,000 388,500 0.4
TELECOM - OTHER
Nortel Inversora S.A. - ADR{\/} ............................ ARG 15,500 344,875 0.4
TELEPHONE NETWORKS
Telecom Argentina S.A. - ADR{\/} ........................... ARG 10,300 332,175 0.4
TELEPHONE NETWORKS
ONA (Omnium Nord Africain) S.A. "A" ........................ MOR 2,320 301,551 0.3
BUSINESS & PUBLIC SERVICES
Bezeq Israeli Telecommunication Corporation Ltd. ........... ISRL 86,900 249,999 0.3
TELEPHONE NETWORKS
Blue Square Chain Investments & Properties Ltd.-/- ......... ISRL 14,898 190,525 0.2
RETAILERS-FOOD
Indian Hotels Co., Ltd. .................................... IND 50 484 --
LEISURE & TOURISM
-----------
17,838,873
-----------
Finance (15.0%)
Liberty Life Association of Africa Ltd. .................... SAFR 88,250 1,515,564 1.7
INSURANCE-LIFE
Cathay Life Insurance Co., Ltd. ............................ TWN 301,200 1,065,248 1.2
INSURANCE-LIFE
National Bank of Greece S.A. ............................... GREC 6,520 927,124 1.1
BANKS-MONEY CENTER
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-2
<PAGE> 447
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Finance (Continued)
Alpha Credit Bank .......................................... GREC 11,255 $ 900,040 1.0
BANKS-REGIONAL
Uniao de Bancos Brasileiros S.A. (Unibanco): ............... BRZL -- -- 0.9
BANKS-MONEY CENTER
Units{=} ................................................. -- 14,649,042 480,810 --
GDR{\/} .................................................. -- 18,510 323,925 --
Bank Hapoalim Ltd. ......................................... ISRL 440,500 796,944 0.9
BANKS-MONEY CENTER
Grupo Financiero Banamex Accival, S.A. de C.V. "B"-/- ...... MEX 691,100 718,257 0.8
BANKS-MONEY CENTER
BIG Bank Gdanski S.A. - Reg S GDR{c} {\/} .................. POL 43,000 692,300 0.8
BANKS-REGIONAL
Bank Leumi Le - Israel ..................................... ISRL 519,768 664,712 0.8
BANKS-MONEY CENTER
MISR International Bank - Reg S GDR{c} {\/} ................ EGPT 69,400 654,095 0.7
BANKS-MONEY CENTER
Turkiye Is Bankasi (Isbank) "C" ............................ TRKY 23,068,549 633,157 0.7
BANKS-MONEY CENTER
Banco de Galicia y Buenos Aires, S.A. de C.V. - ADR{\/} .... ARG 28,872 492,629 0.6
BANKS-MONEY CENTER
Commercial Bank of Greece S.A. ............................. GREC 5,800 491,753 0.6
BANKS-MONEY CENTER
Ergo Bank S.A. ............................................. GREC 5,360 476,360 0.5
BANKS-REGIONAL
Yapi ve Kredi Bankasi AS ................................... TRKY 41,379,593 467,233 0.5
BANKS-REGIONAL
Credicorp Ltd. - ADR{\/} ................................... PERU 56,220 379,485 0.4
BANKS-MONEY CENTER
Wafabank ................................................... MOR 2,900 378,516 0.4
BANKS-MONEY CENTER
KREDYT BANK S.A. - Reg S GDR-/- {c} {\/} ................... POL 14,680 292,866 0.3
BANKS-MONEY CENTER
Akbank T.A.S. .............................................. TRKY 19,162,500 282,947 0.3
BANKS-REGIONAL
Banco Rio de La Plata S.A. - ADR{\/} ....................... ARG 26,900 242,100 0.3
BANKS-MONEY CENTER
Inversiones y Representaciones S.A. (IRSA) - GDR{\/} ....... ARG 9,000 232,875 0.3
REAL ESTATE
National Development Bank .................................. SLNKA 70,000 80,910 0.1
BANKS-REGIONAL
Kazkommertsbank Co. - GDR-/- {\/} .......................... KAZ 12,700 70,485 0.1
BANKS-REGIONAL
State Bank of India Ltd. ................................... IND 3,000 11,035 --
BANKS-MONEY CENTER
-----------
13,271,370
-----------
Energy (9.7%)
Petroleo Brasileiro S.A. (Petrobras) Preferred ............. BRZL 16,207,398 2,038,154 2.3
OIL
Companhia Energetica de Minas Gerais (CEMIG) - ADR{\/} ..... BRZL 97,731 1,893,538 2.2
ELECTRICAL & GAS UTILITIES
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-3
<PAGE> 448
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Energy (Continued)
MOL Magyar Olaj-es Gazipari RT - Reg S GDR{c} {\/} ......... HGRY 68,330 $ 1,556,216 1.8
GAS PRODUCTION & DISTRIBUTION
Huaneng Power International, Inc. - ADR-/- {\/} ............ CHNA 70,958 975,673 1.1
ELECTRICAL & GAS UTILITIES
Enersis S.A. - ADR{\/} ..................................... CHLE 30,728 641,447 0.7
ELECTRICAL & GAS UTILITIES
Companhia de Eletricidade do Estado da Bahia - COELBA ...... BRZL 12,500,000 398,223 0.5
ELECTRICAL & GAS UTILITIES
Surgutneftegaz - ADR{\/} ................................... RUS 163,020 326,040 0.4
OIL
Eletropaulo Metropolitana Preferred ........................ BRZL 7,843,375 264,339 0.3
ELECTRICAL & GAS UTILITIES
Light - Servicos de Electricidade S.A. ..................... BRZL 1,654,290 205,261 0.2
ELECTRICAL & GAS UTILITIES
Empresa Bandeirante de Energia S.A.-/- ..................... BRZL 7,843,375 76,211 0.1
ELECTRICAL & GAS UTILITIES
Companhia Brasileira de Petroleo Ipiranga S.A. Preferred ... BRZL 12,154,000 65,213 0.1
GAS
Bombay Suburban Electric Supply (BSES) Ltd.-/- ............. IND 1,350 4,774 --
ELECTRICAL & GAS UTILITIES
-----------
8,445,089
-----------
Consumer Non-Durables (9.5%)
South African Breweries Ltd. ............................... SAFR 89,806 1,747,924 2.0
BEVERAGES - ALCOHOLIC
Hindustan Lever Ltd. ....................................... IND 40,650 1,540,472 1.8
PERSONAL CARE/COSMETICS
ITC Ltd. ................................................... IND 79,900 1,321,750 1.5
TOBACCO
Fomento Economico Mexicano, S.A. de C.V. - ADR{\/} ......... MEX 44,311 1,154,855 1.3
BEVERAGES - NON-ALCOHOLIC
Panamerican Beverages, Inc. "A"{\/} ........................ MEX 34,000 688,500 0.8
BEVERAGES - NON-ALCOHOLIC
A-Ahram Beverages Co. S.A.E. - 144A GDR{\/} {.} ............ EGPT 15,814 443,583 0.5
BEVERAGES - ALCOHOLIC
Compania Cervecerias Unidas S.A. - ADR{\/} ................. CHLE 18,100 325,800 0.4
BEVERAGES - ALCOHOLIC
Companhia de Tecidos Norte de Minas Preferred .............. BRZL 2,747,000 317,812 0.4
TEXTILES & APPAREL
Companhia Cervejaria Brahma Preferred ...................... BRZL 563,721 264,658 0.3
BEVERAGES - ALCOHOLIC
Oriental Weavers "C" ....................................... EGPT 11,400 245,974 0.3
TEXTILES & APPAREL
Zaklady Piwowarskie w Zywcu S.A. (Zywiec) .................. POL 1,243 169,369 0.2
BEVERAGES - ALCOHOLIC
Truworths International Ltd. ............................... SAFR 47,740 36,381 --
TEXTILES & APPAREL
-----------
8,257,078
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-4
<PAGE> 449
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Materials/Basic Industry (8.3%)
Suez Cement Co. - Reg S GDR{c} {\/} ........................ EGPT 95,195 $ 1,404,126 1.6
CEMENT
Anglo American Platinum Corporation Ltd. ................... SAFR 87,900 1,336,583 1.5
METALS - NON-FERROUS
Sociedad Quimica y Minera de Chile S.A. - ADR{\/} .......... CHLE 31,500 1,047,375 1.2
CHEMICALS
Companhia Vale do Rio Doce "A" Preferred ................... BRZL 55,700 840,543 1.0
METALS - STEEL
Compania de Minas Buenaventura S.A. - ADR{\/} .............. PERU 47,792 585,452 0.7
GOLD
Cemex, S.A. de C.V. "CPO" .................................. MEX 238,120 568,019 0.6
CEMENT
Apasco, S.A. de C.V. "A" ................................... MEX 115,233 422,015 0.5
CEMENT
Hindalco Industries Ltd.: .................................. IND -- -- 0.3
METALS - NON-FERROUS
GDR{\/} .................................................. -- 26,200 307,195 --
Common ................................................... -- 1,634 19,759 --
Makhteshim-Agan Industries Ltd.-/- ......................... ISRL 144,665 256,973 0.3
CHEMICALS
Siderca S.A. "A" ........................................... ARG 118,000 165,250 0.2
METALS - STEEL
Grupo Cementos de Chihuahua, S.A. de C.V. "B" .............. MEX 283,300 151,983 0.2
CEMENT
Engro Chemicals Pakistan Ltd. .............................. PAK 69,370 63,948 0.1
CHEMICALS
Nan Ya Plastics Corp.-/- ................................... TWN 35,360 44,780 0.1
PLASTICS & RUBBER
-----------
7,214,001
-----------
Multi-Industry/Miscellaneous (6.7%)
Grupo Carso, S.A. de C.V. "A1" ............................. MEX 452,400 1,567,257 1.8
MULTI-INDUSTRY
Rembrandt Group Ltd. ....................................... SAFR 220,610 1,472,049 1.7
CONGLOMERATE
Haci Omer Sabanci Holding AS ............................... TRKY 43,775,250 661,579 0.8
CONGLOMERATE
China Development Corp. .................................... TWN 288,900 571,107 0.7
CONGLOMERATE
Central Asia Regional Growth Fund(::) -/- {\/} ............. IRE 175,000 525,000 0.6
COUNTRY FUNDS
Koc Holding AS ............................................. TRKY 5,220,550 480,647 0.5
CONGLOMERATE
Koor Industries Ltd. - ADR{\/} ............................. ISRL 24,643 398,909 0.5
CONGLOMERATE
John Keells Holdings Ltd. .................................. SLNKA 17,000 48,173 0.1
CONGLOMERATE
-----------
5,724,721
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-5
<PAGE> 450
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Technology (4.3%)
Taiwan Semiconductor Manufacturing Co.-/- .................. TWN 597,950 $ 1,209,752 1.4
SEMICONDUCTORS
Asustek Computer Inc. - Reg S GDR-/- {c} {\/} .............. TWN 96,862 743,416 0.8
COMPUTERS & PERIPHERALS
Hon Hai Precision Industry ................................. TWN 112,000 539,676 0.6
COMPUTERS & PERIPHERALS
Compal Electronics, Inc.-/- ................................ TWN 160,000 499,151 0.6
COMPUTERS & PERIPHERALS
Delta Electronics, Inc. .................................... TWN 153,600 443,602 0.5
COMPUTERS & PERIPHERALS
Formula Systems Ltd.-/- .................................... ISRL 16,505 353,214 0.4
SOFTWARE
-----------
3,788,811
-----------
Capital Goods (2.9%)
MISR Elgadida for Housing and Reconstruction ............... EGPT 17,100 1,563,864 1.8
CONSTRUCTION
NASR (El) City Company For Housing & Construction .......... EGPT 23,005 713,659 0.8
CONSTRUCTION
Corporacion GEO, S.A. de C.V. "B"-/- ....................... MEX 165,800 287,192 0.3
CONSTRUCTION
-----------
2,564,715
-----------
Health Care (1.9%)
Ranbaxy Laboratories Ltd. .................................. IND 79,850 942,438 1.1
MEDICAL TECHNOLOGY & SUPPLIES
Teva Pharmaceutical Industries Ltd. ........................ ISRL 18,700 737,188 0.8
PHARMACEUTICALS
-----------
1,679,626
-----------
Consumer Durables (0.6%)
Bajaj Auto Ltd. ............................................ IND 29,300 383,567 0.4
AUTOMOBILES
Qingling Motors Co., Ltd.{*} ............................... CHNA 1,022,000 188,709 0.2
AUTOMOBILES
-----------
572,276
----------- -----
TOTAL EQUITY INVESTMENTS (cost $92,943,216) .................. 69,356,560 79.1
----------- -----
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Government & Government Agency Obligations (11.2%)
Algeria (0.6%)
Algeria Tranche 1 Loan Assignment, 6.625% due 9/4/06+ .... USD 1,050,000 535,500 0.6
Argentina (2.2%)
Republic of Argentina:
Discount Bond, 6.625% due 3/31/23+ ..................... USD 1,425,000 970,781 1.1
Par Bond Series L, 5.75% (6% at 3/31/99) due
3/31/23++ ............................................. USD 875,000 608,125 0.7
I.O. Strip, 12.11% due 4/10/05 ......................... USD 350,000 308,000 0.4
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-6
<PAGE> 451
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Government & Government Agency Obligations (Continued)
Brazil (0.6%)
Brazil Floating Rate Discount Note, 6.125% due
4/15/24+ ................................................ USD 845,000 $ 502,247 0.6
Bulgaria (1.1%)
Republic of Bulgaria:
Discount Bond Series A, 6.6875% due 7/28/24 - Euro+ .... USD 771,000 541,628 0.6
Front Loaded Interest Reduction Bond Series A, 2.5%
(2.75% at 7/99) due 7/28/12++ ......................... USD 760,000 419,900 0.5
Colombia (0.5%)
Republic of Colombia:
8.625% due 4/1/08{j} ................................... USD 472,000 370,520 0.4
7.27% due 6/15/03 - 144A{.} ............................ USD 59,000 48,085 0.1
Mexico (4.4%)
United Mexican States:
Discount Bond Series D, 6.6016% due 12/31/19+ .......... USD 1,570,000 1,225,581 1.4
Discount Bond Series C, 6.6172% due 12/31/19+ +/+ ...... USD 1,353,000 1,056,186 1.2
9.875% due 1/15/07 ..................................... USD 575,000 546,969 0.6
6.63% due 12/31/19 ..................................... FRF 3,000,000 420,666 0.5
Discount Bond Series A, 6.1156% due 12/31/19+ +/+ ...... USD 412,000 321,618 0.4
Discount Bond Series B, 6.47656% due 12/31/19+ +/+ ..... USD 375,000 292,734 0.3
Panama (0.4%)
Republic of Panama:
Interest Reduction Bond, 4% (4.25% at 7/99) due
7/17/14++ ............................................. USD 370,000 270,794 0.3
8.875% due 9/30/27 ..................................... USD 67,000 61,808 0.1
Peru (0.7%)
Republic of Peru, Past Due Interest Bond, 4% (4.5% at
3/8/99) due 3/7/17++ .................................... USD 1,116,000 641,700 0.7
Poland (0.5%)
3% (3.5% at 10/28/99) due 10/27/24 - Euro++ ............ USD 685,000 455,525 0.5
Past Due Interest Bond, 5% (6% at 10/28/99)
due 10/27/14 - Euro++ ................................. USD 2,000 1,819 --
Russia (0.2%)
Bank for Foreign Economic Affairs (Venesheconombank)
Principal Loans, 6.625% due 12/15/20+ ................... USD 2,717,360 215,690 0.2
-----------
Total Government & Government Agency Obligations (cost
$11,677,186) ................................................ 9,815,876
-----------
Corporate Bonds (4.0%)
Argentina (1.5%)
Telefonica de Argentina, 9.125% due 5/7/08 - Reg S{c} .... USD 1,504,000 1,305,649 1.5
Brazil (1.3%)
Banco Hipotecario Espana, 10% due 4/17/03 - 144A{.} ...... USD 710,000 624,800 0.7
RBS Participacoes S.A., 11% due 4/1/07 - 144A{.} ......... USD 1,042,000 468,900 0.5
Globo Comunicacoes Participacoes, 10.625% due 5/12/08 -
144A{.} ................................................. USD 125,000 71,563 0.1
Colombia (0.1%)
Financiera Energia Nacional, 9.375% due 6/15/06 - Reg
S{c} .................................................... USD 148,000 108,528 0.1
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-7
<PAGE> 452
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Corporate Bonds (Continued)
Korea (0.1%)
Pohang Iron & Steel, 2% due 10/9/00 ...................... JPY 5,500,000 $ 40,886 0.1
Mexico (0.6%)
Petroleos Mexicanos (PEMEX), 9.25% due 3/30/18 -
144A{.} ................................................. USD 360,000 293,400 0.3
Dine, S.A. de C.V., 8.75% due 10/15/07 - 144A{.} ......... USD 210,000 165,900 0.2
Banco Nacional Comercio Exte., 8% due 7/18/02 - Reg
S{c} .................................................... USD 97,000 88,513 0.1
Russia (0.4%)
Lukinter Finance BV Convertible, 3.5% due 5/6/02 -
144A{.} ................................................. USD 851,000 310,615 0.4
Mosenergo Finance BV, 8.375% due 10/9/02 - 144A{.} ....... USD 5,000 875 --
-----------
Total Corporate Bonds (cost $4,998,295) ...................... 3,479,629
-----------
Structured Notes (0.4%)
Korea (0.4%)
Fixed Rate Trust Certificate 13.55% due 2/15/02[::]
(Issued by a newly created Delaware Business Trust,
collateralized by triple A paper. This trust certificate
has a credit risk component linked to the value of a
referenced security: Korean Development Bank, 1.875%
2002.) (cost $470,000) .................................. USD 470,000 343,805 0.4
----------- -----
TOTAL FIXED INCOME INVESTMENTS (cost $17,145,481) ............ 13,639,310 15.6
----------- -----
<CAPTION>
NO. OF VALUE % OF NET
WARRANTS COUNTRY WARRANTS (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Merrill Lynch - Kospi 200 Call Warrants, due 9/9/99
Performance linked to equity securities. Redemption amount
100% of the final closing price of the Korean Kospi 200
Index converted to the prevailing foreign exchange rate.
(cost $2,495,011) ......................................... US 765,294 2,571,541 2.9
----------- -----
INVESTMENT MANAGEMENT
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-8
<PAGE> 453
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
REPURCHASE AGREEMENT (NOTE 1) ASSETS
- -------------------------------------------------------------- ----------- -------------
<S> <C> <C> <C> <C>
Dated October 30, 1998, with State Street Bank & Trust Co.,
due November 2, 1998, for an effective yield of 5.30%,
collateralized by $4,145,000 U.S. Treasury Notes, 6.50% due
5/15/05 (market value of collateral is $4,750,253,
including accrued interest). (cost $4,653,000) ............ $ 4,653,000 5.3
----------- -----
TOTAL INVESTMENTS (cost $117,236,708) * ..................... 90,220,411 102.9
Other Assets and Liabilities ................................. (2,519,957) (2.9)
----------- -----
NET ASSETS ................................................... $87,700,454 100.0
----------- -----
----------- -----
</TABLE>
- --------------
-/- Non-income producing security.
{*} Security denominated in Hong Kong Dollars.
{\/} U.S. currency denominated.
{c} Security issued under Regulation S. Rule 144A and additional
restrictions may apply in the resale of such securities.
{=} Each unit represents one preferred share of Unibanco and one
preferred "B" share of Unibanco Holdings.
(::) Valued in good faith at fair value using procedures approved by the
Board of Trustees (See Note 1 of Notes to Financial Statements).
[::] Certain events may cause the contract to terminate prior to date
shown.
{.} Security exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers.
+ The coupon rate shown on floating rate note represents the rate at
period end.
++ The coupon rate shown on step-up coupon bond represents the rate at
period end.
+/+ Issued with detachable warrants or value recovery rights. The
current market value of each warrant or right is zero.
{j} All or part of the Fund's holdings in this security is segregated
as collateral for extended settlement of derivative instruments.
(See Note 1 of Notes to the Financial Statements).
* For Federal income tax purposes, cost is $118,742,569 and
appreciation (depreciation) is as follows:
<TABLE>
<S> <C>
Unrealized appreciation: $ 3,055,324
Unrealized depreciation: (31,577,482)
-------------
Net unrealized depreciation: $ (28,522,158)
-------------
-------------
</TABLE>
Abbreviations:
ADR--American Depositary Receipt
GDR--Global Depositary Receipt
The accompanying notes are an integral part of the financial statements.
FS-9
<PAGE> 454
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
The Fund's Portfolio of Investments at October 31, 1998, was concentrated in the
following countries:
<TABLE>
<CAPTION>
PERCENTAGE OF NET ASSETS {D}
-------------------------------------------
FIXED INCOME SHORT-TERM
COUNTRY (COUNTRY CODE/CURRENCY CODE) EQUITY & WARRANTS & OTHER TOTAL
- -------------------------------------- ------ ------------- ---------- -----
<S> <C> <C> <C> <C>
Argentina (ARG/ARS) .................. 3.2 3.7 6.9
Algeria (ALG/DZD) .................... 0.6 0.6
Brazil (BRZL/BRL) .................... 14.2 1.9 16.1
Bulgaria (BUL/LEV) ................... 1.1 1.1
Chile (CHLE/CLP) ..................... 2.3 2.3
China (CHNA/RMB) ..................... 1.3 1.3
Colombia (COL/COP) ................... 0.6 0.6
Egypt (EGPT/EGP) ..................... 5.7 5.7
Greece (GREC/GRD) .................... 5.8 5.8
Hungary (HGRY/HUF) ................... 3.6 3.6
India (IND/INR) ...................... 6.2 6.2
Ireland (IRE/IEP) .................... 0.6 0.6
Israel (ISRL/ILS) .................... 4.2 4.2
Kazakhstan (KAZ/KTS) ................. 0.1 0.1
Korea (KOR/KRW) ...................... 0.5 0.5
Mexico (MEX/MXN) ..................... 11.3 5.0 16.3
Morocco (MOR/MAD) .................... 0.7 0.7
Pakistan (PAK/PKR) ................... 0.1 0.1
Panama (PAN/PND) ..................... 0.4 0.4
Peru (PERU/PES) ...................... 2.3 0.7 3.0
Poland (POL/PLZ) ..................... 1.3 0.5 1.8
Russia (RUS/SUR) ..................... 0.4 0.6 1.0
South Africa (SAFR/ZAR) .............. 6.9 6.9
Sri Lanka (SLNKA/LKR) ................ 0.2 0.2
Taiwan (TWN/TWD) ..................... 5.9 5.9
Turkey (TRKY/TRL) .................... 2.8 2.8
United States (US/USD) ............... 2.9 2.4 5.3
------ ----- --- -----
Total ............................... 79.1 18.5 2.4 100.0
------ ----- --- -----
------ ----- --- -----
</TABLE>
- --------------
{d} Percentages indicated are based on net assets of $87,700,454.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACT OUTSTANDING
OCTOBER 31, 1998
<TABLE>
<CAPTION>
MARKET VALUE
(U.S. CONTRACT DELIVERY UNREALIZED
CONTRACT TO SELL: DOLLARS) PRICE DATE DEPRECIATION
- ---------------------------------------- ------------- ---------- -------- ---------------
<S> <C> <C> <C> <C>
Japanese Yen............................ 39,670 118.80000 11/27/98 $ (950)
------------- ---------------
Total Contract to Sell (Receivable
amount $38,720)...................... 39,670 (950)
------------- ---------------
THE VALUE OF CONTRACT TO SELL AS
PERCENTAGE OF NET ASSETS IS 0.05%.
Total Open Forward Foreign Currency
Contract............................... $ (950)
---------------
---------------
</TABLE>
- --------------
See Note 1 of Notes to the Financial Statements.
The accompanying notes are an integral part of the financial statements.
FS-10
<PAGE> 455
STATEMENT OF ASSETS
AND LIABILITIES
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at value (cost $117,236,708) (Note 1).......................... $ 90,220,411
U.S. currency................................................................... $ 895
Foreign currencies (cost $730,519).............................................. 723,408 724,303
--------
Receivable for securities sold............................................................ 903,099
Interest receivable....................................................................... 424,599
Dividends receivable...................................................................... 268,551
Unamortized organizational costs (Note 1)................................................. 14,557
Receivable for Fund shares sold........................................................... 5,619
-------------
Total assets............................................................................ 92,561,139
-------------
Liabilities:
Payable for securities purchased.......................................................... 3,823,511
Payable for Fund shares repurchased....................................................... 394,946
Payable for investment management and administration fees (Note 2)........................ 356,752
Payable for service and distribution expenses (Note 2).................................... 96,087
Payable for professional fees............................................................. 49,710
Payable for transfer agent fees (Note 2).................................................. 30,788
Payable for Trustees' fees and expenses (Note 2).......................................... 25,309
Payable for custodian fees................................................................ 10,081
Payable for registration and filing fees.................................................. 7,596
Payable for printing and postage expenses................................................. 6,093
Payable for open forward foreign currency contracts (Note 1).............................. 950
Payable for fund accounting fees (Note 2)................................................. 883
Other accrued expenses.................................................................... 57,979
-------------
Total liabilities....................................................................... 4,860,685
-------------
Net assets.................................................................................. $ 87,700,454
-------------
-------------
Class A:
Net asset value and redemption price per share ($87,517,225 DIVIDED BY 11,616,154 shares
outstanding)............................................................................... $ 7.53
-------------
-------------
Maximum offering price per share (100/95.25 of $7.53) *..................................... $ 7.91
-------------
-------------
Class B:+
Net asset value and offering price per share ($153,941 DIVIDED BY 20,565 shares
outstanding)............................................................................... $ 7.49
-------------
-------------
Advisor Class:
Net asset value, offering price per share, and redemption price per share ($29,288 DIVIDED
BY 3,877 shares outstanding)............................................................... $ 7.55
-------------
-------------
Net assets consist of:
Paid in capital (Note 4).................................................................. $ 250,014,000
Undistributed net investment income....................................................... 1,105,906
Accumulated net realized loss on investments and foreign currency transactions............ (136,393,263)
Net unrealized depreciation on translation of assets and liabilities in foreign
currencies............................................................................... (9,892)
Net unrealized depreciation of investments................................................ (27,016,297)
-------------
Total -- representing net assets applicable to capital shares outstanding................... $ 87,700,454
-------------
-------------
<FN>
- --------------
* On sales of $50,000 or more, the offering price is reduced.
+ Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-11
<PAGE> 456
STATEMENT OF OPERATIONS
Year ended October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment income: (Note 1)
Interest income............................................................................ $ 5,875,109
Dividend income (net of foreign withholding tax of $263,295)............................... 4,212,609
Securities lending income.................................................................. 241,088
------------
Total investment income.................................................................. 10,328,806
------------
Expenses:
Investment management and administration fees (Note 2)..................................... 1,740,733
Transfer agent fees (Note 2)............................................................... 538,250
Service and distribution expenses: (Note 2)
Class A.................................................................... $ 454,554
Class B.................................................................... 1,576 456,130
------------
Professional fees.......................................................................... 360,255
Interest expense (Note 1).................................................................. 359,635
Printing and postage expenses.............................................................. 312,740
Custodian fees............................................................................. 155,690
Registration and filing fees............................................................... 96,900
Amortization of organization costs (Note 1)................................................ 70,755
Fund accounting fees (Note 2).............................................................. 53,782
Trustees' fees and expenses (Note 2)....................................................... 30,660
Other expenses............................................................................. 17,000
------------
Total expenses before reductions......................................................... 4,192,530
------------
Expenses reimbursed by A I M Advisors, Inc. (Note 2)................................... (691,157)
Expense reductions (Note 5)............................................................ (41,663)
------------
Total net expenses....................................................................... 3,459,710
------------
Net investment income........................................................................ 6,869,096
------------
Net realized and unrealized gain (loss) on investments and foreign currencies:
(Note 1)
Net realized loss on investments............................................. (81,224,308)
Net realized loss on foreign currency transactions........................... (2,134,815)
------------
Net realized loss during the year........................................................ (83,359,123)
Net change in unrealized depreciation on translation of assets and
liabilities in foreign currencies........................................... 197,153
Net change in unrealized depreciation of investments......................... 13,544,276
------------
Net unrealized appreciation during the year.............................................. 13,741,429
------------
Net realized and unrealized loss on investments and foreign currencies....................... (69,617,694)
------------
Net decrease in net assets resulting from operations......................................... $(62,748,598)
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-12
<PAGE> 457
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS ENDED YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997 DECEMBER 31, 1996
---------------- ---------------- -----------------
<S> <C> <C> <C>
Increase (decrease) in net assets
Operations:
Net investment income....................................... $ 6,869,096 $ 9,089,483 $ 19,406,553
Net realized gain (loss) on investments and foreign currency
transactions............................................... (83,359,123) 45,653,300 945,154
Net change in unrealized appreciation (depreciation) on
translation of assets and liabilities in foreign
currencies................................................. 197,153 (297,303) 91,835
Net change in unrealized appreciation (depreciation) of
investments................................................ 13,544,276 (101,078,671) 78,628,364
---------------- ---------------- -----------------
Net increase (decrease) in net assets resulting from
operations............................................... (62,748,598) (46,633,191) 99,071,906
---------------- ---------------- -----------------
Class A:
Distributions to shareholders: (Note 1)
From net investment income.................................. (11,841,080) -- (17,407,047)
Class B:
Distributions to shareholders: (Note 1)
From net investment income.................................. (1,499) -- --
Advisor Class:
Distributions to shareholders: (Note 1)
From net investment income.................................. (46) -- --
---------------- ---------------- -----------------
Total distributions....................................... (11,842,625) -- (17,407,047)
---------------- ---------------- -----------------
Capital share transactions: (Note 4)
Increase from capital shares sold and reinvested............ 13,579,722 -- --
Decrease from capital shares repurchased.................... (308,667,233) -- --
---------------- ---------------- -----------------
Net increase (decrease) from capital share transactions... (295,087,511) -- --
---------------- ---------------- -----------------
Total increase (decrease) in net assets....................... (369,678,734) (46,633,191) 81,664,859
Net assets:
Beginning of period......................................... 457,379,188 504,012,379 422,347,520
---------------- ---------------- -----------------
End of period *............................................. $ 87,700,454 $ 457,379,188 $504,012,379
---------------- ---------------- -----------------
---------------- ---------------- -----------------
* Includes undistributed net investment income of............ $ 1,105,906 $ 8,645,635 $ 363,782
---------------- ---------------- -----------------
---------------- ---------------- -----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-13
<PAGE> 458
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS A+
------------------------------------------------------------------------------
YEAR TEN MONTHS YEAR ENDED JANUARY 11, 1994
ENDED ENDED DECEMBER 31, (COMMENCEMENT
OCTOBER 31, OCTOBER 31, --------------------- OF OPERATIONS) TO
1998 (D) 1997 (E) 1996 (E) 1995 (E) DECEMBER 31, 1994(E)
----------- ----------- --------- --------- --------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 12.56 $ 13.84 $ 11.60 $ 12.44 $ 15.00
----------- ----------- --------- --------- -----------
Income from investment operations:
Net investment income................. 0.39*{/\} 0.25 0.53 0.72 0.35
Net realized and unrealized gain
(loss) on investments................ (5.10) (1.53) 2.19 (0.84) (2.46)
----------- ----------- --------- --------- -----------
Net increase (decrease) from
investment operations.............. (4.71) (1.28) 2.72 (0.12) (2.11)
----------- ----------- --------- --------- -----------
Redemption fees retained (Note 4)..... 0.28 -- -- -- --
----------- ----------- --------- --------- -----------
Distributions to shareholders:
From net investment income............ (0.60) -- (0.48) (0.72) (0.35)
From net realized gain on
investments.......................... -- -- -- -- (0.10)
----------- ----------- --------- --------- -----------
Total distributions................. (0.60) -- (0.48) (0.72) (0.45)
----------- ----------- --------- --------- -----------
Net asset value, end of period.......... $ 7.53 $ 12.56 $ 13.84 $ 11.60 $ 12.44
----------- ----------- --------- --------- -----------
----------- ----------- --------- --------- -----------
Market value, end of period............. N/A $ 11.81 $ 11.63 $ 9.75 $ 9.75
----------- ----------- --------- --------- -----------
----------- ----------- --------- --------- -----------
Total investment return (based on market
value)................................. N/A 1.62%(b) 24.18% 6.60% (32.16)% (b)
Total investment return (based on net
asset value)........................... (37.09)% (c) (9.25)%(b) 23.59% (0.95)% (14.07)% (b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $87,517 $457,379 $504,012 $422,348 $452,872
Ratio of net investment income to
average net assets:
With expense reductions and
reimbursement (Notes 2 & 5).......... 3.84% 2.03%(a) 4.07% 6.33% 2.75% (a)
Without expense reductions and
reimbursement........................ 3.43% 1.95%(a) 4.04% 6.30% 2.75% (a)
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions and
reimbursement (Notes 2 & 5).......... 1.73% 1.75%(a) 1.82% 1.77% 2.01% (a)
Without expense reductions and
reimbursement........................ 2.14% 1.83%(a) 1.85% 1.80% 2.01% (a)
Ratio of interest expense to average net
assets (Note 1)+++..................... 0.20% N/A N/A N/A N/A
Portfolio turnover rate+++.............. 111% 184%(a) 138% 75% 56% (a)
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon the average
shares outstanding during the period.
(e) These financial highlights provide per share information of G.T.
Global Developing Markets Fund, Inc. ("Predecessor Fund") (See Note 1
to Notes to Financial Statements) for the periods up to and including
October 31, 1997. The fees and expenses of the Fund differ from those
of the Predecessor Fund.
{/\} Net investment income per share reflects an interest payment received
from the conversion of Vnesheconombank loan agreements of $0.14 per
share for Class A, B, and Advisor.
* Before reimbursement the net investment income per share would have
been reduced by $0.04 for Class A, B, and Advisor.
+ All capital shares issued and outstanding on October 31, 1997 were
reclassified as Class A shares.
++ Commencing November 1, 1997, the Fund began offering Class B and
Advisor Class shares.
+++ Portfolio turnover rates and ratio of interest expense to average net
assets are calculated on the basis of the Fund as whole without
distinguishing between the classes of shares issued.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-14
<PAGE> 459
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
ADVISOR
CLASS B++ CLASS++
----------- -----------
YEAR YEAR
ENDED ENDED
OCTOBER 31, OCTOBER 31,
1998 (D) 1998 (D)
----------- -----------
<S> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $12.56 $12.56
----------- -----------
Income from investment operations:
Net investment income................. 0.31*{/\} 0.40*{/\}
Net realized and unrealized gain
(loss) on investments................ (5.07) (5.09)
----------- -----------
Net increase (decrease) from
investment operations.............. (4.76) (4.69)
----------- -----------
Redemption fees retained (Note 4)..... 0.28 0.28
----------- -----------
Distributions to shareholders:
From net investment income............ (0.59) (0.60)
From net realized gain on
investments.......................... -- --
----------- -----------
Total distributions................. (0.59) (0.60)
----------- -----------
Net asset value, end of period.......... $ 7.49 $ 7.55
----------- -----------
----------- -----------
Total investment return (based on net
asset value)........................... (39.76)% (c) (42.63)% (c)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 154 $ 29
Ratio of net investment income to
average net assets:
With expense reductions and
reimbursement (Notes 2 & 5).......... 3.09% 4.09%
Without expense reductions and
reimbursement........................ 2.68% 3.68%
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions and
reimbursement (Notes 2 & 5).......... 2.48% 1.48%
Without expense reductions and
reimbursement........................ 2.89% 1.89%
Ratio of interest expense to average net
assets (Note 1)+++..................... 0.20% 0.20%
Portfolio turnover rate+++.............. 111% 111%
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon the average
shares outstanding during the period.
{/\} Net investment income per share reflects an interest payment received
from the conversion of Vnesheconombank loan agreements of $0.14 per
share for Class A, B, and Advisor.
* Before reimbursement the net investment income per share would have
been reduced by $0.04 for Class A, B, and Advisor.
+ All capital shares issued and outstanding on October 31, 1997 were
reclassified as Class A shares.
++ Commencing November 1, 1997, the Fund began offering Class B and
Advisor Class shares.
+++ Portfolio turnover rates and ratio of interest expense to average net
assets are calculated on the basis of the Fund as whole without
distinguishing between the classes of shares issued.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-15
<PAGE> 460
NOTES TO
FINANCIAL STATEMENTS
October 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (SEE ALSO NOTE 2)
AIM Developing Markets Fund (the "Fund"), formerly GT Global Developing Markets
Fund, is a separate series of AIM Investment Funds (the "Trust"), formerly G.T.
Investment Funds, Inc. The Trust is organized as a Delaware business trust and
is registered under the Investment Company Act of 1940, as amended ("1940 Act"),
as an open-end management investment company. The Trust has thirteen series of
shares in operation, each series corresponding to a distinct portfolio of
investments.
On October 31, 1997, at the close of business, the Fund acquired the assets and
assumed the liabilities of G.T. Global Developing Markets Fund, Inc., a Maryland
corporation registered under the 1940 Act as a non-diversified closed-end
management investment company ("Predecessor Fund"), in exchange for Class A
shares of the Fund in a tax-free reorganization of the Predecessor Fund.
Shareholders of the Predecessor Fund approved the reorganization on October 20,
1997. Prior to October 28, 1997, the Predecessor Fund's shares traded on the New
York Stock Exchange.
Commencing November 1, 1997, the Fund offers Class A, Class B, and Advisor Class
shares, each of which has equal rights as to assets and voting privileges except
that Class A and Class B each has exclusive voting rights with respect to its
distribution plan. Investment income, realized and unrealized capital gains and
losses, and the common expenses of the Fund are allocated on a pro rata basis to
each class based on the relative net assets of each class to the total net
assets of the Fund. Each class of shares differs in its respective service and
distribution expenses, and may differ in its transfer agent, registration, and
certain other class-specific fees and expenses.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies in conformity with generally accepted accounting
principles consistently followed by the Fund in the preparation of the financial
statements.
(A) PORTFOLIO VALUATION
The Fund calculates the net asset value of and completes orders to purchase,
exchange or repurchase Fund shares on each business day, with the exception of
those days on which the New York Stock Exchange is closed.
Equity securities are valued at the last sale price on the exchange on which
such securities are traded or on the principal over-the-counter market on which
such securities are traded, as of the close of business on the day the
securities are being valued, or, lacking any sales, at the last available bid
price. In cases where securities are traded on more than one exchange, the
securities are valued on the exchange determined by A I M Advisors, Inc. (the
"Manager") to be the primary market.
Fixed income investments are valued at the mean of representative quoted bid and
asked prices for securities or, if such prices are not available, at prices for
securities of comparative maturity, quality and type; however, when the Manager
deems it appropriate, prices obtained for the day of valuation from a bond
pricing service will be used. Short-term investments with a maturity of 60 days
or less are valued at amortized cost, adjusted for foreign exchange translation
and market fluctuation, if any.
Investments for which market quotations are not readily available (including
restricted securities which are subject to limitations on their sale) are valued
at fair value as determined in good faith by or under the direction of the
Trust's Board of Trustees.
Portfolio securities which are primarily traded on foreign exchanges are
generally valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S. dollars at
the current exchange rates, except that when an occurrence subsequent to the
time a value was so established is likely to have materially changed such value,
then the fair value of those securities will be determined by consideration of
other factors by or under the direction of the Trust's Board of Trustees.
(B) FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings, other assets and liabilities
are recorded in the books and records of the Fund after translation to U.S.
dollars based on the exchange rates on that day. The cost of each security is
determined using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when earned or incurred.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
existing from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains and losses arise from sales and
maturities of short-term investments, forward foreign currency contracts, sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the differences between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities other than investments in securities at year
end, resulting from changes in exchange rates.
(C) REPURCHASE AGREEMENTS
With respect to repurchase agreements entered into by the Fund, it is the Fund's
policy to always receive, as collateral, United States government securities or
other high quality debt securities of which the value, including accrued
interest, is at least equal to the amount to be repaid to the Fund under each
agreement at its maturity.
FS-16
<PAGE> 461
(D) FORWARD FOREIGN CURRENCY CONTRACTS
A forward foreign currency contract ("Forward Contract") is an agreement between
two parties to buy and sell a currency at a set price on a future date. The
market value of the Forward Contract fluctuates with changes in currency
exchange rates. The Forward Contract is marked-to-market daily and the change in
market value is recorded by the Fund as an unrealized gain or loss. When the
Forward Contract is closed, the Fund records a realized gain or loss equal to
the difference between the value at the time it was opened and the value at the
time it was closed. The Fund could be exposed to risk if a counterparty is
unable to meet the terms of a contract or if the value of the currency changes
unfavorably. The Fund may enter into Forward Contracts in connection with
planned purchases or sales of securities or to hedge against adverse
fluctuations in exchange rates between currencies.
(E) OPTION ACCOUNTING PRINCIPLES
When the Fund writes a call or put option, an amount equal to the premium
received is included in the Fund's "Statement of Assets and Liabilities" as an
asset and an equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option. The current
market value of an option listed on a traded exchange is valued at its last bid
price, or, in the case of an over-the-counter option, is valued at the average
of the last bid prices obtained from brokers, unless a quotation from only one
broker is available, in which case only that broker's price will be used. If an
option expires on its stipulated expiration date or if the Fund enters into a
closing purchase transaction, a gain or loss is realized without regard to any
unrealized gain or loss on the underlying security, and the liability related to
such option is extinguished. If a written call option is exercised, a gain or
loss is realized from the sale of the underlying security and the proceeds of
the sale are increased by the premium originally received. If a written put
option is exercised, the cost of the underlying security purchased would be
decreased by the premium originally received. The Fund can write options only on
a covered basis, which, for a call, requires that the Fund hold the underlying
security, and, for a put, requires the Fund to set aside cash, U.S. government
securities or other liquid securities in an amount not less than the exercise
price or otherwise provide adequate cover at all times while the put option is
outstanding. The Fund may use options to manage its exposure to the stock and
bond markets and to fluctuations in currency values or interest rates.
The premium paid by the Fund for the purchase of a call or put option is
included in the Fund's "Statement of Assets and Liabilities" as an investment
and subsequently "marked-to-market" to reflect the current market value of the
option. If an option which the Fund has purchased expires on the stipulated
expiration date, the Fund realizes a loss in the amount of the cost of the
option. If the Fund enters into a closing sale transaction, the Fund realizes a
gain or loss, depending on whether proceeds from the closing sale transaction
are greater or less than the cost of the option. If the Fund exercises a call
option, the cost of the securities acquired by exercising the call is increased
by the premium paid to buy the call. If the Fund exercises a put option, it
realizes a gain or loss from the sale of the underlying security, and the
proceeds from such sale are decreased by the premium originally paid.
The risk associated with purchasing options is limited to the premium originally
paid. The risk in writing a call option is that the Fund may forego the
opportunity of profit if the market value of the underlying security or index
increases and the option is exercised. The risk in writing a put option is that
the Fund may incur a loss if the market value of the underlying security or
index decreases and the option is exercised. In addition, there is the risk the
Fund may not be able to enter into a closing transaction because of an illiquid
secondary market.
(F) FUTURES CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
security at a set price on a future date. Upon entering into such a contract the
Fund is required to pledge to the broker an amount of cash or securities equal
to the minimum "initial margin" requirements of the exchange on which the
contract is traded. Pursuant to the contract, the Fund agrees to receive from or
pay to the broker an amount of cash equal to the daily fluctuation in value of
the contract. Such receipts or payments are known as "variation margin" and are
recorded by the Fund as unrealized gains or losses. When the contract is closed,
the Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the time it was
closed. The potential risk to the Fund is that the change in value of the
underlying securities may not correlate to the change in value of the contracts.
The Fund may use futures contracts to manage its exposure to the stock and bond
markets and to fluctuations in currency values or interest rates.
(G) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). The cost of securities sold is determined on a first-in,
first-out basis, unless otherwise specified. Dividends are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. Where a high
level of uncertainty exists as to collection of income on securities, income is
recorded net of all withholding tax with any rebate recorded when received. The
Fund may trade securities on other than normal settlement terms. This may
increase the market risk if the other party to the transaction fails to deliver
and causes the Fund to subsequently invest at less advantageous prices.
(H) PORTFOLIO SECURITIES LOANED
At October 31, 1998, stocks with an aggregate value of approximately $8,703,342
were on loan to brokers. The loans were secured by cash collateral of $8,903,149
received by the Fund. For the year ended October 31, 1998, the Fund received
securities lending income of $241,088.
For international securities, cash collateral is received by the Fund against
loaned securities in an amount at least equal to 105% of the market value of the
loaned securities at the inception of each loan. This collateral must be
maintained at not less than 103% of the market value of the loaned securities
during the period of the loan. For domestic securities, cash collateral is
received by the Fund against loaned securities in an amount at least equal to
102% of the market value of the loaned securities at the inception of each loan.
This collateral must be maintained at not less than 100% of the market value of
the loaned securities during the period of each loan. The cash collateral is
invested in a securities lending trust which consists
FS-17
<PAGE> 462
of a portfolio of high quality short duration securities whose average effective
duration is restricted to 120 days or less.
(I) TAXES
It is the policy of the Fund to meet the requirements for qualification as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended ("Code"). It is also the intention of the Fund to make distributions
sufficient to avoid imposition of any excise tax under Section 4982 of the Code.
Therefore, no provision has been made for Federal taxes on income, capital
gains, and unrealized appreciation of securities held, or excise tax on income
and capital gains. The Fund currently has a capital loss carryforward of
$134,888,352 of which $54,472,976 expires in 2003 and $80,415,376 expires in
2006.
(J) DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded by the Fund on the ex-date. Income
and capital gain distributions are determined in accordance with Federal income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Fund and timing differences.
(K) DEFERRED ORGANIZATIONAL EXPENSES
Expenses incurred by the Fund in connection with its organization, its
registration with the Securities and Exchange Commission and with various states
aggregated $353,775. These expenses are being amortized on a straightline basis
over a five-year period.
(L) FOREIGN SECURITIES
There are certain additional considerations and risks associated with investing
in foreign securities and currency transactions that are not inherent in
investments of domestic origin. The Fund's investments in emerging market
countries may involve greater risks than investments in more developed markets
and the prices of such investments may be volatile. These risks of investing in
foreign and emerging markets may include foreign currency exchange rate
fluctuations, perceived credit risk, adverse political and economic developments
and possible adverse foreign government intervention.
(M) INDEXED SECURITIES
The Fund may invest in indexed securities whose value is linked either directly
or indirectly to changes in foreign currencies, interest rates, equities,
indices, or other reference instruments. Indexed securities may be more volatile
than the reference instrument itself, but any loss is limited to the amount of
the original investment.
(N) RESTRICTED SECURITIES
The Fund is permitted to invest in privately placed restricted securities. These
securities may be resold in transactions exempt from registration or to the
public if the securities are registered. Disposal of these securities may
involve time-consuming negotiations and expense, and prompt sale at an
acceptable price may be difficult.
(O) SECURITIES PURCHASED ON A WHEN-ISSUED OR FORWARD COMMITMENT BASIS
The Fund may trade securities on a when-issued or forward commitment basis, with
payment and delivery scheduled for a future date. These transactions are subject
to market fluctuations and are subject to the risk that the value at delivery
may be more or less than the trade date purchase price. Although the Fund will
generally purchase these securities with the intention of acquiring such
securities, they may sell such securities before the settlement date. These
securities are identified on the accompanying Portfolio of Investments. The Fund
has purchased and sold when-issued securities during the period and has set
aside liquid securities as collateral for these commitments.
(P) LINE OF CREDIT
The Fund, along with certain other funds advised and/or administered by the
Manager, has a line of credit with each of BankBoston and State Street Bank and
Trust Company. The arrangements with the banks allow the Fund and certain other
Funds to borrow, on a first come, first serve basis, an aggregate maximum amount
of $250,000,000. The Fund is limited to borrowing up to 33 1/3% of the value of
the Fund's total assets. On October 31, 1998, the Fund had no loans outstanding.
For the year ended October 31, 1998, the weighted average outstanding daily
balance of bank loans (based on the number of days the loans were outstanding)
was $7,855,160, with a weighted average interest rate of 6.29%. Interest expense
for the year ended October 31, 1998 was $308,816. Other interest expense charges
amounted to $50,819.
2. RELATED PARTIES
A I M Advisors, Inc. (the "Manager"), an indirect wholly-owned subsidiary of
AMVESCAP PLC, is the Fund's investment manager and administrator and INVESCO
(NY), Inc., (formerly, Chancellor LGT Asset Management, Inc.) is the Fund's
investment sub-advisor and sub-administrator. As of the close of business on May
29, 1998, Liechtenstein Global Trust AG ("LGT"), the former indirect parent
organization of Chancellor LGT Asset Management, Inc. ("Chancellor LGT")
consummated a purchase agreement with AMVESCAP PLC pursuant to which AMVESCAP
PLC acquired LGT's Asset Management Division, which included Chancellor LGT and
certain other affiliates. As a result of this transaction, Chancellor LGT was
renamed INVESCO (NY), Inc., and is now an indirect wholly-owned subsidiary of
AMVESCAP PLC. A I M Distributors, Inc. ("AIM Distributors"), a wholly-owned
subsidiary of the Manager, is the Fund's distributor as of the close of business
on May 29, 1998. The Trust was reorganized from a Maryland corporation into a
Delaware business trust on September 8, 1998. Finally, as of the close of
business on September 4, 1998, A I M Fund Services, Inc. ("AFS"), an affiliate
of the Manager and AIM Distributors, replaced GT Global Investor Services, Inc.
("GT Services") as the transfer agent of the Fund.
The Fund pays the Manager investment management and administration fees at the
annualized rate of 0.975% on the first $500 million of average daily net assets
of the Fund; 0.95% on the next $500 million; 0.925% on the next $500 million and
0.90% on amounts thereafter. These fees are computed daily and paid monthly.
AIM Distributors, an affiliate of the Manager, serves as the Fund's distributor.
For the period ended May 29, 1998, GT Global, Inc. ("GT Global"), an affiliate
of the investment sub-advisor, served as the Fund's distributor. The Fund offers
Class A, Class B, and Advisor Class shares for purchase.
FS-18
<PAGE> 463
Class A shares are subject to initial sales charges imposed at the time of
purchase, in accordance with the schedule included in the Fund's current
prospectus. AIM Distributors collects the sales charges imposed on sales of
Class A shares, and reallows a portion of such charges to dealers through which
the sales are made. For the year ended October 31, 1998, AIM Distributors and GT
Global retained sales charges of $819 and $0, respectively. Purchases of Class A
shares exceeding $1,000,000 may be subject to a contingent deferred sales charge
("CDSC") upon redemption, in accordance with the Fund's current prospectus. AIM
Distributors and GT Global collected CDSCs for the year ended October 31, 1998
of $2,664 and $0, respectively. AIM Distributors also makes ongoing shareholder
servicing and trail commission payments to dealers whose clients hold Class A
shares.
Class B shares are not subject to initial sales charges. When Class B shares are
sold, AIM Distributors, from its own resources, pays commissions to dealers
through which the sales are made. Certain redemptions of Class B shares made
within six years of purchase are subject to CDSCs, in accordance with the Fund's
current prospectus. For the year ended October 31, 1998, AIM Distributors and GT
Global collected CDSCs in the amount of $1,588 and $0, respectively. In
addition, AIM Distributors makes ongoing shareholder servicing and trail
commission payments to dealers whose clients hold Class B shares.
For the period ended May 29, 1998, pursuant to the then effective separate
distribution plans adopted under the 1940 Act Rule 12b-1 by the Trust's Board of
Trustees with respect to the Fund's Class A shares ("Class A Plan") and Class B
shares ("Class B Plan"), the Fund reimbursed GT Global for a portion of its
shareholder servicing and distribution expenses. Under the Class A Plan, the
Fund was permitted to pay GT Global a service fee at the annualized rate of up
to 0.25% of the average daily net assets of the Fund's Class A shares for GT
Global's expenditures incurred in servicing and maintaining shareholder
accounts, and was permitted to pay GT Global a distribution fee at the
annualized rate of up to 0.50% of the average daily net assets of the Fund's
Class A shares, less any amounts paid by the Fund as the aforementioned service
fee, for GT Global's expenditures incurred in providing services as distributor.
All expenses for which GT Global was reimbursed under the Class A Plan would
have been incurred within one year of such reimbursement.
For the period ended May 29, 1998, pursuant to the Class B Plan, the Fund was
permitted to pay GT Global a service fee at the annualized rate of up to 0.25%
of the average daily net assets of the Fund's Class B shares for GT Global's
expenditures incurred in servicing and maintaining shareholder accounts, and was
permitted to pay GT Global a distribution fee at the annualized rate of up to
0.75% of the average daily net assets of the Fund's Class B shares for GT
Global's expenditures incurred in providing services as distributor. Expenses
incurred under the Class B Plan in excess of 1.00% annually were permitted to be
carried forward for reimbursement in subsequent years as long as that Plan
continued in effect.
Effective as of the close of business May 29, 1998, pursuant to Rule 12b-1 under
the 1940 Act, the Trust's Board of Trustees adopted a Master Distribution Plan
applicable to the Fund's Class A shares ("Class A Plan") and Class B shares
("Class B Plan"), pursuant to which the Fund compensates AIM Distributors for
the purpose of financing any activity that is intended to result in the sale of
Class A or Class B shares of the Fund. Under the Class A Plan, the Fund
compensates AIM Distributors up to an annualized rate of 0.50% of the average
daily net assets of the Fund's Class A shares. Class A shares issued as a result
of the conversion of shares from the Predecessor Fund are limited to 0.25% of
the average daily net assets of the Fund's Class A shares. Under the Class B
Plan, the Fund compensates AIM Distributors at an annualized rate of 1.00% of
the average daily net assets of the Fund's Class B shares.
The Class A Plan and the Class B Plan (together, the "Plans") are designed to
compensate AIM Distributors for certain promotional and other sales-related
costs, and to implement a dealer incentive program that provides for periodic
payments to selected dealers who furnish continuing personal shareholder
services to their customers who purchase and own Class A and Class B shares of
the Fund. Payments also can be directed by AIM Distributors to financial
institutions who have entered into service agreements with respect to Class A
and Class B shares of the Fund and who provide continuing personal services to
their customers who own Class A and Class B shares of the Fund. The service fees
payable to selected financial 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 that were purchased on or after a
prescribed date set forth in the Plans.
The Manager and AIM Distributors voluntarily have undertaken to limit the Fund's
expenses (exclusive of brokerage commissions, taxes, interest, and extraordinary
expenses) to the maximum annual rate of 2.00%, 2.50%, and 1.50% of the average
daily net assets of the Fund's Class A, Class B, and Advisor Class shares,
respectively. If necessary, this limitation will be effected by the waivers by
the Manager of investment management and administration fees, waivers by AIM
Distributors of payments under the Class A Plan and/or Class B Plan and/or
reimbursements by the Manager or AIM Distributors of portions of the Fund's
other operating expenses.
Effective as of the close of business September 4, 1998, the Fund, pursuant to a
transfer agency and service agreement, has agreed to pay A I M Fund Services,
Inc. ("AFS") an annualized fee of $24.85 per shareholder accounts that are open
during any monthly period (this fee includes all out-of-pocket expenses), and an
annualized fee of $0.70 per shareholder account that is closed during any
monthly period. Both fees shall be billed by AFS monthly in arrears on a
prorated basis of 1/12 of the annualized fee for all such accounts.
For the period November 1, 1997 to September 4, 1998, GT Services, an affiliate
of the Manager and AIM Distributors, was the transfer agent of the Fund. For
performing shareholder servicing, reporting, and general transfer agent
services, GT Services received an annual maintenance fee of $17.50 per account,
a new account fee of $4.00 per account, a per transaction fee of $1.75 for all
transactions other than exchanges and a per exchange fee of $2.25. GT Services
also was reimbursed by the Fund for its out-of-pocket expenses for such items as
postage, forms, telephone charges, stationery and office supplies.
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<PAGE> 464
The Manager is the pricing and accounting agent for the Fund. The monthly fee
for these services paid to the Manager is a percentage, not to exceed 0.03%
annually, of the Fund's average daily net assets. The annual fee rate is derived
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% to 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.
The Trust pays each Trustee who is not an employee, officer or director of the
Manager, or any other affiliated company, $5,000 per year plus $300 for each
meeting of the board or any committee thereof attended by the Trustee.
3. PURCHASES AND SALES OF SECURITIES
For the year ended October 31, 1998, purchases and sales of investment
securities by the Fund, other than U.S. government obligations and short-term
investments, aggregated $202,780,180 and $438,952,561, respectively. For the
year ended October 31, 1998, purchases and sales of U.S. government obligations
aggregated $0 and $7,170,550, respectively.
4. CAPITAL SHARES
At October 31, 1998, there were 6,000,000,000 shares of the Trust's common stock
authorized, at $0.0001 par value. Of this amount, 400,000,000 were classified as
shares of the AIM Global Telecommunications Fund; 400,000,000 were classified as
shares of AIM Global Government Income Fund; 200,000,000 were classified as
shares of AIM Global Health Care Fund; 200,000,000 were classified as shares of
AIM Strategic Income Fund; 200,000,000 were classified as shares of AIM
Developing Markets Fund; 200,000,000 were classified as shares of GT Global
Currency Fund (inactive); 200,000,000 were classified as shares of AIM Global
Growth & Income Fund; 200,000,000 were classified as shares of GT Global Small
Companies Fund (inactive); 200,000,000 were classified as shares of AIM Latin
American Growth Fund; 200,000,000 were classified as shares of AIM Emerging
Markets Fund; 200,000,000 were classified as shares of AIM Emerging Markets Debt
Fund; 200,000,000 were classified as shares of AIM Global Financial Services
Fund; 200,000,000 were classified as shares of AIM Global Resources Fund;
200,000,000 were classified as shares of AIM Global Infrastructure Fund;
200,000,000 were classified as shares of AIM Global Consumer Products and
Services Fund. The shares of each of the foregoing series of the Trusts were
divided equally into two classes, designated Class A and Class B common stock.
With respect to the issuance of Advisor Class shares, 100,000,000 shares were
classified as shares of each of the fifteen series of the Trusts and designated
as Advisor Class common stock. 1,100,000,000 shares remain unclassified.
Transactions in capital shares of the Fund were as follows:
CAPITAL SHARE TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, 1998
--------------------------
CLASS A SHARES AMOUNT
- -------------------------------------------------- ----------- -------------
<S> <C> <C>
Shares sold....................................... 486,628 $ 5,011,027
Shares issued in connection with reinvestment of
distributions................................... 676,257 8,203,222
----------- -------------
1,162,885 13,214,249
Shares repurchased including those purchased in
connection with open ending of the Fund on
11/1/97*........................................ (25,963,398) (308,568,937)
----------- -------------
Net decrease...................................... (24,800,513) $(295,354,688)
----------- -------------
----------- -------------
<CAPTION>
CLASS B
- --------------------------------------------------
<S> <C> <C>
Shares sold....................................... 30,654 $ 314,666
Shares issued in connection with reinvestment of
distributions................................... 124 1,499
----------- -------------
30,778 316,165
Shares repurchased................................ (10,213) (89,300)
----------- -------------
Net increase...................................... 20,565 $ 226,865
----------- -------------
----------- -------------
<CAPTION>
ADVISOR CLASS
- --------------------------------------------------
<S> <C> <C>
Shares sold....................................... 4,782 $ 49,262
Shares issued in connection with reinvestment of
distributions................................... 4 46
----------- -------------
4,786 49,308
Shares repurchased................................ (909) (8,996)
----------- -------------
Net increase...................................... 3,877 $ 40,312
----------- -------------
----------- -------------
</TABLE>
- --------------
* The redemption amount for Class A is net of a 2% redemption fee of $4,945,536
incurred in the period from November 1, 1997 to May 1, 1998 in connection with
redemptions upon the open ending of the Fund.
FS-20
<PAGE> 465
5. EXPENSE REDUCTIONS
The Manager has directed certain portfolio trades to brokers who then paid a
portion of the Fund's expenses. For the year ended October 31, 1998, the Fund's
expenses were reduced by $41,663 under these arrangements.
6. ADDITIONAL INFORMATION
The Board of Trustees of AIM Investment Funds unanimously approved, on September
23, 1998, a Plan of Reorganization and Termination ("Plan") pursuant to which
AIM Emerging Markets Fund ("Emerging Markets Fund") would transfer substantially
all of its assets to the Fund. As a result of the transaction, shareholders of
the Emerging Markets Fund would receive shares of the Fund in exchange for their
shares of Emerging Markets Fund, and Emerging Markets Fund would cease
operations.
The Plan requires the approval of Emerging Markets Fund shareholders and will be
submitted to the shareholders for their consideration at a meeting to be held in
February 1999. If the Plan is approved by shareholders of Emerging Markets Fund
and certain conditions required by the Plan are satisfied, the transaction is
expected to become effective before the end of February 1999.
7. SUBSEQUENT EVENT (UNAUDITED)
Effective December 14, 1998, sub-advisory and sub-administration responsibility
for the Fund was transferred from INVESCO (NY), Inc. to INVESCO Asset Management
Ltd., another indirect wholly-owned subsidiary of AMVESCAP PLC. A I M Advisors,
Inc. will continue to serve as the manager and administrator of the Fund. The
transfer will not change the fees paid by A I M Advisors, Inc. for sub-advisory
services and will not change the nature of the sub-advisory services provided to
the Fund or the personnel providing such services.
8. PROXY RESULTS (UNAUDITED)
The Special Meeting of Shareholders of the G.T. Investment Funds, Inc. now known
as AIM Investment Funds (the "Trust") was held on May 20, 1998 at the Trust's
offices, 50 California Street, 26th Floor, San Francisco, California. The
meeting was held for the following purposes:
(1) To elect Directors as follows: C. Derek Anderson, Frank S. Bayley, William
J. Guilfoyle, Arthur C. Patterson, Ruth H. Quigley.
(2) To approve a new Investment Management and Administration Contract and
Sub-Advisory and Sub-Administration Contract with respect to each series of
the Trust (each, a "Fund," and collectively, the "Funds").
(3) To approve replacement Rule 12b-1 plans of distribution with respect to
Class A and B Shares of the Fund.
(4) To approve changes to the fundamental investment restrictions of the Fund.
(5) To approve an agreement and plan of conversion and termination for the
Trust.
(6) To ratify the selection of Coopers & Lybrand L.L.P., now known as
PricewaterhouseCoopers LLP, as the Trust's independent public accountants.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
VOTES WITHHELD/
TRUSTEE/MATTER VOTES FOR AGAINST ABSTENTIONS
------------------------------------------------------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
(1) C. Derek Anderson........................................... 191,685,088 N/A 13,123,292
Frank S. Bayley............................................. 191,766,811 N/A 13,041,568
William J. Guilfoyle........................................ 191,828,959 N/A 12,979,420
Arthur C. Patterson......................................... 191,845,270 N/A 12,963,109
Ruth H. Quigley............................................. 191,869,887 N/A 12,938,492
(2)(a) Approval of investment management and administration
contract................................................... 6,214,229 523,624 2,414,013*
(2)(b) Approval of sub-advisory and sub-administration contract.... 6,165,338 552,219 2,434,309*
(3) Approval of replacement Rule 12b-1 plans of distribution
CLASS A SHARES.............................................. 7,788,067 720,705 624,489
CLASS B SHARES.............................................. 15,702 N/A N/A
(4)(a) Modification of Fundamental Restriction on Concentration.... 6,156,539 548,114 2,447,213*
(4)(b) Modification of Fundamental Restrictions on Issuing Senior
Securities and Borrowing Money............................. 6,156,539 548,114 2,447,213*
(4)(c) Modification of Fundamental Restriction on Making Loans..... 6,156,539 548,114 2,447,213*
(4)(d) Modification of Fundamental Restriction on Underwriting
Securities................................................. 6,156,539 548,114 2,447,213*
(4)(e) Modification of Fundamental Restriction on Real Estate
Investments................................................ 6,156,539 548,114 2,447,213*
(4)(f) Modification of Fundamental Restriction on Investing in
Commodities................................................ 6,154,943 549,710 2,447,213*
(4)(g) Elimination of Fundamental Restriction on Margin
Transactions............................................... 6,154,943 549,710 2,447,213*
(4)(h) Elimination of Fundamental Restriction on Selling Securities
Short...................................................... 6,151,293 553,360 2,447,213*
</TABLE>
FS-21
<PAGE> 466
<TABLE>
<CAPTION>
VOTES WITHHELD/
TRUSTEE/MATTER VOTES FOR AGAINST ABSTENTIONS
------------------------------------------------------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
(4)(i) Approval of New Fundamental Investment Policy Regarding
Investment of All of Each Fund's in an Open-End Fund....... 6,156,539 548,114 2,447,213*
(5) Approval of an agreement and plan of conversion and
termination with respect to the Company.................... 190,027,469 6,362,084 94,055,040*
(6) Ratification of the selection of Coopers and Lybrand L.L.P.,
now known as PricewaterhouseCoopers LLP, as the Trust's
Independent Public Accountants............................. 191,358,779 2,114,168 11,333,063
</TABLE>
- ------------------------
* Includes Broker Non-Votes
- ------------------------
FEDERAL TAX INFORMATION (UNAUDITED):
For the fiscal year ended October 31, 1998, the amount of income received by the
Fund from sources within foreign countries and possessions of the United States
was $.852 per share (representing a total of $9,916,743). The amount of taxes
paid by the Fund to such countries for the fiscal year ended October 31, 1998
was $.03 per share (representing a total of $349,544). The following table
provides a breakdown by country of ordinary income dividends and foreign taxes
paid by the Fund during the fiscal year ended October 31, 1998:
<TABLE>
<CAPTION>
COUNTRY GROSS INCOME % FOREIGN TAX PAID %
- --------------------------------------------------------------------------------------- -------------- ------------------
<S> <C> <C>
Argentina.............................................................................. 4.34 --
Brazil................................................................................. 12.10 14.33
Bulgaria............................................................................... 1.54 --
Chile.................................................................................. 2.38 18.66
China.................................................................................. 1.81 --
Egypt.................................................................................. 9.02 1.18
Israel................................................................................. 1.43 8.94
Malaysia............................................................................... 0.50 2.33
Mexico................................................................................. 6.32 --
Pakistan............................................................................... 1.37 1.19
Peru................................................................................... 1.90 --
Philippines............................................................................ 0.35 1.26
Russia................................................................................. 34.21 --
South Africa........................................................................... 5.64 --
Taiwan................................................................................. 0.44 3.86
Thailand............................................................................... 0.07 33.73
Turkey................................................................................. 1.75 --
Various................................................................................ 8.45 2.62
-------------- --------
93.62 88.10
Nonqualifying.......................................................................... 1.54 11.90
United States.......................................................................... 4.84 --
-------------- --------
100.00% 100.00%
-------------- --------
-------------- --------
</TABLE>
Information needed by shareholders to prepare their 1998 federal income tax
return will be provided with the annual 1099 information in January 1999.
FS-22
<PAGE> 467
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders of AIM Latin American Growth Fund (formerly GT Global Latin
America Growth Fund) and Board of Trustees of AIM Investment Funds (formerly
G.T. Investment Funds, Inc.):
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Latin American Growth Fund
at October 31, 1998, and the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
------------------------------
PRICEWATERHOUSECOOPERS LLP
BOSTON, MASSACHUSETTS
DECEMBER 18, 1998
FS-23
<PAGE> 468
PORTFOLIO OF INVESTMENTS
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Services (28.0%)
Telecomunicacoes Brasileiras S.A. (Telebras): ............. BRZL -- -- 4.5
TELEPHONE NETWORKS
ADR{\/} ................................................. -- 64,040 $ 4,863,038 --
Common .................................................. -- 86,027,027 8,655 --
Nortel Inversora S.A. - ADR{\/} ........................... ARG 187,700 4,176,325 3.9
TELEPHONE NETWORKS
Carso Global Telecom "A1" ................................. MEX 1,227,000 3,339,850 3.1
TELEPHONE NETWORKS
Grupo Televisa, S.A. de C.V. - GDR-/- {\/} ................ MEX 105,600 2,864,400 2.7
BROADCASTING & PUBLISHING
Companhia de Saneamento Basico do Estado de Sao Paulo -
SABESP ................................................... BRZL 26,766,622 2,154,255 2.0
BUSINESS & PUBLIC SERVICES
Telecomunicacoes de Sao Paulo S.A. (TELESP): .............. BRZL -- -- 1.9
TELEPHONE - REGIONAL/LOCAL
Common-/- ............................................... -- 18,256,100 1,982,183 --
Preferred ............................................... -- 715,813 120,022 --
Telefonica de Argentina S.A. - ADR{\/} .................... ARG 56,200 1,858,113 1.7
TELEPHONE NETWORKS
Telesp Participacoes S.A.-/- .............................. BRZL 86,027,027 1,543,409 1.4
TELEPHONE - REGIONAL/LOCAL
Controladora Comercial Mexicana, S.A. de C.V. - UBC[.] .... MEX 2,110,000 1,336,633 1.2
RETAILERS-FOOD
Supermercados Unimarc S.A. - ADR (Chile){\/} .............. CHLE 207,200 712,249 0.7
RETAILERS-FOOD
Companhia Brasileira de Distribuicao Grupo Pao de Acucar -
ADR{\/} .................................................. BRZL 42,978 693,020 0.6
RETAILERS-FOOD
Embratel Participacoes S.A.-/- ............................ BRZL 86,027,027 663,522 0.6
TELEPHONE - LONG DISTANCE
Telesp Celulars S.A.: ..................................... BRL -- -- 0.6
WIRELESS COMMUNICATIONS
Preferred "B" ........................................... -- 6,373,727 315,267 --
Common .................................................. -- 12,531,500 273,155 --
Tele Norte Leste Participacoes S.A.-/- .................... BRZL 86,027,027 483,217 0.5
TELEPHONE - REGIONAL/LOCAL
Grupo Posadas S.A.: ....................................... MEX -- -- 0.5
LEISURE & TOURISM
"L"-/- .................................................. -- 752,300 275,513 --
"A"-/- .................................................. -- 471,000 177,155 --
Telerj Celular S.A. "B" Preferred-/- ...................... BRZL 14,509,681 450,082 0.4
WIRELESS COMMUNICATIONS
Tele Centro Sul Participacoes S.A.-/- ..................... BRZL 86,027,027 396,671 0.4
TELEPHONE - REGIONAL/LOCAL
El Puerto de Liverpool, S.A. de C.V. ...................... MEX 283,200 364,407 0.3
RETAILERS-OTHER
Telesp Celular Participacoes S.A.-/- ...................... BRZL 86,027,027 280,554 0.3
WIRELESS COMMUNICATIONS
Cintra S.A. ............................................... MEX 393,300 233,574 0.2
TRANSPORTATION - AIRLINES
Santa Isabel S.A. - ADR{\/} ............................... CHLE 36,684 213,226 0.2
RETAILERS-FOOD
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-24
<PAGE> 469
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Services (Continued)
Tele Sudeste Celular Participacoes S.A.-/- ................ BRZL 86,027,027 $ 165,880 0.2
WIRELESS COMMUNICATIONS
Tele Celular Sul Participacoes S.A.-/- .................... BRZL 86,027,027 54,813 0.1
WIRELESS COMMUNICATIONS
Tele Centro Oeste Celular Participacoes S.A.-/- ........... BRZL 86,027,027 54,091 --
WIRELESS COMMUNICATIONS
Telemig Celular Participacoes S.A.-/- ..................... BRZL 86,027,027 52,649 --
WIRELESS COMMUNICATIONS
Tele Nordeste Celular Participacoes S.A.-/- ............... BRZL 86,027,027 32,455 --
WIRELESS COMMUNICATIONS
Tele Leste Celular Participacoes S.A.-/- .................. BRZL 86,027,027 26,685 --
WIRELESS COMMUNICATIONS
Tele Norte Celular Participacoes S.A.-/- .................. BRZL 86,027,027 17,309 --
WIRELESS COMMUNICATIONS
------------
30,182,377
------------
Energy (20.3%)
Petroleo Brasileiro S.A. (Petrobras) Preferred ............ BRZL 41,660,500 5,238,996 4.9
OIL
Companhia Energetica de Minas Gerais (CEMIG) - ADR{\/} .... BRZL 130,006 2,518,863 2.3
ELECTRICAL & GAS UTILITIES
Enersis S.A. - ADR{\/} .................................... CHLE 93,200 1,945,550 1.8
ELECTRICAL & GAS UTILITIES
Companhia Paranaense de Energia - Copel ................... BRZL -- -- 1.8
ELECTRICAL & GAS UTILITIES
"ADR"{\/} ............................................... -- 162,200 1,257,050 --
Common-/- ............................................... -- 103,347,000 633,356 --
Gener S.A. - ADR{\/} ...................................... CHLE 102,819 1,657,956 1.5
ELECTRICAL & GAS UTILITIES
Companhia de Eletricidade do Estado da Bahia - COELBA ..... BRZL 51,530,000 1,641,633 1.5
ELECTRICAL & GAS UTILITIES
Empresa Nacional de Electricidad S.A. - ADR{\/} ........... CHLE 115,900 1,151,756 1.1
ELECTRICAL & GAS UTILITIES
Harken Energy Corp.-/- .................................... US 334,670 1,150,428 1.1
OIL
C.A. La Electricidad de Caracas ........................... VENZ 3,991,353 1,134,107 1.1
ELECTRICAL & GAS UTILITIES
Eletropaulo Metropolitana Preferred ....................... BRZL 30,003,180 1,011,174 0.9
ELECTRICAL & GAS UTILITIES
Companhia Brasileira de Petroleo Ipiranga S.A.
Preferred ................................................ BRZL 173,785,000 932,448 0.9
GAS
Light - Servicos de Electricidade S.A. .................... BRZL 6,310,000 782,931 0.7
ELECTRICAL & GAS UTILITIES
Companhia Paulista de Forca e Luz ......................... BRZL -- -- 0.4
ELECTRICAL & GAS UTILITIES
Common-/- ............................................... -- 5,030,000 421,697 --
Preferred-/- ............................................ -- 21,438 1,258 --
Centrais Geradoras do Sul do Brasil S.A. (Gerasul): ....... BRZL -- -- 0.2
ELECTRICAL & GAS UTILITIES
Preferred-/- ............................................ -- 108,069,830 122,312 --
Common-/- ............................................... -- 87,753,000 89,754 --
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-25
<PAGE> 470
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Energy (Continued)
Empresa Bandeirante de Energia S.A.-/- .................... BRZL 14,986,180 $ 145,615 0.1
ELECTRICAL & GAS UTILITIES
------------
21,836,884
------------
Finance (12.8%)
Uniao de Bancos Brasileiros S.A. (Unibanco) Units{=} ...... BRZL 80,014,700 2,626,237 2.4
BANKS-MONEY CENTER
Banco Rio de La Plata S.A. - ADR{\/} ...................... ARG 247,200 2,224,800 2.1
BANKS-MONEY CENTER
Administradora de Fondos de Pensiones Provida S.A. -
ADR{\/} .................................................. CHLE 117,400 1,665,613 1.5
INVESTMENT MANAGEMENT
Banco de Galicia y Buenos Aires, S.A. de C.V. - ADR{\/} ... ARG 94,520 1,612,748 1.5
BANKS-MONEY CENTER
Banco LatinoAmericano de Exportaciones S.A. (Bladex)
"E"{\/} .................................................. PAN 57,597 1,249,135 1.2
OTHER FINANCIAL
Grupo Financiero Banorte, S.A. de C.V. "B"-/- ............. MEX 1,898,671 1,157,657 1.1
BANKS-SUPER REGIONAL
Grupo Financiero Banamex Accival, S.A. de C.V. "B"-/- ..... MEX 906,700 942,329 0.9
BANKS-MONEY CENTER
Inversiones y Representaciones S.A. (IRSA) - GDR{\/} ...... ARG 32,700 846,113 0.8
REAL ESTATE
Credicorp Ltd. - ADR{\/} .................................. PERU 94,682 639,104 0.6
BANKS-MONEY CENTER
Banco de A. Edwards - ADR{\/} ............................. CHLE 59,880 538,920 0.5
BANKS-MONEY CENTER
Banco Wiese - ADR{\/} ..................................... PERU 131,400 238,163 0.2
BANKS-MONEY CENTER
------------
13,740,819
------------
Materials/Basic Industry (12.7%)
Sociedad Quimica y Minera de Chile S.A. - ADR{\/} ......... CHLE 95,100 3,162,075 2.9
CHEMICALS
Companhia Vale do Rio Doce "A" Preferred .................. BRZL 160,703 2,425,096 2.2
METALS - STEEL
Industrias Penoles S.A. (CP) .............................. MEX 634,600 1,940,922 1.8
METALS - NON-FERROUS
Apasco, S.A. de C.V. ...................................... MEX 523,000 1,915,372 1.8
CEMENT
Grupo Cementos de Chihuahua, S.A. de C.V. "B" ............. MEX 1,362,500 730,946 0.7
CEMENT
Compania de Minas Buenaventura S.A. - ADR{\/} ............. PERU 51,300 628,425 0.6
GOLD
Siderca S.A. "A" .......................................... ARG 443,400 620,946 0.6
METALS - STEEL
Grupo Mexico S.A. "B" ..................................... MEX 235,824 599,889 0.6
METALS - NON-FERROUS
Votorantim Celulose e Papel S.A. .......................... BRZL 57,900,000 509,683 0.5
PAPER/PACKAGING
Usinas Siderurgicas de Minas Gerais S.A. - USIMINAS ....... BRZL 160,300 505,305 0.5
METALS - STEEL
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-26
<PAGE> 471
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Materials/Basic Industry (Continued)
Caemi Mineracao e Metalurgia S.A. Preferred ............... BRZL 12,750,000 $ 272,573 0.2
METALS - STEEL
Venezolana de Cementos, S.A.C.A.: ......................... VENZ -- -- 0.2
CEMENT
"A" ..................................................... -- 521,635 156,261 --
"B" ..................................................... -- 344,828 94,182 --
Companhia Cimento Portland Itau Preferred ................. BRZL 650,000 87,190 0.1
CEMENT
------------
13,648,865
------------
Consumer Non-Durables (12.5%)
Fomento Economico Mexicano, S.A. de C.V. - ADR{\/} ........ MEX 165,450 4,312,041 4.0
BEVERAGES - NON-ALCOHOLIC
Kimberly-Clark de Mexico, S.A. de C.V. "A" ................ MEX 825,600 2,418,862 2.3
PERSONAL CARE/COSMETICS
Compania Cervecerias Unidas S.A. - ADR{\/} ................ CHLE 105,400 1,897,200 1.8
BEVERAGES - ALCOHOLIC
Companhia de Tecidos Norte de Minas Preferred ............. BRZL 11,622,000 1,344,598 1.2
TEXTILES & APPAREL
Quilmes Industrial S.A. - ADR{\/} ......................... ARG 126,098 1,158,525 1.1
BEVERAGES - ALCOHOLIC
Grupo Industrial Maseca, S.A. de C.V. "B" ................. MEX 1,298,000 1,053,509 1.0
FOOD
Pepsi-Gemex S.A. - GDR{\/} ................................ MEX 122,800 798,200 0.7
BEVERAGES - NON-ALCOHOLIC
Embotelladora Andina S.A. "B" - ADR{\/} ................... CHLE 37,800 444,150 0.4
BEVERAGES - NON-ALCOHOLIC
Sudamtex de Venezuela "B" - ADR{\/} ....................... VENZ 34,764 34,764 --
TEXTILES & APPAREL
Cerveceria Backus & Johnston S.A. "T" ..................... PERU 87,469 31,086 --
BEVERAGES - ALCOHOLIC
------------
13,492,935
------------
Multi-Industry/Miscellaneous (7.9%)
Grupo Carso, S.A. de C.V. "A1" ............................ MEX 879,800 3,047,907 2.8
MULTI-INDUSTRY
Itausa Investimentos Itau S.A. Preferred .................. BRZL 3,749,289 1,980,258 1.8
MULTI-INDUSTRY
Alfa, S.A. de C.V. "A" .................................... MEX 645,100 1,724,013 1.6
CONGLOMERATE
Desc, S.A. de C.V. - ADR{\/} .............................. MEX 83,440 1,574,930 1.5
CONGLOMERATE
Quinenco S.A. - ADR{\/} ................................... CHLE 29,900 216,775 0.2
CONGLOMERATE
------------
8,543,883
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-27
<PAGE> 472
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Capital Goods (0.9%)
ARA, S.A. de C.V.-/- ...................................... MEX 230,000 $ 505,394 0.5
CONSTRUCTION
Corporacion GEO, S.A. de C.V. "B"-/- ...................... MEX 271,000 469,415 0.4
CONSTRUCTION
------------
974,809
------------
Consumer Durables (0.6%)
Sanluis Corporacion, S.A. de C.V. ......................... MEX 455,500 652,840 0.6
AUTO PARTS
------------ -----
TOTAL EQUITY INVESTMENTS (cost $166,683,412) ................ 103,073,412 95.7
------------ -----
<CAPTION>
NO. OF VALUE % OF NET
RIGHTS RIGHTS (NOTE 1) ASSETS
- ------------------------------------------------------------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Companhia Paulista de Forca e Luz Preferred Rights, expire
November 5, 1998 (cost $0) .............................. 12,350 147 --
------------ -----
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Corporate Bonds (0.0%)
Brazil (0.0%)
Companhia Vale do Rio Doce - Non Convertible (cost
$0) .................................................... BRL 276,400 -- --
------------ -----
<CAPTION>
VALUE % OF NET
REPURCHASE AGREEMENT (NOTE 1) ASSETS
- ------------------------------------------------------------- ------------ -------------
<S> <C> <C> <C> <C>
Dated October 30, 1998, with State Street Bank & Trust Co.,
due November 2, 1998, for an effective yield of 5.30%,
collateralized by $200,000 U.S. Treasury Notes, 9.125% due
5/15/99 (market value of collateral is $213,250, including
accrued interest). (cost $205,000) ....................... 205,000 0.2
------------ -----
TOTAL INVESTMENTS (cost $166,888,412) * .................... 103,278,559 95.9
Other Assets and Liabilities ................................ 4,405,348 4.1
------------ -----
NET ASSETS .................................................. $107,683,907 100.0
------------ -----
------------ -----
</TABLE>
- --------------
-/- Non-income producing security.
{\/} U.S. currency denominated.
[.] Each unit represents 3 "B" shares and 1 "C" share.
{=} Each unit represents one preferred share of Unibanco and one
preferred "B" share of Unibanco Holdings.
* For Federal income tax purposes, cost is $169,023,946 and
appreciation (depreciation) is as follows:
<TABLE>
<S> <C>
Unrealized appreciation: $ 1,252,923
Unrealized depreciation: (66,998,310)
-------------
Net unrealized depreciation: $ (65,745,387)
-------------
-------------
</TABLE>
Abbreviation:
ADR--American Depositary Receipt
GDR--Global Depositary Receipt
The accompanying notes are an integral part of the financial statements.
FS-28
<PAGE> 473
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
The Fund's Portfolio of Investments at October 31, 1998, was concentrated in the
following countries:
<TABLE>
<CAPTION>
PERCENTAGE OF NET ASSETS
{D}
---------------------------
SHORT-TERM
COUNTRY (COUNTRY CODE/CURRENCY CODE) EQUITY & OTHER TOTAL
- -------------------------------------- ------ ---------- -----
<S> <C> <C> <C>
Argentina (ARG/ARS) .................. 11.7 11.7
Brazil (BRZL/BRL) .................... 36.2 36.2
Chile (CHLE/CLP) ..................... 12.6 12.6
Mexico (MEX/MXN) ..................... 30.2 30.2
Panama (PAN/PND) ..................... 1.2 1.2
Peru (PERU/PES) ...................... 1.4 1.4
United States (US/USD) ............... 1.1 4.3 5.4
Venezuela (VENZ/VEB) ................. 1.3 1.3
------ --- -----
Total ............................... 95.7 4.3 100.0
------ --- -----
------ --- -----
</TABLE>
- --------------
{d} Percentages indicated are based on net assets of $107,683,907.
The accompanying notes are an integral part of the financial statements.
FS-29
<PAGE> 474
STATEMENT OF ASSETS
AND LIABILITIES
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at value (cost $166,888,412) (Note 1)................................. $103,278,559
U.S. currency.................................................................................... 593
Receivable for Fund shares sold.................................................................. 5,053,642
Dividends receivable............................................................................. 796,039
Receivable for securities sold................................................................... 294,094
Interest receivable.............................................................................. 60
------------
Total assets................................................................................... 109,422,987
------------
Liabilities:
Payable for Fund shares repurchased.............................................................. 937,281
Payable for investment management and administration fees (Note 2)............................... 395,486
Payable for service and distribution expenses (Note 2)........................................... 164,858
Payable for transfer agent fees (Note 2)......................................................... 100,718
Payable for professional fees.................................................................... 47,847
Payable for registration and filing fees......................................................... 35,645
Payable for printing and postage expenses........................................................ 23,375
Payable for custodian fees....................................................................... 22,360
Payable for Trustees' fees and expenses (Note 2)................................................. 1,483
Payable for fund accounting fees (Note 2)........................................................ 100
Other accrued expenses........................................................................... 9,927
------------
Total liabilities.............................................................................. 1,739,080
------------
Net assets......................................................................................... $107,683,907
------------
------------
Class A:
Net asset value and redemption price per share ($60,719,898 DIVIDED BY 5,191,631 shares
outstanding)...................................................................................... $ 11.70
------------
------------
Maximum offering price per share (100/95.25 of $11.70) *........................................... $ 12.28
------------
------------
Class B:+
Net asset value and offering price per share ($46,599,065 DIVIDED BY 4,055,494 shares
outstanding)...................................................................................... $ 11.49
------------
------------
Advisor Class:
Net asset value, offering price per share, and redemption price per share ($364,944 DIVIDED BY
31,167 shares outstanding)........................................................................ $ 11.71
------------
------------
Net assets consist of:
Paid in capital.................................................................................. $204,122,934
Undistributed net investment income.............................................................. 831,995
Accumulated net realized loss on investments and foreign currency transactions................... (33,630,013)
Net unrealized depreciation on translation of assets and liabilities in foreign currencies....... (31,156)
Net unrealized depreciation of investments....................................................... (63,609,853)
------------
Total -- representing net assets applicable to capital shares outstanding.......................... $107,683,907
------------
------------
<FN>
- --------------
* On sales of $50,000 or more, the offering price is reduced.
+ Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-30
<PAGE> 475
STATEMENT OF OPERATIONS
Year ended October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment income: (Note 1)
Dividend income (net of foreign withholding tax of $574,241)............................... $ 5,834,403
Securities lending income.................................................................. 196,393
Interest income............................................................................ 133,008
------------
Total investment income.................................................................. 6,163,804
------------
Expenses:
Investment management and administration fees (Note 2)..................................... 2,036,326
Service and distribution expenses: (Note 2)
Class A.................................................................... $ 560,118
Class B.................................................................... 959,894 1,520,012
------------
Transfer agent fees (Note 2)............................................................... 800,000
Interest expense........................................................................... 350,276
Printing and postage expenses.............................................................. 193,815
Professional fees.......................................................................... 124,425
Custodian fees............................................................................. 105,785
Registration and filing fees............................................................... 90,950
Fund accounting fees (Note 2).............................................................. 55,950
Trustees' fees and expenses (Note 2)....................................................... 10,585
Other expenses............................................................................. 20,281
------------
Total expenses before reimbursement...................................................... 5,308,405
------------
Expenses reimbursed by A I M Advisors, Inc............................................. (297,829)
------------
Total net expenses....................................................................... 5,010,576
------------
Net investment income........................................................................ 1,153,228
------------
Net realized and unrealized loss on investments and foreign currencies:
Net realized loss on investments............................................. (18,439,149)
Net realized loss on foreign currency transactions........................... (276,597)
------------
Net realized loss during the year........................................................ (18,715,746)
Net change in unrealized depreciation on translation of assets and
liabilities in foreign currencies........................................... (24,435)
Net change in unrealized depreciation of investments......................... (54,450,981)
------------
Net unrealized depreciation during the year.............................................. (54,475,416)
------------
Net realized and unrealized loss on investments and foreign currencies....................... (73,191,162)
------------
Net decrease in net assets resulting from operations......................................... $(72,037,934)
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-31
<PAGE> 476
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997
---------------- ----------------
<S> <C> <C>
Decrease in net assets
Operations:
Net investment income..................................................... $ 1,153,228 $ 1,116,958
Net realized gain (loss) on investments and foreign currency
transactions............................................................. (18,715,746) 84,545,615
Net change in unrealized appreciation (depreciation) on translation of
assets and liabilities in foreign currencies............................. (24,435) 25,640
Net change in unrealized depreciation of investments...................... (54,450,981) (47,707,162)
---------------- ----------------
Net increase (decrease) in net assets resulting from operations......... (72,037,934) 37,981,051
---------------- ----------------
Class A:
Distributions to shareholders: (Note 1)
From net investment income................................................ (219,544) --
Advisor Class:
Distributions to shareholders: (Note 1)
From net investment income................................................ (5,514) --
---------------- ----------------
Total distributions..................................................... (225,058) --
---------------- ----------------
Capital share transactions: (Note 4)
Increase from capital shares sold and reinvested.......................... 771,991,302 1,267,100,757
Decrease from capital shares repurchased.................................. (885,624,465) (1,327,093,718)
---------------- ----------------
Net decrease from capital share transactions............................ (113,633,163) (59,992,961)
---------------- ----------------
Total decrease in net assets................................................ (185,896,155) (22,011,910)
Net assets:
Beginning of year......................................................... 293,580,062 315,591,972
---------------- ----------------
End of year *............................................................. $ 107,683,907 $ 293,580,062
---------------- ----------------
---------------- ----------------
* Includes undistributed net investment income of:......................... $ 831,995 $ 219,672
---------------- ----------------
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-32
<PAGE> 477
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1998 (d) 1997 (d) 1996 (d) 1995 (d) 1994 (d)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 19.50 $ 17.95 $ 15.38 $ 26.11 $ 19.78
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income (loss).......... 0.13* 0.11 0.09 0.15 (0.08)
Net realized and unrealized gain
(loss) on investments................ (7.90) 1.44 2.59 (9.28) 6.75
---------- ---------- ---------- ---------- ----------
Net increase (decrease) from
investment operations.............. (7.77) 1.55 2.68 (9.13) 6.67
---------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income............ (0.03) -- (0.08) -- (0.19)
From net realized gain on
investments.......................... -- -- -- (1.60) (0.15)
In excess of net investment income.... -- -- (0.03) -- --
---------- ---------- ---------- ---------- ----------
Total distributions..................... (0.03) -- (0.11) (1.60) (0.34)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 11.70 $ 19.50 $ 17.95 $ 15.38 $ 26.11
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return (c)............. (39.86)% 8.52% 17.52% (37.16)% 34.10%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 60,720 $ 159,496 $ 177,373 $ 182,462 $ 336,960
Ratio of net investment income (loss) to
average net assets:
With expense reductions and/or
reimbursement (Note 2)............... 0.78% 0.52% 0.46% 0.86% (0.29)%
Without expense reductions and/or
reimbursement........................ 0.64% 0.42% 0.39% 0.85% N/A
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions and/or
reimbursement (Note 2)............... 2.00% 1.96% 2.03% 2.11% 2.04%
Without expense reductions and/or
reimbursement........................ 2.14% 2.06% 2.10% 2.12% N/A
Ratio of interest expenses to average
net assets++........................... 0.17% N/A N/A N/A N/A
Portfolio turnover rate++............... 39% 130% 101% 125% 155%
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
* Before reimbursement the net investment income per share would have
been reduced by $0.02 for Class A, B, and Advisor.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates and ratio of interest expense to average net
assets are calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-33
<PAGE> 478
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1998 (d) 1997 (d) 1996 (d) 1995 (d) 1994 (d)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 19.23 $ 17.78 $ 15.21 $ 25.94 $ 19.75
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income (loss).......... 0.04* 0.01 (0.00) 0.06 (0.22)
Net realized and unrealized gain
(loss) on investments................ (7.78) 1.44 2.59 (9.19) 6.74
---------- ---------- ---------- ---------- ----------
Net increase (decrease) from
investment operations.............. (7.74) 1.45 2.59 (9.13) 6.52
---------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income............ -- -- (0.01) -- (0.18)
From net realized gain on
investments.......................... -- -- -- (1.60) (0.15)
In excess of net investment income.... -- -- (0.01) -- --
---------- ---------- ---------- ---------- ----------
Total distributions..................... -- -- (0.02) (1.60) (0.33)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 11.49 $ 19.23 $ 17.78 $ 15.21 $ 25.94
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return (c)............. (40.19)% 8.04% 17.02% (37.42)% 33.33%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 46,599 $ 133,448 $ 137,400 $ 134,527 $ 211,673
Ratio of net investment income (loss) to
average net assets:
With expense reductions and/or
reimbursement (Note 2)............... 0.28% 0.02% (0.04)% 0.36% (0.79)%
Without expense reductions and/or
reimbursement........................ 0.14% (0.08)% (0.11)% 0.35% N/A
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions and/or
reimbursement (Note 2)............... 2.50% 2.46% 2.53% 2.61% 2.54%
Without expense reductions and/or
reimbursement........................ 2.64% 2.56% 2.60% 2.62% N/A
Ratio of interest expenses to average
net assets++........................... 0.17% N/A N/A N/A N/A
Portfolio turnover rate++............... 39% 130% 101% 125% 155%
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
* Before reimbursement the net investment income per share would have
been reduced by $0.02 for Class A, B, and Advisor.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates and ratio of interest expense to average net
assets are calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-34
<PAGE> 479
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
ADVISOR CLASS+
----------------------------------------------------
YEAR YEAR ENDED OCTOBER 31, JUNE 1, 1995
ENDED TO
OCTOBER 31, ------------------------ OCTOBER 31,
1998 (d) 1997 (d) 1996 (d) 1995
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 19.57 $ 17.94 $ 15.40 $ 15.95
----------- ----------- ----------- -------------
Income from investment operations:
Net investment income (loss).......... 0.21* 0.19 0.17 0.09
Net realized and unrealized gain
(loss) on investments................ (7.92) 1.44 2.58 (0.64)
----------- ----------- ----------- -------------
Net increase (decrease) from
investment operations.............. (7.71) 1.63 2.75 (0.55)
----------- ----------- ----------- -------------
Distributions to shareholders:
From net investment income............ (0.15) -- (0.14) --
From net realized gain on
investments.......................... -- -- -- --
In excess of net investment income.... -- -- (0.07) --
----------- ----------- ----------- -------------
Total distributions..................... (0.15) -- (0.21) --
----------- ----------- ----------- -------------
Net asset value, end of period.......... $ 11.71 $ 19.57 $ 17.94 $ 15.40
----------- ----------- ----------- -------------
----------- ----------- ----------- -------------
Total investment return (c)............. (39.67)% 8.91% 18.16% (3.45)%(b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 365 $ 636 $ 818 $ 369
Ratio of net investment income (loss) to
average net assets:
With expense reductions and/or
reimbursement (Note 2)............... 1.28% 1.02% 0.96% 1.36%(a)
Without expense reductions and/or
reimbursement........................ 1.14% 0.92% 0.89% 1.35%(a)
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions and/or
reimbursement (Note 2)............... 1.50% 1.46% 1.53% 1.61%(a)
Without expense reductions and/or
reimbursement........................ 1.64% 1.56% 1.60% 1.62%(a)
Ratio of interest expenses to average
net assets++........................... 0.17% N/A N/A N/A
Portfolio turnover rate++............... 39% 130% 101% 125%
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
* Before reimbursement the net investment income per share would have
been reduced by $0.02 for Class A, B, and Advisor.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates and ratio of interest expense to average net
assets are calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-35
<PAGE> 480
NOTES TO
FINANCIAL STATEMENTS
October 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (SEE ALSO NOTE 2)
AIM Latin American Growth Fund ( the "Fund"), formerly GT Global Latin American
Growth Fund, is a separate series of AIM Investment Funds (the "Trust"),
formerly GT Investment Funds, Inc. The Trust is organized as a Delaware business
trust and is registered under the Investment Company Act of 1940, as amended
("1940 Act"), as a non-diversified, open-end management investment company. The
Trust has thirteen series of shares in operation, each series corresponding to a
distinct portfolio of investments.
The Fund offers Class A, Class B, and Advisor Class shares, each of which has
equal rights as to assets and voting privileges. Class A and Class B each has
exclusive voting rights with respect to its distribution plan. Investment
income, realized and unrealized capital gains and losses, and the common
expenses of the Fund are allocated on a pro rata basis to each class based on
the relative net assets of each class to the total net assets of the Fund. Each
class of shares differs in its respective service and distribution expenses, and
may differ in its transfer agent, registration, and certain other class-specific
fees and expenses.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies in conformity with generally accepted accounting
principles consistently followed by the Fund in the preparation of the financial
statements.
(A) PORTFOLIO VALUATION
The Fund calculates the net asset value of and completes orders to purchase,
exchange or repurchase Fund shares on each business day, with the exception of
those days on which the New York Stock Exchange is closed.
Equity securities are valued at the last sale price on the exchange on which
such securities are traded, or on the principal over-the-counter market on which
such securities are traded, as of the close of business on the day the
securities are being valued, or, lacking any sales, at the last available bid
price. In cases where securities are traded on more than one exchange, the
securities are valued on the exchange determined by A I M Advisors, Inc. ("the
Manager") to be the primary market.
Fixed income investments are valued at the mean of representative quoted bid and
ask prices for such investments or, if such prices are not available, at prices
for investments of comparative maturity, quality and type; however, when the
Manager deems it appropriate, prices obtained for the day of valuation from a
bond pricing service will be used. Short-term investments with maturity of 60
days or less are valued at amortized cost adjusted for foreign exchange
translation and market fluctuation, if any.
Investments for which market quotations are not readily available (including
restricted securities which are subject to limitations on their sale) are valued
at fair value as determined in good faith by or under the direction of the
Trust's Board of Trustees.
Portfolio securities which are primarily traded on foreign exchanges are
generally valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S. dollars at
the current exchange rates, except that when an occurrence subsequent to the
time a value was so established is likely to have materially changed such value,
then the fair value of those securities will be determined by consideration of
other factors by or under the direction of the Trust's Board of Trustees.
(B) FOREIGN CURRENCY TRANSLATION
The accounting records are maintained in U.S. dollars. The market values of
foreign securities, currency holdings, and other assets and liabilities are
recorded in the books and records of the Fund after translation to U.S. dollars
based on the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are translated at
prevailing exchange rates when earned or incurred.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, forward foreign currency contracts, sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the differences between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities other than investments in securities at year
end, resulting from changes in exchange rates.
(C) REPURCHASE AGREEMENTS
With respect to repurchase agreements entered into by the Fund, it is the Fund's
policy to always receive, as collateral, United States government securities or
other high quality debt securities of which the value, including accrued
interest, is at least equal to the amount to be repaid to the Fund under each
agreement at its maturity.
(D) FORWARD FOREIGN CURRENCY CONTRACTS
A forward foreign currency contract ("Forward Contract") is an agreement between
two parties to buy and sell a currency at a set price on a future date. The
market value of the Forward Contract fluctuates with changes in currency
exchange rates. The Forward
FS-36
<PAGE> 481
Contract is marked-to-market daily and the change in market value is recorded by
the Fund as an unrealized gain or loss. When the Forward Contract is closed, the
Fund records a realized gain or loss equal to the difference between the value
at the time it was opened and the value at the time it was closed. Forward
Contracts involve market risk in excess of the amount shown in the Fund's
"Statement of Assets and Liabilities." The Fund could be exposed to risk if a
counterparty is unable to meet the terms of the contract or if the value of the
currency changes unfavorably. The Fund may enter into Forward Contracts in
connection with planned purchases or sales of securities, or to hedge against
adverse fluctuations in exchange rates between currencies.
(E) OPTION ACCOUNTING PRINCIPLES
When the Fund writes a call or put option, an amount equal to the premium
received is included in the Fund's "Statement of Assets and Liabilities" as an
asset and an equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option. The current
market value of an option listed on a traded exchange is valued at its last bid
price, or, in the case of an over-the-counter option, is valued at the average
of the last bid prices obtained from brokers. If an option expires on its
stipulated expiration date or if the Fund enters into a closing purchase
transaction, a gain or loss is realized without regard to any unrealized gain or
loss on the underlying security, and the liability related to such option is
extinguished. If a written call option is exercised, a gain or loss is realized
from the sale of the underlying security and the proceeds of the sale are
increased by the premium originally received. If a written put option is
exercised, the cost of the underlying security purchased would be decreased by
the premium originally received. The Fund can write options only on a covered
basis, which, for a call, requires that the fund hold the underlying securities
and, for a put, requires the Fund to maintain in a segregated account cash, U.S.
government securities, or other liquid securities in an amount not less than the
exercise price or otherwise provide adequate cover at all times while the put
option is outstanding. The Fund may use options to manage its exposure to the
stock or bond market and to fluctuations in currency values or interest rates.
The premium paid by the Fund for the purchase of a call or put option is
included in the Fund's "Statement of Assets and Liabilities" as an investment
and subsequently "marked-to-market" to reflect the current market value of the
option. If an option which the Fund has purchased expires on the stipulated
expiration date, the Fund realizes a loss in the amount of the cost of the
option. If the Fund enters into a closing sale transaction, the Fund realizes a
gain or loss, depending on whether proceeds from the closing sale transaction
are greater or less than the cost of the option. If the Fund exercises a call
option, the cost of the securities acquired by exercising the call is increased
by the premium paid to buy the call. If the Fund exercises a put option, it
realizes a gain or loss from the sale of the underlying security, and the
proceeds from such sale are decreased by the premium originally paid.
The risk associated with purchasing options is limited to the premium originally
paid. The risk in writing a call option is that the Fund may forego the
opportunity of profit if the market value of the underlying security or index
increases and the option is exercised. The risk in writing a put option is that
the Fund may incur a loss if the market value of the underlying security or
index decreases and the option is exercised. In addition, there is the risk the
Fund may not be able to enter into a closing transaction because of an illiquid
secondary market.
(F) FUTURES CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
security at a set price on a future date. Upon entering into such a contract the
Fund is required to pledge to the broker an amount of cash or securities equal
to the minimum "initial margin" requirements of the exchange on which the
contract is traded. Pursuant to the contract, the Fund agrees to receive from or
pay to the broker an amount of cash equal to the daily fluctuation in value of
the contract. Such receipts or payments are known as "variation margin" and are
recorded by the Fund as unrealized gains or losses. When the contract is closed,
the Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the time it was
closed. The potential risk to the Fund is that the change in value of the
underlying securities may not correlate to the change in value of the contracts.
The Fund may use futures contracts to manage its exposure to the stock or bond
market and to fluctuations in currency values or interest rates. At October 31,
1998, the fund had no open futures contracts.
(G) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). The cost of securities sold is determined on a first-in,
first-out basis, unless otherwise specified. Interest income is recorded on the
accrual basis. Where a high level of uncertainty exists as to its collection,
income is recorded net of all withholding tax with any rebate recorded when
received. The Fund may trade securities on other than normal settlement terms.
This may increase the risk if the other party to the transaction fails to
deliver and causes the Fund to subsequently invest at less advantageous prices.
(H) PORTFOLIO SECURITIES LOANED
At October 31, 1998, stocks with an aggregate value of approximately $12,106,364
were on loan to brokers. The loans were secured by cash collateral of
$12,196,698. For the year ended October 31, 1998, the Fund received $196,393 of
income from securities lending.
For international securities, cash collateral is received by the Fund against
loaned securities in an amount at least equal to 105% of the market value of the
loaned securities at the inception of each loan. This collateral must be
maintained at not less than 103% of the market value of the loaned securities
during the period of the loan. For domestic securities, cash collateral is
received by the Fund against loaned securities in an amount at least equal to
102% of the market value of the loaned securities at the inception of each loan.
This collateral must be maintained at not less than 100% of the market value of
the loaned securities during the period of the loan. The cash collateral is
invested in a securities lending trust which consists of a
FS-37
<PAGE> 482
portfolio of high quality short duration securities whose average effective
duration is restricted to 120 days or less.
(I) TAXES
It is the policy of the Fund to meet the requirements for qualification as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended ("Code"). It is also the intention of the Fund to make distributions
sufficient to avoid imposition of any excise tax under Section 4982 of the Code.
Therefore, no provision has been made for Federal taxes on income, capital
gains, or unrealized appreciation of securities held, and excise tax on income
and capital gains. The Fund currently has a capital loss carry forward of
$31,494,478, of which $8,211,998 expires in 2003, $6,727,327 expires in 2004 and
$16,555,153 expires in 2006.
(J) DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded by the Fund on the ex-date. Income
and capital gain distributions are determined in accordance with Federal income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Fund and timing differences.
(K) FOREIGN SECURITIES
There are certain additional considerations and risks associated with investing
in foreign securities and currency transactions that are not inherent in
investments of domestic origin. The Fund's investments in emerging market
countries may involve greater risks than investments in more developed markets
and the prices of such investments may be volatile. These risks of investing in
foreign and emerging markets may include foreign currency exchange rate
fluctuations, perceived credit risk, adverse political and economic developments
and possible adverse foreign government intervention.
(L) INDEXED SECURITIES
The Fund may invest in indexed securities whose value is linked either directly
or indirectly to changes in foreign currencies, interest rates, equities,
indices, or other reference instruments. Indexed securities may be more volatile
than the reference instrument itself, but any loss is limited to the amount of
the original investment.
(M) RESTRICTED SECURITIES
The Fund is permitted to invest in privately placed restricted securities. These
securities may be resold in transactions exempt from registration or to the
public if the securities are registered. Disposal of these securities may
involve time-consuming negotiations and expense, and prompt sale at an
acceptable price may be difficult. At the end of the year, restricted
securities, if any, (excluding 144A issues), are shown at the end of the Fund's
Portfolio of Investments.
(N) LINE OF CREDIT
The Fund, along with certain other funds advised and/or administered by the
Manager, has a line of credit with each of BankBoston and State Street Bank and
Trust Company. The arrangements with the banks allow the Fund and certain other
Funds to borrow, on a first come, first serve basis, an aggregate maximum amount
of $250,000,000. The Fund is limited to borrowing up to 33 1/3% of the value of
the Fund's total assets. On October 31, 1998, the Fund had no loans outstanding.
For the year ended October 31, 1998, the weighted average outstanding daily
balance of bank loans (based on the number of days the loans were outstanding)
for the Fund was $7,732,934, with a weighted average interest rate of 6.28%.
Interest expense for the Fund for the year ended October 31, 1998, was $329,369.
Other interest expense charges amounted to $20,907.
2. RELATED PARTIES
A I M Advisors, Inc. (the "Manager"), an indirect wholly-owned subsidiary of
AMVESCAP PLC, is the Fund's investment manager and administrator and INVESCO
(NY), Inc., (formerly, Chancellor LGT Asset Management, Inc.) is the Fund's
investment sub-advisor and sub-administrator. As of the close of business on May
29, 1998, Liechtenstein Global Trust AG ("LGT"), the former indirect parent
organization of Chancellor LGT Asset Management, Inc. ("Chancellor LGT")
consummated a purchase agreement with AMVESCAP PLC pursuant to which AMVESCAP
PLC acquired LGT's Asset Management Division, which included Chancellor LGT and
certain other affiliates. As a result of this transaction, Chancellor LGT was
renamed INVESCO (NY), Inc., and is now an indirect wholly-owned subsidiary of
AMVESCAP PLC. A I M Distributors, Inc. ("AIM Distributors"), a wholly-owned
subsidiary of the Manager, is the Fund's distributor as of the close of business
on May 29, 1998. The Trust was reorganized from a Maryland corporation into a
Delaware business trust on September 8, 1998. Finally, as of the close of
business on September 4, 1998, A I M Fund Services, Inc. ("AFS"), an affiliate
of the Manager and AIM Distributors, replaced GT Global Investor Services, Inc.
("GT Services") as the transfer agent of the Fund.
The Fund pays investment management and administration fees to the Manager at
the annualized rate of 0.975% of the first $500 million of average daily net
assets of the Fund; 0.95% of the next $500 million; 0.925% of the next $500
million and 0.90% on amounts thereafter. These fees are computed daily and paid
monthly.
AIM Distributors, an affiliate of the Manager, is the Fund's distributor. For
the period ended May 29, 1998, GT Global, Inc. ("GT Global"), an affiliate of
the investment sub-advisor, served as the Fund's distributor. The Fund offers
Class A, Class B and Advisor Class shares for purchase.
Class A shares are subject to initial sales charges imposed at the time of
purchase, in accordance with the schedule included in the Fund's current
prospectus. AIM Distributors collects the sales charges imposed on sales of
Class A shares, and reallows a portion of such charges to dealers through which
the sales are made. For the year ended October 31, 1998, AIM Distributors and GT
Global retained $10,956 and $16,513, respectively. Purchases of Class A shares
exceeding $1,000,000 may be subject to a contingent deferred sales charge
("CDSC") upon redemption, in accordance with the Fund's current prospectus. AIM
Distributors and GT Global collected CDSCs in the amount of $0 and $74,
respectively. AIM Distributors also makes ongoing shareholder servicing and
trail commission payments to dealers whose clients hold Class A shares.
FS-38
<PAGE> 483
Class B shares are not subject to initial sales charges. When Class B shares are
sold, AIM Distributors, from its own resources pays commissions to dealers
through which the sales are made. Certain redemptions of Class B shares made
within six years of purchase are subject to CDSCs, in accordance with the Fund's
current prospectus. For the year ended October 31, 1998, AIM Distributors and GT
Global collected CDSCs in the amount of $205,097 and $586,137, respectively. In
addition, AIM Distributors makes ongoing shareholder servicing and trail
commission payments to dealers whose clients hold Class B shares.
For the period ended May 29, 1998, pursuant to the then effective separate
distribution plans adopted under the 1940 Act Rule 12b-1 by the Trust's Board of
Trustees with respect to the Fund's Class A shares ("Class A Plan") and Class B
shares ("Class B Plan"), the Fund reimbursed GT Global for a portion of its
shareholder servicing and distribution expenses. Under the Class A Plan, the
Fund was permitted to pay GT Global a service fee at the annualized rate of up
to 0.25% of the average daily net assets of the Fund's Class A shares for GT
Global's expenditures incurred in servicing and maintaining shareholder
accounts, and was permitted to pay GT Global a distribution fee at the
annualized rate of up to 0.50% of the average daily net assets of the Fund's
Class A shares, less any amounts paid by the Fund as the aforementioned service
fee, for GT Global's expenditures incurred in providing services as distributor.
All expenses for which GT Global was reimbursed under the Class A Plan would
have been incurred within one year of such reimbursement.
For the period ended May 29, 1998, pursuant to the Class B Plan, the Fund was
permitted to pay GT Global a service fee at the annualized rate of up to 0.25%
of the average daily net assets of the Fund's Class B shares for GT Global's
expenditures incurred in servicing and maintaining shareholder accounts, and was
permitted to pay GT Global a distribution fee at the annualized rate of up to
0.75% of the average daily net assets of the Fund's Class B shares for GT
Global's expenditures incurred in providing services as distributor. Expenses
incurred under the Class B Plan in excess of 1.00% annually were permitted to be
carried forward for reimbursement in subsequent years as long as that Plan
continued in effect.
Effective as of the close of business May 29, 1998, pursuant to Rule 12b-1 under
the 1940 Act, the Trust's Board of Trustees adopted a Master Distribution Plan
applicable to the Fund's Class A shares ("Class A Plan") and Class B shares
("Class B Plan"), pursuant to which the Fund compensates AIM Distributors for
the purpose of financing any activity that is intended to result in the sale of
Class A or Class B shares of the Fund. Under the Class A Plan, the Fund
compensates AIM Distributors at the annualized rate of 0.50% of the average
daily net assets of the Fund's Class A shares. Under the Class B Plan, the Fund
compensates AIM Distributors at an annualized rate of 1.00% of the average daily
net assets of the Fund's Class B shares.
The Class A Plan and the Class B Plan (together, the "Plans") are designed to
compensate AIM Distributors for certain promotional and other sales-related
costs, and to implement a dealer incentive program that provides for periodic
payments to selected dealers who furnish continuing personal shareholder
services to their customers who purchase and own Class A and Class B shares of
the Fund. Payments also can be directed by AIM Distributors to financial
institutions who have entered into service agreements with respect to Class A
and Class B shares of the Fund and who provide continuing personal services to
their customers who own Class A and Class B shares of the Fund. The service fees
payable to selected financial 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 that were purchased on or after a
prescribed date set forth in the Plans.
The Manager and AIM Distributors voluntarily have undertaken to limit the Fund's
expenses (exclusive of brokerage commissions, taxes, interest, and extraordinary
expenses) to the maximum annual rate of 2.00%, 2.50%, and 1.50% of the average
net assets of the Fund's Class A, Class B and Advisor Class shares,
respectively. If necessary, this limitation will be effected by waivers by the
Manager of investment management and administration fees, waivers by AIM
Distributors of payments under the Class A Plan and/or Class B Plan and/or
reimbursements by the Manager or AIM Distributors of portions of the Fund's
other operating expenses.
Effective as of the close of business September 4, 1998, the Fund, pursuant to a
transfer agency and service agreement, has agreed to pay A I M Fund Services,
Inc. ("AFS") an annualized fee of $24.85 per shareholder accounts that are open
during any monthly period (this fee includes all out-of-pocket expenses), and an
annualized fee of $0.70 per shareholder account that is closed during any
monthly period. Both fees shall be billed by AFS monthly in arrears on a
prorated basis of 1/12 of the annualized fee for all such accounts.
For the period November 1, 1997 to September 4, 1998, GT Services, an affiliate
of the Manager and AIM Distributors, was the transfer agent of the Fund. For
performing shareholder servicing, reporting, and general transfer agent
services, GT Services received an annual maintenance fee of $17.50 per account,
a new account fee of $4.00 per account, a per transaction fee of $1.75 for all
transactions other than exchanges and a per exchange fee of $2.25. GT Services
also was reimbursed by the Fund for its out-of-pocket expenses for such items as
postage, forms, telephone charges, stationery and office supplies.
The Manager is the pricing and accounting agent for the Fund. The monthly fee
for these services paid to the Manager is a percentage, not to exceed 0.03%
annually, of a Fund's average daily net assets. The annual fee rate is derived
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% to 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.
The Trust pays each Trustee who is not an employee, officer or director of the
Manager, or any other affiliated company, $5,000 per year plus $300 for each
meeting of the board or any committee thereof attended by the Trustee.
FS-39
<PAGE> 484
3. PURCHASES AND SALES OF SECURITIES
For the year ended October 31, 1998, purchases and sales of investment
securities by the Fund, other than short-term investments, aggregated
$80,756,729 and $185,978,861. There were no purchases or sales of U.S.
government obligations for the year ended October 31, 1998.
4. CAPITAL SHARES
At October 31, 1998, there were 6,000,000,000 shares of the Trust's common stock
authorized, at $0.0001 par value. Of this amount, 400,000,000 were classified as
shares of the AIM Global Telecommunications Fund; 400,000,000 were classified as
shares of AIM Global Government Income Fund; 200,000,000 were classified as
shares of AIM Global Health Care Fund; 200,000,000 were classified as shares of
AIM Strategic Income Fund; 200,000,000 were classified as shares of AIM
Developing Markets Fund; 200,000,000 were classified as shares of GT Global
Currency Fund (inactive); 200,000,000 were classified as shares of AIM Global
Growth & Income Fund; 200,000,000 were classified as shares of GT Global Small
Companies Fund (inactive); 200,000,000 were classified as shares of AIM Latin
American Growth Fund; 200,000,000 were classified as shares of AIM Emerging
Markets Fund; 200,000,000 were classified as shares of AIM Emerging Markets Debt
Fund; 200,000,000 were classified as shares of AIM Global Financial Services
Fund; 200,000,000 were classified as shares of AIM Global Resources Fund;
200,000,000 were classified as shares of AIM Global Infrastructure Fund;
200,000,000 were classified as shares of AIM Global Consumer Products and
Services Fund. The shares of each of the foregoing series of the Trusts were
divided equally into two classes, designated Class A and Class B common stock.
With respect to the issuance of Advisor Class shares, 100,000,000 shares were
classified as shares of each of the fifteen series of the Trusts and designated
as Advisor Class common stock. 1,100,000,000 shares remain unclassified.
Transactions in capital shares of the Fund were as follows:
CAPITAL SHARE TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997
--------------------------- ---------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Shares sold.................................................... 31,480,158 $ 504,106,417 46,171,230 $ 937,785,689
Shares issued in connection with reinvestment of
distributions................................................ 8,770 183,909 -- --
------------ ------------- ------------ -------------
31,488,928 504,290,326 46,171,230 937,785,689
Shares repurchased............................................. (34,474,810) (565,877,892) (47,874,889) (980,118,186)
------------ ------------- ------------ -------------
Net decrease................................................... (2,985,882) $ (61,587,566) (1,703,659) $ (42,332,497)
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
<CAPTION>
CLASS B
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold.................................................... 14,533,097 $ 243,328,768 14,424,170 $ 299,346,687
Shares repurchased............................................. (17,417,330) (295,361,292) (15,210,392) (316,506,347)
------------ ------------- ------------ -------------
Net decrease................................................... (2,884,233) $ (52,032,524) (786,222) $ (17,159,660)
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
<CAPTION>
ADVISOR CLASS
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold.................................................... 1,261,470 $ 24,366,740 1,448,623 $ 29,968,381
Shares issued in connection with reinvestment of
distributions................................................ 261 5,468 -- --
------------ ------------- ------------ -------------
1,261,731 24,372,208 1,448,623 29,968,381
Shares repurchased............................................. (1,263,040) (24,385,281) (1,461,777) (30,469,185)
------------ ------------- ------------ -------------
Net decrease................................................... (1,309) $ (13,073) (13,154) $ (500,804)
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
</TABLE>
5. SUBSEQUENT EVENT (UNAUDITED)
Effective December 14, 1998, sub-advisory and sub-administration responsibility
for the Fund was transferred from INVESCO (NY), Inc. to INVESCO Asset Management
Ltd., another indirect wholly-owned subsidiary of AMVESCAP PLC. A I M Advisors,
Inc. will continue to serve as the manager and administrator of the Fund. The
transfer will not change the fees paid by A I M Advisors, Inc. for sub-advisory
services and will not change the nature of the sub-advisory services provided to
the Fund or the personnel providing such services.
FS-40
<PAGE> 485
6. PROXY RESULTS (UNAUDITED)
The Special Meeting of Shareholders of G.T. Investment Funds, Inc., now known as
AIM Investment Funds (the "Trust"), was held on May 20, 1998 at the Trust's
offices, 50 California Street, 26th Floor, San Francisco, California. The
meeting was held for the following purposes:
(1) To elect Trustees as follows: C. Derek Anderson, Frank S. Bayley, William J.
Guilfoyle, Arthur C. Patterson, Ruth H. Quigley.
(2) To approve a new Investment Management and Administration Contract and
Sub-Advisory and Sub-Administration Contract with respect to each series of
the Trust (each, a "Fund," and collectively, the "Funds").
(3) To approve replacement Rule 12b-1 plans of distribution with respect to
Class A and B Shares of the Fund.
(4) To approve changes to the fundamental investment restrictions of the Fund.
(5) To approve an agreement and plan of conversion and termination for the
Trust.
(6) To ratify the selection of Coopers & Lybrand L.L.P., now known as
PricewaterhouseCoopers LLP, as the Trust's independent public accountants.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
VOTES WITHHELD/
TRUSTEE/MATTER VOTES FOR AGAINST ABSTENTIONS
-------------------------------------------------------------------------------- ----------- --------- -----------
<S> <C> <C> <C> <C>
(1) C. Derek Anderson............................................................... 191,685,088 N/A 13,123,292
Frank S. Bayley................................................................. 191,766,811 N/A 13,041,568
William J. Guilfoyle............................................................ 191,828,959 N/A 12,979,420
Arthur C. Patterson............................................................. 191,845,270 N/A 12,963,109
Ruth H. Quigley................................................................. 191,869,887 N/A 12,938,492
(2)(a) Approval of investment management and administration contract................... 4,693,066 238,916 1,771,193*
(2)(b) Approval of sub-advisory and sub-administration contract........................ 4,637,262 272,743 1,793,170*
(3) Approval of replacement Rule 12b-1 plans of distribution
CLASS A SHARES.................................................................. 3,040,544 184,812 359,544
CLASS B SHARES.................................................................. 2,729,104 122,910 232,232
(4)(a) Modification of Fundamental Restriction on Concentration........................ 4,613,784 274,772 1,814,619*
(4)(b) Modification of Fundamental Restriction on Issuing Senior Securities and
Borrowing Money................................................................ 4,612,620 275,936 1,814,619*
(4)(c) Modification of Fundamental Restriction on Making Loans......................... 4,613,268 275,288 1,814,619*
(4)(d) Modification of Fundamental Restriction on Underwriting Securities.............. 4,613,784 274,772 1,814,619*
(4)(e) Modification of Fundamental Restriction on Real Estate Investments 4,613,315 275,241 1,814,619*
(4)(f) Modification of Fundamental Restriction on Investing in Commodities............. 4,608,943 279,613 1,814,619*
(4)(g) Elimination of Fundamental Restriction on Margin Transactions................... 4,610,509 278,047 1,814,619*
(4)(h) Elimination of Fundamental Restriction on Pledging Assets....................... 4,612,396 276,160 1,814,619*
(4)(i) Elimination of Fundamental Restriction on Investments in Oil, Gas and Mineral
Leases and Programs............................................................ 4,612,606 275,950 1,814,619*
(4)(j) Approval of New Fundamental Investment Policy Regarding Investment of All of
Each Fund's Assets in an Open-End Fund......................................... 4,613,154 275,402 1,814,619*
(5) Approval of an agreement and plan of conversion and termination with respect to
the Trust...................................................................... 190,027,469 6,362,084 94,055,040*
(6) Ratification of the selection of Coopers and Lybrand L.L.P., now known as
PricewaterhouseCoopers LLP, as the Trust's independent public accountants...... 191,358,779 2,114,168 11,333,063
</TABLE>
- ------------------------
* Includes Broker Non-Votes
FEDERAL TAX INFORMATION (UNAUDITED):
For the fiscal year ended October 31, 1998, the amount of income received by the
Fund from sources within foreign countries and possessions of the United States
was $.6907 per share (representing a total of $6,408,643). The amount of taxes
paid by the Fund to such countries for the fiscal year ended October 31, 1998
was $.0619 per share (representing a total of $574,241). The following table
provides a breakdown by country of ordinary income dividends and foreign taxes
paid by the Fund during the fiscal year ended October 31, 1998.
<TABLE>
<CAPTION>
COUNTRY GROSS INCOME % FOREIGN TAX PAID %
- -------------------------------------------------------------------------------- -------------- ------------------
<S> <C> <C>
Argentina....................................................................... 6.47 0.00
Brazil.......................................................................... 55.27 41.51
Chile........................................................................... 15.62 58.42
Mexico.......................................................................... 17.23 0.00
Various......................................................................... 3.38 0.07
------- -------
97.97 100.00
United States................................................................... 2.03 0.00
------- -------
100.00% 100.00%
------- -------
------- -------
</TABLE>
Information needed by shareholders to prepare their 1998 federal income tax
return will be provided with the annual 1099 information in January 1999.
FS-41
<PAGE> 486
STATEMENT OF
ADDITIONAL INFORMATION
ADVISOR CLASS SHARES OF
AIM DEVELOPING 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,
AND THE AIM LATIN AMERICAN GROWTH FUND: ADVISOR CLASS PROSPECTUS DATED MARCH 1,
1999
<PAGE> 487
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
Investment Objectives..................................... 5
Selection of Investments and Asset Allocation............. 7
Investments in Other Investment Companies................. 8
Privatizations............................................ 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 and Reverse Repurchase Agreements............... 11
Short Sales............................................... 11
Temporary Defensive Strategies............................ 12
Samurai and Yankee Bonds.................................. 12
Debt Conversions.......................................... 12
Debt Securities........................................... 13
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.................................... 19
Purchasing Call Options................................... 19
Index Options............................................. 20
Interest Rate, Currency and Stock Index Futures
Contracts.............................................. 21
Options on Futures Contracts.............................. 23
Limitations on Use of Futures, Options on Futures and
Certain Options on Currencies.......................... 23
Forward Contracts......................................... 23
Foreign Currency Strategies -- Special Considerations..... 24
Cover..................................................... 25
RISK FACTORS................................................ 25
General................................................... 25
Non-Diversified Classifications........................... 25
Illiquid Securities....................................... 25
Debt Securities........................................... 26
Loan Participations and Assignments....................... 27
Foreign Securities........................................ 28
</TABLE>
2
<PAGE> 488
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
INVESTMENT LIMITATIONS...................................... 34
Developing Markets Fund................................... 34
Latin American Fund....................................... 36
EXECUTION OF PORTFOLIO TRANSACTIONS......................... 37
Portfolio Trading and Turnover............................ 38
MANAGEMENT.................................................. 39
Trustees and Executive Officers........................... 39
Investment Management and Administration Services......... 40
Distribution Services..................................... 42
Expenses of the Funds..................................... 42
HOW TO PURCHASE AND REDEEM SHARES........................... 42
Backup Withholding........................................ 43
NET ASSET VALUE DETERMINATION............................... 44
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS.................... 45
Reinvestment of Dividends and Distributions............... 45
Tax Matters............................................... 45
General................................................... 45
Foreign Taxes............................................. 46
Passive Foreign Investment Companies...................... 46
Non-U.S. Shareholders..................................... 46
Options, Futures and Foreign Currency Transactions........ 47
SHAREHOLDER INFORMATION..................................... 47
Timing of Purchase Orders................................. 47
Share Certificates........................................ 48
Terms and Conditions of Exchanges......................... 48
Exchanges by Mail......................................... 49
Exchanges by Telephone.................................... 49
Redemptions by Mail....................................... 49
Redemptions by Telephone.................................. 49
Timing and Pricing of Redemption Orders................... 50
Signature Guarantees...................................... 50
Dividends and Distributions............................... 50
Minimum Account Balance................................... 51
MISCELLANEOUS INFORMATION................................... 51
Charges for Certain Account Information................... 51
Custodian and Transfer Agent.............................. 51
Independent Accountants................................... 52
Legal Matters............................................. 52
Shareholder Liability..................................... 52
Control Persons and Principal Holders of Securities....... 52
INVESTMENT RESULTS.......................................... 54
Total Return Quotations................................... 54
Performance Information................................... 55
APPENDIX.................................................... 57
Description of Bond Ratings............................... 57
Description of Commercial Paper Ratings................... 58
Absence of Rating......................................... 58
FINANCIAL STATEMENTS........................................ FS
</TABLE>
3
<PAGE> 489
INTRODUCTION
This Statement of Additional Information relates to the Advisor Class shares
of AIM Developing Markets Fund ("Developing 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 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 Limited (the "Sub-advisor")
serves as the investment sub-advisor 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, 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 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
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 four
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 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
4
<PAGE> 490
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. 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 growth of capital. Its secondary investment objective
is income, to the extent consistent with seeking growth of capital. 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.
In determining what countries constitute emerging markets with respect to
Developing Market 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").
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The Developing 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
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
Although the Developing Markets Fund considers 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 Prospectus 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 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 growth
of capital. The Fund will normally invest at least 65% of its total assets in
securities of a broad range of Latin American issuers. 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
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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 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. Latin American Fund may invest up to 35% of its total assets in
a combination of equity and debt securities of U.S. issuers. In evaluating
investments in securities of U.S. issuer's, the Sub-advisor will consider, among
other factors, the issues 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.
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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.
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, 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 ("Affiliated
Funds") within the limits of the 1940 Act. These investments are subject to the
limitations imposed by the 1940 Act, which currently provide that, in general,
each Fund may purchase shares of an 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
such investment companies. Investment in other investment companies may also
involve the payment of substantial premiums above the value of such companies'
portfolio securities and multiple layering of fees and expenses and is subject
to limitations under the 1940 Act and market availability. 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 or sales charges. As a shareholder in another investment
company, each fund would bear its ratable share of that company's expenses,
including its advisory and administration fees. At the same time, each Fund
would continue to pay its own management fees and expenses. 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, AIM and 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 Latin American countries and 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
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permitted to participate may be less advantageous than those afforded local
investors. There can be no assurance that governments in Latin American 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 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. Each
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
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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 Fund may make secured
loans of portfolio securities amounting to not more than 30% of its total
assets, measured at the time any such loan is made. 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 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 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.
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BORROWING AND REVERSE REPURCHASE AGREEMENTS
Neither 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. Each Fund will segregate with a custodian
liquid assets in an amount sufficient to cover its obligations and reverse
repurchase agreements with broker/dealers. No segregation is required for
reverse repurchase agreements with banks.
SHORT SALES
Each 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.
Each 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% 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.
Latin American Fund will not 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, Latin American Fund may engage
in short sales only with respect to securities listed on a national securities
exchange. Latin American Fund 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
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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.
SAMURAI AND YANKEE BONDS
Subject to its fundamental investment restrictions, Developing 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 Developing Markets Fund
to invest in Samurai or Yankee bond issues only after taking into account
considerations of quality and liquidity, as well as yield.
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
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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 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.
Under normal circumstances, Latin American Fund may invest up to 50% of
its total assets in debt securities. There is no limitation on the percentage of
its assets that may be invested in debt securities that are rated below
investment grade. Investment in below investment grade debt securities involves
a high degree of risk and can be speculative. These debt securities are the
equivalent of high yield, high risk bonds, commonly known as "junk bonds." Most
debt securities in which the Fund will invest are not rated; if rated, it is
expected that such ratings would be below investment grade. However, the Fund
will not invest in debt securities that are in default in payment as to
principal or interest.
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.
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 Latin American Fund is incidental to its objective of growth
of capital.
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
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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. 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
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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 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
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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, 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. Each Fund may enter into forward currency
contracts either with respect to specific transactions or with respect to its
portfolio positions. Each 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.
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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
disadvantageous time, due to the need for the Fund to maintain "cover" or
to set aside securities in connection with hedging transactions.
Although each Fund is authorized to enter into options, futures and forward
currency transactions, it might not enter into any such 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
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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.
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.
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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 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
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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 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.
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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.
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
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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.
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
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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
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
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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.
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.
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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 either Fund will achieve its investment objectives.
Investing in a Fund entails a substantial degree of risk, and an investment in
each 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.
Each 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 held 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 they were 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 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. Illiquid securities may be harder to value than liquid 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
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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 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 in debt
securities rated below investment grade. All such investments involve a high
degree of risk.
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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.
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 (including
those in Latin American 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
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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. Inflation and rapid
fluctuations in fluctuations 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
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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 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.
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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 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.
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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 "Dividends, Distributions and Tax Matters."
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.
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.
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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 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 invest and
adversely affect the value of such Fund's assets. In addition, asset
expropriations or future confiscatory levels of taxation possibly may affect the
Fund.
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.
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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.
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
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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 emerging markets and 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 a moratorium 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 emerging market and 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.
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.
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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 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.
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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 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
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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.
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-
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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-
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 $1,409,401, 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, Latin American Fund paid aggregate
brokerage commissions of $700,006, $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 111%, and for the
fiscal years ended October 31, 1997 and 1996, the Predecessor Fund's portfolio
turnover rates were 184% and 138%, respectively. Latin American Fund's portfolio
turnover rates for the fiscal years ended October 31, 1998, 1997 and 1996 were
39%, 130% and 101%, respectively.
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.''
38
<PAGE> 524
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 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; and Director, PremiumWear, Inc.
(formerly Munsingwear, Inc.) (a casual
apparel company) and Director, "R"
Homes, Inc. and various other
companies.
- ----------------------------------------------------------------------------------------------------
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).
- ----------------------------------------------------------------------------------------------------
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.
- ----------------------------------------------------------------------------------------------------
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).
- ----------------------------------------------------------------------------------------------------
+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.
- ----------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
* A Trustee who is an "interested person" of the Trust and A I M Advisors, Inc.,
as defined in the 1940 Act.
+ Mr. Arthur and Ms. Relihan are married to each other.
39
<PAGE> 525
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
NAME, ADDRESS AND AGE POSITIONS HELD WITH REGISTRANT PRINCIPAL OCCUPATION WITH REGISTRANT
--------------------- ------------------------------ ------------------------------------
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
SAMUEL D. SIRKO (39) Vice President and Secretary Vice President, Assistant General
Counsel and Assistant Secretary, A I M
Advisors, Inc.; and Assistant General
Counsel and Assistant Secretary, A I M
Management Group Inc., A I M Capital
Management, Inc., A I M Distributors,
Inc., A I M Fund Services, Inc. and
Fund Management Company.
- ----------------------------------------------------------------------------------------------------
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 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 $46,350,
$43,350, $47,700 and $48,000, 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
$97,600, $97,500, $105,450 and $106,350, 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.
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES
AIM, 11 Greenway Plaza, Suite 100, Houston, Texas 77046, was organized in 1976
and, together with its subsidiaries, manages or advises approximately 110
investment portfolios encompassing a broad range of investment objectives.
INVESCO Asset Management Limited, 11 Devonshire Square, London EC2M 4YR, England
has provided investment management and/or administrative services to pension
funds, insurance funds, index funds, unit trusts, offshore funds and a variety
of institutional accounts since 1967. AIM, the Sub-advisor and their worldwide
asset management affiliates
40
<PAGE> 526
provide investment management and/or administrative services to institutional,
corporate and individual clients around the world.
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.
AIM Management, AIM and the Sub-Advisor are indirect wholly owned subsidiaries
of AMVESCAP PLC, 11 Devonshire Square, London, EC2M 4YR, England. AMVESCAP PLC
and its subsidiaries are an independent 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 and London offices,
AIM and the Sub-advisor draw upon the expertise, personnel, data and systems of
other offices in Atlanta, Boston, Dallas, Denver, Louisville, Miami, New York,
Portland (Oregon), Frankfurt, Hong Kong, London, Singapore, Sydney, Tokyo and
Toronto. In managing the Funds and the Portfolio, AIM and the Sub-advisor employ
a team approach, taking advantage of their investment resources around the
world.
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 to each
Fund under a sub-advisory 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).
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 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%, 2.50% and 2.50% of the average daily net assets of each Fund's Class A,
Class B and Class C shares, respectively, until May 31, 2000.
AIM may from time to time waive or reduce its fee. Voluntary fee waivers or
reductions may be rescinded at any time without further notice to investors.
During periods of voluntary fee waivers or reductions, AIM will retain its
ability to be reimbursed for such fee prior to the end of each fiscal year.
Contractual fee waivers or reductions set forth in the Fee Tables in the
Prospectus may not be terminated without the approval of the Board of Trustees.
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.
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.
41
<PAGE> 527
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*.......................... $1,740,733 $7,383,823 $7,864,840
Latin American Fund............................... $2,036,326 $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,
1997 and December 31, 1996.
DISTRIBUTION SERVICES
The Trust has entered into a Master Distribution Agreement (the "Distribution
Agreement"), with AIM Distributors, a registered broker-dealer and a wholly
owned subsidiary of AIM, to act as the distributor of the Advisor Class Shares
of the Funds. The Distribution Agreement provides AIM Distributors with the
exclusive right to distribute Advisor Class Shares of the Funds directly and
through institutions with whom AIM Distributors have entered into select dealer
agreements.
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 the Distribution Agreement without a sales charge or a
contingent deferred sales charge.
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.
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."
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."
42
<PAGE> 528
Information concerning redemption of the Funds' shares is set forth in the
Prospectuses under the heading "Redeeming 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 herein 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 generally be subject to backup withholding.
Each AIM Fund, and other payers, must, according to IRS regulations, withhold
31% of redemption payments and reportable dividends (whether paid or accrued) in
the case of any shareholder who fails to provide the Fund with a taxpayer
identification number ("TIN") and a certification that he is not subject to
backup withholding.
An investor is subject to backup withholding if:
(1) the investor fails to furnish a correct TIN to the Fund, or
(2) the IRS notifies the Fund that the investor furnished an incorrect
TIN, or
(3) the investor is notified by the IRS that the investor is subject
to backup withholding because the investor failed to report all of the
interest and dividends on such investor's tax return (for reportable
interest and dividends only), or
(4) the investor fails to certify to the Fund that the investor is not
subject to backup withholding under (3) above (for reportable interest and
dividend accounts opened after 1983 only), or
(5) the investor does not certify his TIN. This applies only to
reportable interest, dividend, broker or barter exchange accounts opened
after 1983, or broker accounts considered inactive during 1983.
Except as explained in (5) above, other reportable payments are subject to
backup withholding only if (1) or (2) above applies.
Certain payees and payments are exempt from backup withholding and information
reporting. A complete listing of such exempt entities appears in the
Instructions for the Requester of Form W-9 (which can be obtained from the IRS)
and includes, among others, the following:
- 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
43
<PAGE> 529
- 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.
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 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
44
<PAGE> 530
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.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
Income dividends and capital gains distributions are automatically reinvested
in additional shares of the same class of each Fund unless the shareholder has
requested in writing to receive such dividends and distributions in cash or that
they be invested in shares of another AIM Fund, subject to the terms and
conditions set forth in "Shareholder Information -- Dividends and
Distributions." If a shareholder's account does not have any shares in it on a
dividend or capital gains distribution payment date, the dividend or
distribution will be paid in cash whether or not the shareholder has elected to
have such dividends or distributions reinvested.
TAX MATTERS
The following is only a summary of certain additional tax considerations
generally affecting the Funds and their shareholders that are not described in
the Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of each Fund or its shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning.
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.
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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
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
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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.
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 for Advisor Class Shares."
TIMING OF PURCHASE ORDERS
Orders for the purchase of Advisor Class shares received prior to the close of
regular trading on the 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
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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).
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 each Fund may be exchanged either for Advisor Class
shares of any other Fund, or for AIM Cash Reserve Shares of AIM Money Market
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, 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."
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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" in each Fund's Prospectus.
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.
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 "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,
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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.
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.
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").
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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.
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 "Terms and
Conditions of Exchanges."
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
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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.
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.
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.
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 February 1, 1999, 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 Dean Witter Reynolds Cust for 15.33% -0-
Thomas H. Lentz
IRA Std Dtd 4/12/82
9 Endicott Ct
Sharpsburg, GA 30277-9271
Donaldson Lufkin Jenrette 10.76% -0-
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-9998
First Clearing Corporation 8.34% -0-
A/C 2628-5056
David Daniel
12197 Deer Flat Road
Nampa, ID 83686-9119
</TABLE>
- ---------------
* The Trust has no knowledge as to whether all or any portion of the shares
owned are also owned beneficially.
52
<PAGE> 538
<TABLE>
<CAPTION>
PERCENT
PERCENT OWNED OF
OWNED OF RECORD AND
FUND NAME AND ADDRESS OF OWNER RECORD* BENEFICIALLY
- ---- ------------------------- -------- ------------
<S> <C> <C> <C>
Raymond James & Assoc Inc CSDN 7.98% -0-
Mary Lynn James IRA
1215 W Los Angeles Cir
Broken Arrow, OK 74011-4215
Smith Barney Inc. 5.39% -0-
00150926032
388 Greenwich Street
New York, NY 10013-2339
SBC Warburg Dillon Read LLC 5.28% -0-
SUB A/C 558 00386
120 Wall Street
New York, NY 10005
James E. Sweeney II and 5.23% -0-
Patricia B. Sweeney Jt Ten
2 Sleepy Hollow Rd
Chittenango, NY 13037-1423
Developing Markets Fund -- Advisor LGT Asset Management 97.55% -0-
Class 401(K) Plan
11 Greenway Plaza Suite 100
Houston, TX 77046-1173
Latin American Fund --Class A MLPF&S 6.22% -0-
for the Sole Benefit of Its
Customers
Attn: Fund Administration
4800 Deer Lake Drive East 2nd Floor
Jacksonville, FL 32246
Latin American Fund --Class B MLPF&S 11.79% -0-
for the Sole Benefit of Its
Customers
Attn: Fund Administration
4800 Deer Lake Drive East 2nd Floor
Jacksonville, FL 32246
Latin American Fund -- Advisor Class LGT Asset Management 42.30% -0-
401(K) Plan
11 Greenway Plaza Suite 100
Houston, TX 77046-1173
LGT Asset Management 6.56% -0-
SERP Plan
Attn: Debbie Nettles A/C 5000201000
11 Greenway Plaza Suite 100
Houston, TX 77046-1173
</TABLE>
- ---------------
* The Trust has no knowledge as to whether all or any portion of the shares
owned are also owned beneficially.
53
<PAGE> 539
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 for the Advisor Class shares of Latin American
Fund, stated as average annualized total returns for the periods shown, were:
<TABLE>
<CAPTION>
ONE FIVE TEN SINCE
YEAR YEAR YEAR INCEPTION*
------ ---- ---- ----------
<S> <C> <C> <C> <C>
Latin American Fund................................... (43.98)% N/A N/A (7.54)%
</TABLE>
- ---------------
* The inception date for Advisor Class shares of Latin American Fund is
06/01/95.
Advisor Class shares of Developing Markets Fund have not been in
operation for a full fiscal year.
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 (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>
ONE FIVE TEN SINCE
YEAR YEAR YEAR INCEPTION*
------ ---- ---- ----------
<S> <C> <C> <C> <C>
Latin American Fund................................... (43.98)% N/A N/A (24.49)%
</TABLE>
- ---------------
* The inception date for Advisor Class shares of Latin American Fund is
06/01/95.
Advisor Class shares of Developing Markets Fund have not been in operation for
a full fiscal year.
54
<PAGE> 540
PERFORMANCE INFORMATION
All advertisements of the Fund will disclose the maximum sales charge
(including deferred sales charges) imposed on purchases of the Fund's shares. If
any advertised performance data does not reflect the maximum sales charge (if
any), such advertisement will disclose that the sales charge has not been
deducted in computing the performance data, and that, if reflected, the maximum
sales charge would reduce the performance quoted. Further information regarding
the Fund's performance is contained in the Fund's annual report to shareholders,
which is available upon request and without charge.
A Funds' total return is calculated in accordance with a standardized
formula for computation of annualized total return.
A Fund's total return shows its overall change in value, including changes
in share price and assuming all the Fund's dividends and capital gain
distributions are reinvested. A cumulative total return reflect the Fund's
performance over a stated period of time. An average annual total return
reflects the hypothetical compounded annual rate of return that would have
produced the same cumulative total return if the Fund's performance had been
constant over the entire period. BECAUSE AVERAGE ANNUAL RETURNS TEND TO EVEN OUT
VARIATIONS IN THE FUND'S RETURN, INVESTORS SHOULD RECOGNIZE THAT SUCH RETURNS
ARE NOT THE SAME AS ACTUAL YEAR-BY-YEAR RESULTS. To illustrate the components of
overall performance, the Fund may separate its cumulative and average annual
returns into income results and capital gains or losses.
From time to time and in its discretion, AIM or its affiliates may waive all
or a portion of their fees and/or assume certain expenses of any Fund. Voluntary
fee waivers or reductions or commitments to assume expenses may be rescinded at
any time without further notice to investors. During periods of voluntary fee
waivers or reductions or commitments to assume expenses, AIM will retain its
ability to be reimbursed for such fee prior to the end of each fiscal year.
Contractual fee waivers or reductions or reimbursement of expenses set forth in
the Fee Table in the Prospectus may not be terminated without the approval of
the Board of Trustees.
A practice of waiving or reducing fees or reimbursing expenses will have the
effect of increasing that Fund's yield and total return. The performance of each
Fund will vary from time to time and past results are not necessarily indicative
of future results. A Fund's performance is a function of its portfolio
management in selecting the type and quality of portfolio securities and is
affected by operating expenses of the Fund and market conditions. A
shareholder's investment in a Fund is not insured or guaranteed. These factors
should be carefully considered by the investor before making an investment in
any Fund.
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
55
<PAGE> 541
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.
56
<PAGE> 542
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.
57
<PAGE> 543
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.
58
<PAGE> 544
FINANCIAL STATEMENTS
FS
<PAGE> 545
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders of AIM Developing Markets Fund (formerly GT Global
Developing Markets Fund) and Board of Trustees of AIM Investment Funds (formerly
G.T. Investment Funds, Inc.):
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Developing Markets Fund at
October 31, 1998, and the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
------------------------------
PRICEWATERHOUSECOOPERS LLP
BOSTON, MASSACHUSETTS
DECEMBER 11, 1998
FS-1
<PAGE> 546
PORTFOLIO OF INVESTMENTS
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Services (20.2%)
Telecomunicacoes Brasileiras S.A. (Telebras) Preferred -
ADR{\/} ................................................... BRZL 49,291 $ 3,743,034 4.3
TELEPHONE NETWORKS
Telefonos de Mexico, S.A. de C.V. "L" - ADR{\/} ............ MEX 50,583 2,671,415 3.0
TELEPHONE NETWORKS
Hellenic Telecommunication Organization S.A. (OTE) ......... GREC 74,322 1,690,938 1.9
TELEPHONE NETWORKS
Magyar Tavkozlesi Rt. - ADR{\/} ............................ HGRY 59,100 1,588,313 1.8
TELEPHONE NETWORKS
Telefonica del Peru S.A. - ADR{\/} ......................... PERU 80,900 1,051,700 1.2
TELEPHONE NETWORKS
Cifra, S.A. de C.V. "V"-/- ................................. MEX 748,662 1,015,210 1.2
RETAILERS-OTHER
Telefonica de Argentina S.A. - ADR{\/} ..................... ARG 27,528 910,145 1.0
TELEPHONE NETWORKS
Telecomunicacoes de Sao Paulo S.A. (TELESP): ............... BRZL -- -- 0.9
TELEPHONE - REGIONAL/LOCAL
Common-/- ................................................ -- 7,001,000 760,144 --
Preferred ................................................ -- 150,157 25,177 --
Grupo Televisa, S.A. de C.V. - GDR-/- {\/} ................. MEX 26,700 724,238 0.8
BROADCASTING & PUBLISHING
STET Hellas Telecommunications S.A. - ADR-/- {\/} .......... GREC 24,976 655,620 0.7
WIRELESS COMMUNICATIONS
Mahanagar Telephone Nigam Ltd. ............................. IND 143,500 620,816 0.7
TELECOM - OTHER
Companhia de Saneamento Basico do Estado de Sao Paulo -
SABESP .................................................... BRZL 7,132,127 574,014 0.7
BUSINESS & PUBLIC SERVICES
Videsh Sanchar Nigam Ltd. - Reg S GDR-/- {c} {\/} .......... IND 37,000 388,500 0.4
TELECOM - OTHER
Nortel Inversora S.A. - ADR{\/} ............................ ARG 15,500 344,875 0.4
TELEPHONE NETWORKS
Telecom Argentina S.A. - ADR{\/} ........................... ARG 10,300 332,175 0.4
TELEPHONE NETWORKS
ONA (Omnium Nord Africain) S.A. "A" ........................ MOR 2,320 301,551 0.3
BUSINESS & PUBLIC SERVICES
Bezeq Israeli Telecommunication Corporation Ltd. ........... ISRL 86,900 249,999 0.3
TELEPHONE NETWORKS
Blue Square Chain Investments & Properties Ltd.-/- ......... ISRL 14,898 190,525 0.2
RETAILERS-FOOD
Indian Hotels Co., Ltd. .................................... IND 50 484 --
LEISURE & TOURISM
-----------
17,838,873
-----------
Finance (15.0%)
Liberty Life Association of Africa Ltd. .................... SAFR 88,250 1,515,564 1.7
INSURANCE-LIFE
Cathay Life Insurance Co., Ltd. ............................ TWN 301,200 1,065,248 1.2
INSURANCE-LIFE
National Bank of Greece S.A. ............................... GREC 6,520 927,124 1.1
BANKS-MONEY CENTER
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-2
<PAGE> 547
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Finance (Continued)
Alpha Credit Bank .......................................... GREC 11,255 $ 900,040 1.0
BANKS-REGIONAL
Uniao de Bancos Brasileiros S.A. (Unibanco): ............... BRZL -- -- 0.9
BANKS-MONEY CENTER
Units{=} ................................................. -- 14,649,042 480,810 --
GDR{\/} .................................................. -- 18,510 323,925 --
Bank Hapoalim Ltd. ......................................... ISRL 440,500 796,944 0.9
BANKS-MONEY CENTER
Grupo Financiero Banamex Accival, S.A. de C.V. "B"-/- ...... MEX 691,100 718,257 0.8
BANKS-MONEY CENTER
BIG Bank Gdanski S.A. - Reg S GDR{c} {\/} .................. POL 43,000 692,300 0.8
BANKS-REGIONAL
Bank Leumi Le - Israel ..................................... ISRL 519,768 664,712 0.8
BANKS-MONEY CENTER
MISR International Bank - Reg S GDR{c} {\/} ................ EGPT 69,400 654,095 0.7
BANKS-MONEY CENTER
Turkiye Is Bankasi (Isbank) "C" ............................ TRKY 23,068,549 633,157 0.7
BANKS-MONEY CENTER
Banco de Galicia y Buenos Aires, S.A. de C.V. - ADR{\/} .... ARG 28,872 492,629 0.6
BANKS-MONEY CENTER
Commercial Bank of Greece S.A. ............................. GREC 5,800 491,753 0.6
BANKS-MONEY CENTER
Ergo Bank S.A. ............................................. GREC 5,360 476,360 0.5
BANKS-REGIONAL
Yapi ve Kredi Bankasi AS ................................... TRKY 41,379,593 467,233 0.5
BANKS-REGIONAL
Credicorp Ltd. - ADR{\/} ................................... PERU 56,220 379,485 0.4
BANKS-MONEY CENTER
Wafabank ................................................... MOR 2,900 378,516 0.4
BANKS-MONEY CENTER
KREDYT BANK S.A. - Reg S GDR-/- {c} {\/} ................... POL 14,680 292,866 0.3
BANKS-MONEY CENTER
Akbank T.A.S. .............................................. TRKY 19,162,500 282,947 0.3
BANKS-REGIONAL
Banco Rio de La Plata S.A. - ADR{\/} ....................... ARG 26,900 242,100 0.3
BANKS-MONEY CENTER
Inversiones y Representaciones S.A. (IRSA) - GDR{\/} ....... ARG 9,000 232,875 0.3
REAL ESTATE
National Development Bank .................................. SLNKA 70,000 80,910 0.1
BANKS-REGIONAL
Kazkommertsbank Co. - GDR-/- {\/} .......................... KAZ 12,700 70,485 0.1
BANKS-REGIONAL
State Bank of India Ltd. ................................... IND 3,000 11,035 --
BANKS-MONEY CENTER
-----------
13,271,370
-----------
Energy (9.7%)
Petroleo Brasileiro S.A. (Petrobras) Preferred ............. BRZL 16,207,398 2,038,154 2.3
OIL
Companhia Energetica de Minas Gerais (CEMIG) - ADR{\/} ..... BRZL 97,731 1,893,538 2.2
ELECTRICAL & GAS UTILITIES
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-3
<PAGE> 548
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Energy (Continued)
MOL Magyar Olaj-es Gazipari RT - Reg S GDR{c} {\/} ......... HGRY 68,330 $ 1,556,216 1.8
GAS PRODUCTION & DISTRIBUTION
Huaneng Power International, Inc. - ADR-/- {\/} ............ CHNA 70,958 975,673 1.1
ELECTRICAL & GAS UTILITIES
Enersis S.A. - ADR{\/} ..................................... CHLE 30,728 641,447 0.7
ELECTRICAL & GAS UTILITIES
Companhia de Eletricidade do Estado da Bahia - COELBA ...... BRZL 12,500,000 398,223 0.5
ELECTRICAL & GAS UTILITIES
Surgutneftegaz - ADR{\/} ................................... RUS 163,020 326,040 0.4
OIL
Eletropaulo Metropolitana Preferred ........................ BRZL 7,843,375 264,339 0.3
ELECTRICAL & GAS UTILITIES
Light - Servicos de Electricidade S.A. ..................... BRZL 1,654,290 205,261 0.2
ELECTRICAL & GAS UTILITIES
Empresa Bandeirante de Energia S.A.-/- ..................... BRZL 7,843,375 76,211 0.1
ELECTRICAL & GAS UTILITIES
Companhia Brasileira de Petroleo Ipiranga S.A. Preferred ... BRZL 12,154,000 65,213 0.1
GAS
Bombay Suburban Electric Supply (BSES) Ltd.-/- ............. IND 1,350 4,774 --
ELECTRICAL & GAS UTILITIES
-----------
8,445,089
-----------
Consumer Non-Durables (9.5%)
South African Breweries Ltd. ............................... SAFR 89,806 1,747,924 2.0
BEVERAGES - ALCOHOLIC
Hindustan Lever Ltd. ....................................... IND 40,650 1,540,472 1.8
PERSONAL CARE/COSMETICS
ITC Ltd. ................................................... IND 79,900 1,321,750 1.5
TOBACCO
Fomento Economico Mexicano, S.A. de C.V. - ADR{\/} ......... MEX 44,311 1,154,855 1.3
BEVERAGES - NON-ALCOHOLIC
Panamerican Beverages, Inc. "A"{\/} ........................ MEX 34,000 688,500 0.8
BEVERAGES - NON-ALCOHOLIC
A-Ahram Beverages Co. S.A.E. - 144A GDR{\/} {.} ............ EGPT 15,814 443,583 0.5
BEVERAGES - ALCOHOLIC
Compania Cervecerias Unidas S.A. - ADR{\/} ................. CHLE 18,100 325,800 0.4
BEVERAGES - ALCOHOLIC
Companhia de Tecidos Norte de Minas Preferred .............. BRZL 2,747,000 317,812 0.4
TEXTILES & APPAREL
Companhia Cervejaria Brahma Preferred ...................... BRZL 563,721 264,658 0.3
BEVERAGES - ALCOHOLIC
Oriental Weavers "C" ....................................... EGPT 11,400 245,974 0.3
TEXTILES & APPAREL
Zaklady Piwowarskie w Zywcu S.A. (Zywiec) .................. POL 1,243 169,369 0.2
BEVERAGES - ALCOHOLIC
Truworths International Ltd. ............................... SAFR 47,740 36,381 --
TEXTILES & APPAREL
-----------
8,257,078
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-4
<PAGE> 549
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Materials/Basic Industry (8.3%)
Suez Cement Co. - Reg S GDR{c} {\/} ........................ EGPT 95,195 $ 1,404,126 1.6
CEMENT
Anglo American Platinum Corporation Ltd. ................... SAFR 87,900 1,336,583 1.5
METALS - NON-FERROUS
Sociedad Quimica y Minera de Chile S.A. - ADR{\/} .......... CHLE 31,500 1,047,375 1.2
CHEMICALS
Companhia Vale do Rio Doce "A" Preferred ................... BRZL 55,700 840,543 1.0
METALS - STEEL
Compania de Minas Buenaventura S.A. - ADR{\/} .............. PERU 47,792 585,452 0.7
GOLD
Cemex, S.A. de C.V. "CPO" .................................. MEX 238,120 568,019 0.6
CEMENT
Apasco, S.A. de C.V. "A" ................................... MEX 115,233 422,015 0.5
CEMENT
Hindalco Industries Ltd.: .................................. IND -- -- 0.3
METALS - NON-FERROUS
GDR{\/} .................................................. -- 26,200 307,195 --
Common ................................................... -- 1,634 19,759 --
Makhteshim-Agan Industries Ltd.-/- ......................... ISRL 144,665 256,973 0.3
CHEMICALS
Siderca S.A. "A" ........................................... ARG 118,000 165,250 0.2
METALS - STEEL
Grupo Cementos de Chihuahua, S.A. de C.V. "B" .............. MEX 283,300 151,983 0.2
CEMENT
Engro Chemicals Pakistan Ltd. .............................. PAK 69,370 63,948 0.1
CHEMICALS
Nan Ya Plastics Corp.-/- ................................... TWN 35,360 44,780 0.1
PLASTICS & RUBBER
-----------
7,214,001
-----------
Multi-Industry/Miscellaneous (6.7%)
Grupo Carso, S.A. de C.V. "A1" ............................. MEX 452,400 1,567,257 1.8
MULTI-INDUSTRY
Rembrandt Group Ltd. ....................................... SAFR 220,610 1,472,049 1.7
CONGLOMERATE
Haci Omer Sabanci Holding AS ............................... TRKY 43,775,250 661,579 0.8
CONGLOMERATE
China Development Corp. .................................... TWN 288,900 571,107 0.7
CONGLOMERATE
Central Asia Regional Growth Fund(::) -/- {\/} ............. IRE 175,000 525,000 0.6
COUNTRY FUNDS
Koc Holding AS ............................................. TRKY 5,220,550 480,647 0.5
CONGLOMERATE
Koor Industries Ltd. - ADR{\/} ............................. ISRL 24,643 398,909 0.5
CONGLOMERATE
John Keells Holdings Ltd. .................................. SLNKA 17,000 48,173 0.1
CONGLOMERATE
-----------
5,724,721
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-5
<PAGE> 550
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Technology (4.3%)
Taiwan Semiconductor Manufacturing Co.-/- .................. TWN 597,950 $ 1,209,752 1.4
SEMICONDUCTORS
Asustek Computer Inc. - Reg S GDR-/- {c} {\/} .............. TWN 96,862 743,416 0.8
COMPUTERS & PERIPHERALS
Hon Hai Precision Industry ................................. TWN 112,000 539,676 0.6
COMPUTERS & PERIPHERALS
Compal Electronics, Inc.-/- ................................ TWN 160,000 499,151 0.6
COMPUTERS & PERIPHERALS
Delta Electronics, Inc. .................................... TWN 153,600 443,602 0.5
COMPUTERS & PERIPHERALS
Formula Systems Ltd.-/- .................................... ISRL 16,505 353,214 0.4
SOFTWARE
-----------
3,788,811
-----------
Capital Goods (2.9%)
MISR Elgadida for Housing and Reconstruction ............... EGPT 17,100 1,563,864 1.8
CONSTRUCTION
NASR (El) City Company For Housing & Construction .......... EGPT 23,005 713,659 0.8
CONSTRUCTION
Corporacion GEO, S.A. de C.V. "B"-/- ....................... MEX 165,800 287,192 0.3
CONSTRUCTION
-----------
2,564,715
-----------
Health Care (1.9%)
Ranbaxy Laboratories Ltd. .................................. IND 79,850 942,438 1.1
MEDICAL TECHNOLOGY & SUPPLIES
Teva Pharmaceutical Industries Ltd. ........................ ISRL 18,700 737,188 0.8
PHARMACEUTICALS
-----------
1,679,626
-----------
Consumer Durables (0.6%)
Bajaj Auto Ltd. ............................................ IND 29,300 383,567 0.4
AUTOMOBILES
Qingling Motors Co., Ltd.{*} ............................... CHNA 1,022,000 188,709 0.2
AUTOMOBILES
-----------
572,276
----------- -----
TOTAL EQUITY INVESTMENTS (cost $92,943,216) .................. 69,356,560 79.1
----------- -----
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Government & Government Agency Obligations (11.2%)
Algeria (0.6%)
Algeria Tranche 1 Loan Assignment, 6.625% due 9/4/06+ .... USD 1,050,000 535,500 0.6
Argentina (2.2%)
Republic of Argentina:
Discount Bond, 6.625% due 3/31/23+ ..................... USD 1,425,000 970,781 1.1
Par Bond Series L, 5.75% (6% at 3/31/99) due
3/31/23++ ............................................. USD 875,000 608,125 0.7
I.O. Strip, 12.11% due 4/10/05 ......................... USD 350,000 308,000 0.4
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-6
<PAGE> 551
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Government & Government Agency Obligations (Continued)
Brazil (0.6%)
Brazil Floating Rate Discount Note, 6.125% due
4/15/24+ ................................................ USD 845,000 $ 502,247 0.6
Bulgaria (1.1%)
Republic of Bulgaria:
Discount Bond Series A, 6.6875% due 7/28/24 - Euro+ .... USD 771,000 541,628 0.6
Front Loaded Interest Reduction Bond Series A, 2.5%
(2.75% at 7/99) due 7/28/12++ ......................... USD 760,000 419,900 0.5
Colombia (0.5%)
Republic of Colombia:
8.625% due 4/1/08{j} ................................... USD 472,000 370,520 0.4
7.27% due 6/15/03 - 144A{.} ............................ USD 59,000 48,085 0.1
Mexico (4.4%)
United Mexican States:
Discount Bond Series D, 6.6016% due 12/31/19+ .......... USD 1,570,000 1,225,581 1.4
Discount Bond Series C, 6.6172% due 12/31/19+ +/+ ...... USD 1,353,000 1,056,186 1.2
9.875% due 1/15/07 ..................................... USD 575,000 546,969 0.6
6.63% due 12/31/19 ..................................... FRF 3,000,000 420,666 0.5
Discount Bond Series A, 6.1156% due 12/31/19+ +/+ ...... USD 412,000 321,618 0.4
Discount Bond Series B, 6.47656% due 12/31/19+ +/+ ..... USD 375,000 292,734 0.3
Panama (0.4%)
Republic of Panama:
Interest Reduction Bond, 4% (4.25% at 7/99) due
7/17/14++ ............................................. USD 370,000 270,794 0.3
8.875% due 9/30/27 ..................................... USD 67,000 61,808 0.1
Peru (0.7%)
Republic of Peru, Past Due Interest Bond, 4% (4.5% at
3/8/99) due 3/7/17++ .................................... USD 1,116,000 641,700 0.7
Poland (0.5%)
3% (3.5% at 10/28/99) due 10/27/24 - Euro++ ............ USD 685,000 455,525 0.5
Past Due Interest Bond, 5% (6% at 10/28/99)
due 10/27/14 - Euro++ ................................. USD 2,000 1,819 --
Russia (0.2%)
Bank for Foreign Economic Affairs (Venesheconombank)
Principal Loans, 6.625% due 12/15/20+ ................... USD 2,717,360 215,690 0.2
-----------
Total Government & Government Agency Obligations (cost
$11,677,186) ................................................ 9,815,876
-----------
Corporate Bonds (4.0%)
Argentina (1.5%)
Telefonica de Argentina, 9.125% due 5/7/08 - Reg S{c} .... USD 1,504,000 1,305,649 1.5
Brazil (1.3%)
Banco Hipotecario Espana, 10% due 4/17/03 - 144A{.} ...... USD 710,000 624,800 0.7
RBS Participacoes S.A., 11% due 4/1/07 - 144A{.} ......... USD 1,042,000 468,900 0.5
Globo Comunicacoes Participacoes, 10.625% due 5/12/08 -
144A{.} ................................................. USD 125,000 71,563 0.1
Colombia (0.1%)
Financiera Energia Nacional, 9.375% due 6/15/06 - Reg
S{c} .................................................... USD 148,000 108,528 0.1
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-7
<PAGE> 552
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Corporate Bonds (Continued)
Korea (0.1%)
Pohang Iron & Steel, 2% due 10/9/00 ...................... JPY 5,500,000 $ 40,886 0.1
Mexico (0.6%)
Petroleos Mexicanos (PEMEX), 9.25% due 3/30/18 -
144A{.} ................................................. USD 360,000 293,400 0.3
Dine, S.A. de C.V., 8.75% due 10/15/07 - 144A{.} ......... USD 210,000 165,900 0.2
Banco Nacional Comercio Exte., 8% due 7/18/02 - Reg
S{c} .................................................... USD 97,000 88,513 0.1
Russia (0.4%)
Lukinter Finance BV Convertible, 3.5% due 5/6/02 -
144A{.} ................................................. USD 851,000 310,615 0.4
Mosenergo Finance BV, 8.375% due 10/9/02 - 144A{.} ....... USD 5,000 875 --
-----------
Total Corporate Bonds (cost $4,998,295) ...................... 3,479,629
-----------
Structured Notes (0.4%)
Korea (0.4%)
Fixed Rate Trust Certificate 13.55% due 2/15/02[::]
(Issued by a newly created Delaware Business Trust,
collateralized by triple A paper. This trust certificate
has a credit risk component linked to the value of a
referenced security: Korean Development Bank, 1.875%
2002.) (cost $470,000) .................................. USD 470,000 343,805 0.4
----------- -----
TOTAL FIXED INCOME INVESTMENTS (cost $17,145,481) ............ 13,639,310 15.6
----------- -----
<CAPTION>
NO. OF VALUE % OF NET
WARRANTS COUNTRY WARRANTS (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Merrill Lynch - Kospi 200 Call Warrants, due 9/9/99
Performance linked to equity securities. Redemption amount
100% of the final closing price of the Korean Kospi 200
Index converted to the prevailing foreign exchange rate.
(cost $2,495,011) ......................................... US 765,294 2,571,541 2.9
----------- -----
INVESTMENT MANAGEMENT
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-8
<PAGE> 553
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
REPURCHASE AGREEMENT (NOTE 1) ASSETS
- -------------------------------------------------------------- ----------- -------------
<S> <C> <C> <C> <C>
Dated October 30, 1998, with State Street Bank & Trust Co.,
due November 2, 1998, for an effective yield of 5.30%,
collateralized by $4,145,000 U.S. Treasury Notes, 6.50% due
5/15/05 (market value of collateral is $4,750,253,
including accrued interest). (cost $4,653,000) ............ $ 4,653,000 5.3
----------- -----
TOTAL INVESTMENTS (cost $117,236,708) * ..................... 90,220,411 102.9
Other Assets and Liabilities ................................. (2,519,957) (2.9)
----------- -----
NET ASSETS ................................................... $87,700,454 100.0
----------- -----
----------- -----
</TABLE>
- --------------
-/- Non-income producing security.
{*} Security denominated in Hong Kong Dollars.
{\/} U.S. currency denominated.
{c} Security issued under Regulation S. Rule 144A and additional
restrictions may apply in the resale of such securities.
{=} Each unit represents one preferred share of Unibanco and one
preferred "B" share of Unibanco Holdings.
(::) Valued in good faith at fair value using procedures approved by the
Board of Trustees (See Note 1 of Notes to Financial Statements).
[::] Certain events may cause the contract to terminate prior to date
shown.
{.} Security exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers.
+ The coupon rate shown on floating rate note represents the rate at
period end.
++ The coupon rate shown on step-up coupon bond represents the rate at
period end.
+/+ Issued with detachable warrants or value recovery rights. The
current market value of each warrant or right is zero.
{j} All or part of the Fund's holdings in this security is segregated
as collateral for extended settlement of derivative instruments.
(See Note 1 of Notes to the Financial Statements).
* For Federal income tax purposes, cost is $118,742,569 and
appreciation (depreciation) is as follows:
<TABLE>
<S> <C>
Unrealized appreciation: $ 3,055,324
Unrealized depreciation: (31,577,482)
-------------
Net unrealized depreciation: $ (28,522,158)
-------------
-------------
</TABLE>
Abbreviations:
ADR--American Depositary Receipt
GDR--Global Depositary Receipt
The accompanying notes are an integral part of the financial statements.
FS-9
<PAGE> 554
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
The Fund's Portfolio of Investments at October 31, 1998, was concentrated in the
following countries:
<TABLE>
<CAPTION>
PERCENTAGE OF NET ASSETS {D}
-------------------------------------------
FIXED INCOME SHORT-TERM
COUNTRY (COUNTRY CODE/CURRENCY CODE) EQUITY & WARRANTS & OTHER TOTAL
- -------------------------------------- ------ ------------- ---------- -----
<S> <C> <C> <C> <C>
Argentina (ARG/ARS) .................. 3.2 3.7 6.9
Algeria (ALG/DZD) .................... 0.6 0.6
Brazil (BRZL/BRL) .................... 14.2 1.9 16.1
Bulgaria (BUL/LEV) ................... 1.1 1.1
Chile (CHLE/CLP) ..................... 2.3 2.3
China (CHNA/RMB) ..................... 1.3 1.3
Colombia (COL/COP) ................... 0.6 0.6
Egypt (EGPT/EGP) ..................... 5.7 5.7
Greece (GREC/GRD) .................... 5.8 5.8
Hungary (HGRY/HUF) ................... 3.6 3.6
India (IND/INR) ...................... 6.2 6.2
Ireland (IRE/IEP) .................... 0.6 0.6
Israel (ISRL/ILS) .................... 4.2 4.2
Kazakhstan (KAZ/KTS) ................. 0.1 0.1
Korea (KOR/KRW) ...................... 0.5 0.5
Mexico (MEX/MXN) ..................... 11.3 5.0 16.3
Morocco (MOR/MAD) .................... 0.7 0.7
Pakistan (PAK/PKR) ................... 0.1 0.1
Panama (PAN/PND) ..................... 0.4 0.4
Peru (PERU/PES) ...................... 2.3 0.7 3.0
Poland (POL/PLZ) ..................... 1.3 0.5 1.8
Russia (RUS/SUR) ..................... 0.4 0.6 1.0
South Africa (SAFR/ZAR) .............. 6.9 6.9
Sri Lanka (SLNKA/LKR) ................ 0.2 0.2
Taiwan (TWN/TWD) ..................... 5.9 5.9
Turkey (TRKY/TRL) .................... 2.8 2.8
United States (US/USD) ............... 2.9 2.4 5.3
------ ----- --- -----
Total ............................... 79.1 18.5 2.4 100.0
------ ----- --- -----
------ ----- --- -----
</TABLE>
- --------------
{d} Percentages indicated are based on net assets of $87,700,454.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACT OUTSTANDING
OCTOBER 31, 1998
<TABLE>
<CAPTION>
MARKET VALUE
(U.S. CONTRACT DELIVERY UNREALIZED
CONTRACT TO SELL: DOLLARS) PRICE DATE DEPRECIATION
- ---------------------------------------- ------------- ---------- -------- ---------------
<S> <C> <C> <C> <C>
Japanese Yen............................ 39,670 118.80000 11/27/98 $ (950)
------------- ---------------
Total Contract to Sell (Receivable
amount $38,720)...................... 39,670 (950)
------------- ---------------
THE VALUE OF CONTRACT TO SELL AS
PERCENTAGE OF NET ASSETS IS 0.05%.
Total Open Forward Foreign Currency
Contract............................... $ (950)
---------------
---------------
</TABLE>
- --------------
See Note 1 of Notes to the Financial Statements.
The accompanying notes are an integral part of the financial statements.
FS-10
<PAGE> 555
STATEMENT OF ASSETS
AND LIABILITIES
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at value (cost $117,236,708) (Note 1).......................... $ 90,220,411
U.S. currency................................................................... $ 895
Foreign currencies (cost $730,519).............................................. 723,408 724,303
--------
Receivable for securities sold............................................................ 903,099
Interest receivable....................................................................... 424,599
Dividends receivable...................................................................... 268,551
Unamortized organizational costs (Note 1)................................................. 14,557
Receivable for Fund shares sold........................................................... 5,619
-------------
Total assets............................................................................ 92,561,139
-------------
Liabilities:
Payable for securities purchased.......................................................... 3,823,511
Payable for Fund shares repurchased....................................................... 394,946
Payable for investment management and administration fees (Note 2)........................ 356,752
Payable for service and distribution expenses (Note 2).................................... 96,087
Payable for professional fees............................................................. 49,710
Payable for transfer agent fees (Note 2).................................................. 30,788
Payable for Trustees' fees and expenses (Note 2).......................................... 25,309
Payable for custodian fees................................................................ 10,081
Payable for registration and filing fees.................................................. 7,596
Payable for printing and postage expenses................................................. 6,093
Payable for open forward foreign currency contracts (Note 1).............................. 950
Payable for fund accounting fees (Note 2)................................................. 883
Other accrued expenses.................................................................... 57,979
-------------
Total liabilities....................................................................... 4,860,685
-------------
Net assets.................................................................................. $ 87,700,454
-------------
-------------
Class A:
Net asset value and redemption price per share ($87,517,225 DIVIDED BY 11,616,154 shares
outstanding)............................................................................... $ 7.53
-------------
-------------
Maximum offering price per share (100/95.25 of $7.53) *..................................... $ 7.91
-------------
-------------
Class B:+
Net asset value and offering price per share ($153,941 DIVIDED BY 20,565 shares
outstanding)............................................................................... $ 7.49
-------------
-------------
Advisor Class:
Net asset value, offering price per share, and redemption price per share ($29,288 DIVIDED
BY 3,877 shares outstanding)............................................................... $ 7.55
-------------
-------------
Net assets consist of:
Paid in capital (Note 4).................................................................. $ 250,014,000
Undistributed net investment income....................................................... 1,105,906
Accumulated net realized loss on investments and foreign currency transactions............ (136,393,263)
Net unrealized depreciation on translation of assets and liabilities in foreign
currencies............................................................................... (9,892)
Net unrealized depreciation of investments................................................ (27,016,297)
-------------
Total -- representing net assets applicable to capital shares outstanding................... $ 87,700,454
-------------
-------------
<FN>
- --------------
* On sales of $50,000 or more, the offering price is reduced.
+ Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-11
<PAGE> 556
STATEMENT OF OPERATIONS
Year ended October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment income: (Note 1)
Interest income............................................................................ $ 5,875,109
Dividend income (net of foreign withholding tax of $263,295)............................... 4,212,609
Securities lending income.................................................................. 241,088
------------
Total investment income.................................................................. 10,328,806
------------
Expenses:
Investment management and administration fees (Note 2)..................................... 1,740,733
Transfer agent fees (Note 2)............................................................... 538,250
Service and distribution expenses: (Note 2)
Class A.................................................................... $ 454,554
Class B.................................................................... 1,576 456,130
------------
Professional fees.......................................................................... 360,255
Interest expense (Note 1).................................................................. 359,635
Printing and postage expenses.............................................................. 312,740
Custodian fees............................................................................. 155,690
Registration and filing fees............................................................... 96,900
Amortization of organization costs (Note 1)................................................ 70,755
Fund accounting fees (Note 2).............................................................. 53,782
Trustees' fees and expenses (Note 2)....................................................... 30,660
Other expenses............................................................................. 17,000
------------
Total expenses before reductions......................................................... 4,192,530
------------
Expenses reimbursed by A I M Advisors, Inc. (Note 2)................................... (691,157)
Expense reductions (Note 5)............................................................ (41,663)
------------
Total net expenses....................................................................... 3,459,710
------------
Net investment income........................................................................ 6,869,096
------------
Net realized and unrealized gain (loss) on investments and foreign currencies:
(Note 1)
Net realized loss on investments............................................. (81,224,308)
Net realized loss on foreign currency transactions........................... (2,134,815)
------------
Net realized loss during the year........................................................ (83,359,123)
Net change in unrealized depreciation on translation of assets and
liabilities in foreign currencies........................................... 197,153
Net change in unrealized depreciation of investments......................... 13,544,276
------------
Net unrealized appreciation during the year.............................................. 13,741,429
------------
Net realized and unrealized loss on investments and foreign currencies....................... (69,617,694)
------------
Net decrease in net assets resulting from operations......................................... $(62,748,598)
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-12
<PAGE> 557
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS ENDED YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997 DECEMBER 31, 1996
---------------- ---------------- -----------------
<S> <C> <C> <C>
Increase (decrease) in net assets
Operations:
Net investment income....................................... $ 6,869,096 $ 9,089,483 $ 19,406,553
Net realized gain (loss) on investments and foreign currency
transactions............................................... (83,359,123) 45,653,300 945,154
Net change in unrealized appreciation (depreciation) on
translation of assets and liabilities in foreign
currencies................................................. 197,153 (297,303) 91,835
Net change in unrealized appreciation (depreciation) of
investments................................................ 13,544,276 (101,078,671) 78,628,364
---------------- ---------------- -----------------
Net increase (decrease) in net assets resulting from
operations............................................... (62,748,598) (46,633,191) 99,071,906
---------------- ---------------- -----------------
Class A:
Distributions to shareholders: (Note 1)
From net investment income.................................. (11,841,080) -- (17,407,047)
Class B:
Distributions to shareholders: (Note 1)
From net investment income.................................. (1,499) -- --
Advisor Class:
Distributions to shareholders: (Note 1)
From net investment income.................................. (46) -- --
---------------- ---------------- -----------------
Total distributions....................................... (11,842,625) -- (17,407,047)
---------------- ---------------- -----------------
Capital share transactions: (Note 4)
Increase from capital shares sold and reinvested............ 13,579,722 -- --
Decrease from capital shares repurchased.................... (308,667,233) -- --
---------------- ---------------- -----------------
Net increase (decrease) from capital share transactions... (295,087,511) -- --
---------------- ---------------- -----------------
Total increase (decrease) in net assets....................... (369,678,734) (46,633,191) 81,664,859
Net assets:
Beginning of period......................................... 457,379,188 504,012,379 422,347,520
---------------- ---------------- -----------------
End of period *............................................. $ 87,700,454 $ 457,379,188 $504,012,379
---------------- ---------------- -----------------
---------------- ---------------- -----------------
* Includes undistributed net investment income of............ $ 1,105,906 $ 8,645,635 $ 363,782
---------------- ---------------- -----------------
---------------- ---------------- -----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-13
<PAGE> 558
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS A+
------------------------------------------------------------------------------
YEAR TEN MONTHS YEAR ENDED JANUARY 11, 1994
ENDED ENDED DECEMBER 31, (COMMENCEMENT
OCTOBER 31, OCTOBER 31, --------------------- OF OPERATIONS) TO
1998 (D) 1997 (E) 1996 (E) 1995 (E) DECEMBER 31, 1994(E)
----------- ----------- --------- --------- --------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 12.56 $ 13.84 $ 11.60 $ 12.44 $ 15.00
----------- ----------- --------- --------- -----------
Income from investment operations:
Net investment income................. 0.39*{/\} 0.25 0.53 0.72 0.35
Net realized and unrealized gain
(loss) on investments................ (5.10) (1.53) 2.19 (0.84) (2.46)
----------- ----------- --------- --------- -----------
Net increase (decrease) from
investment operations.............. (4.71) (1.28) 2.72 (0.12) (2.11)
----------- ----------- --------- --------- -----------
Redemption fees retained (Note 4)..... 0.28 -- -- -- --
----------- ----------- --------- --------- -----------
Distributions to shareholders:
From net investment income............ (0.60) -- (0.48) (0.72) (0.35)
From net realized gain on
investments.......................... -- -- -- -- (0.10)
----------- ----------- --------- --------- -----------
Total distributions................. (0.60) -- (0.48) (0.72) (0.45)
----------- ----------- --------- --------- -----------
Net asset value, end of period.......... $ 7.53 $ 12.56 $ 13.84 $ 11.60 $ 12.44
----------- ----------- --------- --------- -----------
----------- ----------- --------- --------- -----------
Market value, end of period............. N/A $ 11.81 $ 11.63 $ 9.75 $ 9.75
----------- ----------- --------- --------- -----------
----------- ----------- --------- --------- -----------
Total investment return (based on market
value)................................. N/A 1.62%(b) 24.18% 6.60% (32.16)% (b)
Total investment return (based on net
asset value)........................... (37.09)% (c) (9.25)%(b) 23.59% (0.95)% (14.07)% (b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $87,517 $457,379 $504,012 $422,348 $452,872
Ratio of net investment income to
average net assets:
With expense reductions and
reimbursement (Notes 2 & 5).......... 3.84% 2.03%(a) 4.07% 6.33% 2.75% (a)
Without expense reductions and
reimbursement........................ 3.43% 1.95%(a) 4.04% 6.30% 2.75% (a)
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions and
reimbursement (Notes 2 & 5).......... 1.73% 1.75%(a) 1.82% 1.77% 2.01% (a)
Without expense reductions and
reimbursement........................ 2.14% 1.83%(a) 1.85% 1.80% 2.01% (a)
Ratio of interest expense to average net
assets (Note 1)+++..................... 0.20% N/A N/A N/A N/A
Portfolio turnover rate+++.............. 111% 184%(a) 138% 75% 56% (a)
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon the average
shares outstanding during the period.
(e) These financial highlights provide per share information of G.T.
Global Developing Markets Fund, Inc. ("Predecessor Fund") (See Note 1
to Notes to Financial Statements) for the periods up to and including
October 31, 1997. The fees and expenses of the Fund differ from those
of the Predecessor Fund.
{/\} Net investment income per share reflects an interest payment received
from the conversion of Vnesheconombank loan agreements of $0.14 per
share for Class A, B, and Advisor.
* Before reimbursement the net investment income per share would have
been reduced by $0.04 for Class A, B, and Advisor.
+ All capital shares issued and outstanding on October 31, 1997 were
reclassified as Class A shares.
++ Commencing November 1, 1997, the Fund began offering Class B and
Advisor Class shares.
+++ Portfolio turnover rates and ratio of interest expense to average net
assets are calculated on the basis of the Fund as whole without
distinguishing between the classes of shares issued.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-14
<PAGE> 559
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
ADVISOR
CLASS B++ CLASS++
----------- -----------
YEAR YEAR
ENDED ENDED
OCTOBER 31, OCTOBER 31,
1998 (D) 1998 (D)
----------- -----------
<S> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $12.56 $12.56
----------- -----------
Income from investment operations:
Net investment income................. 0.31*{/\} 0.40*{/\}
Net realized and unrealized gain
(loss) on investments................ (5.07) (5.09)
----------- -----------
Net increase (decrease) from
investment operations.............. (4.76) (4.69)
----------- -----------
Redemption fees retained (Note 4)..... 0.28 0.28
----------- -----------
Distributions to shareholders:
From net investment income............ (0.59) (0.60)
From net realized gain on
investments.......................... -- --
----------- -----------
Total distributions................. (0.59) (0.60)
----------- -----------
Net asset value, end of period.......... $ 7.49 $ 7.55
----------- -----------
----------- -----------
Total investment return (based on net
asset value)........................... (39.76)% (c) (42.63)% (c)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 154 $ 29
Ratio of net investment income to
average net assets:
With expense reductions and
reimbursement (Notes 2 & 5).......... 3.09% 4.09%
Without expense reductions and
reimbursement........................ 2.68% 3.68%
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions and
reimbursement (Notes 2 & 5).......... 2.48% 1.48%
Without expense reductions and
reimbursement........................ 2.89% 1.89%
Ratio of interest expense to average net
assets (Note 1)+++..................... 0.20% 0.20%
Portfolio turnover rate+++.............. 111% 111%
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon the average
shares outstanding during the period.
{/\} Net investment income per share reflects an interest payment received
from the conversion of Vnesheconombank loan agreements of $0.14 per
share for Class A, B, and Advisor.
* Before reimbursement the net investment income per share would have
been reduced by $0.04 for Class A, B, and Advisor.
+ All capital shares issued and outstanding on October 31, 1997 were
reclassified as Class A shares.
++ Commencing November 1, 1997, the Fund began offering Class B and
Advisor Class shares.
+++ Portfolio turnover rates and ratio of interest expense to average net
assets are calculated on the basis of the Fund as whole without
distinguishing between the classes of shares issued.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-15
<PAGE> 560
NOTES TO
FINANCIAL STATEMENTS
October 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (SEE ALSO NOTE 2)
AIM Developing Markets Fund (the "Fund"), formerly GT Global Developing Markets
Fund, is a separate series of AIM Investment Funds (the "Trust"), formerly G.T.
Investment Funds, Inc. The Trust is organized as a Delaware business trust and
is registered under the Investment Company Act of 1940, as amended ("1940 Act"),
as an open-end management investment company. The Trust has thirteen series of
shares in operation, each series corresponding to a distinct portfolio of
investments.
On October 31, 1997, at the close of business, the Fund acquired the assets and
assumed the liabilities of G.T. Global Developing Markets Fund, Inc., a Maryland
corporation registered under the 1940 Act as a non-diversified closed-end
management investment company ("Predecessor Fund"), in exchange for Class A
shares of the Fund in a tax-free reorganization of the Predecessor Fund.
Shareholders of the Predecessor Fund approved the reorganization on October 20,
1997. Prior to October 28, 1997, the Predecessor Fund's shares traded on the New
York Stock Exchange.
Commencing November 1, 1997, the Fund offers Class A, Class B, and Advisor Class
shares, each of which has equal rights as to assets and voting privileges except
that Class A and Class B each has exclusive voting rights with respect to its
distribution plan. Investment income, realized and unrealized capital gains and
losses, and the common expenses of the Fund are allocated on a pro rata basis to
each class based on the relative net assets of each class to the total net
assets of the Fund. Each class of shares differs in its respective service and
distribution expenses, and may differ in its transfer agent, registration, and
certain other class-specific fees and expenses.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies in conformity with generally accepted accounting
principles consistently followed by the Fund in the preparation of the financial
statements.
(A) PORTFOLIO VALUATION
The Fund calculates the net asset value of and completes orders to purchase,
exchange or repurchase Fund shares on each business day, with the exception of
those days on which the New York Stock Exchange is closed.
Equity securities are valued at the last sale price on the exchange on which
such securities are traded or on the principal over-the-counter market on which
such securities are traded, as of the close of business on the day the
securities are being valued, or, lacking any sales, at the last available bid
price. In cases where securities are traded on more than one exchange, the
securities are valued on the exchange determined by A I M Advisors, Inc. (the
"Manager") to be the primary market.
Fixed income investments are valued at the mean of representative quoted bid and
asked prices for securities or, if such prices are not available, at prices for
securities of comparative maturity, quality and type; however, when the Manager
deems it appropriate, prices obtained for the day of valuation from a bond
pricing service will be used. Short-term investments with a maturity of 60 days
or less are valued at amortized cost, adjusted for foreign exchange translation
and market fluctuation, if any.
Investments for which market quotations are not readily available (including
restricted securities which are subject to limitations on their sale) are valued
at fair value as determined in good faith by or under the direction of the
Trust's Board of Trustees.
Portfolio securities which are primarily traded on foreign exchanges are
generally valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S. dollars at
the current exchange rates, except that when an occurrence subsequent to the
time a value was so established is likely to have materially changed such value,
then the fair value of those securities will be determined by consideration of
other factors by or under the direction of the Trust's Board of Trustees.
(B) FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings, other assets and liabilities
are recorded in the books and records of the Fund after translation to U.S.
dollars based on the exchange rates on that day. The cost of each security is
determined using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when earned or incurred.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
existing from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains and losses arise from sales and
maturities of short-term investments, forward foreign currency contracts, sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the differences between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities other than investments in securities at year
end, resulting from changes in exchange rates.
(C) REPURCHASE AGREEMENTS
With respect to repurchase agreements entered into by the Fund, it is the Fund's
policy to always receive, as collateral, United States government securities or
other high quality debt securities of which the value, including accrued
interest, is at least equal to the amount to be repaid to the Fund under each
agreement at its maturity.
FS-16
<PAGE> 561
(D) FORWARD FOREIGN CURRENCY CONTRACTS
A forward foreign currency contract ("Forward Contract") is an agreement between
two parties to buy and sell a currency at a set price on a future date. The
market value of the Forward Contract fluctuates with changes in currency
exchange rates. The Forward Contract is marked-to-market daily and the change in
market value is recorded by the Fund as an unrealized gain or loss. When the
Forward Contract is closed, the Fund records a realized gain or loss equal to
the difference between the value at the time it was opened and the value at the
time it was closed. The Fund could be exposed to risk if a counterparty is
unable to meet the terms of a contract or if the value of the currency changes
unfavorably. The Fund may enter into Forward Contracts in connection with
planned purchases or sales of securities or to hedge against adverse
fluctuations in exchange rates between currencies.
(E) OPTION ACCOUNTING PRINCIPLES
When the Fund writes a call or put option, an amount equal to the premium
received is included in the Fund's "Statement of Assets and Liabilities" as an
asset and an equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option. The current
market value of an option listed on a traded exchange is valued at its last bid
price, or, in the case of an over-the-counter option, is valued at the average
of the last bid prices obtained from brokers, unless a quotation from only one
broker is available, in which case only that broker's price will be used. If an
option expires on its stipulated expiration date or if the Fund enters into a
closing purchase transaction, a gain or loss is realized without regard to any
unrealized gain or loss on the underlying security, and the liability related to
such option is extinguished. If a written call option is exercised, a gain or
loss is realized from the sale of the underlying security and the proceeds of
the sale are increased by the premium originally received. If a written put
option is exercised, the cost of the underlying security purchased would be
decreased by the premium originally received. The Fund can write options only on
a covered basis, which, for a call, requires that the Fund hold the underlying
security, and, for a put, requires the Fund to set aside cash, U.S. government
securities or other liquid securities in an amount not less than the exercise
price or otherwise provide adequate cover at all times while the put option is
outstanding. The Fund may use options to manage its exposure to the stock and
bond markets and to fluctuations in currency values or interest rates.
The premium paid by the Fund for the purchase of a call or put option is
included in the Fund's "Statement of Assets and Liabilities" as an investment
and subsequently "marked-to-market" to reflect the current market value of the
option. If an option which the Fund has purchased expires on the stipulated
expiration date, the Fund realizes a loss in the amount of the cost of the
option. If the Fund enters into a closing sale transaction, the Fund realizes a
gain or loss, depending on whether proceeds from the closing sale transaction
are greater or less than the cost of the option. If the Fund exercises a call
option, the cost of the securities acquired by exercising the call is increased
by the premium paid to buy the call. If the Fund exercises a put option, it
realizes a gain or loss from the sale of the underlying security, and the
proceeds from such sale are decreased by the premium originally paid.
The risk associated with purchasing options is limited to the premium originally
paid. The risk in writing a call option is that the Fund may forego the
opportunity of profit if the market value of the underlying security or index
increases and the option is exercised. The risk in writing a put option is that
the Fund may incur a loss if the market value of the underlying security or
index decreases and the option is exercised. In addition, there is the risk the
Fund may not be able to enter into a closing transaction because of an illiquid
secondary market.
(F) FUTURES CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
security at a set price on a future date. Upon entering into such a contract the
Fund is required to pledge to the broker an amount of cash or securities equal
to the minimum "initial margin" requirements of the exchange on which the
contract is traded. Pursuant to the contract, the Fund agrees to receive from or
pay to the broker an amount of cash equal to the daily fluctuation in value of
the contract. Such receipts or payments are known as "variation margin" and are
recorded by the Fund as unrealized gains or losses. When the contract is closed,
the Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the time it was
closed. The potential risk to the Fund is that the change in value of the
underlying securities may not correlate to the change in value of the contracts.
The Fund may use futures contracts to manage its exposure to the stock and bond
markets and to fluctuations in currency values or interest rates.
(G) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). The cost of securities sold is determined on a first-in,
first-out basis, unless otherwise specified. Dividends are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. Where a high
level of uncertainty exists as to collection of income on securities, income is
recorded net of all withholding tax with any rebate recorded when received. The
Fund may trade securities on other than normal settlement terms. This may
increase the market risk if the other party to the transaction fails to deliver
and causes the Fund to subsequently invest at less advantageous prices.
(H) PORTFOLIO SECURITIES LOANED
At October 31, 1998, stocks with an aggregate value of approximately $8,703,342
were on loan to brokers. The loans were secured by cash collateral of $8,903,149
received by the Fund. For the year ended October 31, 1998, the Fund received
securities lending income of $241,088.
For international securities, cash collateral is received by the Fund against
loaned securities in an amount at least equal to 105% of the market value of the
loaned securities at the inception of each loan. This collateral must be
maintained at not less than 103% of the market value of the loaned securities
during the period of the loan. For domestic securities, cash collateral is
received by the Fund against loaned securities in an amount at least equal to
102% of the market value of the loaned securities at the inception of each loan.
This collateral must be maintained at not less than 100% of the market value of
the loaned securities during the period of each loan. The cash collateral is
invested in a securities lending trust which consists
FS-17
<PAGE> 562
of a portfolio of high quality short duration securities whose average effective
duration is restricted to 120 days or less.
(I) TAXES
It is the policy of the Fund to meet the requirements for qualification as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended ("Code"). It is also the intention of the Fund to make distributions
sufficient to avoid imposition of any excise tax under Section 4982 of the Code.
Therefore, no provision has been made for Federal taxes on income, capital
gains, and unrealized appreciation of securities held, or excise tax on income
and capital gains. The Fund currently has a capital loss carryforward of
$134,888,352 of which $54,472,976 expires in 2003 and $80,415,376 expires in
2006.
(J) DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded by the Fund on the ex-date. Income
and capital gain distributions are determined in accordance with Federal income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Fund and timing differences.
(K) DEFERRED ORGANIZATIONAL EXPENSES
Expenses incurred by the Fund in connection with its organization, its
registration with the Securities and Exchange Commission and with various states
aggregated $353,775. These expenses are being amortized on a straightline basis
over a five-year period.
(L) FOREIGN SECURITIES
There are certain additional considerations and risks associated with investing
in foreign securities and currency transactions that are not inherent in
investments of domestic origin. The Fund's investments in emerging market
countries may involve greater risks than investments in more developed markets
and the prices of such investments may be volatile. These risks of investing in
foreign and emerging markets may include foreign currency exchange rate
fluctuations, perceived credit risk, adverse political and economic developments
and possible adverse foreign government intervention.
(M) INDEXED SECURITIES
The Fund may invest in indexed securities whose value is linked either directly
or indirectly to changes in foreign currencies, interest rates, equities,
indices, or other reference instruments. Indexed securities may be more volatile
than the reference instrument itself, but any loss is limited to the amount of
the original investment.
(N) RESTRICTED SECURITIES
The Fund is permitted to invest in privately placed restricted securities. These
securities may be resold in transactions exempt from registration or to the
public if the securities are registered. Disposal of these securities may
involve time-consuming negotiations and expense, and prompt sale at an
acceptable price may be difficult.
(O) SECURITIES PURCHASED ON A WHEN-ISSUED OR FORWARD COMMITMENT BASIS
The Fund may trade securities on a when-issued or forward commitment basis, with
payment and delivery scheduled for a future date. These transactions are subject
to market fluctuations and are subject to the risk that the value at delivery
may be more or less than the trade date purchase price. Although the Fund will
generally purchase these securities with the intention of acquiring such
securities, they may sell such securities before the settlement date. These
securities are identified on the accompanying Portfolio of Investments. The Fund
has purchased and sold when-issued securities during the period and has set
aside liquid securities as collateral for these commitments.
(P) LINE OF CREDIT
The Fund, along with certain other funds advised and/or administered by the
Manager, has a line of credit with each of BankBoston and State Street Bank and
Trust Company. The arrangements with the banks allow the Fund and certain other
Funds to borrow, on a first come, first serve basis, an aggregate maximum amount
of $250,000,000. The Fund is limited to borrowing up to 33 1/3% of the value of
the Fund's total assets. On October 31, 1998, the Fund had no loans outstanding.
For the year ended October 31, 1998, the weighted average outstanding daily
balance of bank loans (based on the number of days the loans were outstanding)
was $7,855,160, with a weighted average interest rate of 6.29%. Interest expense
for the year ended October 31, 1998 was $308,816. Other interest expense charges
amounted to $50,819.
2. RELATED PARTIES
A I M Advisors, Inc. (the "Manager"), an indirect wholly-owned subsidiary of
AMVESCAP PLC, is the Fund's investment manager and administrator and INVESCO
(NY), Inc., (formerly, Chancellor LGT Asset Management, Inc.) is the Fund's
investment sub-advisor and sub-administrator. As of the close of business on May
29, 1998, Liechtenstein Global Trust AG ("LGT"), the former indirect parent
organization of Chancellor LGT Asset Management, Inc. ("Chancellor LGT")
consummated a purchase agreement with AMVESCAP PLC pursuant to which AMVESCAP
PLC acquired LGT's Asset Management Division, which included Chancellor LGT and
certain other affiliates. As a result of this transaction, Chancellor LGT was
renamed INVESCO (NY), Inc., and is now an indirect wholly-owned subsidiary of
AMVESCAP PLC. A I M Distributors, Inc. ("AIM Distributors"), a wholly-owned
subsidiary of the Manager, is the Fund's distributor as of the close of business
on May 29, 1998. The Trust was reorganized from a Maryland corporation into a
Delaware business trust on September 8, 1998. Finally, as of the close of
business on September 4, 1998, A I M Fund Services, Inc. ("AFS"), an affiliate
of the Manager and AIM Distributors, replaced GT Global Investor Services, Inc.
("GT Services") as the transfer agent of the Fund.
The Fund pays the Manager investment management and administration fees at the
annualized rate of 0.975% on the first $500 million of average daily net assets
of the Fund; 0.95% on the next $500 million; 0.925% on the next $500 million and
0.90% on amounts thereafter. These fees are computed daily and paid monthly.
AIM Distributors, an affiliate of the Manager, serves as the Fund's distributor.
For the period ended May 29, 1998, GT Global, Inc. ("GT Global"), an affiliate
of the investment sub-advisor, served as the Fund's distributor. The Fund offers
Class A, Class B, and Advisor Class shares for purchase.
FS-18
<PAGE> 563
Class A shares are subject to initial sales charges imposed at the time of
purchase, in accordance with the schedule included in the Fund's current
prospectus. AIM Distributors collects the sales charges imposed on sales of
Class A shares, and reallows a portion of such charges to dealers through which
the sales are made. For the year ended October 31, 1998, AIM Distributors and GT
Global retained sales charges of $819 and $0, respectively. Purchases of Class A
shares exceeding $1,000,000 may be subject to a contingent deferred sales charge
("CDSC") upon redemption, in accordance with the Fund's current prospectus. AIM
Distributors and GT Global collected CDSCs for the year ended October 31, 1998
of $2,664 and $0, respectively. AIM Distributors also makes ongoing shareholder
servicing and trail commission payments to dealers whose clients hold Class A
shares.
Class B shares are not subject to initial sales charges. When Class B shares are
sold, AIM Distributors, from its own resources, pays commissions to dealers
through which the sales are made. Certain redemptions of Class B shares made
within six years of purchase are subject to CDSCs, in accordance with the Fund's
current prospectus. For the year ended October 31, 1998, AIM Distributors and GT
Global collected CDSCs in the amount of $1,588 and $0, respectively. In
addition, AIM Distributors makes ongoing shareholder servicing and trail
commission payments to dealers whose clients hold Class B shares.
For the period ended May 29, 1998, pursuant to the then effective separate
distribution plans adopted under the 1940 Act Rule 12b-1 by the Trust's Board of
Trustees with respect to the Fund's Class A shares ("Class A Plan") and Class B
shares ("Class B Plan"), the Fund reimbursed GT Global for a portion of its
shareholder servicing and distribution expenses. Under the Class A Plan, the
Fund was permitted to pay GT Global a service fee at the annualized rate of up
to 0.25% of the average daily net assets of the Fund's Class A shares for GT
Global's expenditures incurred in servicing and maintaining shareholder
accounts, and was permitted to pay GT Global a distribution fee at the
annualized rate of up to 0.50% of the average daily net assets of the Fund's
Class A shares, less any amounts paid by the Fund as the aforementioned service
fee, for GT Global's expenditures incurred in providing services as distributor.
All expenses for which GT Global was reimbursed under the Class A Plan would
have been incurred within one year of such reimbursement.
For the period ended May 29, 1998, pursuant to the Class B Plan, the Fund was
permitted to pay GT Global a service fee at the annualized rate of up to 0.25%
of the average daily net assets of the Fund's Class B shares for GT Global's
expenditures incurred in servicing and maintaining shareholder accounts, and was
permitted to pay GT Global a distribution fee at the annualized rate of up to
0.75% of the average daily net assets of the Fund's Class B shares for GT
Global's expenditures incurred in providing services as distributor. Expenses
incurred under the Class B Plan in excess of 1.00% annually were permitted to be
carried forward for reimbursement in subsequent years as long as that Plan
continued in effect.
Effective as of the close of business May 29, 1998, pursuant to Rule 12b-1 under
the 1940 Act, the Trust's Board of Trustees adopted a Master Distribution Plan
applicable to the Fund's Class A shares ("Class A Plan") and Class B shares
("Class B Plan"), pursuant to which the Fund compensates AIM Distributors for
the purpose of financing any activity that is intended to result in the sale of
Class A or Class B shares of the Fund. Under the Class A Plan, the Fund
compensates AIM Distributors up to an annualized rate of 0.50% of the average
daily net assets of the Fund's Class A shares. Class A shares issued as a result
of the conversion of shares from the Predecessor Fund are limited to 0.25% of
the average daily net assets of the Fund's Class A shares. Under the Class B
Plan, the Fund compensates AIM Distributors at an annualized rate of 1.00% of
the average daily net assets of the Fund's Class B shares.
The Class A Plan and the Class B Plan (together, the "Plans") are designed to
compensate AIM Distributors for certain promotional and other sales-related
costs, and to implement a dealer incentive program that provides for periodic
payments to selected dealers who furnish continuing personal shareholder
services to their customers who purchase and own Class A and Class B shares of
the Fund. Payments also can be directed by AIM Distributors to financial
institutions who have entered into service agreements with respect to Class A
and Class B shares of the Fund and who provide continuing personal services to
their customers who own Class A and Class B shares of the Fund. The service fees
payable to selected financial 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 that were purchased on or after a
prescribed date set forth in the Plans.
The Manager and AIM Distributors voluntarily have undertaken to limit the Fund's
expenses (exclusive of brokerage commissions, taxes, interest, and extraordinary
expenses) to the maximum annual rate of 2.00%, 2.50%, and 1.50% of the average
daily net assets of the Fund's Class A, Class B, and Advisor Class shares,
respectively. If necessary, this limitation will be effected by the waivers by
the Manager of investment management and administration fees, waivers by AIM
Distributors of payments under the Class A Plan and/or Class B Plan and/or
reimbursements by the Manager or AIM Distributors of portions of the Fund's
other operating expenses.
Effective as of the close of business September 4, 1998, the Fund, pursuant to a
transfer agency and service agreement, has agreed to pay A I M Fund Services,
Inc. ("AFS") an annualized fee of $24.85 per shareholder accounts that are open
during any monthly period (this fee includes all out-of-pocket expenses), and an
annualized fee of $0.70 per shareholder account that is closed during any
monthly period. Both fees shall be billed by AFS monthly in arrears on a
prorated basis of 1/12 of the annualized fee for all such accounts.
For the period November 1, 1997 to September 4, 1998, GT Services, an affiliate
of the Manager and AIM Distributors, was the transfer agent of the Fund. For
performing shareholder servicing, reporting, and general transfer agent
services, GT Services received an annual maintenance fee of $17.50 per account,
a new account fee of $4.00 per account, a per transaction fee of $1.75 for all
transactions other than exchanges and a per exchange fee of $2.25. GT Services
also was reimbursed by the Fund for its out-of-pocket expenses for such items as
postage, forms, telephone charges, stationery and office supplies.
FS-19
<PAGE> 564
The Manager is the pricing and accounting agent for the Fund. The monthly fee
for these services paid to the Manager is a percentage, not to exceed 0.03%
annually, of the Fund's average daily net assets. The annual fee rate is derived
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% to 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.
The Trust pays each Trustee who is not an employee, officer or director of the
Manager, or any other affiliated company, $5,000 per year plus $300 for each
meeting of the board or any committee thereof attended by the Trustee.
3. PURCHASES AND SALES OF SECURITIES
For the year ended October 31, 1998, purchases and sales of investment
securities by the Fund, other than U.S. government obligations and short-term
investments, aggregated $202,780,180 and $438,952,561, respectively. For the
year ended October 31, 1998, purchases and sales of U.S. government obligations
aggregated $0 and $7,170,550, respectively.
4. CAPITAL SHARES
At October 31, 1998, there were 6,000,000,000 shares of the Trust's common stock
authorized, at $0.0001 par value. Of this amount, 400,000,000 were classified as
shares of the AIM Global Telecommunications Fund; 400,000,000 were classified as
shares of AIM Global Government Income Fund; 200,000,000 were classified as
shares of AIM Global Health Care Fund; 200,000,000 were classified as shares of
AIM Strategic Income Fund; 200,000,000 were classified as shares of AIM
Developing Markets Fund; 200,000,000 were classified as shares of GT Global
Currency Fund (inactive); 200,000,000 were classified as shares of AIM Global
Growth & Income Fund; 200,000,000 were classified as shares of GT Global Small
Companies Fund (inactive); 200,000,000 were classified as shares of AIM Latin
American Growth Fund; 200,000,000 were classified as shares of AIM Emerging
Markets Fund; 200,000,000 were classified as shares of AIM Emerging Markets Debt
Fund; 200,000,000 were classified as shares of AIM Global Financial Services
Fund; 200,000,000 were classified as shares of AIM Global Resources Fund;
200,000,000 were classified as shares of AIM Global Infrastructure Fund;
200,000,000 were classified as shares of AIM Global Consumer Products and
Services Fund. The shares of each of the foregoing series of the Trusts were
divided equally into two classes, designated Class A and Class B common stock.
With respect to the issuance of Advisor Class shares, 100,000,000 shares were
classified as shares of each of the fifteen series of the Trusts and designated
as Advisor Class common stock. 1,100,000,000 shares remain unclassified.
Transactions in capital shares of the Fund were as follows:
CAPITAL SHARE TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, 1998
--------------------------
CLASS A SHARES AMOUNT
- -------------------------------------------------- ----------- -------------
<S> <C> <C>
Shares sold....................................... 486,628 $ 5,011,027
Shares issued in connection with reinvestment of
distributions................................... 676,257 8,203,222
----------- -------------
1,162,885 13,214,249
Shares repurchased including those purchased in
connection with open ending of the Fund on
11/1/97*........................................ (25,963,398) (308,568,937)
----------- -------------
Net decrease...................................... (24,800,513) $(295,354,688)
----------- -------------
----------- -------------
<CAPTION>
CLASS B
- --------------------------------------------------
<S> <C> <C>
Shares sold....................................... 30,654 $ 314,666
Shares issued in connection with reinvestment of
distributions................................... 124 1,499
----------- -------------
30,778 316,165
Shares repurchased................................ (10,213) (89,300)
----------- -------------
Net increase...................................... 20,565 $ 226,865
----------- -------------
----------- -------------
<CAPTION>
ADVISOR CLASS
- --------------------------------------------------
<S> <C> <C>
Shares sold....................................... 4,782 $ 49,262
Shares issued in connection with reinvestment of
distributions................................... 4 46
----------- -------------
4,786 49,308
Shares repurchased................................ (909) (8,996)
----------- -------------
Net increase...................................... 3,877 $ 40,312
----------- -------------
----------- -------------
</TABLE>
- --------------
* The redemption amount for Class A is net of a 2% redemption fee of $4,945,536
incurred in the period from November 1, 1997 to May 1, 1998 in connection with
redemptions upon the open ending of the Fund.
FS-20
<PAGE> 565
5. EXPENSE REDUCTIONS
The Manager has directed certain portfolio trades to brokers who then paid a
portion of the Fund's expenses. For the year ended October 31, 1998, the Fund's
expenses were reduced by $41,663 under these arrangements.
6. ADDITIONAL INFORMATION
The Board of Trustees of AIM Investment Funds unanimously approved, on September
23, 1998, a Plan of Reorganization and Termination ("Plan") pursuant to which
AIM Emerging Markets Fund ("Emerging Markets Fund") would transfer substantially
all of its assets to the Fund. As a result of the transaction, shareholders of
the Emerging Markets Fund would receive shares of the Fund in exchange for their
shares of Emerging Markets Fund, and Emerging Markets Fund would cease
operations.
The Plan requires the approval of Emerging Markets Fund shareholders and will be
submitted to the shareholders for their consideration at a meeting to be held in
February 1999. If the Plan is approved by shareholders of Emerging Markets Fund
and certain conditions required by the Plan are satisfied, the transaction is
expected to become effective before the end of February 1999.
7. SUBSEQUENT EVENT (UNAUDITED)
Effective December 14, 1998, sub-advisory and sub-administration responsibility
for the Fund was transferred from INVESCO (NY), Inc. to INVESCO Asset Management
Ltd., another indirect wholly-owned subsidiary of AMVESCAP PLC. A I M Advisors,
Inc. will continue to serve as the manager and administrator of the Fund. The
transfer will not change the fees paid by A I M Advisors, Inc. for sub-advisory
services and will not change the nature of the sub-advisory services provided to
the Fund or the personnel providing such services.
8. PROXY RESULTS (UNAUDITED)
The Special Meeting of Shareholders of the G.T. Investment Funds, Inc. now known
as AIM Investment Funds (the "Trust") was held on May 20, 1998 at the Trust's
offices, 50 California Street, 26th Floor, San Francisco, California. The
meeting was held for the following purposes:
(1) To elect Directors as follows: C. Derek Anderson, Frank S. Bayley, William
J. Guilfoyle, Arthur C. Patterson, Ruth H. Quigley.
(2) To approve a new Investment Management and Administration Contract and
Sub-Advisory and Sub-Administration Contract with respect to each series of
the Trust (each, a "Fund," and collectively, the "Funds").
(3) To approve replacement Rule 12b-1 plans of distribution with respect to
Class A and B Shares of the Fund.
(4) To approve changes to the fundamental investment restrictions of the Fund.
(5) To approve an agreement and plan of conversion and termination for the
Trust.
(6) To ratify the selection of Coopers & Lybrand L.L.P., now known as
PricewaterhouseCoopers LLP, as the Trust's independent public accountants.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
VOTES WITHHELD/
TRUSTEE/MATTER VOTES FOR AGAINST ABSTENTIONS
------------------------------------------------------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
(1) C. Derek Anderson........................................... 191,685,088 N/A 13,123,292
Frank S. Bayley............................................. 191,766,811 N/A 13,041,568
William J. Guilfoyle........................................ 191,828,959 N/A 12,979,420
Arthur C. Patterson......................................... 191,845,270 N/A 12,963,109
Ruth H. Quigley............................................. 191,869,887 N/A 12,938,492
(2)(a) Approval of investment management and administration
contract................................................... 6,214,229 523,624 2,414,013*
(2)(b) Approval of sub-advisory and sub-administration contract.... 6,165,338 552,219 2,434,309*
(3) Approval of replacement Rule 12b-1 plans of distribution
CLASS A SHARES.............................................. 7,788,067 720,705 624,489
CLASS B SHARES.............................................. 15,702 N/A N/A
(4)(a) Modification of Fundamental Restriction on Concentration.... 6,156,539 548,114 2,447,213*
(4)(b) Modification of Fundamental Restrictions on Issuing Senior
Securities and Borrowing Money............................. 6,156,539 548,114 2,447,213*
(4)(c) Modification of Fundamental Restriction on Making Loans..... 6,156,539 548,114 2,447,213*
(4)(d) Modification of Fundamental Restriction on Underwriting
Securities................................................. 6,156,539 548,114 2,447,213*
(4)(e) Modification of Fundamental Restriction on Real Estate
Investments................................................ 6,156,539 548,114 2,447,213*
(4)(f) Modification of Fundamental Restriction on Investing in
Commodities................................................ 6,154,943 549,710 2,447,213*
(4)(g) Elimination of Fundamental Restriction on Margin
Transactions............................................... 6,154,943 549,710 2,447,213*
(4)(h) Elimination of Fundamental Restriction on Selling Securities
Short...................................................... 6,151,293 553,360 2,447,213*
</TABLE>
FS-21
<PAGE> 566
<TABLE>
<CAPTION>
VOTES WITHHELD/
TRUSTEE/MATTER VOTES FOR AGAINST ABSTENTIONS
------------------------------------------------------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
(4)(i) Approval of New Fundamental Investment Policy Regarding
Investment of All of Each Fund's in an Open-End Fund....... 6,156,539 548,114 2,447,213*
(5) Approval of an agreement and plan of conversion and
termination with respect to the Company.................... 190,027,469 6,362,084 94,055,040*
(6) Ratification of the selection of Coopers and Lybrand L.L.P.,
now known as PricewaterhouseCoopers LLP, as the Trust's
Independent Public Accountants............................. 191,358,779 2,114,168 11,333,063
</TABLE>
- ------------------------
* Includes Broker Non-Votes
- ------------------------
FEDERAL TAX INFORMATION (UNAUDITED):
For the fiscal year ended October 31, 1998, the amount of income received by the
Fund from sources within foreign countries and possessions of the United States
was $.852 per share (representing a total of $9,916,743). The amount of taxes
paid by the Fund to such countries for the fiscal year ended October 31, 1998
was $.03 per share (representing a total of $349,544). The following table
provides a breakdown by country of ordinary income dividends and foreign taxes
paid by the Fund during the fiscal year ended October 31, 1998:
<TABLE>
<CAPTION>
COUNTRY GROSS INCOME % FOREIGN TAX PAID %
- --------------------------------------------------------------------------------------- -------------- ------------------
<S> <C> <C>
Argentina.............................................................................. 4.34 --
Brazil................................................................................. 12.10 14.33
Bulgaria............................................................................... 1.54 --
Chile.................................................................................. 2.38 18.66
China.................................................................................. 1.81 --
Egypt.................................................................................. 9.02 1.18
Israel................................................................................. 1.43 8.94
Malaysia............................................................................... 0.50 2.33
Mexico................................................................................. 6.32 --
Pakistan............................................................................... 1.37 1.19
Peru................................................................................... 1.90 --
Philippines............................................................................ 0.35 1.26
Russia................................................................................. 34.21 --
South Africa........................................................................... 5.64 --
Taiwan................................................................................. 0.44 3.86
Thailand............................................................................... 0.07 33.73
Turkey................................................................................. 1.75 --
Various................................................................................ 8.45 2.62
-------------- --------
93.62 88.10
Nonqualifying.......................................................................... 1.54 11.90
United States.......................................................................... 4.84 --
-------------- --------
100.00% 100.00%
-------------- --------
-------------- --------
</TABLE>
Information needed by shareholders to prepare their 1998 federal income tax
return will be provided with the annual 1099 information in January 1999.
FS-22
<PAGE> 567
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders of AIM Latin American Growth Fund (formerly GT Global Latin
America Growth Fund) and Board of Trustees of AIM Investment Funds (formerly
G.T. Investment Funds, Inc.):
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Latin American Growth Fund
at October 31, 1998, and the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
------------------------------
PRICEWATERHOUSECOOPERS LLP
BOSTON, MASSACHUSETTS
DECEMBER 18, 1998
FS-23
<PAGE> 568
PORTFOLIO OF INVESTMENTS
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Services (28.0%)
Telecomunicacoes Brasileiras S.A. (Telebras): ............. BRZL -- -- 4.5
TELEPHONE NETWORKS
ADR{\/} ................................................. -- 64,040 $ 4,863,038 --
Common .................................................. -- 86,027,027 8,655 --
Nortel Inversora S.A. - ADR{\/} ........................... ARG 187,700 4,176,325 3.9
TELEPHONE NETWORKS
Carso Global Telecom "A1" ................................. MEX 1,227,000 3,339,850 3.1
TELEPHONE NETWORKS
Grupo Televisa, S.A. de C.V. - GDR-/- {\/} ................ MEX 105,600 2,864,400 2.7
BROADCASTING & PUBLISHING
Companhia de Saneamento Basico do Estado de Sao Paulo -
SABESP ................................................... BRZL 26,766,622 2,154,255 2.0
BUSINESS & PUBLIC SERVICES
Telecomunicacoes de Sao Paulo S.A. (TELESP): .............. BRZL -- -- 1.9
TELEPHONE - REGIONAL/LOCAL
Common-/- ............................................... -- 18,256,100 1,982,183 --
Preferred ............................................... -- 715,813 120,022 --
Telefonica de Argentina S.A. - ADR{\/} .................... ARG 56,200 1,858,113 1.7
TELEPHONE NETWORKS
Telesp Participacoes S.A.-/- .............................. BRZL 86,027,027 1,543,409 1.4
TELEPHONE - REGIONAL/LOCAL
Controladora Comercial Mexicana, S.A. de C.V. - UBC[.] .... MEX 2,110,000 1,336,633 1.2
RETAILERS-FOOD
Supermercados Unimarc S.A. - ADR (Chile){\/} .............. CHLE 207,200 712,249 0.7
RETAILERS-FOOD
Companhia Brasileira de Distribuicao Grupo Pao de Acucar -
ADR{\/} .................................................. BRZL 42,978 693,020 0.6
RETAILERS-FOOD
Embratel Participacoes S.A.-/- ............................ BRZL 86,027,027 663,522 0.6
TELEPHONE - LONG DISTANCE
Telesp Celulars S.A.: ..................................... BRL -- -- 0.6
WIRELESS COMMUNICATIONS
Preferred "B" ........................................... -- 6,373,727 315,267 --
Common .................................................. -- 12,531,500 273,155 --
Tele Norte Leste Participacoes S.A.-/- .................... BRZL 86,027,027 483,217 0.5
TELEPHONE - REGIONAL/LOCAL
Grupo Posadas S.A.: ....................................... MEX -- -- 0.5
LEISURE & TOURISM
"L"-/- .................................................. -- 752,300 275,513 --
"A"-/- .................................................. -- 471,000 177,155 --
Telerj Celular S.A. "B" Preferred-/- ...................... BRZL 14,509,681 450,082 0.4
WIRELESS COMMUNICATIONS
Tele Centro Sul Participacoes S.A.-/- ..................... BRZL 86,027,027 396,671 0.4
TELEPHONE - REGIONAL/LOCAL
El Puerto de Liverpool, S.A. de C.V. ...................... MEX 283,200 364,407 0.3
RETAILERS-OTHER
Telesp Celular Participacoes S.A.-/- ...................... BRZL 86,027,027 280,554 0.3
WIRELESS COMMUNICATIONS
Cintra S.A. ............................................... MEX 393,300 233,574 0.2
TRANSPORTATION - AIRLINES
Santa Isabel S.A. - ADR{\/} ............................... CHLE 36,684 213,226 0.2
RETAILERS-FOOD
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-24
<PAGE> 569
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Services (Continued)
Tele Sudeste Celular Participacoes S.A.-/- ................ BRZL 86,027,027 $ 165,880 0.2
WIRELESS COMMUNICATIONS
Tele Celular Sul Participacoes S.A.-/- .................... BRZL 86,027,027 54,813 0.1
WIRELESS COMMUNICATIONS
Tele Centro Oeste Celular Participacoes S.A.-/- ........... BRZL 86,027,027 54,091 --
WIRELESS COMMUNICATIONS
Telemig Celular Participacoes S.A.-/- ..................... BRZL 86,027,027 52,649 --
WIRELESS COMMUNICATIONS
Tele Nordeste Celular Participacoes S.A.-/- ............... BRZL 86,027,027 32,455 --
WIRELESS COMMUNICATIONS
Tele Leste Celular Participacoes S.A.-/- .................. BRZL 86,027,027 26,685 --
WIRELESS COMMUNICATIONS
Tele Norte Celular Participacoes S.A.-/- .................. BRZL 86,027,027 17,309 --
WIRELESS COMMUNICATIONS
------------
30,182,377
------------
Energy (20.3%)
Petroleo Brasileiro S.A. (Petrobras) Preferred ............ BRZL 41,660,500 5,238,996 4.9
OIL
Companhia Energetica de Minas Gerais (CEMIG) - ADR{\/} .... BRZL 130,006 2,518,863 2.3
ELECTRICAL & GAS UTILITIES
Enersis S.A. - ADR{\/} .................................... CHLE 93,200 1,945,550 1.8
ELECTRICAL & GAS UTILITIES
Companhia Paranaense de Energia - Copel ................... BRZL -- -- 1.8
ELECTRICAL & GAS UTILITIES
"ADR"{\/} ............................................... -- 162,200 1,257,050 --
Common-/- ............................................... -- 103,347,000 633,356 --
Gener S.A. - ADR{\/} ...................................... CHLE 102,819 1,657,956 1.5
ELECTRICAL & GAS UTILITIES
Companhia de Eletricidade do Estado da Bahia - COELBA ..... BRZL 51,530,000 1,641,633 1.5
ELECTRICAL & GAS UTILITIES
Empresa Nacional de Electricidad S.A. - ADR{\/} ........... CHLE 115,900 1,151,756 1.1
ELECTRICAL & GAS UTILITIES
Harken Energy Corp.-/- .................................... US 334,670 1,150,428 1.1
OIL
C.A. La Electricidad de Caracas ........................... VENZ 3,991,353 1,134,107 1.1
ELECTRICAL & GAS UTILITIES
Eletropaulo Metropolitana Preferred ....................... BRZL 30,003,180 1,011,174 0.9
ELECTRICAL & GAS UTILITIES
Companhia Brasileira de Petroleo Ipiranga S.A.
Preferred ................................................ BRZL 173,785,000 932,448 0.9
GAS
Light - Servicos de Electricidade S.A. .................... BRZL 6,310,000 782,931 0.7
ELECTRICAL & GAS UTILITIES
Companhia Paulista de Forca e Luz ......................... BRZL -- -- 0.4
ELECTRICAL & GAS UTILITIES
Common-/- ............................................... -- 5,030,000 421,697 --
Preferred-/- ............................................ -- 21,438 1,258 --
Centrais Geradoras do Sul do Brasil S.A. (Gerasul): ....... BRZL -- -- 0.2
ELECTRICAL & GAS UTILITIES
Preferred-/- ............................................ -- 108,069,830 122,312 --
Common-/- ............................................... -- 87,753,000 89,754 --
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-25
<PAGE> 570
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Energy (Continued)
Empresa Bandeirante de Energia S.A.-/- .................... BRZL 14,986,180 $ 145,615 0.1
ELECTRICAL & GAS UTILITIES
------------
21,836,884
------------
Finance (12.8%)
Uniao de Bancos Brasileiros S.A. (Unibanco) Units{=} ...... BRZL 80,014,700 2,626,237 2.4
BANKS-MONEY CENTER
Banco Rio de La Plata S.A. - ADR{\/} ...................... ARG 247,200 2,224,800 2.1
BANKS-MONEY CENTER
Administradora de Fondos de Pensiones Provida S.A. -
ADR{\/} .................................................. CHLE 117,400 1,665,613 1.5
INVESTMENT MANAGEMENT
Banco de Galicia y Buenos Aires, S.A. de C.V. - ADR{\/} ... ARG 94,520 1,612,748 1.5
BANKS-MONEY CENTER
Banco LatinoAmericano de Exportaciones S.A. (Bladex)
"E"{\/} .................................................. PAN 57,597 1,249,135 1.2
OTHER FINANCIAL
Grupo Financiero Banorte, S.A. de C.V. "B"-/- ............. MEX 1,898,671 1,157,657 1.1
BANKS-SUPER REGIONAL
Grupo Financiero Banamex Accival, S.A. de C.V. "B"-/- ..... MEX 906,700 942,329 0.9
BANKS-MONEY CENTER
Inversiones y Representaciones S.A. (IRSA) - GDR{\/} ...... ARG 32,700 846,113 0.8
REAL ESTATE
Credicorp Ltd. - ADR{\/} .................................. PERU 94,682 639,104 0.6
BANKS-MONEY CENTER
Banco de A. Edwards - ADR{\/} ............................. CHLE 59,880 538,920 0.5
BANKS-MONEY CENTER
Banco Wiese - ADR{\/} ..................................... PERU 131,400 238,163 0.2
BANKS-MONEY CENTER
------------
13,740,819
------------
Materials/Basic Industry (12.7%)
Sociedad Quimica y Minera de Chile S.A. - ADR{\/} ......... CHLE 95,100 3,162,075 2.9
CHEMICALS
Companhia Vale do Rio Doce "A" Preferred .................. BRZL 160,703 2,425,096 2.2
METALS - STEEL
Industrias Penoles S.A. (CP) .............................. MEX 634,600 1,940,922 1.8
METALS - NON-FERROUS
Apasco, S.A. de C.V. ...................................... MEX 523,000 1,915,372 1.8
CEMENT
Grupo Cementos de Chihuahua, S.A. de C.V. "B" ............. MEX 1,362,500 730,946 0.7
CEMENT
Compania de Minas Buenaventura S.A. - ADR{\/} ............. PERU 51,300 628,425 0.6
GOLD
Siderca S.A. "A" .......................................... ARG 443,400 620,946 0.6
METALS - STEEL
Grupo Mexico S.A. "B" ..................................... MEX 235,824 599,889 0.6
METALS - NON-FERROUS
Votorantim Celulose e Papel S.A. .......................... BRZL 57,900,000 509,683 0.5
PAPER/PACKAGING
Usinas Siderurgicas de Minas Gerais S.A. - USIMINAS ....... BRZL 160,300 505,305 0.5
METALS - STEEL
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-26
<PAGE> 571
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Materials/Basic Industry (Continued)
Caemi Mineracao e Metalurgia S.A. Preferred ............... BRZL 12,750,000 $ 272,573 0.2
METALS - STEEL
Venezolana de Cementos, S.A.C.A.: ......................... VENZ -- -- 0.2
CEMENT
"A" ..................................................... -- 521,635 156,261 --
"B" ..................................................... -- 344,828 94,182 --
Companhia Cimento Portland Itau Preferred ................. BRZL 650,000 87,190 0.1
CEMENT
------------
13,648,865
------------
Consumer Non-Durables (12.5%)
Fomento Economico Mexicano, S.A. de C.V. - ADR{\/} ........ MEX 165,450 4,312,041 4.0
BEVERAGES - NON-ALCOHOLIC
Kimberly-Clark de Mexico, S.A. de C.V. "A" ................ MEX 825,600 2,418,862 2.3
PERSONAL CARE/COSMETICS
Compania Cervecerias Unidas S.A. - ADR{\/} ................ CHLE 105,400 1,897,200 1.8
BEVERAGES - ALCOHOLIC
Companhia de Tecidos Norte de Minas Preferred ............. BRZL 11,622,000 1,344,598 1.2
TEXTILES & APPAREL
Quilmes Industrial S.A. - ADR{\/} ......................... ARG 126,098 1,158,525 1.1
BEVERAGES - ALCOHOLIC
Grupo Industrial Maseca, S.A. de C.V. "B" ................. MEX 1,298,000 1,053,509 1.0
FOOD
Pepsi-Gemex S.A. - GDR{\/} ................................ MEX 122,800 798,200 0.7
BEVERAGES - NON-ALCOHOLIC
Embotelladora Andina S.A. "B" - ADR{\/} ................... CHLE 37,800 444,150 0.4
BEVERAGES - NON-ALCOHOLIC
Sudamtex de Venezuela "B" - ADR{\/} ....................... VENZ 34,764 34,764 --
TEXTILES & APPAREL
Cerveceria Backus & Johnston S.A. "T" ..................... PERU 87,469 31,086 --
BEVERAGES - ALCOHOLIC
------------
13,492,935
------------
Multi-Industry/Miscellaneous (7.9%)
Grupo Carso, S.A. de C.V. "A1" ............................ MEX 879,800 3,047,907 2.8
MULTI-INDUSTRY
Itausa Investimentos Itau S.A. Preferred .................. BRZL 3,749,289 1,980,258 1.8
MULTI-INDUSTRY
Alfa, S.A. de C.V. "A" .................................... MEX 645,100 1,724,013 1.6
CONGLOMERATE
Desc, S.A. de C.V. - ADR{\/} .............................. MEX 83,440 1,574,930 1.5
CONGLOMERATE
Quinenco S.A. - ADR{\/} ................................... CHLE 29,900 216,775 0.2
CONGLOMERATE
------------
8,543,883
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-27
<PAGE> 572
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Capital Goods (0.9%)
ARA, S.A. de C.V.-/- ...................................... MEX 230,000 $ 505,394 0.5
CONSTRUCTION
Corporacion GEO, S.A. de C.V. "B"-/- ...................... MEX 271,000 469,415 0.4
CONSTRUCTION
------------
974,809
------------
Consumer Durables (0.6%)
Sanluis Corporacion, S.A. de C.V. ......................... MEX 455,500 652,840 0.6
AUTO PARTS
------------ -----
TOTAL EQUITY INVESTMENTS (cost $166,683,412) ................ 103,073,412 95.7
------------ -----
<CAPTION>
NO. OF VALUE % OF NET
RIGHTS RIGHTS (NOTE 1) ASSETS
- ------------------------------------------------------------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Companhia Paulista de Forca e Luz Preferred Rights, expire
November 5, 1998 (cost $0) .............................. 12,350 147 --
------------ -----
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Corporate Bonds (0.0%)
Brazil (0.0%)
Companhia Vale do Rio Doce - Non Convertible (cost
$0) .................................................... BRL 276,400 -- --
------------ -----
<CAPTION>
VALUE % OF NET
REPURCHASE AGREEMENT (NOTE 1) ASSETS
- ------------------------------------------------------------- ------------ -------------
<S> <C> <C> <C> <C>
Dated October 30, 1998, with State Street Bank & Trust Co.,
due November 2, 1998, for an effective yield of 5.30%,
collateralized by $200,000 U.S. Treasury Notes, 9.125% due
5/15/99 (market value of collateral is $213,250, including
accrued interest). (cost $205,000) ....................... 205,000 0.2
------------ -----
TOTAL INVESTMENTS (cost $166,888,412) * .................... 103,278,559 95.9
Other Assets and Liabilities ................................ 4,405,348 4.1
------------ -----
NET ASSETS .................................................. $107,683,907 100.0
------------ -----
------------ -----
</TABLE>
- --------------
-/- Non-income producing security.
{\/} U.S. currency denominated.
[.] Each unit represents 3 "B" shares and 1 "C" share.
{=} Each unit represents one preferred share of Unibanco and one
preferred "B" share of Unibanco Holdings.
* For Federal income tax purposes, cost is $169,023,946 and
appreciation (depreciation) is as follows:
<TABLE>
<S> <C>
Unrealized appreciation: $ 1,252,923
Unrealized depreciation: (66,998,310)
-------------
Net unrealized depreciation: $ (65,745,387)
-------------
-------------
</TABLE>
Abbreviation:
ADR--American Depositary Receipt
GDR--Global Depositary Receipt
The accompanying notes are an integral part of the financial statements.
FS-28
<PAGE> 573
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
The Fund's Portfolio of Investments at October 31, 1998, was concentrated in the
following countries:
<TABLE>
<CAPTION>
PERCENTAGE OF NET ASSETS
{D}
---------------------------
SHORT-TERM
COUNTRY (COUNTRY CODE/CURRENCY CODE) EQUITY & OTHER TOTAL
- -------------------------------------- ------ ---------- -----
<S> <C> <C> <C>
Argentina (ARG/ARS) .................. 11.7 11.7
Brazil (BRZL/BRL) .................... 36.2 36.2
Chile (CHLE/CLP) ..................... 12.6 12.6
Mexico (MEX/MXN) ..................... 30.2 30.2
Panama (PAN/PND) ..................... 1.2 1.2
Peru (PERU/PES) ...................... 1.4 1.4
United States (US/USD) ............... 1.1 4.3 5.4
Venezuela (VENZ/VEB) ................. 1.3 1.3
------ --- -----
Total ............................... 95.7 4.3 100.0
------ --- -----
------ --- -----
</TABLE>
- --------------
{d} Percentages indicated are based on net assets of $107,683,907.
The accompanying notes are an integral part of the financial statements.
FS-29
<PAGE> 574
STATEMENT OF ASSETS
AND LIABILITIES
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at value (cost $166,888,412) (Note 1)................................. $103,278,559
U.S. currency.................................................................................... 593
Receivable for Fund shares sold.................................................................. 5,053,642
Dividends receivable............................................................................. 796,039
Receivable for securities sold................................................................... 294,094
Interest receivable.............................................................................. 60
------------
Total assets................................................................................... 109,422,987
------------
Liabilities:
Payable for Fund shares repurchased.............................................................. 937,281
Payable for investment management and administration fees (Note 2)............................... 395,486
Payable for service and distribution expenses (Note 2)........................................... 164,858
Payable for transfer agent fees (Note 2)......................................................... 100,718
Payable for professional fees.................................................................... 47,847
Payable for registration and filing fees......................................................... 35,645
Payable for printing and postage expenses........................................................ 23,375
Payable for custodian fees....................................................................... 22,360
Payable for Trustees' fees and expenses (Note 2)................................................. 1,483
Payable for fund accounting fees (Note 2)........................................................ 100
Other accrued expenses........................................................................... 9,927
------------
Total liabilities.............................................................................. 1,739,080
------------
Net assets......................................................................................... $107,683,907
------------
------------
Class A:
Net asset value and redemption price per share ($60,719,898 DIVIDED BY 5,191,631 shares
outstanding)...................................................................................... $ 11.70
------------
------------
Maximum offering price per share (100/95.25 of $11.70) *........................................... $ 12.28
------------
------------
Class B:+
Net asset value and offering price per share ($46,599,065 DIVIDED BY 4,055,494 shares
outstanding)...................................................................................... $ 11.49
------------
------------
Advisor Class:
Net asset value, offering price per share, and redemption price per share ($364,944 DIVIDED BY
31,167 shares outstanding)........................................................................ $ 11.71
------------
------------
Net assets consist of:
Paid in capital.................................................................................. $204,122,934
Undistributed net investment income.............................................................. 831,995
Accumulated net realized loss on investments and foreign currency transactions................... (33,630,013)
Net unrealized depreciation on translation of assets and liabilities in foreign currencies....... (31,156)
Net unrealized depreciation of investments....................................................... (63,609,853)
------------
Total -- representing net assets applicable to capital shares outstanding.......................... $107,683,907
------------
------------
<FN>
- --------------
* On sales of $50,000 or more, the offering price is reduced.
+ Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-30
<PAGE> 575
STATEMENT OF OPERATIONS
Year ended October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment income: (Note 1)
Dividend income (net of foreign withholding tax of $574,241)............................... $ 5,834,403
Securities lending income.................................................................. 196,393
Interest income............................................................................ 133,008
------------
Total investment income.................................................................. 6,163,804
------------
Expenses:
Investment management and administration fees (Note 2)..................................... 2,036,326
Service and distribution expenses: (Note 2)
Class A.................................................................... $ 560,118
Class B.................................................................... 959,894 1,520,012
------------
Transfer agent fees (Note 2)............................................................... 800,000
Interest expense........................................................................... 350,276
Printing and postage expenses.............................................................. 193,815
Professional fees.......................................................................... 124,425
Custodian fees............................................................................. 105,785
Registration and filing fees............................................................... 90,950
Fund accounting fees (Note 2).............................................................. 55,950
Trustees' fees and expenses (Note 2)....................................................... 10,585
Other expenses............................................................................. 20,281
------------
Total expenses before reimbursement...................................................... 5,308,405
------------
Expenses reimbursed by A I M Advisors, Inc............................................. (297,829)
------------
Total net expenses....................................................................... 5,010,576
------------
Net investment income........................................................................ 1,153,228
------------
Net realized and unrealized loss on investments and foreign currencies:
Net realized loss on investments............................................. (18,439,149)
Net realized loss on foreign currency transactions........................... (276,597)
------------
Net realized loss during the year........................................................ (18,715,746)
Net change in unrealized depreciation on translation of assets and
liabilities in foreign currencies........................................... (24,435)
Net change in unrealized depreciation of investments......................... (54,450,981)
------------
Net unrealized depreciation during the year.............................................. (54,475,416)
------------
Net realized and unrealized loss on investments and foreign currencies....................... (73,191,162)
------------
Net decrease in net assets resulting from operations......................................... $(72,037,934)
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-31
<PAGE> 576
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997
---------------- ----------------
<S> <C> <C>
Decrease in net assets
Operations:
Net investment income..................................................... $ 1,153,228 $ 1,116,958
Net realized gain (loss) on investments and foreign currency
transactions............................................................. (18,715,746) 84,545,615
Net change in unrealized appreciation (depreciation) on translation of
assets and liabilities in foreign currencies............................. (24,435) 25,640
Net change in unrealized depreciation of investments...................... (54,450,981) (47,707,162)
---------------- ----------------
Net increase (decrease) in net assets resulting from operations......... (72,037,934) 37,981,051
---------------- ----------------
Class A:
Distributions to shareholders: (Note 1)
From net investment income................................................ (219,544) --
Advisor Class:
Distributions to shareholders: (Note 1)
From net investment income................................................ (5,514) --
---------------- ----------------
Total distributions..................................................... (225,058) --
---------------- ----------------
Capital share transactions: (Note 4)
Increase from capital shares sold and reinvested.......................... 771,991,302 1,267,100,757
Decrease from capital shares repurchased.................................. (885,624,465) (1,327,093,718)
---------------- ----------------
Net decrease from capital share transactions............................ (113,633,163) (59,992,961)
---------------- ----------------
Total decrease in net assets................................................ (185,896,155) (22,011,910)
Net assets:
Beginning of year......................................................... 293,580,062 315,591,972
---------------- ----------------
End of year *............................................................. $ 107,683,907 $ 293,580,062
---------------- ----------------
---------------- ----------------
* Includes undistributed net investment income of:......................... $ 831,995 $ 219,672
---------------- ----------------
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-32
<PAGE> 577
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1998 (d) 1997 (d) 1996 (d) 1995 (d) 1994 (d)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 19.50 $ 17.95 $ 15.38 $ 26.11 $ 19.78
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income (loss).......... 0.13* 0.11 0.09 0.15 (0.08)
Net realized and unrealized gain
(loss) on investments................ (7.90) 1.44 2.59 (9.28) 6.75
---------- ---------- ---------- ---------- ----------
Net increase (decrease) from
investment operations.............. (7.77) 1.55 2.68 (9.13) 6.67
---------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income............ (0.03) -- (0.08) -- (0.19)
From net realized gain on
investments.......................... -- -- -- (1.60) (0.15)
In excess of net investment income.... -- -- (0.03) -- --
---------- ---------- ---------- ---------- ----------
Total distributions..................... (0.03) -- (0.11) (1.60) (0.34)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 11.70 $ 19.50 $ 17.95 $ 15.38 $ 26.11
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return (c)............. (39.86)% 8.52% 17.52% (37.16)% 34.10%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 60,720 $ 159,496 $ 177,373 $ 182,462 $ 336,960
Ratio of net investment income (loss) to
average net assets:
With expense reductions and/or
reimbursement (Note 2)............... 0.78% 0.52% 0.46% 0.86% (0.29)%
Without expense reductions and/or
reimbursement........................ 0.64% 0.42% 0.39% 0.85% N/A
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions and/or
reimbursement (Note 2)............... 2.00% 1.96% 2.03% 2.11% 2.04%
Without expense reductions and/or
reimbursement........................ 2.14% 2.06% 2.10% 2.12% N/A
Ratio of interest expenses to average
net assets++........................... 0.17% N/A N/A N/A N/A
Portfolio turnover rate++............... 39% 130% 101% 125% 155%
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
* Before reimbursement the net investment income per share would have
been reduced by $0.02 for Class A, B, and Advisor.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates and ratio of interest expense to average net
assets are calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-33
<PAGE> 578
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1998 (d) 1997 (d) 1996 (d) 1995 (d) 1994 (d)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 19.23 $ 17.78 $ 15.21 $ 25.94 $ 19.75
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income (loss).......... 0.04* 0.01 (0.00) 0.06 (0.22)
Net realized and unrealized gain
(loss) on investments................ (7.78) 1.44 2.59 (9.19) 6.74
---------- ---------- ---------- ---------- ----------
Net increase (decrease) from
investment operations.............. (7.74) 1.45 2.59 (9.13) 6.52
---------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income............ -- -- (0.01) -- (0.18)
From net realized gain on
investments.......................... -- -- -- (1.60) (0.15)
In excess of net investment income.... -- -- (0.01) -- --
---------- ---------- ---------- ---------- ----------
Total distributions..................... -- -- (0.02) (1.60) (0.33)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 11.49 $ 19.23 $ 17.78 $ 15.21 $ 25.94
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return (c)............. (40.19)% 8.04% 17.02% (37.42)% 33.33%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 46,599 $ 133,448 $ 137,400 $ 134,527 $ 211,673
Ratio of net investment income (loss) to
average net assets:
With expense reductions and/or
reimbursement (Note 2)............... 0.28% 0.02% (0.04)% 0.36% (0.79)%
Without expense reductions and/or
reimbursement........................ 0.14% (0.08)% (0.11)% 0.35% N/A
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions and/or
reimbursement (Note 2)............... 2.50% 2.46% 2.53% 2.61% 2.54%
Without expense reductions and/or
reimbursement........................ 2.64% 2.56% 2.60% 2.62% N/A
Ratio of interest expenses to average
net assets++........................... 0.17% N/A N/A N/A N/A
Portfolio turnover rate++............... 39% 130% 101% 125% 155%
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
* Before reimbursement the net investment income per share would have
been reduced by $0.02 for Class A, B, and Advisor.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates and ratio of interest expense to average net
assets are calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-34
<PAGE> 579
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
ADVISOR CLASS+
----------------------------------------------------
YEAR YEAR ENDED OCTOBER 31, JUNE 1, 1995
ENDED TO
OCTOBER 31, ------------------------ OCTOBER 31,
1998 (d) 1997 (d) 1996 (d) 1995
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 19.57 $ 17.94 $ 15.40 $ 15.95
----------- ----------- ----------- -------------
Income from investment operations:
Net investment income (loss).......... 0.21* 0.19 0.17 0.09
Net realized and unrealized gain
(loss) on investments................ (7.92) 1.44 2.58 (0.64)
----------- ----------- ----------- -------------
Net increase (decrease) from
investment operations.............. (7.71) 1.63 2.75 (0.55)
----------- ----------- ----------- -------------
Distributions to shareholders:
From net investment income............ (0.15) -- (0.14) --
From net realized gain on
investments.......................... -- -- -- --
In excess of net investment income.... -- -- (0.07) --
----------- ----------- ----------- -------------
Total distributions..................... (0.15) -- (0.21) --
----------- ----------- ----------- -------------
Net asset value, end of period.......... $ 11.71 $ 19.57 $ 17.94 $ 15.40
----------- ----------- ----------- -------------
----------- ----------- ----------- -------------
Total investment return (c)............. (39.67)% 8.91% 18.16% (3.45)%(b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 365 $ 636 $ 818 $ 369
Ratio of net investment income (loss) to
average net assets:
With expense reductions and/or
reimbursement (Note 2)............... 1.28% 1.02% 0.96% 1.36%(a)
Without expense reductions and/or
reimbursement........................ 1.14% 0.92% 0.89% 1.35%(a)
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions and/or
reimbursement (Note 2)............... 1.50% 1.46% 1.53% 1.61%(a)
Without expense reductions and/or
reimbursement........................ 1.64% 1.56% 1.60% 1.62%(a)
Ratio of interest expenses to average
net assets++........................... 0.17% N/A N/A N/A
Portfolio turnover rate++............... 39% 130% 101% 125%
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
* Before reimbursement the net investment income per share would have
been reduced by $0.02 for Class A, B, and Advisor.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates and ratio of interest expense to average net
assets are calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-35
<PAGE> 580
NOTES TO
FINANCIAL STATEMENTS
October 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (SEE ALSO NOTE 2)
AIM Latin American Growth Fund ( the "Fund"), formerly GT Global Latin American
Growth Fund, is a separate series of AIM Investment Funds (the "Trust"),
formerly GT Investment Funds, Inc. The Trust is organized as a Delaware business
trust and is registered under the Investment Company Act of 1940, as amended
("1940 Act"), as a non-diversified, open-end management investment company. The
Trust has thirteen series of shares in operation, each series corresponding to a
distinct portfolio of investments.
The Fund offers Class A, Class B, and Advisor Class shares, each of which has
equal rights as to assets and voting privileges. Class A and Class B each has
exclusive voting rights with respect to its distribution plan. Investment
income, realized and unrealized capital gains and losses, and the common
expenses of the Fund are allocated on a pro rata basis to each class based on
the relative net assets of each class to the total net assets of the Fund. Each
class of shares differs in its respective service and distribution expenses, and
may differ in its transfer agent, registration, and certain other class-specific
fees and expenses.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies in conformity with generally accepted accounting
principles consistently followed by the Fund in the preparation of the financial
statements.
(A) PORTFOLIO VALUATION
The Fund calculates the net asset value of and completes orders to purchase,
exchange or repurchase Fund shares on each business day, with the exception of
those days on which the New York Stock Exchange is closed.
Equity securities are valued at the last sale price on the exchange on which
such securities are traded, or on the principal over-the-counter market on which
such securities are traded, as of the close of business on the day the
securities are being valued, or, lacking any sales, at the last available bid
price. In cases where securities are traded on more than one exchange, the
securities are valued on the exchange determined by A I M Advisors, Inc. ("the
Manager") to be the primary market.
Fixed income investments are valued at the mean of representative quoted bid and
ask prices for such investments or, if such prices are not available, at prices
for investments of comparative maturity, quality and type; however, when the
Manager deems it appropriate, prices obtained for the day of valuation from a
bond pricing service will be used. Short-term investments with maturity of 60
days or less are valued at amortized cost adjusted for foreign exchange
translation and market fluctuation, if any.
Investments for which market quotations are not readily available (including
restricted securities which are subject to limitations on their sale) are valued
at fair value as determined in good faith by or under the direction of the
Trust's Board of Trustees.
Portfolio securities which are primarily traded on foreign exchanges are
generally valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S. dollars at
the current exchange rates, except that when an occurrence subsequent to the
time a value was so established is likely to have materially changed such value,
then the fair value of those securities will be determined by consideration of
other factors by or under the direction of the Trust's Board of Trustees.
(B) FOREIGN CURRENCY TRANSLATION
The accounting records are maintained in U.S. dollars. The market values of
foreign securities, currency holdings, and other assets and liabilities are
recorded in the books and records of the Fund after translation to U.S. dollars
based on the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are translated at
prevailing exchange rates when earned or incurred.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, forward foreign currency contracts, sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the differences between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities other than investments in securities at year
end, resulting from changes in exchange rates.
(C) REPURCHASE AGREEMENTS
With respect to repurchase agreements entered into by the Fund, it is the Fund's
policy to always receive, as collateral, United States government securities or
other high quality debt securities of which the value, including accrued
interest, is at least equal to the amount to be repaid to the Fund under each
agreement at its maturity.
(D) FORWARD FOREIGN CURRENCY CONTRACTS
A forward foreign currency contract ("Forward Contract") is an agreement between
two parties to buy and sell a currency at a set price on a future date. The
market value of the Forward Contract fluctuates with changes in currency
exchange rates. The Forward
FS-36
<PAGE> 581
Contract is marked-to-market daily and the change in market value is recorded by
the Fund as an unrealized gain or loss. When the Forward Contract is closed, the
Fund records a realized gain or loss equal to the difference between the value
at the time it was opened and the value at the time it was closed. Forward
Contracts involve market risk in excess of the amount shown in the Fund's
"Statement of Assets and Liabilities." The Fund could be exposed to risk if a
counterparty is unable to meet the terms of the contract or if the value of the
currency changes unfavorably. The Fund may enter into Forward Contracts in
connection with planned purchases or sales of securities, or to hedge against
adverse fluctuations in exchange rates between currencies.
(E) OPTION ACCOUNTING PRINCIPLES
When the Fund writes a call or put option, an amount equal to the premium
received is included in the Fund's "Statement of Assets and Liabilities" as an
asset and an equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option. The current
market value of an option listed on a traded exchange is valued at its last bid
price, or, in the case of an over-the-counter option, is valued at the average
of the last bid prices obtained from brokers. If an option expires on its
stipulated expiration date or if the Fund enters into a closing purchase
transaction, a gain or loss is realized without regard to any unrealized gain or
loss on the underlying security, and the liability related to such option is
extinguished. If a written call option is exercised, a gain or loss is realized
from the sale of the underlying security and the proceeds of the sale are
increased by the premium originally received. If a written put option is
exercised, the cost of the underlying security purchased would be decreased by
the premium originally received. The Fund can write options only on a covered
basis, which, for a call, requires that the fund hold the underlying securities
and, for a put, requires the Fund to maintain in a segregated account cash, U.S.
government securities, or other liquid securities in an amount not less than the
exercise price or otherwise provide adequate cover at all times while the put
option is outstanding. The Fund may use options to manage its exposure to the
stock or bond market and to fluctuations in currency values or interest rates.
The premium paid by the Fund for the purchase of a call or put option is
included in the Fund's "Statement of Assets and Liabilities" as an investment
and subsequently "marked-to-market" to reflect the current market value of the
option. If an option which the Fund has purchased expires on the stipulated
expiration date, the Fund realizes a loss in the amount of the cost of the
option. If the Fund enters into a closing sale transaction, the Fund realizes a
gain or loss, depending on whether proceeds from the closing sale transaction
are greater or less than the cost of the option. If the Fund exercises a call
option, the cost of the securities acquired by exercising the call is increased
by the premium paid to buy the call. If the Fund exercises a put option, it
realizes a gain or loss from the sale of the underlying security, and the
proceeds from such sale are decreased by the premium originally paid.
The risk associated with purchasing options is limited to the premium originally
paid. The risk in writing a call option is that the Fund may forego the
opportunity of profit if the market value of the underlying security or index
increases and the option is exercised. The risk in writing a put option is that
the Fund may incur a loss if the market value of the underlying security or
index decreases and the option is exercised. In addition, there is the risk the
Fund may not be able to enter into a closing transaction because of an illiquid
secondary market.
(F) FUTURES CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
security at a set price on a future date. Upon entering into such a contract the
Fund is required to pledge to the broker an amount of cash or securities equal
to the minimum "initial margin" requirements of the exchange on which the
contract is traded. Pursuant to the contract, the Fund agrees to receive from or
pay to the broker an amount of cash equal to the daily fluctuation in value of
the contract. Such receipts or payments are known as "variation margin" and are
recorded by the Fund as unrealized gains or losses. When the contract is closed,
the Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the time it was
closed. The potential risk to the Fund is that the change in value of the
underlying securities may not correlate to the change in value of the contracts.
The Fund may use futures contracts to manage its exposure to the stock or bond
market and to fluctuations in currency values or interest rates. At October 31,
1998, the fund had no open futures contracts.
(G) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). The cost of securities sold is determined on a first-in,
first-out basis, unless otherwise specified. Interest income is recorded on the
accrual basis. Where a high level of uncertainty exists as to its collection,
income is recorded net of all withholding tax with any rebate recorded when
received. The Fund may trade securities on other than normal settlement terms.
This may increase the risk if the other party to the transaction fails to
deliver and causes the Fund to subsequently invest at less advantageous prices.
(H) PORTFOLIO SECURITIES LOANED
At October 31, 1998, stocks with an aggregate value of approximately $12,106,364
were on loan to brokers. The loans were secured by cash collateral of
$12,196,698. For the year ended October 31, 1998, the Fund received $196,393 of
income from securities lending.
For international securities, cash collateral is received by the Fund against
loaned securities in an amount at least equal to 105% of the market value of the
loaned securities at the inception of each loan. This collateral must be
maintained at not less than 103% of the market value of the loaned securities
during the period of the loan. For domestic securities, cash collateral is
received by the Fund against loaned securities in an amount at least equal to
102% of the market value of the loaned securities at the inception of each loan.
This collateral must be maintained at not less than 100% of the market value of
the loaned securities during the period of the loan. The cash collateral is
invested in a securities lending trust which consists of a
FS-37
<PAGE> 582
portfolio of high quality short duration securities whose average effective
duration is restricted to 120 days or less.
(I) TAXES
It is the policy of the Fund to meet the requirements for qualification as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended ("Code"). It is also the intention of the Fund to make distributions
sufficient to avoid imposition of any excise tax under Section 4982 of the Code.
Therefore, no provision has been made for Federal taxes on income, capital
gains, or unrealized appreciation of securities held, and excise tax on income
and capital gains. The Fund currently has a capital loss carry forward of
$31,494,478, of which $8,211,998 expires in 2003, $6,727,327 expires in 2004 and
$16,555,153 expires in 2006.
(J) DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded by the Fund on the ex-date. Income
and capital gain distributions are determined in accordance with Federal income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Fund and timing differences.
(K) FOREIGN SECURITIES
There are certain additional considerations and risks associated with investing
in foreign securities and currency transactions that are not inherent in
investments of domestic origin. The Fund's investments in emerging market
countries may involve greater risks than investments in more developed markets
and the prices of such investments may be volatile. These risks of investing in
foreign and emerging markets may include foreign currency exchange rate
fluctuations, perceived credit risk, adverse political and economic developments
and possible adverse foreign government intervention.
(L) INDEXED SECURITIES
The Fund may invest in indexed securities whose value is linked either directly
or indirectly to changes in foreign currencies, interest rates, equities,
indices, or other reference instruments. Indexed securities may be more volatile
than the reference instrument itself, but any loss is limited to the amount of
the original investment.
(M) RESTRICTED SECURITIES
The Fund is permitted to invest in privately placed restricted securities. These
securities may be resold in transactions exempt from registration or to the
public if the securities are registered. Disposal of these securities may
involve time-consuming negotiations and expense, and prompt sale at an
acceptable price may be difficult. At the end of the year, restricted
securities, if any, (excluding 144A issues), are shown at the end of the Fund's
Portfolio of Investments.
(N) LINE OF CREDIT
The Fund, along with certain other funds advised and/or administered by the
Manager, has a line of credit with each of BankBoston and State Street Bank and
Trust Company. The arrangements with the banks allow the Fund and certain other
Funds to borrow, on a first come, first serve basis, an aggregate maximum amount
of $250,000,000. The Fund is limited to borrowing up to 33 1/3% of the value of
the Fund's total assets. On October 31, 1998, the Fund had no loans outstanding.
For the year ended October 31, 1998, the weighted average outstanding daily
balance of bank loans (based on the number of days the loans were outstanding)
for the Fund was $7,732,934, with a weighted average interest rate of 6.28%.
Interest expense for the Fund for the year ended October 31, 1998, was $329,369.
Other interest expense charges amounted to $20,907.
2. RELATED PARTIES
A I M Advisors, Inc. (the "Manager"), an indirect wholly-owned subsidiary of
AMVESCAP PLC, is the Fund's investment manager and administrator and INVESCO
(NY), Inc., (formerly, Chancellor LGT Asset Management, Inc.) is the Fund's
investment sub-advisor and sub-administrator. As of the close of business on May
29, 1998, Liechtenstein Global Trust AG ("LGT"), the former indirect parent
organization of Chancellor LGT Asset Management, Inc. ("Chancellor LGT")
consummated a purchase agreement with AMVESCAP PLC pursuant to which AMVESCAP
PLC acquired LGT's Asset Management Division, which included Chancellor LGT and
certain other affiliates. As a result of this transaction, Chancellor LGT was
renamed INVESCO (NY), Inc., and is now an indirect wholly-owned subsidiary of
AMVESCAP PLC. A I M Distributors, Inc. ("AIM Distributors"), a wholly-owned
subsidiary of the Manager, is the Fund's distributor as of the close of business
on May 29, 1998. The Trust was reorganized from a Maryland corporation into a
Delaware business trust on September 8, 1998. Finally, as of the close of
business on September 4, 1998, A I M Fund Services, Inc. ("AFS"), an affiliate
of the Manager and AIM Distributors, replaced GT Global Investor Services, Inc.
("GT Services") as the transfer agent of the Fund.
The Fund pays investment management and administration fees to the Manager at
the annualized rate of 0.975% of the first $500 million of average daily net
assets of the Fund; 0.95% of the next $500 million; 0.925% of the next $500
million and 0.90% on amounts thereafter. These fees are computed daily and paid
monthly.
AIM Distributors, an affiliate of the Manager, is the Fund's distributor. For
the period ended May 29, 1998, GT Global, Inc. ("GT Global"), an affiliate of
the investment sub-advisor, served as the Fund's distributor. The Fund offers
Class A, Class B and Advisor Class shares for purchase.
Class A shares are subject to initial sales charges imposed at the time of
purchase, in accordance with the schedule included in the Fund's current
prospectus. AIM Distributors collects the sales charges imposed on sales of
Class A shares, and reallows a portion of such charges to dealers through which
the sales are made. For the year ended October 31, 1998, AIM Distributors and GT
Global retained $10,956 and $16,513, respectively. Purchases of Class A shares
exceeding $1,000,000 may be subject to a contingent deferred sales charge
("CDSC") upon redemption, in accordance with the Fund's current prospectus. AIM
Distributors and GT Global collected CDSCs in the amount of $0 and $74,
respectively. AIM Distributors also makes ongoing shareholder servicing and
trail commission payments to dealers whose clients hold Class A shares.
FS-38
<PAGE> 583
Class B shares are not subject to initial sales charges. When Class B shares are
sold, AIM Distributors, from its own resources pays commissions to dealers
through which the sales are made. Certain redemptions of Class B shares made
within six years of purchase are subject to CDSCs, in accordance with the Fund's
current prospectus. For the year ended October 31, 1998, AIM Distributors and GT
Global collected CDSCs in the amount of $205,097 and $586,137, respectively. In
addition, AIM Distributors makes ongoing shareholder servicing and trail
commission payments to dealers whose clients hold Class B shares.
For the period ended May 29, 1998, pursuant to the then effective separate
distribution plans adopted under the 1940 Act Rule 12b-1 by the Trust's Board of
Trustees with respect to the Fund's Class A shares ("Class A Plan") and Class B
shares ("Class B Plan"), the Fund reimbursed GT Global for a portion of its
shareholder servicing and distribution expenses. Under the Class A Plan, the
Fund was permitted to pay GT Global a service fee at the annualized rate of up
to 0.25% of the average daily net assets of the Fund's Class A shares for GT
Global's expenditures incurred in servicing and maintaining shareholder
accounts, and was permitted to pay GT Global a distribution fee at the
annualized rate of up to 0.50% of the average daily net assets of the Fund's
Class A shares, less any amounts paid by the Fund as the aforementioned service
fee, for GT Global's expenditures incurred in providing services as distributor.
All expenses for which GT Global was reimbursed under the Class A Plan would
have been incurred within one year of such reimbursement.
For the period ended May 29, 1998, pursuant to the Class B Plan, the Fund was
permitted to pay GT Global a service fee at the annualized rate of up to 0.25%
of the average daily net assets of the Fund's Class B shares for GT Global's
expenditures incurred in servicing and maintaining shareholder accounts, and was
permitted to pay GT Global a distribution fee at the annualized rate of up to
0.75% of the average daily net assets of the Fund's Class B shares for GT
Global's expenditures incurred in providing services as distributor. Expenses
incurred under the Class B Plan in excess of 1.00% annually were permitted to be
carried forward for reimbursement in subsequent years as long as that Plan
continued in effect.
Effective as of the close of business May 29, 1998, pursuant to Rule 12b-1 under
the 1940 Act, the Trust's Board of Trustees adopted a Master Distribution Plan
applicable to the Fund's Class A shares ("Class A Plan") and Class B shares
("Class B Plan"), pursuant to which the Fund compensates AIM Distributors for
the purpose of financing any activity that is intended to result in the sale of
Class A or Class B shares of the Fund. Under the Class A Plan, the Fund
compensates AIM Distributors at the annualized rate of 0.50% of the average
daily net assets of the Fund's Class A shares. Under the Class B Plan, the Fund
compensates AIM Distributors at an annualized rate of 1.00% of the average daily
net assets of the Fund's Class B shares.
The Class A Plan and the Class B Plan (together, the "Plans") are designed to
compensate AIM Distributors for certain promotional and other sales-related
costs, and to implement a dealer incentive program that provides for periodic
payments to selected dealers who furnish continuing personal shareholder
services to their customers who purchase and own Class A and Class B shares of
the Fund. Payments also can be directed by AIM Distributors to financial
institutions who have entered into service agreements with respect to Class A
and Class B shares of the Fund and who provide continuing personal services to
their customers who own Class A and Class B shares of the Fund. The service fees
payable to selected financial 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 that were purchased on or after a
prescribed date set forth in the Plans.
The Manager and AIM Distributors voluntarily have undertaken to limit the Fund's
expenses (exclusive of brokerage commissions, taxes, interest, and extraordinary
expenses) to the maximum annual rate of 2.00%, 2.50%, and 1.50% of the average
net assets of the Fund's Class A, Class B and Advisor Class shares,
respectively. If necessary, this limitation will be effected by waivers by the
Manager of investment management and administration fees, waivers by AIM
Distributors of payments under the Class A Plan and/or Class B Plan and/or
reimbursements by the Manager or AIM Distributors of portions of the Fund's
other operating expenses.
Effective as of the close of business September 4, 1998, the Fund, pursuant to a
transfer agency and service agreement, has agreed to pay A I M Fund Services,
Inc. ("AFS") an annualized fee of $24.85 per shareholder accounts that are open
during any monthly period (this fee includes all out-of-pocket expenses), and an
annualized fee of $0.70 per shareholder account that is closed during any
monthly period. Both fees shall be billed by AFS monthly in arrears on a
prorated basis of 1/12 of the annualized fee for all such accounts.
For the period November 1, 1997 to September 4, 1998, GT Services, an affiliate
of the Manager and AIM Distributors, was the transfer agent of the Fund. For
performing shareholder servicing, reporting, and general transfer agent
services, GT Services received an annual maintenance fee of $17.50 per account,
a new account fee of $4.00 per account, a per transaction fee of $1.75 for all
transactions other than exchanges and a per exchange fee of $2.25. GT Services
also was reimbursed by the Fund for its out-of-pocket expenses for such items as
postage, forms, telephone charges, stationery and office supplies.
The Manager is the pricing and accounting agent for the Fund. The monthly fee
for these services paid to the Manager is a percentage, not to exceed 0.03%
annually, of a Fund's average daily net assets. The annual fee rate is derived
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% to 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.
The Trust pays each Trustee who is not an employee, officer or director of the
Manager, or any other affiliated company, $5,000 per year plus $300 for each
meeting of the board or any committee thereof attended by the Trustee.
FS-39
<PAGE> 584
3. PURCHASES AND SALES OF SECURITIES
For the year ended October 31, 1998, purchases and sales of investment
securities by the Fund, other than short-term investments, aggregated
$80,756,729 and $185,978,861. There were no purchases or sales of U.S.
government obligations for the year ended October 31, 1998.
4. CAPITAL SHARES
At October 31, 1998, there were 6,000,000,000 shares of the Trust's common stock
authorized, at $0.0001 par value. Of this amount, 400,000,000 were classified as
shares of the AIM Global Telecommunications Fund; 400,000,000 were classified as
shares of AIM Global Government Income Fund; 200,000,000 were classified as
shares of AIM Global Health Care Fund; 200,000,000 were classified as shares of
AIM Strategic Income Fund; 200,000,000 were classified as shares of AIM
Developing Markets Fund; 200,000,000 were classified as shares of GT Global
Currency Fund (inactive); 200,000,000 were classified as shares of AIM Global
Growth & Income Fund; 200,000,000 were classified as shares of GT Global Small
Companies Fund (inactive); 200,000,000 were classified as shares of AIM Latin
American Growth Fund; 200,000,000 were classified as shares of AIM Emerging
Markets Fund; 200,000,000 were classified as shares of AIM Emerging Markets Debt
Fund; 200,000,000 were classified as shares of AIM Global Financial Services
Fund; 200,000,000 were classified as shares of AIM Global Resources Fund;
200,000,000 were classified as shares of AIM Global Infrastructure Fund;
200,000,000 were classified as shares of AIM Global Consumer Products and
Services Fund. The shares of each of the foregoing series of the Trusts were
divided equally into two classes, designated Class A and Class B common stock.
With respect to the issuance of Advisor Class shares, 100,000,000 shares were
classified as shares of each of the fifteen series of the Trusts and designated
as Advisor Class common stock. 1,100,000,000 shares remain unclassified.
Transactions in capital shares of the Fund were as follows:
CAPITAL SHARE TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997
--------------------------- ---------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Shares sold.................................................... 31,480,158 $ 504,106,417 46,171,230 $ 937,785,689
Shares issued in connection with reinvestment of
distributions................................................ 8,770 183,909 -- --
------------ ------------- ------------ -------------
31,488,928 504,290,326 46,171,230 937,785,689
Shares repurchased............................................. (34,474,810) (565,877,892) (47,874,889) (980,118,186)
------------ ------------- ------------ -------------
Net decrease................................................... (2,985,882) $ (61,587,566) (1,703,659) $ (42,332,497)
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
<CAPTION>
CLASS B
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold.................................................... 14,533,097 $ 243,328,768 14,424,170 $ 299,346,687
Shares repurchased............................................. (17,417,330) (295,361,292) (15,210,392) (316,506,347)
------------ ------------- ------------ -------------
Net decrease................................................... (2,884,233) $ (52,032,524) (786,222) $ (17,159,660)
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
<CAPTION>
ADVISOR CLASS
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold.................................................... 1,261,470 $ 24,366,740 1,448,623 $ 29,968,381
Shares issued in connection with reinvestment of
distributions................................................ 261 5,468 -- --
------------ ------------- ------------ -------------
1,261,731 24,372,208 1,448,623 29,968,381
Shares repurchased............................................. (1,263,040) (24,385,281) (1,461,777) (30,469,185)
------------ ------------- ------------ -------------
Net decrease................................................... (1,309) $ (13,073) (13,154) $ (500,804)
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
</TABLE>
5. SUBSEQUENT EVENT (UNAUDITED)
Effective December 14, 1998, sub-advisory and sub-administration responsibility
for the Fund was transferred from INVESCO (NY), Inc. to INVESCO Asset Management
Ltd., another indirect wholly-owned subsidiary of AMVESCAP PLC. A I M Advisors,
Inc. will continue to serve as the manager and administrator of the Fund. The
transfer will not change the fees paid by A I M Advisors, Inc. for sub-advisory
services and will not change the nature of the sub-advisory services provided to
the Fund or the personnel providing such services.
FS-40
<PAGE> 585
6. PROXY RESULTS (UNAUDITED)
The Special Meeting of Shareholders of G.T. Investment Funds, Inc., now known as
AIM Investment Funds (the "Trust"), was held on May 20, 1998 at the Trust's
offices, 50 California Street, 26th Floor, San Francisco, California. The
meeting was held for the following purposes:
(1) To elect Trustees as follows: C. Derek Anderson, Frank S. Bayley, William J.
Guilfoyle, Arthur C. Patterson, Ruth H. Quigley.
(2) To approve a new Investment Management and Administration Contract and
Sub-Advisory and Sub-Administration Contract with respect to each series of
the Trust (each, a "Fund," and collectively, the "Funds").
(3) To approve replacement Rule 12b-1 plans of distribution with respect to
Class A and B Shares of the Fund.
(4) To approve changes to the fundamental investment restrictions of the Fund.
(5) To approve an agreement and plan of conversion and termination for the
Trust.
(6) To ratify the selection of Coopers & Lybrand L.L.P., now known as
PricewaterhouseCoopers LLP, as the Trust's independent public accountants.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
VOTES WITHHELD/
TRUSTEE/MATTER VOTES FOR AGAINST ABSTENTIONS
-------------------------------------------------------------------------------- ----------- --------- -----------
<S> <C> <C> <C> <C>
(1) C. Derek Anderson............................................................... 191,685,088 N/A 13,123,292
Frank S. Bayley................................................................. 191,766,811 N/A 13,041,568
William J. Guilfoyle............................................................ 191,828,959 N/A 12,979,420
Arthur C. Patterson............................................................. 191,845,270 N/A 12,963,109
Ruth H. Quigley................................................................. 191,869,887 N/A 12,938,492
(2)(a) Approval of investment management and administration contract................... 4,693,066 238,916 1,771,193*
(2)(b) Approval of sub-advisory and sub-administration contract........................ 4,637,262 272,743 1,793,170*
(3) Approval of replacement Rule 12b-1 plans of distribution
CLASS A SHARES.................................................................. 3,040,544 184,812 359,544
CLASS B SHARES.................................................................. 2,729,104 122,910 232,232
(4)(a) Modification of Fundamental Restriction on Concentration........................ 4,613,784 274,772 1,814,619*
(4)(b) Modification of Fundamental Restriction on Issuing Senior Securities and
Borrowing Money................................................................ 4,612,620 275,936 1,814,619*
(4)(c) Modification of Fundamental Restriction on Making Loans......................... 4,613,268 275,288 1,814,619*
(4)(d) Modification of Fundamental Restriction on Underwriting Securities.............. 4,613,784 274,772 1,814,619*
(4)(e) Modification of Fundamental Restriction on Real Estate Investments 4,613,315 275,241 1,814,619*
(4)(f) Modification of Fundamental Restriction on Investing in Commodities............. 4,608,943 279,613 1,814,619*
(4)(g) Elimination of Fundamental Restriction on Margin Transactions................... 4,610,509 278,047 1,814,619*
(4)(h) Elimination of Fundamental Restriction on Pledging Assets....................... 4,612,396 276,160 1,814,619*
(4)(i) Elimination of Fundamental Restriction on Investments in Oil, Gas and Mineral
Leases and Programs............................................................ 4,612,606 275,950 1,814,619*
(4)(j) Approval of New Fundamental Investment Policy Regarding Investment of All of
Each Fund's Assets in an Open-End Fund......................................... 4,613,154 275,402 1,814,619*
(5) Approval of an agreement and plan of conversion and termination with respect to
the Trust...................................................................... 190,027,469 6,362,084 94,055,040*
(6) Ratification of the selection of Coopers and Lybrand L.L.P., now known as
PricewaterhouseCoopers LLP, as the Trust's independent public accountants...... 191,358,779 2,114,168 11,333,063
</TABLE>
- ------------------------
* Includes Broker Non-Votes
FEDERAL TAX INFORMATION (UNAUDITED):
For the fiscal year ended October 31, 1998, the amount of income received by the
Fund from sources within foreign countries and possessions of the United States
was $.6907 per share (representing a total of $6,408,643). The amount of taxes
paid by the Fund to such countries for the fiscal year ended October 31, 1998
was $.0619 per share (representing a total of $574,241). The following table
provides a breakdown by country of ordinary income dividends and foreign taxes
paid by the Fund during the fiscal year ended October 31, 1998.
<TABLE>
<CAPTION>
COUNTRY GROSS INCOME % FOREIGN TAX PAID %
- -------------------------------------------------------------------------------- -------------- ------------------
<S> <C> <C>
Argentina....................................................................... 6.47 0.00
Brazil.......................................................................... 55.27 41.51
Chile........................................................................... 15.62 58.42
Mexico.......................................................................... 17.23 0.00
Various......................................................................... 3.38 0.07
------- -------
97.97 100.00
United States................................................................... 2.03 0.00
------- -------
100.00% 100.00%
------- -------
------- -------
</TABLE>
Information needed by shareholders to prepare their 1998 federal income tax
return will be provided with the annual 1099 information in January 1999.
FS-41
<PAGE> 586
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> 587
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
Investment Strategies..................................... 6
Selection of Debt Investments............................. 9
Selection of Equity Investments........................... 9
Selection of Investments and Asset Allocation............. 9
Investment In Emerging Markets............................ 10
Sovereign Debt............................................ 11
Brady Bonds............................................... 12
Loan Participants and Assignments......................... 13
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............................... 16
Repurchase Agreements..................................... 16
Borrowing, Reverse Repurchase Agreements and "Roll"
Transactions........................................... 16
Zero Coupon Securities.................................... 18
Synthetic Security Positions.............................. 18
Swaps, Caps, Floors, and Collars.......................... 18
Indexed Commercial Paper.................................. 19
Other Indexed Securities.................................. 19
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
Illiquid Securities....................................... 30
Foreign Securities........................................ 31
Mortgage-Backed and Asset-Backed Securities............... 35
Lower Quality Debt Securities............................. 35
</TABLE>
2
<PAGE> 588
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
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...................................... 47
The Class A and Class C Plan.............................. 47
The Class B Plan.......................................... 48
Both Plans................................................ 48
THE DISTRIBUTOR............................................. 51
Sales Charges and Dealer Concessions...................... 52
HOW TO PURCHASE AND REDEEM SHARES........................... 58
Backup Withholding........................................ 59
NET ASSET VALUE DETERMINATION............................... 60
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS.................... 61
Reinvestment of Dividends and Distributions............... 61
Tax Matters............................................... 61
Taxation of the Funds..................................... 61
Taxation of the Portfolio -- General...................... 61
Taxation of Certain Investment Activities................. 62
Taxation of the Funds' Shareholders....................... 64
Reinstatement Privilege................................... 64
SHAREHOLDER INFORMATION..................................... 64
Timing of Purchase Orders................................. 64
Share Certificates........................................ 64
Systematic Withdrawal Plan................................ 64
Terms and Conditions of Exchanges......................... 65
Exchanges by Telephone.................................... 65
Redemptions by Telephone.................................. 65
Signature Guarantees...................................... 65
Dividends and Distributions............................... 66
MISCELLANEOUS INFORMATION................................... 66
Charges for Certain Account Information................... 66
Custodian and Transfer Agent.............................. 66
Independent Accountants................................... 66
Legal Matters............................................. 67
Shareholder Liability..................................... 67
Control Persons and Principal Holders of Securities....... 67
INVESTMENT RESULTS.......................................... 69
Total Return Quotations................................... 69
Non-Standardized Returns.................................. 70
Yield Quotations.......................................... 72
Performance Information................................... 73
APPENDIX.................................................... 75
Description of Bond Ratings............................... 75
Description of Commercial Paper Ratings................... 76
Absence of Rating......................................... 76
FINANCIAL STATEMENTS........................................ FS
</TABLE>
3
<PAGE> 589
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 for Strategic Income Fund. INVESCO Asset
Management Limited serves as the investment sub-advisor 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 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. 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 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, 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
4
<PAGE> 590
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.
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, 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 Emerging Markets Debt Fund is requested to vote on any proposal of
the Portfolio, 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> 591
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.
Government Income Fund primarily seeks high current income and secondarily
seeks growth of capital and protection of principal. Strategic Income Fund and
Emerging Markets Debt Fund primarily seek high current income and secondarily
growth of capital. 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 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 growth of capital together with current
income.
In addition to the primary investment policies set forth in such Fund's
Prospectus, Strategic Income Fund, Government Income Fund, the Portfolio, and
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.
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 Investor's Services, Inc.
("Moody's") or Standard & Poor's, a division of The McGraw-Hill Companies, Inc.
("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.
6
<PAGE> 592
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 or 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 Statement of Additional Information.
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 "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.
7
<PAGE> 593
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, 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 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 S&P, or P-1 by 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.
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,
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<PAGE> 595
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 Government Income
Fund's, 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 U.S. ratings agencies such as
Moody's and S&P. Strategic Income Fund and the Portfolio's ability to achieve
their
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<PAGE> 596
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 economic performance and the timely service of such debtor's obligations.
Failure to implement such reforms, achieve
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<PAGE> 597
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 maturity as the bonds. Interest payments on such
bonds generally are collateralized by cash or securities in an amount
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<PAGE> 598
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 acquisition or disposes of its right to
deliver or receive against a forward commitment, it may incur a gain or loss. At
the
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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, 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 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. 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,
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Strategic Income Fund's, 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 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
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 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.
Growth & Income Fund, 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, Growth & Income Fund,
Strategic Income Fund, and Government Income Fund, and the Portfolios would
forego principal and interest paid on such securities. Growth & Income Fund,
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 "stripped" 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 the Portfolio
may enter into forward currency contracts either with respect to specific
transactions or with respect to a Fund's or the 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 the 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 the 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 the 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 the 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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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, including
futures contracts on indices of debt and equity securities, ("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 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.
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
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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 does not limit potential losses,
because the limit may prevent the liquidation of unfavorable positions. Futures
Contract
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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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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 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
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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
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 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. 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
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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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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 Government Income Fund,
Strategic Income Fund, 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. Government Income Fund, Strategic Income Fund,
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
Government Income Fund, Strategic Income Fund, 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
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requirements. Thus, there will be less available information concerning most
foreign issuers of securities held by Government Income Fund, Strategic Income
Fund, 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.
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.
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 is known as the "euro." Each participating
country 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 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 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
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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 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 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.
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
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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.
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.
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<PAGE> 620
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%, 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
35
<PAGE> 621
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 97.0%
and 72.5%, respectively, of their total net assets in debt securities that
received a rating from Standard & Poor's and 6.6% and 27.5%, respectively, of
their total net assets in debt securities that were not so rated. In addition,
the Strategic Income Fund 4.1% in cash and 7.7% in net payables. The Portfolio
had 0.0% in cash and 1.5% in net receivables. The Strategic Income Fund and the
Portfolio had 97.0% and 72.5%, respectively, of their total net assets invested
in rated securities in the following rating categories: AAA -- 55.9%
and -- 0.0%; AA+ -- 1.5% and 0.0%; AA- -- 1.2% and 2.0%; A -- 1.0% and 0.0%;
A-1 -- 9.5% and 0.0%; BBB- -- 2.4% and 9.8%; BB+ -- 2.2% and 4.4%; BB -- 7.3%
and 41.1%; BB- -- 3.9% and 10.4%; B+ -- 2.0% and 0.7%; B -- 4.0% and 0.0%;
B- -- 3.4% and 0.0%; CCC+ -- 0.4% and 1.7%; CC -- 0.3% and 0.9%. Included in the
unrated category are securities held by the Fund or the Portfolio which, while
unrated, have been determined by the Sub-advisor to be of comparable quality to
rated securities. It should be noted that the allocation of the investments of
the Fund and the Portfolio by rating on any given date will vary and should not
be considered representative of the future composition of the Fund or the
Portfolio.
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;
(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
36
<PAGE> 622
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;
(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;
37
<PAGE> 623
(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 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;
38
<PAGE> 624
(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> 625
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 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> 626
(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> 627
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 Emerging Markets Debt Portfolio paid aggregate
brokerage commissions of $0, $0, $86,600, respectively. For the fiscal years
ended October 31, 1998, 1997 and 1996, Government Income Fund paid aggregate
brokerage commissions of $0, $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 $933, $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 $1,105,727, $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> 628
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................. 339% 214% 290%
Government Income Fund.......................... 305% 241% 268%
Growth & Income Fund............................ 92% 50% 39%
Strategic Income Fund........................... 306% 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); and Director, "R" Homes,
Inc. and various other companies.
- ---------------------------------------------------------------------------------------------------------
FRANK S. BAYLEY (59) Trustee Partner, law firm of Baker & McKenzie; and
Two Embarcadero Center Director and Chairman, C.D. Stimson Company
Suite 2400 (a private investment company).
San Francisco, CA 94111
- ---------------------------------------------------------------------------------------------------------
ARTHUR C. PATTERSON (54) Trustee Managing Partner, Accel Partners (a venture
428 University Avenue capital firm); and Director, Viasoft and
Palo Alto, CA 94301 PageMart, Inc. (both public software
companies) and several other privately held
software and communications companies.
- ---------------------------------------------------------------------------------------------------------
RUTH H. QUIGLEY (63) Trustee Private investor; and President, Quigley
1055 California Street Friedlander & Co., Inc. (a financial
San Francisco, CA 94108 advisory services firm) from 1984 to 1986.
- ---------------------------------------------------------------------------------------------------------
</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>
43
<PAGE> 629
<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.
- ---------------------------------------------------------------------------------------------------------
SAMUEL D. SIRKO (39) Vice President and Secretary Vice President, Assistant General Counsel
and Assistant Secretary, A I M Advisors,
Inc.; and Assistant General Counsel and
Assistant Secretary, A I M Management Group
Inc., A I M Capital Management, Inc., A I M
Distributors, Inc., A I M Fund Services,
Inc. and Fund Management Company.
- ---------------------------------------------------------------------------------------------------------
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 $46,350,
$43,350, $47,700 and $48,000, 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
$97,600, $97,500, $105,450 and $106,350, 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.
44
<PAGE> 630
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES
AIM, 11 Greenway Plaza, Suite 100, Houston, Texas 77046, was organized in 1976
and, together with its subsidiaries, manages or advises approximately 110
investment portfolios encompassing a broad range of investment objectives.
INVESCO (NY), Inc., 1166 Avenue of the Americas, New York, New York 10036,
formerly Chancellor LGT Asset Management, Inc. has provided investment
management and/or administrative services to institutional, corporate and
individual clients around the world since 1969. INVESCO Asset Management
Limited, 11 Devonshire Square, London, EC2M 4YR, England, has provided
investment management and/or administrative services to pension funds, insurance
funds, index funds, unit trusts, offshore funds and a variety of institutional
accounts since 1967. 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.
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.
AIM Management, AIM and each Sub-Advisor are indirect wholly owned
subsidiaries of AMVESCAP PLC, 11 Devonshire Square, London, EC2M 4YR, England.
AMVESCAP PLC and its subsidiaries are an independent 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, New York and London
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, Singapore, Sydney, Tokyo and Toronto.
In managing the Funds and the Portfolio, the Sub-advisors employ a team
approach, taking advantage of its investment resources around the world.
Under an investment management and administration contract between the Trust
and AIM ("Trust Advisory Agreement"), AIM serves as the investment manager and
administrator for Government Income Fund, Strategic Income Fund and Growth &
Income Fund. AIM also serves as the Portfolio's investment manager and
administrator under an Investment Management and Administration Contract between
the Portfolio and AIM ("Portfolio Advisory Agreement").
INVESCO Asset Management Limited serves as the Portfolio's sub-advisor under a
Sub-advisory Agreement between AIM and INVESCO Asset Management Limited
("Portfolio Sub-Advisory Agreement") and as the sub-advisor for Government
Income Fund and Growth & Income Fund under a separate Sub-advisory Agreement
between AIM and INVESCO Asset Management Limited ("Fund Sub-Advisory
Agreement"). INVESCO (NY), Inc. serves as the sub-advisor for Strategic Income
Fund under a Sub-Advisory Agreement between AIM and INVESCO (NY), Inc. (together
with the Portfolio Sub-Advisory Agreement and the Fund Sub-Advisory Agreement,
the Trust Advisory Agreement and the Portfolio Advisory Agreement, the
"Management Agreements").
AIM also serves as Emerging Markets Debt Fund's administrator under an
Administration Contract between the Trust and AIM.
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-advisors 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 Agreements 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 Agreements or the Administration 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
Agreements provide that with respect to Government Income Fund, Strategic Income
Fund, Growth & Income Fund and the Portfolio, and the Administration Contract
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 Agreements and the Administration Contract terminate automatically in
the event of their assignment (as defined in the 1940 Act).
45
<PAGE> 631
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........................................................ $1,823,161
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........................................................ $2,691,901
1997........................................................ 3,474,804
1996........................................................ 3,807,689
</TABLE>
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........................................................ $7,885,054
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........................................................ $2,241,949
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........................................................ $ 767,658
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%, 2.50% and 2.50% of the average daily net assets of
each Fund's Class A and Class B and Class C shares, respectively, until May 31,
2000.
AIM may from time to time waive or reduce its fee. Voluntary fee waivers or
reductions may be rescinded at any time without further notice to investors.
During periods of voluntary fee waivers or reductions, AIM will retain its
ability to be reimbursed for such fee prior to the end of each fiscal year.
Contractual fee waivers or reductions set forth in the Fee Tables in the
Prospectus may not be terminated without the approval of the Board of Trustees.
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.
46
<PAGE> 632
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."
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 a Master Distribution Plan pursuant to Rule 12b-1 under
the 1940 Act relating to the Class A and Class C shares of the Funds (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.
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
47
<PAGE> 633
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. 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 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
48
<PAGE> 634
customers of such dealers or financial institutions, and by imposing a cap on
the total sales charges, including asset based sales charges, that may be paid
by the Funds and their respective classes.
AIM Distributors may from time to time waive or reduce any portion of its
12b-1 fee for Class A and Class C shares. Voluntary fee waivers or reductions
may be rescinded at any time without further notice to investors. During periods
of voluntary fee waivers or reductions, AIM Distributors will retain its ability
to be reimbursed for such fee prior to the end of each fiscal year. Contractual
fee waivers or reductions set forth in the Fee Table in the Prospectus may not
be terminated without the approval of the Board of Trustees.
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.
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.
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.
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....................... $303,814 $ 648,832 0.35% 1.00%
Strategic Income Fund........................ $271,437 $1,536,400 0.35% 1.00%
Emerging Markets Debt Fund................... $263,011 $1,277,648 0.35% 1.00%
Growth & Income Fund......................... $624,112 $2,829,048 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....................... $195,380 $ 435,763 0.35% 1.00%
Strategic Income Fund........................ $168,386 $ 912,300 0.35% 1.00%
Emerging Markets Debt Fund................... $133,078 $ 633,516 0.35% 1.00%
Growth & Income Fund......................... $466,205 $2,158,701 0.35% 1.00%
</TABLE>
49
<PAGE> 635
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
MARKETS GOVERNMENT GROWTH & STRATEGIC
DEBT FUND INCOME FUND INCOME FUND INCOME FUND
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CLASS A
Advertising............................. $ 98,725 $ 43,915 $ 268,654 $ 77,988
Printing and Mailing prospectuses,
semi-annual reports and annual
reports (other than to current
shareholders)........................ 12,619 5,567 36,634 10,373
Seminars................................ 12,372 8,247 28,267 7,684
Compensation to Underwriters to
partially offset other marketing
expenses............................. 0 0 0 0
Compensation to Dealers including
Finder's Fees........................ 271,227 442,080 756,310 343,691
Compensation to Sales Personnel......... 0 0 0 0
Annual Report Total..................... $394,943 $499,809 $1,089,865 $439,736
</TABLE>
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>
EMERGING
MARKETS GOVERNMENT GROWTH & STRATEGIC
DEBT FUND INCOME FUND INCOME FUND INCOME FUND
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CLASS B
Advertising........................... $ 14,506 $ 10,123 $ 30,992 $ 16,360
Printing and Mailing prospectuses,
semi-annual reports and annual
reports (other than to current
shareholders)...................... 2,023 1,539 4,773 2,304
Seminars.............................. 661 777 617 1,600
Compensation to Underwriters to
partially offset other marketing
expenses........................... 1,428,813 813,392 3,741,580 1,834,000
Compensation to Dealers............... 459,081 258,691 1,210,811 591,069
Compensation to Sales Personnel....... 0 0 0 0
Annual Report Total................... $1,905,084 $1,084,522 $4,988,773 $2,445,333
</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.
50
<PAGE> 636
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.
THE DISTRIBUTOR
A Master Distribution Agreement with AIM Distributors relating to the Class B
shares of the Funds was approved by the Board Trustees on May 7, 1998. A Master
Distribution Agreement with AIM Distributors relating to Class A and C shares of
the Funds was approved by the Board on December 10, 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.
51
<PAGE> 637
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.
From time to time, AIM Distributors may transfer and sell its right to
payments under the Distribution Agreement relating to Class B Shares in order to
finance distribution expenditures in respect of Class B Shares.
The following chart reflects the total sales charges paid in connection with
the sale of Class A shares of each Fund and the amount retained by 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................. $ 83,855 $35,739 $199,201 $65,982
Government Income Fund..................... $ 13,231 $ 1,842 $ 67,477 $10,240
Growth & Income Fund....................... $111,311 $29,395 $208,844 $52,850
Strategic Income Fund...................... $ 46,291 $14,511 $111,949 $29,451
</TABLE>
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.................................. $21,515 $21,190
Government Income Fund...................................... $ 4,354 $ 4,130
Growth & Income Fund........................................ $27,462 $27,120
Strategic Income Fund....................................... $ 6,190 $ 4,499
</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........................ $ 963,681 $1,617,145 $1,739,271
Government Income Fund............................ $ 742,085 $1,123,616 $1,467,051
Growth & Income Fund.............................. $1,174,587 $1,199,637 $1,485,113
Strategic Income Fund............................. $1,307,644 $1,750,253 $1,925,586
</TABLE>
SALES CHARGES AND DEALER CONCESSIONS
CATEGORY I. Certain AIM Funds are currently sold with a sales charge ranging
from 5.50% to 2.00% of the offering price on purchases of less than $1,000,000.
These AIM Funds include Class A shares of each of AIM Advisor Flex Fund, AIM
Advisor International Value Fund, AIM Advisor Large Cap Value Fund, AIM 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 Japan Growth Fund, AIM Large Cap Growth
52
<PAGE> 638
Fund, AIM Mid Cap Equity Fund, AIM Mid Cap Opportunities Fund, AIM New Pacific
Growth Fund, AIM Select Growth Fund, AIM Small Cap Growth Fund, AIM Small Cap
Opportunities Fund, AIM Value Fund and AIM Weingarten Fund.
<TABLE>
<CAPTION>
DEALER
CONCESSION
INVESTOR'S SALES CHARGE ----------
-------------------------- AS A
AS A AS A PERCENTAGE
PERCENTAGE PERCENTAGE OF THE
OF THE PUBLIC OF THE NET PUBLIC
AMOUNT OF INVESTMENT IN OFFERING AMOUNT OFFERING
SINGLE TRANSACTION PRICE INVESTED PRICE
----------------------- ------------- ---------- ----------
<S> <C> <C> <C>
Less than $25,000........................................... 5.50% 5.82% 4.75%
$25,000 but less than $50,000............................... 5.25 5.54 4.50
$50,000 but less than $100,000.............................. 4.75 4.99 4.00
$100,000 but less than $250,000............................. 3.75 3.90 3.00
$250,000 but less than $500,000............................. 3.00 3.09 2.50
$500,000 but less than $1,000,000........................... 2.00 2.04 1.60
</TABLE>
CATEGORY II. Certain AIM Funds are currently sold with a sales charge ranging
from 4.75% to 2.00% of the offering price on purchases of less than $1,000,000.
These AIM Funds are: the Class A shares of each of AIM Advisor Real Estate Fund,
AIM Balanced Fund, AIM Developing Markets Fund, AIM Emerging Markets Debt Fund,
AIM Global Aggressive Growth Fund, AIM Global Consumer Products and Services
Fund, AIM Global Financial Services Fund, AIM Global Government Income Fund, AIM
Global Growth Fund, AIM Global Health Care Fund, AIM Global Income Fund, AIM
Global Infrastructure Fund, AIM Global Resources Fund, AIM Global
Telecommunications 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>
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.
53
<PAGE> 639
In addition to amounts paid to dealers as a dealer concession out of the
initial sales charge paid by investors, AIM Distributors may, from time to time,
at its expense or as an expense for which it may be compensated under a
distribution plan, if applicable, pay a bonus or other consideration or
incentive to dealers who sell a minimum dollar amount of the shares of the AIM
Funds during a specified period of time. At the 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> 640
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
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<PAGE> 641
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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<PAGE> 642
- Purchases through approved fee-based programs;
- Employee benefit plans designated as purchasers as defined above and
non-qualified plans offered in conjunction therewith, provided the initial
investment in the Plan(s) is at least $1 million; the sponsor signs a $1
million LOI; the employer-sponsored plan(s) has at least 100 eligible
employees; or all plan transactions are executed through a single omnibus
account per Fund and the financial institution or service organization has
entered into the appropriate agreements with the distributor. Section 403(b)
plans sponsored by public educational institutions are not eligible for a
sales charge exception based on the aggregate investment made by the plan or
the number of eligible employees. Purchases of AIM Small Cap Opportunities
Fund by such plans are subject to initial sales charges;
- Shareholders of record or discretionary advised clients of any investment
advisor holding shares of AIM Weingarten Fund or AIM Constellation Fund on
September 8, 1986, or of AIM Charter Fund on November 17, 1986, who have
continuously owned shares having a market value of at least $500 and who
purchase additional shares of the same Fund;
- Shareholders of record of Advisor Class shares of AIM International Growth
Fund or AIM Worldwide Growth Fund on February 12, 1999 who have continuously
owned shares of the AIM Funds.
- Unitholders of G/SET series unit investment trusts investing proceeds from
such trusts in shares of AIM Weingarten Fund or AIM Constellation Fund;
provided, however, prior to the termination date of the trusts, a unitholder
may invest proceeds from the redemption or repurchase of his units only when
the investment in shares of AIM Weingarten Fund and AIM Constellation Fund
is effected within 30 days of the redemption or repurchase;
- 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
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<PAGE> 643
- 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.
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 heading "Purchasing 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 AIM Funds is set forth in the Prospectus under the
heading "Exchanging Shares."
Information concerning redemption of the Funds' shares is set forth in the
Prospectus under the heading "Redeeming 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: (800) 347-4246 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.
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BACKUP WITHHOLDING
Accounts submitted without a correct, certified taxpayer identification number
or, alternatively, a completed Internal Revenue Service ("IRS") Form W-8 (for
non-resident aliens) or Form W-9 (certifying exempt status) accompanying the
registration information will generally be subject to backup withholding.
Each AIM Fund, and other payers, must, according to IRS regulations, withhold
31% of redemption payments and reportable dividends (whether paid or accrued) in
the case of any shareholder who fails to provide the Fund with a taxpayer
identification number ("TIN") and a certification that he is not subject to
backup withholding.
An investor is subject to backup withholding if:
(1) the investor fails to furnish a correct TIN to the Fund, or
(2) the IRS notifies the Fund that the investor furnished an incorrect
TIN, or
(3) the investor is notified by the IRS that the investor is subject
to backup withholding because the investor failed to report all of the
interest and dividends on such investor's tax return (for reportable
interest and dividends only), or
(4) the investor fails to certify to the Fund that the investor is not
subject to backup withholding under (3) above (for reportable interest and
dividend accounts opened after 1983 only), or
(5) the investor does not certify his TIN. This applies only to
reportable interest, dividend, broker or barter exchange accounts opened
after 1983, or broker accounts considered inactive during 1983.
Except as explained in (5) above, other reportable payments are subject to
backup withholding only if (1) or (2) above applies.
Certain payees and payments are exempt from backup withholding and information
reporting. A complete listing of such exempt entities appears in the
Instructions for the Requester of Form W-9 (which can be obtained from the IRS)
and includes, among others, the following:
- 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
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<PAGE> 645
Investors should contact the IRS if they have any questions concerning
entitlement to an exemption from backup withholding.
NOTE: Section references are to sections of the Code.
IRS PENALTIES -- Investors who do not supply the AIM Funds with a correct TIN
will be subject to a $50 penalty imposed by the IRS unless such failure is due
to reasonable cause and not willful neglect. If an investor falsifies
information on this form or makes any other false statement resulting in no
backup withholding on an account which should be subject to backup withholding,
such investor may be subject to a $500 penalty imposed by the IRS and to certain
criminal penalties including fines and/or imprisonment.
NONRESIDENT ALIENS -- Nonresident alien individuals and foreign entities are
not subject to the backup withholding previously discussed, but must certify
their foreign status by attaching IRS Form W-8 to their application. Form W-8
remains in effect for three calendar years beginning with the calendar year in
which it is received by the Fund. Such shareholders may, however, be subject to
federal income tax withholding at a 30% rate on ordinary income dividends and
distributions and return of capital distributions. Under applicable treaty law,
residents of treaty countries may qualify for a reduced rate of withholding or a
withholding exemption.
NET ASSET VALUE DETERMINATION
The net asset value per share of each Fund or Portfolio is normally determined
daily as of the close of trading of the NYSE (generally 4:00 p.m. Eastern time)
on each business day of the Fund 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(s) of Trustees of the
Funds and the Portfolio.
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DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
Income dividends and capital gains distributions are automatically reinvested
in additional shares of the same class of each Fund unless the shareholder has
requested in writing to receive such dividends and distributions in cash or that
they be invested in shares of another AIM Fund, subject to the terms and
conditions set forth under the caption "Shareholder Information -- Dividends
and Distributions." If a shareholder's account does not have any shares in it on
a dividend or capital gains distribution payment date, the dividend or
distribution will be paid in cash whether or not the shareholder has elected to
have such dividends or distributions reinvested.
TAX MATTERS
The following is only a summary of certain additional tax considerations
generally affecting the Funds and their shareholders that are not described in
the Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of each Fund or its shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning.
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,
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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 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
62
<PAGE> 648
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).
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,
63
<PAGE> 649
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.
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.
REINSTATEMENT PRIVILEGE
For federal income tax purposes, exercise of your reinstatement privilege may
increase the amount of gain or reduce the amount of loss recognized in the
original redemption transaction, because the initial sales charge will not be
taken into account in determining such gain or loss to the extent there has been
a reduction in the initial sales charge payable upon reinstatement.
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.
SHARE 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.
64
<PAGE> 650
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 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. 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
65
<PAGE> 651
previously designated wiring or electronic funds transfer instructions; and (4)
written redemptions or exchanges of shares previously reported as lost, whether
or not the redemption amount is under $50,000 or the proceeds are to be sent to
the address of record. AIM Funds may waive or modify any signature guarantee
requirements at any time.
Acceptable guarantors include banks, broker-dealers, credit unions, national
securities exchanges, savings associations and any other organization, provided
that such institution or organization qualifies as an "eligible guarantor
institution" as that term is defined in rules adopted by the SEC, and further
provided that such guarantor institution is listed in one of the reference
guides contained in the Transfer Agent's current Signature Guarantee Standards
and Procedures, such as certain domestic banks, credit unions, securities
dealers, or securities exchanges. The Transfer Agent will also accept signatures
with either: (1) a signature guaranteed with a medallion stamp of the STAMP
Program, or (2) a signature guaranteed with a medallion stamp of the NYSE
Medallion Signature Program, provided that in either event, the amount of the
transaction involved does not exceed the surety coverage amount indicated on the
medallion. For information regarding whether a particular institution or
organization qualifies as an "eligible guarantor institution," an investor
should contact the Client Services Department of AFS.
DIVIDENDS AND DISTRIBUTIONS. In determining the amount of capital gains, if
any, available for distribution, net capital gains are offset against available
net capital losses, if any, carried forward from previous fiscal periods.
For funds that do not declare a dividend daily, such dividends and
distributions will be reinvested at the net asset value per share determined on
the ex-dividend date. For funds that declare a dividend daily, such dividends
and distributions will be reinvested at the net asset value per share determined
on the payable date.
Dividends on Class B and Class C shares are expected to be lower than those
for Class A shares or AIM Cash Reserve Shares because of higher distribution
fees paid by Class B and Class C shares. Dividends on all shares may also be
affected by other class-specific expenses.
Changes in the form of dividend and distribution payments may be made by the
shareholder at any time by notice to the Transfer Agent and are effective as to
any subsequent payment if such notice is received by the Transfer Agent prior to
the record date of such payment. Any dividend and distribution 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.
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.
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<PAGE> 652
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.
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.
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 February 1, 1999, 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>
Emerging Markets Debt Fund -- MLPF&S for the Sole Benefit of Its 10.24% -0-
Class B Customers, Security #97AMB
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd
Floor
Jacksonville, FL 32246-6484
Emerging Markets Debt LGT Asset Management A/C 5000201000 31.89% -0-
Fund -- Advisor Class SERP Plan
Attn: Debbie Nettles
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
LGT Asset Management 30.21% -0-
401(K) Plan
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
Charges Schwab & Co., Inc. 20.39% -0-
Reinvest Account
101 Montgomery St.
San Francisco, California
94104-4122
Attn: Mutual Funds
Government Income Fund -- Class A MLPF&S for the Sole Benefit of Its 7.30% -0-
Customers, Security #
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.
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<PAGE> 653
<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 -- Class B MLPF&S for the Sole Benefit of Its 10.34% -0-
Customers, Security #97AM9
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd
Floor
Jacksonville, FL 32246-6484
Government Income Fund -- Advisor LGT Asset Management 48.95% -0-
Class 401(K) Plan
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
LGT Asset Management 27.05% -0-
SERP Plan
Attn: Debbie Nettles A/C 5000201000
11 Greenway Plaza Suite 100
Houston, TX 77046-1173
Trust Company of America 8.16% -0-
FBO FPI
P.O. Box 6503
Englewood, CO 80155-6503
Growth & Income Fund -- Class A MLPF&S for the Sole Benefit of Its 5.35% -0-
Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd
Floor
Jacksonville, FL 32246-6484
Growth & Income Fund -- Advisor LGT Asset Management A/C 5000201000 39.19% -0-
Class SERP Plan
Attn: Debbie Nettles
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
LGT Asset Management 33.86% -0-
401(K) Plan
Judy Creel, Arthur Sprague or
Robert Alley TTEBS
11 Greenway Plaza, Suite 100
Houston, TX 77046-211172
FTC & Co. 8.35% -0-
Attn: Datalynx #040
P.O. Box 173736
Denver, CO 80217-3736
Strategic Income Fund -- Class B MLPF&S for the Sole Benefit of Its 6.62% -0-
Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd
Floor
Jacksonville, FL 32246-6484
Strategic Income Fund -- Advisor Donaldson Lufkin Jenrette 32.22% -0-
Class Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
</TABLE>
* The Trust has no knowledge as to whether all or any portion of the shares
owned of record are also owned beneficially.
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<PAGE> 654
<TABLE>
<CAPTION>
PERCENT
PERCENT OWNED OF
OWNED OF RECORD AND
FUND NAME AND ADDRESS OF OWNER RECORD* BENEFICIALLY
- ---- ------------------------- -------- ------------
<S> <C> <C> <C>
MLPF&S For the Sole Benefit of Its 25.80% -0-
Customers
Security #97K60
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd
Floor
Jacksonville, FL 32246-6484
FTC & Co. 8.59% -0-
Attn: Datalynx #089
P.O. Box 173736
Denver, CO 80217-3736
</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 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 shares of Emerging Markets Debt Fund,
Government Income Fund, Growth & Income Fund and Strategic Income Fund, stated
as average annualized total returns for the periods shown, were:
<TABLE>
<CAPTION>
ONE FIVE TEN SINCE
YEAR YEAR YEAR INCEPTION*
-------- ------ ---- ----------
<S> <C> <C> <C> <C>
Emerging Markets Debt Fund....................... (32.28)% 0.11% N/A 7.34%
Government Income Fund........................... 6.80 % 3.10% 7.44% 7.00%
Growth & Income Fund............................. 13.78 % 11.86% N/A 13.15%
Strategic Income Fund............................ (6.45)% 2.31% 8.49% 7.99%
</TABLE>
- ---------------
* The inception dates for Class A shares of each Fund are as follows: Emerging
Markets Debt Fund 10/22/92, Government Income Fund 03/29/88, Growth & Income
Fund 09/25/90 and Strategic Income Fund 03/29/88.
The standardized returns for Class B shares of Emerging Markets Debt Fund,
Government Income Fund, Growth & Income Fund and Strategic Income Fund, stated
as average annualized total returns for the periods shown, were:
<TABLE>
<CAPTION>
ONE FIVE TEN SINCE
YEAR YEAR YEAR INCEPTION*
-------- ------ ---- ----------
<S> <C> <C> <C> <C>
Emerging Markets Debt Fund....................... (32.50)% 0.26% N/A 7.50%
Government Income Fund........................... 6.32 % 3.10% N/A 6.44%
Growth & Income Fund............................. 14.58 % 12.10% N/A 14.40%
Strategic Income Fund............................ (7.03)% 2.37% N/A 8.10%
</TABLE>
- ---------------
* The inception date for Class B shares of each Fund is 10/22/92.
69
<PAGE> 655
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>
The average annual non-standardized returns for the Class A shares of Emerging
Markets Debt Fund, Government Income Fund, Growth & Income Fund and Strategic
Income Fund, stated as average annualized total returns for the periods shown,
were:
<TABLE>
<CAPTION>
ONE FIVE TEN SINCE
YEAR YEAR YEAR INCEPTION*
-------- ------ ---- ----------
<S> <C> <C> <C> <C>
Emerging Markets Debt Fund....................... (28.91)% 1.10% N/A 8.18%
Government Income Fund........................... 12.13 % 4.11% 7.96% 7.49%
Growth & Income Fund............................. 20.45 % 13.12% N/A 13.93%
Strategic Income Fund............................ (1.81)% 3.32% 9.03% 8.48%
</TABLE>
- ---------------
* The inception dates for Class A shares of each Fund are as follows: Emerging
Markets Debt Fund 10/22/92, Government Income Fund 03/29/88, Growth & Income
Fund 09/25/90 and Strategic Income Fund 03/29/88.
The average annual non-standardized returns for the Class B shares of Emerging
Markets Debt Fund, Government Income Fund, Growth & Income Fund and Strategic
Income Fund stated as average annualized total returns for the periods shown,
were:
<TABLE>
<CAPTION>
ONE FIVE TEN SINCE
YEAR YEAR YEAR INCEPTION*
-------- ------ ---- ----------
<S> <C> <C> <C> <C>
Emerging Markets Debt Fund....................... (29.33)% 0.47% N/A 7.50%
Government Income Fund........................... 11.32 % 3.41% N/A 6.44%
Growth & Income Fund............................. 19.58 % 12.35% N/A 14.40%
Strategic Income Fund............................ (2.46)% 2.66% N/A 8.10%
</TABLE>
- ---------------
* The inception date for Class B shares of each Fund is 10/22/92.
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>
70
<PAGE> 656
The aggregate non-standardized returns (not taking sales charges into account)
for the Class A shares of Emerging Markets Debt Fund, Government Income Fund,
Growth & Income Fund and Strategic Income Fund, stated as aggregate total
returns for the periods shown, were:
<TABLE>
<CAPTION>
ONE FIVE TEN SINCE
YEAR YEAR YEAR INCEPTION*
-------- ------ ------- ----------
<S> <C> <C> <C> <C>
Emerging Markets Debt Fund.................... (28.91)% 5.61% N/A 62.74%
Government Income Fund........................ 12.13 % 22.30% 115.05% 117.46%
Growth & Income Fund.......................... 20.45 % 85.22% N/A 193.94%
Strategic Income Fund......................... (1.81)% 17.74% 137.30% 140.05%
</TABLE>
- ---------------
* The inception dates for Class A shares of each Fund are as follows: Emerging
Markets Debt Fund 10/22/92, Government Income Fund 03/29/88, Growth & Income
Fund 09/25/90 and Strategic Income Fund 03/29/88.
The aggregate non-standardized returns (not taking sales charge into account)
for the Class B shares, Emerging Markets Debt Fund, Government Income Fund,
Growth & Income Fund and Strategic Income Fund, stated as aggregate total
returns for the periods shown, were:
<TABLE>
<CAPTION>
ONE FIVE TEN SINCE
YEAR YEAR YEAR INCEPTION*
-------- ------ ---- ----------
<S> <C> <C> <C> <C>
Emerging Markets Debt Fund....................... (29.33)% 2.37% N/A 56.44%
Government Income Fund........................... 11.32 % 18.26% N/A 47.17%
Growth & Income Fund............................. 19.58 % 78.98% N/A 130.05%
Strategic Income Fund............................ (2.46)% 14.02% N/A 62.01%
</TABLE>
- ---------------
* The inception date for Class B shares of each Fund is 10/22/92.
The aggregate non-standardized returns (taking sales charges into account) for
the Class A shares of Emerging Markets Debt Fund, Government Income Fund, Growth
& Income Fund and Strategic Income Fund, stated as aggregate total returns for
the periods shown, were:
<TABLE>
<CAPTION>
ONE FIVE TEN SINCE
YEAR YEAR YEAR INCEPTION*
-------- ------ ------- ----------
<S> <C> <C> <C> <C>
Emerging Markets Debt Fund.................... (32.28)% 0.56% N/A 55.01%
Government Income Fund........................ 6.80 % 16.47% 104.89% 107.13%
Growth & Income Fund.......................... 14.58 % 76.98% N/A 130.05%
Strategic Income Fund......................... (6.45)% 12.11% 125.98% 128.65%
</TABLE>
- ---------------
* The inception dates for Class A shares of each Fund are as follows: Emerging
Markets Debt Fund 10/22/92, Government Income Fund 03/29/88, Growth & Income
Fund 09/25/90 and Strategic Income Fund 03/29/88.
The aggregate non-standardized returns (taking sales charges into account) for
the Class B shares of Emerging Markets Debt Fund, Government Income Fund, Growth
& Income Fund and Strategic Income Fund, stated as aggregate total returns for
the periods shown, were:
<TABLE>
<CAPTION>
ONE FIVE TEN SINCE
YEAR YEAR YEAR INCEPTION*
-------- ------ ---- ----------
<S> <C> <C> <C> <C>
Emerging Markets Debt Fund....................... (32.50)% 1.32% N/A 56.44%
Government Income Fund........................... 6.32 % 16.51% N/A 47.17%
Growth & Income Fund............................. 14.58 % 76.98% N/A 130.05%
Strategic Income Fund............................ (7.03)% 12.41% N/A 62.01%
</TABLE>
- ---------------
* The inception date for Class B shares of each Fund is 10/22/92.
71
<PAGE> 657
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
All advertisements of a Fund will disclose the maximum sales charge
(including deferred sales charges) imposed on purchases of the Fund's shares. If
any advertised performance data does not reflect the maximum sales charge (if
any), such advertisement will disclose that the sales charge has not been
deducted in computing the performance data, and that, if reflected, the maximum
sales charge would reduce the performance quoted. Further information regarding
the Fund's performance is contained in the Fund's annual report to shareholders,
which is available upon request and without charge.
A Fund's total return is calculated in accordance with a standardized
formula for computation of annualized total return. Standardized total return
for Class A shares reflects the deduction of the Fund's maximum front-end sales
charge at the time of purchase. Standardized total return for Class B shares
reflects the deduction of the maximum applicable contingent deferred sales
charge on a redemption of shares held for the period.
A Fund's total return shows its overall change in value, including changes
in share price and assuming all the Fund's dividends and capital gain
distributions are reinvested. A cumulative total return reflects the Fund's
performance over a stated period of time. An average annual total return
reflects the hypothetical compounded annual rate of return that would have
produced the same cumulative total return if the Fund's performance had been
constant over the entire period. BECAUSE AVERAGE ANNUAL RETURNS TEND TO EVEN OUT
VARIATIONS IN THE FUND'S RETURN, INVESTORS SHOULD RECOGNIZE THAT SUCH RETURNS
ARE NOT THE SAME AS ACTUAL YEAR-BY-YEAR RESULTS. To illustrate the components of
overall performance, the Fund may separate its cumulative and average annual
returns into income results and capital gains or losses.
Yield is computed in accordance with standardized formulas described herein
and can be expected to fluctuate from time to time and is not necessarily
indicative of future results. Accordingly, yield information may not provide a
basis for comparison with investments which pay a fixed rate of interest for a
stated period of time. Yield reflects investment income net of expenses over the
relevant period attributable to a Fund share, expressed as an annualized
percentage of the maximum offering price per share for Class A shares and net
asset value per share for Class B shares.
Yield is a function of the type and quality of the Fund's investments, the
maturity of the securities held in the Fund's portfolio and the operating
expense ratio of the Fund. A shareholder's investment in the Fund is not insured
or guaranteed.
These factors should be carefully considered by the investor before making an
investment in the Fund.
From time to time and in its discretion, AIM or its affiliates may waive all
or a portion of their fees and/or assume certain expenses of any Fund. Voluntary
fee waivers or reductions or commitments to assume expenses may be rescinded at
any time without further notice to investors. During periods of voluntary fee
waivers or reductions or commitments to assume expenses, AIM will retain its
ability to be reimbursed for such fee prior to the end of each fiscal year.
Contractual fee waivers or reductions or reimbursement of expenses set forth in
the Fee Table in the Prospectus may not be terminated without the approval of
the Board of Trustees.
A practice of waiving or reducing fees or reimbursing expenses will have the
effect of increasing that Fund's yield and total
72
<PAGE> 658
return. The performance of each Fund will vary from time to time and past
results are not necessarily indicative of future results. A Fund's performance
is a function of its portfolio management in selecting the type and quality of
portfolio securities and is affected by operating expenses of the Fund and
market conditions. A shareholder's investment in a Fund is not insured or
guaranteed. These factors should be carefully considered by the investor before
making an investment in any Fund.
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
73
<PAGE> 659
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.
74
<PAGE> 660
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.
75
<PAGE> 661
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.
76
<PAGE> 662
FINANCIAL STATEMENTS
FS
<PAGE> 663
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders of AIM Emerging Markets Debt Fund (formerly GT Global High
Income Fund) and Board of Trustees of AIM Investment Funds (formerly G.T.
Investment Funds, Inc.):
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Emerging Markets Debt Fund
- - -Consolidated at October 31, 1998, and the results of its operations, the
changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at October
31, 1998 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
/s/PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
BOSTON, MASSACHUSETTS
DECEMBER 18, 1998
FS-1
<PAGE> 664
PORTFOLIO OF INVESTMENTS
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- ----------------------------------------------------------- -------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Government & Government Agency Obligations (75.6%)
Algeria (4.3%)
Algeria Tranche 1 Loan Assignment, 6.625% due
9/4/06+ .............................................. USD 15,200,000 $ 7,752,000 4.3
Argentina (18.4%)
Republic of Argentina:
I.O. Strip, 12.11% due 4/10/05 ...................... USD 10,390,000 9,142,145 5.1
Discount Bond, 6.625% due 3/31/23+ .................. USD 12,518,000 8,527,888 4.7
Par Bond Series L, 5.75% (6% at 3/31/99) due
3/31/23++ .......................................... USD 11,540,000 8,020,300 4.4
Global Bond, 9.75% due 9/19/27 ...................... USD 4,573,000 3,970,507 2.2
7.297% due 7/8/05 ................................... ITL 7,780,000,000 3,526,648 2.0
Brazil (4.7%)
Brazil Floating Rate Discount Note, 6.125% due
4/15/24+ ............................................. USD 14,398,000 8,557,811 4.7
Bulgaria (7.2%)
Republic of Bulgaria:
Discount Bond Series A, 6.6875% due 7/28/24 -
Euro+ .............................................. USD 11,120,000 7,811,800 4.3
Front Loaded Interest Reduction Bond Series A, 2.5%
(2.75% at 7/99) due 7/28/12++ ...................... USD 9,427,000 5,208,418 2.9
Colombia (4.3%)
Republic of Colombia:
8.625% due 4/1/08 ................................... USD 6,498,000 5,100,930 2.8
7.27% due 6/15/03 - 144A{.} ......................... USD 3,300,000 2,689,500 1.5
Ivory Coast (4.8%)
Ivory Coast:
Past Due Interest Bond, 1.9% (2.9% at 3/31/09) due
3/29/18++ .......................................... FRF 153,852,500 6,856,419 3.8
Past due Interest Bond, 2% (3% at 3/31/09) due
3/29/18++ .......................................... USD 5,875,625 1,718,620 1.0
Jamaica (3.8%)
Government of Jamaica, 10.875% due 6/10/05 -
144A{.} .............................................. USD 9,054,000 6,790,500 3.8
Korea (0.6%)
Korea Republic Restructured Debt, 8.281% due
4/8/00+ .............................................. USD 1,230,000 1,143,900 0.6
Mexico (13.5%)
United Mexican States:
9.875% due 1/15/07 .................................. USD 7,390,000 7,029,738 3.9
Discount Bond Series A, 6.1156% due 12/31/19+ +/+ ... USD 8,295,000 6,475,284 3.6
6.63% due 12/31/19 .................................. FRF 39,000,000 5,468,652 3.0
Global Bond, 11.375% due 9/15/16 .................... USD 2,688,000 2,684,640 1.5
Discount Bond Series D, 6.6016% due 12/31/19+ ....... USD 2,210,000 1,725,181 1.0
Discount Bond Series B, 6.47656% due 12/31/19+
+/+ ................................................ USD 1,265,000 987,491 0.5
Panama (3.2%)
Republic of Panama:
Interest Reduction Bond, 4.00% (4.25% at 7/99) due
7/17/14++ .......................................... USD 4,350,000 3,183,656 1.8
8.875% due 9/30/27 .................................. USD 2,689,000 2,480,603 1.4
Peru (4.6%)
Republic of Peru, Past Due Interest Bond, 4% (4.5% at
3/8/99) due 3/7/17++ ................................. USD 14,305,000 8,225,375 4.6
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-2
<PAGE> 665
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- ----------------------------------------------------------- -------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Government & Government Agency Obligations (Continued)
Poland (4.6%)
Poland:
3% (3.5% at 10/28/99) due 10/27/24 - Euro++ ......... USD 8,210,000 $ 5,459,650 3.0
Past Due Interest, 5% (6% at 10/28/99) 10/27/14 -
Euro++ ............................................. USD 3,138,000 2,853,619 1.6
Russia (1.6%)
Bank for Foreign Economic Affairs (Venesheconombank)
Principal Loans, 6.625% due 12/15/20+ ................ USD 37,242,372 2,956,113 1.6
------------
Total Government & Government Agency Obligations (cost
$164,789,707) ............................................ 136,347,388
------------
Corporate Bonds (20.9%)
Argentina (1.5%)
Disco S.A., 9.875% due 5/15/08 - 144A{.} .............. USD 1,960,000 1,367,100 0.8
Mastellone Hermanos S.A., 11.75% due 4/1/08 -
144A{.} .............................................. USD 1,943,000 1,185,230 0.7
Brazil (6.1%)
Globo Comunicacoes Participacoes, 10.625% due 5/12/08 -
144A{.} .............................................. USD 5,995,000 3,432,138 1.9
Banco Hipotecario Espana, 10% due 4/17/03 - 144A{.} ... USD 3,679,000 3,237,520 1.8
Banco Nacional de Desenvolvimento Economico e Social
(BNDES):
10.8% due 6/16/08 -144A{.} .......................... USD 1,694,000 1,185,800 0.7
10.8% due 6/16/08 - Reg S{c} ........................ USD 1,375,000 962,500 0.5
RBS Participacoes S.A., 11% due 4/1/07 - 144A{.} ...... USD 3,708,000 1,668,600 0.9
CSN Iron S.A., 9.125% due 6/1/07 ...................... USD 985,000 558,988 0.3
Colombia (0.9%)
Financiera Energia Nacional, 9.375% due 6/15/06 - Reg
S{c} ................................................. USD 2,200,000 1,613,260 0.9
Jamaica (1.6%)
Mechala Group Jamaica:
12.75% due 12/30/99 - Series B ...................... USD 2,846,000 1,992,200 1.1
12.75% due 12/30/99 - Reg S{c} ...................... USD 1,288,000 901,600 0.5
Korea (0.9%)
Pohang Iron & Steel, 2% due 10/9/00 ................... JPY 224,000,000 1,665,177 0.9
Luxembourg (1.7%)
Cellco Finance N.V., 15% due 8/1/05 - Reg S{c} ........ USD 3,790,000 3,069,900 1.7
Mexico (6.4%)
Petroleos Mexicanos (PEMEX), 9.25% due 3/30/18 -
144A{.} .............................................. USD 9,257,000 7,544,455 4.2
Dine, S.A. de C.V., 8.75% due 10/15/07 - 144A{.} ...... USD 2,060,000 1,627,400 0.9
Cemex Valenciana, 9.66% due 11/29/49 - 144A{.} ........ USD 1,430,000 1,201,200 0.7
Banco Nacional Comercio Exte., 8% due 7/18/02 - Reg
S{c} ................................................. USD 1,180,000 1,076,750 0.6
Russia (0.9%)
Lukinter Finance BV Convertible, 3.5% due 5/6/02 -
144A{.} .............................................. USD 2,283,000 833,295 0.5
Mosenergo Finance BV, 8.375% due 10/9/02 - 144A{.} .... USD 4,200,000 735,000 0.4
Singapore (0.9%)
Krung Thai Bank, 6.23% due 9/30/04 .................... USD 2,500,000 1,650,000 0.9
------------
Total Corporate Bonds (cost $53,441,317) .................. 37,508,113
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-3
<PAGE> 666
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- ----------------------------------------------------------- -------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Structured Notes (2.0%)
Korea (2.0%)
Fixed Rate Trust Certificate 13.55% due 2/15/02[::]
(Issued by a newly created Delaware Business Trust,
collateralized by triple A paper. This trust
certificate has a credit risk component linked to
the value of a referenced security: Korean
Development Bank 1.875% 2002.)
(cost $5,050,000) ................................. USD 5,050,000 $ 3,694,075 2.0
------------ -----
TOTAL FIXED INCOME INVESTMENTS (cost $223,281,024) ........ 177,549,576 98.5
------------ -----
<CAPTION>
VALUE % OF NET
REPURCHASE AGREEMENT (NOTE 1) ASSETS
- ----------------------------------------------------------- ------------ -------------
<S> <C> <C> <C> <C>
Dated October 30, 1998, with State Street Bank & Trust
Co., due November 2, 1998, for an effective yield 5.30%
collateralized by $5,000 U.S. Treasury Bonds, 8.75% due
05/15/17 (market value of collateral is $7,211 including
accrued interest). (cost $7,000) ...................... 7,000 --
------------ -----
TOTAL INVESTMENTS (cost $223,288,024) * .................. 177,556,576 98.5
Other Assets and Liabilities .............................. 2,766,571 1.5
------------ -----
NET ASSETS ................................................ $180,323,147 100.0
------------ -----
------------ -----
</TABLE>
- --------------
[::] Certain events may cause the contract to terminate prior to date
shown.
{.} Security exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers.
{c} Security issued under Regulation S. Rule 144A and additional
restrictions may apply in the resale of such securities.
+ The coupon rate shown on floating rate note represents the rate at
period end.
++ The coupon rate shown on step-up coupon bond represents the rate at
period end.
+/+ Issued with detachable warrants or value recovery rights. The
current market value of each warrant or right is zero.
* For Federal income tax purposes, cost is $229,575,059 and
appreciation (depreciation) is as follows:
<TABLE>
<S> <C>
Unrealized appreciation: $ 2,192,621
Unrealized depreciation: (54,211,104)
-------------
Net unrealized depreciation: $ (52,018,483)
-------------
-------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS OUTSTANDING
OCTOBER 31, 1998
<TABLE>
<CAPTION>
UNREALIZED
MARKET VALUE CONTRACT DELIVERY APPRECIATION
CONTRACTS TO SELL: (U.S. DOLLARS) PRICE DATE (DEPRECIATION)
- ---------------------------------------- -------------- ------------ -------- --------------
<S> <C> <C> <C> <C>
French Francs........................... 6,685,024 5.45470 03/18/99 $ 79,784
Japanese Yen............................ 1,596,301 118.80000 11/27/98 (38,220)
-------------- --------------
Total Contracts to Sell (Receivable
amount $8,322,889)................... 8,281,325 41,564
-------------- --------------
THE VALUE OF CONTRACTS TO SELL AS
PERCENTAGE OF NET ASSETS IS 4.59%.
Total Open Forward Foreign Currency
Contracts............................ $ 41,564
--------------
--------------
</TABLE>
- ----------------
See Note 1 of Notes to the Financial Statements.
The accompanying notes are an integral part of the financial statements.
FS-4
<PAGE> 667
STATEMENT OF ASSETS
AND LIABILITIES
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at value (cost $223,288,024) (Note 1)............................ $177,556,576
U.S. currency.................................................................... $ 90
Foreign currencies (cost $655,357)............................................... $ 647,780 647,870
---------
Receivable for securities sold.............................................................. 11,083,854
Interest receivable......................................................................... 5,228,106
Receivable for Fund shares sold............................................................. 1,421,034
Receivable for open forward foreign currency contracts (Note 1)............................. 41,564
-----------
Total assets.............................................................................. 195,979,004
-----------
Liabilities:
Payable for securities purchased............................................................ 11,070,590
Payable for loan outstanding (Note 1)....................................................... 2,000,000
Payable for Fund shares repurchased......................................................... 927,125
Distribution payable........................................................................ 863,058
Payable for service and distribution expenses (Note 2)...................................... 339,869
Payable for investment management and administration fees (Note 2).......................... 142,609
Payable for transfer agent fees (Note 2).................................................... 100,252
Payable for printing and postage expenses................................................... 83,667
Payable for professional fees............................................................... 51,163
Payable for custodian fees.................................................................. 30,000
Payable for registration and filing fees.................................................... 12,051
Payable for Trustees' fees and expenses (Note 2)............................................ 11,850
Payable for fund accounting fees (Note 2)................................................... 4,476
Other accrued expenses...................................................................... 19,047
-----------
Total liabilities......................................................................... 15,655,757
Minority interest (Notes 1 & 2)............................................................. 100
-----------
Net assets.................................................................................... $180,323,147
-----------
-----------
Class A:
Net asset value and redemption price per share $(69,321,193 DIVIDED BY 8,818,139 shares
outstanding)............................................................................... $ 7.86
-----------
-----------
Maximum offering price per share (100/95.25 of $7.86) *..................................... $ 8.25
-----------
-----------
Class B:+
Net asset value and offering price per share $(109,406,337 DIVIDED BY 13,918,010 shares
outstanding)................................................................................. $ 7.86
-----------
-----------
Advisor Class:
Net asset value, offering price per share, and redemption price per share $(1,595,617
DIVIDED BY 203,898 shares outstanding)..................................................... $ 7.83
-----------
-----------
Net assets consist of:
Paid in capital (Note 4).................................................................... $285,771,413
Accumulated net investment loss............................................................. (41,564)
Accumulated net realized loss on investments and foreign currency transactions.............. (59,706,950)
Net unrealized appreciation on translation of assets and liabilities in foreign
currencies................................................................................. 31,696
Net unrealized depreciation of investments.................................................. (45,731,448)
-----------
Total -- representing net assets applicable to capital shares outstanding..................... $180,323,147
-----------
-----------
<FN>
- --------------
* On sales of $50,000 or more, the offering price is reduced.
+ Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-5
<PAGE> 668
STATEMENT OF OPERATIONS
Year ended October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment income: (Note 1)
Interest income.......................................................................... $ 39,014,757
Securities lending income................................................................ 957,492
-------------
Total investment income................................................................ 39,972,249
-------------
Expenses:
Investment management and administration fees (Note 2)................................... 3,009,607
Service and distribution expenses: (Note 2)
Class A.................................................................... $ 396,089
Class B.................................................................... 1,911,164 2,307,253
----------
Transfer agent fees (Note 2)............................................................. 580,010
Printing and postage expenses............................................................ 194,145
Professional fees........................................................................ 123,970
Custodian fees........................................................................... 103,300
Fund accounting fees (Note 2)............................................................ 82,450
Registration and filing fees............................................................. 48,875
Trustees' fees and expenses (Note 2)..................................................... 23,526
Other expenses........................................................................... 116,753
-------------
Total net expenses..................................................................... 6,589,889
-------------
Net investment income...................................................................... 33,382,360
-------------
Net realized and unrealized loss on investments and foreign currencies: (Note
1)
Net realized loss on investments............................................. (66,692,221)
Net realized loss on foreign currency transactions........................... (2,809,719)
----------
Net realized loss during the year...................................................... (69,501,940)
Net change in unrealized appreciation on translation of assets and
liabilities in foreign currencies........................................... 951,172
Net change in unrealized depreciation of investments......................... (50,094,366)
----------
Net unrealized depreciation during the year............................................ (49,143,194)
-------------
Net realized and unrealized loss on investments and foreign currencies..................... (118,645,134)
-------------
Net decrease in net assets resulting from operations....................................... $ (85,262,774)
-------------
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-6
<PAGE> 669
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1998 1997
------------- -------------
Decrease in net assets
Operations:
Net investment income...................................................... $ 33,382,360 $ 31,937,784
Net realized gain (loss) on investments and foreign currency
transactions.............................................................. (69,501,940) 69,702,746
Net change in unrealized appreciation (depreciation) on translation of
assets and liabilities in foreign currencies.............................. 951,172 (1,099,793)
Net change in unrealized appreciation (depreciation) of investments........ (50,094,366) (36,470,606)
------------- -------------
Net increase (decrease) in net assets resulting from operations.......... (85,262,774) 64,070,131
------------- -------------
Class A:
Distributions to shareholders: (Note 1)
From net investment income................................................. (9,422,518) (12,555,399)
From net realized gain on investments...................................... (24,756,370) (2,751,509)
Return of capital.......................................................... (3,147,917) --
Class B:
Distributions to shareholders: (Note 1)
From net investment income................................................. (14,937,576) (17,789,317)
From net realized gain on investments...................................... (41,863,802) (3,911,565)
Return of capital.......................................................... (4,936,309) --
Advisor Class:
Distributions to shareholders: (Note 1)
From net investment income................................................. (246,624) (1,289,469)
From net realized gain on investments...................................... (638,983) (264,339)
Return of capital.......................................................... (82,579) --
------------- -------------
Total distributions...................................................... (100,032,678) (38,561,598)
------------- -------------
Capital share transactions: (Note 4)
Increase from capital shares sold and reinvested........................... 273,854,427 561,523,639
Decrease from capital shares repurchased................................... (274,028,239) (665,858,246)
------------- -------------
Net decrease from capital share transactions............................. (173,812) (104,334,607)
------------- -------------
Total decrease in net assets................................................. (185,469,264) (78,826,074)
Net assets:
Beginning of year.......................................................... 365,792,411 444,618,485
------------- -------------
End of year *.............................................................. $ 180,323,147 $ 365,792,411
------------- -------------
------------- -------------
* Includes undistributed/accumulated net investment income (loss)........... $ (41,564) $ 303,600
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-7
<PAGE> 670
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout the period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1998 (d) 1997 (d) 1996 (d) 1995 1994 (d)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 15.56 $ 14.85 $ 11.70 $ 12.56 $ 14.92
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income................. 1.35* 1.19 1.27 1.35 0.94
Net realized and unrealized gain
(loss) on investments and foreign
currencies........................... (4.80) 0.93 3.09 (1.09) (1.87)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) from
investment operations.............. (3.45) 2.12 4.36 0.26 (0.93)
---------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income............ (1.06) (1.18) (1.11) (1.03) (0.94)
From net realized gain on
investments.......................... (2.83) (0.23) (0.10) (0.03) (0.27)
In excess of net realized gain on
investments.......................... -- -- -- -- (0.22)
Return of capital..................... (0.36) -- -- (0.06) --
---------- ---------- ---------- ---------- ----------
Total distributions................. (4.25) (1.41) (1.21) (1.12) (1.43)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 7.86 $ 15.56 $ 14.85 $ 11.70 $ 12.56
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return (c)............. (30.07)% 14.46% 39.05% 2.81% (6.45)%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 69,321 $ 133,973 $ 178,318 $ 142,002 $ 167,974
Ratio of net investment income to
average net assets..................... 11.27% 7.39% 9.52% 11.85% 7.00%
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions............... 1.74% 1.53% 1.69% 1.75% 1.57%
Without expense reductions............ 1.74% 1.58% 1.69% 1.75% 1.57%
Ratio of interest expense to average net
assets++............................... N/A N/A 0.04% N/A 0.22%
Portfolio turnover rate++............... 339% 214% 290% 213% 178%
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share operating data were calculated based upon
average shares outstanding during the period.
* Net investment income per share reflects an interest payment received
from the conversion of Vnesheconombank loan agreements of $0.21 per
share for each of Class A, B and Advisor.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates and ratio of interest expense to average net
assets are calculated on the basis of the fund as a whole without
distinguishing among the classes of shares issued.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-8
<PAGE> 671
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout the period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1998 (d) 1997 (d) 1996 (d) 1995 1994 (d)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 15.54 $ 14.83 $ 11.69 $ 12.56 $ 14.90
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income................. 1.28* 1.09 1.17 1.27 0.86
Net realized and unrealized gain
(loss) on investments and foreign
currencies........................... (4.79) 0.93 3.09 (1.09) (1.85)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) from
investment operations.............. (3.51) 2.02 4.26 0.18 (0.99)
---------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income............ (0.98) (1.08) (1.03) (0.96) (0.86)
From net realized gain on
investments.......................... (2.83) (0.23) (0.09) (0.03) (0.27)
In excess of net realized gain on
investments.......................... -- -- -- -- (0.22)
Return of capital..................... (0.36) -- -- (0.06) --
---------- ---------- ---------- ---------- ----------
Total distributions................. (4.17) (1.31) (1.12) (1.05) (1.35)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 7.86 $ 15.54 $ 14.83 $ 11.69 $ 12.56
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return (c)............. (30.49)% 13.77% 38.16% 2.07% (6.99)%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 109,406 $ 228,101 $ 251,002 $ 214,897 $ 232,423
Ratio of net investment income to
average net assets..................... 10.62% 6.74% 8.87% 11.20% 6.35%
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions............... 2.39% 2.18% 2.34% 2.40% 2.22%
Without expense reductions............ 2.39% 2.23% 2.34% 2.40% 2.22%
Ratio of interest expense to average net
assets++............................... N/A N/A 0.04% N/A 0.22%
Portfolio turnover rate++............... 339% 214% 290% 213% 178%
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share operating data were calculated based upon
average shares outstanding during the period.
* Net investment income per share reflects an interest payment received
from the conversion of Vnesheconombank loan agreements of $0.21 per
share for each of Class A, B and Advisor.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates and ratio of interest expense to average net
assets are calculated on the basis of the fund as a whole without
distinguishing among the classes of shares issued.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-9
<PAGE> 672
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout the period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
ADVISOR CLASS+
---------------------------------------------------
JUNE 1, 1995
YEAR ENDED OCTOBER 31, TO
------------------------------------ OCTOBER 31,
1998 (d) 1997 (d) 1996 (d) 1995
----------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 15.52 $ 14.83 $ 11.71 $ 11.44
----------- ----------- ---------- -------------
Income from investment operations:
Net investment income................. 1.40* 1.22 1.34 0.57
Net realized and unrealized gain
(loss) on investments and foreign
currencies........................... (4.79) 0.93 3.05 0.17
----------- ----------- ---------- -------------
Net increase (decrease) from
investment operations.............. (3.39) 2.15 4.39 0.74
----------- ----------- ---------- -------------
Distributions to shareholders:
From net investment income............ (1.11) (1.23) (1.16) (0.44)
From net realized gain on
investments.......................... (2.83) (0.23) (0.11) --
In excess of net realized gain on
investments.......................... -- -- -- --
Return of capital..................... (0.36) -- -- (0.03)
----------- ----------- ---------- -------------
Total distributions................. (4.30) (1.46) (1.27) (0.47)
----------- ----------- ---------- -------------
Net asset value, end of period.......... $ 7.83 $ 15.52 $ 14.83 $ 11.71
----------- ----------- ---------- -------------
----------- ----------- ---------- -------------
Total investment return (c)............. (29.79)% 14.72% 39.38% 6.54%(b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 1,596 $ 3,719 $ 15,298 $ 1,463
Ratio of net investment income to
average net assets..................... 11.62% 7.74% 9.87% 12.20%(a)
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions............... 1.39% 1.18% 1.34% 1.40%(a)
Without expense reductions............ 1.39% 1.23% 1.34% 1.40%(a)
Ratio of interest expense to average net
assets++............................... N/A N/A 0.04% N/A
Portfolio turnover rate++............... 339% 214% 290% 213%(a)
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share operating data were calculated based upon
average shares outstanding during the period.
* Net investment income per share reflects an interest payment received
from the conversion of Vnesheconombank loan agreements of $0.21 per
share for each of Class A, B and Advisor.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates and ratio of interest expense to average net
assets are calculated on the basis of the fund as a whole without
distinguishing among the classes of shares issued.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-10
<PAGE> 673
NOTES TO
FINANCIAL STATEMENTS
October 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (SEE ALSO NOTE 2)
AIM Emerging Markets Debt Fund (the "Fund"), formerly AIM Global High Income
Fund and prior to that GT Global High Income Fund, a non-diversified separate
series of AIM Investment Funds (the "Trust"), formerly G.T. Investment Funds,
Inc. The Trust is organized as a Delaware business trust and is registered under
the Investment Company Act of 1940, as amended ("1940 Act"), as an open-end
management investment company. The Trust has thirteen series of shares in
operation, each series corresponding to a distinct portfolio of investments.
The Fund invests substantially all of its investable assets in the Emerging
Markets Debt Portfolio (the "Portfolio", formerly the Global High Income
Portfolio), a Delaware business trust and is registered under the 1940 Act as a
non-diversified, open-end management investment company.
The Portfolio has investment objectives, policies and limitations substantially
identical to those of its corresponding Fund. Therefore, the financial
statements of the Fund and the Portfolio have been presented on a consolidated
basis, and represent all activities of both the Fund and Portfolio. Through
October 31, 1998, all of the shares of beneficial interest of the Portfolio were
owned by the Fund or INVESCO (NY), Inc. (the "Sub-advisor"), which has a nominal
($100) investment in the Portfolio.
The Fund offers Class A, Class B, and Advisor Class shares, each of which has
equal rights as to assets and voting privileges. Class A and Class B each has
exclusive voting rights with respect to its distribution plan. Investment
income, realized and unrealized capital gains and losses, and the common
expenses of the Fund are allocated on a pro rata basis to each class based on
the relative net assets of each class to the total net assets of the Fund. Each
class of shares differs in its respective service and distribution expenses, and
may differ in its transfer agent, registration, and certain other class-specific
fees and expenses.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies in conformity with generally accepted accounting
principles consistently followed by the Fund in the preparation of the financial
statements.
(A) PORTFOLIO VALUATION
The Fund calculates the net asset value of and completes orders to purchase,
exchange, or repurchase Fund shares on each business day, with the exception of
those days on which the New York Stock Exchange is closed.
Equity securities are valued at the last sale price on the exchange on which
such securities are traded, or on the principal over-the-counter market on which
such securities are traded, as of the close of business on the day the
securities are being valued, or, lacking any sales, at the last available bid
price. In cases where securities are traded on more than one exchange, the
securities are valued on the exchange determined by A I M Advisors, Inc. (the
"Manager") to be the primary market.
Fixed income investments are valued at the mean of representative quoted bid and
ask prices for such investments or, if such prices are not available, at prices
for investments of comparative maturity, quality, and type; however, when the
Manager deems it appropriate, prices obtained for the day of valuation from a
bond pricing service will be used. Short-term investments with a maturity of 60
days or less are valued at amortized cost adjusted for foreign exchange
translation and market fluctuation, if any.
Investments for which market quotations are not readily available (including
restricted securities which are subject to limitations on their sale) are valued
at fair value as determined in good faith by or under the direction of the
Trust's Board of Trustees.
Portfolio securities which are primarily traded on foreign exchanges are
generally valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S. dollars at
the current exchange rates, except that when an occurrence subsequent to the
time a value was so established is likely to have materially changed such value,
then the fair value of those securities will be determined by consideration of
other factors by or under the direction of the Trust's Board of Trustees.
(B) FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund and Portfolio are maintained in U.S. dollars.
The market values of foreign securities, currency holdings, and other assets and
liabilities are recorded in the books and records of the Portfolio after
translation to U.S. dollars based on the exchange rates on that day. The cost of
each security is determined using historical exchange rates. Income and
withholding taxes are translated at prevailing exchange rates when earned or
incurred.
The Portfolio does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, forward foreign currency contracts, sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Portfolio's books and the U.S. dollar equivalent of the amounts actually
received or paid. Net unrealized foreign exchange gains or losses arise from
changes in the value of assets and liabilities other than investments in
securities at period end, resulting from changes in exchange rates.
FS-11
<PAGE> 674
(C) REPURCHASE AGREEMENTS
With respect to repurchase agreements entered into by the Portfolio, it is the
Portfolio's policy to always receive, as collateral, United States government
securities or other high quality debt securities of which the value, including
accrued interest, is at least equal to the amount to be repaid to the Portfolio
under each agreement at its maturity.
(D) FORWARD FOREIGN CURRENCY CONTRACTS
A forward foreign currency contract ("Forward Contract") is an agreement between
two parties to buy and sell a currency at a set price on a future date. The
market value of the Forward Contract fluctuates with changes in currency
exchange rates. The Forward Contract is marked-to-market daily and the change in
market value is recorded by the Portfolio as an unrealized gain or loss. When
the Forward Contract is closed, the Portfolio records a realized gain or loss
equal to the difference between the value at the time it was opened and the
value at the time it was closed. Forward Contracts involve market risk in excess
of the amount shown in the Portfolio's "Statement of Assets and Liabilities".
The Portfolio could be exposed to risk if a counterparty is unable to meet the
terms of the contract or if the value of the currency changes unfavorably. The
Portfolio may enter into Forward Contracts in connection with planned purchases
or sales of securities, or to hedge against adverse fluctuations in exchange
rates between currencies.
(E) OPTION ACCOUNTING PRINCIPLES
When the Portfolio writes a call or put option, an amount equal to the premium
received is included in the Portfolio's "Statement of Assets and Liabilities" as
an asset and an equivalent liability. The amount of the liability is
subsequently marked-to-market to reflect the current market value of the option.
The current market value of an option listed on a traded exchange is valued at
its last bid price, or, in the case of an over-the-counter option, is valued at
the average of the last bid prices obtained from brokers, unless a quotation
from only one broker is available, in which case only that broker's price will
be used. If an option expires on its stipulated expiration date or if the
Portfolio enters into a closing purchase transaction, a gain or loss is realized
without regard to any unrealized gain or loss on the underlying security and the
liability related to such option is extinguished. If a written call option is
exercised, a gain or loss is realized from the sale of the underlying security
and the proceeds of the sale are increased by the premium originally received.
If a written put option is exercised, the cost of the underlying security
purchased would be decreased by the premium originally received. The Portfolio
can write options only on a covered basis, which, for a call, requires that the
Portfolio hold the underlying security and, for a put, requires the Portfolio to
set aside cash, U.S. government securities or other liquid securities in an
amount not less than the exercise price, or otherwise provide adequate cover at
all times while the put option is outstanding. The Portfolio may use options to
manage its exposure to the stock market and to fluctuations in currency values
or interest rates.
The premium paid by the Portfolio for the purchase of a call or put option is
included in the Portfolio's "Statement of Assets and Liabilities" as an
investment and subsequently "marked-to-market" to reflect the current market
value of the option. If an option which the Portfolio has purchased expires on
the stipulated expiration date, the Portfolio realizes a loss in the amount of
the cost of the option. If the Portfolio enters into a closing sale transaction,
the Portfolio realizes a gain or loss, depending on whether proceeds from the
closing sale transaction are greater or less than the cost of the option. If the
Portfolio exercises a call option, the cost of the securities acquired by
exercising the call is increased by the premium paid to buy the call. If the
Portfolio exercises a put option, it realizes a gain or loss from the sale of
the underlying security, and the proceeds from such sale are decreased by the
premium originally paid.
The risk associated with purchasing options is limited to the premium originally
paid. The risk in writing a call option is that the Portfolio may forego the
opportunity of profit if the market value of the underlying security or index
increases and the option is exercised. The risk in writing a put option is that
the Portfolio may incur a loss if the market value of the underlying security or
index decreases and the option is exercised. In addition, there is the risk the
Portfolio may not be able to enter into a closing transaction because of an
illiquid secondary market.
(F) FUTURES CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
security at a set price on a future date. Upon entering into such a contract the
Portfolio is required to pledge to the broker an amount of cash or securities
equal to the minimum "initial margin" requirements of the exchange on which the
contract is traded. Pursuant to the contract, the Portfolio agrees to receive
from or pay to the broker an amount of cash equal to the daily fluctuation in
value of the contract. Such receipts or payments are known as "variation margin"
and are recorded by the Portfolio as unrealized gains or losses. When the
contract is closed, the Portfolio records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed. The potential risk to the Portfolio is that the
change in value of the underlying securities may not correlate to the change in
value of the contracts. The Portfolio may use futures contracts to manage its
exposure to the stock market and to fluctuations in currency values or interest
rates.
(G) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). The cost of securities sold is determined on a first-in,
first-out-basis, unless otherwise specified. Dividends are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. Where a high
level of uncertainty exists as to its collection, income is recorded net of all
withholding tax with any rebate recorded when received. The Portfolio may trade
securities on other than normal settlement terms. This may increase the risk if
the other party to the transaction fails to deliver and causes the Portfolio to
subsequently invest at less advantageous prices.
(H) PORTFOLIO SECURITIES LOANED
At October 31, 1998, stocks with an aggregate value of $10,301,788 were on loan
to brokers. The loans were secured by cash collateral of $11,293,368 received by
the Portfolio. For the year ended October 31, 1998, the Fund received fees of
$957,492.
For international securities, cash collateral is received by the Portfolio
against loaned securities in an amount at least equal to 105% of the
FS-12
<PAGE> 675
market value of the loaned securities at the inception of each loan. This
collateral must be maintained at not less than 103% of the market value of the
loaned securities during the period of the loan. For domestic securities, cash
collateral is received by the Portfolio against loaned securities in the amount
at least equal to 102% of the market value of the loaned securities at the
inception of each loan. This collateral must be maintained at not less than 100%
of the market value of the loaned securities during the period of the loan. The
cash collateral is invested in a securities lending trust which consists of a
portfolio of high quality short duration securities whose average effective
duration is restricted to 120 days or less.
(I) TAXES
It is the intended policy of the Fund to meet the requirements for qualification
as a "regulated investment company" under the Internal Revenue Code of 1986, as
amended ("Code"). It is also the intention of the Fund to make distributions
sufficient to avoid imposition of any excise tax under Section 4982 of the Code.
Therefore, no provision has been made for Federal taxes on income, capital
gains, or unrealized appreciation of securities held, and excise tax on income
and capital gains. The Fund has a capital loss carryforward of $53,419,915 which
expires in 2006.
(J) DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded by each Fund on the ex-date. Income
and capital gain distributions are determined in accordance with Federal income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Portfolio and timing differences.
(K) FOREIGN SECURITIES
There are certain additional considerations and risks associated with investing
in foreign securities and currency transactions that are not inherent in
investments of domestic origin. The Portfolio's investment in emerging market
countries may involve greater risks than investments in more developed markets
and the price of such investments may be volatile. These risks of investing in
foreign and emerging markets may include foreign currency exchange rate
fluctuations, perceived credit risk, adverse political and economic developments
and possible adverse foreign government intervention.
(L) INDEXED SECURITIES
The Portfolio may invest in indexed securities whose value is linked either
directly or indirectly to changes in foreign currencies, interest rates,
equities, indices, or other reference instruments. Indexed securities may be
more volatile than the reference instrument itself, but any loss is limited to
the amount of the original investment.
(M) RESTRICTED SECURITIES
The Portfolio is permitted to invest in privately placed restricted securities.
These securities may be resold in transactions exempt from registration or to
the public if the securities are registered. Disposal of these securities may
involve time-consuming negotiations and expense, and prompt sale at an
acceptable price may be difficult. At the end of the year, restricted
securities, if any, (excluding 144A issues), are shown at the end of the Fund's
Portfolio of Investments.
(N) LINE OF CREDIT
The Fund, along with certain other funds advised and/or administered by the
Manager, has a line of credit with BankBoston. The arrangement with the bank
allows all specified funds and certain other Funds to borrow, on a first come,
first serve basis, an aggregate maximum amount of $150,000,000. The Fund is
limited to borrowing up to 33 1/3% of the value of the Fund's total assets. On
October 31, 1998, AIM Emerging Markets Debt Fund had $2,000,000 in loans
outstanding.
For the year ended October 31, 1998, the weighted average outstanding daily
balance of bank loans (based on the number of days the loans were outstanding)
for the Fund was $6,402,778, with a weighted average interest rate of 6.27%.
Interest expense for the year ended October 31, 1998 was $80,253 and is included
in "Other Expenses" on the Statement of Operations.
(O) SECURITIES PURCHASED ON A WHEN-ISSUED OR FORWARD COMMITMENT BASIS
The Portfolio may trade securities on a when-issued or forward commitment basis,
with payment and delivery scheduled for a future date. These transactions are
subject to market fluctuations and are subject to the risk that the value at
delivery may be more or less than the trade date purchase price. Although the
Portfolio will generally purchase these securities with the intention of
acquiring such securities, they may sell such securities before the settlement
date. These securities are identified on the accompanying Portfolio of
Investments. The Fund or Portfolio has set aside sufficient cash or liquid
securities as collateral for these purchase commitments.
2. RELATED PARTIES
A I M Advisors, Inc. (the "Manager"), an indirect wholly-owned subsidiary of
AMVESCAP PLC, is the Fund's and Portfolio's investment manager and administrator
and INVESCO (NY), Inc., (formerly, Chancellor LGT Asset Management, Inc.) is the
Fund's and Portfolio's investment sub-advisor and sub-administrator. As of the
close of business on May 29, 1998, Liechtenstein Global Trust AG ("LGT"), the
former indirect parent organization of Chancellor LGT Asset Management, Inc.
("Chancellor LGT") consummated a purchase agreement with AMVESCAP PLC pursuant
to which AMVESCAP PLC acquired LGT's Asset Management Division, which included
Chancellor LGT and certain other affiliates. As a result of this transaction,
Chancellor LGT was renamed INVESCO (NY), Inc., and is now an indirect
wholly-owned subsidiary of AMVESCAP PLC. A I M Distributors, Inc. ("AIM
Distributors"), a wholly-owned subsidiary of the Manager, became the Fund's
distributor as of the close of business on May 29, 1998. The Trust was
reorganized from a Maryland corporation into a Delaware business trust, and the
Portfolio was reorganized from a New York common law trust into a Delaware
business trust on September 8, 1998. Finally, as of the close of business on
September 4, 1998, A I M Fund Services, Inc. ("AFS"), an affiliate of the
Manager and AIM Distributors, replaced GT Global Investor Services, Inc. ("GT
Services") as the transfer agent of the Fund.
The Fund pays administration fees to the Manager at the annualized rate of 0.25%
of its average daily net assets. These fees are computed daily and paid monthly.
The AIM Emerging Markets Debt Portfolio pays investment management and
administration fees to the Manager
FS-13
<PAGE> 676
at the annualized rate of 0.475% on the first $500 million of average daily net
assets of the Portfolio; 0.45% on the next $1 billion; 0.425% on the next $1
billion; and 0.40% on amounts thereafter, plus 2% of the Portfolio's total
investment income calculated in accordance with generally accepted accounting
principles, adjusted daily for currency revaluations, on a mark to market basis,
of the Portfolio's assets; provided, however, that during any fiscal year this
amount shall not exceed 2% of the Portfolio's total investment income calculated
in accordance with generally accepted accounting principles. These fees are
computed daily and paid monthly.
AIM Distributors, an affiliate of the Manager, serves as the Fund's distributor.
For the period ended May 29, 1998, GT Global, Inc. ("GT Global"), an affiliate
of the investment sub-advisor, served as the Fund's distributor. The Fund offers
Class A, Class B, and Advisor Class shares for purchase.
Class A shares are subject to initial sales charges imposed at the time of
purchase, in accordance with the schedule included in the Fund's current
prospectus. AIM Distributors collects the sales charges imposed on sales of
Class A shares, and reallows a portion of such charges to dealers through which
the sales are made. For the year ended October 31, 1998, AIM Distributors and GT
Global retained sales charges of $21,515 and $35,739, respectively. Purchases of
Class A shares exceeding $1,000,000 may be subject to a contingent deferred
sales charge ("CDSC") upon redemption, in accordance with the Fund's current
prospectus. AIM Distributors and GT Global collected CDSCs for the year ended
October 31, 1998 of $8 and $435, respectively. AIM Distributors also makes
ongoing shareholder servicing and trail commission payments to dealers whose
clients hold Class A shares.
Class B shares are not subject to initial sales charges. When Class B shares are
sold, AIM Distributors, from its own resources, pays commissions to dealers
through which the sales are made. Certain redemptions of Class B shares made
within six years of purchase are subject to CDSCs, in accordance with the Fund's
current prospectus. For the year ended October 31, 1998, AIM Distributors and GT
Global collected CDSCs in the amount of $352,609 and $610,629, respectively. In
addition, AIM Distributors makes ongoing shareholder servicing and trail
commission payments to dealers whose clients hold Class B shares.
For the period ended May 29, 1998, pursuant to the then effective separate
distribution plans adopted under the 1940 Act Rule 12b-1 by the Trust's Board of
Trustees with respect to the Fund's Class A shares ("Class A Plan") and Class B
shares ("Class B Plan"), the Fund reimbursed GT Global for a portion of its
shareholder servicing and distribution expenses. Under the Class A Plan, the
Fund was permitted to pay GT Global a service fee at the annualized rate of up
to 0.25% of the average daily net assets of the Fund's Class A shares for GT
Global's expenditures incurred in servicing and maintaining shareholder
accounts, and was permitted to pay GT Global a distribution fee at the
annualized rate of up to 0.35% of the average daily net assets of the Fund's
Class A shares, less any amounts paid by the Fund as the aforementioned service
fee, for GT Global's expenditures incurred in providing services as distributor.
All expenses for which GT Global was reimbursed under the Class A Plan would
have been incurred within one year of such reimbursement.
For the period ended May 29, 1998, pursuant to the Class B Plan, the Fund was
permitted to pay GT Global a service fee at the annualized rate of up to 0.25%
of the average daily net assets of the Fund's Class B shares for GT Global's
expenditures incurred in servicing and maintaining shareholder accounts, and was
permitted to pay GT Global a distribution fee at the annualized rate of up to
0.75% of the average daily net assets of the Fund's Class B shares for GT
Global's expenditures incurred in providing services as distributor. Expenses
incurred under the Class B Plan in excess of 1.00% annually were permitted to be
carried forward for reimbursement in subsequent years as long as that Plan
continued in effect.
Effective as of the close of business May 29, 1998, pursuant to Rule 12b-1 under
the 1940 Act, the Trust's Board of Trustees adopted a Master Distribution Plan
applicable to the Fund's Class A shares ("Class A Plan") and Class B shares
("Class B Plan"), pursuant to which the Fund compensates AIM Distributors for
the purpose of financing any activity that is intended to result in the sale of
Class A or Class B shares of the Fund. Under the Class A Plan, the Fund
compensates AIM Distributors at the annualized rate of 0.35% of the average
daily net assets of the Fund's Class A shares. Under the Class B Plan, the Fund
compensates AIM Distributors at an annualized rate of 1.00% of the average daily
net assets of the Fund's Class B shares.
The Class A Plan and the Class B Plan (together, the "Plans") are designed to
compensate AIM Distributors for certain promotional and other sales-related
costs, and to implement a dealer incentive program that provides for periodic
payments to selected dealers who furnish continuing personal shareholder
services to their customers who purchase and own Class A and Class B shares of
the Fund. Payments also can be directed by AIM Distributors to financial
institutions who have entered into service agreements with respect to Class A
and Class B shares of the Fund and who provide continuing personal services to
their customers who own Class A and Class B shares of the Fund. The service fees
payable to selected financial 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 that were purchased on or after a
prescribed date set forth in the Plans.
The Manager and AIM Distributors voluntarily have undertaken to limit the Fund's
expenses (exclusive of brokerage commissions, taxes, interest, and extraordinary
expense) to the maximum annual rate of 1.75%, 2.40%, and 1.40% of the average
daily net assets of the Fund's Class A, Class B, and Advisor Class shares,
respectively. If necessary, this limitation will be effected by waivers by the
Manager of investment management and administration fees, waivers by AIM
Distributors of payments under the Class A Plan and/or Class B Plan and/or
reimbursements by the Manager or AIM Distributors of portions of the Fund's
other operating expenses.
Effective as of the close of business September 4, 1998, the Fund, pursuant to a
transfer agency and service agreement, has agreed to pay A I M Fund Services,
Inc. ("AFS") an annualized fee of $24.85 per shareholder accounts that are open
during any monthly period (this fee includes all out-of-pocket expenses), and an
annualized fee of $0.70 per shareholder account that is closed during any
monthly
FS-14
<PAGE> 677
period. Both fees shall be billed by AFS monthly in arrears on a prorated basis
of 1/12 of the annualized fee for all such accounts.
For the period November 1, 1997 to September 4, 1998, GT Services, an affiliate
of the Manager and AIM Distributors, was the transfer agent of the Fund. For
performing shareholder servicing, reporting, and general transfer agent
services, GT Services received an annual maintenance fee of $17.50 per account,
a new account fee of $4.00 per account, a per transaction fee of $1.75 for all
transactions other than exchanges and a per exchange fee of $2.25. GT Services
also was reimbursed by the Fund for its out-of-pocket expenses for such items as
postage, forms, telephone charges, stationery and office supplies.
The Manager is the pricing and accounting agent for the Fund and Portfolio. The
monthly fee for these services to the Manager is a percentage, not to exceed
0.03% annually, of a Fund's average daily net assets. The annual fee rate is
derived 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% to 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.
The Trust pays each Trustee who is not an employee, officer or director of the
Manager, or any other affiliated company, $5,000 per year plus $300 for each
meeting of the board or any committee thereof attended by the Trustee.
3. PURCHASES AND SALES OF SECURITIES
For the year ended October 31, 1998, purchases and sales of investment
securities by the Portfolio, other than U.S. government obligations and
short-term investments, aggregated $939,420,479 and $952,299,285, respectively.
For the year ended October 31, 1998, sales of U.S. government obligations
aggregated $27,908,116. There were no purchases of U.S. government obligations.
4. CAPITAL SHARES
At October 31, 1998, there were 6,000,000,000 shares of the Trust's common stock
authorized, at $0.0001 par value. Of this amount, 400,000,000 were classified as
shares of the AIM Global Telecommunications Fund; 400,000,000 were classified as
shares of AIM Global Government Income Fund; 200,000,000 were classified as
shares of AIM Global Health Care Fund; 200,000,000 were classified as shares of
AIM Strategic Income Fund; 200,000,000 were classified as shares of AIM
Developing Markets Fund; 200,000,000 were classified as shares of GT Global
Currency Fund (inactive); 200,000,000 were classified as shares of AIM Global
Growth & Income Fund; 200,000,000 were classified as shares of GT Global Small
Companies Fund (inactive); 200,000,000 were classified as shares of AIM Latin
American Growth Fund; 200,000,000 were classified as shares of AIM Emerging
Markets Fund; 200,000,000 were classified as shares of AIM Emerging Markets Debt
Fund; 200,000,000 were classified as shares of AIM Global Financial Services
Fund; 200,000,000 were classified as shares of AIM Global Resources Fund;
200,000,000 were classified as shares of AIM Global Infrastructure Fund;
200,000,000 were classified as shares of AIM Global Consumer Products and
Services Fund. The shares of each of the foregoing series of the Trusts were
divided equally into two classes, designated Class A and Class B common stock.
With respect to the issuance of Advisor Class shares, 100,000,000 shares were
classified as shares of each of the fifteen series of the Trusts and designated
as Advisor Class common stock. 1,100,000,000 shares remain unclassified.
Transactions in capital shares of the Fund were as follows:
CAPITAL SHARE TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997
-------------------------- ----------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------- ----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C>
Shares sold....................................... 10,918,639 $ 129,801,507 17,142,418 $ 272,139,950
Shares issued in connection with reinvestment of
distributions................................... 2,191,470 26,459,355 574,707 9,164,383
----------- ------------- ----------- ---------------
13,110,109 156,260,862 17,717,125 281,304,333
Shares repurchased................................ (12,901,851) (152,829,526) (21,118,898) (335,756,037)
----------- ------------- ----------- ---------------
Net increase (decrease)........................... 208,258 $ 3,431,336 (3,401,773) $ (54,451,704)
----------- ------------- ----------- ---------------
----------- ------------- ----------- ---------------
<CAPTION>
CLASS B
- --------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold....................................... 5,958,185 $ 73,991,330 13,848,218 $ 221,702,040
Shares issued in connection with reinvestment of
distributions................................... 3,020,192 36,460,585 721,148 11,494,889
----------- ------------- ----------- ---------------
8,978,377 110,451,915 14,569,366 233,196,929
Shares repurchased................................ (9,736,068) (113,538,414) (16,813,796) (270,094,630)
----------- ------------- ----------- ---------------
Net decrease...................................... (757,691) $ (3,086,499) (2,244,430) $ (36,897,701)
----------- ------------- ----------- ---------------
----------- ------------- ----------- ---------------
<CAPTION>
ADVISOR CLASS
- --------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold....................................... 490,309 $ 6,221,370 2,868,282 $ 45,874,009
Shares issued in connection with reinvestment of
distributions................................... 76,464 920,280 72,440 1,148,368
----------- ------------- ----------- ---------------
566,773 7,141,650 2,940,722 47,022,377
Shares repurchased................................ (602,542) (7,660,299) (3,732,584) (60,007,579)
----------- ------------- ----------- ---------------
Net decrease...................................... (35,769) $ (518,649) (791,862) $ (12,985,202)
----------- ------------- ----------- ---------------
----------- ------------- ----------- ---------------
</TABLE>
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<PAGE> 678
5. SUBSEQUENT EVENT (UNAUDITED)
Effective December 14, 1998, sub-administration responsibility for the Fund and
sub-advisory and sub-administration responsibility for the Portfolio was
transferred from INVESCO (NY), Inc. to INVESCO Asset Management Ltd., another
indirect wholly-owned subsidiary of AMVESCAP PLC. A I M Advisors, Inc. will
continue to serve as the manager and administrator of the Fund and the
Portfolio. The transfer will not change the fees paid by A I M Advisors, Inc.
for sub-advisory services and will not change the nature of the sub-advisory
services provided to the Portfolio or the personnel providing such services.
6. PROXY RESULTS (UNAUDITED)
The Special Meeting of Shareholders of the G.T. Investment Funds, Inc. now known
as AIM Investment Funds (the "Trust") was held on May 20, 1998 at the Trust's
offices, 50 California Street, 26th Floor, San Francisco, California. The
meeting was held for the following purposes:
(1) To elect Trustees as follows: C. Derek Anderson, Frank S. Bayley, William
J. Guilfoyle, Arthur C. Patterson, Ruth H. Quigley.
(2) To approve a new Investment Management and Administration Contract and
Sub-Advisory and Sub-Administration Contract with respect to each series of
the Trust (each, a "Fund," and collectively, the "Funds").
(3) To approve replacement Rule 12b-1 plans of distribution with respect to
Class A and B Shares of the Fund.
(4) To approve changes to the fundamental investment restrictions of the Fund.
(5) To approve an agreement and plan of conversion and termination for the
Trust.
(6) To ratify the selection of Coopers & Lybrand L.L.P., now known as
PricewaterhouseCoopers LLP, as the Trust's independent public accountants.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
TRUSTEE/MATTER
---------------------------------------------------------------------------------------------------------------
<S> <C>
(1) C. Derek Anderson..............................................................................................
Frank S. Bayley................................................................................................
William J. Guilfoyle...........................................................................................
Arthur C. Patterson............................................................................................
Ruth H. Quigley................................................................................................
(2)(a) Approval of investment management and administration contract..................................................
(2)(b) Approval of sub-advisory and sub-administration contract.......................................................
(3) Approval of replacement Rule 12b-1 plans of distribution
CLASS A SHARES.................................................................................................
CLASS B SHARES.................................................................................................
(4)(a) Modification of Fundamental Restriction on Concentration.......................................................
(4)(b) Modification of Fundamental Restriction on Issuing Senior Securities and Borrowing Money.......................
(4)(c) Modification of Fundamental Restriction on Making Loans........................................................
(4)(d) Modification of Fundamental Restriction on Underwriting Securities.............................................
(4)(e) Modification of Fundamental Restriction on Real Estate Investments.............................................
(4)(f) Modification of Fundamental Restriction on Investing in Commodities............................................
(4)(g) Elimination of Fundamental Restriction on Margin Transactions..................................................
(4)(h) Elimination of Fundamental Restriction on Pledging Assets......................................................
(4)(i) Elimination of Fundamental Restriction on Investments in Oil, Gas and Mineral Leases and Programs..............
(4)(j) Elimination of Fundamental Restriction on Diversification Required By Internal Revenue Code....................
(5) Approval of an agreement and plan of conversion and termination with respect to the Trust......................
(6) Approval of the conversion of the portfolios in which certain Funds invest.....................................
(7) Ratification of the selection of Coopers and Lybrand L.L.P., now known as PricewaterhouseCoopers LLP, as the
Trust's independent public accountants.......................................................................
<CAPTION>
VOTES WITHHELD/
VOTES FOR AGAINST ABSTENTIONS
--------------- ------------ --------------
<S> <C> <C> <C>
(1) 191,685,088 N/A 13,123,292
191,766,811 N/A 13,041,568
191,828,959 N/A 12,979,420
191,845,270 N/A 12,963,109
191,869,887 N/A 12,938,492
(2)(a) 11,539,226 325,581 3,653,718*
(2)(b) 11,405,206 398,639 3,714,680*
(3)
5,596,649 164,819 433,984
8,129,440 288,519 787,402
(4)(a) 11,358,960 419,748 3,739,817*
(4)(b) 11,358,802 419,906 3,739,817*
(4)(c) 11,358,802 419,906 3,739,817*
(4)(d) 11,358,960 419,748 3,739,817*
(4)(e) 11,358,802 419,906 3,739,817*
(4)(f) 11,358,593 420,115 3,739,817*
(4)(g) 11,358,436 420,272 3,739,817*
(4)(h) 11,358,960 419,748 3,739,817*
(4)(i) 11,358,960 419,748 3,739,817*
(4)(j) 11,358,713 419,995 3,739,817*
(5) 190,027,469 6,362,084 94,055,040*
(6) 11,391,564 294,742 3,832,219*
(7) 191,358,779 2,114,168 11,333,063
</TABLE>
- --------------
* Includes Broker Non-Votes
- --------------
FEDERAL TAX INFORMATION (UNAUDITED):
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$11,387,137 as capital gain dividends for the fiscal year ended October 31,
1998.
FS-16
<PAGE> 679
REPORT OF
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders of AIM Global Government Income Fund (formerly GT Global
Government Income Fund) and Board of Trustees of AIM Investment Funds (formerly
G.T. Investment Funds, Inc.):
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Global Government Income
Fund at October 31, 1998, and the results of its operations, the changes in its
net assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinions expressed above.
/s/PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
BOSTON, MASSACHUSETTS
DECEMBER 18, 1998
FS-17
<PAGE> 680
PORTFOLIO OF INVESTMENTS
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- ---------------------------------------------------------- -------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Government & Government Agency Obligations (78.2%)
Belgium (3.5%)
Kingdom of Belgium, 5.75% due 3/28/08 ................ BEF 232,900,000 $ 7,545,046 3.5
Canada (2.4%)
Canadian Government, 6% due 6/1/08 ................... CAD 7,520,000 5,208,179 2.4
Denmark (8.3%)
Kingdom of Denmark Bullet, 6% due 11/15/09 ........... DKK 101,100,000 17,700,334 8.3
Germany (10.8%)
Deutschland Republic:
6% due 1/5/06 ...................................... DEM 13,050,000 8,807,232 4.1
6% due 7/4/07 ...................................... DEM 10,980,000 7,479,880 3.5
6.5% due 7/4/27 .................................... DEM 9,550,000 6,854,235 3.2
Greece (4.7%)
Hellenic Republic:
9.2% due 3/21/02 ................................... GRD 2,210,000,000 7,815,135 3.7
8.8% due 6/19/07 ................................... GRD 550,000,000 2,029,877 1.0
Italy (12.7%)
Italian Buoni Poliennali del Tesoro (BTPS):
7.25% due 11/1/26 .................................. ITL 21,280,000,000 16,349,744 7.7
8.5% due 1/1/04 .................................... ITL 14,480,000,000 10,643,419 5.0
Sweden (4.2%)
Swedish Government, 6.5% due 10/25/06 ................ SEK 62,700,000 9,056,166 4.2
United Kingdom (8.6%)
United Kingdom Treasury, 9% due 10/13/08 ............. GBP 8,380,000 18,289,627 8.6
United States (21.6%)
United States Treasury, 6.375% due 8/15/27{./} ....... USD 35,800,000 41,317,535 19.3
Federal National Mortgage Association, 6.375% due
8/15/07 ............................................. AUD 7,300,000 4,827,718 2.3
Uruguay (1.4%)
Republic of Uruguay, 7.875% due 7/15/27 - 144A{.} .... USD 3,000,000 3,045,000 1.4
------------
Total Government & Government Agency Obligations (cost
$165,756,751) ........................................... 166,969,127
------------
Corporate Bonds (12.7%)
Germany (1.0%)
Kredit Fuer Wiederaufbau International Finance, 7.25%
due 7/16/07 ......................................... AUD 3,100,000 2,155,469 1.0
South Africa (0.1%)
Development Bank of South Africa, due 12/31/27{=} .... ZAR 39,300,000 133,929 0.1
Tunisia (1.8%)
Banque Centrais de Tunisie, 8.25% due 9/19/27 ........ USD 4,750,000 3,852,075 1.8
United Kingdom (7.1%)
SBC Jersey, 8.75% due 6/20/05 ........................ GBP 8,200,000 15,234,375 7.1
United States (2.7%)
Ford Motor Credit Corp., 5.25% due 6/16/08 ........... DEM 5,370,000 3,295,521 1.5
Merrill Lynch & Co., 7.25% due 5/2/02 ................ USD 2,410,000 $ 2,508,497 1.2
------------
Total Corporate Bonds (cost $27,498,907) ................. 27,179,866
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-18
<PAGE> 681
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- ---------------------------------------------------------- -------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Mortgage Backed (8.8%)
Denmark (4.0%)
Realkredit Danmark, 6% due 10/1/26 ................... DKK 54,018,000 $ 8,441,627 4.0
United States (4.8%)
Government National Mortgage Association TBA Pass Thru
Pool, 6% due 11/15/28{*} ............................ USD 8,500,000 8,425,625 3.9
Federal Home Loan Mortgage Association Pool #E62449,
8.5% due 3/1/10 ..................................... USD 1,712,183 1,832,973 0.9
------------
Total Mortgage Backed (cost $18,186,905) ................. 18,700,225
------------ -----
TOTAL FIXED INCOME INVESTMENTS (cost $211,442,563) ....... 212,849,218 99.7
------------ -----
<CAPTION>
PRINCIPAL VALUE % OF NET
SHORT-TERM INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- ---------------------------------------------------------- -------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Commercial Paper - Discounted (3.9%)
United States (3.9%)
Ford Motor Credit, effective yield 5.09%, due 11/18/98
(cost $8,473,997) ................................... USD 8,500,000 8,473,997 3.9
------------ -----
TOTAL INVESTMENTS (cost $219,916,560) * ................. 221,323,215 103.6
Other Assets and Liabilities ............................. (7,782,870) (3.6)
------------ -----
NET ASSETS ............................................... $213,540,345 100.0
------------ -----
------------ -----
</TABLE>
- --------------
{=} Zero coupon bond.
{./} All or part of the Fund's holdings in this security is segregated
as collateral for securities purchased on a forward commitment
basis. See Note 1 to the Financial Statements.
{.} Security exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers.
{*} Purchased on a forward commitment basis.
* For Federal income tax purposes, cost is $220,204,720 and
appreciation (depreciation) is as follows:
<TABLE>
<S> <C>
Unrealized appreciation: $ 4,586,885
Unrealized depreciation: (3,468,390)
-------------
Net unrealized appreciation: $ 1,118,495
-------------
-------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS OUTSTANDING
OCTOBER 31, 1998
<TABLE>
<CAPTION>
MARKET VALUE UNREALIZED
(U.S. CONTRACT DELIVERY APPRECIATION
CONTRACTS TO SELL: DOLLARS) PRICE DATE (DEPRECIATION)
- ---------------------------------------- ------------- ---------- -------- ---------------
<S> <C> <C> <C> <C>
Canadian Dollars........................ 5,186,883 1.54785 3/18/99 $(18,424)
Italian Lira............................ 8,888,408 1619.00000 3/18/99 67,738
------------- ---------------
Total Contracts to Sell (Receivable
amount $14,124,605).................. 14,075,291 $ 49,314
------------- ---------------
THE VALUE OF CONTRACTS TO SELL AS
PERCENTAGE OF NET ASSETS IS 6.59%.
Total Open Forward Foreign Currency
Contracts............................ $ 49,314
---------------
---------------
</TABLE>
- ----------------
See Note 1 of Notes to the Financial Statements.
The accompanying notes are an integral part of the financial statements.
FS-19
<PAGE> 682
STATEMENT OF ASSETS
AND LIABILITIES
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at value (cost $219,916,560) (Note 1)......................... $221,323,215
U.S. currency................................................................. $ 322
Foreign currencies (cost $2,095,895).......................................... 2,071,055 2,071,377
---------
Receivable for securities sold........................................................... 8,554,453
Interest and interest withholding tax reclaims receivable................................ 4,535,164
Receivable for Fund shares sold.......................................................... 172,045
Receivable for open forward foreign currency contracts (Note 1).......................... 49,314
Miscellaneous receivable................................................................. 26,512
------------
Total assets........................................................................... 236,732,080
------------
Liabilities:
Payable for securities purchased......................................................... 17,120,859
Payable for Fund shares repurchased (Note 2)............................................. 2,828,414
Payable for loan outstanding (Note 1).................................................... 1,939,000
Distribution payable..................................................................... 438,754
Payable for service and distribution expenses (Note 2)................................... 262,791
Payable for transfer agent fees (Note 2)................................................. 202,273
Payable for investment management and administration fees (Note 2)....................... 140,295
Payable for printing and postage expenses................................................ 115,614
Payable for professional fees............................................................ 53,507
Payable for custodian fees............................................................... 28,702
Payable for registration and filing fees................................................. 27,856
Payable for Trustees' fees and expenses (Note 2)......................................... 13,163
Payable for fund accounting fees (Note 2)................................................ 5,504
Other accrued expenses................................................................... 15,003
------------
Total liabilities...................................................................... 23,191,735
------------
Net assets................................................................................. $213,540,345
------------
------------
Class A:
Net asset value and redemption price per share ($121,268,155 DIVIDED BY 13,513,210 shares
outstanding).............................................................................. $ 8.97
------------
------------
Maximum offering price per share (100/95.25 of $8.97) *.................................... $ 9.42
------------
------------
Class B:+
Net asset value and offering price per share ($91,851,644 DIVIDED BY 10,240,967 shares
outstanding).............................................................................. $ 8.97
------------
------------
Advisor Class:
Net asset value, offering price per share, and redemption price per share ($420,546 DIVIDED
BY 46,726 shares outstanding)............................................................. $ 9.00
------------
------------
Net assets consist of:
Paid in capital (Note 4)................................................................. $338,619,386
Accumulated net realized loss on investments and foreign currency transactions........... (126,623,779)
Net unrealized appreciation on translation of assets and liabilities in foreign
currencies.............................................................................. 138,083
Net unrealized appreciation of investments............................................... 1,406,655
------------
Total -- representing net assets applicable to capital shares outstanding.................. $213,540,345
------------
------------
<FN>
- --------------
* On sales of $50,000 or more, the offering price is reduced.
+ Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-20
<PAGE> 683
STATEMENT OF OPERATIONS
Year ended October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment income: (Note 1)
Interest income................................................................................... $ 19,476,296
Securities lending income......................................................................... 331,980
------------
Total investment income......................................................................... 19,808,276
------------
Expenses:
Investment management and administration fees (Note 2)............................................ 1,823,161
Service and distribution expenses: (Note 2)
Class A.......................................................................... $ 499,194
Class B.......................................................................... 1,084,595 1,583,789
-----------
Interest expense.................................................................................. 728,255
Transfer agent fees (Note 2)...................................................................... 561,120
Custodian fees.................................................................................... 148,655
Printing and postage expenses..................................................................... 138,525
Professional fees................................................................................. 120,840
Fund accounting fees (Note 2)..................................................................... 67,657
Registration and filing fees (Note 1)............................................................. 59,130
Trustees' fees and expenses (Note 2).............................................................. 19,125
Other expenses.................................................................................... 13,315
------------
Total expenses.................................................................................... 5,263,572
------------
Net investment income............................................................................... 14,544,704
------------
Net realized and unrealized gain (loss) on investments and foreign currencies: (Note
1)
Net realized gain on investments................................................... 5,403,124
Net realized gain on foreign currency transactions................................. 5,779,913
-----------
Net realized gain during the year............................................................... 11,183,037
Net change in unrealized depreciation on translation of assets and liabilities in
foreign currencies................................................................ (3,771,120)
Net change in unrealized appreciation of investments............................... 1,354,647
-----------
Net unrealized depreciation during the year..................................................... (2,416,473)
------------
Net realized and unrealized gain on investments and foreign currencies.............................. 8,766,564
------------
Net increase in net assets resulting from operations................................................ $ 23,311,268
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-21
<PAGE> 684
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1998 1997
-------------- --------------
<S> <C> <C>
Decrease in net assets
Operations:
Net investment income.................................................... $ 14,544,704 $ 19,128,003
Net realized gain on investments and foreign currency transactions....... 11,183,037 246,114
Net change in unrealized appreciation (depreciation) on translation of
assets and liabilities in foreign currencies............................ (3,771,120) 5,553,094
Net change in unrealized appreciation (depreciation) of investments...... 1,354,647 (11,452,067)
-------------- --------------
Net increase in net assets resulting from operations................... 23,311,268 13,475,144
-------------- --------------
Class A:
Distributions to shareholders: (Note 1)
From net investment income............................................... (3,426,511) (6,827,721)
In excess of net investment income....................................... (5,024,245) (4,449,488)
Class B:
Distributions to shareholders: (Note 1)
From net investment income............................................... (2,258,151) (4,503,257)
In excess of net investment income....................................... (3,311,095) (2,934,682)
Advisor Class:
Distributions to shareholders: (Note 1)
From net investment income............................................... (9,025) (4,070)
In excess of net investment income....................................... (13,232) (2,653)
-------------- --------------
Total distributions.................................................... (14,042,259) (18,721,871)
-------------- --------------
Capital share transactions: (Note 4)
Increase from capital shares sold and reinvested......................... 1,018,940,689 667,541,828
Decrease from capital shares repurchased................................. (1,096,778,831) (787,794,141)
-------------- --------------
Net decrease from capital share transactions........................... (77,838,142) (120,252,313)
-------------- --------------
Total decrease in net assets............................................... (68,569,133) (125,499,040)
Net assets:
Beginning of year........................................................ 282,109,478 407,608,518
-------------- --------------
End of year *............................................................ $ 213,540,345 $ 282,109,478
-------------- --------------
-------------- --------------
* Includes undistributed net investment income............................ $ -- $ --
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-22
<PAGE> 685
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1998 (d) 1997 (d) 1996 (d) 1995 (d) 1994 (d)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 8.62 $ 8.74 $ 8.81 $ 8.63 $ 11.07
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income................. 0.54 0.52 0.57 0.62 0.65
Net realized and unrealized gain
(loss) on investments................ 0.32 (0.13) 0.03 0.15 (1.52)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) from
investment operations.............. 0.86 0.39 0.60 0.77 (0.87)
---------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income............ (0.16) (0.31) (0.57) (0.59) (0.65)
From net realized gain on
investments.......................... -- -- (0.10) -- (0.27)
In excess of net investment income.... (0.35) (0.20) -- -- --
In excess of net realized gain on
investments.......................... -- -- -- -- (0.55)
Return of capital..................... -- -- -- -- (0.10)
---------- ---------- ---------- ---------- ----------
Total distributions................. (0.51) (0.51) (0.67) (0.59) (1.57)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 8.97 $ 8.62 $ 8.74 $ 8.81 $ 8.63
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return (c)............. 10.20% 4.78% 7.11% 9.22% (8.87)%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 121,268 $ 154,272 $ 240,945 $ 385,404 $ 502,094
Ratio of net investment income to
average net assets..................... 6.06% 6.04% 6.52% 6.98% 6.87%
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions............... 1.52% 1.34% 1.34% 1.35% 1.33%
Without expense reductions............ 1.52% 1.51% 1.39% 1.38% N/A
Ratio of interest expense to average net
assets++............................... 0.29% N/A N/A N/A N/A
Portfolio turnover rate++............... 305% 241% 268% 385% 625%
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates and ratio of interest expense to average net
assets are calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-23
<PAGE> 686
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1998 (d) 1997 (d) 1996 (d) 1995 (d) 1994 (d)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 8.62 $ 8.74 $ 8.80 $ 8.64 $ 11.07
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income................. 0.47 0.46 0.51 0.55 0.59
Net realized and unrealized gain
(loss) on investments................ 0.34 (0.12) 0.04 0.14 (1.52)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) from
investment operations.............. 0.81 0.34 0.55 0.69 (0.93)
---------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income............ (0.11) (0.28) (0.51) (0.53) (0.59)
From net realized gain on
investments.......................... -- -- (0.10) -- (0.27)
In excess of net investment income.... (0.35) (0.18) -- -- --
In excess of net realized gain on
investments.......................... -- -- -- -- (0.54)
Return of capital..................... -- -- -- -- (0.10)
---------- ---------- ---------- ---------- ----------
Total distributions................. (0.46) (0.46) (0.61) (0.53) (1.50)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 8.97 $ 8.62 $ 8.74 $ 8.80 $ 8.64
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return (c)............. 9.65% 4.00% 6.54% 8.22% (9.39)%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 91,852 $ 127,722 $ 166,577 $ 235,481 $ 262,405
Ratio of net investment income to
average net assets..................... 5.41% 5.39% 5.87% 6.33% 6.22%
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions............... 2.17% 1.99% 1.99% 2.00% 1.98%
Without expense reductions............ 2.17% 2.16% 2.04% 2.03% N/A
Ratio of interest expense to average net
assets++............................... 0.29% N/A N/A N/A N/A
Portfolio turnover rate++............... 305% 241% 268% 385% 625%
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates and ratio of interest expense to average net
assets are calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-24
<PAGE> 687
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
ADVISOR CLASS+
---------------------------------------------------------
JUNE 1, 1995
YEAR ENDED OCTOBER 31, TO
------------------------------------- OCTOBER 31,
1998 (d) 1997 (d) 1996 (d) 1995 (D)
----------- ----------- ----------- ------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 8.61 $ 8.73 $ 8.80 $ 8.98
----------- ----------- ----------- --------
Income from investment operations:
Net investment income................. 0.56 0.55 0.60 0.26
Net realized and unrealized gain
(loss) on investments................ 0.37 (0.13) 0.03 (0.19)
----------- ----------- ----------- --------
Net increase (decrease) from
investment operations.............. 0.93 0.42 0.63 0.07
----------- ----------- ----------- --------
Distributions to shareholders:
From net investment income............ (0.19) (0.33) (0.60) (0.25)
From net realized gain on
investments.......................... -- -- (0.10) --
In excess of net investment income.... (0.35) (0.21) -- --
In excess of net realized gain on
investments.......................... -- -- -- --
Return of capital..................... -- -- -- --
----------- ----------- ----------- --------
Total distributions................. (0.54) (0.54) (0.70) (0.25)
----------- ----------- ----------- --------
Net asset value, end of period.......... $ 9.00 $ 8.61 $ 8.73 $ 8.80
----------- ----------- ----------- --------
----------- ----------- ----------- --------
Total investment return (c)............. 11.18% 5.15% 7.49% 0.83 % (b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 421 $ 116 $ 86 $ 131
Ratio of net investment income to
average net assets..................... 6.41% 6.39% 6.87% 7.33 %
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions............... 1.17% 0.99% 0.99% 1.00 % (a)
Without expense reductions............ 1.17% 1.16% 1.04% 1.03 % (a)
Ratio of interest expense to average net
assets++............................... 0.29% N/A N/A N/A
Portfolio turnover rate++............... 305% 241% 268% 385 %
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates and ratio of interest expense to average net
assets are calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-25
<PAGE> 688
NOTES TO
FINANCIAL STATEMENTS
October 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (SEE ALSO NOTE 2)
AIM Global Government Income Fund (the "Fund"), formerly GT Global Government
Income Fund, a non-diversified separate series of AIM Investment Funds (the
"Trust"), formerly G.T. Investment Funds, Inc. The Trust is organized as a
Delaware business trust and is registered under the Investment Company Act of
1940, as amended ("1940 Act"), as an open-end management investment company. The
Trust has thirteen series of shares in operation, each series corresponding to a
distinct portfolio of investments.
The Fund offers Class A, Class B, and Advisor Class shares, each of which has
equal rights as to assets and voting privileges. Class A and Class B each has
exclusive voting rights with respect to its distribution plan. Investment
income, realized and unrealized capital gains and losses, and the common
expenses of the Fund are allocated on a pro rata basis to each class based on
the relative net assets of each class to the total net assets of the Fund. Each
class of shares differs in its respective service and distribution expenses, and
may differ in its transfer agent, registration, and certain other class-specific
fees and expenses.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies in conformity with generally accepted accounting
principles consistently followed by the Fund in the preparation of the financial
statements.
(A) PORTFOLIO VALUATION
The Fund calculates the net asset value of and complete orders to purchase,
exchange, or repurchase Fund shares on each business day, with the exception of
those days on which the New York Stock Exchange is closed.
Equity securities are valued at the last sale price on the exchange on which
such securities are traded, or on the principal over-the-counter market on which
such securities are traded, as of the close of business on the day the
securities are being valued, or, lacking any sales, at the last available bid
price. In cases where securities are traded on more than one exchange, the
securities are valued on the exchange determined by A I M Advisors, Inc. (the
"Manager") to be the primary market.
Fixed income investments are valued at the mean of representative quoted bid and
ask prices for such investments or, if such prices are not available, at prices
for investments of comparative maturity, quality, and type; however, when the
Manager deems it appropriate, prices obtained for the day of valuation from a
bond pricing service will be used. Short-term investments with a maturity of 60
days or less are valued at amortized cost adjusted for foreign exchange
translation and market fluctuation, if any.
Investments for which market quotations are not readily available (including
restricted securities which are subject to limitations on their sale) are valued
at fair value as determined in good faith by or under the direction of the
Trust's Board of Trustees.
Portfolio securities which are primarily traded on foreign exchanges are
generally valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S. dollars at
the current exchange rates, except that when an occurrence subsequent to the
time a value was so established is likely to have materially changed such value,
then the fair value of those securities will be determined by consideration of
other factors by or under the direction of the Trust's Board of Trustees.
(B) FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings, and other assets and
liabilities are recorded in the books and records of the Fund after translation
to U.S. dollars based on the exchange rates on that day. The cost of each
security is determined using historical exchange rates. Income and withholding
taxes are translated at prevailing exchange rates when earned or incurred.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from fluctuations arising
from changes in market prices of securities held. Such fluctuations are included
with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, forward foreign currency contracts, sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains or losses arise from changes in the
value of assets and liabilities other than investments in securities at period
end, resulting from changes in exchange rates.
(C) REPURCHASE AGREEMENTS
With respect to repurchase agreements entered into by the Fund, it is the Fund's
policy to always receive, as collateral, United States government securities or
other high quality debt securities of which the value, including accrued
interest, is at least equal to the amount to be repaid to the Fund under each
agreement at its maturity.
(D) FORWARD FOREIGN CURRENCY CONTRACTS
A forward foreign currency contract ("Forward Contract") is an agreement between
two parties to buy and sell a currency at a set price on a future date. The
market value of the Forward Contract fluctuates with changes in currency
exchange rates. The Forward
FS-26
<PAGE> 689
Contract is marked-to-market daily and the change in market value is recorded by
the Fund as an unrealized gain or loss. When the Forward Contract is closed, the
Fund records a realized gain or loss equal to the difference between the value
at the time it was opened and the value at the time it was closed. Forward
Contracts involve market risk in excess of the amount shown in the Fund's
"Statement of Assets and Liabilities". The Fund could be exposed to risk if a
counterparty is unable to meet the terms of the contract or if the value of the
currency changes unfavorably. The Fund may enter into Forward Contracts in
connection with planned purchases or sales of securities, or to hedge against
adverse fluctuations in exchange rates between currencies.
(E) OPTION ACCOUNTING PRINCIPLES
When the Fund writes a call or put option, an amount equal to the premium
received is included in the Fund's "Statement of Assets and Liabilities" as an
asset and an equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option. The current
market value of an option listed on a traded exchange is valued at its last bid
price, or, in the case of an over-the-counter option, is valued at the average
of the last bid prices obtained from brokers, unless a quotation from only one
broker is available, in which case only that broker's price will be used. If an
option expires on its stipulated expiration date or if the Fund enters into a
closing purchase transaction, a gain or loss is realized without regard to any
unrealized gain or loss on the underlying security and the liability related to
such option is extinguished. If a written call option is exercised, a gain or
loss is realized from the sale of the underlying security and the proceeds of
the sale are increased by the premium originally received. If a written put
option is exercised, the cost of the underlying security purchased would be
decreased by the premium originally received. The Fund can write options only on
a covered basis, which, for a call, requires that the Fund hold the underlying
security and, for a put, requires the Fund to set aside cash, U.S. government
securities or other liquid securities in an amount not less than the exercise
price, or otherwise provide adequate cover at all times while the put option is
outstanding. The Fund may use options to manage its exposure to the stock market
and to fluctuations in currency values or interest rates.
The premium paid by the Fund for the purchase of a call or put option is
included in the Fund's "Statement of Assets and Liabilities" as an investment
and subsequently "marked-to-market" to reflect the current market value of the
option. If an option which the Fund has purchased expires on the stipulated
expiration date, the Fund realizes a loss in the amount of the cost of the
option. If the Fund enters into a closing sale transaction, the Fund realizes a
gain or loss, depending on whether proceeds from the closing sale transaction
are greater or less than the cost of the option. If the Fund exercises a call
option, the cost of the securities acquired by exercising the call is increased
by the premium paid to buy the call. If the Fund exercises a put option, it
realizes a gain or loss from the sale of the underlying security, and the
proceeds from such sale are decreased by the premium originally paid.
The risk associated with purchasing options is limited to the premium originally
paid. The risk in writing a call option is that the Fund may forego the
opportunity of profit if the market value of the underlying security or index
increases and the option is exercised. The risk in writing a put option is that
the Fund may incur a loss if the market value of the underlying security or
index decreases and the option is exercised. In addition, there is the risk the
Fund may not be able to enter into a closing transaction because of an illiquid
secondary market.
(F) FUTURES CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
security at a set price on a future date. Upon entering into such a contract the
Fund is required to pledge to the broker an amount of cash or securities equal
to the minimum "initial margin" requirements of the exchange on which the
contract is traded. Pursuant to the contract, the Fund agrees to receive from or
pay to the broker an amount of cash equal to the daily fluctuation in value of
the contract. Such receipts or payments are known as "variation margin" and are
recorded by the Fund as unrealized gains or losses. When the contract is closed,
the Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the time it was
closed. The potential risk to the Fund is that the change in value of the
underlying securities may not correlate to the change in value of the contracts.
The Fund may use futures contracts to manage its exposure to the stock market
and to fluctuations in currency values or interest rates.
(G) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). The cost of securities sold is determined on a first-in,
first-out-basis, unless otherwise specified. Dividends are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. Where a high
level of uncertainty exists as to its collection, income is recorded net of all
withholding tax with any rebate recorded when received. The Fund may trade
securities on other than normal settlement terms. This may increase the risk if
the other party to the transaction fails to deliver and causes the Fund to
subsequently invest at less advantageous prices.
(H) PORTFOLIO SECURITIES LOANED
At October 31, 1998, stocks with an aggregate value of $13,148,319 were on loan
to brokers. The loans were secured by cash collateral of $14,832,250 received by
the Fund. For the year ended October 31, 1998, the Fund received fees of
$331,980.
For international securities, cash collateral is received by the Fund against
loaned securities in an amount at least equal to 105% of the market value of the
loaned securities at the inception of each loan. This collateral must be
maintained at not less than 103% of the market value of the loaned securities
during the period of the loan. For domestic securities, cash collateral is
received by the Fund against loaned securities in the amount at least equal to
102% of the market value of the loaned securities at the inception of each loan.
This collateral must be maintained at not less than 100% of the market value of
the loaned securities during the period of the loan. The cash collateral is
invested in a securities lending trust which consists of a portfolio of high
quality short duration securities whose average effective duration is restricted
to 120 days or less.
FS-27
<PAGE> 690
(I) TAXES
It is the intended policy of the Fund to meet the requirements for qualification
as a "regulated investment company" under the Internal Revenue Code of 1986, as
amended ("Code"). It is also the intention of the Fund to make distributions
sufficient to avoid imposition of any excise tax under Section 4982 of the Code.
Therefore, no provision has been made for Federal taxes on income, capital
gains, or unrealized appreciation of securities held, and excise tax on income
and capital gains. The AIM Global Government Income Fund has a capital loss
carryforward of $126,354,043 of which $110,608,457 expires in 2002, and
$15,745,586 expires in 2003.
(J) DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded by each Fund on the ex-date. Income
and capital gain distributions are determined in accordance with Federal income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Fund and timing differences.
(K) FOREIGN SECURITIES
There are certain additional considerations and risks associated with investing
in foreign securities and currency transactions that are not inherent in
investments of domestic origin. The Fund's investment in emerging market
countries may involve greater risks than investments in more developed markets
and the price of such investments may be volatile. These risks of investing in
foreign and emerging markets may include foreign currency exchange rate
fluctuations, perceived credit risk, adverse political and economic developments
and possible adverse foreign government intervention.
(L) INDEXED SECURITIES
The Fund may invest in indexed securities whose value is linked either directly
or indirectly to changes in foreign currencies, interest rates, equities,
indices, or other reference instruments. Indexed securities may be more volatile
than the reference instrument itself, but any loss is limited to the amount of
the original investment.
(M) RESTRICTED SECURITIES
The Fund is permitted to invest in privately placed restricted securities. These
securities may be resold in transactions exempt from registration or to the
public if the securities are registered. Disposal of these securities may
involve time-consuming negotiations and expense, and prompt sale at an
acceptable price may be difficult. At the end of the year, restricted
securities, if any, (excluding 144A issues), are shown at the end of the Fund's
Portfolio of Investments.
(N) LINE OF CREDIT
The Fund, along with certain other funds advised and/or administered by the
Manager, has a line of credit with each of BankBoston and State Street Bank and
Trust Company. The arrangements with the banks allow the Fund and certain other
Funds to borrow, on a first come, first serve basis, an aggregate maximum amount
of $250,000,000. The Fund is limited to borrowing up to 33 1/3% of the value of
the Fund's total assets. On October 31, 1998, the Fund had $1,939,000 in loans
outstanding.
For the year ended October 31, 1998, the weighted average outstanding daily
balance of bank loans (based on the number of days the loans were outstanding)
for the Fund was $12,969,493, with a weighted average interest rate of 6.29%.
Interest expense for the year ended October 31, 1998 was $639,524. Other
interest expense charges amounted to $88,731.
(O) SECURITIES PURCHASED ON A WHEN-ISSUED OR FORWARD
COMMITMENT BASIS
The Fund may trade securities on a when-issued or forward commitment basis, with
payment and delivery scheduled for a future date. These transactions are subject
to market fluctuations and are subject to the risk that the value at delivery
may be more or less than the trade date purchase price. Although the Fund will
generally purchase these securities with the intention of acquiring such
securities, they may sell such securities before the settlement date. These
securities are identified on the accompanying Portfolio of Investments. The Fund
has set aside sufficient cash or liquid securities as collateral for these
purchase commitments.
2. RELATED PARTIES
A I M Advisors, Inc. (the "Manager"), an indirect wholly-owned subsidiary of
AMVESCAP PLC, became the Fund's investment manager and administrator and INVESCO
(NY), Inc., (formerly, Chancellor LGT Asset Management, Inc.) is the Fund's
investment sub-advisor and sub-administrator. As of the close of business on May
29, 1998, Liechtenstein Global Trust AG ("LGT"), the former indirect parent
organization of Chancellor LGT Asset Management, Inc. ("Chancellor LGT")
consummated a purchase agreement with AMVESCAP PLC pursuant to which AMVESCAP
PLC acquired LGT's Asset Management Division, which included Chancellor LGT and
certain other affiliates. As a result of this transaction, Chancellor LGT was
renamed INVESCO (NY), Inc., and is now an indirect wholly-owned subsidiary of
AMVESCAP PLC.
A I M Distributors, Inc. ("AIM Distributors"), a wholly-owned subsidiary of the
Manager, became the Fund's distributor as of the close of business on May 29,
1998. The Trust was reorganized from a Maryland corporation into a Delaware
business trust on September 8, 1998. Finally, as of the close of business on
September 4, 1998, A I M Fund Services, Inc. ("AFS"), an affiliate of the
Manager and AIM Distributors, replaced GT Global Investor Services, Inc. ("GT
Services") as the transfer agent of the Fund.
The Fund pays the Manager investment management and administration fees at the
annualized rate of 0.725% on the first $500 million of the average daily net
assets of the Fund; 0.70% on the next $1 billion; 0.675% on the next $1 billion;
and 0.65% on amounts thereafter. These fees are computed daily and paid monthly.
AIM Distributors, an affiliate of the Manager, serves as the Fund's distributor.
For the period ended May 29, 1998, GT Global, Inc. ("GT Global"), an affiliate
of the investment sub-advisor, served as the Fund's distributor. The Fund offers
Class A, Class B, and Advisor Class shares for purchase.
Class A shares are subject to initial sales charges imposed at the time of
purchase, in accordance with the schedule included in the Fund's
FS-28
<PAGE> 691
current prospectus. AIM Distributors collects the sales charges imposed on sales
of Class A shares, and reallows a portion of such charges to dealers through
which the sales are made. For the year ended October 31, 1998, AIM Distributors
and GT Global retained the following sales charges: $4,354 and $1,842,
respectively. Purchases of Class A shares exceeding $1,000,000 may be subject to
a contingent deferred sales charge ("CDSC") upon redemption, in accordance with
the Fund's current prospectus. AIM Distributors and GT Global had no CDSCs for
the year ended October 31, 1998. AIM Distributors also makes ongoing shareholder
servicing and trail commission payments to dealers whose clients hold Class A
shares.
Class B shares are not subject to initial sales charges. When Class B shares are
sold, AIM Distributors, from its own resources, pays commissions to dealers
through which the sales are made. Certain redemptions of Class B shares made
within six years of purchase are subject to CDSCs, in accordance with the Fund's
current prospectus. For the year ended October 31, 1998, AIM Distributors and GT
Global collected CDSCs in the amount of $236,027 and $506,058, respectively. In
addition, AIM Distributors makes ongoing shareholder servicing and trail
commission payments to dealers whose clients hold Class B shares.
For the period ended May 29, 1998, pursuant to the then effective separate
distribution plans adopted under the 1940 Act Rule 12b-1 by the Trust's Board of
Trustees with respect to the Fund's Class A shares ("Class A Plan") and Class B
shares ("Class B Plan"), the Fund reimbursed GT Global for a portion of its
shareholder servicing and distribution expenses. Under the Class A Plan, the
Fund was permitted to pay GT Global a service fee at the annualized rate of up
to 0.25% of the average daily net assets of the Fund's Class A shares for GT
Global's expenditures incurred in servicing and maintaining shareholder
accounts, and was permitted to pay GT Global a distribution fee at the
annualized rate of up to 0.35% of the average daily net assets of the Fund's
Class A shares, less any amounts paid by the Fund as the aforementioned service
fee, for GT Global's expenditures incurred in providing services as distributor.
All expenses for which GT Global was reimbursed under the Class A Plan would
have been incurred within one year of such reimbursement.
For the period ended May 29, 1998, pursuant to the Class B Plan, the Fund was
permitted to pay GT Global a service fee at the annualized rate of up to 0.25%
of the average daily net assets of the Fund's Class B shares for GT Global's
expenditures incurred in servicing and maintaining shareholder accounts, and was
permitted to pay GT Global a distribution fee at the annualized rate of up to
0.75% of the average daily net assets of the Fund's Class B shares for GT
Global's expenditures incurred in providing services as distributor. Expenses
incurred under the Class B Plan in excess of 1.00% annually were permitted to be
carried forward for reimbursement in subsequent years as long as that Plan
continued in effect.
Effective as of the close of business May 29, 1998, pursuant to Rule 12b-1 under
the 1940 Act, the Trust's Board of Trustees adopted a Master Distribution Plan
applicable to the Fund's Class A shares ("Class A Plan") and Class B shares
("Class B Plan"), pursuant to which the Fund compensates AIM Distributors for
the purpose of financing any activity that is intended to result in the sale of
Class A or Class B shares of the Fund. Under the Class A Plan, the Fund
compensates AIM Distributors at the annualized rate of 0.35% of the average
daily net assets of the Fund's Class A shares. Under the Class B Plan, the Fund
compensates AIM Distributors at an annualized rate of 1.00% of the average daily
net assets of the Fund's Class B shares.
The Class A Plan and the Class B Plan (together, the "Plans") are designed to
compensate AIM Distributors for certain promotional and other sales-related
costs, and to implement a dealer incentive program that provides for periodic
payments to selected dealers who furnish continuing personal shareholder
services to their customers who purchase and own Class A and Class B shares of
the Fund. Payments also can be directed by AIM Distributors to financial
institutions who have entered into service agreements with respect to Class A
and Class B shares of the Fund and who provide continuing personal services to
their customers who own Class A and Class B shares of the Fund. The service fees
payable to selected financial 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 that were purchased on or after a
prescribed date set forth in the Plans.
The Manager and AIM Distributors voluntarily have undertaken to limit the Fund's
expenses (exclusive of brokerage commissions, taxes, interest, and extraordinary
expense) to the maximum annual rate of 1.75%, 2.40%, and 1.40% of the average
daily net assets of the Fund's Class A, Class B, and Advisor Class shares,
respectively. If necessary, this limitation will be effected by waivers by the
Manager of investment management and administration fees, waivers by AIM
Distributors of payments under the Class A Plan and/or Class B Plan and/or
reimbursements by the Manager or AIM Distributors of portions of the Fund's
other operating expenses.
Effective as of the close of business September 4, 1998, the Fund, pursuant to a
transfer agency and service agreement, has agreed to pay A I M Fund Services,
Inc. ("AFS") an annualized fee of $24.85 per shareholder accounts that are open
during any monthly period (this fee includes all out-of-pocket expenses), and an
annualized fee of $0.70 per shareholder account that is closed during any
monthly period. Both fees shall be billed by AFS monthly in arrears on a
prorated basis of 1/12 of the annualized fee for all such accounts.
For the period November 1, 1997 to September 4, 1998, GT Services, an affiliate
of the Manager and AIM Distributors, was the transfer agent of the Fund. For
performing shareholder servicing, reporting, and general transfer agent
services, GT Services received an annual maintenance fee of $17.50 per account,
a new account fee of $4.00 per account, a per transaction fee of $1.75 for all
transactions other than exchanges and a per exchange fee of $2.25. GT Services
also was reimbursed by the Fund for its out-of-pocket expenses for such items as
postage, forms, telephone charges, stationery and office supplies.
The Manager is the pricing and accounting agent for the Fund. The monthly fee
for these services to the Manager is a percentage, not to exceed 0.03% annually,
of a Fund's average daily net assets. The
FS-29
<PAGE> 692
annual fee rate is derived 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% to 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.
The Trust pays each Trustee who is not an employee, officer or director of the
Manager, or any other affiliated company, $5,000 per year plus $300 for each
meeting of the board or any committee thereof attended by the Trustee.
3. PURCHASES AND SALES OF SECURITIES
For the year ended October 31, 1998, purchases and sales of investment
securities by the Fund, other than U.S. government obligations and short-term
investments, aggregated $358,167,758 and $372,654,300 respectively. For the year
ended October 31, 1998, purchases and sales of U.S. government obligations
aggregated $373,516,894 and $395,326,576, respectively.
4. CAPITAL SHARES
At October 31, 1998, there were 6,000,000,000 shares of the Trust's common stock
authorized, at $0.0001 par value. Of this amount, 400,000,000 were classified as
shares of the AIM Global Telecommunications Fund; 400,000,000 were classified as
shares of AIM Global Government Income Fund; 200,000,000 were classified as
shares of AIM Global Health Care Fund; 200,000,000 were classified as shares of
AIM Strategic Income Fund; 200,000,000 were classified as shares of AIM
Developing Markets Fund; 200,000,000 were classified as shares of GT Global
Currency Fund (inactive); 200,000,000 were classified as shares of AIM Global
Growth & Income Fund; 200,000,000 were classified as shares of GT Global Small
Companies Fund (inactive); 200,000,000 were classified as shares of AIM Latin
American Growth Fund; 200,000,000 were classified as shares of AIM Emerging
Markets Fund; 200,000,000 were classified as shares of AIM Emerging Markets Debt
Fund; 200,000,000 were classified as shares of AIM Global Financial Services
Fund; 200,000,000 were classified as shares of AIM Global Resources Fund;
200,000,000 were classified as shares of AIM Global Infrastructure Fund;
200,000,000 were classified as shares of AIM Global Consumer Products and
Services Fund. The shares of each of the foregoing series of the Trusts were
divided equally into two classes, designated Class A and Class B common stock.
With respect to the issuance of Advisor Class shares, 100,000,000 shares were
classified as shares of each of the fifteen series of the Trusts and designated
as Advisor Class common stock. 1,100,000,000 shares remain unclassified.
Transactions in capital shares of the Fund were as follows:
CAPITAL SHARE TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
CLASS A
- ---------------------------------------------------------------
Shares sold.................................................... 82,946,586 $720,078,445 48,767,558 $419,503,866
Shares issued in connection with reinvestment of
distributions................................................ 537,397 4,673,843 741,916 6,372,599
----------- ------------ ----------- ------------
83,483,983 724,752,288 49,509,474 425,876,465
Shares repurchased............................................. (87,859,651) (762,718,816) (59,180,268) (509,133,563)
----------- ------------ ----------- ------------
Net decrease................................................... (4,375,668) $(37,966,528) (9,670,794) $(83,257,098)
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
<CAPTION>
CLASS B
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold.................................................... 33,203,356 $287,724,801 27,713,479 $237,734,254
Shares issued in connection with reinvestment of
distributions................................................ 342,811 2,983,470 452,575 3,886,536
----------- ------------ ----------- ------------
33,546,167 290,708,271 28,166,054 241,620,790
Shares repurchased............................................. (38,124,508) (330,880,174) (32,406,087) (278,645,805)
----------- ------------ ----------- ------------
Net decrease................................................... (4,578,341) $(40,171,903) (4,240,033) $(37,025,015)
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
<CAPTION>
ADVISOR CLASS
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold.................................................... 397,514 $ 3,461,130 4,551 38,769
Shares issued in connection with reinvestment of
distributions................................................ 2,169 19,000 680 5,804
----------- ------------ ----------- ------------
399,683 3,480,130 5,231 44,573
Shares repurchased............................................. (366,368) (3,179,841) (1,717) (14,773)
----------- ------------ ----------- ------------
Net increase................................................... 33,315 $ 300,289 3,514 $ 29,800
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
</TABLE>
FS-30
<PAGE> 693
5. WRITTEN OPTIONS
The AIM Global Government Income Fund's written options contract activity for
the year ended October 31, 1998, was as follows:
<TABLE>
<CAPTION>
UNDERLYING
NOMINAL
AIM GLOBAL GOVERNMENT INCOME FUND AMOUNT IN USD PREMIUMS
- ------------------------------------------------------------ ----------------- ------------
<S> <C> <C>
Options outstanding at October 31, 1997 $ 4,840,000 $ 44,673
Options written 35,488,342 182,826
Options cancelled in closing purchase transactions -- --
Options expired prior to exercise (40,328,342) (227,499)
Options exercised -- --
----------------- ------------
Options outstanding at October 31, 1998 $ -- $ --
----------------- ------------
----------------- ------------
</TABLE>
6. SUBSEQUENT EVENT (UNAUDITED)
Effective December 14, 1998, sub-advisory and sub-administration responsibility
for the Fund was transferred from INVESCO (NY), Inc. to INVESCO Asset Management
Ltd., another indirect wholly-owned subsidiary of AMVESCAP PLC. A I M Advisors,
Inc. will continue to serve as the manager and administrator of the Fund. The
transfer will not change the fees paid by A I M Advisors, Inc. for sub-advisory
services and will not change the nature of the sub-advisory services provided to
the Fund or the personnel providing such services.
7. PROXY RESULTS (UNAUDITED)
The Special Meeting of Shareholders of the G.T. Investment Funds, Inc., now
known as AIM Investment Funds, (the "Trust") was held on May 20, 1998 at the
Trust's offices, 50 California Street, 26th Floor, San Francisco, California.
The meeting was held for the following purposes:
(1) To elect Trustees as follows: C. Derek Anderson, Frank S. Bayley, William J.
Guilfoyle, Arthur C. Patterson, Ruth H. Quigley.
(2) To approve a new Investment Management and Administration Contract and
Sub-Advisory and Sub-Administration Contract with respect to each series of
the Trust (each, a "Fund," and collectively, the "Funds").
(3) To approve replacement Rule 12b-1 plans of distribution with respect to
Class A and B Shares of the Fund.
(4) To approve changes to the fundamental investment restrictions of the Fund.
(5) To approve an agreement and plan of conversion and termination for the
Trust.
(6) To ratify the selection of Coopers & Lybrand L.L.P., now known as
PricewaterhouseCoopers LLP, as the Trust's independent public accountants.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
VOTES WITHHELD/
TRUSTEE/MATTER VOTES FOR AGAINST ABSTENTIONS
------------------------------------------------------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
(1) C. Derek Anderson........................................... 191,685,088 N/A 13,123,292
Frank S. Bayley............................................. 191,766,811 N/A 13,041,568
William J. Guilfoyle........................................ 191,828,959 N/A 12,979,420
Arthur C. Patterson......................................... 191,845,270 N/A 12,963,109
Ruth H. Quigley............................................. 191,869,887 N/A 12,938,492
(2)(a) Approval of investment management and administration
contract................................................... 11,536,408 331,113 2,991,833*
(2)(b) Approval of sub-advisory and sub-administration contract.... 11,395,925 369,943 3,093,486*
(3) Approval of replacement Rule 12b-1 plans of distribution
CLASS A SHARES.............................................. 7,719,511 270,134 779,922
CLASS B SHARES.............................................. 5,529,210 170,503 434,919
(4)(a) Modification of Fundamental Restriction on Concentration.... 11,334,807 411,566 3,112,981*
(4)(b) Modification of Fundamental Restriction on Issuing Senior
Securities and Borrowing Money............................. 11,332,764 413,609 3,112,981*
(4)(c) Modification of Fundamental Restriction on Making Loans..... 11,334,807 411,566 3,112,981*
(4)(d) Modification of Fundamental Restriction on Underwriting
Securities................................................. 11,334,807 411,566 3,112,981*
(4)(e) Modification of Fundamental Restriction on Real Estate
Investments................................................ 11,330,893 415,480 3,112,981*
(4)(f) Modification of Fundamental Restriction on Investing in
Commodities................................................ 11,330,902 413,716 3,112,981*
(4)(g) Elimination of Fundamental Restriction on Margin
Transactions............................................... 11,332,945 413,428 3,112,981*
(4)(h) Elimination of Fundamental Restriction on Investing in
Futures Contracts.......................................... 11,330,509 415,864 3,112,981*
(4)(i) Elimination of Fundamental Restriction on Investing in
Illiquid Securities........................................ 11,332,543 413,830 3,112,981*
(4)(j) Elimination of Fundamental Restriction on Pledging Assets... 11,334,799 411,574 3,112,981*
(4)(k) Elimination of Fundamental Restriction on Investments in
Oil, Gas and Mineral Leases and Programs................... 11,334,406 411,967 3,112,981*
(4)(l) Elimination of Fundamental Restriction on Investing for the
Purpose of Control......................................... 11,332,756 413,617 3,112,981*
</TABLE>
FS-31
<PAGE> 694
<TABLE>
<CAPTION>
VOTES WITHHELD/
TRUSTEE/MATTER VOTES FOR AGAINST ABSTENTIONS
------------------------------------------------------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
(4)(m) Elimination of Fundamental Restriction on Purchasing
Securities of Issuers in Which Officers and Board Members
of Each Company and Its Affiliates Own Securities.......... 11,334,807 411,566 3,112,981*
(4)(n) Elimination of Fundamental Restriction on Investing in
Securities of Companies That Have Been in Operation for
Less than Three Years...................................... 11,334,807 411,566 3,112,981*
(4)(o) Elimination of Fundamental Restriction on Selling Securities
Short...................................................... 11,330,101 416,272 3,112,981*
(4)(p) Approval of New Fundamental Investment Policy Regarding
Investment of All of Each Fund's Assets in an Open-End
Fund....................................................... 11,334,799 411,574 3,112,981*
(5) Approval of an agreement and plan of conversion and
termination with respect to the Trust...................... 190,027,469 6,362,084 94,055,040*
(6) Ratification of the selection of Coopers and Lybrand L.L.P.,
now known as PricewaterhouseCoopers LLP, as the Trust's
independent public accountants............................. 191,358,779 2,114,168 11,333,063
</TABLE>
- ------------------------
* Includes Broker Non-Votes
FS-32
<PAGE> 695
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders of AIM Global Growth & Income Fund (formerly GT Global
Growth & Income Fund) and Board of Trustees of AIM Investment Funds (formerly
G.T. Investment Funds, Inc.):
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Global Growth & Income Fund
at October 31, 1998, and the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
/s/PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
BOSTON, MASSACHUSETTS
DECEMBER 18, 1998
FS-33
<PAGE> 696
PORTFOLIO OF INVESTMENTS
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Finance (19.1%)
UBS AG - Registered ....................................... SWTZ 84,259 $ 23,108,090 2.9
BANKS-MONEY CENTER
First Tennessee National Corp. ............................ US 490,800 15,552,225 1.9
BANKS-REGIONAL
Royal & Sun Alliance Insurance Group PLC .................. UK 1,621,400 14,838,645 1.9
INSURANCE - MULTI-LINE
First Union Corp. (N.C.) .................................. US 232,000 13,456,000 1.7
BANKS-REGIONAL
ING Groep N.V. ............................................ NETH 266,878 12,916,678 1.6
OTHER FINANCIAL
American General Corp. .................................... US 170,000 11,645,000 1.4
INSURANCE-LIFE
CGU PLC ................................................... UK 694,750 11,001,855 1.4
INSURANCE - MULTI-LINE
National Australia Bank Ltd. .............................. AUSL 674,825 8,941,431 1.1
BANKS-MONEY CENTER
Commonwealth Bank of Australia ............................ AUSL 713,000 8,863,481 1.1
BANKS-MONEY CENTER
Lloyds TSB Group PLC ...................................... UK 688,428 8,494,490 1.1
BANKS-MONEY CENTER
National Westminster Bank PLC ............................. UK 471,800 7,964,634 1.0
BANKS-MONEY CENTER
IKB Deutsche Industriebank AG ............................. GER 394,000 7,808,108 1.0
BANKS-REGIONAL
Credit Suisse Group ....................................... SWTZ 49,300 7,579,156 1.0
BANKS-MONEY CENTER
Fortis AG ................................................. BEL -- -- --
OTHER FINANCIAL
CVG-/- .................................................. -- 34,440 241,967 --
Strip VVPR-/- ........................................... -- 34,440 1,008 --
------------
152,412,768
------------
Consumer Non-Durables (16.1%)
Cadbury Schweppes PLC ..................................... UK 1,381,800 21,153,539 2.7
FOOD
Bestfoods ................................................. US 300,000 16,350,000 2.1
FOOD
Avon Products, Inc. ....................................... US 364,000 14,446,250 1.8
PERSONAL CARE/COSMETICS
Reckitt & Colman PLC ...................................... UK 833,093 14,398,278 1.8
HOUSEHOLD PRODUCTS
Philip Morris Cos., Inc. .................................. US 255,000 13,036,875 1.6
TOBACCO AND FOOD
Diageo PLC ................................................ UK 1,094,559 11,811,788 1.5
BEVERAGES - ALCOHOLIC
Anheuser-Busch Cos., Inc. ................................. US 188,371 11,196,301 1.4
BEVERAGES - ALCOHOLIC
Pernod Ricard ............................................. FR 158,720 10,574,284 1.3
BEVERAGES - ALCOHOLIC
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-34
<PAGE> 697
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Consumer Non-Durables (Continued)
Foster's Brewing Group Ltd. ............................... AUSL 3,500,000 $ 8,596,875 1.1
BEVERAGES - ALCOHOLIC
Brown-Forman Corp. "B" .................................... US 93,600 6,358,950 0.8
BEVERAGES - ALCOHOLIC
------------
127,923,140
------------
Energy (15.2%)
Texas Utilities Co. ....................................... US 470,000 20,562,500 2.6
ELECTRICAL & GAS UTILITIES
Royal Dutch Petroleum Co. ................................. NETH 371,840 17,956,938 2.3
OIL
Southern Co. .............................................. US 520,000 14,657,500 1.8
ELECTRICAL & GAS UTILITIES
Exxon Corp. ............................................... US 182,600 13,010,250 1.6
ENERGY SOURCES
Electrabel S.A. ........................................... BEL 34,760 12,821,311 1.6
ELECTRICAL & GAS UTILITIES
Mobil Corp. ............................................... US 162,600 12,306,788 1.6
ENERGY SOURCES
Reunies Electrobel & Tractebel S.A. ....................... BEL 57,935 9,667,140 1.2
ELECTRICAL & GAS UTILITIES
RWE AG .................................................... GER 134,620 7,304,015 0.9
ENERGY EQUIPMENT & SERVICES
PG&E Corp. ................................................ US 220,000 6,696,250 0.8
ELECTRICAL & GAS UTILITIES
Elf Aquitaine ............................................. FR 52,475 6,075,486 0.8
OIL
------------
121,058,178
------------
Services (12.7%)
McGraw-Hill, Inc. ......................................... US 162,000 14,569,875 1.8
BROADCASTING & PUBLISHING
Bell Atlantic Corp. ....................................... US 250,000 13,281,250 1.7
TELEPHONE - REGIONAL/LOCAL
Telecom Corporation of New Zealand Ltd.: .................. NZ -- -- 1.5
TELEPHONE NETWORKS
Common .................................................. -- 2,614,200 10,721,872 --
ADR{\/} ................................................. -- 38,000 1,254,000 --
Deutsche Telekom AG ....................................... GER 380,000 10,359,253 1.3
TELEPHONE NETWORKS
Dun & Bradstreet Corp. .................................... US 309,800 8,790,575 1.1
BROADCASTING & PUBLISHING
Koninklijke KPN N.V. ...................................... NETH 220,005 8,551,431 1.1
TELEPHONE NETWORKS
Reuters Group PLC ......................................... UK 716,181 7,369,103 0.9
BROADCASTING & PUBLISHING
Swisscom AG-/- ............................................ SWTZ 20,820 7,054,762 0.9
TELEPHONE NETWORKS
Telecom Italia SpA ........................................ ITLY 900,000 6,508,791 0.8
TELEPHONE NETWORKS
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-35
<PAGE> 698
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Services (Continued)
EMI Group PLC ............................................. UK 887,600 $ 5,260,704 0.7
LEISURE & TOURISM
TABCORP Holdings Ltd. ..................................... AUSL 634,500 4,221,011 0.5
LEISURE & TOURISM
TNT Post Group N.V.-/- .................................... NETH 112,735 3,017,855 0.4
TRANSPORTATION - SHIPPING
------------
100,960,482
------------
Health Care (4.9%)
Bristol Myers Squibb Co. .................................. US 277,400 30,670,038 3.9
PHARMACEUTICALS
American Home Products Corp. .............................. US 170,000 8,287,500 1.0
PHARMACEUTICALS
------------
38,957,538
------------ -----
TOTAL EQUITY INVESTMENTS (cost $365,036,400) ................ 541,312,106 68.0
------------ -----
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Government & Government Agency Obligations (28.3%)
Germany (10.4%)
Deutschland Republic:
6.25% due 4/26/06 ..................................... DEM 62,840,000 43,157,651 5.4
5.625% due 1/4/28 ..................................... DEM 32,375,000 20,814,596 2.6
8.25% due 9/20/01 ..................................... DEM 27,700,000 18,856,619 2.4
United Kingdom (3.6%)
United Kingdom Treasury:
8% due 6/7/21 ......................................... GBP 10,920,000 25,684,015 3.2
(effective yield 4.37%) due 12/7/28 {=} ............... GBP 6,500,000 2,764,289 0.4
United States (14.3%)
United States Treasury:
10.625% due 8/15/15 ................................... USD 44,500,000 71,338,078 9.0
10.375% due 11/15/09 .................................. USD 31,000,000 40,163,163 5.0
7.625% due 2/15/25 .................................... USD 2,100,000 2,762,402 0.3
------------
Total Government & Government Agency Obligations (cost
$215,000,367) .............................................. 225,540,813
------------ -----
TOTAL FIXED INCOME INVESTMENTS (cost $215,000,367) .......... 225,540,813 28.3
------------ -----
<CAPTION>
NO. OF VALUE % OF NET
WARRANTS COUNTRY WARRANTS (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Societe Generale Banque put warrants due 11/15/99 Tractebel
(cost $0) ................................................ BEL 11,587 3,053 --
------------ -----
BANKS-MONEY CENTER
<CAPTION>
VALUE % OF NET
REPURCHASE AGREEMENTS (NOTE 1) ASSETS
- ------------------------------------------------------------- ------------ -------------
<S> <C> <C> <C> <C>
Dated October 30, 1998, with State Street Bank & Trust Co.,
due November 2, 1998, for an effective yield of 5.30%,
collateralized by $23,860,000 U.S. Treasury Notes, 6.75%
due 4/30/00 (market value of collateral is $25,500,375,
including accrued interest). ............................ 25,000,000 3.1
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-36
<PAGE> 699
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
REPURCHASE AGREEMENTS (NOTE 1) ASSETS
- ------------------------------------------------------------- ------------ -------------
<S> <C> <C> <C> <C>
Dated October 30, 1998, with State Street Bank & Trust Co.,
due November 2, 1998, for an effective yield of 5.30%,
collateralized by $360,000 U.S. Treasury Bonds, 11.25% due
2/15/15 (market value of collateral is $611,477, including
accrued interest). ...................................... $ 597,000 0.1
------------ -----
TOTAL REPURCHASE AGREEMENTS (cost $25,597,000) .............. 25,597,000 3.2
------------ -----
TOTAL INVESTMENTS (cost $605,633,767) * .................... 792,452,972 99.5
Other Assets and Liabilities ................................ 4,372,266 0.5
------------ -----
NET ASSETS .................................................. $796,825,238 100.0
------------ -----
------------ -----
</TABLE>
- --------------
-/- Non-income producing security.
{\/} U.S. currency denominated.
{=} Zero coupon bond.
* For Federal income tax purposes, cost is $607,048,328 and
appreciation (depreciation) is as follows:
<TABLE>
<S> <C>
Unrealized appreciation: $ 189,396,722
Unrealized depreciation: (3,992,078)
-------------
Net unrealized appreciation: $ 185,404,644
-------------
-------------
</TABLE>
Abbreviation:
ADR--American Depositary Receipt
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Fund's Portfolio of Investments at October 31, 1998, was concentrated in the
following countries:
<TABLE>
<CAPTION>
PERCENTAGE OF NET ASSETS {D}
-------------------------------------------
FIXED INCOME SHORT-TERM
COUNTRY (COUNTRY CODE/CURRENCY CODE) EQUITY & WARRANTS & OTHER TOTAL
- -------------------------------------- ------ ------------- ---------- -----
<S> <C> <C> <C> <C>
Australia (AUSL/AUD) ................. 3.8 3.8
Belgium (BEL/BEF) .................... 2.8 2.8
France (FR/FRF) ...................... 2.1 2.1
Germany (GER/DEM) .................... 3.2 10.4 13.6
Italy (ITLY/ITL) ..................... 0.8 0.8
Netherlands (NETH/NLG) ............... 5.4 5.4
New Zealand (NZ/NZD) ................. 1.5 1.5
Switzerland (SWTZ/CHF) ............... 4.8 4.8
United Kingdom (UK/GBP) .............. 13.0 3.6 16.6
United States (US/USD) ............... 30.6 14.3 3.7 48.6
------ ----- --- -----
Total ............................... 68.0 28.3 3.7 100.0
------ ----- --- -----
------ ----- --- -----
</TABLE>
- --------------
{d} Percentages indicated are based on net assets of $796,825,238.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACT OUTSTANDING
OCTOBER 31, 1998
<TABLE>
<CAPTION>
MARKET VALUE CONTRACT DELIVERY UNREALIZED
CONTRACT TO SELL: (U.S. DOLLARS) PRICE DATE APPRECIATION
- ---------------------------------------- -------------- ------------ -------- --------------
<S> <C> <C> <C> <C>
British Pounds.......................... 55,676,804 0.60285 1/29/99 $ 224,756
-------------- --------------
Total Contract to Sell (Receivable
amount $55,901,560).................. 55,676,804 224,756
-------------- --------------
THE VALUE OF CONTRACT TO SELL AS
PERCENTAGE OF NET ASSETS IS 6.99%.
Total Open Forward Currency
Contract............................. $ 224,756
--------------
--------------
</TABLE>
- ----------------
See Note 1 of Notes to the Financial Statements.
The accompanying notes are an integral part of the financial statements.
FS-37
<PAGE> 700
STATEMENT OF ASSETS
AND LIABILITIES
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at value (cost $605,633,767) (Note 1)................................. $792,452,972
U.S. currency.................................................................................... 136
Interest receivable.............................................................................. 5,521,680
Dividends and dividend withholding tax reclaims receivable....................................... 1,924,096
Receivable for securities sold................................................................... 1,287,673
Receivable for Fund shares sold.................................................................. 782,800
Receivable for open forward foreign currency contracts (Note 1).................................. 224,756
-----------
Total assets................................................................................... 802,194,113
-----------
Liabilities:
Payable for Fund shares repurchased.............................................................. 1,596,936
Payable for securities purchased................................................................. 1,559,592
Payable for service and distribution expenses (Note 2)........................................... 1,168,454
Payable for investment management and administration fees (Note 2)............................... 634,873
Payable for transfer agent fees (Note 2)......................................................... 182,161
Payable for printing and postage expenses........................................................ 104,124
Payable for custodian fees....................................................................... 44,676
Payable for professional fees.................................................................... 39,377
Payable for registration and filing fees......................................................... 18,504
Payable for fund accounting fees (Note 2)........................................................ 9,251
Payable for Trustees' fees and expenses (Note 2)................................................. 8,979
Other accrued expenses........................................................................... 1,948
-----------
Total liabilities.............................................................................. 5,368,875
-----------
Net assets......................................................................................... $796,825,238
-----------
-----------
Class A:
Net asset value and redemption price per share ($306,278,696 DIVIDED BY 33,081,644 shares
outstanding)...................................................................................... $ 9.26
-----------
-----------
Maximum offering price per share (100/94.50 of $9.26) *............................................ $ 9.80
-----------
-----------
Class B:+
Net asset value and offering price per share ($483,307,176 DIVIDED BY 52,248,436 shares
outstanding)...................................................................................... $ 9.25
-----------
-----------
Advisor Class:
Net asset value, offering price per share, and redemption price per share ($7,239,366 DIVIDED BY
782,121 shares outstanding)....................................................................... $ 9.26
-----------
-----------
Net assets consist of:
Paid in capital (Note 4)......................................................................... $467,573,561
Accumulated net realized gain on investments and foreign currency transactions................... 142,061,286
Net unrealized appreciation on translation of assets and liabilities in foreign currencies....... 371,186
Net unrealized appreciation of investments....................................................... 186,819,205
-----------
Total -- representing net assets applicable to capital shares outstanding.......................... $796,825,238
-----------
-----------
<FN>
- --------------
* On sales of $25,000 or more, the offering price is reduced.
+ Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-38
<PAGE> 701
STATEMENT OF OPERATIONS
Year ended October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment income: (Note 1)
Dividend income (net of foreign withholding tax of $1,274,284)............................ $15,652,077
Interest income........................................................................... 12,405,553
Securities lending income................................................................. 670,939
-----------
Total investment income................................................................. 28,728,569
-----------
Expenses:
Investment management and administration fees (Note 2).................................... 7,885,054
Service and distribution expenses: (Note 2)
Class A.................................................................... $ 1,090,317
Class B.................................................................... 4,987,749 6,078,066
-----------
Transfer agent fees (Note 2).............................................................. 1,254,000
Custodian fees............................................................................ 451,000
Printing and postage expenses............................................................. 385,825
Fund accounting fees (Note 2)............................................................. 210,440
Professional fees......................................................................... 136,000
Registration and filing fees.............................................................. 55,955
Trustees' fees and expenses (Note 2)...................................................... 20,150
Other expenses (Note 1)................................................................... 223,249
-----------
Total expenses before reductions........................................................ 16,699,739
-----------
Expense reductions (Note 5)........................................................... (40,023)
-----------
Total net expenses...................................................................... 16,659,716
-----------
Net investment income....................................................................... 12,068,853
-----------
Net realized and unrealized gain (loss) on investments and foreign currencies:
(Note 1)
Net realized gain on investments............................................. 150,980,039
Net realized loss on foreign currency transactions........................... (4,238,589)
-----------
Net realized gain during the year....................................................... 146,741,450
Net change in unrealized appreciation (depreciation) on translation of assets
and liabilities in foreign currencies....................................... 2,776,067
Net change in unrealized appreciation (depreciation) of investments.......... (32,685,753)
-----------
Net unrealized depreciation during the year............................................. (29,909,686)
-----------
Net realized and unrealized gain on investments and foreign currencies...................... 116,831,764
-----------
Net increase in net assets resulting from operations........................................ $128,900,617
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-39
<PAGE> 702
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
Increase in net assets
Operations:
Net investment income....................................................... $ 12,068,853 $ 16,790,846
Net realized gain on investments and foreign currency transactions.......... 146,741,450 24,005,528
Net change in unrealized appreciation (depreciation) on translation of
assets and liabilities in foreign currencies............................... 2,776,067 (4,059,448)
Net change in unrealized appreciation (depreciation) of investments......... (32,685,753) 84,674,909
------------ ------------
Net increase in net assets resulting from operations...................... 128,900,617 121,411,835
------------ ------------
Class A:
Distributions to shareholders: (Note 1)
From net investment income.................................................. (4,583,653) (7,733,156)
From net realized gain on investments....................................... (8,368,465) (757,327)
Class B:
Distributions to shareholders: (Note 1)
From net investment income.................................................. (4,410,176) (9,266,887)
From net realized gain on investments....................................... (13,388,382) (907,529)
Advisor Class:
Distributions to shareholders: (Note 1)
From net investment income.................................................. (100,933) (125,777)
From net realized gain on investments....................................... (131,267) (12,318)
------------ ------------
Total distributions....................................................... (30,982,876) (18,802,994)
------------ ------------
Capital share transactions: (Note 4)
Increase from capital shares sold and reinvested............................ 548,028,420 426,976,337
Decrease from capital shares repurchased.................................... (601,598,746) (450,361,754)
------------ ------------
Net decrease from capital share transactions.............................. (53,570,326) (23,385,417)
------------ ------------
Total increase in net assets.................................................. 44,347,415 79,223,424
Net assets:
Beginning of year........................................................... 752,477,823 673,254,399
------------ ------------
End of year *............................................................... $796,825,238 $752,477,823
------------ ------------
------------ ------------
* Includes undistributed net investment income............................... $ -- $ --
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-40
<PAGE> 703
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1998 (d) 1997 (d) 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 8.21 $ 7.11 $ 6.35 $ 6.21 $ 6.29
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income................. 0.17 0.21 0.22 0.24 0.22
Net realized and unrealized gain
(loss) on investments................ 1.25 1.12 0.82 0.13 (0.03)
---------- ---------- ---------- ---------- ----------
Net increase from investment
operations......................... 1.42 1.33 1.04 0.37 0.19
---------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income............ (0.13) (0.21) (0.24) (0.22) (0.21)
From net realized gain on
investments.......................... (0.24) (0.02) (0.04) (0.01) (0.06)
---------- ---------- ---------- ---------- ----------
Total distributions................. (0.37) (0.23) (0.28) (0.23) (0.27)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 9.26 $ 8.21 $ 7.11 $ 6.35 $ 6.21
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return (c)............. 17.76% 19.01% 16.80% 6.27% 3.14%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 306,279 $ 292,528 $ 286,203 $ 284,069 $ 317,847
Ratio of net investment income to
average net assets..................... 1.87% 2.74% 3.17% 3.85% 3.30%
Ratio of expenses to average net assets:
With expense reductions (Note 5)...... 1.64% 1.50% 1.59% 1.70% 1.67%
Without expense reductions............ 1.65% 1.64% 1.66% 1.74% N/A
Portfolio turnover rate++............... 92% 50% 39% 83% 117%
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates are calculated on the basis of the Fund as a
whole without distinguishing between the class of shares issued.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-41
<PAGE> 704
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1998 (d) 1997 (d) 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 8.21 $ 7.11 $ 6.35 $ 6.21 $ 6.29
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income................. 0.11 0.16 0.17 0.20 0.18
Net realized and unrealized gain
(loss) on investments................ 1.25 1.13 0.82 0.13 (0.03)
---------- ---------- ---------- ---------- ----------
Net increase from investment
operations......................... 1.36 1.29 0.99 0.33 0.15
---------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income............ (0.08) (0.17) (0.20) (0.18) (0.17)
From net realized gain on
investments.......................... (0.24) (0.02) (0.03) (0.01) (0.06)
---------- ---------- ---------- ---------- ----------
Total distributions................. (0.32) (0.19) (0.23) (0.19) (0.23)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 9.25 $ 8.21 $ 7.11 $ 6.35 $ 6.21
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return (c)............. 16.93% 18.28% 16.06% 5.57% 2.48%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 483,307 $ 456,893 $ 383,966 $ 356,796 $ 359,242
Ratio of net investment income to
average net assets..................... 1.22% 2.09% 2.52% 3.20% 2.65%
Ratio of expenses to average net assets:
With expense reductions (Note 5)...... 2.29% 2.15% 2.24% 2.35% 2.32%
Without expense reductions............ 2.30% 2.29% 2.31% 2.39% N/A
Portfolio turnover rate++............... 92% 50% 39% 83% 117%
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates are calculated on the basis of the Fund as a
whole without distinguishing between the class of shares issued.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-42
<PAGE> 705
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
ADVISOR CLASS+
---------------------------------------------------
JUNE 1, 1995
YEAR ENDED OCTOBER 31, TO
------------------------------------ OCTOBER 31,
1998 (d) 1997 (d) 1996 1995
----------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 8.20 $ 7.10 $ 6.35 $ 6.24
----------- ----------- ---------- -------------
Income from investment operations:
Net investment income................. 0.21 0.23 0.23 0.11
Net realized and unrealized gain
(loss) on investments................ 1.25 1.13 0.82 0.13
----------- ----------- ---------- -------------
Net increase from investment
operations......................... 1.46 1.36 1.05 0.24
----------- ----------- ---------- -------------
Distributions to shareholders:
From net investment income............ (0.16) (0.24) (0.26) (0.13)
From net realized gain on
investments.......................... (0.24) (0.02) (0.04) --
----------- ----------- ---------- -------------
Total distributions................. (0.40) (0.26) (0.30) (0.13)
----------- ----------- ---------- -------------
Net asset value, end of period.......... $ 9.26 $ 8.20 $ 7.10 $ 6.35
----------- ----------- ---------- -------------
----------- ----------- ---------- -------------
Total investment return (c)............. 18.27% 19.23% 17.19% 3.83%(b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 7,239 $ 3,057 $ 3,085 $ 944
Ratio of net investment income to
average net assets..................... 2.22% 3.09% 3.52% 4.20%(a)
Ratio of expenses to average net assets:
With expense reductions (Note 5)...... 1.29% 1.15% 1.24% 1.35%(a)
Without expense reductions............ 1.30% 1.29% 1.31% 1.39%(a)
Portfolio turnover rate++............... 92% 50% 39% 83%
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates are calculated on the basis of the Fund as a
whole without distinguishing between the class of shares issued.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-43
<PAGE> 706
NOTES TO
FINANCIAL STATEMENTS
October 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (SEE ALSO NOTE 2)
AIM Global Growth & Income Fund (the "Fund"), formerly GT Global Growth & Income
Fund, is a separate series of AIM Investment Funds (the "Trust"), formerly GT
Investment Funds, Inc. The Trust is organized as a Delaware business trust and
is registered under the Investment Company Act of 1940, as amended ("1940 Act"),
as a non-diversified, open-end management investment company. The Trust has
thirteen series of shares in operation, each series corresponding to a distinct
portfolio of investments.
The Fund offers Class A, Class B, and Advisor Class shares, each of which has
equal rights as to assets and voting privileges. Class A and Class B each has
exclusive voting rights with respect to its distribution plan. Investment
income, realized and unrealized capital gains and losses, and the common
expenses of the Fund are allocated on a pro rata basis to each class based on
the relative net assets of each class to the total net assets of the Fund. Each
class of shares differs in its respective service and distribution expenses, and
may differ in its transfer agent, registration, and certain other class-specific
fees and expenses.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies in conformity with generally accepted accounting
principles consistently followed by the Fund in the preparation of the financial
statements.
(A) PORTFOLIO VALUATION
The Fund calculates the net asset value of and completes orders to purchase,
exchange or repurchase Fund shares on each business day, with the exception of
those days on which the New York Stock Exchange is closed.
Equity securities are valued at the last sale price on the exchange on which
such securities are traded, or on the principal over-the-counter market on which
such securities are traded, as of the close of business on the day the
securities are being valued, or, lacking any sales, at the last available bid
price. In cases where securities are traded on more than one exchange, the
securities are valued on the exchange determined by A I M Advisors, Inc. ("the
Manager") to be the primary market.
Fixed income investments are valued at the mean of representative quoted bid and
ask prices for such investments or, if such prices are not available, at prices
for investments of comparative maturity, quality and type; however, when the
Fund deems it appropriate, prices obtained for the day of valuation from a bond
pricing service will be used. Short-term investments with a maturity of 60 days
or less are valued at amortized cost adjusted for foreign exchange translation
and market fluctuations, if any.
Investments for which market quotations are not readily available (including
restricted securities which are subject to limitations on their sale) are valued
at fair value as determined in good faith by or under the direction of the
Trust's Board of Trustees.
Portfolio securities which are primarily traded on foreign exchanges are
generally valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S. dollars at
the current exchange rates, except that when an occurrence subsequent to the
time a value was so established is likely to have materially changed such value,
then the fair value of those securities will be determined by consideration of
other factors by or under the direction of the Trust's Board of Trustees.
(B) FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings, and other assets and
liabilities are recorded in the books and records of the Fund after translation
to U.S. dollars based on the exchange rates on that day. The cost of each
security is determined using historical exchange rates. Income and withholding
taxes are translated at prevailing exchange rates when earned or incurred.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, forward foreign currency contracts, sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities other than investments in securities at year
end, resulting from changes in exchange rates.
(C) REPURCHASE AGREEMENTS
With respect to repurchase agreements entered into by the Fund, it is the Fund's
policy to always receive, as collateral, United States government securities or
other high quality debt securities of which the value, including accrued
interest, is at least equal to the amount to be repaid to the Fund under each
agreement at its maturity.
(D) FORWARD FOREIGN CURRENCY CONTRACTS
A forward foreign currency contract ("Forward Contract") is an agreement between
two parties to buy and sell a currency at a set price on a future date. The
market value of the Forward Contract
FS-44
<PAGE> 707
fluctuates with changes in currency exchange rates. The Forward Contract is
marked-to-market daily and the change in market value is recorded by the Fund as
an unrealized gain or loss. When the Forward Contract is closed, the Fund
records a realized gain or loss equal to the difference between the value at the
time it was opened and the value at the time it was closed. Forward Contracts
involve market risk in excess of the amounts shown in the Fund's "Statement of
Assets and Liabilities." The Fund could be exposed to risk if a counter party is
unable to meet the terms of the contract or if the value of the currency changes
unfavorably. The Fund may enter into Forward Contracts in connection with
planned purchases or sales of securities, or to hedge against adverse
fluctuations in exchange rates between currencies.
(E) OPTION ACCOUNTING PRINCIPLES
When the Fund writes a call or put option, an amount equal to the premium
received is included in the Fund's "Statement of Assets and Liabilities" as an
asset and an equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option. The current
market value of an option listed on a traded exchange is valued at its last bid
price, or, in the case of an over-the-counter option, is valued at the average
of the last bid prices obtained from brokers. If an option expires on its
stipulated expiration date or if the Fund enters into a closing purchase
transaction, a gain or loss is realized without regard to any unrealized gain or
loss on the underlying security, and the liability related to such option is
extinguished. If a written call option is exercised, a gain or loss is realized
from the sale of the underlying security and the proceeds of the sale are
increased by the premium originally received. If a written put option is
exercised, the cost of the underlying security purchased would be decreased by
the premium originally received. The Fund can write options only on a covered
basis, which, for a call, requires that the Fund hold the underlying security
and, for a put, requires the Fund to set aside cash, U.S. government securities,
or other liquid securities in an amount not less than the exercise price or
otherwise provide adequate cover at all times while the put option is
outstanding. The Fund may use options to manage its exposure to the stock or
bond market and to fluctuations in currency values or interest rates.
The premium paid by the Fund for the purchase of a call or put option is
included in the Fund's "Statement of Assets and Liabilities" as an investment
and subsequently "marked-to-market" to reflect the current market value of the
option. If an option which the Fund has purchased expires on the stipulated
expiration date, the Fund realizes a loss in the amount of the cost of the
option. If the Fund enters into a closing sale transaction, the Fund realizes a
gain or loss, depending on whether proceeds from the closing sale transaction
are greater or less than the cost of the option. If the Fund exercises a call
option, the cost of the securities acquired by exercising the call is increased
by the premium paid to buy the call. If the Fund exercises a put option, it
realizes a gain or loss from the sale of the underlying security, and the
proceeds from such sale are decreased by the premium originally paid.
The risk associated with purchasing options is limited to the premium originally
paid. The risk in writing a call option is that the Fund may forego the
opportunity of profit if the market value of the underlying security or index
increases and the option is exercised. The risk in writing a put option is that
the Fund may incur a loss if the market value of the underlying security or
index decreases and the option is exercised. In addition, there is the risk the
Fund may not be able to enter into a closing transaction because of an illiquid
secondary market.
(F) FUTURES CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
security at a set price on a future date. Upon entering into such a contract the
Fund is required to pledge to the broker an amount of cash or securities equal
to the minimum "initial margin" requirements of the exchange on which the
contract is traded. Pursuant to the contract, the Fund agrees to receive from or
pay to the broker an amount of cash equal to the daily fluctuation in value of
the contract. Such receipts or payments are known as "variation margin" and are
recorded by the Fund as unrealized gains or losses. When the contract is closed,
the Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the time it was
closed. The potential risk to the Fund is that the change in value of the
underlying securities may not correlate to the change in value of the contracts.
The Fund may use futures contracts to manage its exposure to the stock or bond
market and to fluctuations in currency values or interest rates.
(G) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). The cost of securities sold is determined on a first-in,
first-out basis, unless otherwise specified. Dividends are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. Where a high
level of uncertainty exists as to collection, income is recorded net of all
withholding tax with any rebate recorded when received. The Fund may trade
securities on other than normal settlement terms. This may increase the risk if
the other party to the transaction fails to deliver and causes the Fund to
subsequently invest at less advantageous prices.
(H) PORTFOLIO SECURITIES LOANED
At October 31, 1998, stocks with an aggregate value of $50,614,150 were on loan
to brokers. The loans were secured by cash collateral of $52,108,865. For the
year ended October 31, 1998, the Fund received fees of $670,939.
For international securities, cash collateral is received by the Fund against
loaned securities in an amount at least equal to 105% of the market value of the
loaned securities at the inception of each loan. This collateral must be
maintained at not less than 103% of the market value of the loaned securities
during the period of the loan. For domestic securities, cash collateral is
received by the Fund against loaned securities in an amount at least equal to
102% of the market value of the loaned securities at the inception of each loan.
This collateral must be maintained at not less than 100% of the market value of
the loaned securities during the period of the loan. The cash
FS-45
<PAGE> 708
collateral is invested in a securities lending trust which consists of a
portfolio of high quality short duration securities whose average effective
duration is restricted to 120 days or less.
(I) TAXES
It is the policy of the Fund to meet the requirements for qualification as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended ("Code"). It is also the intention of the Fund to make distributions
sufficient to avoid imposition of any excise tax under Section 4982 of the Code.
Therefore, no provision has been made for Federal taxes on income, capital
gains, or unrealized appreciation of securities held, and excise tax on income
and capital gains.
(J) DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded by the Fund on the ex-date. Income
and capital gain distributions are determined in accordance with Federal income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Fund and timing differences.
(K) FOREIGN SECURITIES
There are certain additional considerations and risks associated with investing
in foreign securities and currency transactions that are not inherent in
investment of domestic origin. The Fund's investments in emerging market
countries may involve greater risks than investments in more developed markets
and the prices of such investments may be volatile. These risks of investing in
foreign and emerging markets may include foreign currency exchange rate
fluctuations, perceived credit risk, adverse political and economic developments
and possible adverse foreign government intervention.
(L) INDEXED SECURITIES
The Fund may invest in indexed securities whose value is linked either directly
or indirectly to changes in foreign currencies, interest rates, equities,
indices, or other reference instruments. Indexed securities may be more volatile
than the reference instrument itself, but any loss is limited to the amount of
the original investment.
(M) RESTRICTED SECURITIES
The Fund is permitted to invest in privately placed restricted securities. These
securities may be resold in transactions exempt from registration or to the
public if the securities are registered. Disposal of these securities may
involve time-consuming negotiations and expense, and prompt sale at an
acceptable price may be difficult. At the end of the year, restricted
securities, if any, (excluding 144A issues), are shown at the end of the Fund's
Portfolio of Investments.
(O) LINE OF CREDIT
The Fund, along with certain other funds advised and/or administered by the
Manager, has a line of credit with each of BankBoston and State Street Bank and
Trust Company. The arrangements with the banks allow the Fund and certain other
Funds to borrow, on a first come, first serve basis, an aggregate maximum amount
of $250,000,000. The Fund is limited to borrowing up to 33 1/3% of the value of
each Fund's total assets. On October 31, 1998, the Fund had no loans
outstanding.
For the year ended October 31, 1998, the weighted average outstanding daily
balance of bank loans (based on the number of days the loans were outstanding)
for the Fund was $9,315,595, with a weighted average interest rate of 6.35%.
Interest expense for the Fund for the year ended October 31, 1998, was $207,044,
and is included in "Other Expenses" on the Statement of Operations.
2. RELATED PARTIES
A I M Advisors, Inc. (the "Manager"), an indirect wholly-owned subsidiary of
AMVESCAP PLC, is the Fund's investment manager and administrator and INVESCO
(NY), Inc., (formerly, Chancellor LGT Asset Management, Inc.) is the Fund's
investment sub-advisor and sub-administrator. As of the close of business on May
29, 1998, Liechtenstein Global Trust AG ("LGT"), the former indirect parent
organization of Chancellor LGT Asset Management, Inc. ("Chancellor LGT")
consummated a purchase agreement with AMVESCAP PLC pursuant to which AMVESCAP
PLC acquired LGT's Asset Management Division, which included Chancellor LGT and
certain other affiliates. As a result of this transaction, Chancellor LGT was
renamed INVESCO (NY), Inc., and is now an indirect wholly-owned subsidiary of
AMVESCAP PLC. A I M Distributors, Inc. ("AIM Distributors"), a wholly-owned
subsidiary of the Manager, became the Fund's distributor as of the close of
business on May 29, 1998. The Trust was reorganized from a Maryland corporation
into a Delaware business trust on September 8, 1998. Finally, as of the close of
business on September 4, 1998, A I M Fund Services, Inc. ("AFS"), an affiliate
of the Manager and AIM Distributors, replaced GT Global Investor Services, Inc.
("GT Services") as the transfer agent of the Fund.
The Fund pays investment management and administration fees to the Manager at
the annualized rate of 0.975% on the first $500 million of average daily net
assets of the Fund; 0.95% on the next $500 million; 0.925% on the next $500
million and 0.90% on amounts thereafter. These fees are computed daily and paid
monthly.
AIM Distributors, an affiliate of the Manager, serves as the Fund's distributor.
For the period ended May 29, 1998, GT Global, Inc. ("GT Global"), an affiliate
of the investment sub-advisor, served as the Fund's distributor. The Fund offers
Class A, Class B, and Advisor Class shares for purchase.
Class A shares are subject to initial sales charges imposed at the time of
purchase, in accordance with the schedule included in the Fund's current
prospectus. AIM Distributors collects the sales charges imposed on sales of
Class A shares, and reallows a portion of such charges to dealers through which
the sales are made. For the year ended October 31, 1998, AIM Distributors and GT
Global retained sales charges of $27,462 and $29,395, respectively. Purchases of
Class A shares exceeding $1,000,000 may be subject to a contingent deferred
sales charge ("CDSC") upon redemption, in accordance with the Fund's current
prospectus. GT Global collected CDSCs for the year ended October 31, 1998 of
$1,692. AIM Distributors also makes
FS-46
<PAGE> 709
ongoing shareholder servicing and trail commission payments to dealers whose
clients hold Class A shares.
Class B shares are not subject to initial sales charges. When Class B shares are
sold, AIM Distributors, from its own resources, pays commissions to dealers
through which the sales are made. Certain redemptions of Class B shares made
within six years of purchase are subject to CDSCs, in accordance with the Fund's
current prospectus. For the year ended October 31, 1998, AIM Distributors and GT
Global collected CDSCs in the amount of $451,820 and $721,075, respectively. In
addition, AIM Distributors makes ongoing shareholder servicing and trail
commission payments to dealers whose clients hold Class B shares.
For the period ended May 29, 1998, pursuant to the then effective separate
distribution plans adopted under the 1940 Act Rule 12b-1 by the Trust's Board of
Trustees with respect to the Fund's Class A shares ("Class A Plan") and Class B
shares ("Class B Plan"), the Fund reimbursed GT Global for a portion of its
shareholder servicing and distribution expenses. Under the Class A Plan, the
Fund was permitted to pay GT Global a service fee at the annualized rate of up
to 0.25% of the average daily net assets of the Fund's Class A shares for GT
Global's expenditures incurred in servicing and maintaining shareholder
accounts, and was permitted to pay GT Global a distribution fee at the
annualized rate of up to 0.35% of the average daily net assets of the Fund's
Class A shares, less any amounts paid by the Fund as the aforementioned service
fee, for GT Global's expenditures incurred in providing services as distributor.
All expenses for which GT Global was reimbursed under the Class A Plan would
have been incurred within one year of such reimbursement.
For the period ended May 29, 1998, pursuant to the Class B Plan, the Fund was
permitted to pay GT Global a service fee at the annualized rate of up to 0.25%
of the average daily net assets of the Fund's Class B shares for GT Global's
expenditures incurred in servicing and maintaining shareholder accounts, and was
permitted to pay GT Global a distribution fee at the annualized rate of up to
0.75% of the average daily net assets of the Fund's Class B shares for GT
Global's expenditures incurred in providing services as distributor. Expenses
incurred under the Class B Plan in excess of 1.00% annually were permitted to be
carried forward for reimbursement in subsequent years as long as that Plan
continued in effect.
Effective as of the close of business May 29, 1998, pursuant to Rule 12b-1 under
the 1940 Act, the Trust's Board of Trustees adopted a Master Distribution Plan
applicable to the Fund's Class A shares ("Class A Plan") and Class B shares
("Class B Plan"), pursuant to which the Fund compensates AIM Distributors for
the purpose of financing any activity that is intended to result in the sale of
Class A or Class B shares of the Fund. Under the Class A Plan, the Fund
compensates AIM Distributors at the annualized rate of 0.35% of the average
daily net assets of the Fund's Class A shares. Under the Class B Plan, the Fund
compensates AIM Distributors at an annualized rate of 1.00% of the average daily
net assets of the Fund's Class B shares.
The Class A Plan and the Class B Plan (together, the "Plans") are designed to
compensate AIM Distributors for certain promotional and other sales-related
costs, and to implement a dealer incentive program that provides for periodic
payments to selected dealers who furnish continuing personal shareholder
services to their customers who purchase and own Class A and Class B shares of
the Fund. Payments also can be directed by AIM Distributors to financial
institutions who have entered into service agreements with respect to Class A
and Class B shares of the Fund and who provide continuing personal services to
their customers who own Class A and Class B shares of the Fund. The service fees
payable to selected financial 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 that were purchased on or after a
prescribed date set forth in the Plans.
The Manager and AIM Distributors voluntarily have undertaken to limit the Fund's
expenses (exclusive of brokerage commissions, taxes, interest, and extraordinary
expenses) to the maximum annual rate of 1.75%, 2.40%, and 1.40% of the average
daily net assets of the Fund's Class A, Class B, and Advisor Class shares,
respectively. If necessary, this limitation will be effected by waivers by the
Manager of investment management and administration fees, waivers by AIM
Distributors of payments under the Class A Plan and/or Class B Plan and/or
reimbursements by the Manager or AIM Distributors of portions of the Fund's
other operating expenses.
Effective as of the close of business September 4, 1998, the Fund, pursuant to a
transfer agency and service agreement, has agreed to pay A I M Fund Services,
Inc. ("AFS") an annualized fee of $24.85 per shareholder accounts that are open
during any monthly period (this fee includes all out-of-pocket expenses), and an
annualized fee of $0.70 per shareholder account that is closed during any
monthly period. Both fees shall be billed by AFS monthly in arrears on a
prorated basis of 1/12 of the annualized fee for all such accounts.
For the period November 1, 1997 to September 4, 1998, GT Services, an affiliate
of the Manager and AIM Distributors, was the transfer agent of the Fund. For
performing shareholder servicing, reporting, and general transfer agent
services, GT Services received an annual maintenance fee of $17.50 per account,
a new account fee of $4.00 per account, a per transaction fee of $1.75 for all
transactions other than exchanges and a per exchange fee of $2.25. GT Services
also was reimbursed by the Fund for its out-of-pocket expenses for such items as
postage, forms, telephone charges, stationery and office supplies.
The Manager is the pricing and accounting agent for the Fund. The monthly fee
for these services to the Manager is a percentage, not to exceed 0.03% annually,
of a Fund's average daily net assets. The annual fee rate is derived 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% to the assets in excess of
FS-47
<PAGE> 710
$5 billion. An amount is allocated to and paid by each such fund based on its
relative average daily net assets.
The Trust pays each Trustee who is not an employee, officer or director of the
Manager, or any other affiliated company, $5,000 per year plus $300 for each
meeting of the board or any committee thereof attended by the Trustee.
3. PURCHASES AND SALES OF SECURITIES
For the year ended October 31, 1998, purchases and sales of investment
securities by the Fund, other than short-term investments and U.S. government
obligations, aggregated $438,460,594 and $579,200,900, respectively. Purchases
and sales of U.S. government obligations were $293,744,805 and $240,337,698,
respectively, for the year ended October 31, 1998.
4. CAPITAL SHARES
At October 31, 1998, there were 6,000,000,000 shares of the Trust's common stock
authorized, at $0.0001 par value. Of this amount, 400,000,000 were classified as
shares of the AIM Global Telecommunications Fund; 400,000,000 were classified as
shares of AIM Global Government Income Fund; 200,000,000 were classified as
shares of AIM Global Health Care Fund; 200,000,000 were classified as shares of
AIM Strategic Income Fund; 200,000,000 were classified as shares of AIM
Developing Markets Fund; 200,000,000 were classified as shares of GT Global
Currency Fund (inactive); 200,000,000 were classified as shares of AIM Global
Growth & Income Fund; 200,000,000 were classified as shares of GT Global Small
Companies Fund (inactive); 200,000,000 were classified as shares of AIM Latin
American Growth Fund; 200,000,000 were classified as shares of AIM Emerging
Markets Fund; 200,000,000 were classified as shares of AIM Emerging Markets Debt
Fund; 200,000,000 were classified as shares of AIM Global Financial Services
Fund; 200,000,000 were classified as shares of AIM Global Resources Fund;
200,000,000 were classified as shares of AIM Global Infrastructure Fund;
200,000,000 were classified as shares of AIM Global Consumer Products and
Services Fund. The shares of each of the foregoing series of the Trusts were
divided equally into two classes, designated Class A and Class B common stock.
With respect to the issuance of Advisor Class shares, 100,000,000 shares were
classified as shares of each of the fifteen series of the Trusts and designated
as Advisor Class common stock. 1,100,000,000 shares remain unclassified.
Transactions in capital shares of the Fund were as follows:
CAPITAL SHARE TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997
------------------------ -------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Shares sold..................................................... 40,631,419 $363,947,180 37,585,791 $289,617,397
Shares issued in connection with reinvestment of
distributions................................................. 1,294,169 11,189,344 935,467 7,161,559
----------- ----------- ----------- ------------
41,925,588 375,136,524 38,521,258 296,778,956
Shares repurchased.............................................. (44,464,914) (400,082,759) (43,156,190) (332,338,391)
----------- ----------- ----------- ------------
Net decrease.................................................... (2,539,326) $(24,946,235) (4,634,932) $(35,559,435)
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
<CAPTION>
CLASS B
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold..................................................... 12,852,707 $115,998,695 12,634,686 $ 97,336,518
Shares issued in connection with reinvestment of
distributions................................................. 1,736,739 14,930,372 1,087,287 8,343,350
----------- ----------- ----------- ------------
14,589,446 130,929,067 13,721,973 105,679,868
Shares repurchased.............................................. (17,992,943) (162,624,547) (12,063,889) (93,059,122)
----------- ----------- ----------- ------------
Net increase (decrease)......................................... (3,403,497) $(31,695,480) 1,658,084 $ 12,620,746
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
<CAPTION>
ADVISOR CLASS
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold..................................................... 4,670,023 $41,740,705 3,177,501 $ 24,442,634
Shares issued in connection with reinvestment of
distributions................................................. 25,259 222,124 9,792 74,879
----------- ----------- ----------- ------------
4,695,282 41,962,829 3,187,293 24,517,513
Shares repurchased.............................................. (4,285,866) (38,891,440) (3,248,879) (24,964,241)
----------- ----------- ----------- ------------
Net increase (decrease)......................................... 409,416 $ 3,071,389 (61,586) $ (446,728)
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
</TABLE>
5. EXPENSE REDUCTIONS
The Manager directed certain portfolio trades to brokers who then paid a portion
of the Fund's expenses. For the year ended October 31, 1998, the Fund's expenses
were reduced by $40,023 under these arrangements.
6. SUBSEQUENT EVENT (UNAUDITED)
Effective December 14, 1998, sub-advisory and sub-administration responsibility
for the Fund was transferred from INVESCO (NY), Inc. to INVESCO Asset Management
Ltd., another indirect wholly-owned subsidiary of AMVESCAP PLC. A I M Advisors,
Inc. will continue to serve as the manager and administrator of the Fund. The
transfer will not change the fees paid by A I M Advisors, Inc. for sub-advisory
services and will not change the nature of the sub-advisory services provided to
the Fund or the personnel providing such services.
FS-48
<PAGE> 711
7. PROXY RESULTS (UNAUDITED)
The Special Meeting of Shareholders of the G.T. Investment Funds, Inc., now
known as AIM Investment Funds (the "Trust"), was held on May 20, 1998 at the
Trust's offices, 50 California Street, 26th Floor, San Francisco, California.
The meeting was held for the following purposes:
(1) To elect Trustees as follows: C. Derek Anderson, Frank S. Bayley, William J.
Guilfoyle, Arthur C. Patterson, Ruth H. Quigley.
(2) To approve a new Investment Management and Administration Contract and
Sub-Advisory and Sub-Administration Contract with respect to each series of
the Trust (each, a "Fund," and collectively, the "Funds").
(3) To approve replacement Rule 12b-1 plans of distribution with respect to
Class A and B Shares of the Fund.
(4) To approve changes to the fundamental investment restrictions of the Fund.
(5) To approve an agreement and plan of conversion and termination for the
Trust.
(6) To ratify the selection of Coopers & Lybrand L.L.P., now known as
PricewaterhouseCoopers LLP, as the Trust's independent public accountants.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
VOTES WITHHELD/
TRUSTEE/MATTER VOTES FOR AGAINST ABSTENTIONS
------------------------------------------------------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
(1) C. Derek Anderson........................................... 191,685,088 N/A 13,123,292
Frank S. Bayley............................................. 191,766,811 N/A 13,041,568
William J. Guilfoyle........................................ 191,828,959 N/A 12,979,420
Arthur C. Patterson......................................... 191,845,270 N/A 12,963,109
Ruth H. Quigley............................................. 191,869,887 N/A 12,938,492
(2)(a) Approval of investment management and administration
contract................................................... 39,225,701 1,056,645 13,378,967*
(2)(b) Approval of sub-advisory and sub-administration contract.... 38,944,404 1,186,043 13,530,866*
(3) Approval of replacement Rule 12b-1 plans of distribution
CLASS A SHARES.............................................. 18,231,511 633,604 1,624,850
CLASS B SHARES.............................................. 29,206,760 734,958 2,693,335
(4)(a) Modification of Fundamental Restriction on Concentration.... 38,595,526 1,334,363 13,731,424*
(4)(b) Modification of Fundamental Restriction on Issuing Senior
Securities and Borrowing Money............................. 38,602,220 1,327,669 13,731,424*
(4)(c) Modification of Fundamental Restriction on Making Loans..... 38,604,739 1,325,150 13,731,424*
(4)(d) Modification of Fundamental Restriction on Underwriting
Securities................................................. 38,604,247 1,325,642 13,731,424*
(4)(e) Modification of Fundamental Restriction on Real Estate
Investments................................................ 38,605,220 1,324,669 13,731,424*
(4)(f) Modification of Fundamental Restriction on Investing in
Commodities................................................ 38,588,769 1,341,120 13,731,424*
(4)(g) Elimination of Fundamental Restriction on Margin
Transactions............................................... 38,586,718 1,343,171 13,731,424*
(4)(h) Elimination of Fundamental Restriction on Investing in
Illiquid Securities........................................ 38,596,890 1,332,999 13,731,424*
(4)(i) Elimination of Fundamental Restriction on Pledging Assets... 38,591,039 1,338,850 13,731,424*
(4)(j) Elimination of Fundamental Restriction on Investments in
Oil, Gas and Mineral Leases and Programs................... 38,603,432 1,326,457 13,731,424*
(4)(k) Elimination of Fundamental Restriction on Investing for the
Purpose of Control......................................... 38,602,458 1,327,431 13,731,424*
(4)(l) Elimination of Fundamental Restriction on Purchasing
Securities of Issuers in which Officers and Board Members
of Each Company and its Affiliates own Securities.......... 38,593,114 1,336,775 13,731,424*
(4)(m) Approval of New Fundamental Investment Policy Regarding
Investment of All of Each Fund's Assets in an Open-End
Fund....................................................... 38,590,154 1,339,735 13,731,424*
(5) Approval of an agreement and plan of conversion and
termination with respect to the Trust...................... 190,027,469 6,362,084 94,055,040*
(6) Ratification of the selection of Coopers and Lybrand L.L.P.,
now known as PricewaterhouseCoopers LLP, as the Trust's
Independent Public Accountants............................. 191,358,779 2,114,168 11,333,063
</TABLE>
- ------------------------
* Includes Broker Non-Votes
- ------------------------
FEDERAL TAX INFORMATION (UNAUDITED):
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$41,888,115 as capital gain dividends for the fiscal year ended October 31,
1998.
Pursuant to Section 854 of the Internal Revenue Code, the Fund designates 41.37%
of ordinary income dividends paid (including short-term capital gain
distributions, if any) by the Fund as income qualifying for the dividends
received deduction for corporations for the fiscal year ended October 31, 1998.
FS-49
<PAGE> 712
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders of AIM Strategic Income Fund (formerly GT Global Strategic
Income Fund) and Board of Trustees of AIM Investment Funds (formerly G.T.
Investment Funds, Inc.):
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Strategic Income Fund at
October 31, 1998, and the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
/s/PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
BOSTON, MASSACHUSETTS
DECEMBER 18, 1998
FS-50
<PAGE> 713
PORTFOLIO OF INVESTMENTS
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- --------------------------------------------------------- -------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
Government & Government Agency Obligations (62.4%)
Algeria (1.1%)
Algeria Tranche 1 Loan Assignment, 6.625% due
9/4/06+ ............................................ USD 6,400,000 $ 3,264,000 1.1
Argentina (3.1%)
Republic of Argentina:
I.O. Strip, 12.11% due 4/10/05 .................... USD 3,385,000 2,978,800 1.0
Par Bond Series L, 5.75% (6% at 3/31/99) due
3/31/23++ ........................................ USD 3,750,000 2,606,250 0.9
Discount Bond, 6.625% due 3/31/23+ ................ USD 3,605,000 2,455,906 0.8
7.297% due 7/8/05 ................................. ITL 2,865,000,000 1,298,695 0.4
Global Bond, 9.75% due 9/19/27 .................... USD 140,000 121,555 --
Belgium (0.5%)
Kingdom of Belgium, 5.75% due 3/28/08 ............... BEF 43,600,000 1,412,469 0.5
Brazil (1.0%)
Brazil Floating Rate Discount Note, 6.125% due
4/15/24+ ........................................... USD 4,918,000 2,923,135 1.0
Bulgaria (1.3%)
Republic of Bulgaria:
Front Loaded Interest Reduction Bond Series A, 2.5%
(2.75% at 7/99) due 7/28/12++ .................... USD 3,786,000 2,091,765 0.7
Discount Bond Series A, 6.6875% due 7/28/24 -
EURO+ ............................................ USD 2,585,000 1,815,963 0.6
Canada (1.3%)
Canadian Government, 6% due 6/1/08 .................. CAD 5,370,000 3,719,138 1.3
Colombia (1.2%)
Republic of Colombia:
8.625% due 4/1/08 ................................. USD 2,674,000 2,099,090 0.7
7.27% due 6/15/03 - 144A{.} ....................... USD 1,790,000 1,458,850 0.5
Germany (17.5%)
Deutschland Republic:
6% due 1/5/06 ..................................... DEM 32,300,000 21,798,743 7.5
6.5% due 7/4/27 ................................... DEM 27,830,000 19,974,175 6.8
6% due 7/4/07 ..................................... DEM 9,520,000 6,485,288 2.2
6.5% due 10/14/05 ................................. DEM 4,050,000 2,808,157 1.0
Greece (1.0%)
Hellenic Republic:
9.2% due 3/21/02 .................................. GRD 650,000,000 2,298,569 0.8
8.8% due 6/19/07 .................................. GRD 200,000,000 738,137 0.2
Italy (3.7%)
Italian Government, 7.25% due 11/1/26 ............... ITL 11,430,000,000 8,781,841 3.0
Italian Buoni Poliennali Del Tesoro (BTPS), 8.5% due
1/1/04 ............................................. ITL 2,730,000,000 2,006,667 0.7
Ivory Coast (1.3%)
Ivory Coast Government:
1.9% (2.9% at 3/31/09) due 3/29/18++ .............. FRF 63,693,750 2,838,505 1.0
2% (3% at 3/31/09) due 3/29/18++ .................. USD 2,765,000 808,763 0.3
Jamaica (0.3%)
Government of Jamaica, 10.875% due 6/10/05 -
144A{.} ............................................ USD 1,158,000 868,500 0.3
Korea (0.6%)
Korea Republic Restructured Debt, 8.281% due
4/8/00+ ............................................ USD 1,800,000 1,674,000 0.6
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-51
<PAGE> 714
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- --------------------------------------------------------- -------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
Government & Government Agency Obligations (Continued)
Mexico (1.7%)
United Mexican States:
6.63% due 12/31/19 ................................ FRF 12,000,000 $ 1,682,662 0.6
9.875% due 1/15/07 ................................ USD 1,560,000 1,483,950 0.5
11.375% due 9/15/16 ............................... USD 936,000 934,830 0.3
Discount Bond Series B, 6.47656% due
12/31/19++/+ ..................................... USD 575,000 448,859 0.2
Discount Bond Series D, 6.6016% due12/31/19+ ...... USD 250,000 195,156 0.1
Panama (0.8%)
Republic of Panama:
8.875% due 9/30/27 ................................ USD 1,373,000 1,266,593 0.4
Interest Reduction Bond, 4% (4.25% at 7/99) due
7/17/14++ ........................................ USD 1,720,000 1,258,825 0.4
Peru (1.2%)
Republic of Peru, Past Due Interest Bond, 4% (4.25%
at 3/8/99) due 3/7/17++ ............................ USD 5,871,000 3,375,825 1.2
Poland (0.9%)
Republic of Poland:
3% (3.5% at 10/28/99) due 10/27/24 - Euro++ ....... USD 2,785,000 1,852,025 0.6
Past Due Interest Bond, 5% (6% at 10/28/99) due
10/27/14 - Euro++ ................................ USD 1,005,000 913,922 0.3
Russia (0.4%)
Bank for Foreign Economic Affairs (Venesheconombank)
Principal Loans, 6.625% due 12/15/20+ .............. USD 16,555,492 1,314,092 0.4
Sweden (1.1%)
Swedish Government, 6.5% due 10/25/06 ............... SEK 21,700,000 3,134,271 1.1
United Kingdom (8.5%)
United Kingdom Treasury, 9% due 10/13/08 ............ GBP 11,310,000 24,683,511 8.5
United States (13.9%)
United States Treasury:
6.375% due 8/15/27{./} ............................ USD 20,300,000 23,428,658 8.0
5.625% due 5/15/08{./} ............................ USD 12,390,000 13,354,097 4.6
Federal National Mortgage Association, 7.25% due
6/20/02 ............................................ NZD 7,000,000 3,829,514 1.3
------------
Total Government & Government Agency Obligations (cost
$194,543,627) .......................................... 182,483,751
------------
Corporate Bonds (20.1%)
Argentina (0.4%)
Disco S.A., 9.875% due 5/15/08 - 144A{.} ............ USD 750,000 523,125 0.2
Mastellone Hermanos S.A., 11.75% due 4/1/08 -
144A{.} ............................................ USD 745,000 454,450 0.2
Brazil (1.3%)
Banco Hipotecario Espana, 10% due 4/17/03 -
144A{.} ............................................ USD 1,675,000 1,474,000 0.5
RBS Participacoes S.A., 11% due 4/1/07 - 144A{.} .... USD 1,773,000 797,850 0.3
Banco Nacional de Desenvolvimento Economico e Social
(BNDES):
10.8% due 6/16/08 - 144A{.} ....................... USD 1,335,000 934,500 0.3
10.8% due 6/16/08 - Reg S{c} ...................... USD 825,000 577,500 0.2
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-52
<PAGE> 715
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- --------------------------------------------------------- -------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
Corporate Bonds (Continued)
Colombia (0.2%)
Financiera Energia Nacional, 9.375% due 6/15/06 - Reg
S{c} ............................................... USD 836,000 $ 613,039 0.2
Jamaica (0.2%)
Mechala Group Jamaica, 12.75% due 12/30/99 - Reg
S{c} ............................................... USD 719,000 503,300 0.2
Korea (0.3%)
Pohang Iron & Steel, 2% due 10/9/00 ................. JPY 119,000,000 884,625 0.3
Luxembourg (0.4%)
Cellco Finance N.V., 15% due 8/1/05 - Reg S{c} ...... USD 1,550,000 1,255,500 0.4
Mexico (1.6%)
Petroleos Mexicanos (PEMEX), 9.25% due 3/30/18 -
144A{.} ............................................ USD 2,950,000 2,404,250 0.8
Monterrey Power, S.A. de C.V., 9.625% due 11/15/09 -
144A{.} ............................................ USD 1,245,000 834,150 0.3
Dine, S.A. de C.V., 8.75% due 10/15/07 - 144A{.} .... USD 860,000 679,400 0.2
Cemex Valenciana, 9.66% due 12/29/49 ................ USD 545,000 457,800 0.2
Banco Nacional Comercio Exte., 8% due 7/18/02 - Reg
S{c} ............................................... USD 421,000 384,163 0.1
Russia (0.3%)
Lukinter Finance BV Convertible, 3.5% due 5/6/02 -
144A{.} ............................................ USD 1,526,000 556,990 0.2
Mosenergo Finance BV, 8.375% due 10/9/02 -
144A{.} ............................................ USD 1,040,000 182,000 0.1
Singapore (0.2%)
Krung Thai Bank (Singapore), 6.73% due 9/30/04 ...... USD 1,000,000 660,000 0.2
United Kingdom (0.7%)
Orange PLC, 7.625% due 8/1/08 ....................... ECU 1,000,000 1,139,466 0.4
Colt Telecom Group PLC, 7.625% due 7/31/08 .......... DEM 1,600,000 857,355 0.3
United States (14.5%)
Chase Manhattan Corp., 6.25% due 1/15/06 ............ USD 2,835,000 2,934,222 1.0
General Motors Acceptance Corp., 6.625% due
10/15/05 ........................................... USD 2,700,000 2,852,711 1.0
Ford Motor Credit Corp., 5.25% due 6/16/08 .......... DEM 4,610,000 2,829,116 1.0
Unisys Corp., 7.875% due 4/1/08 ..................... USD 2,350,000 2,373,500 0.8
Engle Homes, Inc., 9.25% due 2/1/08 ................. USD 2,350,000 2,208,770 0.8
Merrill Lynch & Co., 7.25% due 5/2/02 ............... USD 2,070,000 2,154,601 0.7
United Stationers Supply, 8.375% due 4/15/08 -
144A{.} ............................................ USD 2,000,000 2,005,000 0.7
Lenfest Communications, 8.25% due 2/15/08 -
144A{.} ............................................ USD 1,850,000 1,877,917 0.6
Smithfield Foods, Inc., 7.625% due 2/15/08 -
144A{.} ............................................ USD 1,725,000 1,690,500 0.6
Hollywood Casino Corp., 12.75% due 11/1/03 .......... USD 1,700,000 1,674,500 0.6
Eagle Family Foods, 8.75% due 1/15/08 - 144A{.} ..... USD 1,875,000 1,668,750 0.6
Graham Packaging/GPC Capital, 8.75% due 1/15/08 -
144A{.} ............................................ USD 1,725,000 1,638,750 0.6
Riddell Sports, Inc., 10.5% due 7/15/07 ............. USD 1,700,000 1,530,000 0.5
Lin Television Corp., 8.375% due 3/1/08 - 144A{.} ... USD 1,500,000 1,440,000 0.5
Trump Atlantic Association Funding, Inc., 11.25% due
5/1/06 ............................................. USD 1,700,000 1,394,000 0.5
Chancellor Media Corp., 8.125% due 12/15/07 -
144A{.} ............................................ USD 1,300,000 1,228,500 0.4
Drypers Corp. Series B, 10.25% due 6/15/07 .......... USD 1,300,000 1,202,500 0.4
PSINET, Inc., 10% due 2/15/05 ....................... USD 1,000,000 952,200 0.3
Fisher Scientific International, 9% due 2/1/08 ...... USD 1,000,000 925,880 0.3
Penn National Gaming, Inc., 10.625% due 12/15/04 -
144A{.} ............................................ USD 875,000 857,500 0.3
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-53
<PAGE> 716
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- --------------------------------------------------------- -------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
Corporate Bonds (Continued)
Allbritton Communication, 8.875% due 2/1/08 -
144A{.} ............................................ USD 885,000 $ 831,900 0.3
Duane Reade, Inc., 9.25% due 2/15/08 ................ USD 885,000 831,445 0.3
Norampac, Inc., 9.5% due 2/1/08 - 144A{.} ........... USD 885,000 827,475 0.3
Revlon Consumer Products, 8.625% due 2/2/08 -
144A{.} ............................................ USD 885,000 809,775 0.3
BTI Telecommunications Corp., 10.5% due 9/15/07 -
144A{.} ............................................ USD 885,000 668,175 0.2
Syratech Corp., 11% due 4/15/07 ..................... USD 880,000 660,000 0.2
Delco Remy International, Inc., 8.625% due
12/15/07 ........................................... USD 650,000 629,950 0.2
Niagara Mohawk Power, 7.375% due 7/1/03 ............. USD 500,000 511,065 0.2
Pillowtex Corp., 9% due 12/15/07 - 144A{.} .......... USD 435,000 435,000 0.1
Anker Coal Group, Inc., 9.75% due 10/1/07 -
144A{.} ............................................ USD 875,000 350,000 0.1
ACME Metal, Inc., 10.875% due 12/15/07
-144A{.}(::) ....................................... USD 825,000 165,000 0.1
------------
Total Corporate Bonds (cost $66,624,782) ................ 58,332,165
------------
Mortgage Backed (11.0%)
Denmark (1.5%)
Realkredit Danmark, 6% due 10/1/26 .................. DKK 28,745,000 4,492,106 1.5
United States (9.5%)
Government National Mortgage Association TBA Pass
Thru Pool, 6% due 11/15/28{*} ...................... USD 28,000,000 27,755,000 9.5
------------
Total Mortgage Backed (cost $32,051,136) ................ 32,247,106
------------
Structured Notes (0.5%)
Korea (0.5%)
Fixed Rate Trust Certificate 13.55% due 2/15/02[::]
(Issued by a newly created Delaware Business Trust,
collateralized by triple A paper. This trust
certificate has a credit risk component linked to
the value of a referenced security: Korean
Development Bank 1.875% 2002.) (cost
$1,930,000) ...................................... USD 1,930,000 1,411,795 0.5
------------ -----
TOTAL FIXED INCOME INVESTMENTS (cost $295,149,545) ...... 274,474,817 94.0
------------ -----
<CAPTION>
PRINCIPAL VALUE % OF NET
SHORT-TERM INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- --------------------------------------------------------- -------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
Commercial Paper - Discounted (9.6%)
United States (9.6%)
Ford Motor Credit, effective yield 5.09%, due
11/18/98 ........................................... USD 14,000,000 13,966,349 4.8
GE Capital, effective yield 5.09%, due 11/18/98 ..... USD 14,000,000 13,966,349 4.8
------------
Total Commercial Paper - Discounted (cost
$27,932,698) ........................................... 27,932,698
------------ -----
TOTAL SHORT-TERM INVESTMENTS (cost $27,932,698) ......... 27,932,698 9.6
------------ -----
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-54
<PAGE> 717
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
REPURCHASE AGREEMENT (NOTE 1) ASSETS
- --------------------------------------------------------- ------------ -------------
<S> <C> <C> <C> <C>
Dated October 30, 1998, with State Street Bank & Trust
Co., due November 2, 1998, for an effective yield of
5.30%, collateralized by $12,030,000 U.S. Treasury
Notes, 5.75% due 9/30/99 (market value of collateral
is $12,225,488, including accrued interest)
(cost $11,982,000) .................................. $ 11,982,000 4.1
------------ -----
TOTAL INVESTMENTS (cost $335,064,243) * ................ 314,389,515 107.7
Other Assets and Liabilities ............................ (22,602,184) (7.7)
------------ -----
NET ASSETS .............................................. $291,787,331 100.0
------------ -----
------------ -----
</TABLE>
- --------------
[::] Certain events may cause the contract to terminate prior to date
shown.
{.} Security exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers.
{c} Security issued under Regulation S. Rule 144A and additional
restrictions may apply in the resale of such securities.
(::) Valued in good faith at fair value using procedures approved by the
Board of Trustees (see Note 1 of Notes to Financial Statements).
+ The coupon rate shown on floating rate note represents the rate at
period end.
++ The coupon rate shown on step-up coupon bond represents the rate at
period end.
{./} All or part of the Fund's holdings in this security is segregated
as collateral for derivative securities and securities purchased on
a forward commitment basis. See Note 1 to the Financial Statements.
+/+ Issued with detachable warrants or value recovery rights. The
current market value of each warrant or right is zero.
{*} Purchased on a forward commitment basis.
* For Federal income tax purposes, cost is $337,572,672 and
appreciation (depreciation) is as follows:
<TABLE>
<S> <C>
Unrealized appreciation: $ 4,236,684
Unrealized depreciation: (27,419,841)
-------------
Net unrealized depreciation: $ (23,183,157)
-------------
-------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS OUTSTANDING
OCTOBER 31, 1998
<TABLE>
<CAPTION>
MARKET VALUE UNREALIZED
(U.S. CONTRACT DELIVERY APPRECIATION
CONTRACTS TO SELL: DOLLARS) PRICE DATE (DEPRECIATION)
- ---------------------------------------- ------------- ----------- -------- ---------------
<S> <C> <C> <C> <C>
Canadian Dollars........................ 3,695,654 1.54785 3/18/99 $ (13,127)
French Francs........................... 2,753,722 5.45470 3/18/99 32,865
Japanese Yen............................ 819,279 118.80000 11/27/98 (19,616)
------------- ---------------
Total Contracts to Sell (Receivable
amount $7,268,777)................... 7,268,655 122
------------- ---------------
THE VALUE OF CONTRACTS TO SELL AS A
PERCENTAGE OF NET ASSETS IS 2.49%.
Total Open Forward Foreign Currency
Contracts............................ $ 122
---------------
---------------
</TABLE>
- ----------------
See Note 1 of Notes to the Financial Statements.
The accompanying notes are an integral part of the financial statements.
FS-55
<PAGE> 718
STATEMENT OF ASSETS
AND LIABILITIES
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at value (cost $335,064,243) (Note 1)............................... $ 314,389,515
U.S. currency................................................................. $ 983
Foreign currencies (cost $1,866,855).......................................... 1,867,904 1,868,887
-------------
Receivable for securities sold................................................................. 31,828,916
Interest receivable............................................................................ 6,062,576
Receivable for Fund shares sold................................................................ 440,563
Miscellaneous receivable....................................................................... 12,228
Receivable for open forward foreign currency contracts (Note 1)................................ 122
-------------
Total assets................................................................................. 354,602,807
-------------
Liabilities:
Payable for securities purchased............................................................... 59,770,608
Payable for Fund shares repurchased............................................................ 1,127,005
Distribution payable........................................................................... 713,718
Payable for service and distribution expenses (Note 2)......................................... 491,179
Payable for investment management and administration fees (Note 2)............................. 213,197
Payable for transfer agent fees (Note 2)....................................................... 208,968
Payable for custodian fees..................................................................... 100,456
Payable for printing and postage expenses...................................................... 92,249
Payable for professional fees.................................................................. 42,265
Payable for registration and filing fees....................................................... 18,805
Payable for Trustees' fees and expenses (Note 2)............................................... 11,792
Payable for fund accounting fees (Note 2)...................................................... 7,217
Other accrued expenses......................................................................... 18,017
-------------
Total liabilities............................................................................ 62,815,476
-------------
Net assets....................................................................................... $ 291,787,331
-------------
-------------
Class A:
Net asset value and redemption price per share ($102,279,959 DIVIDED BY 9,474,511 shares
outstanding).................................................................................... $ 10.80
-------------
-------------
Maximum offering price per share (100/95.25 of $10.80) *......................................... $ 11.34
-------------
-------------
Class B:+
Net asset value and offering price per share ($188,660,057 DIVIDED BY 17,458,947 shares
outstanding).................................................................................... $ 10.81
-------------
-------------
Advisor Class:
Net asset value, offering price per share, and redemption price per share ($847,315 DIVIDED BY
78,237 shares outstanding)...................................................................... $ 10.83
-------------
-------------
Net assets consist of:
Paid in capital (Note 4)....................................................................... $ 387,101,752
Accumulated net investment loss................................................................ (122)
Accumulated net realized loss on investments and foreign currency transactions................. (74,693,113)
Net unrealized appreciation on translation of assets and liabilities in foreign currencies..... 53,542
Net unrealized depreciation of investments..................................................... (20,674,728)
-------------
Total -- representing net assets applicable to capital shares outstanding........................ $ 291,787,331
-------------
-------------
<FN>
- --------------
* On sales of $50,000 or more, the offering price is reduced.
+ Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-56
<PAGE> 719
STATEMENT OF OPERATIONS
Year ended October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment income: (Note 1)
Interest income............................................................................ $33,776,429
Securities lending income.................................................................. 741,430
-----------
Total investment income.................................................................. 34,517,859
-----------
Expenses:
Service and distribution expenses: (Note 2)
Class A..................................................................... $ 439,823
Class B..................................................................... 2,448,700 2,888,523
-----------
Investment management and administration fees (Note 2)..................................... 2,691,901
Transfer agent fees (Note 2)............................................................... 799,100
Custodian fees............................................................................. 220,500
Printing and postage expenses.............................................................. 201,000
Professional fees.......................................................................... 142,500
Fund accounting fees (Note 2).............................................................. 99,805
Registration and filing fees............................................................... 64,750
Trustees' fees and expenses (Note 2)....................................................... 21,950
Other expenses............................................................................. 286,421
-----------
Total expenses........................................................................... 7,416,450
-----------
Net investment income........................................................................ 27,101,409
-----------
Net realized and unrealized gain (loss) on investments and foreign currencies:
(Note 1)
Net realized loss on investments.............................................. (14,842,820)
Net realized gain on foreign currency transactions............................ 5,025,299
-----------
Net realized loss during the year........................................................ (9,817,521)
Net change in unrealized appreciation (depreciation) on translation of assets
and liabilities in foreign currencies........................................ (1,692,009)
Net change in unrealized appreciation (depreciation) of investments........... (26,689,090)
-----------
Net unrealized depreciation during the year.............................................. (28,381,099)
-----------
Net realized and unrealized loss on investments and foreign currencies....................... (38,198,620)
-----------
Net decrease in net assets resulting from operations......................................... $(11,097,211)
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-57
<PAGE> 720
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Decrease in net assets
Operations:
Net investment income....................................................... $ 27,101,409 $ 27,580,494
Net realized gain (loss) on investments and foreign currency transactions... (9,817,521) 39,498,013
Net change in unrealized appreciation (depreciation) on translation of
assets and liabilities in foreign currencies............................... (1,692,009) 2,627,595
Net change in unrealized depreciation of investments........................ (26,689,090) (26,190,807)
------------ ------------
Net increase (decrease) in net assets resulting from operations........... (11,097,211) 43,515,295
------------ ------------
Class A:
Distributions to shareholders: (Note 1)
From net investment income.................................................. (7,063,735) (10,228,265)
In excess of net investment income.......................................... -- (775,601)
Return of capital........................................................... (1,864,318) --
Class B:
Distributions to shareholders: (Note 1)
From net investment income.................................................. (12,380,012) (18,434,103)
In excess of net investment income.......................................... -- (1,397,843)
Return of capital........................................................... (3,267,432) --
Advisor Class:
Distributions to shareholders: (Note 1)
From net investment income.................................................. (44,834) (43,148)
In excess of net investment income.......................................... -- (3,272)
Return of capital........................................................... (11,833) --
------------ ------------
Total distributions....................................................... (24,632,164) (30,882,232)
------------ ------------
Capital share transactions: (Note 4)
Increase from capital shares sold and reinvested............................ 185,041,479 335,031,026
Decrease from capital shares repurchased.................................... (278,148,568) (445,823,540)
------------ ------------
Net decrease from capital share transactions.............................. (93,107,089) (110,792,514)
------------ ------------
Total decrease in net assets.................................................. (128,836,464) (98,159,451)
Net assets:
Beginning of year........................................................... 420,623,795 518,783,246
------------ ------------
End of year *............................................................... $291,787,331 $420,623,795
------------ ------------
------------ ------------
* Includes accumulated net investment loss/distributions in excess of net
investment income.......................................................... $ (122) $ (3,351,006)
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-58
<PAGE> 721
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1998 (d) 1997 1996 (d) 1995 (d) 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 12.00 $ 11.76 $ 10.32 $ 10.88 $ 13.61
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income................. 0.91* 0.74 0.89 0.97 0.79
Net realized and unrealized gain
(loss) on investments and foreign
currencies........................... (1.27) 0.34 1.44 (0.69) (2.14)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) from
investment operations.............. (0.36) 1.08 2.33 0.28 (1.35)
---------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income............ (0.65) (0.78) (0.82) (0.80) (0.79)
From net realized gain on
investments.......................... -- -- -- -- (0.38)
In excess of net investment income.... -- (0.06) (0.07) -- --
Return of capital..................... (0.19) -- -- (0.04) (0.21)
---------- ---------- ---------- ---------- ----------
Total distributions................. (0.84) (0.84) (0.89) (0.84) (1.38)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 10.80 $ 12.00 $ 11.76 $ 10.32 $ 10.88
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return (c)............. (3.41)% 9.40% 23.00% 3.06% (10.44)%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 102,280 $ 138,715 $ 185,126 $ 188,165 $ 275,241
Ratio of net investment income to
average net assets..................... 7.73% 6.18% 8.09% 9.64% 6.74%
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions............... 1.56% 1.35% 1.38% 1.42% 1.40%
Without expense reductions............ 1.56% 1.44% 1.40% 1.45% N/A
Ratio of interest expense to average net
assets++............................... N/A N/A N/A N/A 0.10%
Portfolio turnover rate++............... 306% 149% 177% 238% 583%
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
* Net investment income per share reflects an interest payment received
from the conversion of Vnesheconombank loan agreements of $0.11 per
share for each of Class A, B and Advisor.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates and ratio of interest expense to average net
assets are calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
N/A Not Applicable
The accompanying notes are an integral part of the financial statements.
FS-59
<PAGE> 722
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1998 (d) 1997 1996 (d) 1995 (d) 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 12.01 $ 11.77 $ 10.33 $ 10.88 $ 13.60
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income................. 0.84* 0.67 0.82 0.91 0.73
Net realized and unrealized gain
(loss) on investments and foreign
currencies........................... (1.28) 0.33 1.44 (0.69) (2.14)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) from
investment operations.............. (0.44) 1.00 2.26 0.22 (1.41)
---------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income............ (0.57) (0.71) (0.75) (0.73) (0.72)
From net realized gain on
investments.......................... -- -- -- -- (0.38)
In excess of net investment income.... -- (0.05) (0.07) -- --
Return of capital..................... (0.19) -- -- (0.04) (0.21)
---------- ---------- ---------- ---------- ----------
Total distributions................. (0.76) (0.76) (0.82) (0.77) (1.31)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 10.81 $ 12.01 $ 11.77 $ 10.33 $ 10.88
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return (c)............. (4.04)% 8.70% 22.15% 2.48% (11.02)%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 188,660 $ 281,376 $ 333,178 $ 357,852 $ 458,550
Ratio of net investment income to
average net assets..................... 7.08% 5.53% 7.44% 8.99% 6.09%
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions............... 2.21% 2.00% 2.03% 2.07% 2.05%
Without expense reductions............ 2.21% 2.09% 2.05% 2.10% N/A
Ratio of interest expense to average net
assets++............................... N/A N/A N/A N/A 0.10%
Portfolio turnover rate++............... 306% 149% 177% 238% 583%
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
* Net investment income per share reflects an interest payment received
from the conversion of Vnesheconombank loan agreements of $0.11 per
share for each of Class A, B and Advisor.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates and ratio of interest expense to average net
assets are calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
N/A Not Applicable
The accompanying notes are an integral part of the financial statements.
FS-60
<PAGE> 723
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
ADVISOR CLASS+
------------------------------------------------
JUNE 1, 1995
YEAR ENDED OCTOBER 31, TO
---------------------------------- OCTOBER 31,
1998 (d) 1997 1996 (d) 1995 (d)
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 12.02 $ 11.77 $ 10.33 $ 10.32
---------- ---------- ---------- ------------
Income from investment operations:
Net investment income................. 0.95* 0.79 0.93 0.41
Net realized and unrealized gain
(loss) on investments and foreign
currencies........................... (1.26) 0.34 1.44 (0.04)
---------- ---------- ---------- ------------
Net increase (decrease) from
investment operations.............. (0.31) 1.13 2.37 0.37
---------- ---------- ---------- ------------
Distributions to shareholders:
From net investment income............ (0.69) (0.82) (0.86) (0.34)
From net realized gain on
investments.......................... -- -- -- --
In excess of net investment income.... -- (0.06) (0.07) --
Return of capital..................... (0.19) -- -- (0.02)
---------- ---------- ---------- ------------
Total distributions................. (0.88) (0.88) (0.93) (0.36)
---------- ---------- ---------- ------------
Net asset value, end of period.......... $ 10.83 $ 12.02 $ 11.77 $ 10.33
---------- ---------- ---------- ------------
---------- ---------- ---------- ------------
Total investment return (c)............. (2.97)% 9.86% 23.39% 3.72 %(b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 847 $ 533 $ 479 $ 443
Ratio of net investment income to
average net assets..................... 8.08% 6.53% 8.44% 9.99 %(a)
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions............... 1.21% 1.00% 1.03% 1.07 %(a)
Without expense reductions............ 1.21% 1.09% 1.05% 1.10 %(a)
Ratio of interest expense to average net
assets++............................... N/A N/A N/A N/A
Portfolio turnover rate++............... 306% 149% 177% 238 %
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
* Net investment income per share reflects an interest payment received
from the conversion of Vnesheconombank loan agreements of $0.11 per
share for each of Class A, B and Advisor.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates and ratio of interest expense to average net
assets are calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
N/A Not Applicable
The accompanying notes are an integral part of the financial statements.
FS-61
<PAGE> 724
NOTES TO
FINANCIAL STATEMENTS
October 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (SEE ALSO NOTE 2)
AIM Strategic Income Fund (the "Fund"), formerly GT Global Strategic Income
Fund, a non-diversified separate series of AIM Investment Funds (the "Trust"),
formerly G.T. Investment Funds, Inc. The Trust is organized as a Delaware
business trust and is registered under the Investment Company Act of 1940, as
amended ("1940 Act"), as an open-end management investment company. The Trust
has thirteen series of shares in operation, each series corresponding to a
distinct portfolio of investments.
The Fund offers Class A, Class B, and Advisor Class shares, each of which has
equal rights as to assets and voting privileges. Class A and Class B each has
exclusive voting rights with respect to its distribution plan. Investment
income, realized and unrealized capital gains and losses, and the common
expenses of the Fund are allocated on a pro rata basis to each class based on
the relative net assets of each class to the total net assets of the Fund. Each
class of shares differs in its respective service and distribution expenses, and
may differ in its transfer agent, registration, and certain other class-specific
fees and expenses.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies in conformity with generally accepted accounting
principles consistently followed by the Fund in the preparation of the financial
statements.
(A) PORTFOLIO VALUATION
The Fund calculates the net asset value of and complete orders to purchase,
exchange, or repurchase Fund shares on each business day, with the exception of
those days on which the New York Stock Exchange is closed.
Equity securities are valued at the last sale price on the exchange on which
such securities are traded, or on the principal over-the-counter market on which
such securities are traded, as of the close of business on the day the
securities are being valued, or, lacking any sales, at the last available bid
price. In cases where securities are traded on more than one exchange, the
securities are valued on the exchange determined by A I M Advisors, Inc. (the
"Manager") to be the primary market.
Fixed income investments are valued at the mean of representative quoted bid and
ask prices for such investments or, if such prices are not available, at prices
for investments of comparative maturity, quality, and type; however, when the
Manager deems it appropriate, prices obtained for the day of valuation from a
bond pricing service will be used. Short-term investments with a maturity of 60
days or less are valued at amortized cost adjusted for foreign exchange
translation and market fluctuation, if any.
Investments for which market quotations are not readily available (including
restricted securities which are subject to limitations on their sale) are valued
at fair value as determined in good faith by or under the direction of the
Trust's Board of Trustees.
Portfolio securities which are primarily traded on foreign exchanges are
generally valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S. dollars at
the current exchange rates, except that when an occurrence subsequent to the
time a value was so established is likely to have materially changed such value,
then the fair value of those securities will be determined by consideration of
other factors by or under the direction of the Trust's Board of Trustees.
(B) FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings, and other assets and
liabilities are recorded in the books and records of the Fund after translation
to U.S. dollars based on the exchange rates on that day. The cost of each
security is determined using historical exchange rates. Income and withholding
taxes are translated at prevailing exchange rates when earned or incurred.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from fluctuations arising
from changes in market prices of securities held. Such fluctuations are included
with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, forward foreign currency contracts, sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains or losses arise from changes in the
value of assets and liabilities other than investments in securities at period
end, resulting from changes in exchange rates.
(C) REPURCHASE AGREEMENTS
With respect to repurchase agreements entered into by the Fund, it is the Fund's
policy to always receive, as collateral, United States government securities or
other high quality debt securities of which the value, including accrued
interest, is at least equal to the amount to be repaid to the Fund under each
agreement at its maturity.
(D) FORWARD FOREIGN CURRENCY CONTRACTS
A forward foreign currency contract ("Forward Contract") is an agreement between
two parties to buy and sell a currency at a set
FS-62
<PAGE> 725
price on a future date. The market value of the Forward Contract fluctuates with
changes in currency exchange rates. The Forward Contract is marked-to-market
daily and the change in market value is recorded by the Fund as an unrealized
gain or loss. When the Forward Contract is closed, the Fund records a realized
gain or loss equal to the difference between the value at the time it was opened
and the value at the time it was closed. Forward Contracts involve market risk
in excess of the amount shown in the Fund's "Statement of Assets and
Liabilities". The Fund could be exposed to risk if a counterparty is unable to
meet the terms of the contract or if the value of the currency changes
unfavorably. The Fund may enter into Forward Contracts in connection with
planned purchases or sales of securities, or to hedge against adverse
fluctuations in exchange rates between currencies.
(E) OPTION ACCOUNTING PRINCIPLES
When the Fund writes a call or put option, an amount equal to the premium
received is included in the Fund's "Statement of Assets and Liabilities" as an
asset and an equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option. The current
market value of an option listed on a traded exchange is valued at its last bid
price, or, in the case of an over-the-counter option, is valued at the average
of the last bid prices obtained from brokers, unless a quotation from only one
broker is available, in which case only that broker's price will be used. If an
option expires on its stipulated expiration date or if the Fund enters into a
closing purchase transaction, a gain or loss is realized without regard to any
unrealized gain or loss on the underlying security and the liability related to
such option is extinguished. If a written call option is exercised, a gain or
loss is realized from the sale of the underlying security and the proceeds of
the sale are increased by the premium originally received. If a written put
option is exercised, the cost of the underlying security purchased would be
decreased by the premium originally received. The Fund can write options only on
a covered basis, which, for a call, requires that the Fund hold the underlying
security and, for a put, requires the Fund to set aside cash, U.S. government
securities or other liquid securities in an amount not less than the exercise
price, or otherwise provide adequate cover at all times while the put option is
outstanding. The Fund may use options to manage its exposure to the stock market
and to fluctuations in currency values or interest rates.
The premium paid by the Fund for the purchase of a call or put option is
included in the Fund's "Statement of Assets and Liabilities" as an investment
and subsequently "marked-to-market" to reflect the current market value of the
option. If an option which the Fund has purchased expires on the stipulated
expiration date, the Fund realizes a loss in the amount of the cost of the
option. If the Fund enters into a closing sale transaction, the Fund realizes a
gain or loss, depending on whether proceeds from the closing sale transaction
are greater or less than the cost of the option. If the Fund exercises a call
option, the cost of the securities acquired by exercising the call is increased
by the premium paid to buy the call. If the Fund exercises a put option, it
realizes a gain or loss from the sale of the underlying security, and the
proceeds from such sale are decreased by the premium originally paid.
The risk associated with purchasing options is limited to the premium originally
paid. The risk in writing a call option is that the Fund may forego the
opportunity of profit if the market value of the underlying security or index
increases and the option is exercised. The risk in writing a put option is that
the Fund may incur a loss if the market value of the underlying security or
index decreases and the option is exercised. In addition, there is the risk the
Fund may not be able to enter into a closing transaction because of an illiquid
secondary market.
(F) FUTURES CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
security at a set price on a future date. Upon entering into such a contract the
Fund is required to pledge to the broker an amount of cash or securities equal
to the minimum "initial margin" requirements of the exchange on which the
contract is traded. Pursuant to the contract, the Fund agrees to receive from or
pay to the broker an amount of cash equal to the daily fluctuation in value of
the contract. Such receipts or payments are known as "variation margin" and are
recorded by the Fund as unrealized gains or losses. When the contract is closed,
the Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the time it was
closed. The potential risk to the Fund is that the change in value of the
underlying securities may not correlate to the change in value of the contracts.
The Fund may use futures contracts to manage its exposure to the stock market
and to fluctuations in currency values or interest rates.
(G) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). The cost of securities sold is determined on a first-in,
first-out-basis, unless otherwise specified. Dividends are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. Where a high
level of uncertainty exists as to its collection, income is recorded net of all
withholding tax with any rebate recorded when received. The Fund may trade
securities on other than normal settlement terms. This may increase the risk if
the other party to the transaction fails to deliver and causes the Fund to
subsequently invest at less advantageous prices.
(H) PORTFOLIO SECURITIES LOANED
At October 31, 1998, stocks with an aggregate value of $2,582,613 were on loan
to brokers. The loans were secured by cash collateral of $2,731,376 received by
the Fund. For the year ended October 31, 1998, the Fund received fees of
$741,430.
For international securities, cash collateral is received by the Fund against
loaned securities in an amount at least equal to 105% of the market value of the
loaned securities at the inception of each loan. This collateral must be
maintained at not less than 103% of the market value of the loaned securities
during the period of the loan. For domestic securities, cash collateral is
received by the Fund against loaned securities in the amount at least equal to
102% of the market
FS-63
<PAGE> 726
value of the loaned securities at the inception of each loan. This collateral
must be maintained at not less than 100% of the market value of the loaned
securities during the period of the loan. The cash collateral is invested in a
securities lending trust which consists of a portfolio of high quality short
duration securities whose average effective duration is restricted to 120 days
or less.
(I) TAXES
It is the intended policy of the Fund to meet the requirements for qualification
as a "regulated investment company" under the Internal Revenue Code of 1986, as
amended ("Code"). It is also the intention of the Fund to make distributions
sufficient to avoid imposition of any excise tax under Section 4982 of the Code.
Therefore, no provision has been made for Federal taxes on income, capital
gains, or unrealized appreciation of securities held, and excise tax on income
and capital gains. The Fund has a capital loss carryforward of $72,184,684 of
which $65,749,433 expires in 2003, and $6,435,251 expires in 2006.
(J) DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded by each Fund on the ex-date. Income
and capital gain distributions are determined in accordance with Federal income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Fund and timing differences.
(K) FOREIGN SECURITIES
There are certain additional considerations and risks associated with investing
in foreign securities and currency transactions that are not inherent in
investments of domestic origin. The Fund's investment in emerging market
countries may involve greater risks than investments in more developed markets
and the price of such investments may be volatile. These risks of investing in
foreign and emerging markets may include foreign currency exchange rate
fluctuations, perceived credit risk, adverse political and economic developments
and possible adverse foreign government intervention.
(L) INDEXED SECURITIES
The Fund may invest in indexed securities whose value is linked either directly
or indirectly to changes in foreign currencies, interest rates, equities,
indices, or other reference instruments. Indexed securities may be more volatile
than the reference instrument itself, but any loss is limited to the amount of
the original investment.
(M) RESTRICTED SECURITIES
The Fund is permitted to invest in privately placed restricted securities. These
securities may be resold in transactions exempt from registration or to the
public if the securities are registered. Disposal of these securities may
involve time-consuming negotiations and expense, and prompt sale at an
acceptable price may be difficult. At the end of the year, restricted
securities, if any, (excluding 144A issues), are shown at the end of the Fund's
Portfolio of Investments.
(N) LINE OF CREDIT
The Fund, along with certain other funds advised and/or administered by the
Manager, has a line of credit with BankBoston. The arrangement with the bank
allows the Fund and certain other Funds to borrow, on a first come, first serve
basis, an aggregate maximum amount of $150,000,000. The Fund is limited to
borrowing up to 33 1/3% of the value of the Fund's total assets. On October 31,
1998, the Fund had no loans outstanding.
For the year ended October 31, 1998, the weighted average outstanding daily
balance of bank loans (based on the number of days the loans were outstanding)
for the Fund was $8,506,098, with a weighted average interest rate of 6.28%.
Interest expense for the year ended October 31, 1998 was $243,306 and is
included in "Other Expenses" on the Statement of Operations.
(O) SECURITIES PURCHASED ON A WHEN-ISSUED OR FORWARD COMMITMENT BASIS
The Fund may trade securities on a when-issued or forward commitment basis, with
payment and delivery scheduled for a future date. These transactions are subject
to market fluctuations and are subject to the risk that the value at delivery
may be more or less than the trade date purchase price. Although the Fund will
generally purchase these securities with the intention of acquiring such
securities, they may sell such securities before the settlement date. These
securities are identified on the accompanying Portfolio of Investments. The Fund
has set aside sufficient cash or liquid securities as collateral for these
purchase commitments.
2. RELATED PARTIES
A I M Advisors, Inc. (the "Manager"), an indirect wholly-owned subsidiary of
AMVESCAP PLC, is the Fund's investment manager and administrator and INVESCO
(NY), Inc., (formerly, Chancellor LGT Asset Management, Inc.) is the Fund's
investment sub-advisor and sub-administrator. As of the close of business on May
29, 1998, Liechtenstein Global Trust AG ("LGT"), the former indirect parent
organization of Chancellor LGT Asset Management, Inc. ("Chancellor LGT")
consummated a purchase agreement with AMVESCAP PLC pursuant to which AMVESCAP
PLC acquired LGT's Asset Management Division, which included Chancellor LGT and
certain other affiliates. As a result of this transaction, Chancellor LGT was
renamed INVESCO (NY), Inc., and is now an indirect wholly-owned subsidiary of
AMVESCAP PLC. A I M Distributors, Inc. ("AIM Distributors"), a wholly-owned
subsidiary of the Manager, became the Fund's distributor as of the close of
business on May 29, 1998. The Trust was reorganized from a Maryland corporation
into a Delaware business trust on September 8, 1998. Finally, as of the close of
business on September 4, 1998, A I M Fund Services, Inc. ("AFS"), an affiliate
of the Manager and AIM Distributors, replaced GT Global Investor Services, Inc.
("GT Services") as the transfer agent of the Fund.
The Fund pays the Manager investment management and administration fees at the
annualized rate of 0.725% on the first $500 million of the average daily net
assets of the Fund; 0.70% on the next $1 billion; 0.675% on the next $1 billion;
and 0.65% on amounts thereafter. These fees are computed daily and paid monthly.
FS-64
<PAGE> 727
AIM Distributors, an affiliate of the Manager, serves as the Fund's distributor.
For the period ended May 29, 1998, GT Global, Inc. ("GT Global"), an affiliate
of the investment sub-advisor, served as the Fund's distributor. The Fund offers
Class A, Class B, and Advisor Class shares for purchase.
Class A shares are subject to initial sales charges imposed at the time of
purchase, in accordance with the schedule included in the Fund's current
prospectus. AIM Distributors collects the sales charges imposed on sales of
Class A shares, and reallows a portion of such charges to dealers through which
the sales are made. For the year ended October 31, 1998, AIM Distributors and GT
Global retained the following sales charges: $6,190 and $14,511, respectively.
Purchases of Class A shares exceeding $1,000,000 may be subject to a contingent
deferred sales charge ("CDSC") upon redemption, in accordance with the Fund's
current prospectus. AIM Distributors and GT Global collected CDSCs for the year
ended October 31, 1998 of $10,171 and $1,119, respectively. AIM Distributors
also makes ongoing shareholder servicing and trail commission payments to
dealers whose clients hold Class A shares.
Class B shares are not subject to initial sales charges. When Class B shares are
sold, AIM Distributors, from its own resources, pays commissions to dealers
through which the sales are made. Certain redemptions of Class B shares made
within six years of purchase are subject to CDSCs, in accordance with the Fund's
current prospectus. For the year ended October 31, 1998, AIM Distributors and GT
Global collected CDSCs in the amount of $379,657 and $916,697, respectively. In
addition, AIM Distributors makes ongoing shareholder servicing and trail
commission payments to dealers whose clients hold Class B shares.
For the period ended May 29, 1998, pursuant to the then effective separate
distribution plans adopted under the 1940 Act Rule 12b-1 by the Trust's Board of
Trustees with respect to the Fund's Class A shares ("Class A Plan") and Class B
shares ("Class B Plan"), the Fund reimbursed GT Global for a portion of its
shareholder servicing and distribution expenses. Under the Class A Plan, the
Fund was permitted to pay GT Global a service fee at the annualized rate of up
to 0.25% of the average daily net assets of the Fund's Class A shares for GT
Global's expenditures incurred in servicing and maintaining shareholder
accounts, and was permitted to pay GT Global a distribution fee at the
annualized rate of up to 0.35% of the average daily net assets of the Fund's
Class A shares, less any amounts paid by the Fund as the aforementioned service
fee, for GT Global's expenditures incurred in providing services as distributor.
All expenses for which GT Global was reimbursed under the Class A Plan would
have been incurred within one year of such reimbursement.
For the period ended May 29, 1998, pursuant to the Class B Plan, the Fund was
permitted to pay GT Global a service fee at the annualized rate of up to 0.25%
of the average daily net assets of the Fund's Class B shares for GT Global's
expenditures incurred in servicing and maintaining shareholder accounts, and was
permitted to pay GT Global a distribution fee at the annualized rate of up to
0.75% of the average daily net assets of the Fund's Class B shares for GT
Global's expenditures incurred in providing services as distributor. Expenses
incurred under the Class B Plan in excess of 1.00% annually were permitted to be
carried forward for reimbursement in subsequent years as long as that Plan
continued in effect.
Effective as of the close of business May 29, 1998, pursuant to Rule 12b-1 under
the 1940 Act, the Trust's Board of Trustees adopted a Master Distribution Plan
applicable to the Fund's Class A shares ("Class A Plan") and Class B shares
("Class B Plan"), pursuant to which the Fund compensates AIM Distributors for
the purpose of financing any activity that is intended to result in the sale of
Class A or Class B shares of the Fund. Under the Class A Plan, the Fund
compensates AIM Distributors at the annualized rate of 0.35% of the average
daily net assets of the Fund's Class A shares. Under the Class B Plan, the Fund
compensates AIM Distributors at an annualized rate of 1.00% of the average daily
net assets of the Fund's Class B shares.
The Class A Plan and the Class B Plan (together, the "Plans") are designed to
compensate AIM Distributors for certain promotional and other sales-related
costs, and to implement a dealer incentive program that provides for periodic
payments to selected dealers who furnish continuing personal shareholder
services to their customers who purchase and own Class A and Class B shares of
the Fund. Payments also can be directed by AIM Distributors to financial
institutions who have entered into service agreements with respect to Class A
and Class B shares of the Fund and who provide continuing personal services to
their customers who own Class A and Class B shares of the Fund. The service fees
payable to selected financial 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 that were purchased on or after a
prescribed date set forth in the Plans.
The Manager and AIM Distributors voluntarily have undertaken to limit the Fund's
expenses (exclusive of brokerage commissions, taxes, interest, and extraordinary
expense) to the maximum annual rate of 1.75%, 2.40%, and 1.40% of the average
daily net assets of the Fund's Class A, Class B, and Advisor Class shares,
respectively. If necessary, this limitation will be effected by waivers by the
Manager of investment management and administration fees, waivers by AIM
Distributors of payments under the Class A Plan and/or Class B Plan and/or
reimbursements by the Manager or AIM Distributors of portions of the Fund's
other operating expenses.
Effective as of the close of business September 4, 1998, the Fund, pursuant to a
transfer agency and service agreement, has agreed to pay A I M Fund Services,
Inc. ("AFS") an annualized fee of $24.85 per shareholder accounts that are open
during any monthly period (this fee includes all out-of-pocket expenses), and an
annualized fee of $0.70 per shareholder account that is closed during any
monthly period. Both fees shall be billed by AFS monthly in arrears on a
prorated basis of 1/12 of the annualized fee for all such accounts.
For the period November 1, 1997 to September 4, 1998, GT Services, an affiliate
of the Manager and AIM Distributors, was the transfer
FS-65
<PAGE> 728
agent of the Fund. For performing shareholder servicing, reporting, and general
transfer agent services, GT Services received an annual maintenance fee of
$17.50 per account, a new account fee of $4.00 per account, a per transaction
fee of $1.75 for all transactions other than exchanges and a per exchange fee of
$2.25. GT Services also was reimbursed by the Fund for its out-of-pocket
expenses for such items as postage, forms, telephone charges, stationery and
office supplies.
The Manager is the pricing and accounting agent for the Fund. The monthly fee
for these services paid to the Manager is a percentage, not to exceed 0.03%
annually, of a Fund's average daily net assets. The annual fee rate is derived
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% to 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.
The Trust pays each Trustee who is not an employee, officer or director of the
Manager, or any other affiliated company, $5,000 per year plus $300 for each
meeting of the board or any committee thereof attended by the Trustee.
3. PURCHASES AND SALES OF SECURITIES
For the year ended October 31, 1998, purchases and sales of investment
securities by the Fund, other than U.S. government obligations and short-term
investments, aggregated $653,771,935 and $689,755,218, respectively. For the
year ended October 31, 1998,
purchases and sales of U.S. government obligations aggregated $419,099,394 and
$458,023,980, respectively.
4. CAPITAL SHARES
At October 31, 1998, there were 6,000,000,000 shares of the Trust's common stock
authorized, at $0.0001 par value. Of this amount, 400,000,000 were classified as
shares of the AIM Global Telecommunications Fund; 400,000,000 were classified as
shares of AIM Global Government Income Fund; 200,000,000 were classified as
shares of AIM Global Health Care Fund; 200,000,000 were classified as shares of
AIM Strategic Income Fund; 200,000,000 were classified as shares of AIM
Developing Markets Fund; 200,000,000 were classified as shares of GT Global
Currency Fund (inactive); 200,000,000 were classified as shares of AIM Global
Growth & Income Fund; 200,000,000 were classified as shares of GT Global Small
Companies Fund (inactive); 200,000,000 were classified as shares of AIM Latin
American Growth Fund; 200,000,000 were classified as shares of AIM Emerging
Markets Fund; 200,000,000 were classified as shares of AIM Emerging Markets Debt
Fund; 200,000,000 were classified as shares of AIM Global Financial Services
Fund; 200,000,000 were classified as shares of AIM Global Resources Fund;
200,000,000 were classified as shares of AIM Global Infrastructure Fund;
200,000,000 were classified as shares of AIM Global Consumer Products and
Services Fund. The shares of each of the foregoing series of the Trusts were
divided equally into two classes, designated Class A and Class B common stock.
With respect to the issuance of Advisor Class shares, 100,000,000 shares were
classified as shares of each of the fifteen series of the Trusts and designated
as Advisor Class common stock. 1,100,000,000 shares remain unclassified.
Transactions in capital shares of the Fund were as follows:
CAPITAL SHARE TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997
-------------------------- ----------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------- ----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C>
Shares sold....................................... 11,087,862 $ 132,840,707 13,750,221 $ 167,009,888
Shares issued in connection with reinvestment of
distributions................................... 520,006 6,103,698 615,860 7,488,021
----------- ------------- ----------- ---------------
11,607,868 138,944,405 14,366,081 174,497,909
Shares repurchased................................ (13,690,399) (162,830,760) (18,557,237) (225,311,673)
----------- ------------- ----------- ---------------
Net decrease...................................... (2,082,531) $ (23,886,355) (4,191,156) $ (50,813,764)
----------- ------------- ----------- ---------------
----------- ------------- ----------- ---------------
<CAPTION>
CLASS B
- --------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold....................................... 2,712,341 $ 32,431,379 11,499,580 $ 140,731,511
Shares issued in connection with reinvestment of
distributions................................... 752,045 8,848,630 896,610 10,918,610
----------- ------------- ----------- ---------------
3,464,386 41,280,009 12,396,190 151,650,121
Shares repurchased................................ (9,428,771) (110,869,956) (17,287,235) (211,600,543)
----------- ------------- ----------- ---------------
Net decrease...................................... (5,964,385) $ (69,589,947) (4,891,045) $ (59,950,422)
----------- ------------- ----------- ---------------
----------- ------------- ----------- ---------------
<CAPTION>
ADVISOR CLASS
- --------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold....................................... 396,726 $ 4,766,864 712,165 $ 8,839,212
Shares issued in connection with reinvestment of
distributions................................... 4,186 50,201 3,581 43,784
----------- ------------- ----------- ---------------
400,912 4,817,065 715,746 8,882,996
Shares repurchased................................ (367,030) (4,447,852) (712,116) (8,911,324)
----------- ------------- ----------- ---------------
Net increase (decrease)........................... 33,882 $ 369,213 3,630 $ (28,328)
----------- ------------- ----------- ---------------
----------- ------------- ----------- ---------------
</TABLE>
FS-66
<PAGE> 729
5. PROXY RESULTS (UNAUDITED)
The Special Meeting of Shareholders of the G.T. Investment Funds, Inc., now
known as AIM Investment Funds (the "Trust") was held on May 20, 1998 at the
Trust's offices, 50 California Street, 26th Floor, San Francisco, California.
The meeting was held for the following purposes:
(1) To elect Trustees as follows: C. Derek Anderson, Frank S. Bayley, William J.
Guilfoyle, Arthur C. Patterson, Ruth H. Quigley.
(2) To approve a new Investment Management and Administration Contract and
Sub-Advisory and Sub-Administration Contract with respect to each series of
the Trust (each, a "Fund," and collectively, the "Funds").
(3) To approve replacement Rule 12b-1 plans of distribution with respect to
Class A and B Shares of the Fund.
(4) To approve changes to the fundamental investment restrictions of the Fund.
(5) To approve an agreement and plan of conversion and termination for the
Trust.
(6) To ratify the selection of Coopers & Lybrand L.L.P., now known as
PricewaterhouseCoopers LLP, as the Trust's independent public accountants.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
VOTES WITHHELD/
TRUSTEE/MATTER VOTES FOR AGAINST ABSTENTIONS
------------------------------------------------------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
(1) C. Derek Anderson........................................... 191,685,088 N/A 13,123,292
Frank S. Bayley............................................. 191,766,811 N/A 13,041,568
William J. Guilfoyle........................................ 191,828,959 N/A 12,979,420
Arthur C. Patterson......................................... 191,845,270 N/A 12,963,109
Ruth H. Quigley............................................. 191,869,887 N/A 12,938,492
(2)(a) Approval of investment management and administration
contract................................................... 14,153,757 379,517 4,085,251*
(2)(b) Approval of sub-advisory and sub-administration contract.... 14,047,606 428,882 1,142,037*
(3) Approval of replacement Rule 12b-1 plans of distribution
CLASS A SHARES.............................................. 5,895,532 233,405 531,389
CLASS B SHARES.............................................. 10,735,339 271,273 981,531
(4)(a) Modification of Fundamental Restriction on Concentration.... 13,819,624 462,105 4,336,796*
(4)(b) Modification of Fundamental Restriction on Issuing Senior
Securities and Borrowing Money............................. 13,817,763 463,966 4,336,796*
(4)(c) Modification of Fundamental Restriction on Making Loans..... 13,819,624 462,105 4,336,796*
(4)(d) Modification of Fundamental Restriction on Underwriting
Securities................................................. 13,819,624 462,105 4,336,796*
(4)(e) Modification of Fundamental Restriction on Real Estate
Investments................................................ 13,817,763 463,966 4,336,796*
(4)(f) Modification of Fundamental Restriction on Investing in
Commodities................................................ 13,815,902 465,827 4,336,796*
(4)(g) Modification of Fundamental Restriction on Margin
Transactions............................................... 13,815,902 465,827 4,336,796*
(4)(h) Elimination of Fundamental Restriction on Investing in
Futures Contracts.......................................... 13,817,763 463,966 4,336,796*
(4)(i) Elimination of Fundamental Restriction on Pledging Assets... 13,817,763 463,966 4,336,796*
(4)(j) Elimination of Fundamental Restriction on Investments in
Oil, Gas and Mineral Leases and Programs................... 13,817,763 463,996 4,336,796*
(4)(k) Elimination of Fundamental Restriction on Investing for the
Purpose of Control......................................... 13,817,763 463,996 4,336,796*
(4)(l) Elimination of Fundamental Restriction on Purchasing
Securities of Issuers in Which Officers and Board Members
of Each Company and its Affiliates Own Securities.......... 13,817,763 463,996 4,336,796*
(4)(m) Elimination of Fundamental Restriction on Investing in
Securities of Companies That Have Been in Operation for
Less than Three Years...................................... 13,819,624 462,105 4,336,796*
(4)(n) Elimination of Fundamental Restriction on Selling Securities
Short...................................................... 13,802,093 479,636 4,336,796*
(4)(o) Approval of New Fundamental Investment Policy Regarding
Investment of All of Each Fund's Assets in an Open-End
Fund....................................................... 13,819,624 462,105 4,336,796*
(5) Approval of an agreement and plan of conversion and
termination with respect to the Trust...................... 190,027,469 6,362,084 94,055,040*
(6) Ratification of the selection of Coopers and Lybrand L.L.P.,
now known as PricewaterhouseCoopers LLP, as the Trust's
independent public accountants............................. 191,358,779 2,114,168 11,333,063
</TABLE>
- ------------------------
* Includes Broker Non-Votes
FS-67
<PAGE> 730
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
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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............................. 6
Investment Objectives..................................... 6
Investment Strategies..................................... 6
Selection of Debt Investments............................. 9
Selection of Equity Investments........................... 9
Selection of Investments and Asset Allocation............. 9
Investing in Emerging Markets............................. 10
Sovereign Debt............................................ 11
Brady Bond................................................ 12
Loan Participation and Assignment......................... 13
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............................... 16
Repurchase Agreements..................................... 16
Borrowing, Reverse Repurchase Agreements and "Roll"
Transactions........................................... 16
Zero Coupon Securities.................................... 17
Synthetic Security Positions.............................. 18
Swaps, Caps, Floors, and Collars.......................... 18
Indexed Commercial Paper.................................. 18
Other Indexed Securities.................................. 19
Short Sales............................................... 19
OPTIONS, FUTURES AND CURRENCY STRATEGIES.................... 20
Options, Futures, and Forward Currency Transactions....... 20
Special Risks of Options, Futures and Foreign Currency
Transactions........................................... 20
Writing Call Options...................................... 21
Writing Put Options....................................... 22
Purchasing Put Options.................................... 22
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......................................... 27
Foreign Currency Strategies -- Special Considerations..... 28
Cover..................................................... 29
Interest Rate and Currency Swaps.......................... 29
RISK FACTORS................................................ 30
Nondiversified Classification............................. 30
Illiquid Securities....................................... 30
Foreign Securities........................................ 31
Mortgage-Backed and Asset-Backed Securities............... 34
Lower Quality Debt Securities............................. 35
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INVESTMENT LIMITATIONS...................................... 36
Government Income Fund.................................... 36
Strategic Income Fund..................................... 37
Emerging Markets Debt Fund and the Portfolio.............. 38
Growth & Income Fund...................................... 39
EXECUTION OF PORTFOLIO TRANSACTIONS......................... 41
Portfolio Trading and Turnover............................ 42
MANAGEMENT.................................................. 43
Trustees and Executive Officers........................... 43
Investment Management and Administration Services......... 45
Distribution Services..................................... 47
Expenses of the Funds and the Portfolio................... 47
HOW TO PURCHASE AND REDEEM SHARES........................... 47
Backup Withholding........................................ 48
NET ASSET VALUE DETERMINATION............................... 49
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS.................... 50
Taxation of the Funds..................................... 50
Taxation of the Portfolio -- General...................... 50
Taxation of Certain Investment Activities................. 51
Taxation of the Funds' Shareholders....................... 52
SHAREHOLDER INFORMATION..................................... 53
Timing of Purchase Orders................................. 53
Share Certificates........................................ 53
Terms and Conditions of Exchanges......................... 54
Exchanges by Mail......................................... 54
Exchanges by Telephone.................................... 55
Redemptions by Mail....................................... 55
Redemptions by Telephone.................................. 55
Timing and Pricing of Redemption Orders................... 55
Signature Guarantee....................................... 56
Dividends and Distributions............................... 56
Minimum Account Balance................................... 57
MISCELLANEOUS INFORMATION................................... 57
Charges for Certain Account Information................... 57
Custodian and Transfer Agent.............................. 57
Independent Accountants................................... 57
Legal Matters............................................. 58
Shareholders Liability.................................... 58
Control Persons and Principal Holders of Securities....... 58
INVESTMENT RESULTS.......................................... 60
Total Return Quotations................................... 60
Non-Standardized Returns.................................. 60
Yield Quotations.......................................... 61
Performance Information................................... 61
APPENDIX.................................................... 64
Description of Bond Ratings............................... 64
Description of Commercial Paper Ratings................... 65
Absence of Rating......................................... 65
FINANCIAL STATEMENTS........................................ FS
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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 for Strategic Income Fund. INVESCO Asset
Management Limited serves as the investment sub-advisor 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 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. 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 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, 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 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, 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 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
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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, 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 Emerging Markets Debt Fund is requested to vote on any proposal of
the Portfolio, 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.
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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 primarily seeks high current income and secondarily
seeks growth of capital 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 growth of capital. 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 growth capital 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.
INVESTMENT STRATEGIES
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. 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 Investor's Services, Inc. ("Moody's") or Standard
and Poor's, a division of The McGraw-Hill Companies, Inc. ("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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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 or 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 Statement of Additional Information.
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 "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, 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 S&P, or P-1 by 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.
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,
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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 Government Income
Fund's, 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 U.S. ratings agencies such as
Moody's and S&P. Strategic Income Fund and the Portfolio's ability to achieve
their
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<PAGE> 740
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 economic performance and the timely service of such debtor's obligations.
Failure to implement such reforms, achieve
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<PAGE> 741
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 maturity as the bonds. Interest payments on such
bonds generally are collateralized by cash or securities in an amount
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<PAGE> 742
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 acquisition or disposes of its right to
deliver or receive against a forward commitment, it may incur a gain or loss. At
the
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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 issued
by an American bank or trust company and evidence ownership of underlying
securities issued by a foreign
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<PAGE> 744
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 collateral or a fee from the borrower.
Government Income Fund, Strategic Income Fund, Growth & Income Fund and the
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<PAGE> 745
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 be
disadvantageous. Government Income Fund, Strategic Income Fund, Growth & Income
Fund and the Portfolio each may
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<PAGE> 746
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 borrowing 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
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.
Growth & Income Fund, 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, Growth & Income Fund,
Strategic Income Fund, and Government Income Fund, and the Portfolios would
forego principal and interest paid on such securities. Growth & Income Fund,
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 "stripped" 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
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<PAGE> 747
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.
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
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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 "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.
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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 the Portfolio
may enter into forward currency contracts either with respect to specific
transactions or with respect to a Fund's or the 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 the 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 the 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 the 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 the 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.
(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
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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 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,
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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
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
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<PAGE> 752
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
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
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<PAGE> 753
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.
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
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<PAGE> 754
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 and equity securities, ("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 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.
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
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
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<PAGE> 755
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 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
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<PAGE> 756
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 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.
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<PAGE> 757
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 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.
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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. 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, 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.
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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 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
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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 Government Income Fund,
Strategic Income Fund, 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. Government Income Fund, Strategic Income Fund,
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
Government Income Fund, Strategic Income Fund, 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, Strategic
Income Fund, 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
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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 is known as the "euro." Each participating
country 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 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 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 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.
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The risk 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 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.
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
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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 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
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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%, 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.
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<PAGE> 765
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 97.0%
and 72.5%, respectively, of their total net assets in debt securities that
received a rating from Standard & Poor's and 6.6% and 27.5%, respectively, of
their total net assets in debt securities that were not so rated. In addition,
the Strategic Income Fund 4.1% in cash and 7.7% in net payables. The Portfolio
had 0.0% in cash and 1.5% in net receivables. The Strategic Income Fund and the
Portfolio had 97.0% and 72.5%, respectively, of their total net assets invested
in rated securities in the following rating categories: AAA -- 55.9%
and -- 0.0%; AA+ -- 1.5% and 0.0%; AA- -- 1.2% and 2.0%; A -- 1.0% and 0.0%;
A-1 -- 9.5% and 0.0%; BBB- -- 2.4% and 9.8%; BB+ -- 2.2% and 4.4%; BB -- 7.3%
and 41.1%; BB- -- 3.9% and 10.4%; B+ -- 2.0% and 0.7%; B -- 4.0% and 0.0%;
B- -- 3.4% and 0.0%; CCC+ -- 0.4% and 1.7%; CC -- 0.3% and 0.9%. Included in the
unrated category are securities held by the Fund or the Portfolio which, while
unrated, have been determined by the Sub-advisor to be of comparable quality to
rated securities. It should be noted that the allocation of the investments of
the Fund and the Portfolio by rating on any given date will vary and should not
be considered representative of the future composition of the Fund or the
Portfolio.
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
36
<PAGE> 766
(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 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
37
<PAGE> 767
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 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;
38
<PAGE> 768
(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
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;
39
<PAGE> 769
(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 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 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> 770
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> 771
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 Emerging Markets Debt Portfolio paid aggregate
brokerage commissions of $0, $0 and $86,600, respectively. For the fiscal years
ended October 31, 1998, 1997 and 1996, Government Income Fund paid aggregate
brokerage commissions of $0, $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 $933, $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 $1,105,727, $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.................. 339% 214% 290%
Government Income Fund........................... 305% 241% 268%
Growth & Income Fund............................. 92% 50% 39%
Strategic Income Fund............................ 306% 149% 177%
</TABLE>
42
<PAGE> 772
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); and Director, "R"
Homes, Inc. and various other
companies.
- ----------------------------------------------------------------------------------------------------
FRANK S. BAYLEY (59) Trustee Partner, law firm of Baker & McKenzie;
Two Embarcadero Center and Director and Chairman, C.D. Stimson
Suite 2400 Company (a private investment company).
San Francisco, CA 94111
- ----------------------------------------------------------------------------------------------------
ARTHUR C. PATTERSON (54) Trustee Managing Partner, Accel Partners (a
428 University Avenue venture capital firm); and Director,
Palo Alto, CA 94301 Viasoft and PageMart, Inc. (both public
software companies) and several other
privately held software and
communications companies.
- ----------------------------------------------------------------------------------------------------
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.
- ----------------------------------------------------------------------------------------------------
+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.
- ----------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
* A Trustee who is an interested person of the Trust and A I M Advisors, Inc.,
as defined in the 1940 Act.
+ Mr. Arthur and Ms. Relihan are married to each other.
43
<PAGE> 773
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
NAME, ADDRESS AND AGE POSITIONS HELD WITH REGISTRANT PRINCIPAL OCCUPATION WITH REGISTRANT
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
SAMUEL D. SIRKO (39) Vice President and Secretary Vice President, Assistant General
Counsel and Assistant Secretary, A I M
Advisors, Inc.; and Assistant General
Counsel and Assistant Secretary, A I M
Management Group Inc., A I M Capital
Management, Inc., A I M Distributors,
Inc., A I M Fund Services, Inc. and
Fund Management Company.
- ----------------------------------------------------------------------------------------------------
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, 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 $46,350,
$43,350, $47,700 and $48,000, 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
$97,600, $97,500, $105,450 and $106,350, 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 February 1, 1999, 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.
44
<PAGE> 774
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES
AIM, 11 Greenway Plaza, Suite 100, Houston, Texas 77046, was organized in 1976
and, together with its subsidiaries, manages or advises approximately 110
investment portfolios encompassing a broad range of investment objectives.
INVESCO (NY), Inc., 1166 Avenue of the Americas, New York, New York 10036,
formerly Chancellor LGT Asset Management, Inc. has provided investment
management and/or administrative services to institutional, corporate and
individual clients around the world since 1969. INVESCO Asset Management
Limited, 11 Devonshire Square, London, EC2M 4YR, England has provided investment
management and/or administrative services to pension funds, insurance funds,
index funds, unit trusts, offshore funds and a variety of institutional accounts
since 1967. 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.
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.
AIM Management, AIM and each Sub-Advisor are indirect wholly owned
subsidiaries of AMVESCAP PLC, 11 Devonshire Square, London, EC2M 4YR, England.
AMVESCAP PLC and its subsidiaries are an independent 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, New York and London
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, Singapore, Sydney, Tokyo and Toronto.
In managing the Funds and the Portfolio, the Sub-advisors employ a team
approach, taking advantage of its investment resources around the world.
Under an investment management and administration contract between the Trust
and AIM ("Trust Advisory Agreement"), AIM serves as the investment manager and
administrator for Government Income Fund, Strategic Income Fund and Growth &
Income Fund. AIM also serves as the Portfolio's investment manager and
administrator under an Investment Management and Administration Contract between
the Portfolio and AIM ("Portfolio Advisory Agreement").
INVESCO Asset Management Limited serves as the Portfolio's sub-advisor under a
Sub-advisory Agreement between AIM and INVESCO Asset Management Limited
("Portfolio Sub-Advisory Agreement") and as the sub-advisor for Government
Income Fund and Growth & Income Fund under a separate Sub-advisory Agreement
between AIM and INVESCO Asset Management Limited ("Fund Sub-Advisory
Agreement"). INVESCO (NY), Inc. serves as the sub-advisor for Strategic Income
Fund under a Sub-Advisory Agreement between AIM and INVESCO (NY), Inc. (together
with the Portfolio Sub-Advisory Agreement and the Fund Sub-Advisory Agreement,
the Trust Advisory Agreement and the Portfolio Advisory Agreement, the
"Management Agreements").
AIM also serves as Emerging Markets Debt Fund's administrator under an
Administration Contract between the Trust and AIM.
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 Agreements 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 Agreements or the Administration 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
Agreements provide that with respect to Government Income Fund, Strategic Income
Fund, Growth & Income Fund and the Portfolio, and the Administration Contract
provide that with respect to 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
Agreements and the Administration Contract terminate automatically in the event
of their assignment (as defined in the 1940 Act).
45
<PAGE> 775
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........................................................ $1,823,161
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........................................................ $2,691,901
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........................................................ $7,885,054
1997........................................................ 6,900,695
1996........................................................ 6,282,438
1995........................................................ 6,301,399
</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........................................................ $2,241,949
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........................................................ $ 767,658
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, until May 31, 2000.
AIM may from time to time waive or reduce its fee. Voluntary fee waivers or
reductions may be rescinded at any time without further notice to investors.
During periods of voluntary fee waivers or reductions, AIM will retain its
ability to be reimbursed for such fee prior to the end of each fiscal year.
Contractual fee waivers or reductions set forth in the Fee Tables in the
Prospectus may not be terminated without the approval of the Board of Trustees.
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
46
<PAGE> 776
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.
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."
DISTRIBUTION SERVICES
The Trust has entered into a Master Distribution Agreement (the "Distribution
Agreement"), with AIM Distributors, a registered broker-dealer and a wholly
owned subsidiary of AIM, to act as the distributor of the Advisor Class Shares
of the Funds. The Distribution Agreement provides AIM Distributors with the
exclusive right to distribute Advisor Class Shares of the Funds directly and
through institutions with whom AIM Distributors has entered into select dealer
agreements.
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.
HOW TO PURCHASE AND REDEEM SHARES
A complete description of the manner in which shares of the Funds may be
purchased appears in each Fund's Prospectus under the headings "Purchasing
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 each Fund's Prospectus under
the heading "Exchanging Shares."
Information concerning redemption of each Fund's shares is set forth in the
Prospectus under the heading "Redeeming 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.
47
<PAGE> 777
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 generally be subject to backup withholding.
Each AIM Fund, and other payers, must, according to IRS regulations, withhold
31% of redemption payments and reportable dividends (whether paid or accrued) in
the case of any shareholder who fails to provide the Fund with a taxpayer
identification number ("TIN") and a certification that he is not subject to
backup withholding.
An investor is subject to backup withholding if:
(1) the investor fails to furnish a correct TIN to the Fund, or
(2) the IRS notifies the Fund that the investor furnished an incorrect
TIN, or
(3) the investor is notified by the IRS that the investor is subject
to backup withholding because the investor failed to report all of the
interest and dividends on such investor's tax return (for reportable
interest and dividends only), or
(4) the investor fails to certify to the Fund that the investor is not
subject to backup withholding under (3) above (for reportable interest and
dividend accounts opened after 1983 only), or
(5) the investor does not certify his TIN. This applies only to
reportable interest, dividend, broker or barter exchange accounts opened
after 1983, or broker accounts considered inactive during 1983.
Except as explained in (5) above, other reportable payments are subject to
backup withholding only if (1) or (2) above applies.
Certain payees and payments are exempt from backup withholding and information
reporting. A complete listing of such exempt entities appears in the
Instructions for the Requester of Form W-9 (which can be obtained from the IRS)
and includes, among others, the following:
- 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
48
<PAGE> 778
- 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.
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 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 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 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(s) of Trustees of the
Fund.
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DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
Income dividends and capital gains distributions are automatically reinvested
in additional shares of the same class of each Fund unless the shareholder has
requested in writing to receive such dividends and distributions on cash or that
they be reinvested in shares of another AIM Fund, subject to the terms and
conditions set forth under the caption "Shareholder Information -- Dividends and
Distributions." If a shareholder's account does not have any shares in it on a
dividend or capital gains distribution payment date, the dividend or
distribution will be paid in cash whether or not the shareholder has elected to
have such dividends or distribution reinvested.
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
basis of any property that Fund invests in the Portfolio, increased by that
Fund's share of the Portfolio's net income and
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<PAGE> 780
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.
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
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<PAGE> 781
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. 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
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<PAGE> 782
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
Orders for the purchase of Advisor Class shares received prior to the close of
regular trading on the 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).
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<PAGE> 783
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 each Fund may be exchanged either for Advisor Class
shares of any other Fund or for AIM Cash Reserve shares of AIM Money Market
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 "Redeeming Shares" in each Fund's Prospectus.
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<PAGE> 784
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.
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 "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
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<PAGE> 785
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.
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.
56
<PAGE> 786
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.
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.
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.
57
<PAGE> 787
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.
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.
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 February 1, 1999, 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>
Emerging Markets Debt MLPF&S 10.24% -0-
Fund -- Class B for the Sole Benefit of Its
Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd
Floor
Jacksonville, FL 32246-6484
Emerging Markets Debt LGT Asset Management AC 31.89% -0-
Fund -- Advisor Class 5000201000
SERP Plan
Attn: Debbie Nettles
11 Greenway Plaza Suite 100
Houston, TX 77046-1173
LGT Asset Management 30.21% -0-
401(K) Plan
11 Greenway Plaza Suite 100
Houston, TX 77046-1173
Charles Schwab & Co., Inc. 20.39% -0-
Reinvest Account
101 Montgomery St.
San Francisco, CA 94104-4122
Government Income Fund -- Class A MLPF&S 7.30% -0-
for the Sole Benefit of Its
Customers
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.
58
<PAGE> 788
<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 -- Class B MLPF&S 10.34% -0-
for the Sole Benefit of Its
Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd
Floor
Jacksonville, FL 32246-6484
Government Income Fund -- Advisor LGT Asset Management 48.95% -0-
Class 401(K) Plan
11 Greenway Plaza Suite 100
Houston, TX 77046-1173
LGT Asset Management 27.05% -0-
SERP Plan
Attn: Debbie Nettles A/C
5000201000
11 Greenway Plaza Suite 100
Houston, TX 77046-1173
Trust Company of America 8.16% -0-
FBO FPI
PO Box 65503
Englewood, CO 80155-6503
Growth & Income Fund -- Class A MLPF&S 5.35% -0-
for the Sole Benefit of Its
Customers
Attn: Fund Administration
1800 Deer Lake Drive East, 2nd
Floor
Jacksonville, FL 32246-6484
Growth & Income Fund -- Advisor LGT Asset Management AC5000201000 39.19% -0-
Class SERP Plan
Attn: Debbie Nettles
11 Greenway Plaza Suite 100
Houston, TX 77046-1173
LGT Asset Management 33.86% -0-
401(K) Plan
11 Greenway Plaza Suite 100
Houston, TX 77046-1173
FTC & Co. 8.35% -0-
Attn: Datalynx #040
P.O. Box 173736
Denver, CO 80217-3736
Strategic Income Fund -- Class B MLPF&S 6.62% -0-
for the Sole Benefit of Its
Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd
Floor
Jacksonville, FL 32246-6484
Strategic Income Fund -- Advisor Donaldson Lufkin Jenrette 32.22% -0-
Class Securities Corporation, Inc.
PO Box 2052
Jersey City, NJ 07303-2052
MLPF&S for the Sole Benefit of 25.80% -0-
Its Customers, Security #97K60
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd
Floor
Jacksonville, FL 32246-6484
FTC & Co. 8.59% -0-
Attn: Datalynx #089
PO Box 173736
Denver, CO 80217-3736
</TABLE>
- ---------------
* The Trust has no knowledge as to whether all or any portion of the shares
owned of record are also owned beneficially.
59
<PAGE> 789
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 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 Emerging Markets Debt
Fund, Government Income Fund, Growth & Income Fund and Strategic Income Fund,
stated as average annualized total returns for the periods shown, were:
<TABLE>
<CAPTION>
ONE FIVE TEN SINCE
YEAR YEAR YEAR INCEPTION*
-------- ---- ---- ----------
<S> <C> <C> <C> <C>
Emerging Markets Debt Fund........................ (28.64)% N/A N/A 6.53%
Government Income Fund............................ 12.73 % N/A N/A 7.52%
Growth & Income Fund.............................. 20.74 % N/A N/A 18.13%
Strategic Income Fund............................. (1.28)% N/A N/A 10.01%
</TABLE>
- ---------------
* The inception date for Advisor Class shares of each Fund is 06/01/95.
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>
60
<PAGE> 790
The aggregate non-standardized returns (not taking sales charges into account)
for the Advisor Class shares of Emerging Markets Debt Fund, Government Income
Fund, Growth & Income Fund and Strategic Income Fund, stated as aggregate total
returns for the periods shown, were:
<TABLE>
<CAPTION>
ONE FIVE TEN SINCE
YEAR YEAR YEAR INCEPTION*
-------- ---- ---- ----------
<S> <C> <C> <C> <C>
Emerging Markets Debt Fund........................ (28.64)% N/A N/A 25.46%
Government Income Fund............................ 12.73 % N/A N/A 29.67%
Growth & Income Fund.............................. 20.74 % N/A N/A 81.70%
Strategic Income Fund............................. (1.28)% N/A N/A 40.75%
</TABLE>
- ---------------
* The inception date for Advisor Class shares of each Fund is 06/01/95.
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 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.
PERFORMANCE INFORMATION
All advertisements of a Fund will disclose the maximum sales charge (including
deferred sales charges) imposed on purchases of the Fund's shares. If any
advertised performance data does not reflect the maximum sales charge (if any),
such advertisement will disclose that the sales charge has not been deducted in
computing the performance data, and that, if reflected, the maximum sales charge
would reduce the performance quoted. Further information regarding the Fund's
performance is contained in the Fund's annual report to shareholders, which is
available upon request and without charge.
A Fund's total return is calculated in accordance with a standardized
formula for computation of annualized total return.
A Fund's total return shows its overall change in value, including changes
in share price and assuming all the Fund's dividends and capital gain
distributions are reinvested. A cumulative total return reflects the Fund's
performance over a stated period of time. An average annual total return
reflects the hypothetical compounded annual rate of return that would have
produced the same cumulative total return if the Fund's performance had been
constant over the entire period. BECAUSE AVERAGE ANNUAL RETURNS TEND TO EVEN OUT
VARIATIONS IN THE FUND'S RETURN, INVESTORS SHOULD RECOGNIZE THAT SUCH RETURNS
ARE NOT THE SAME AS ACTUAL YEAR-BY-YEAR RESULTS. To illustrate the components of
overall performance, the Fund may separate its cumulative and average annual
returns into income results and capital gains or losses.
Yield is computed in accordance with standardized formulas described herein
and can be expected to fluctuate from time to time and is not necessarily
indicative of future results. Accordingly, yield information may not provide a
basis for comparison with investments which pay a fixed rate of interest for a
stated period of time. Yield reflects investment income net of expenses over the
relevant period attributable to a Fund share, expressed as an annualized
percentage of the net asset value per share for Advisor Class shares.
61
<PAGE> 791
Yield is a function of the type and quality of the Fund's investments, the
maturity of the securities held in the Fund's portfolio and the operating
expense ratio of the Fund. A shareholder's investment in the Fund is not insured
or guaranteed. These factors should be carefully considered by the investor
before making an investment in the Fund.
From time to time and in its discretion, AIM or its affiliates may waive all
or a portion of their fees and/or assume certain expenses of any Fund. Voluntary
fee waivers or reductions or commitments to assume expenses may be rescinded at
any time without further notice to investors. During periods of voluntary fee
waivers or reductions or commitments to assume expenses, AIM will retain its
ability to be reimbursed for such fee prior to the end of each fiscal year.
Contractual fee waivers or reductions or reimbursement of expenses set forth in
the Fee Table in the Prospectus may not be terminated without the approval of
the Board of Trustees.
A practice of waiving or reducing fees or reimbursing expenses will have the
effect of increasing that Fund's yield and total return. The performance of each
Fund will vary from time to time and past results are not necessarily indicative
of future results. A Fund's performance is a function of its portfolio
management in selecting the type and quality of portfolio securities and is
affected by operating expenses of the Fund and market conditions. A
shareholder's investment in a Fund is not insured or guaranteed. These factors
should be carefully considered by the investor before making an investment in
any Fund.
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
62
<PAGE> 792
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.
63
<PAGE> 793
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.
64
<PAGE> 794
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.
65
<PAGE> 795
FINANCIAL STATEMENTS
FS
<PAGE> 796
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders of AIM Emerging Markets Debt Fund (formerly GT Global High
Income Fund) and Board of Trustees of AIM Investment Funds (formerly G.T.
Investment Funds, Inc.):
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Emerging Markets Debt Fund
- - -Consolidated at October 31, 1998, and the results of its operations, the
changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at October
31, 1998 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
/s/PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
BOSTON, MASSACHUSETTS
DECEMBER 18, 1998
FS-1
<PAGE> 797
PORTFOLIO OF INVESTMENTS
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- ----------------------------------------------------------- -------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Government & Government Agency Obligations (75.6%)
Algeria (4.3%)
Algeria Tranche 1 Loan Assignment, 6.625% due
9/4/06+ .............................................. USD 15,200,000 $ 7,752,000 4.3
Argentina (18.4%)
Republic of Argentina:
I.O. Strip, 12.11% due 4/10/05 ...................... USD 10,390,000 9,142,145 5.1
Discount Bond, 6.625% due 3/31/23+ .................. USD 12,518,000 8,527,888 4.7
Par Bond Series L, 5.75% (6% at 3/31/99) due
3/31/23++ .......................................... USD 11,540,000 8,020,300 4.4
Global Bond, 9.75% due 9/19/27 ...................... USD 4,573,000 3,970,507 2.2
7.297% due 7/8/05 ................................... ITL 7,780,000,000 3,526,648 2.0
Brazil (4.7%)
Brazil Floating Rate Discount Note, 6.125% due
4/15/24+ ............................................. USD 14,398,000 8,557,811 4.7
Bulgaria (7.2%)
Republic of Bulgaria:
Discount Bond Series A, 6.6875% due 7/28/24 -
Euro+ .............................................. USD 11,120,000 7,811,800 4.3
Front Loaded Interest Reduction Bond Series A, 2.5%
(2.75% at 7/99) due 7/28/12++ ...................... USD 9,427,000 5,208,418 2.9
Colombia (4.3%)
Republic of Colombia:
8.625% due 4/1/08 ................................... USD 6,498,000 5,100,930 2.8
7.27% due 6/15/03 - 144A{.} ......................... USD 3,300,000 2,689,500 1.5
Ivory Coast (4.8%)
Ivory Coast:
Past Due Interest Bond, 1.9% (2.9% at 3/31/09) due
3/29/18++ .......................................... FRF 153,852,500 6,856,419 3.8
Past due Interest Bond, 2% (3% at 3/31/09) due
3/29/18++ .......................................... USD 5,875,625 1,718,620 1.0
Jamaica (3.8%)
Government of Jamaica, 10.875% due 6/10/05 -
144A{.} .............................................. USD 9,054,000 6,790,500 3.8
Korea (0.6%)
Korea Republic Restructured Debt, 8.281% due
4/8/00+ .............................................. USD 1,230,000 1,143,900 0.6
Mexico (13.5%)
United Mexican States:
9.875% due 1/15/07 .................................. USD 7,390,000 7,029,738 3.9
Discount Bond Series A, 6.1156% due 12/31/19+ +/+ ... USD 8,295,000 6,475,284 3.6
6.63% due 12/31/19 .................................. FRF 39,000,000 5,468,652 3.0
Global Bond, 11.375% due 9/15/16 .................... USD 2,688,000 2,684,640 1.5
Discount Bond Series D, 6.6016% due 12/31/19+ ....... USD 2,210,000 1,725,181 1.0
Discount Bond Series B, 6.47656% due 12/31/19+
+/+ ................................................ USD 1,265,000 987,491 0.5
Panama (3.2%)
Republic of Panama:
Interest Reduction Bond, 4.00% (4.25% at 7/99) due
7/17/14++ .......................................... USD 4,350,000 3,183,656 1.8
8.875% due 9/30/27 .................................. USD 2,689,000 2,480,603 1.4
Peru (4.6%)
Republic of Peru, Past Due Interest Bond, 4% (4.5% at
3/8/99) due 3/7/17++ ................................. USD 14,305,000 8,225,375 4.6
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-2
<PAGE> 798
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- ----------------------------------------------------------- -------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Government & Government Agency Obligations (Continued)
Poland (4.6%)
Poland:
3% (3.5% at 10/28/99) due 10/27/24 - Euro++ ......... USD 8,210,000 $ 5,459,650 3.0
Past Due Interest, 5% (6% at 10/28/99) 10/27/14 -
Euro++ ............................................. USD 3,138,000 2,853,619 1.6
Russia (1.6%)
Bank for Foreign Economic Affairs (Venesheconombank)
Principal Loans, 6.625% due 12/15/20+ ................ USD 37,242,372 2,956,113 1.6
------------
Total Government & Government Agency Obligations (cost
$164,789,707) ............................................ 136,347,388
------------
Corporate Bonds (20.9%)
Argentina (1.5%)
Disco S.A., 9.875% due 5/15/08 - 144A{.} .............. USD 1,960,000 1,367,100 0.8
Mastellone Hermanos S.A., 11.75% due 4/1/08 -
144A{.} .............................................. USD 1,943,000 1,185,230 0.7
Brazil (6.1%)
Globo Comunicacoes Participacoes, 10.625% due 5/12/08 -
144A{.} .............................................. USD 5,995,000 3,432,138 1.9
Banco Hipotecario Espana, 10% due 4/17/03 - 144A{.} ... USD 3,679,000 3,237,520 1.8
Banco Nacional de Desenvolvimento Economico e Social
(BNDES):
10.8% due 6/16/08 -144A{.} .......................... USD 1,694,000 1,185,800 0.7
10.8% due 6/16/08 - Reg S{c} ........................ USD 1,375,000 962,500 0.5
RBS Participacoes S.A., 11% due 4/1/07 - 144A{.} ...... USD 3,708,000 1,668,600 0.9
CSN Iron S.A., 9.125% due 6/1/07 ...................... USD 985,000 558,988 0.3
Colombia (0.9%)
Financiera Energia Nacional, 9.375% due 6/15/06 - Reg
S{c} ................................................. USD 2,200,000 1,613,260 0.9
Jamaica (1.6%)
Mechala Group Jamaica:
12.75% due 12/30/99 - Series B ...................... USD 2,846,000 1,992,200 1.1
12.75% due 12/30/99 - Reg S{c} ...................... USD 1,288,000 901,600 0.5
Korea (0.9%)
Pohang Iron & Steel, 2% due 10/9/00 ................... JPY 224,000,000 1,665,177 0.9
Luxembourg (1.7%)
Cellco Finance N.V., 15% due 8/1/05 - Reg S{c} ........ USD 3,790,000 3,069,900 1.7
Mexico (6.4%)
Petroleos Mexicanos (PEMEX), 9.25% due 3/30/18 -
144A{.} .............................................. USD 9,257,000 7,544,455 4.2
Dine, S.A. de C.V., 8.75% due 10/15/07 - 144A{.} ...... USD 2,060,000 1,627,400 0.9
Cemex Valenciana, 9.66% due 11/29/49 - 144A{.} ........ USD 1,430,000 1,201,200 0.7
Banco Nacional Comercio Exte., 8% due 7/18/02 - Reg
S{c} ................................................. USD 1,180,000 1,076,750 0.6
Russia (0.9%)
Lukinter Finance BV Convertible, 3.5% due 5/6/02 -
144A{.} .............................................. USD 2,283,000 833,295 0.5
Mosenergo Finance BV, 8.375% due 10/9/02 - 144A{.} .... USD 4,200,000 735,000 0.4
Singapore (0.9%)
Krung Thai Bank, 6.23% due 9/30/04 .................... USD 2,500,000 1,650,000 0.9
------------
Total Corporate Bonds (cost $53,441,317) .................. 37,508,113
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-3
<PAGE> 799
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- ----------------------------------------------------------- -------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Structured Notes (2.0%)
Korea (2.0%)
Fixed Rate Trust Certificate 13.55% due 2/15/02[::]
(Issued by a newly created Delaware Business Trust,
collateralized by triple A paper. This trust
certificate has a credit risk component linked to
the value of a referenced security: Korean
Development Bank 1.875% 2002.)
(cost $5,050,000) ................................. USD 5,050,000 $ 3,694,075 2.0
------------ -----
TOTAL FIXED INCOME INVESTMENTS (cost $223,281,024) ........ 177,549,576 98.5
------------ -----
<CAPTION>
VALUE % OF NET
REPURCHASE AGREEMENT (NOTE 1) ASSETS
- ----------------------------------------------------------- ------------ -------------
<S> <C> <C> <C> <C>
Dated October 30, 1998, with State Street Bank & Trust
Co., due November 2, 1998, for an effective yield 5.30%
collateralized by $5,000 U.S. Treasury Bonds, 8.75% due
05/15/17 (market value of collateral is $7,211 including
accrued interest). (cost $7,000) ...................... 7,000 --
------------ -----
TOTAL INVESTMENTS (cost $223,288,024) * .................. 177,556,576 98.5
Other Assets and Liabilities .............................. 2,766,571 1.5
------------ -----
NET ASSETS ................................................ $180,323,147 100.0
------------ -----
------------ -----
</TABLE>
- --------------
[::] Certain events may cause the contract to terminate prior to date
shown.
{.} Security exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers.
{c} Security issued under Regulation S. Rule 144A and additional
restrictions may apply in the resale of such securities.
+ The coupon rate shown on floating rate note represents the rate at
period end.
++ The coupon rate shown on step-up coupon bond represents the rate at
period end.
+/+ Issued with detachable warrants or value recovery rights. The
current market value of each warrant or right is zero.
* For Federal income tax purposes, cost is $229,575,059 and
appreciation (depreciation) is as follows:
<TABLE>
<S> <C>
Unrealized appreciation: $ 2,192,621
Unrealized depreciation: (54,211,104)
-------------
Net unrealized depreciation: $ (52,018,483)
-------------
-------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS OUTSTANDING
OCTOBER 31, 1998
<TABLE>
<CAPTION>
UNREALIZED
MARKET VALUE CONTRACT DELIVERY APPRECIATION
CONTRACTS TO SELL: (U.S. DOLLARS) PRICE DATE (DEPRECIATION)
- ---------------------------------------- -------------- ------------ -------- --------------
<S> <C> <C> <C> <C>
French Francs........................... 6,685,024 5.45470 03/18/99 $ 79,784
Japanese Yen............................ 1,596,301 118.80000 11/27/98 (38,220)
-------------- --------------
Total Contracts to Sell (Receivable
amount $8,322,889)................... 8,281,325 41,564
-------------- --------------
THE VALUE OF CONTRACTS TO SELL AS
PERCENTAGE OF NET ASSETS IS 4.59%.
Total Open Forward Foreign Currency
Contracts............................ $ 41,564
--------------
--------------
</TABLE>
- ----------------
See Note 1 of Notes to the Financial Statements.
The accompanying notes are an integral part of the financial statements.
FS-4
<PAGE> 800
STATEMENT OF ASSETS
AND LIABILITIES
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at value (cost $223,288,024) (Note 1)............................ $177,556,576
U.S. currency.................................................................... $ 90
Foreign currencies (cost $655,357)............................................... $ 647,780 647,870
---------
Receivable for securities sold.............................................................. 11,083,854
Interest receivable......................................................................... 5,228,106
Receivable for Fund shares sold............................................................. 1,421,034
Receivable for open forward foreign currency contracts (Note 1)............................. 41,564
-----------
Total assets.............................................................................. 195,979,004
-----------
Liabilities:
Payable for securities purchased............................................................ 11,070,590
Payable for loan outstanding (Note 1)....................................................... 2,000,000
Payable for Fund shares repurchased......................................................... 927,125
Distribution payable........................................................................ 863,058
Payable for service and distribution expenses (Note 2)...................................... 339,869
Payable for investment management and administration fees (Note 2).......................... 142,609
Payable for transfer agent fees (Note 2).................................................... 100,252
Payable for printing and postage expenses................................................... 83,667
Payable for professional fees............................................................... 51,163
Payable for custodian fees.................................................................. 30,000
Payable for registration and filing fees.................................................... 12,051
Payable for Trustees' fees and expenses (Note 2)............................................ 11,850
Payable for fund accounting fees (Note 2)................................................... 4,476
Other accrued expenses...................................................................... 19,047
-----------
Total liabilities......................................................................... 15,655,757
Minority interest (Notes 1 & 2)............................................................. 100
-----------
Net assets.................................................................................... $180,323,147
-----------
-----------
Class A:
Net asset value and redemption price per share $(69,321,193 DIVIDED BY 8,818,139 shares
outstanding)............................................................................... $ 7.86
-----------
-----------
Maximum offering price per share (100/95.25 of $7.86) *..................................... $ 8.25
-----------
-----------
Class B:+
Net asset value and offering price per share $(109,406,337 DIVIDED BY 13,918,010 shares
outstanding)................................................................................. $ 7.86
-----------
-----------
Advisor Class:
Net asset value, offering price per share, and redemption price per share $(1,595,617
DIVIDED BY 203,898 shares outstanding)..................................................... $ 7.83
-----------
-----------
Net assets consist of:
Paid in capital (Note 4).................................................................... $285,771,413
Accumulated net investment loss............................................................. (41,564)
Accumulated net realized loss on investments and foreign currency transactions.............. (59,706,950)
Net unrealized appreciation on translation of assets and liabilities in foreign
currencies................................................................................. 31,696
Net unrealized depreciation of investments.................................................. (45,731,448)
-----------
Total -- representing net assets applicable to capital shares outstanding..................... $180,323,147
-----------
-----------
<FN>
- --------------
* On sales of $50,000 or more, the offering price is reduced.
+ Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-5
<PAGE> 801
STATEMENT OF OPERATIONS
Year ended October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment income: (Note 1)
Interest income.......................................................................... $ 39,014,757
Securities lending income................................................................ 957,492
-------------
Total investment income................................................................ 39,972,249
-------------
Expenses:
Investment management and administration fees (Note 2)................................... 3,009,607
Service and distribution expenses: (Note 2)
Class A.................................................................... $ 396,089
Class B.................................................................... 1,911,164 2,307,253
----------
Transfer agent fees (Note 2)............................................................. 580,010
Printing and postage expenses............................................................ 194,145
Professional fees........................................................................ 123,970
Custodian fees........................................................................... 103,300
Fund accounting fees (Note 2)............................................................ 82,450
Registration and filing fees............................................................. 48,875
Trustees' fees and expenses (Note 2)..................................................... 23,526
Other expenses........................................................................... 116,753
-------------
Total net expenses..................................................................... 6,589,889
-------------
Net investment income...................................................................... 33,382,360
-------------
Net realized and unrealized loss on investments and foreign currencies: (Note
1)
Net realized loss on investments............................................. (66,692,221)
Net realized loss on foreign currency transactions........................... (2,809,719)
----------
Net realized loss during the year...................................................... (69,501,940)
Net change in unrealized appreciation on translation of assets and
liabilities in foreign currencies........................................... 951,172
Net change in unrealized depreciation of investments......................... (50,094,366)
----------
Net unrealized depreciation during the year............................................ (49,143,194)
-------------
Net realized and unrealized loss on investments and foreign currencies..................... (118,645,134)
-------------
Net decrease in net assets resulting from operations....................................... $ (85,262,774)
-------------
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-6
<PAGE> 802
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1998 1997
------------- -------------
Decrease in net assets
Operations:
Net investment income...................................................... $ 33,382,360 $ 31,937,784
Net realized gain (loss) on investments and foreign currency
transactions.............................................................. (69,501,940) 69,702,746
Net change in unrealized appreciation (depreciation) on translation of
assets and liabilities in foreign currencies.............................. 951,172 (1,099,793)
Net change in unrealized appreciation (depreciation) of investments........ (50,094,366) (36,470,606)
------------- -------------
Net increase (decrease) in net assets resulting from operations.......... (85,262,774) 64,070,131
------------- -------------
Class A:
Distributions to shareholders: (Note 1)
From net investment income................................................. (9,422,518) (12,555,399)
From net realized gain on investments...................................... (24,756,370) (2,751,509)
Return of capital.......................................................... (3,147,917) --
Class B:
Distributions to shareholders: (Note 1)
From net investment income................................................. (14,937,576) (17,789,317)
From net realized gain on investments...................................... (41,863,802) (3,911,565)
Return of capital.......................................................... (4,936,309) --
Advisor Class:
Distributions to shareholders: (Note 1)
From net investment income................................................. (246,624) (1,289,469)
From net realized gain on investments...................................... (638,983) (264,339)
Return of capital.......................................................... (82,579) --
------------- -------------
Total distributions...................................................... (100,032,678) (38,561,598)
------------- -------------
Capital share transactions: (Note 4)
Increase from capital shares sold and reinvested........................... 273,854,427 561,523,639
Decrease from capital shares repurchased................................... (274,028,239) (665,858,246)
------------- -------------
Net decrease from capital share transactions............................. (173,812) (104,334,607)
------------- -------------
Total decrease in net assets................................................. (185,469,264) (78,826,074)
Net assets:
Beginning of year.......................................................... 365,792,411 444,618,485
------------- -------------
End of year *.............................................................. $ 180,323,147 $ 365,792,411
------------- -------------
------------- -------------
* Includes undistributed/accumulated net investment income (loss)........... $ (41,564) $ 303,600
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-7
<PAGE> 803
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout the period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1998 (d) 1997 (d) 1996 (d) 1995 1994 (d)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 15.56 $ 14.85 $ 11.70 $ 12.56 $ 14.92
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income................. 1.35* 1.19 1.27 1.35 0.94
Net realized and unrealized gain
(loss) on investments and foreign
currencies........................... (4.80) 0.93 3.09 (1.09) (1.87)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) from
investment operations.............. (3.45) 2.12 4.36 0.26 (0.93)
---------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income............ (1.06) (1.18) (1.11) (1.03) (0.94)
From net realized gain on
investments.......................... (2.83) (0.23) (0.10) (0.03) (0.27)
In excess of net realized gain on
investments.......................... -- -- -- -- (0.22)
Return of capital..................... (0.36) -- -- (0.06) --
---------- ---------- ---------- ---------- ----------
Total distributions................. (4.25) (1.41) (1.21) (1.12) (1.43)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 7.86 $ 15.56 $ 14.85 $ 11.70 $ 12.56
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return (c)............. (30.07)% 14.46% 39.05% 2.81% (6.45)%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 69,321 $ 133,973 $ 178,318 $ 142,002 $ 167,974
Ratio of net investment income to
average net assets..................... 11.27% 7.39% 9.52% 11.85% 7.00%
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions............... 1.74% 1.53% 1.69% 1.75% 1.57%
Without expense reductions............ 1.74% 1.58% 1.69% 1.75% 1.57%
Ratio of interest expense to average net
assets++............................... N/A N/A 0.04% N/A 0.22%
Portfolio turnover rate++............... 339% 214% 290% 213% 178%
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share operating data were calculated based upon
average shares outstanding during the period.
* Net investment income per share reflects an interest payment received
from the conversion of Vnesheconombank loan agreements of $0.21 per
share for each of Class A, B and Advisor.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates and ratio of interest expense to average net
assets are calculated on the basis of the fund as a whole without
distinguishing among the classes of shares issued.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-8
<PAGE> 804
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout the period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1998 (d) 1997 (d) 1996 (d) 1995 1994 (d)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 15.54 $ 14.83 $ 11.69 $ 12.56 $ 14.90
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income................. 1.28* 1.09 1.17 1.27 0.86
Net realized and unrealized gain
(loss) on investments and foreign
currencies........................... (4.79) 0.93 3.09 (1.09) (1.85)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) from
investment operations.............. (3.51) 2.02 4.26 0.18 (0.99)
---------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income............ (0.98) (1.08) (1.03) (0.96) (0.86)
From net realized gain on
investments.......................... (2.83) (0.23) (0.09) (0.03) (0.27)
In excess of net realized gain on
investments.......................... -- -- -- -- (0.22)
Return of capital..................... (0.36) -- -- (0.06) --
---------- ---------- ---------- ---------- ----------
Total distributions................. (4.17) (1.31) (1.12) (1.05) (1.35)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 7.86 $ 15.54 $ 14.83 $ 11.69 $ 12.56
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return (c)............. (30.49)% 13.77% 38.16% 2.07% (6.99)%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 109,406 $ 228,101 $ 251,002 $ 214,897 $ 232,423
Ratio of net investment income to
average net assets..................... 10.62% 6.74% 8.87% 11.20% 6.35%
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions............... 2.39% 2.18% 2.34% 2.40% 2.22%
Without expense reductions............ 2.39% 2.23% 2.34% 2.40% 2.22%
Ratio of interest expense to average net
assets++............................... N/A N/A 0.04% N/A 0.22%
Portfolio turnover rate++............... 339% 214% 290% 213% 178%
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share operating data were calculated based upon
average shares outstanding during the period.
* Net investment income per share reflects an interest payment received
from the conversion of Vnesheconombank loan agreements of $0.21 per
share for each of Class A, B and Advisor.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates and ratio of interest expense to average net
assets are calculated on the basis of the fund as a whole without
distinguishing among the classes of shares issued.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-9
<PAGE> 805
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout the period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
ADVISOR CLASS+
---------------------------------------------------
JUNE 1, 1995
YEAR ENDED OCTOBER 31, TO
------------------------------------ OCTOBER 31,
1998 (d) 1997 (d) 1996 (d) 1995
----------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 15.52 $ 14.83 $ 11.71 $ 11.44
----------- ----------- ---------- -------------
Income from investment operations:
Net investment income................. 1.40* 1.22 1.34 0.57
Net realized and unrealized gain
(loss) on investments and foreign
currencies........................... (4.79) 0.93 3.05 0.17
----------- ----------- ---------- -------------
Net increase (decrease) from
investment operations.............. (3.39) 2.15 4.39 0.74
----------- ----------- ---------- -------------
Distributions to shareholders:
From net investment income............ (1.11) (1.23) (1.16) (0.44)
From net realized gain on
investments.......................... (2.83) (0.23) (0.11) --
In excess of net realized gain on
investments.......................... -- -- -- --
Return of capital..................... (0.36) -- -- (0.03)
----------- ----------- ---------- -------------
Total distributions................. (4.30) (1.46) (1.27) (0.47)
----------- ----------- ---------- -------------
Net asset value, end of period.......... $ 7.83 $ 15.52 $ 14.83 $ 11.71
----------- ----------- ---------- -------------
----------- ----------- ---------- -------------
Total investment return (c)............. (29.79)% 14.72% 39.38% 6.54%(b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 1,596 $ 3,719 $ 15,298 $ 1,463
Ratio of net investment income to
average net assets..................... 11.62% 7.74% 9.87% 12.20%(a)
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions............... 1.39% 1.18% 1.34% 1.40%(a)
Without expense reductions............ 1.39% 1.23% 1.34% 1.40%(a)
Ratio of interest expense to average net
assets++............................... N/A N/A 0.04% N/A
Portfolio turnover rate++............... 339% 214% 290% 213%(a)
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share operating data were calculated based upon
average shares outstanding during the period.
* Net investment income per share reflects an interest payment received
from the conversion of Vnesheconombank loan agreements of $0.21 per
share for each of Class A, B and Advisor.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates and ratio of interest expense to average net
assets are calculated on the basis of the fund as a whole without
distinguishing among the classes of shares issued.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-10
<PAGE> 806
NOTES TO
FINANCIAL STATEMENTS
October 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (SEE ALSO NOTE 2)
AIM Emerging Markets Debt Fund (the "Fund"), formerly AIM Global High Income
Fund and prior to that GT Global High Income Fund, a non-diversified separate
series of AIM Investment Funds (the "Trust"), formerly G.T. Investment Funds,
Inc. The Trust is organized as a Delaware business trust and is registered under
the Investment Company Act of 1940, as amended ("1940 Act"), as an open-end
management investment company. The Trust has thirteen series of shares in
operation, each series corresponding to a distinct portfolio of investments.
The Fund invests substantially all of its investable assets in the Emerging
Markets Debt Portfolio (the "Portfolio", formerly the Global High Income
Portfolio), a Delaware business trust and is registered under the 1940 Act as a
non-diversified, open-end management investment company.
The Portfolio has investment objectives, policies and limitations substantially
identical to those of its corresponding Fund. Therefore, the financial
statements of the Fund and the Portfolio have been presented on a consolidated
basis, and represent all activities of both the Fund and Portfolio. Through
October 31, 1998, all of the shares of beneficial interest of the Portfolio were
owned by the Fund or INVESCO (NY), Inc. (the "Sub-advisor"), which has a nominal
($100) investment in the Portfolio.
The Fund offers Class A, Class B, and Advisor Class shares, each of which has
equal rights as to assets and voting privileges. Class A and Class B each has
exclusive voting rights with respect to its distribution plan. Investment
income, realized and unrealized capital gains and losses, and the common
expenses of the Fund are allocated on a pro rata basis to each class based on
the relative net assets of each class to the total net assets of the Fund. Each
class of shares differs in its respective service and distribution expenses, and
may differ in its transfer agent, registration, and certain other class-specific
fees and expenses.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies in conformity with generally accepted accounting
principles consistently followed by the Fund in the preparation of the financial
statements.
(A) PORTFOLIO VALUATION
The Fund calculates the net asset value of and completes orders to purchase,
exchange, or repurchase Fund shares on each business day, with the exception of
those days on which the New York Stock Exchange is closed.
Equity securities are valued at the last sale price on the exchange on which
such securities are traded, or on the principal over-the-counter market on which
such securities are traded, as of the close of business on the day the
securities are being valued, or, lacking any sales, at the last available bid
price. In cases where securities are traded on more than one exchange, the
securities are valued on the exchange determined by A I M Advisors, Inc. (the
"Manager") to be the primary market.
Fixed income investments are valued at the mean of representative quoted bid and
ask prices for such investments or, if such prices are not available, at prices
for investments of comparative maturity, quality, and type; however, when the
Manager deems it appropriate, prices obtained for the day of valuation from a
bond pricing service will be used. Short-term investments with a maturity of 60
days or less are valued at amortized cost adjusted for foreign exchange
translation and market fluctuation, if any.
Investments for which market quotations are not readily available (including
restricted securities which are subject to limitations on their sale) are valued
at fair value as determined in good faith by or under the direction of the
Trust's Board of Trustees.
Portfolio securities which are primarily traded on foreign exchanges are
generally valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S. dollars at
the current exchange rates, except that when an occurrence subsequent to the
time a value was so established is likely to have materially changed such value,
then the fair value of those securities will be determined by consideration of
other factors by or under the direction of the Trust's Board of Trustees.
(B) FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund and Portfolio are maintained in U.S. dollars.
The market values of foreign securities, currency holdings, and other assets and
liabilities are recorded in the books and records of the Portfolio after
translation to U.S. dollars based on the exchange rates on that day. The cost of
each security is determined using historical exchange rates. Income and
withholding taxes are translated at prevailing exchange rates when earned or
incurred.
The Portfolio does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, forward foreign currency contracts, sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Portfolio's books and the U.S. dollar equivalent of the amounts actually
received or paid. Net unrealized foreign exchange gains or losses arise from
changes in the value of assets and liabilities other than investments in
securities at period end, resulting from changes in exchange rates.
FS-11
<PAGE> 807
(C) REPURCHASE AGREEMENTS
With respect to repurchase agreements entered into by the Portfolio, it is the
Portfolio's policy to always receive, as collateral, United States government
securities or other high quality debt securities of which the value, including
accrued interest, is at least equal to the amount to be repaid to the Portfolio
under each agreement at its maturity.
(D) FORWARD FOREIGN CURRENCY CONTRACTS
A forward foreign currency contract ("Forward Contract") is an agreement between
two parties to buy and sell a currency at a set price on a future date. The
market value of the Forward Contract fluctuates with changes in currency
exchange rates. The Forward Contract is marked-to-market daily and the change in
market value is recorded by the Portfolio as an unrealized gain or loss. When
the Forward Contract is closed, the Portfolio records a realized gain or loss
equal to the difference between the value at the time it was opened and the
value at the time it was closed. Forward Contracts involve market risk in excess
of the amount shown in the Portfolio's "Statement of Assets and Liabilities".
The Portfolio could be exposed to risk if a counterparty is unable to meet the
terms of the contract or if the value of the currency changes unfavorably. The
Portfolio may enter into Forward Contracts in connection with planned purchases
or sales of securities, or to hedge against adverse fluctuations in exchange
rates between currencies.
(E) OPTION ACCOUNTING PRINCIPLES
When the Portfolio writes a call or put option, an amount equal to the premium
received is included in the Portfolio's "Statement of Assets and Liabilities" as
an asset and an equivalent liability. The amount of the liability is
subsequently marked-to-market to reflect the current market value of the option.
The current market value of an option listed on a traded exchange is valued at
its last bid price, or, in the case of an over-the-counter option, is valued at
the average of the last bid prices obtained from brokers, unless a quotation
from only one broker is available, in which case only that broker's price will
be used. If an option expires on its stipulated expiration date or if the
Portfolio enters into a closing purchase transaction, a gain or loss is realized
without regard to any unrealized gain or loss on the underlying security and the
liability related to such option is extinguished. If a written call option is
exercised, a gain or loss is realized from the sale of the underlying security
and the proceeds of the sale are increased by the premium originally received.
If a written put option is exercised, the cost of the underlying security
purchased would be decreased by the premium originally received. The Portfolio
can write options only on a covered basis, which, for a call, requires that the
Portfolio hold the underlying security and, for a put, requires the Portfolio to
set aside cash, U.S. government securities or other liquid securities in an
amount not less than the exercise price, or otherwise provide adequate cover at
all times while the put option is outstanding. The Portfolio may use options to
manage its exposure to the stock market and to fluctuations in currency values
or interest rates.
The premium paid by the Portfolio for the purchase of a call or put option is
included in the Portfolio's "Statement of Assets and Liabilities" as an
investment and subsequently "marked-to-market" to reflect the current market
value of the option. If an option which the Portfolio has purchased expires on
the stipulated expiration date, the Portfolio realizes a loss in the amount of
the cost of the option. If the Portfolio enters into a closing sale transaction,
the Portfolio realizes a gain or loss, depending on whether proceeds from the
closing sale transaction are greater or less than the cost of the option. If the
Portfolio exercises a call option, the cost of the securities acquired by
exercising the call is increased by the premium paid to buy the call. If the
Portfolio exercises a put option, it realizes a gain or loss from the sale of
the underlying security, and the proceeds from such sale are decreased by the
premium originally paid.
The risk associated with purchasing options is limited to the premium originally
paid. The risk in writing a call option is that the Portfolio may forego the
opportunity of profit if the market value of the underlying security or index
increases and the option is exercised. The risk in writing a put option is that
the Portfolio may incur a loss if the market value of the underlying security or
index decreases and the option is exercised. In addition, there is the risk the
Portfolio may not be able to enter into a closing transaction because of an
illiquid secondary market.
(F) FUTURES CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
security at a set price on a future date. Upon entering into such a contract the
Portfolio is required to pledge to the broker an amount of cash or securities
equal to the minimum "initial margin" requirements of the exchange on which the
contract is traded. Pursuant to the contract, the Portfolio agrees to receive
from or pay to the broker an amount of cash equal to the daily fluctuation in
value of the contract. Such receipts or payments are known as "variation margin"
and are recorded by the Portfolio as unrealized gains or losses. When the
contract is closed, the Portfolio records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed. The potential risk to the Portfolio is that the
change in value of the underlying securities may not correlate to the change in
value of the contracts. The Portfolio may use futures contracts to manage its
exposure to the stock market and to fluctuations in currency values or interest
rates.
(G) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). The cost of securities sold is determined on a first-in,
first-out-basis, unless otherwise specified. Dividends are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. Where a high
level of uncertainty exists as to its collection, income is recorded net of all
withholding tax with any rebate recorded when received. The Portfolio may trade
securities on other than normal settlement terms. This may increase the risk if
the other party to the transaction fails to deliver and causes the Portfolio to
subsequently invest at less advantageous prices.
(H) PORTFOLIO SECURITIES LOANED
At October 31, 1998, stocks with an aggregate value of $10,301,788 were on loan
to brokers. The loans were secured by cash collateral of $11,293,368 received by
the Portfolio. For the year ended October 31, 1998, the Fund received fees of
$957,492.
For international securities, cash collateral is received by the Portfolio
against loaned securities in an amount at least equal to 105% of the
FS-12
<PAGE> 808
market value of the loaned securities at the inception of each loan. This
collateral must be maintained at not less than 103% of the market value of the
loaned securities during the period of the loan. For domestic securities, cash
collateral is received by the Portfolio against loaned securities in the amount
at least equal to 102% of the market value of the loaned securities at the
inception of each loan. This collateral must be maintained at not less than 100%
of the market value of the loaned securities during the period of the loan. The
cash collateral is invested in a securities lending trust which consists of a
portfolio of high quality short duration securities whose average effective
duration is restricted to 120 days or less.
(I) TAXES
It is the intended policy of the Fund to meet the requirements for qualification
as a "regulated investment company" under the Internal Revenue Code of 1986, as
amended ("Code"). It is also the intention of the Fund to make distributions
sufficient to avoid imposition of any excise tax under Section 4982 of the Code.
Therefore, no provision has been made for Federal taxes on income, capital
gains, or unrealized appreciation of securities held, and excise tax on income
and capital gains. The Fund has a capital loss carryforward of $53,419,915 which
expires in 2006.
(J) DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded by each Fund on the ex-date. Income
and capital gain distributions are determined in accordance with Federal income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Portfolio and timing differences.
(K) FOREIGN SECURITIES
There are certain additional considerations and risks associated with investing
in foreign securities and currency transactions that are not inherent in
investments of domestic origin. The Portfolio's investment in emerging market
countries may involve greater risks than investments in more developed markets
and the price of such investments may be volatile. These risks of investing in
foreign and emerging markets may include foreign currency exchange rate
fluctuations, perceived credit risk, adverse political and economic developments
and possible adverse foreign government intervention.
(L) INDEXED SECURITIES
The Portfolio may invest in indexed securities whose value is linked either
directly or indirectly to changes in foreign currencies, interest rates,
equities, indices, or other reference instruments. Indexed securities may be
more volatile than the reference instrument itself, but any loss is limited to
the amount of the original investment.
(M) RESTRICTED SECURITIES
The Portfolio is permitted to invest in privately placed restricted securities.
These securities may be resold in transactions exempt from registration or to
the public if the securities are registered. Disposal of these securities may
involve time-consuming negotiations and expense, and prompt sale at an
acceptable price may be difficult. At the end of the year, restricted
securities, if any, (excluding 144A issues), are shown at the end of the Fund's
Portfolio of Investments.
(N) LINE OF CREDIT
The Fund, along with certain other funds advised and/or administered by the
Manager, has a line of credit with BankBoston. The arrangement with the bank
allows all specified funds and certain other Funds to borrow, on a first come,
first serve basis, an aggregate maximum amount of $150,000,000. The Fund is
limited to borrowing up to 33 1/3% of the value of the Fund's total assets. On
October 31, 1998, AIM Emerging Markets Debt Fund had $2,000,000 in loans
outstanding.
For the year ended October 31, 1998, the weighted average outstanding daily
balance of bank loans (based on the number of days the loans were outstanding)
for the Fund was $6,402,778, with a weighted average interest rate of 6.27%.
Interest expense for the year ended October 31, 1998 was $80,253 and is included
in "Other Expenses" on the Statement of Operations.
(O) SECURITIES PURCHASED ON A WHEN-ISSUED OR FORWARD COMMITMENT BASIS
The Portfolio may trade securities on a when-issued or forward commitment basis,
with payment and delivery scheduled for a future date. These transactions are
subject to market fluctuations and are subject to the risk that the value at
delivery may be more or less than the trade date purchase price. Although the
Portfolio will generally purchase these securities with the intention of
acquiring such securities, they may sell such securities before the settlement
date. These securities are identified on the accompanying Portfolio of
Investments. The Fund or Portfolio has set aside sufficient cash or liquid
securities as collateral for these purchase commitments.
2. RELATED PARTIES
A I M Advisors, Inc. (the "Manager"), an indirect wholly-owned subsidiary of
AMVESCAP PLC, is the Fund's and Portfolio's investment manager and administrator
and INVESCO (NY), Inc., (formerly, Chancellor LGT Asset Management, Inc.) is the
Fund's and Portfolio's investment sub-advisor and sub-administrator. As of the
close of business on May 29, 1998, Liechtenstein Global Trust AG ("LGT"), the
former indirect parent organization of Chancellor LGT Asset Management, Inc.
("Chancellor LGT") consummated a purchase agreement with AMVESCAP PLC pursuant
to which AMVESCAP PLC acquired LGT's Asset Management Division, which included
Chancellor LGT and certain other affiliates. As a result of this transaction,
Chancellor LGT was renamed INVESCO (NY), Inc., and is now an indirect
wholly-owned subsidiary of AMVESCAP PLC. A I M Distributors, Inc. ("AIM
Distributors"), a wholly-owned subsidiary of the Manager, became the Fund's
distributor as of the close of business on May 29, 1998. The Trust was
reorganized from a Maryland corporation into a Delaware business trust, and the
Portfolio was reorganized from a New York common law trust into a Delaware
business trust on September 8, 1998. Finally, as of the close of business on
September 4, 1998, A I M Fund Services, Inc. ("AFS"), an affiliate of the
Manager and AIM Distributors, replaced GT Global Investor Services, Inc. ("GT
Services") as the transfer agent of the Fund.
The Fund pays administration fees to the Manager at the annualized rate of 0.25%
of its average daily net assets. These fees are computed daily and paid monthly.
The AIM Emerging Markets Debt Portfolio pays investment management and
administration fees to the Manager
FS-13
<PAGE> 809
at the annualized rate of 0.475% on the first $500 million of average daily net
assets of the Portfolio; 0.45% on the next $1 billion; 0.425% on the next $1
billion; and 0.40% on amounts thereafter, plus 2% of the Portfolio's total
investment income calculated in accordance with generally accepted accounting
principles, adjusted daily for currency revaluations, on a mark to market basis,
of the Portfolio's assets; provided, however, that during any fiscal year this
amount shall not exceed 2% of the Portfolio's total investment income calculated
in accordance with generally accepted accounting principles. These fees are
computed daily and paid monthly.
AIM Distributors, an affiliate of the Manager, serves as the Fund's distributor.
For the period ended May 29, 1998, GT Global, Inc. ("GT Global"), an affiliate
of the investment sub-advisor, served as the Fund's distributor. The Fund offers
Class A, Class B, and Advisor Class shares for purchase.
Class A shares are subject to initial sales charges imposed at the time of
purchase, in accordance with the schedule included in the Fund's current
prospectus. AIM Distributors collects the sales charges imposed on sales of
Class A shares, and reallows a portion of such charges to dealers through which
the sales are made. For the year ended October 31, 1998, AIM Distributors and GT
Global retained sales charges of $21,515 and $35,739, respectively. Purchases of
Class A shares exceeding $1,000,000 may be subject to a contingent deferred
sales charge ("CDSC") upon redemption, in accordance with the Fund's current
prospectus. AIM Distributors and GT Global collected CDSCs for the year ended
October 31, 1998 of $8 and $435, respectively. AIM Distributors also makes
ongoing shareholder servicing and trail commission payments to dealers whose
clients hold Class A shares.
Class B shares are not subject to initial sales charges. When Class B shares are
sold, AIM Distributors, from its own resources, pays commissions to dealers
through which the sales are made. Certain redemptions of Class B shares made
within six years of purchase are subject to CDSCs, in accordance with the Fund's
current prospectus. For the year ended October 31, 1998, AIM Distributors and GT
Global collected CDSCs in the amount of $352,609 and $610,629, respectively. In
addition, AIM Distributors makes ongoing shareholder servicing and trail
commission payments to dealers whose clients hold Class B shares.
For the period ended May 29, 1998, pursuant to the then effective separate
distribution plans adopted under the 1940 Act Rule 12b-1 by the Trust's Board of
Trustees with respect to the Fund's Class A shares ("Class A Plan") and Class B
shares ("Class B Plan"), the Fund reimbursed GT Global for a portion of its
shareholder servicing and distribution expenses. Under the Class A Plan, the
Fund was permitted to pay GT Global a service fee at the annualized rate of up
to 0.25% of the average daily net assets of the Fund's Class A shares for GT
Global's expenditures incurred in servicing and maintaining shareholder
accounts, and was permitted to pay GT Global a distribution fee at the
annualized rate of up to 0.35% of the average daily net assets of the Fund's
Class A shares, less any amounts paid by the Fund as the aforementioned service
fee, for GT Global's expenditures incurred in providing services as distributor.
All expenses for which GT Global was reimbursed under the Class A Plan would
have been incurred within one year of such reimbursement.
For the period ended May 29, 1998, pursuant to the Class B Plan, the Fund was
permitted to pay GT Global a service fee at the annualized rate of up to 0.25%
of the average daily net assets of the Fund's Class B shares for GT Global's
expenditures incurred in servicing and maintaining shareholder accounts, and was
permitted to pay GT Global a distribution fee at the annualized rate of up to
0.75% of the average daily net assets of the Fund's Class B shares for GT
Global's expenditures incurred in providing services as distributor. Expenses
incurred under the Class B Plan in excess of 1.00% annually were permitted to be
carried forward for reimbursement in subsequent years as long as that Plan
continued in effect.
Effective as of the close of business May 29, 1998, pursuant to Rule 12b-1 under
the 1940 Act, the Trust's Board of Trustees adopted a Master Distribution Plan
applicable to the Fund's Class A shares ("Class A Plan") and Class B shares
("Class B Plan"), pursuant to which the Fund compensates AIM Distributors for
the purpose of financing any activity that is intended to result in the sale of
Class A or Class B shares of the Fund. Under the Class A Plan, the Fund
compensates AIM Distributors at the annualized rate of 0.35% of the average
daily net assets of the Fund's Class A shares. Under the Class B Plan, the Fund
compensates AIM Distributors at an annualized rate of 1.00% of the average daily
net assets of the Fund's Class B shares.
The Class A Plan and the Class B Plan (together, the "Plans") are designed to
compensate AIM Distributors for certain promotional and other sales-related
costs, and to implement a dealer incentive program that provides for periodic
payments to selected dealers who furnish continuing personal shareholder
services to their customers who purchase and own Class A and Class B shares of
the Fund. Payments also can be directed by AIM Distributors to financial
institutions who have entered into service agreements with respect to Class A
and Class B shares of the Fund and who provide continuing personal services to
their customers who own Class A and Class B shares of the Fund. The service fees
payable to selected financial 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 that were purchased on or after a
prescribed date set forth in the Plans.
The Manager and AIM Distributors voluntarily have undertaken to limit the Fund's
expenses (exclusive of brokerage commissions, taxes, interest, and extraordinary
expense) to the maximum annual rate of 1.75%, 2.40%, and 1.40% of the average
daily net assets of the Fund's Class A, Class B, and Advisor Class shares,
respectively. If necessary, this limitation will be effected by waivers by the
Manager of investment management and administration fees, waivers by AIM
Distributors of payments under the Class A Plan and/or Class B Plan and/or
reimbursements by the Manager or AIM Distributors of portions of the Fund's
other operating expenses.
Effective as of the close of business September 4, 1998, the Fund, pursuant to a
transfer agency and service agreement, has agreed to pay A I M Fund Services,
Inc. ("AFS") an annualized fee of $24.85 per shareholder accounts that are open
during any monthly period (this fee includes all out-of-pocket expenses), and an
annualized fee of $0.70 per shareholder account that is closed during any
monthly
FS-14
<PAGE> 810
period. Both fees shall be billed by AFS monthly in arrears on a prorated basis
of 1/12 of the annualized fee for all such accounts.
For the period November 1, 1997 to September 4, 1998, GT Services, an affiliate
of the Manager and AIM Distributors, was the transfer agent of the Fund. For
performing shareholder servicing, reporting, and general transfer agent
services, GT Services received an annual maintenance fee of $17.50 per account,
a new account fee of $4.00 per account, a per transaction fee of $1.75 for all
transactions other than exchanges and a per exchange fee of $2.25. GT Services
also was reimbursed by the Fund for its out-of-pocket expenses for such items as
postage, forms, telephone charges, stationery and office supplies.
The Manager is the pricing and accounting agent for the Fund and Portfolio. The
monthly fee for these services to the Manager is a percentage, not to exceed
0.03% annually, of a Fund's average daily net assets. The annual fee rate is
derived 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% to 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.
The Trust pays each Trustee who is not an employee, officer or director of the
Manager, or any other affiliated company, $5,000 per year plus $300 for each
meeting of the board or any committee thereof attended by the Trustee.
3. PURCHASES AND SALES OF SECURITIES
For the year ended October 31, 1998, purchases and sales of investment
securities by the Portfolio, other than U.S. government obligations and
short-term investments, aggregated $939,420,479 and $952,299,285, respectively.
For the year ended October 31, 1998, sales of U.S. government obligations
aggregated $27,908,116. There were no purchases of U.S. government obligations.
4. CAPITAL SHARES
At October 31, 1998, there were 6,000,000,000 shares of the Trust's common stock
authorized, at $0.0001 par value. Of this amount, 400,000,000 were classified as
shares of the AIM Global Telecommunications Fund; 400,000,000 were classified as
shares of AIM Global Government Income Fund; 200,000,000 were classified as
shares of AIM Global Health Care Fund; 200,000,000 were classified as shares of
AIM Strategic Income Fund; 200,000,000 were classified as shares of AIM
Developing Markets Fund; 200,000,000 were classified as shares of GT Global
Currency Fund (inactive); 200,000,000 were classified as shares of AIM Global
Growth & Income Fund; 200,000,000 were classified as shares of GT Global Small
Companies Fund (inactive); 200,000,000 were classified as shares of AIM Latin
American Growth Fund; 200,000,000 were classified as shares of AIM Emerging
Markets Fund; 200,000,000 were classified as shares of AIM Emerging Markets Debt
Fund; 200,000,000 were classified as shares of AIM Global Financial Services
Fund; 200,000,000 were classified as shares of AIM Global Resources Fund;
200,000,000 were classified as shares of AIM Global Infrastructure Fund;
200,000,000 were classified as shares of AIM Global Consumer Products and
Services Fund. The shares of each of the foregoing series of the Trusts were
divided equally into two classes, designated Class A and Class B common stock.
With respect to the issuance of Advisor Class shares, 100,000,000 shares were
classified as shares of each of the fifteen series of the Trusts and designated
as Advisor Class common stock. 1,100,000,000 shares remain unclassified.
Transactions in capital shares of the Fund were as follows:
CAPITAL SHARE TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997
-------------------------- ----------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------- ----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C>
Shares sold....................................... 10,918,639 $ 129,801,507 17,142,418 $ 272,139,950
Shares issued in connection with reinvestment of
distributions................................... 2,191,470 26,459,355 574,707 9,164,383
----------- ------------- ----------- ---------------
13,110,109 156,260,862 17,717,125 281,304,333
Shares repurchased................................ (12,901,851) (152,829,526) (21,118,898) (335,756,037)
----------- ------------- ----------- ---------------
Net increase (decrease)........................... 208,258 $ 3,431,336 (3,401,773) $ (54,451,704)
----------- ------------- ----------- ---------------
----------- ------------- ----------- ---------------
<CAPTION>
CLASS B
- --------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold....................................... 5,958,185 $ 73,991,330 13,848,218 $ 221,702,040
Shares issued in connection with reinvestment of
distributions................................... 3,020,192 36,460,585 721,148 11,494,889
----------- ------------- ----------- ---------------
8,978,377 110,451,915 14,569,366 233,196,929
Shares repurchased................................ (9,736,068) (113,538,414) (16,813,796) (270,094,630)
----------- ------------- ----------- ---------------
Net decrease...................................... (757,691) $ (3,086,499) (2,244,430) $ (36,897,701)
----------- ------------- ----------- ---------------
----------- ------------- ----------- ---------------
<CAPTION>
ADVISOR CLASS
- --------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold....................................... 490,309 $ 6,221,370 2,868,282 $ 45,874,009
Shares issued in connection with reinvestment of
distributions................................... 76,464 920,280 72,440 1,148,368
----------- ------------- ----------- ---------------
566,773 7,141,650 2,940,722 47,022,377
Shares repurchased................................ (602,542) (7,660,299) (3,732,584) (60,007,579)
----------- ------------- ----------- ---------------
Net decrease...................................... (35,769) $ (518,649) (791,862) $ (12,985,202)
----------- ------------- ----------- ---------------
----------- ------------- ----------- ---------------
</TABLE>
FS-15
<PAGE> 811
5. SUBSEQUENT EVENT (UNAUDITED)
Effective December 14, 1998, sub-administration responsibility for the Fund and
sub-advisory and sub-administration responsibility for the Portfolio was
transferred from INVESCO (NY), Inc. to INVESCO Asset Management Ltd., another
indirect wholly-owned subsidiary of AMVESCAP PLC. A I M Advisors, Inc. will
continue to serve as the manager and administrator of the Fund and the
Portfolio. The transfer will not change the fees paid by A I M Advisors, Inc.
for sub-advisory services and will not change the nature of the sub-advisory
services provided to the Portfolio or the personnel providing such services.
6. PROXY RESULTS (UNAUDITED)
The Special Meeting of Shareholders of the G.T. Investment Funds, Inc. now known
as AIM Investment Funds (the "Trust") was held on May 20, 1998 at the Trust's
offices, 50 California Street, 26th Floor, San Francisco, California. The
meeting was held for the following purposes:
(1) To elect Trustees as follows: C. Derek Anderson, Frank S. Bayley, William
J. Guilfoyle, Arthur C. Patterson, Ruth H. Quigley.
(2) To approve a new Investment Management and Administration Contract and
Sub-Advisory and Sub-Administration Contract with respect to each series of
the Trust (each, a "Fund," and collectively, the "Funds").
(3) To approve replacement Rule 12b-1 plans of distribution with respect to
Class A and B Shares of the Fund.
(4) To approve changes to the fundamental investment restrictions of the Fund.
(5) To approve an agreement and plan of conversion and termination for the
Trust.
(6) To ratify the selection of Coopers & Lybrand L.L.P., now known as
PricewaterhouseCoopers LLP, as the Trust's independent public accountants.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
TRUSTEE/MATTER
---------------------------------------------------------------------------------------------------------------
<S> <C>
(1) C. Derek Anderson..............................................................................................
Frank S. Bayley................................................................................................
William J. Guilfoyle...........................................................................................
Arthur C. Patterson............................................................................................
Ruth H. Quigley................................................................................................
(2)(a) Approval of investment management and administration contract..................................................
(2)(b) Approval of sub-advisory and sub-administration contract.......................................................
(3) Approval of replacement Rule 12b-1 plans of distribution
CLASS A SHARES.................................................................................................
CLASS B SHARES.................................................................................................
(4)(a) Modification of Fundamental Restriction on Concentration.......................................................
(4)(b) Modification of Fundamental Restriction on Issuing Senior Securities and Borrowing Money.......................
(4)(c) Modification of Fundamental Restriction on Making Loans........................................................
(4)(d) Modification of Fundamental Restriction on Underwriting Securities.............................................
(4)(e) Modification of Fundamental Restriction on Real Estate Investments.............................................
(4)(f) Modification of Fundamental Restriction on Investing in Commodities............................................
(4)(g) Elimination of Fundamental Restriction on Margin Transactions..................................................
(4)(h) Elimination of Fundamental Restriction on Pledging Assets......................................................
(4)(i) Elimination of Fundamental Restriction on Investments in Oil, Gas and Mineral Leases and Programs..............
(4)(j) Elimination of Fundamental Restriction on Diversification Required By Internal Revenue Code....................
(5) Approval of an agreement and plan of conversion and termination with respect to the Trust......................
(6) Approval of the conversion of the portfolios in which certain Funds invest.....................................
(7) Ratification of the selection of Coopers and Lybrand L.L.P., now known as PricewaterhouseCoopers LLP, as the
Trust's independent public accountants.......................................................................
<CAPTION>
VOTES WITHHELD/
VOTES FOR AGAINST ABSTENTIONS
--------------- ------------ --------------
<S> <C> <C> <C>
(1) 191,685,088 N/A 13,123,292
191,766,811 N/A 13,041,568
191,828,959 N/A 12,979,420
191,845,270 N/A 12,963,109
191,869,887 N/A 12,938,492
(2)(a) 11,539,226 325,581 3,653,718*
(2)(b) 11,405,206 398,639 3,714,680*
(3)
5,596,649 164,819 433,984
8,129,440 288,519 787,402
(4)(a) 11,358,960 419,748 3,739,817*
(4)(b) 11,358,802 419,906 3,739,817*
(4)(c) 11,358,802 419,906 3,739,817*
(4)(d) 11,358,960 419,748 3,739,817*
(4)(e) 11,358,802 419,906 3,739,817*
(4)(f) 11,358,593 420,115 3,739,817*
(4)(g) 11,358,436 420,272 3,739,817*
(4)(h) 11,358,960 419,748 3,739,817*
(4)(i) 11,358,960 419,748 3,739,817*
(4)(j) 11,358,713 419,995 3,739,817*
(5) 190,027,469 6,362,084 94,055,040*
(6) 11,391,564 294,742 3,832,219*
(7) 191,358,779 2,114,168 11,333,063
</TABLE>
- --------------
* Includes Broker Non-Votes
- --------------
FEDERAL TAX INFORMATION (UNAUDITED):
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$11,387,137 as capital gain dividends for the fiscal year ended October 31,
1998.
FS-16
<PAGE> 812
REPORT OF
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders of AIM Global Government Income Fund (formerly GT Global
Government Income Fund) and Board of Trustees of AIM Investment Funds (formerly
G.T. Investment Funds, Inc.):
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Global Government Income
Fund at October 31, 1998, and the results of its operations, the changes in its
net assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinions expressed above.
/s/PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
BOSTON, MASSACHUSETTS
DECEMBER 18, 1998
FS-17
<PAGE> 813
PORTFOLIO OF INVESTMENTS
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- ---------------------------------------------------------- -------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Government & Government Agency Obligations (78.2%)
Belgium (3.5%)
Kingdom of Belgium, 5.75% due 3/28/08 ................ BEF 232,900,000 $ 7,545,046 3.5
Canada (2.4%)
Canadian Government, 6% due 6/1/08 ................... CAD 7,520,000 5,208,179 2.4
Denmark (8.3%)
Kingdom of Denmark Bullet, 6% due 11/15/09 ........... DKK 101,100,000 17,700,334 8.3
Germany (10.8%)
Deutschland Republic:
6% due 1/5/06 ...................................... DEM 13,050,000 8,807,232 4.1
6% due 7/4/07 ...................................... DEM 10,980,000 7,479,880 3.5
6.5% due 7/4/27 .................................... DEM 9,550,000 6,854,235 3.2
Greece (4.7%)
Hellenic Republic:
9.2% due 3/21/02 ................................... GRD 2,210,000,000 7,815,135 3.7
8.8% due 6/19/07 ................................... GRD 550,000,000 2,029,877 1.0
Italy (12.7%)
Italian Buoni Poliennali del Tesoro (BTPS):
7.25% due 11/1/26 .................................. ITL 21,280,000,000 16,349,744 7.7
8.5% due 1/1/04 .................................... ITL 14,480,000,000 10,643,419 5.0
Sweden (4.2%)
Swedish Government, 6.5% due 10/25/06 ................ SEK 62,700,000 9,056,166 4.2
United Kingdom (8.6%)
United Kingdom Treasury, 9% due 10/13/08 ............. GBP 8,380,000 18,289,627 8.6
United States (21.6%)
United States Treasury, 6.375% due 8/15/27{./} ....... USD 35,800,000 41,317,535 19.3
Federal National Mortgage Association, 6.375% due
8/15/07 ............................................. AUD 7,300,000 4,827,718 2.3
Uruguay (1.4%)
Republic of Uruguay, 7.875% due 7/15/27 - 144A{.} .... USD 3,000,000 3,045,000 1.4
------------
Total Government & Government Agency Obligations (cost
$165,756,751) ........................................... 166,969,127
------------
Corporate Bonds (12.7%)
Germany (1.0%)
Kredit Fuer Wiederaufbau International Finance, 7.25%
due 7/16/07 ......................................... AUD 3,100,000 2,155,469 1.0
South Africa (0.1%)
Development Bank of South Africa, due 12/31/27{=} .... ZAR 39,300,000 133,929 0.1
Tunisia (1.8%)
Banque Centrais de Tunisie, 8.25% due 9/19/27 ........ USD 4,750,000 3,852,075 1.8
United Kingdom (7.1%)
SBC Jersey, 8.75% due 6/20/05 ........................ GBP 8,200,000 15,234,375 7.1
United States (2.7%)
Ford Motor Credit Corp., 5.25% due 6/16/08 ........... DEM 5,370,000 3,295,521 1.5
Merrill Lynch & Co., 7.25% due 5/2/02 ................ USD 2,410,000 $ 2,508,497 1.2
------------
Total Corporate Bonds (cost $27,498,907) ................. 27,179,866
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-18
<PAGE> 814
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- ---------------------------------------------------------- -------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Mortgage Backed (8.8%)
Denmark (4.0%)
Realkredit Danmark, 6% due 10/1/26 ................... DKK 54,018,000 $ 8,441,627 4.0
United States (4.8%)
Government National Mortgage Association TBA Pass Thru
Pool, 6% due 11/15/28{*} ............................ USD 8,500,000 8,425,625 3.9
Federal Home Loan Mortgage Association Pool #E62449,
8.5% due 3/1/10 ..................................... USD 1,712,183 1,832,973 0.9
------------
Total Mortgage Backed (cost $18,186,905) ................. 18,700,225
------------ -----
TOTAL FIXED INCOME INVESTMENTS (cost $211,442,563) ....... 212,849,218 99.7
------------ -----
<CAPTION>
PRINCIPAL VALUE % OF NET
SHORT-TERM INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- ---------------------------------------------------------- -------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Commercial Paper - Discounted (3.9%)
United States (3.9%)
Ford Motor Credit, effective yield 5.09%, due 11/18/98
(cost $8,473,997) ................................... USD 8,500,000 8,473,997 3.9
------------ -----
TOTAL INVESTMENTS (cost $219,916,560) * ................. 221,323,215 103.6
Other Assets and Liabilities ............................. (7,782,870) (3.6)
------------ -----
NET ASSETS ............................................... $213,540,345 100.0
------------ -----
------------ -----
</TABLE>
- --------------
{=} Zero coupon bond.
{./} All or part of the Fund's holdings in this security is segregated
as collateral for securities purchased on a forward commitment
basis. See Note 1 to the Financial Statements.
{.} Security exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers.
{*} Purchased on a forward commitment basis.
* For Federal income tax purposes, cost is $220,204,720 and
appreciation (depreciation) is as follows:
<TABLE>
<S> <C>
Unrealized appreciation: $ 4,586,885
Unrealized depreciation: (3,468,390)
-------------
Net unrealized appreciation: $ 1,118,495
-------------
-------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS OUTSTANDING
OCTOBER 31, 1998
<TABLE>
<CAPTION>
MARKET VALUE UNREALIZED
(U.S. CONTRACT DELIVERY APPRECIATION
CONTRACTS TO SELL: DOLLARS) PRICE DATE (DEPRECIATION)
- ---------------------------------------- ------------- ---------- -------- ---------------
<S> <C> <C> <C> <C>
Canadian Dollars........................ 5,186,883 1.54785 3/18/99 $(18,424)
Italian Lira............................ 8,888,408 1619.00000 3/18/99 67,738
------------- ---------------
Total Contracts to Sell (Receivable
amount $14,124,605).................. 14,075,291 $ 49,314
------------- ---------------
THE VALUE OF CONTRACTS TO SELL AS
PERCENTAGE OF NET ASSETS IS 6.59%.
Total Open Forward Foreign Currency
Contracts............................ $ 49,314
---------------
---------------
</TABLE>
- ----------------
See Note 1 of Notes to the Financial Statements.
The accompanying notes are an integral part of the financial statements.
FS-19
<PAGE> 815
STATEMENT OF ASSETS
AND LIABILITIES
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at value (cost $219,916,560) (Note 1)......................... $221,323,215
U.S. currency................................................................. $ 322
Foreign currencies (cost $2,095,895).......................................... 2,071,055 2,071,377
---------
Receivable for securities sold........................................................... 8,554,453
Interest and interest withholding tax reclaims receivable................................ 4,535,164
Receivable for Fund shares sold.......................................................... 172,045
Receivable for open forward foreign currency contracts (Note 1).......................... 49,314
Miscellaneous receivable................................................................. 26,512
------------
Total assets........................................................................... 236,732,080
------------
Liabilities:
Payable for securities purchased......................................................... 17,120,859
Payable for Fund shares repurchased (Note 2)............................................. 2,828,414
Payable for loan outstanding (Note 1).................................................... 1,939,000
Distribution payable..................................................................... 438,754
Payable for service and distribution expenses (Note 2)................................... 262,791
Payable for transfer agent fees (Note 2)................................................. 202,273
Payable for investment management and administration fees (Note 2)....................... 140,295
Payable for printing and postage expenses................................................ 115,614
Payable for professional fees............................................................ 53,507
Payable for custodian fees............................................................... 28,702
Payable for registration and filing fees................................................. 27,856
Payable for Trustees' fees and expenses (Note 2)......................................... 13,163
Payable for fund accounting fees (Note 2)................................................ 5,504
Other accrued expenses................................................................... 15,003
------------
Total liabilities...................................................................... 23,191,735
------------
Net assets................................................................................. $213,540,345
------------
------------
Class A:
Net asset value and redemption price per share ($121,268,155 DIVIDED BY 13,513,210 shares
outstanding).............................................................................. $ 8.97
------------
------------
Maximum offering price per share (100/95.25 of $8.97) *.................................... $ 9.42
------------
------------
Class B:+
Net asset value and offering price per share ($91,851,644 DIVIDED BY 10,240,967 shares
outstanding).............................................................................. $ 8.97
------------
------------
Advisor Class:
Net asset value, offering price per share, and redemption price per share ($420,546 DIVIDED
BY 46,726 shares outstanding)............................................................. $ 9.00
------------
------------
Net assets consist of:
Paid in capital (Note 4)................................................................. $338,619,386
Accumulated net realized loss on investments and foreign currency transactions........... (126,623,779)
Net unrealized appreciation on translation of assets and liabilities in foreign
currencies.............................................................................. 138,083
Net unrealized appreciation of investments............................................... 1,406,655
------------
Total -- representing net assets applicable to capital shares outstanding.................. $213,540,345
------------
------------
<FN>
- --------------
* On sales of $50,000 or more, the offering price is reduced.
+ Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-20
<PAGE> 816
STATEMENT OF OPERATIONS
Year ended October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment income: (Note 1)
Interest income................................................................................... $ 19,476,296
Securities lending income......................................................................... 331,980
------------
Total investment income......................................................................... 19,808,276
------------
Expenses:
Investment management and administration fees (Note 2)............................................ 1,823,161
Service and distribution expenses: (Note 2)
Class A.......................................................................... $ 499,194
Class B.......................................................................... 1,084,595 1,583,789
-----------
Interest expense.................................................................................. 728,255
Transfer agent fees (Note 2)...................................................................... 561,120
Custodian fees.................................................................................... 148,655
Printing and postage expenses..................................................................... 138,525
Professional fees................................................................................. 120,840
Fund accounting fees (Note 2)..................................................................... 67,657
Registration and filing fees (Note 1)............................................................. 59,130
Trustees' fees and expenses (Note 2).............................................................. 19,125
Other expenses.................................................................................... 13,315
------------
Total expenses.................................................................................... 5,263,572
------------
Net investment income............................................................................... 14,544,704
------------
Net realized and unrealized gain (loss) on investments and foreign currencies: (Note
1)
Net realized gain on investments................................................... 5,403,124
Net realized gain on foreign currency transactions................................. 5,779,913
-----------
Net realized gain during the year............................................................... 11,183,037
Net change in unrealized depreciation on translation of assets and liabilities in
foreign currencies................................................................ (3,771,120)
Net change in unrealized appreciation of investments............................... 1,354,647
-----------
Net unrealized depreciation during the year..................................................... (2,416,473)
------------
Net realized and unrealized gain on investments and foreign currencies.............................. 8,766,564
------------
Net increase in net assets resulting from operations................................................ $ 23,311,268
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-21
<PAGE> 817
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1998 1997
-------------- --------------
<S> <C> <C>
Decrease in net assets
Operations:
Net investment income.................................................... $ 14,544,704 $ 19,128,003
Net realized gain on investments and foreign currency transactions....... 11,183,037 246,114
Net change in unrealized appreciation (depreciation) on translation of
assets and liabilities in foreign currencies............................ (3,771,120) 5,553,094
Net change in unrealized appreciation (depreciation) of investments...... 1,354,647 (11,452,067)
-------------- --------------
Net increase in net assets resulting from operations................... 23,311,268 13,475,144
-------------- --------------
Class A:
Distributions to shareholders: (Note 1)
From net investment income............................................... (3,426,511) (6,827,721)
In excess of net investment income....................................... (5,024,245) (4,449,488)
Class B:
Distributions to shareholders: (Note 1)
From net investment income............................................... (2,258,151) (4,503,257)
In excess of net investment income....................................... (3,311,095) (2,934,682)
Advisor Class:
Distributions to shareholders: (Note 1)
From net investment income............................................... (9,025) (4,070)
In excess of net investment income....................................... (13,232) (2,653)
-------------- --------------
Total distributions.................................................... (14,042,259) (18,721,871)
-------------- --------------
Capital share transactions: (Note 4)
Increase from capital shares sold and reinvested......................... 1,018,940,689 667,541,828
Decrease from capital shares repurchased................................. (1,096,778,831) (787,794,141)
-------------- --------------
Net decrease from capital share transactions........................... (77,838,142) (120,252,313)
-------------- --------------
Total decrease in net assets............................................... (68,569,133) (125,499,040)
Net assets:
Beginning of year........................................................ 282,109,478 407,608,518
-------------- --------------
End of year *............................................................ $ 213,540,345 $ 282,109,478
-------------- --------------
-------------- --------------
* Includes undistributed net investment income............................ $ -- $ --
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-22
<PAGE> 818
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1998 (d) 1997 (d) 1996 (d) 1995 (d) 1994 (d)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 8.62 $ 8.74 $ 8.81 $ 8.63 $ 11.07
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income................. 0.54 0.52 0.57 0.62 0.65
Net realized and unrealized gain
(loss) on investments................ 0.32 (0.13) 0.03 0.15 (1.52)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) from
investment operations.............. 0.86 0.39 0.60 0.77 (0.87)
---------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income............ (0.16) (0.31) (0.57) (0.59) (0.65)
From net realized gain on
investments.......................... -- -- (0.10) -- (0.27)
In excess of net investment income.... (0.35) (0.20) -- -- --
In excess of net realized gain on
investments.......................... -- -- -- -- (0.55)
Return of capital..................... -- -- -- -- (0.10)
---------- ---------- ---------- ---------- ----------
Total distributions................. (0.51) (0.51) (0.67) (0.59) (1.57)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 8.97 $ 8.62 $ 8.74 $ 8.81 $ 8.63
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return (c)............. 10.20% 4.78% 7.11% 9.22% (8.87)%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 121,268 $ 154,272 $ 240,945 $ 385,404 $ 502,094
Ratio of net investment income to
average net assets..................... 6.06% 6.04% 6.52% 6.98% 6.87%
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions............... 1.52% 1.34% 1.34% 1.35% 1.33%
Without expense reductions............ 1.52% 1.51% 1.39% 1.38% N/A
Ratio of interest expense to average net
assets++............................... 0.29% N/A N/A N/A N/A
Portfolio turnover rate++............... 305% 241% 268% 385% 625%
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates and ratio of interest expense to average net
assets are calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-23
<PAGE> 819
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1998 (d) 1997 (d) 1996 (d) 1995 (d) 1994 (d)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 8.62 $ 8.74 $ 8.80 $ 8.64 $ 11.07
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income................. 0.47 0.46 0.51 0.55 0.59
Net realized and unrealized gain
(loss) on investments................ 0.34 (0.12) 0.04 0.14 (1.52)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) from
investment operations.............. 0.81 0.34 0.55 0.69 (0.93)
---------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income............ (0.11) (0.28) (0.51) (0.53) (0.59)
From net realized gain on
investments.......................... -- -- (0.10) -- (0.27)
In excess of net investment income.... (0.35) (0.18) -- -- --
In excess of net realized gain on
investments.......................... -- -- -- -- (0.54)
Return of capital..................... -- -- -- -- (0.10)
---------- ---------- ---------- ---------- ----------
Total distributions................. (0.46) (0.46) (0.61) (0.53) (1.50)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 8.97 $ 8.62 $ 8.74 $ 8.80 $ 8.64
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return (c)............. 9.65% 4.00% 6.54% 8.22% (9.39)%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 91,852 $ 127,722 $ 166,577 $ 235,481 $ 262,405
Ratio of net investment income to
average net assets..................... 5.41% 5.39% 5.87% 6.33% 6.22%
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions............... 2.17% 1.99% 1.99% 2.00% 1.98%
Without expense reductions............ 2.17% 2.16% 2.04% 2.03% N/A
Ratio of interest expense to average net
assets++............................... 0.29% N/A N/A N/A N/A
Portfolio turnover rate++............... 305% 241% 268% 385% 625%
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates and ratio of interest expense to average net
assets are calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-24
<PAGE> 820
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
ADVISOR CLASS+
---------------------------------------------------------
JUNE 1, 1995
YEAR ENDED OCTOBER 31, TO
------------------------------------- OCTOBER 31,
1998 (d) 1997 (d) 1996 (d) 1995 (D)
----------- ----------- ----------- ------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 8.61 $ 8.73 $ 8.80 $ 8.98
----------- ----------- ----------- --------
Income from investment operations:
Net investment income................. 0.56 0.55 0.60 0.26
Net realized and unrealized gain
(loss) on investments................ 0.37 (0.13) 0.03 (0.19)
----------- ----------- ----------- --------
Net increase (decrease) from
investment operations.............. 0.93 0.42 0.63 0.07
----------- ----------- ----------- --------
Distributions to shareholders:
From net investment income............ (0.19) (0.33) (0.60) (0.25)
From net realized gain on
investments.......................... -- -- (0.10) --
In excess of net investment income.... (0.35) (0.21) -- --
In excess of net realized gain on
investments.......................... -- -- -- --
Return of capital..................... -- -- -- --
----------- ----------- ----------- --------
Total distributions................. (0.54) (0.54) (0.70) (0.25)
----------- ----------- ----------- --------
Net asset value, end of period.......... $ 9.00 $ 8.61 $ 8.73 $ 8.80
----------- ----------- ----------- --------
----------- ----------- ----------- --------
Total investment return (c)............. 11.18% 5.15% 7.49% 0.83 % (b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 421 $ 116 $ 86 $ 131
Ratio of net investment income to
average net assets..................... 6.41% 6.39% 6.87% 7.33 %
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions............... 1.17% 0.99% 0.99% 1.00 % (a)
Without expense reductions............ 1.17% 1.16% 1.04% 1.03 % (a)
Ratio of interest expense to average net
assets++............................... 0.29% N/A N/A N/A
Portfolio turnover rate++............... 305% 241% 268% 385 %
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates and ratio of interest expense to average net
assets are calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-25
<PAGE> 821
NOTES TO
FINANCIAL STATEMENTS
October 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (SEE ALSO NOTE 2)
AIM Global Government Income Fund (the "Fund"), formerly GT Global Government
Income Fund, a non-diversified separate series of AIM Investment Funds (the
"Trust"), formerly G.T. Investment Funds, Inc. The Trust is organized as a
Delaware business trust and is registered under the Investment Company Act of
1940, as amended ("1940 Act"), as an open-end management investment company. The
Trust has thirteen series of shares in operation, each series corresponding to a
distinct portfolio of investments.
The Fund offers Class A, Class B, and Advisor Class shares, each of which has
equal rights as to assets and voting privileges. Class A and Class B each has
exclusive voting rights with respect to its distribution plan. Investment
income, realized and unrealized capital gains and losses, and the common
expenses of the Fund are allocated on a pro rata basis to each class based on
the relative net assets of each class to the total net assets of the Fund. Each
class of shares differs in its respective service and distribution expenses, and
may differ in its transfer agent, registration, and certain other class-specific
fees and expenses.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies in conformity with generally accepted accounting
principles consistently followed by the Fund in the preparation of the financial
statements.
(A) PORTFOLIO VALUATION
The Fund calculates the net asset value of and complete orders to purchase,
exchange, or repurchase Fund shares on each business day, with the exception of
those days on which the New York Stock Exchange is closed.
Equity securities are valued at the last sale price on the exchange on which
such securities are traded, or on the principal over-the-counter market on which
such securities are traded, as of the close of business on the day the
securities are being valued, or, lacking any sales, at the last available bid
price. In cases where securities are traded on more than one exchange, the
securities are valued on the exchange determined by A I M Advisors, Inc. (the
"Manager") to be the primary market.
Fixed income investments are valued at the mean of representative quoted bid and
ask prices for such investments or, if such prices are not available, at prices
for investments of comparative maturity, quality, and type; however, when the
Manager deems it appropriate, prices obtained for the day of valuation from a
bond pricing service will be used. Short-term investments with a maturity of 60
days or less are valued at amortized cost adjusted for foreign exchange
translation and market fluctuation, if any.
Investments for which market quotations are not readily available (including
restricted securities which are subject to limitations on their sale) are valued
at fair value as determined in good faith by or under the direction of the
Trust's Board of Trustees.
Portfolio securities which are primarily traded on foreign exchanges are
generally valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S. dollars at
the current exchange rates, except that when an occurrence subsequent to the
time a value was so established is likely to have materially changed such value,
then the fair value of those securities will be determined by consideration of
other factors by or under the direction of the Trust's Board of Trustees.
(B) FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings, and other assets and
liabilities are recorded in the books and records of the Fund after translation
to U.S. dollars based on the exchange rates on that day. The cost of each
security is determined using historical exchange rates. Income and withholding
taxes are translated at prevailing exchange rates when earned or incurred.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from fluctuations arising
from changes in market prices of securities held. Such fluctuations are included
with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, forward foreign currency contracts, sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains or losses arise from changes in the
value of assets and liabilities other than investments in securities at period
end, resulting from changes in exchange rates.
(C) REPURCHASE AGREEMENTS
With respect to repurchase agreements entered into by the Fund, it is the Fund's
policy to always receive, as collateral, United States government securities or
other high quality debt securities of which the value, including accrued
interest, is at least equal to the amount to be repaid to the Fund under each
agreement at its maturity.
(D) FORWARD FOREIGN CURRENCY CONTRACTS
A forward foreign currency contract ("Forward Contract") is an agreement between
two parties to buy and sell a currency at a set price on a future date. The
market value of the Forward Contract fluctuates with changes in currency
exchange rates. The Forward
FS-26
<PAGE> 822
Contract is marked-to-market daily and the change in market value is recorded by
the Fund as an unrealized gain or loss. When the Forward Contract is closed, the
Fund records a realized gain or loss equal to the difference between the value
at the time it was opened and the value at the time it was closed. Forward
Contracts involve market risk in excess of the amount shown in the Fund's
"Statement of Assets and Liabilities". The Fund could be exposed to risk if a
counterparty is unable to meet the terms of the contract or if the value of the
currency changes unfavorably. The Fund may enter into Forward Contracts in
connection with planned purchases or sales of securities, or to hedge against
adverse fluctuations in exchange rates between currencies.
(E) OPTION ACCOUNTING PRINCIPLES
When the Fund writes a call or put option, an amount equal to the premium
received is included in the Fund's "Statement of Assets and Liabilities" as an
asset and an equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option. The current
market value of an option listed on a traded exchange is valued at its last bid
price, or, in the case of an over-the-counter option, is valued at the average
of the last bid prices obtained from brokers, unless a quotation from only one
broker is available, in which case only that broker's price will be used. If an
option expires on its stipulated expiration date or if the Fund enters into a
closing purchase transaction, a gain or loss is realized without regard to any
unrealized gain or loss on the underlying security and the liability related to
such option is extinguished. If a written call option is exercised, a gain or
loss is realized from the sale of the underlying security and the proceeds of
the sale are increased by the premium originally received. If a written put
option is exercised, the cost of the underlying security purchased would be
decreased by the premium originally received. The Fund can write options only on
a covered basis, which, for a call, requires that the Fund hold the underlying
security and, for a put, requires the Fund to set aside cash, U.S. government
securities or other liquid securities in an amount not less than the exercise
price, or otherwise provide adequate cover at all times while the put option is
outstanding. The Fund may use options to manage its exposure to the stock market
and to fluctuations in currency values or interest rates.
The premium paid by the Fund for the purchase of a call or put option is
included in the Fund's "Statement of Assets and Liabilities" as an investment
and subsequently "marked-to-market" to reflect the current market value of the
option. If an option which the Fund has purchased expires on the stipulated
expiration date, the Fund realizes a loss in the amount of the cost of the
option. If the Fund enters into a closing sale transaction, the Fund realizes a
gain or loss, depending on whether proceeds from the closing sale transaction
are greater or less than the cost of the option. If the Fund exercises a call
option, the cost of the securities acquired by exercising the call is increased
by the premium paid to buy the call. If the Fund exercises a put option, it
realizes a gain or loss from the sale of the underlying security, and the
proceeds from such sale are decreased by the premium originally paid.
The risk associated with purchasing options is limited to the premium originally
paid. The risk in writing a call option is that the Fund may forego the
opportunity of profit if the market value of the underlying security or index
increases and the option is exercised. The risk in writing a put option is that
the Fund may incur a loss if the market value of the underlying security or
index decreases and the option is exercised. In addition, there is the risk the
Fund may not be able to enter into a closing transaction because of an illiquid
secondary market.
(F) FUTURES CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
security at a set price on a future date. Upon entering into such a contract the
Fund is required to pledge to the broker an amount of cash or securities equal
to the minimum "initial margin" requirements of the exchange on which the
contract is traded. Pursuant to the contract, the Fund agrees to receive from or
pay to the broker an amount of cash equal to the daily fluctuation in value of
the contract. Such receipts or payments are known as "variation margin" and are
recorded by the Fund as unrealized gains or losses. When the contract is closed,
the Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the time it was
closed. The potential risk to the Fund is that the change in value of the
underlying securities may not correlate to the change in value of the contracts.
The Fund may use futures contracts to manage its exposure to the stock market
and to fluctuations in currency values or interest rates.
(G) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). The cost of securities sold is determined on a first-in,
first-out-basis, unless otherwise specified. Dividends are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. Where a high
level of uncertainty exists as to its collection, income is recorded net of all
withholding tax with any rebate recorded when received. The Fund may trade
securities on other than normal settlement terms. This may increase the risk if
the other party to the transaction fails to deliver and causes the Fund to
subsequently invest at less advantageous prices.
(H) PORTFOLIO SECURITIES LOANED
At October 31, 1998, stocks with an aggregate value of $13,148,319 were on loan
to brokers. The loans were secured by cash collateral of $14,832,250 received by
the Fund. For the year ended October 31, 1998, the Fund received fees of
$331,980.
For international securities, cash collateral is received by the Fund against
loaned securities in an amount at least equal to 105% of the market value of the
loaned securities at the inception of each loan. This collateral must be
maintained at not less than 103% of the market value of the loaned securities
during the period of the loan. For domestic securities, cash collateral is
received by the Fund against loaned securities in the amount at least equal to
102% of the market value of the loaned securities at the inception of each loan.
This collateral must be maintained at not less than 100% of the market value of
the loaned securities during the period of the loan. The cash collateral is
invested in a securities lending trust which consists of a portfolio of high
quality short duration securities whose average effective duration is restricted
to 120 days or less.
FS-27
<PAGE> 823
(I) TAXES
It is the intended policy of the Fund to meet the requirements for qualification
as a "regulated investment company" under the Internal Revenue Code of 1986, as
amended ("Code"). It is also the intention of the Fund to make distributions
sufficient to avoid imposition of any excise tax under Section 4982 of the Code.
Therefore, no provision has been made for Federal taxes on income, capital
gains, or unrealized appreciation of securities held, and excise tax on income
and capital gains. The AIM Global Government Income Fund has a capital loss
carryforward of $126,354,043 of which $110,608,457 expires in 2002, and
$15,745,586 expires in 2003.
(J) DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded by each Fund on the ex-date. Income
and capital gain distributions are determined in accordance with Federal income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Fund and timing differences.
(K) FOREIGN SECURITIES
There are certain additional considerations and risks associated with investing
in foreign securities and currency transactions that are not inherent in
investments of domestic origin. The Fund's investment in emerging market
countries may involve greater risks than investments in more developed markets
and the price of such investments may be volatile. These risks of investing in
foreign and emerging markets may include foreign currency exchange rate
fluctuations, perceived credit risk, adverse political and economic developments
and possible adverse foreign government intervention.
(L) INDEXED SECURITIES
The Fund may invest in indexed securities whose value is linked either directly
or indirectly to changes in foreign currencies, interest rates, equities,
indices, or other reference instruments. Indexed securities may be more volatile
than the reference instrument itself, but any loss is limited to the amount of
the original investment.
(M) RESTRICTED SECURITIES
The Fund is permitted to invest in privately placed restricted securities. These
securities may be resold in transactions exempt from registration or to the
public if the securities are registered. Disposal of these securities may
involve time-consuming negotiations and expense, and prompt sale at an
acceptable price may be difficult. At the end of the year, restricted
securities, if any, (excluding 144A issues), are shown at the end of the Fund's
Portfolio of Investments.
(N) LINE OF CREDIT
The Fund, along with certain other funds advised and/or administered by the
Manager, has a line of credit with each of BankBoston and State Street Bank and
Trust Company. The arrangements with the banks allow the Fund and certain other
Funds to borrow, on a first come, first serve basis, an aggregate maximum amount
of $250,000,000. The Fund is limited to borrowing up to 33 1/3% of the value of
the Fund's total assets. On October 31, 1998, the Fund had $1,939,000 in loans
outstanding.
For the year ended October 31, 1998, the weighted average outstanding daily
balance of bank loans (based on the number of days the loans were outstanding)
for the Fund was $12,969,493, with a weighted average interest rate of 6.29%.
Interest expense for the year ended October 31, 1998 was $639,524. Other
interest expense charges amounted to $88,731.
(O) SECURITIES PURCHASED ON A WHEN-ISSUED OR FORWARD
COMMITMENT BASIS
The Fund may trade securities on a when-issued or forward commitment basis, with
payment and delivery scheduled for a future date. These transactions are subject
to market fluctuations and are subject to the risk that the value at delivery
may be more or less than the trade date purchase price. Although the Fund will
generally purchase these securities with the intention of acquiring such
securities, they may sell such securities before the settlement date. These
securities are identified on the accompanying Portfolio of Investments. The Fund
has set aside sufficient cash or liquid securities as collateral for these
purchase commitments.
2. RELATED PARTIES
A I M Advisors, Inc. (the "Manager"), an indirect wholly-owned subsidiary of
AMVESCAP PLC, became the Fund's investment manager and administrator and INVESCO
(NY), Inc., (formerly, Chancellor LGT Asset Management, Inc.) is the Fund's
investment sub-advisor and sub-administrator. As of the close of business on May
29, 1998, Liechtenstein Global Trust AG ("LGT"), the former indirect parent
organization of Chancellor LGT Asset Management, Inc. ("Chancellor LGT")
consummated a purchase agreement with AMVESCAP PLC pursuant to which AMVESCAP
PLC acquired LGT's Asset Management Division, which included Chancellor LGT and
certain other affiliates. As a result of this transaction, Chancellor LGT was
renamed INVESCO (NY), Inc., and is now an indirect wholly-owned subsidiary of
AMVESCAP PLC.
A I M Distributors, Inc. ("AIM Distributors"), a wholly-owned subsidiary of the
Manager, became the Fund's distributor as of the close of business on May 29,
1998. The Trust was reorganized from a Maryland corporation into a Delaware
business trust on September 8, 1998. Finally, as of the close of business on
September 4, 1998, A I M Fund Services, Inc. ("AFS"), an affiliate of the
Manager and AIM Distributors, replaced GT Global Investor Services, Inc. ("GT
Services") as the transfer agent of the Fund.
The Fund pays the Manager investment management and administration fees at the
annualized rate of 0.725% on the first $500 million of the average daily net
assets of the Fund; 0.70% on the next $1 billion; 0.675% on the next $1 billion;
and 0.65% on amounts thereafter. These fees are computed daily and paid monthly.
AIM Distributors, an affiliate of the Manager, serves as the Fund's distributor.
For the period ended May 29, 1998, GT Global, Inc. ("GT Global"), an affiliate
of the investment sub-advisor, served as the Fund's distributor. The Fund offers
Class A, Class B, and Advisor Class shares for purchase.
Class A shares are subject to initial sales charges imposed at the time of
purchase, in accordance with the schedule included in the Fund's
FS-28
<PAGE> 824
current prospectus. AIM Distributors collects the sales charges imposed on sales
of Class A shares, and reallows a portion of such charges to dealers through
which the sales are made. For the year ended October 31, 1998, AIM Distributors
and GT Global retained the following sales charges: $4,354 and $1,842,
respectively. Purchases of Class A shares exceeding $1,000,000 may be subject to
a contingent deferred sales charge ("CDSC") upon redemption, in accordance with
the Fund's current prospectus. AIM Distributors and GT Global had no CDSCs for
the year ended October 31, 1998. AIM Distributors also makes ongoing shareholder
servicing and trail commission payments to dealers whose clients hold Class A
shares.
Class B shares are not subject to initial sales charges. When Class B shares are
sold, AIM Distributors, from its own resources, pays commissions to dealers
through which the sales are made. Certain redemptions of Class B shares made
within six years of purchase are subject to CDSCs, in accordance with the Fund's
current prospectus. For the year ended October 31, 1998, AIM Distributors and GT
Global collected CDSCs in the amount of $236,027 and $506,058, respectively. In
addition, AIM Distributors makes ongoing shareholder servicing and trail
commission payments to dealers whose clients hold Class B shares.
For the period ended May 29, 1998, pursuant to the then effective separate
distribution plans adopted under the 1940 Act Rule 12b-1 by the Trust's Board of
Trustees with respect to the Fund's Class A shares ("Class A Plan") and Class B
shares ("Class B Plan"), the Fund reimbursed GT Global for a portion of its
shareholder servicing and distribution expenses. Under the Class A Plan, the
Fund was permitted to pay GT Global a service fee at the annualized rate of up
to 0.25% of the average daily net assets of the Fund's Class A shares for GT
Global's expenditures incurred in servicing and maintaining shareholder
accounts, and was permitted to pay GT Global a distribution fee at the
annualized rate of up to 0.35% of the average daily net assets of the Fund's
Class A shares, less any amounts paid by the Fund as the aforementioned service
fee, for GT Global's expenditures incurred in providing services as distributor.
All expenses for which GT Global was reimbursed under the Class A Plan would
have been incurred within one year of such reimbursement.
For the period ended May 29, 1998, pursuant to the Class B Plan, the Fund was
permitted to pay GT Global a service fee at the annualized rate of up to 0.25%
of the average daily net assets of the Fund's Class B shares for GT Global's
expenditures incurred in servicing and maintaining shareholder accounts, and was
permitted to pay GT Global a distribution fee at the annualized rate of up to
0.75% of the average daily net assets of the Fund's Class B shares for GT
Global's expenditures incurred in providing services as distributor. Expenses
incurred under the Class B Plan in excess of 1.00% annually were permitted to be
carried forward for reimbursement in subsequent years as long as that Plan
continued in effect.
Effective as of the close of business May 29, 1998, pursuant to Rule 12b-1 under
the 1940 Act, the Trust's Board of Trustees adopted a Master Distribution Plan
applicable to the Fund's Class A shares ("Class A Plan") and Class B shares
("Class B Plan"), pursuant to which the Fund compensates AIM Distributors for
the purpose of financing any activity that is intended to result in the sale of
Class A or Class B shares of the Fund. Under the Class A Plan, the Fund
compensates AIM Distributors at the annualized rate of 0.35% of the average
daily net assets of the Fund's Class A shares. Under the Class B Plan, the Fund
compensates AIM Distributors at an annualized rate of 1.00% of the average daily
net assets of the Fund's Class B shares.
The Class A Plan and the Class B Plan (together, the "Plans") are designed to
compensate AIM Distributors for certain promotional and other sales-related
costs, and to implement a dealer incentive program that provides for periodic
payments to selected dealers who furnish continuing personal shareholder
services to their customers who purchase and own Class A and Class B shares of
the Fund. Payments also can be directed by AIM Distributors to financial
institutions who have entered into service agreements with respect to Class A
and Class B shares of the Fund and who provide continuing personal services to
their customers who own Class A and Class B shares of the Fund. The service fees
payable to selected financial 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 that were purchased on or after a
prescribed date set forth in the Plans.
The Manager and AIM Distributors voluntarily have undertaken to limit the Fund's
expenses (exclusive of brokerage commissions, taxes, interest, and extraordinary
expense) to the maximum annual rate of 1.75%, 2.40%, and 1.40% of the average
daily net assets of the Fund's Class A, Class B, and Advisor Class shares,
respectively. If necessary, this limitation will be effected by waivers by the
Manager of investment management and administration fees, waivers by AIM
Distributors of payments under the Class A Plan and/or Class B Plan and/or
reimbursements by the Manager or AIM Distributors of portions of the Fund's
other operating expenses.
Effective as of the close of business September 4, 1998, the Fund, pursuant to a
transfer agency and service agreement, has agreed to pay A I M Fund Services,
Inc. ("AFS") an annualized fee of $24.85 per shareholder accounts that are open
during any monthly period (this fee includes all out-of-pocket expenses), and an
annualized fee of $0.70 per shareholder account that is closed during any
monthly period. Both fees shall be billed by AFS monthly in arrears on a
prorated basis of 1/12 of the annualized fee for all such accounts.
For the period November 1, 1997 to September 4, 1998, GT Services, an affiliate
of the Manager and AIM Distributors, was the transfer agent of the Fund. For
performing shareholder servicing, reporting, and general transfer agent
services, GT Services received an annual maintenance fee of $17.50 per account,
a new account fee of $4.00 per account, a per transaction fee of $1.75 for all
transactions other than exchanges and a per exchange fee of $2.25. GT Services
also was reimbursed by the Fund for its out-of-pocket expenses for such items as
postage, forms, telephone charges, stationery and office supplies.
The Manager is the pricing and accounting agent for the Fund. The monthly fee
for these services to the Manager is a percentage, not to exceed 0.03% annually,
of a Fund's average daily net assets. The
FS-29
<PAGE> 825
annual fee rate is derived 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% to 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.
The Trust pays each Trustee who is not an employee, officer or director of the
Manager, or any other affiliated company, $5,000 per year plus $300 for each
meeting of the board or any committee thereof attended by the Trustee.
3. PURCHASES AND SALES OF SECURITIES
For the year ended October 31, 1998, purchases and sales of investment
securities by the Fund, other than U.S. government obligations and short-term
investments, aggregated $358,167,758 and $372,654,300 respectively. For the year
ended October 31, 1998, purchases and sales of U.S. government obligations
aggregated $373,516,894 and $395,326,576, respectively.
4. CAPITAL SHARES
At October 31, 1998, there were 6,000,000,000 shares of the Trust's common stock
authorized, at $0.0001 par value. Of this amount, 400,000,000 were classified as
shares of the AIM Global Telecommunications Fund; 400,000,000 were classified as
shares of AIM Global Government Income Fund; 200,000,000 were classified as
shares of AIM Global Health Care Fund; 200,000,000 were classified as shares of
AIM Strategic Income Fund; 200,000,000 were classified as shares of AIM
Developing Markets Fund; 200,000,000 were classified as shares of GT Global
Currency Fund (inactive); 200,000,000 were classified as shares of AIM Global
Growth & Income Fund; 200,000,000 were classified as shares of GT Global Small
Companies Fund (inactive); 200,000,000 were classified as shares of AIM Latin
American Growth Fund; 200,000,000 were classified as shares of AIM Emerging
Markets Fund; 200,000,000 were classified as shares of AIM Emerging Markets Debt
Fund; 200,000,000 were classified as shares of AIM Global Financial Services
Fund; 200,000,000 were classified as shares of AIM Global Resources Fund;
200,000,000 were classified as shares of AIM Global Infrastructure Fund;
200,000,000 were classified as shares of AIM Global Consumer Products and
Services Fund. The shares of each of the foregoing series of the Trusts were
divided equally into two classes, designated Class A and Class B common stock.
With respect to the issuance of Advisor Class shares, 100,000,000 shares were
classified as shares of each of the fifteen series of the Trusts and designated
as Advisor Class common stock. 1,100,000,000 shares remain unclassified.
Transactions in capital shares of the Fund were as follows:
CAPITAL SHARE TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
CLASS A
- ---------------------------------------------------------------
Shares sold.................................................... 82,946,586 $720,078,445 48,767,558 $419,503,866
Shares issued in connection with reinvestment of
distributions................................................ 537,397 4,673,843 741,916 6,372,599
----------- ------------ ----------- ------------
83,483,983 724,752,288 49,509,474 425,876,465
Shares repurchased............................................. (87,859,651) (762,718,816) (59,180,268) (509,133,563)
----------- ------------ ----------- ------------
Net decrease................................................... (4,375,668) $(37,966,528) (9,670,794) $(83,257,098)
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
<CAPTION>
CLASS B
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold.................................................... 33,203,356 $287,724,801 27,713,479 $237,734,254
Shares issued in connection with reinvestment of
distributions................................................ 342,811 2,983,470 452,575 3,886,536
----------- ------------ ----------- ------------
33,546,167 290,708,271 28,166,054 241,620,790
Shares repurchased............................................. (38,124,508) (330,880,174) (32,406,087) (278,645,805)
----------- ------------ ----------- ------------
Net decrease................................................... (4,578,341) $(40,171,903) (4,240,033) $(37,025,015)
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
<CAPTION>
ADVISOR CLASS
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold.................................................... 397,514 $ 3,461,130 4,551 38,769
Shares issued in connection with reinvestment of
distributions................................................ 2,169 19,000 680 5,804
----------- ------------ ----------- ------------
399,683 3,480,130 5,231 44,573
Shares repurchased............................................. (366,368) (3,179,841) (1,717) (14,773)
----------- ------------ ----------- ------------
Net increase................................................... 33,315 $ 300,289 3,514 $ 29,800
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
</TABLE>
FS-30
<PAGE> 826
5. WRITTEN OPTIONS
The AIM Global Government Income Fund's written options contract activity for
the year ended October 31, 1998, was as follows:
<TABLE>
<CAPTION>
UNDERLYING
NOMINAL
AIM GLOBAL GOVERNMENT INCOME FUND AMOUNT IN USD PREMIUMS
- ------------------------------------------------------------ ----------------- ------------
<S> <C> <C>
Options outstanding at October 31, 1997 $ 4,840,000 $ 44,673
Options written 35,488,342 182,826
Options cancelled in closing purchase transactions -- --
Options expired prior to exercise (40,328,342) (227,499)
Options exercised -- --
----------------- ------------
Options outstanding at October 31, 1998 $ -- $ --
----------------- ------------
----------------- ------------
</TABLE>
6. SUBSEQUENT EVENT (UNAUDITED)
Effective December 14, 1998, sub-advisory and sub-administration responsibility
for the Fund was transferred from INVESCO (NY), Inc. to INVESCO Asset Management
Ltd., another indirect wholly-owned subsidiary of AMVESCAP PLC. A I M Advisors,
Inc. will continue to serve as the manager and administrator of the Fund. The
transfer will not change the fees paid by A I M Advisors, Inc. for sub-advisory
services and will not change the nature of the sub-advisory services provided to
the Fund or the personnel providing such services.
7. PROXY RESULTS (UNAUDITED)
The Special Meeting of Shareholders of the G.T. Investment Funds, Inc., now
known as AIM Investment Funds, (the "Trust") was held on May 20, 1998 at the
Trust's offices, 50 California Street, 26th Floor, San Francisco, California.
The meeting was held for the following purposes:
(1) To elect Trustees as follows: C. Derek Anderson, Frank S. Bayley, William J.
Guilfoyle, Arthur C. Patterson, Ruth H. Quigley.
(2) To approve a new Investment Management and Administration Contract and
Sub-Advisory and Sub-Administration Contract with respect to each series of
the Trust (each, a "Fund," and collectively, the "Funds").
(3) To approve replacement Rule 12b-1 plans of distribution with respect to
Class A and B Shares of the Fund.
(4) To approve changes to the fundamental investment restrictions of the Fund.
(5) To approve an agreement and plan of conversion and termination for the
Trust.
(6) To ratify the selection of Coopers & Lybrand L.L.P., now known as
PricewaterhouseCoopers LLP, as the Trust's independent public accountants.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
VOTES WITHHELD/
TRUSTEE/MATTER VOTES FOR AGAINST ABSTENTIONS
------------------------------------------------------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
(1) C. Derek Anderson........................................... 191,685,088 N/A 13,123,292
Frank S. Bayley............................................. 191,766,811 N/A 13,041,568
William J. Guilfoyle........................................ 191,828,959 N/A 12,979,420
Arthur C. Patterson......................................... 191,845,270 N/A 12,963,109
Ruth H. Quigley............................................. 191,869,887 N/A 12,938,492
(2)(a) Approval of investment management and administration
contract................................................... 11,536,408 331,113 2,991,833*
(2)(b) Approval of sub-advisory and sub-administration contract.... 11,395,925 369,943 3,093,486*
(3) Approval of replacement Rule 12b-1 plans of distribution
CLASS A SHARES.............................................. 7,719,511 270,134 779,922
CLASS B SHARES.............................................. 5,529,210 170,503 434,919
(4)(a) Modification of Fundamental Restriction on Concentration.... 11,334,807 411,566 3,112,981*
(4)(b) Modification of Fundamental Restriction on Issuing Senior
Securities and Borrowing Money............................. 11,332,764 413,609 3,112,981*
(4)(c) Modification of Fundamental Restriction on Making Loans..... 11,334,807 411,566 3,112,981*
(4)(d) Modification of Fundamental Restriction on Underwriting
Securities................................................. 11,334,807 411,566 3,112,981*
(4)(e) Modification of Fundamental Restriction on Real Estate
Investments................................................ 11,330,893 415,480 3,112,981*
(4)(f) Modification of Fundamental Restriction on Investing in
Commodities................................................ 11,330,902 413,716 3,112,981*
(4)(g) Elimination of Fundamental Restriction on Margin
Transactions............................................... 11,332,945 413,428 3,112,981*
(4)(h) Elimination of Fundamental Restriction on Investing in
Futures Contracts.......................................... 11,330,509 415,864 3,112,981*
(4)(i) Elimination of Fundamental Restriction on Investing in
Illiquid Securities........................................ 11,332,543 413,830 3,112,981*
(4)(j) Elimination of Fundamental Restriction on Pledging Assets... 11,334,799 411,574 3,112,981*
(4)(k) Elimination of Fundamental Restriction on Investments in
Oil, Gas and Mineral Leases and Programs................... 11,334,406 411,967 3,112,981*
(4)(l) Elimination of Fundamental Restriction on Investing for the
Purpose of Control......................................... 11,332,756 413,617 3,112,981*
</TABLE>
FS-31
<PAGE> 827
<TABLE>
<CAPTION>
VOTES WITHHELD/
TRUSTEE/MATTER VOTES FOR AGAINST ABSTENTIONS
------------------------------------------------------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
(4)(m) Elimination of Fundamental Restriction on Purchasing
Securities of Issuers in Which Officers and Board Members
of Each Company and Its Affiliates Own Securities.......... 11,334,807 411,566 3,112,981*
(4)(n) Elimination of Fundamental Restriction on Investing in
Securities of Companies That Have Been in Operation for
Less than Three Years...................................... 11,334,807 411,566 3,112,981*
(4)(o) Elimination of Fundamental Restriction on Selling Securities
Short...................................................... 11,330,101 416,272 3,112,981*
(4)(p) Approval of New Fundamental Investment Policy Regarding
Investment of All of Each Fund's Assets in an Open-End
Fund....................................................... 11,334,799 411,574 3,112,981*
(5) Approval of an agreement and plan of conversion and
termination with respect to the Trust...................... 190,027,469 6,362,084 94,055,040*
(6) Ratification of the selection of Coopers and Lybrand L.L.P.,
now known as PricewaterhouseCoopers LLP, as the Trust's
independent public accountants............................. 191,358,779 2,114,168 11,333,063
</TABLE>
- ------------------------
* Includes Broker Non-Votes
FS-32
<PAGE> 828
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders of AIM Global Growth & Income Fund (formerly GT Global
Growth & Income Fund) and Board of Trustees of AIM Investment Funds (formerly
G.T. Investment Funds, Inc.):
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Global Growth & Income Fund
at October 31, 1998, and the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
/s/PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
BOSTON, MASSACHUSETTS
DECEMBER 18, 1998
FS-33
<PAGE> 829
PORTFOLIO OF INVESTMENTS
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Finance (19.1%)
UBS AG - Registered ....................................... SWTZ 84,259 $ 23,108,090 2.9
BANKS-MONEY CENTER
First Tennessee National Corp. ............................ US 490,800 15,552,225 1.9
BANKS-REGIONAL
Royal & Sun Alliance Insurance Group PLC .................. UK 1,621,400 14,838,645 1.9
INSURANCE - MULTI-LINE
First Union Corp. (N.C.) .................................. US 232,000 13,456,000 1.7
BANKS-REGIONAL
ING Groep N.V. ............................................ NETH 266,878 12,916,678 1.6
OTHER FINANCIAL
American General Corp. .................................... US 170,000 11,645,000 1.4
INSURANCE-LIFE
CGU PLC ................................................... UK 694,750 11,001,855 1.4
INSURANCE - MULTI-LINE
National Australia Bank Ltd. .............................. AUSL 674,825 8,941,431 1.1
BANKS-MONEY CENTER
Commonwealth Bank of Australia ............................ AUSL 713,000 8,863,481 1.1
BANKS-MONEY CENTER
Lloyds TSB Group PLC ...................................... UK 688,428 8,494,490 1.1
BANKS-MONEY CENTER
National Westminster Bank PLC ............................. UK 471,800 7,964,634 1.0
BANKS-MONEY CENTER
IKB Deutsche Industriebank AG ............................. GER 394,000 7,808,108 1.0
BANKS-REGIONAL
Credit Suisse Group ....................................... SWTZ 49,300 7,579,156 1.0
BANKS-MONEY CENTER
Fortis AG ................................................. BEL -- -- --
OTHER FINANCIAL
CVG-/- .................................................. -- 34,440 241,967 --
Strip VVPR-/- ........................................... -- 34,440 1,008 --
------------
152,412,768
------------
Consumer Non-Durables (16.1%)
Cadbury Schweppes PLC ..................................... UK 1,381,800 21,153,539 2.7
FOOD
Bestfoods ................................................. US 300,000 16,350,000 2.1
FOOD
Avon Products, Inc. ....................................... US 364,000 14,446,250 1.8
PERSONAL CARE/COSMETICS
Reckitt & Colman PLC ...................................... UK 833,093 14,398,278 1.8
HOUSEHOLD PRODUCTS
Philip Morris Cos., Inc. .................................. US 255,000 13,036,875 1.6
TOBACCO AND FOOD
Diageo PLC ................................................ UK 1,094,559 11,811,788 1.5
BEVERAGES - ALCOHOLIC
Anheuser-Busch Cos., Inc. ................................. US 188,371 11,196,301 1.4
BEVERAGES - ALCOHOLIC
Pernod Ricard ............................................. FR 158,720 10,574,284 1.3
BEVERAGES - ALCOHOLIC
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-34
<PAGE> 830
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Consumer Non-Durables (Continued)
Foster's Brewing Group Ltd. ............................... AUSL 3,500,000 $ 8,596,875 1.1
BEVERAGES - ALCOHOLIC
Brown-Forman Corp. "B" .................................... US 93,600 6,358,950 0.8
BEVERAGES - ALCOHOLIC
------------
127,923,140
------------
Energy (15.2%)
Texas Utilities Co. ....................................... US 470,000 20,562,500 2.6
ELECTRICAL & GAS UTILITIES
Royal Dutch Petroleum Co. ................................. NETH 371,840 17,956,938 2.3
OIL
Southern Co. .............................................. US 520,000 14,657,500 1.8
ELECTRICAL & GAS UTILITIES
Exxon Corp. ............................................... US 182,600 13,010,250 1.6
ENERGY SOURCES
Electrabel S.A. ........................................... BEL 34,760 12,821,311 1.6
ELECTRICAL & GAS UTILITIES
Mobil Corp. ............................................... US 162,600 12,306,788 1.6
ENERGY SOURCES
Reunies Electrobel & Tractebel S.A. ....................... BEL 57,935 9,667,140 1.2
ELECTRICAL & GAS UTILITIES
RWE AG .................................................... GER 134,620 7,304,015 0.9
ENERGY EQUIPMENT & SERVICES
PG&E Corp. ................................................ US 220,000 6,696,250 0.8
ELECTRICAL & GAS UTILITIES
Elf Aquitaine ............................................. FR 52,475 6,075,486 0.8
OIL
------------
121,058,178
------------
Services (12.7%)
McGraw-Hill, Inc. ......................................... US 162,000 14,569,875 1.8
BROADCASTING & PUBLISHING
Bell Atlantic Corp. ....................................... US 250,000 13,281,250 1.7
TELEPHONE - REGIONAL/LOCAL
Telecom Corporation of New Zealand Ltd.: .................. NZ -- -- 1.5
TELEPHONE NETWORKS
Common .................................................. -- 2,614,200 10,721,872 --
ADR{\/} ................................................. -- 38,000 1,254,000 --
Deutsche Telekom AG ....................................... GER 380,000 10,359,253 1.3
TELEPHONE NETWORKS
Dun & Bradstreet Corp. .................................... US 309,800 8,790,575 1.1
BROADCASTING & PUBLISHING
Koninklijke KPN N.V. ...................................... NETH 220,005 8,551,431 1.1
TELEPHONE NETWORKS
Reuters Group PLC ......................................... UK 716,181 7,369,103 0.9
BROADCASTING & PUBLISHING
Swisscom AG-/- ............................................ SWTZ 20,820 7,054,762 0.9
TELEPHONE NETWORKS
Telecom Italia SpA ........................................ ITLY 900,000 6,508,791 0.8
TELEPHONE NETWORKS
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-35
<PAGE> 831
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Services (Continued)
EMI Group PLC ............................................. UK 887,600 $ 5,260,704 0.7
LEISURE & TOURISM
TABCORP Holdings Ltd. ..................................... AUSL 634,500 4,221,011 0.5
LEISURE & TOURISM
TNT Post Group N.V.-/- .................................... NETH 112,735 3,017,855 0.4
TRANSPORTATION - SHIPPING
------------
100,960,482
------------
Health Care (4.9%)
Bristol Myers Squibb Co. .................................. US 277,400 30,670,038 3.9
PHARMACEUTICALS
American Home Products Corp. .............................. US 170,000 8,287,500 1.0
PHARMACEUTICALS
------------
38,957,538
------------ -----
TOTAL EQUITY INVESTMENTS (cost $365,036,400) ................ 541,312,106 68.0
------------ -----
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Government & Government Agency Obligations (28.3%)
Germany (10.4%)
Deutschland Republic:
6.25% due 4/26/06 ..................................... DEM 62,840,000 43,157,651 5.4
5.625% due 1/4/28 ..................................... DEM 32,375,000 20,814,596 2.6
8.25% due 9/20/01 ..................................... DEM 27,700,000 18,856,619 2.4
United Kingdom (3.6%)
United Kingdom Treasury:
8% due 6/7/21 ......................................... GBP 10,920,000 25,684,015 3.2
(effective yield 4.37%) due 12/7/28 {=} ............... GBP 6,500,000 2,764,289 0.4
United States (14.3%)
United States Treasury:
10.625% due 8/15/15 ................................... USD 44,500,000 71,338,078 9.0
10.375% due 11/15/09 .................................. USD 31,000,000 40,163,163 5.0
7.625% due 2/15/25 .................................... USD 2,100,000 2,762,402 0.3
------------
Total Government & Government Agency Obligations (cost
$215,000,367) .............................................. 225,540,813
------------ -----
TOTAL FIXED INCOME INVESTMENTS (cost $215,000,367) .......... 225,540,813 28.3
------------ -----
<CAPTION>
NO. OF VALUE % OF NET
WARRANTS COUNTRY WARRANTS (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Societe Generale Banque put warrants due 11/15/99 Tractebel
(cost $0) ................................................ BEL 11,587 3,053 --
------------ -----
BANKS-MONEY CENTER
<CAPTION>
VALUE % OF NET
REPURCHASE AGREEMENTS (NOTE 1) ASSETS
- ------------------------------------------------------------- ------------ -------------
<S> <C> <C> <C> <C>
Dated October 30, 1998, with State Street Bank & Trust Co.,
due November 2, 1998, for an effective yield of 5.30%,
collateralized by $23,860,000 U.S. Treasury Notes, 6.75%
due 4/30/00 (market value of collateral is $25,500,375,
including accrued interest). ............................ 25,000,000 3.1
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-36
<PAGE> 832
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
REPURCHASE AGREEMENTS (NOTE 1) ASSETS
- ------------------------------------------------------------- ------------ -------------
<S> <C> <C> <C> <C>
Dated October 30, 1998, with State Street Bank & Trust Co.,
due November 2, 1998, for an effective yield of 5.30%,
collateralized by $360,000 U.S. Treasury Bonds, 11.25% due
2/15/15 (market value of collateral is $611,477, including
accrued interest). ...................................... $ 597,000 0.1
------------ -----
TOTAL REPURCHASE AGREEMENTS (cost $25,597,000) .............. 25,597,000 3.2
------------ -----
TOTAL INVESTMENTS (cost $605,633,767) * .................... 792,452,972 99.5
Other Assets and Liabilities ................................ 4,372,266 0.5
------------ -----
NET ASSETS .................................................. $796,825,238 100.0
------------ -----
------------ -----
</TABLE>
- --------------
-/- Non-income producing security.
{\/} U.S. currency denominated.
{=} Zero coupon bond.
* For Federal income tax purposes, cost is $607,048,328 and
appreciation (depreciation) is as follows:
<TABLE>
<S> <C>
Unrealized appreciation: $ 189,396,722
Unrealized depreciation: (3,992,078)
-------------
Net unrealized appreciation: $ 185,404,644
-------------
-------------
</TABLE>
Abbreviation:
ADR--American Depositary Receipt
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Fund's Portfolio of Investments at October 31, 1998, was concentrated in the
following countries:
<TABLE>
<CAPTION>
PERCENTAGE OF NET ASSETS {D}
-------------------------------------------
FIXED INCOME SHORT-TERM
COUNTRY (COUNTRY CODE/CURRENCY CODE) EQUITY & WARRANTS & OTHER TOTAL
- -------------------------------------- ------ ------------- ---------- -----
<S> <C> <C> <C> <C>
Australia (AUSL/AUD) ................. 3.8 3.8
Belgium (BEL/BEF) .................... 2.8 2.8
France (FR/FRF) ...................... 2.1 2.1
Germany (GER/DEM) .................... 3.2 10.4 13.6
Italy (ITLY/ITL) ..................... 0.8 0.8
Netherlands (NETH/NLG) ............... 5.4 5.4
New Zealand (NZ/NZD) ................. 1.5 1.5
Switzerland (SWTZ/CHF) ............... 4.8 4.8
United Kingdom (UK/GBP) .............. 13.0 3.6 16.6
United States (US/USD) ............... 30.6 14.3 3.7 48.6
------ ----- --- -----
Total ............................... 68.0 28.3 3.7 100.0
------ ----- --- -----
------ ----- --- -----
</TABLE>
- --------------
{d} Percentages indicated are based on net assets of $796,825,238.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACT OUTSTANDING
OCTOBER 31, 1998
<TABLE>
<CAPTION>
MARKET VALUE CONTRACT DELIVERY UNREALIZED
CONTRACT TO SELL: (U.S. DOLLARS) PRICE DATE APPRECIATION
- ---------------------------------------- -------------- ------------ -------- --------------
<S> <C> <C> <C> <C>
British Pounds.......................... 55,676,804 0.60285 1/29/99 $ 224,756
-------------- --------------
Total Contract to Sell (Receivable
amount $55,901,560).................. 55,676,804 224,756
-------------- --------------
THE VALUE OF CONTRACT TO SELL AS
PERCENTAGE OF NET ASSETS IS 6.99%.
Total Open Forward Currency
Contract............................. $ 224,756
--------------
--------------
</TABLE>
- ----------------
See Note 1 of Notes to the Financial Statements.
The accompanying notes are an integral part of the financial statements.
FS-37
<PAGE> 833
STATEMENT OF ASSETS
AND LIABILITIES
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at value (cost $605,633,767) (Note 1)................................. $792,452,972
U.S. currency.................................................................................... 136
Interest receivable.............................................................................. 5,521,680
Dividends and dividend withholding tax reclaims receivable....................................... 1,924,096
Receivable for securities sold................................................................... 1,287,673
Receivable for Fund shares sold.................................................................. 782,800
Receivable for open forward foreign currency contracts (Note 1).................................. 224,756
-----------
Total assets................................................................................... 802,194,113
-----------
Liabilities:
Payable for Fund shares repurchased.............................................................. 1,596,936
Payable for securities purchased................................................................. 1,559,592
Payable for service and distribution expenses (Note 2)........................................... 1,168,454
Payable for investment management and administration fees (Note 2)............................... 634,873
Payable for transfer agent fees (Note 2)......................................................... 182,161
Payable for printing and postage expenses........................................................ 104,124
Payable for custodian fees....................................................................... 44,676
Payable for professional fees.................................................................... 39,377
Payable for registration and filing fees......................................................... 18,504
Payable for fund accounting fees (Note 2)........................................................ 9,251
Payable for Trustees' fees and expenses (Note 2)................................................. 8,979
Other accrued expenses........................................................................... 1,948
-----------
Total liabilities.............................................................................. 5,368,875
-----------
Net assets......................................................................................... $796,825,238
-----------
-----------
Class A:
Net asset value and redemption price per share ($306,278,696 DIVIDED BY 33,081,644 shares
outstanding)...................................................................................... $ 9.26
-----------
-----------
Maximum offering price per share (100/94.50 of $9.26) *............................................ $ 9.80
-----------
-----------
Class B:+
Net asset value and offering price per share ($483,307,176 DIVIDED BY 52,248,436 shares
outstanding)...................................................................................... $ 9.25
-----------
-----------
Advisor Class:
Net asset value, offering price per share, and redemption price per share ($7,239,366 DIVIDED BY
782,121 shares outstanding)....................................................................... $ 9.26
-----------
-----------
Net assets consist of:
Paid in capital (Note 4)......................................................................... $467,573,561
Accumulated net realized gain on investments and foreign currency transactions................... 142,061,286
Net unrealized appreciation on translation of assets and liabilities in foreign currencies....... 371,186
Net unrealized appreciation of investments....................................................... 186,819,205
-----------
Total -- representing net assets applicable to capital shares outstanding.......................... $796,825,238
-----------
-----------
<FN>
- --------------
* On sales of $25,000 or more, the offering price is reduced.
+ Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-38
<PAGE> 834
STATEMENT OF OPERATIONS
Year ended October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment income: (Note 1)
Dividend income (net of foreign withholding tax of $1,274,284)............................ $15,652,077
Interest income........................................................................... 12,405,553
Securities lending income................................................................. 670,939
-----------
Total investment income................................................................. 28,728,569
-----------
Expenses:
Investment management and administration fees (Note 2).................................... 7,885,054
Service and distribution expenses: (Note 2)
Class A.................................................................... $ 1,090,317
Class B.................................................................... 4,987,749 6,078,066
-----------
Transfer agent fees (Note 2).............................................................. 1,254,000
Custodian fees............................................................................ 451,000
Printing and postage expenses............................................................. 385,825
Fund accounting fees (Note 2)............................................................. 210,440
Professional fees......................................................................... 136,000
Registration and filing fees.............................................................. 55,955
Trustees' fees and expenses (Note 2)...................................................... 20,150
Other expenses (Note 1)................................................................... 223,249
-----------
Total expenses before reductions........................................................ 16,699,739
-----------
Expense reductions (Note 5)........................................................... (40,023)
-----------
Total net expenses...................................................................... 16,659,716
-----------
Net investment income....................................................................... 12,068,853
-----------
Net realized and unrealized gain (loss) on investments and foreign currencies:
(Note 1)
Net realized gain on investments............................................. 150,980,039
Net realized loss on foreign currency transactions........................... (4,238,589)
-----------
Net realized gain during the year....................................................... 146,741,450
Net change in unrealized appreciation (depreciation) on translation of assets
and liabilities in foreign currencies....................................... 2,776,067
Net change in unrealized appreciation (depreciation) of investments.......... (32,685,753)
-----------
Net unrealized depreciation during the year............................................. (29,909,686)
-----------
Net realized and unrealized gain on investments and foreign currencies...................... 116,831,764
-----------
Net increase in net assets resulting from operations........................................ $128,900,617
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-39
<PAGE> 835
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
Increase in net assets
Operations:
Net investment income....................................................... $ 12,068,853 $ 16,790,846
Net realized gain on investments and foreign currency transactions.......... 146,741,450 24,005,528
Net change in unrealized appreciation (depreciation) on translation of
assets and liabilities in foreign currencies............................... 2,776,067 (4,059,448)
Net change in unrealized appreciation (depreciation) of investments......... (32,685,753) 84,674,909
------------ ------------
Net increase in net assets resulting from operations...................... 128,900,617 121,411,835
------------ ------------
Class A:
Distributions to shareholders: (Note 1)
From net investment income.................................................. (4,583,653) (7,733,156)
From net realized gain on investments....................................... (8,368,465) (757,327)
Class B:
Distributions to shareholders: (Note 1)
From net investment income.................................................. (4,410,176) (9,266,887)
From net realized gain on investments....................................... (13,388,382) (907,529)
Advisor Class:
Distributions to shareholders: (Note 1)
From net investment income.................................................. (100,933) (125,777)
From net realized gain on investments....................................... (131,267) (12,318)
------------ ------------
Total distributions....................................................... (30,982,876) (18,802,994)
------------ ------------
Capital share transactions: (Note 4)
Increase from capital shares sold and reinvested............................ 548,028,420 426,976,337
Decrease from capital shares repurchased.................................... (601,598,746) (450,361,754)
------------ ------------
Net decrease from capital share transactions.............................. (53,570,326) (23,385,417)
------------ ------------
Total increase in net assets.................................................. 44,347,415 79,223,424
Net assets:
Beginning of year........................................................... 752,477,823 673,254,399
------------ ------------
End of year *............................................................... $796,825,238 $752,477,823
------------ ------------
------------ ------------
* Includes undistributed net investment income............................... $ -- $ --
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-40
<PAGE> 836
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1998 (d) 1997 (d) 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 8.21 $ 7.11 $ 6.35 $ 6.21 $ 6.29
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income................. 0.17 0.21 0.22 0.24 0.22
Net realized and unrealized gain
(loss) on investments................ 1.25 1.12 0.82 0.13 (0.03)
---------- ---------- ---------- ---------- ----------
Net increase from investment
operations......................... 1.42 1.33 1.04 0.37 0.19
---------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income............ (0.13) (0.21) (0.24) (0.22) (0.21)
From net realized gain on
investments.......................... (0.24) (0.02) (0.04) (0.01) (0.06)
---------- ---------- ---------- ---------- ----------
Total distributions................. (0.37) (0.23) (0.28) (0.23) (0.27)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 9.26 $ 8.21 $ 7.11 $ 6.35 $ 6.21
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return (c)............. 17.76% 19.01% 16.80% 6.27% 3.14%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 306,279 $ 292,528 $ 286,203 $ 284,069 $ 317,847
Ratio of net investment income to
average net assets..................... 1.87% 2.74% 3.17% 3.85% 3.30%
Ratio of expenses to average net assets:
With expense reductions (Note 5)...... 1.64% 1.50% 1.59% 1.70% 1.67%
Without expense reductions............ 1.65% 1.64% 1.66% 1.74% N/A
Portfolio turnover rate++............... 92% 50% 39% 83% 117%
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates are calculated on the basis of the Fund as a
whole without distinguishing between the class of shares issued.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-41
<PAGE> 837
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1998 (d) 1997 (d) 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 8.21 $ 7.11 $ 6.35 $ 6.21 $ 6.29
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income................. 0.11 0.16 0.17 0.20 0.18
Net realized and unrealized gain
(loss) on investments................ 1.25 1.13 0.82 0.13 (0.03)
---------- ---------- ---------- ---------- ----------
Net increase from investment
operations......................... 1.36 1.29 0.99 0.33 0.15
---------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income............ (0.08) (0.17) (0.20) (0.18) (0.17)
From net realized gain on
investments.......................... (0.24) (0.02) (0.03) (0.01) (0.06)
---------- ---------- ---------- ---------- ----------
Total distributions................. (0.32) (0.19) (0.23) (0.19) (0.23)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 9.25 $ 8.21 $ 7.11 $ 6.35 $ 6.21
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return (c)............. 16.93% 18.28% 16.06% 5.57% 2.48%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 483,307 $ 456,893 $ 383,966 $ 356,796 $ 359,242
Ratio of net investment income to
average net assets..................... 1.22% 2.09% 2.52% 3.20% 2.65%
Ratio of expenses to average net assets:
With expense reductions (Note 5)...... 2.29% 2.15% 2.24% 2.35% 2.32%
Without expense reductions............ 2.30% 2.29% 2.31% 2.39% N/A
Portfolio turnover rate++............... 92% 50% 39% 83% 117%
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates are calculated on the basis of the Fund as a
whole without distinguishing between the class of shares issued.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-42
<PAGE> 838
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
ADVISOR CLASS+
---------------------------------------------------
JUNE 1, 1995
YEAR ENDED OCTOBER 31, TO
------------------------------------ OCTOBER 31,
1998 (d) 1997 (d) 1996 1995
----------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 8.20 $ 7.10 $ 6.35 $ 6.24
----------- ----------- ---------- -------------
Income from investment operations:
Net investment income................. 0.21 0.23 0.23 0.11
Net realized and unrealized gain
(loss) on investments................ 1.25 1.13 0.82 0.13
----------- ----------- ---------- -------------
Net increase from investment
operations......................... 1.46 1.36 1.05 0.24
----------- ----------- ---------- -------------
Distributions to shareholders:
From net investment income............ (0.16) (0.24) (0.26) (0.13)
From net realized gain on
investments.......................... (0.24) (0.02) (0.04) --
----------- ----------- ---------- -------------
Total distributions................. (0.40) (0.26) (0.30) (0.13)
----------- ----------- ---------- -------------
Net asset value, end of period.......... $ 9.26 $ 8.20 $ 7.10 $ 6.35
----------- ----------- ---------- -------------
----------- ----------- ---------- -------------
Total investment return (c)............. 18.27% 19.23% 17.19% 3.83%(b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 7,239 $ 3,057 $ 3,085 $ 944
Ratio of net investment income to
average net assets..................... 2.22% 3.09% 3.52% 4.20%(a)
Ratio of expenses to average net assets:
With expense reductions (Note 5)...... 1.29% 1.15% 1.24% 1.35%(a)
Without expense reductions............ 1.30% 1.29% 1.31% 1.39%(a)
Portfolio turnover rate++............... 92% 50% 39% 83%
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates are calculated on the basis of the Fund as a
whole without distinguishing between the class of shares issued.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-43
<PAGE> 839
NOTES TO
FINANCIAL STATEMENTS
October 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (SEE ALSO NOTE 2)
AIM Global Growth & Income Fund (the "Fund"), formerly GT Global Growth & Income
Fund, is a separate series of AIM Investment Funds (the "Trust"), formerly GT
Investment Funds, Inc. The Trust is organized as a Delaware business trust and
is registered under the Investment Company Act of 1940, as amended ("1940 Act"),
as a non-diversified, open-end management investment company. The Trust has
thirteen series of shares in operation, each series corresponding to a distinct
portfolio of investments.
The Fund offers Class A, Class B, and Advisor Class shares, each of which has
equal rights as to assets and voting privileges. Class A and Class B each has
exclusive voting rights with respect to its distribution plan. Investment
income, realized and unrealized capital gains and losses, and the common
expenses of the Fund are allocated on a pro rata basis to each class based on
the relative net assets of each class to the total net assets of the Fund. Each
class of shares differs in its respective service and distribution expenses, and
may differ in its transfer agent, registration, and certain other class-specific
fees and expenses.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies in conformity with generally accepted accounting
principles consistently followed by the Fund in the preparation of the financial
statements.
(A) PORTFOLIO VALUATION
The Fund calculates the net asset value of and completes orders to purchase,
exchange or repurchase Fund shares on each business day, with the exception of
those days on which the New York Stock Exchange is closed.
Equity securities are valued at the last sale price on the exchange on which
such securities are traded, or on the principal over-the-counter market on which
such securities are traded, as of the close of business on the day the
securities are being valued, or, lacking any sales, at the last available bid
price. In cases where securities are traded on more than one exchange, the
securities are valued on the exchange determined by A I M Advisors, Inc. ("the
Manager") to be the primary market.
Fixed income investments are valued at the mean of representative quoted bid and
ask prices for such investments or, if such prices are not available, at prices
for investments of comparative maturity, quality and type; however, when the
Fund deems it appropriate, prices obtained for the day of valuation from a bond
pricing service will be used. Short-term investments with a maturity of 60 days
or less are valued at amortized cost adjusted for foreign exchange translation
and market fluctuations, if any.
Investments for which market quotations are not readily available (including
restricted securities which are subject to limitations on their sale) are valued
at fair value as determined in good faith by or under the direction of the
Trust's Board of Trustees.
Portfolio securities which are primarily traded on foreign exchanges are
generally valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S. dollars at
the current exchange rates, except that when an occurrence subsequent to the
time a value was so established is likely to have materially changed such value,
then the fair value of those securities will be determined by consideration of
other factors by or under the direction of the Trust's Board of Trustees.
(B) FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings, and other assets and
liabilities are recorded in the books and records of the Fund after translation
to U.S. dollars based on the exchange rates on that day. The cost of each
security is determined using historical exchange rates. Income and withholding
taxes are translated at prevailing exchange rates when earned or incurred.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, forward foreign currency contracts, sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities other than investments in securities at year
end, resulting from changes in exchange rates.
(C) REPURCHASE AGREEMENTS
With respect to repurchase agreements entered into by the Fund, it is the Fund's
policy to always receive, as collateral, United States government securities or
other high quality debt securities of which the value, including accrued
interest, is at least equal to the amount to be repaid to the Fund under each
agreement at its maturity.
(D) FORWARD FOREIGN CURRENCY CONTRACTS
A forward foreign currency contract ("Forward Contract") is an agreement between
two parties to buy and sell a currency at a set price on a future date. The
market value of the Forward Contract
FS-44
<PAGE> 840
fluctuates with changes in currency exchange rates. The Forward Contract is
marked-to-market daily and the change in market value is recorded by the Fund as
an unrealized gain or loss. When the Forward Contract is closed, the Fund
records a realized gain or loss equal to the difference between the value at the
time it was opened and the value at the time it was closed. Forward Contracts
involve market risk in excess of the amounts shown in the Fund's "Statement of
Assets and Liabilities." The Fund could be exposed to risk if a counter party is
unable to meet the terms of the contract or if the value of the currency changes
unfavorably. The Fund may enter into Forward Contracts in connection with
planned purchases or sales of securities, or to hedge against adverse
fluctuations in exchange rates between currencies.
(E) OPTION ACCOUNTING PRINCIPLES
When the Fund writes a call or put option, an amount equal to the premium
received is included in the Fund's "Statement of Assets and Liabilities" as an
asset and an equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option. The current
market value of an option listed on a traded exchange is valued at its last bid
price, or, in the case of an over-the-counter option, is valued at the average
of the last bid prices obtained from brokers. If an option expires on its
stipulated expiration date or if the Fund enters into a closing purchase
transaction, a gain or loss is realized without regard to any unrealized gain or
loss on the underlying security, and the liability related to such option is
extinguished. If a written call option is exercised, a gain or loss is realized
from the sale of the underlying security and the proceeds of the sale are
increased by the premium originally received. If a written put option is
exercised, the cost of the underlying security purchased would be decreased by
the premium originally received. The Fund can write options only on a covered
basis, which, for a call, requires that the Fund hold the underlying security
and, for a put, requires the Fund to set aside cash, U.S. government securities,
or other liquid securities in an amount not less than the exercise price or
otherwise provide adequate cover at all times while the put option is
outstanding. The Fund may use options to manage its exposure to the stock or
bond market and to fluctuations in currency values or interest rates.
The premium paid by the Fund for the purchase of a call or put option is
included in the Fund's "Statement of Assets and Liabilities" as an investment
and subsequently "marked-to-market" to reflect the current market value of the
option. If an option which the Fund has purchased expires on the stipulated
expiration date, the Fund realizes a loss in the amount of the cost of the
option. If the Fund enters into a closing sale transaction, the Fund realizes a
gain or loss, depending on whether proceeds from the closing sale transaction
are greater or less than the cost of the option. If the Fund exercises a call
option, the cost of the securities acquired by exercising the call is increased
by the premium paid to buy the call. If the Fund exercises a put option, it
realizes a gain or loss from the sale of the underlying security, and the
proceeds from such sale are decreased by the premium originally paid.
The risk associated with purchasing options is limited to the premium originally
paid. The risk in writing a call option is that the Fund may forego the
opportunity of profit if the market value of the underlying security or index
increases and the option is exercised. The risk in writing a put option is that
the Fund may incur a loss if the market value of the underlying security or
index decreases and the option is exercised. In addition, there is the risk the
Fund may not be able to enter into a closing transaction because of an illiquid
secondary market.
(F) FUTURES CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
security at a set price on a future date. Upon entering into such a contract the
Fund is required to pledge to the broker an amount of cash or securities equal
to the minimum "initial margin" requirements of the exchange on which the
contract is traded. Pursuant to the contract, the Fund agrees to receive from or
pay to the broker an amount of cash equal to the daily fluctuation in value of
the contract. Such receipts or payments are known as "variation margin" and are
recorded by the Fund as unrealized gains or losses. When the contract is closed,
the Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the time it was
closed. The potential risk to the Fund is that the change in value of the
underlying securities may not correlate to the change in value of the contracts.
The Fund may use futures contracts to manage its exposure to the stock or bond
market and to fluctuations in currency values or interest rates.
(G) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). The cost of securities sold is determined on a first-in,
first-out basis, unless otherwise specified. Dividends are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. Where a high
level of uncertainty exists as to collection, income is recorded net of all
withholding tax with any rebate recorded when received. The Fund may trade
securities on other than normal settlement terms. This may increase the risk if
the other party to the transaction fails to deliver and causes the Fund to
subsequently invest at less advantageous prices.
(H) PORTFOLIO SECURITIES LOANED
At October 31, 1998, stocks with an aggregate value of $50,614,150 were on loan
to brokers. The loans were secured by cash collateral of $52,108,865. For the
year ended October 31, 1998, the Fund received fees of $670,939.
For international securities, cash collateral is received by the Fund against
loaned securities in an amount at least equal to 105% of the market value of the
loaned securities at the inception of each loan. This collateral must be
maintained at not less than 103% of the market value of the loaned securities
during the period of the loan. For domestic securities, cash collateral is
received by the Fund against loaned securities in an amount at least equal to
102% of the market value of the loaned securities at the inception of each loan.
This collateral must be maintained at not less than 100% of the market value of
the loaned securities during the period of the loan. The cash
FS-45
<PAGE> 841
collateral is invested in a securities lending trust which consists of a
portfolio of high quality short duration securities whose average effective
duration is restricted to 120 days or less.
(I) TAXES
It is the policy of the Fund to meet the requirements for qualification as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended ("Code"). It is also the intention of the Fund to make distributions
sufficient to avoid imposition of any excise tax under Section 4982 of the Code.
Therefore, no provision has been made for Federal taxes on income, capital
gains, or unrealized appreciation of securities held, and excise tax on income
and capital gains.
(J) DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded by the Fund on the ex-date. Income
and capital gain distributions are determined in accordance with Federal income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Fund and timing differences.
(K) FOREIGN SECURITIES
There are certain additional considerations and risks associated with investing
in foreign securities and currency transactions that are not inherent in
investment of domestic origin. The Fund's investments in emerging market
countries may involve greater risks than investments in more developed markets
and the prices of such investments may be volatile. These risks of investing in
foreign and emerging markets may include foreign currency exchange rate
fluctuations, perceived credit risk, adverse political and economic developments
and possible adverse foreign government intervention.
(L) INDEXED SECURITIES
The Fund may invest in indexed securities whose value is linked either directly
or indirectly to changes in foreign currencies, interest rates, equities,
indices, or other reference instruments. Indexed securities may be more volatile
than the reference instrument itself, but any loss is limited to the amount of
the original investment.
(M) RESTRICTED SECURITIES
The Fund is permitted to invest in privately placed restricted securities. These
securities may be resold in transactions exempt from registration or to the
public if the securities are registered. Disposal of these securities may
involve time-consuming negotiations and expense, and prompt sale at an
acceptable price may be difficult. At the end of the year, restricted
securities, if any, (excluding 144A issues), are shown at the end of the Fund's
Portfolio of Investments.
(O) LINE OF CREDIT
The Fund, along with certain other funds advised and/or administered by the
Manager, has a line of credit with each of BankBoston and State Street Bank and
Trust Company. The arrangements with the banks allow the Fund and certain other
Funds to borrow, on a first come, first serve basis, an aggregate maximum amount
of $250,000,000. The Fund is limited to borrowing up to 33 1/3% of the value of
each Fund's total assets. On October 31, 1998, the Fund had no loans
outstanding.
For the year ended October 31, 1998, the weighted average outstanding daily
balance of bank loans (based on the number of days the loans were outstanding)
for the Fund was $9,315,595, with a weighted average interest rate of 6.35%.
Interest expense for the Fund for the year ended October 31, 1998, was $207,044,
and is included in "Other Expenses" on the Statement of Operations.
2. RELATED PARTIES
A I M Advisors, Inc. (the "Manager"), an indirect wholly-owned subsidiary of
AMVESCAP PLC, is the Fund's investment manager and administrator and INVESCO
(NY), Inc., (formerly, Chancellor LGT Asset Management, Inc.) is the Fund's
investment sub-advisor and sub-administrator. As of the close of business on May
29, 1998, Liechtenstein Global Trust AG ("LGT"), the former indirect parent
organization of Chancellor LGT Asset Management, Inc. ("Chancellor LGT")
consummated a purchase agreement with AMVESCAP PLC pursuant to which AMVESCAP
PLC acquired LGT's Asset Management Division, which included Chancellor LGT and
certain other affiliates. As a result of this transaction, Chancellor LGT was
renamed INVESCO (NY), Inc., and is now an indirect wholly-owned subsidiary of
AMVESCAP PLC. A I M Distributors, Inc. ("AIM Distributors"), a wholly-owned
subsidiary of the Manager, became the Fund's distributor as of the close of
business on May 29, 1998. The Trust was reorganized from a Maryland corporation
into a Delaware business trust on September 8, 1998. Finally, as of the close of
business on September 4, 1998, A I M Fund Services, Inc. ("AFS"), an affiliate
of the Manager and AIM Distributors, replaced GT Global Investor Services, Inc.
("GT Services") as the transfer agent of the Fund.
The Fund pays investment management and administration fees to the Manager at
the annualized rate of 0.975% on the first $500 million of average daily net
assets of the Fund; 0.95% on the next $500 million; 0.925% on the next $500
million and 0.90% on amounts thereafter. These fees are computed daily and paid
monthly.
AIM Distributors, an affiliate of the Manager, serves as the Fund's distributor.
For the period ended May 29, 1998, GT Global, Inc. ("GT Global"), an affiliate
of the investment sub-advisor, served as the Fund's distributor. The Fund offers
Class A, Class B, and Advisor Class shares for purchase.
Class A shares are subject to initial sales charges imposed at the time of
purchase, in accordance with the schedule included in the Fund's current
prospectus. AIM Distributors collects the sales charges imposed on sales of
Class A shares, and reallows a portion of such charges to dealers through which
the sales are made. For the year ended October 31, 1998, AIM Distributors and GT
Global retained sales charges of $27,462 and $29,395, respectively. Purchases of
Class A shares exceeding $1,000,000 may be subject to a contingent deferred
sales charge ("CDSC") upon redemption, in accordance with the Fund's current
prospectus. GT Global collected CDSCs for the year ended October 31, 1998 of
$1,692. AIM Distributors also makes
FS-46
<PAGE> 842
ongoing shareholder servicing and trail commission payments to dealers whose
clients hold Class A shares.
Class B shares are not subject to initial sales charges. When Class B shares are
sold, AIM Distributors, from its own resources, pays commissions to dealers
through which the sales are made. Certain redemptions of Class B shares made
within six years of purchase are subject to CDSCs, in accordance with the Fund's
current prospectus. For the year ended October 31, 1998, AIM Distributors and GT
Global collected CDSCs in the amount of $451,820 and $721,075, respectively. In
addition, AIM Distributors makes ongoing shareholder servicing and trail
commission payments to dealers whose clients hold Class B shares.
For the period ended May 29, 1998, pursuant to the then effective separate
distribution plans adopted under the 1940 Act Rule 12b-1 by the Trust's Board of
Trustees with respect to the Fund's Class A shares ("Class A Plan") and Class B
shares ("Class B Plan"), the Fund reimbursed GT Global for a portion of its
shareholder servicing and distribution expenses. Under the Class A Plan, the
Fund was permitted to pay GT Global a service fee at the annualized rate of up
to 0.25% of the average daily net assets of the Fund's Class A shares for GT
Global's expenditures incurred in servicing and maintaining shareholder
accounts, and was permitted to pay GT Global a distribution fee at the
annualized rate of up to 0.35% of the average daily net assets of the Fund's
Class A shares, less any amounts paid by the Fund as the aforementioned service
fee, for GT Global's expenditures incurred in providing services as distributor.
All expenses for which GT Global was reimbursed under the Class A Plan would
have been incurred within one year of such reimbursement.
For the period ended May 29, 1998, pursuant to the Class B Plan, the Fund was
permitted to pay GT Global a service fee at the annualized rate of up to 0.25%
of the average daily net assets of the Fund's Class B shares for GT Global's
expenditures incurred in servicing and maintaining shareholder accounts, and was
permitted to pay GT Global a distribution fee at the annualized rate of up to
0.75% of the average daily net assets of the Fund's Class B shares for GT
Global's expenditures incurred in providing services as distributor. Expenses
incurred under the Class B Plan in excess of 1.00% annually were permitted to be
carried forward for reimbursement in subsequent years as long as that Plan
continued in effect.
Effective as of the close of business May 29, 1998, pursuant to Rule 12b-1 under
the 1940 Act, the Trust's Board of Trustees adopted a Master Distribution Plan
applicable to the Fund's Class A shares ("Class A Plan") and Class B shares
("Class B Plan"), pursuant to which the Fund compensates AIM Distributors for
the purpose of financing any activity that is intended to result in the sale of
Class A or Class B shares of the Fund. Under the Class A Plan, the Fund
compensates AIM Distributors at the annualized rate of 0.35% of the average
daily net assets of the Fund's Class A shares. Under the Class B Plan, the Fund
compensates AIM Distributors at an annualized rate of 1.00% of the average daily
net assets of the Fund's Class B shares.
The Class A Plan and the Class B Plan (together, the "Plans") are designed to
compensate AIM Distributors for certain promotional and other sales-related
costs, and to implement a dealer incentive program that provides for periodic
payments to selected dealers who furnish continuing personal shareholder
services to their customers who purchase and own Class A and Class B shares of
the Fund. Payments also can be directed by AIM Distributors to financial
institutions who have entered into service agreements with respect to Class A
and Class B shares of the Fund and who provide continuing personal services to
their customers who own Class A and Class B shares of the Fund. The service fees
payable to selected financial 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 that were purchased on or after a
prescribed date set forth in the Plans.
The Manager and AIM Distributors voluntarily have undertaken to limit the Fund's
expenses (exclusive of brokerage commissions, taxes, interest, and extraordinary
expenses) to the maximum annual rate of 1.75%, 2.40%, and 1.40% of the average
daily net assets of the Fund's Class A, Class B, and Advisor Class shares,
respectively. If necessary, this limitation will be effected by waivers by the
Manager of investment management and administration fees, waivers by AIM
Distributors of payments under the Class A Plan and/or Class B Plan and/or
reimbursements by the Manager or AIM Distributors of portions of the Fund's
other operating expenses.
Effective as of the close of business September 4, 1998, the Fund, pursuant to a
transfer agency and service agreement, has agreed to pay A I M Fund Services,
Inc. ("AFS") an annualized fee of $24.85 per shareholder accounts that are open
during any monthly period (this fee includes all out-of-pocket expenses), and an
annualized fee of $0.70 per shareholder account that is closed during any
monthly period. Both fees shall be billed by AFS monthly in arrears on a
prorated basis of 1/12 of the annualized fee for all such accounts.
For the period November 1, 1997 to September 4, 1998, GT Services, an affiliate
of the Manager and AIM Distributors, was the transfer agent of the Fund. For
performing shareholder servicing, reporting, and general transfer agent
services, GT Services received an annual maintenance fee of $17.50 per account,
a new account fee of $4.00 per account, a per transaction fee of $1.75 for all
transactions other than exchanges and a per exchange fee of $2.25. GT Services
also was reimbursed by the Fund for its out-of-pocket expenses for such items as
postage, forms, telephone charges, stationery and office supplies.
The Manager is the pricing and accounting agent for the Fund. The monthly fee
for these services to the Manager is a percentage, not to exceed 0.03% annually,
of a Fund's average daily net assets. The annual fee rate is derived 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% to the assets in excess of
FS-47
<PAGE> 843
$5 billion. An amount is allocated to and paid by each such fund based on its
relative average daily net assets.
The Trust pays each Trustee who is not an employee, officer or director of the
Manager, or any other affiliated company, $5,000 per year plus $300 for each
meeting of the board or any committee thereof attended by the Trustee.
3. PURCHASES AND SALES OF SECURITIES
For the year ended October 31, 1998, purchases and sales of investment
securities by the Fund, other than short-term investments and U.S. government
obligations, aggregated $438,460,594 and $579,200,900, respectively. Purchases
and sales of U.S. government obligations were $293,744,805 and $240,337,698,
respectively, for the year ended October 31, 1998.
4. CAPITAL SHARES
At October 31, 1998, there were 6,000,000,000 shares of the Trust's common stock
authorized, at $0.0001 par value. Of this amount, 400,000,000 were classified as
shares of the AIM Global Telecommunications Fund; 400,000,000 were classified as
shares of AIM Global Government Income Fund; 200,000,000 were classified as
shares of AIM Global Health Care Fund; 200,000,000 were classified as shares of
AIM Strategic Income Fund; 200,000,000 were classified as shares of AIM
Developing Markets Fund; 200,000,000 were classified as shares of GT Global
Currency Fund (inactive); 200,000,000 were classified as shares of AIM Global
Growth & Income Fund; 200,000,000 were classified as shares of GT Global Small
Companies Fund (inactive); 200,000,000 were classified as shares of AIM Latin
American Growth Fund; 200,000,000 were classified as shares of AIM Emerging
Markets Fund; 200,000,000 were classified as shares of AIM Emerging Markets Debt
Fund; 200,000,000 were classified as shares of AIM Global Financial Services
Fund; 200,000,000 were classified as shares of AIM Global Resources Fund;
200,000,000 were classified as shares of AIM Global Infrastructure Fund;
200,000,000 were classified as shares of AIM Global Consumer Products and
Services Fund. The shares of each of the foregoing series of the Trusts were
divided equally into two classes, designated Class A and Class B common stock.
With respect to the issuance of Advisor Class shares, 100,000,000 shares were
classified as shares of each of the fifteen series of the Trusts and designated
as Advisor Class common stock. 1,100,000,000 shares remain unclassified.
Transactions in capital shares of the Fund were as follows:
CAPITAL SHARE TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997
------------------------ -------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Shares sold..................................................... 40,631,419 $363,947,180 37,585,791 $289,617,397
Shares issued in connection with reinvestment of
distributions................................................. 1,294,169 11,189,344 935,467 7,161,559
----------- ----------- ----------- ------------
41,925,588 375,136,524 38,521,258 296,778,956
Shares repurchased.............................................. (44,464,914) (400,082,759) (43,156,190) (332,338,391)
----------- ----------- ----------- ------------
Net decrease.................................................... (2,539,326) $(24,946,235) (4,634,932) $(35,559,435)
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
<CAPTION>
CLASS B
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold..................................................... 12,852,707 $115,998,695 12,634,686 $ 97,336,518
Shares issued in connection with reinvestment of
distributions................................................. 1,736,739 14,930,372 1,087,287 8,343,350
----------- ----------- ----------- ------------
14,589,446 130,929,067 13,721,973 105,679,868
Shares repurchased.............................................. (17,992,943) (162,624,547) (12,063,889) (93,059,122)
----------- ----------- ----------- ------------
Net increase (decrease)......................................... (3,403,497) $(31,695,480) 1,658,084 $ 12,620,746
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
<CAPTION>
ADVISOR CLASS
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold..................................................... 4,670,023 $41,740,705 3,177,501 $ 24,442,634
Shares issued in connection with reinvestment of
distributions................................................. 25,259 222,124 9,792 74,879
----------- ----------- ----------- ------------
4,695,282 41,962,829 3,187,293 24,517,513
Shares repurchased.............................................. (4,285,866) (38,891,440) (3,248,879) (24,964,241)
----------- ----------- ----------- ------------
Net increase (decrease)......................................... 409,416 $ 3,071,389 (61,586) $ (446,728)
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
</TABLE>
5. EXPENSE REDUCTIONS
The Manager directed certain portfolio trades to brokers who then paid a portion
of the Fund's expenses. For the year ended October 31, 1998, the Fund's expenses
were reduced by $40,023 under these arrangements.
6. SUBSEQUENT EVENT (UNAUDITED)
Effective December 14, 1998, sub-advisory and sub-administration responsibility
for the Fund was transferred from INVESCO (NY), Inc. to INVESCO Asset Management
Ltd., another indirect wholly-owned subsidiary of AMVESCAP PLC. A I M Advisors,
Inc. will continue to serve as the manager and administrator of the Fund. The
transfer will not change the fees paid by A I M Advisors, Inc. for sub-advisory
services and will not change the nature of the sub-advisory services provided to
the Fund or the personnel providing such services.
FS-48
<PAGE> 844
7. PROXY RESULTS (UNAUDITED)
The Special Meeting of Shareholders of the G.T. Investment Funds, Inc., now
known as AIM Investment Funds (the "Trust"), was held on May 20, 1998 at the
Trust's offices, 50 California Street, 26th Floor, San Francisco, California.
The meeting was held for the following purposes:
(1) To elect Trustees as follows: C. Derek Anderson, Frank S. Bayley, William J.
Guilfoyle, Arthur C. Patterson, Ruth H. Quigley.
(2) To approve a new Investment Management and Administration Contract and
Sub-Advisory and Sub-Administration Contract with respect to each series of
the Trust (each, a "Fund," and collectively, the "Funds").
(3) To approve replacement Rule 12b-1 plans of distribution with respect to
Class A and B Shares of the Fund.
(4) To approve changes to the fundamental investment restrictions of the Fund.
(5) To approve an agreement and plan of conversion and termination for the
Trust.
(6) To ratify the selection of Coopers & Lybrand L.L.P., now known as
PricewaterhouseCoopers LLP, as the Trust's independent public accountants.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
VOTES WITHHELD/
TRUSTEE/MATTER VOTES FOR AGAINST ABSTENTIONS
------------------------------------------------------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
(1) C. Derek Anderson........................................... 191,685,088 N/A 13,123,292
Frank S. Bayley............................................. 191,766,811 N/A 13,041,568
William J. Guilfoyle........................................ 191,828,959 N/A 12,979,420
Arthur C. Patterson......................................... 191,845,270 N/A 12,963,109
Ruth H. Quigley............................................. 191,869,887 N/A 12,938,492
(2)(a) Approval of investment management and administration
contract................................................... 39,225,701 1,056,645 13,378,967*
(2)(b) Approval of sub-advisory and sub-administration contract.... 38,944,404 1,186,043 13,530,866*
(3) Approval of replacement Rule 12b-1 plans of distribution
CLASS A SHARES.............................................. 18,231,511 633,604 1,624,850
CLASS B SHARES.............................................. 29,206,760 734,958 2,693,335
(4)(a) Modification of Fundamental Restriction on Concentration.... 38,595,526 1,334,363 13,731,424*
(4)(b) Modification of Fundamental Restriction on Issuing Senior
Securities and Borrowing Money............................. 38,602,220 1,327,669 13,731,424*
(4)(c) Modification of Fundamental Restriction on Making Loans..... 38,604,739 1,325,150 13,731,424*
(4)(d) Modification of Fundamental Restriction on Underwriting
Securities................................................. 38,604,247 1,325,642 13,731,424*
(4)(e) Modification of Fundamental Restriction on Real Estate
Investments................................................ 38,605,220 1,324,669 13,731,424*
(4)(f) Modification of Fundamental Restriction on Investing in
Commodities................................................ 38,588,769 1,341,120 13,731,424*
(4)(g) Elimination of Fundamental Restriction on Margin
Transactions............................................... 38,586,718 1,343,171 13,731,424*
(4)(h) Elimination of Fundamental Restriction on Investing in
Illiquid Securities........................................ 38,596,890 1,332,999 13,731,424*
(4)(i) Elimination of Fundamental Restriction on Pledging Assets... 38,591,039 1,338,850 13,731,424*
(4)(j) Elimination of Fundamental Restriction on Investments in
Oil, Gas and Mineral Leases and Programs................... 38,603,432 1,326,457 13,731,424*
(4)(k) Elimination of Fundamental Restriction on Investing for the
Purpose of Control......................................... 38,602,458 1,327,431 13,731,424*
(4)(l) Elimination of Fundamental Restriction on Purchasing
Securities of Issuers in which Officers and Board Members
of Each Company and its Affiliates own Securities.......... 38,593,114 1,336,775 13,731,424*
(4)(m) Approval of New Fundamental Investment Policy Regarding
Investment of All of Each Fund's Assets in an Open-End
Fund....................................................... 38,590,154 1,339,735 13,731,424*
(5) Approval of an agreement and plan of conversion and
termination with respect to the Trust...................... 190,027,469 6,362,084 94,055,040*
(6) Ratification of the selection of Coopers and Lybrand L.L.P.,
now known as PricewaterhouseCoopers LLP, as the Trust's
Independent Public Accountants............................. 191,358,779 2,114,168 11,333,063
</TABLE>
- ------------------------
* Includes Broker Non-Votes
- ------------------------
FEDERAL TAX INFORMATION (UNAUDITED):
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$41,888,115 as capital gain dividends for the fiscal year ended October 31,
1998.
Pursuant to Section 854 of the Internal Revenue Code, the Fund designates 41.37%
of ordinary income dividends paid (including short-term capital gain
distributions, if any) by the Fund as income qualifying for the dividends
received deduction for corporations for the fiscal year ended October 31, 1998.
FS-49
<PAGE> 845
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders of AIM Strategic Income Fund (formerly GT Global Strategic
Income Fund) and Board of Trustees of AIM Investment Funds (formerly G.T.
Investment Funds, Inc.):
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Strategic Income Fund at
October 31, 1998, and the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
/s/PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
BOSTON, MASSACHUSETTS
DECEMBER 18, 1998
FS-50
<PAGE> 846
PORTFOLIO OF INVESTMENTS
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- --------------------------------------------------------- -------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
Government & Government Agency Obligations (62.4%)
Algeria (1.1%)
Algeria Tranche 1 Loan Assignment, 6.625% due
9/4/06+ ............................................ USD 6,400,000 $ 3,264,000 1.1
Argentina (3.1%)
Republic of Argentina:
I.O. Strip, 12.11% due 4/10/05 .................... USD 3,385,000 2,978,800 1.0
Par Bond Series L, 5.75% (6% at 3/31/99) due
3/31/23++ ........................................ USD 3,750,000 2,606,250 0.9
Discount Bond, 6.625% due 3/31/23+ ................ USD 3,605,000 2,455,906 0.8
7.297% due 7/8/05 ................................. ITL 2,865,000,000 1,298,695 0.4
Global Bond, 9.75% due 9/19/27 .................... USD 140,000 121,555 --
Belgium (0.5%)
Kingdom of Belgium, 5.75% due 3/28/08 ............... BEF 43,600,000 1,412,469 0.5
Brazil (1.0%)
Brazil Floating Rate Discount Note, 6.125% due
4/15/24+ ........................................... USD 4,918,000 2,923,135 1.0
Bulgaria (1.3%)
Republic of Bulgaria:
Front Loaded Interest Reduction Bond Series A, 2.5%
(2.75% at 7/99) due 7/28/12++ .................... USD 3,786,000 2,091,765 0.7
Discount Bond Series A, 6.6875% due 7/28/24 -
EURO+ ............................................ USD 2,585,000 1,815,963 0.6
Canada (1.3%)
Canadian Government, 6% due 6/1/08 .................. CAD 5,370,000 3,719,138 1.3
Colombia (1.2%)
Republic of Colombia:
8.625% due 4/1/08 ................................. USD 2,674,000 2,099,090 0.7
7.27% due 6/15/03 - 144A{.} ....................... USD 1,790,000 1,458,850 0.5
Germany (17.5%)
Deutschland Republic:
6% due 1/5/06 ..................................... DEM 32,300,000 21,798,743 7.5
6.5% due 7/4/27 ................................... DEM 27,830,000 19,974,175 6.8
6% due 7/4/07 ..................................... DEM 9,520,000 6,485,288 2.2
6.5% due 10/14/05 ................................. DEM 4,050,000 2,808,157 1.0
Greece (1.0%)
Hellenic Republic:
9.2% due 3/21/02 .................................. GRD 650,000,000 2,298,569 0.8
8.8% due 6/19/07 .................................. GRD 200,000,000 738,137 0.2
Italy (3.7%)
Italian Government, 7.25% due 11/1/26 ............... ITL 11,430,000,000 8,781,841 3.0
Italian Buoni Poliennali Del Tesoro (BTPS), 8.5% due
1/1/04 ............................................. ITL 2,730,000,000 2,006,667 0.7
Ivory Coast (1.3%)
Ivory Coast Government:
1.9% (2.9% at 3/31/09) due 3/29/18++ .............. FRF 63,693,750 2,838,505 1.0
2% (3% at 3/31/09) due 3/29/18++ .................. USD 2,765,000 808,763 0.3
Jamaica (0.3%)
Government of Jamaica, 10.875% due 6/10/05 -
144A{.} ............................................ USD 1,158,000 868,500 0.3
Korea (0.6%)
Korea Republic Restructured Debt, 8.281% due
4/8/00+ ............................................ USD 1,800,000 1,674,000 0.6
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-51
<PAGE> 847
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- --------------------------------------------------------- -------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
Government & Government Agency Obligations (Continued)
Mexico (1.7%)
United Mexican States:
6.63% due 12/31/19 ................................ FRF 12,000,000 $ 1,682,662 0.6
9.875% due 1/15/07 ................................ USD 1,560,000 1,483,950 0.5
11.375% due 9/15/16 ............................... USD 936,000 934,830 0.3
Discount Bond Series B, 6.47656% due
12/31/19++/+ ..................................... USD 575,000 448,859 0.2
Discount Bond Series D, 6.6016% due12/31/19+ ...... USD 250,000 195,156 0.1
Panama (0.8%)
Republic of Panama:
8.875% due 9/30/27 ................................ USD 1,373,000 1,266,593 0.4
Interest Reduction Bond, 4% (4.25% at 7/99) due
7/17/14++ ........................................ USD 1,720,000 1,258,825 0.4
Peru (1.2%)
Republic of Peru, Past Due Interest Bond, 4% (4.25%
at 3/8/99) due 3/7/17++ ............................ USD 5,871,000 3,375,825 1.2
Poland (0.9%)
Republic of Poland:
3% (3.5% at 10/28/99) due 10/27/24 - Euro++ ....... USD 2,785,000 1,852,025 0.6
Past Due Interest Bond, 5% (6% at 10/28/99) due
10/27/14 - Euro++ ................................ USD 1,005,000 913,922 0.3
Russia (0.4%)
Bank for Foreign Economic Affairs (Venesheconombank)
Principal Loans, 6.625% due 12/15/20+ .............. USD 16,555,492 1,314,092 0.4
Sweden (1.1%)
Swedish Government, 6.5% due 10/25/06 ............... SEK 21,700,000 3,134,271 1.1
United Kingdom (8.5%)
United Kingdom Treasury, 9% due 10/13/08 ............ GBP 11,310,000 24,683,511 8.5
United States (13.9%)
United States Treasury:
6.375% due 8/15/27{./} ............................ USD 20,300,000 23,428,658 8.0
5.625% due 5/15/08{./} ............................ USD 12,390,000 13,354,097 4.6
Federal National Mortgage Association, 7.25% due
6/20/02 ............................................ NZD 7,000,000 3,829,514 1.3
------------
Total Government & Government Agency Obligations (cost
$194,543,627) .......................................... 182,483,751
------------
Corporate Bonds (20.1%)
Argentina (0.4%)
Disco S.A., 9.875% due 5/15/08 - 144A{.} ............ USD 750,000 523,125 0.2
Mastellone Hermanos S.A., 11.75% due 4/1/08 -
144A{.} ............................................ USD 745,000 454,450 0.2
Brazil (1.3%)
Banco Hipotecario Espana, 10% due 4/17/03 -
144A{.} ............................................ USD 1,675,000 1,474,000 0.5
RBS Participacoes S.A., 11% due 4/1/07 - 144A{.} .... USD 1,773,000 797,850 0.3
Banco Nacional de Desenvolvimento Economico e Social
(BNDES):
10.8% due 6/16/08 - 144A{.} ....................... USD 1,335,000 934,500 0.3
10.8% due 6/16/08 - Reg S{c} ...................... USD 825,000 577,500 0.2
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-52
<PAGE> 848
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- --------------------------------------------------------- -------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
Corporate Bonds (Continued)
Colombia (0.2%)
Financiera Energia Nacional, 9.375% due 6/15/06 - Reg
S{c} ............................................... USD 836,000 $ 613,039 0.2
Jamaica (0.2%)
Mechala Group Jamaica, 12.75% due 12/30/99 - Reg
S{c} ............................................... USD 719,000 503,300 0.2
Korea (0.3%)
Pohang Iron & Steel, 2% due 10/9/00 ................. JPY 119,000,000 884,625 0.3
Luxembourg (0.4%)
Cellco Finance N.V., 15% due 8/1/05 - Reg S{c} ...... USD 1,550,000 1,255,500 0.4
Mexico (1.6%)
Petroleos Mexicanos (PEMEX), 9.25% due 3/30/18 -
144A{.} ............................................ USD 2,950,000 2,404,250 0.8
Monterrey Power, S.A. de C.V., 9.625% due 11/15/09 -
144A{.} ............................................ USD 1,245,000 834,150 0.3
Dine, S.A. de C.V., 8.75% due 10/15/07 - 144A{.} .... USD 860,000 679,400 0.2
Cemex Valenciana, 9.66% due 12/29/49 ................ USD 545,000 457,800 0.2
Banco Nacional Comercio Exte., 8% due 7/18/02 - Reg
S{c} ............................................... USD 421,000 384,163 0.1
Russia (0.3%)
Lukinter Finance BV Convertible, 3.5% due 5/6/02 -
144A{.} ............................................ USD 1,526,000 556,990 0.2
Mosenergo Finance BV, 8.375% due 10/9/02 -
144A{.} ............................................ USD 1,040,000 182,000 0.1
Singapore (0.2%)
Krung Thai Bank (Singapore), 6.73% due 9/30/04 ...... USD 1,000,000 660,000 0.2
United Kingdom (0.7%)
Orange PLC, 7.625% due 8/1/08 ....................... ECU 1,000,000 1,139,466 0.4
Colt Telecom Group PLC, 7.625% due 7/31/08 .......... DEM 1,600,000 857,355 0.3
United States (14.5%)
Chase Manhattan Corp., 6.25% due 1/15/06 ............ USD 2,835,000 2,934,222 1.0
General Motors Acceptance Corp., 6.625% due
10/15/05 ........................................... USD 2,700,000 2,852,711 1.0
Ford Motor Credit Corp., 5.25% due 6/16/08 .......... DEM 4,610,000 2,829,116 1.0
Unisys Corp., 7.875% due 4/1/08 ..................... USD 2,350,000 2,373,500 0.8
Engle Homes, Inc., 9.25% due 2/1/08 ................. USD 2,350,000 2,208,770 0.8
Merrill Lynch & Co., 7.25% due 5/2/02 ............... USD 2,070,000 2,154,601 0.7
United Stationers Supply, 8.375% due 4/15/08 -
144A{.} ............................................ USD 2,000,000 2,005,000 0.7
Lenfest Communications, 8.25% due 2/15/08 -
144A{.} ............................................ USD 1,850,000 1,877,917 0.6
Smithfield Foods, Inc., 7.625% due 2/15/08 -
144A{.} ............................................ USD 1,725,000 1,690,500 0.6
Hollywood Casino Corp., 12.75% due 11/1/03 .......... USD 1,700,000 1,674,500 0.6
Eagle Family Foods, 8.75% due 1/15/08 - 144A{.} ..... USD 1,875,000 1,668,750 0.6
Graham Packaging/GPC Capital, 8.75% due 1/15/08 -
144A{.} ............................................ USD 1,725,000 1,638,750 0.6
Riddell Sports, Inc., 10.5% due 7/15/07 ............. USD 1,700,000 1,530,000 0.5
Lin Television Corp., 8.375% due 3/1/08 - 144A{.} ... USD 1,500,000 1,440,000 0.5
Trump Atlantic Association Funding, Inc., 11.25% due
5/1/06 ............................................. USD 1,700,000 1,394,000 0.5
Chancellor Media Corp., 8.125% due 12/15/07 -
144A{.} ............................................ USD 1,300,000 1,228,500 0.4
Drypers Corp. Series B, 10.25% due 6/15/07 .......... USD 1,300,000 1,202,500 0.4
PSINET, Inc., 10% due 2/15/05 ....................... USD 1,000,000 952,200 0.3
Fisher Scientific International, 9% due 2/1/08 ...... USD 1,000,000 925,880 0.3
Penn National Gaming, Inc., 10.625% due 12/15/04 -
144A{.} ............................................ USD 875,000 857,500 0.3
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-53
<PAGE> 849
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- --------------------------------------------------------- -------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
Corporate Bonds (Continued)
Allbritton Communication, 8.875% due 2/1/08 -
144A{.} ............................................ USD 885,000 $ 831,900 0.3
Duane Reade, Inc., 9.25% due 2/15/08 ................ USD 885,000 831,445 0.3
Norampac, Inc., 9.5% due 2/1/08 - 144A{.} ........... USD 885,000 827,475 0.3
Revlon Consumer Products, 8.625% due 2/2/08 -
144A{.} ............................................ USD 885,000 809,775 0.3
BTI Telecommunications Corp., 10.5% due 9/15/07 -
144A{.} ............................................ USD 885,000 668,175 0.2
Syratech Corp., 11% due 4/15/07 ..................... USD 880,000 660,000 0.2
Delco Remy International, Inc., 8.625% due
12/15/07 ........................................... USD 650,000 629,950 0.2
Niagara Mohawk Power, 7.375% due 7/1/03 ............. USD 500,000 511,065 0.2
Pillowtex Corp., 9% due 12/15/07 - 144A{.} .......... USD 435,000 435,000 0.1
Anker Coal Group, Inc., 9.75% due 10/1/07 -
144A{.} ............................................ USD 875,000 350,000 0.1
ACME Metal, Inc., 10.875% due 12/15/07
-144A{.}(::) ....................................... USD 825,000 165,000 0.1
------------
Total Corporate Bonds (cost $66,624,782) ................ 58,332,165
------------
Mortgage Backed (11.0%)
Denmark (1.5%)
Realkredit Danmark, 6% due 10/1/26 .................. DKK 28,745,000 4,492,106 1.5
United States (9.5%)
Government National Mortgage Association TBA Pass
Thru Pool, 6% due 11/15/28{*} ...................... USD 28,000,000 27,755,000 9.5
------------
Total Mortgage Backed (cost $32,051,136) ................ 32,247,106
------------
Structured Notes (0.5%)
Korea (0.5%)
Fixed Rate Trust Certificate 13.55% due 2/15/02[::]
(Issued by a newly created Delaware Business Trust,
collateralized by triple A paper. This trust
certificate has a credit risk component linked to
the value of a referenced security: Korean
Development Bank 1.875% 2002.) (cost
$1,930,000) ...................................... USD 1,930,000 1,411,795 0.5
------------ -----
TOTAL FIXED INCOME INVESTMENTS (cost $295,149,545) ...... 274,474,817 94.0
------------ -----
<CAPTION>
PRINCIPAL VALUE % OF NET
SHORT-TERM INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- --------------------------------------------------------- -------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
Commercial Paper - Discounted (9.6%)
United States (9.6%)
Ford Motor Credit, effective yield 5.09%, due
11/18/98 ........................................... USD 14,000,000 13,966,349 4.8
GE Capital, effective yield 5.09%, due 11/18/98 ..... USD 14,000,000 13,966,349 4.8
------------
Total Commercial Paper - Discounted (cost
$27,932,698) ........................................... 27,932,698
------------ -----
TOTAL SHORT-TERM INVESTMENTS (cost $27,932,698) ......... 27,932,698 9.6
------------ -----
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-54
<PAGE> 850
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
REPURCHASE AGREEMENT (NOTE 1) ASSETS
- --------------------------------------------------------- ------------ -------------
<S> <C> <C> <C> <C>
Dated October 30, 1998, with State Street Bank & Trust
Co., due November 2, 1998, for an effective yield of
5.30%, collateralized by $12,030,000 U.S. Treasury
Notes, 5.75% due 9/30/99 (market value of collateral
is $12,225,488, including accrued interest)
(cost $11,982,000) .................................. $ 11,982,000 4.1
------------ -----
TOTAL INVESTMENTS (cost $335,064,243) * ................ 314,389,515 107.7
Other Assets and Liabilities ............................ (22,602,184) (7.7)
------------ -----
NET ASSETS .............................................. $291,787,331 100.0
------------ -----
------------ -----
</TABLE>
- --------------
[::] Certain events may cause the contract to terminate prior to date
shown.
{.} Security exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers.
{c} Security issued under Regulation S. Rule 144A and additional
restrictions may apply in the resale of such securities.
(::) Valued in good faith at fair value using procedures approved by the
Board of Trustees (see Note 1 of Notes to Financial Statements).
+ The coupon rate shown on floating rate note represents the rate at
period end.
++ The coupon rate shown on step-up coupon bond represents the rate at
period end.
{./} All or part of the Fund's holdings in this security is segregated
as collateral for derivative securities and securities purchased on
a forward commitment basis. See Note 1 to the Financial Statements.
+/+ Issued with detachable warrants or value recovery rights. The
current market value of each warrant or right is zero.
{*} Purchased on a forward commitment basis.
* For Federal income tax purposes, cost is $337,572,672 and
appreciation (depreciation) is as follows:
<TABLE>
<S> <C>
Unrealized appreciation: $ 4,236,684
Unrealized depreciation: (27,419,841)
-------------
Net unrealized depreciation: $ (23,183,157)
-------------
-------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS OUTSTANDING
OCTOBER 31, 1998
<TABLE>
<CAPTION>
MARKET VALUE UNREALIZED
(U.S. CONTRACT DELIVERY APPRECIATION
CONTRACTS TO SELL: DOLLARS) PRICE DATE (DEPRECIATION)
- ---------------------------------------- ------------- ----------- -------- ---------------
<S> <C> <C> <C> <C>
Canadian Dollars........................ 3,695,654 1.54785 3/18/99 $ (13,127)
French Francs........................... 2,753,722 5.45470 3/18/99 32,865
Japanese Yen............................ 819,279 118.80000 11/27/98 (19,616)
------------- ---------------
Total Contracts to Sell (Receivable
amount $7,268,777)................... 7,268,655 122
------------- ---------------
THE VALUE OF CONTRACTS TO SELL AS A
PERCENTAGE OF NET ASSETS IS 2.49%.
Total Open Forward Foreign Currency
Contracts............................ $ 122
---------------
---------------
</TABLE>
- ----------------
See Note 1 of Notes to the Financial Statements.
The accompanying notes are an integral part of the financial statements.
FS-55
<PAGE> 851
STATEMENT OF ASSETS
AND LIABILITIES
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at value (cost $335,064,243) (Note 1)............................... $ 314,389,515
U.S. currency................................................................. $ 983
Foreign currencies (cost $1,866,855).......................................... 1,867,904 1,868,887
-------------
Receivable for securities sold................................................................. 31,828,916
Interest receivable............................................................................ 6,062,576
Receivable for Fund shares sold................................................................ 440,563
Miscellaneous receivable....................................................................... 12,228
Receivable for open forward foreign currency contracts (Note 1)................................ 122
-------------
Total assets................................................................................. 354,602,807
-------------
Liabilities:
Payable for securities purchased............................................................... 59,770,608
Payable for Fund shares repurchased............................................................ 1,127,005
Distribution payable........................................................................... 713,718
Payable for service and distribution expenses (Note 2)......................................... 491,179
Payable for investment management and administration fees (Note 2)............................. 213,197
Payable for transfer agent fees (Note 2)....................................................... 208,968
Payable for custodian fees..................................................................... 100,456
Payable for printing and postage expenses...................................................... 92,249
Payable for professional fees.................................................................. 42,265
Payable for registration and filing fees....................................................... 18,805
Payable for Trustees' fees and expenses (Note 2)............................................... 11,792
Payable for fund accounting fees (Note 2)...................................................... 7,217
Other accrued expenses......................................................................... 18,017
-------------
Total liabilities............................................................................ 62,815,476
-------------
Net assets....................................................................................... $ 291,787,331
-------------
-------------
Class A:
Net asset value and redemption price per share ($102,279,959 DIVIDED BY 9,474,511 shares
outstanding).................................................................................... $ 10.80
-------------
-------------
Maximum offering price per share (100/95.25 of $10.80) *......................................... $ 11.34
-------------
-------------
Class B:+
Net asset value and offering price per share ($188,660,057 DIVIDED BY 17,458,947 shares
outstanding).................................................................................... $ 10.81
-------------
-------------
Advisor Class:
Net asset value, offering price per share, and redemption price per share ($847,315 DIVIDED BY
78,237 shares outstanding)...................................................................... $ 10.83
-------------
-------------
Net assets consist of:
Paid in capital (Note 4)....................................................................... $ 387,101,752
Accumulated net investment loss................................................................ (122)
Accumulated net realized loss on investments and foreign currency transactions................. (74,693,113)
Net unrealized appreciation on translation of assets and liabilities in foreign currencies..... 53,542
Net unrealized depreciation of investments..................................................... (20,674,728)
-------------
Total -- representing net assets applicable to capital shares outstanding........................ $ 291,787,331
-------------
-------------
<FN>
- --------------
* On sales of $50,000 or more, the offering price is reduced.
+ Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-56
<PAGE> 852
STATEMENT OF OPERATIONS
Year ended October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment income: (Note 1)
Interest income............................................................................ $33,776,429
Securities lending income.................................................................. 741,430
-----------
Total investment income.................................................................. 34,517,859
-----------
Expenses:
Service and distribution expenses: (Note 2)
Class A..................................................................... $ 439,823
Class B..................................................................... 2,448,700 2,888,523
-----------
Investment management and administration fees (Note 2)..................................... 2,691,901
Transfer agent fees (Note 2)............................................................... 799,100
Custodian fees............................................................................. 220,500
Printing and postage expenses.............................................................. 201,000
Professional fees.......................................................................... 142,500
Fund accounting fees (Note 2).............................................................. 99,805
Registration and filing fees............................................................... 64,750
Trustees' fees and expenses (Note 2)....................................................... 21,950
Other expenses............................................................................. 286,421
-----------
Total expenses........................................................................... 7,416,450
-----------
Net investment income........................................................................ 27,101,409
-----------
Net realized and unrealized gain (loss) on investments and foreign currencies:
(Note 1)
Net realized loss on investments.............................................. (14,842,820)
Net realized gain on foreign currency transactions............................ 5,025,299
-----------
Net realized loss during the year........................................................ (9,817,521)
Net change in unrealized appreciation (depreciation) on translation of assets
and liabilities in foreign currencies........................................ (1,692,009)
Net change in unrealized appreciation (depreciation) of investments........... (26,689,090)
-----------
Net unrealized depreciation during the year.............................................. (28,381,099)
-----------
Net realized and unrealized loss on investments and foreign currencies....................... (38,198,620)
-----------
Net decrease in net assets resulting from operations......................................... $(11,097,211)
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-57
<PAGE> 853
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Decrease in net assets
Operations:
Net investment income....................................................... $ 27,101,409 $ 27,580,494
Net realized gain (loss) on investments and foreign currency transactions... (9,817,521) 39,498,013
Net change in unrealized appreciation (depreciation) on translation of
assets and liabilities in foreign currencies............................... (1,692,009) 2,627,595
Net change in unrealized depreciation of investments........................ (26,689,090) (26,190,807)
------------ ------------
Net increase (decrease) in net assets resulting from operations........... (11,097,211) 43,515,295
------------ ------------
Class A:
Distributions to shareholders: (Note 1)
From net investment income.................................................. (7,063,735) (10,228,265)
In excess of net investment income.......................................... -- (775,601)
Return of capital........................................................... (1,864,318) --
Class B:
Distributions to shareholders: (Note 1)
From net investment income.................................................. (12,380,012) (18,434,103)
In excess of net investment income.......................................... -- (1,397,843)
Return of capital........................................................... (3,267,432) --
Advisor Class:
Distributions to shareholders: (Note 1)
From net investment income.................................................. (44,834) (43,148)
In excess of net investment income.......................................... -- (3,272)
Return of capital........................................................... (11,833) --
------------ ------------
Total distributions....................................................... (24,632,164) (30,882,232)
------------ ------------
Capital share transactions: (Note 4)
Increase from capital shares sold and reinvested............................ 185,041,479 335,031,026
Decrease from capital shares repurchased.................................... (278,148,568) (445,823,540)
------------ ------------
Net decrease from capital share transactions.............................. (93,107,089) (110,792,514)
------------ ------------
Total decrease in net assets.................................................. (128,836,464) (98,159,451)
Net assets:
Beginning of year........................................................... 420,623,795 518,783,246
------------ ------------
End of year *............................................................... $291,787,331 $420,623,795
------------ ------------
------------ ------------
* Includes accumulated net investment loss/distributions in excess of net
investment income.......................................................... $ (122) $ (3,351,006)
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-58
<PAGE> 854
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1998 (d) 1997 1996 (d) 1995 (d) 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 12.00 $ 11.76 $ 10.32 $ 10.88 $ 13.61
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income................. 0.91* 0.74 0.89 0.97 0.79
Net realized and unrealized gain
(loss) on investments and foreign
currencies........................... (1.27) 0.34 1.44 (0.69) (2.14)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) from
investment operations.............. (0.36) 1.08 2.33 0.28 (1.35)
---------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income............ (0.65) (0.78) (0.82) (0.80) (0.79)
From net realized gain on
investments.......................... -- -- -- -- (0.38)
In excess of net investment income.... -- (0.06) (0.07) -- --
Return of capital..................... (0.19) -- -- (0.04) (0.21)
---------- ---------- ---------- ---------- ----------
Total distributions................. (0.84) (0.84) (0.89) (0.84) (1.38)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 10.80 $ 12.00 $ 11.76 $ 10.32 $ 10.88
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return (c)............. (3.41)% 9.40% 23.00% 3.06% (10.44)%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 102,280 $ 138,715 $ 185,126 $ 188,165 $ 275,241
Ratio of net investment income to
average net assets..................... 7.73% 6.18% 8.09% 9.64% 6.74%
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions............... 1.56% 1.35% 1.38% 1.42% 1.40%
Without expense reductions............ 1.56% 1.44% 1.40% 1.45% N/A
Ratio of interest expense to average net
assets++............................... N/A N/A N/A N/A 0.10%
Portfolio turnover rate++............... 306% 149% 177% 238% 583%
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
* Net investment income per share reflects an interest payment received
from the conversion of Vnesheconombank loan agreements of $0.11 per
share for each of Class A, B and Advisor.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates and ratio of interest expense to average net
assets are calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
N/A Not Applicable
The accompanying notes are an integral part of the financial statements.
FS-59
<PAGE> 855
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1998 (d) 1997 1996 (d) 1995 (d) 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 12.01 $ 11.77 $ 10.33 $ 10.88 $ 13.60
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income................. 0.84* 0.67 0.82 0.91 0.73
Net realized and unrealized gain
(loss) on investments and foreign
currencies........................... (1.28) 0.33 1.44 (0.69) (2.14)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) from
investment operations.............. (0.44) 1.00 2.26 0.22 (1.41)
---------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income............ (0.57) (0.71) (0.75) (0.73) (0.72)
From net realized gain on
investments.......................... -- -- -- -- (0.38)
In excess of net investment income.... -- (0.05) (0.07) -- --
Return of capital..................... (0.19) -- -- (0.04) (0.21)
---------- ---------- ---------- ---------- ----------
Total distributions................. (0.76) (0.76) (0.82) (0.77) (1.31)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 10.81 $ 12.01 $ 11.77 $ 10.33 $ 10.88
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return (c)............. (4.04)% 8.70% 22.15% 2.48% (11.02)%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 188,660 $ 281,376 $ 333,178 $ 357,852 $ 458,550
Ratio of net investment income to
average net assets..................... 7.08% 5.53% 7.44% 8.99% 6.09%
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions............... 2.21% 2.00% 2.03% 2.07% 2.05%
Without expense reductions............ 2.21% 2.09% 2.05% 2.10% N/A
Ratio of interest expense to average net
assets++............................... N/A N/A N/A N/A 0.10%
Portfolio turnover rate++............... 306% 149% 177% 238% 583%
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
* Net investment income per share reflects an interest payment received
from the conversion of Vnesheconombank loan agreements of $0.11 per
share for each of Class A, B and Advisor.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates and ratio of interest expense to average net
assets are calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
N/A Not Applicable
The accompanying notes are an integral part of the financial statements.
FS-60
<PAGE> 856
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
ADVISOR CLASS+
------------------------------------------------
JUNE 1, 1995
YEAR ENDED OCTOBER 31, TO
---------------------------------- OCTOBER 31,
1998 (d) 1997 1996 (d) 1995 (d)
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 12.02 $ 11.77 $ 10.33 $ 10.32
---------- ---------- ---------- ------------
Income from investment operations:
Net investment income................. 0.95* 0.79 0.93 0.41
Net realized and unrealized gain
(loss) on investments and foreign
currencies........................... (1.26) 0.34 1.44 (0.04)
---------- ---------- ---------- ------------
Net increase (decrease) from
investment operations.............. (0.31) 1.13 2.37 0.37
---------- ---------- ---------- ------------
Distributions to shareholders:
From net investment income............ (0.69) (0.82) (0.86) (0.34)
From net realized gain on
investments.......................... -- -- -- --
In excess of net investment income.... -- (0.06) (0.07) --
Return of capital..................... (0.19) -- -- (0.02)
---------- ---------- ---------- ------------
Total distributions................. (0.88) (0.88) (0.93) (0.36)
---------- ---------- ---------- ------------
Net asset value, end of period.......... $ 10.83 $ 12.02 $ 11.77 $ 10.33
---------- ---------- ---------- ------------
---------- ---------- ---------- ------------
Total investment return (c)............. (2.97)% 9.86% 23.39% 3.72 %(b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 847 $ 533 $ 479 $ 443
Ratio of net investment income to
average net assets..................... 8.08% 6.53% 8.44% 9.99 %(a)
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions............... 1.21% 1.00% 1.03% 1.07 %(a)
Without expense reductions............ 1.21% 1.09% 1.05% 1.10 %(a)
Ratio of interest expense to average net
assets++............................... N/A N/A N/A N/A
Portfolio turnover rate++............... 306% 149% 177% 238 %
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
* Net investment income per share reflects an interest payment received
from the conversion of Vnesheconombank loan agreements of $0.11 per
share for each of Class A, B and Advisor.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates and ratio of interest expense to average net
assets are calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
N/A Not Applicable
The accompanying notes are an integral part of the financial statements.
FS-61
<PAGE> 857
NOTES TO
FINANCIAL STATEMENTS
October 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (SEE ALSO NOTE 2)
AIM Strategic Income Fund (the "Fund"), formerly GT Global Strategic Income
Fund, a non-diversified separate series of AIM Investment Funds (the "Trust"),
formerly G.T. Investment Funds, Inc. The Trust is organized as a Delaware
business trust and is registered under the Investment Company Act of 1940, as
amended ("1940 Act"), as an open-end management investment company. The Trust
has thirteen series of shares in operation, each series corresponding to a
distinct portfolio of investments.
The Fund offers Class A, Class B, and Advisor Class shares, each of which has
equal rights as to assets and voting privileges. Class A and Class B each has
exclusive voting rights with respect to its distribution plan. Investment
income, realized and unrealized capital gains and losses, and the common
expenses of the Fund are allocated on a pro rata basis to each class based on
the relative net assets of each class to the total net assets of the Fund. Each
class of shares differs in its respective service and distribution expenses, and
may differ in its transfer agent, registration, and certain other class-specific
fees and expenses.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies in conformity with generally accepted accounting
principles consistently followed by the Fund in the preparation of the financial
statements.
(A) PORTFOLIO VALUATION
The Fund calculates the net asset value of and complete orders to purchase,
exchange, or repurchase Fund shares on each business day, with the exception of
those days on which the New York Stock Exchange is closed.
Equity securities are valued at the last sale price on the exchange on which
such securities are traded, or on the principal over-the-counter market on which
such securities are traded, as of the close of business on the day the
securities are being valued, or, lacking any sales, at the last available bid
price. In cases where securities are traded on more than one exchange, the
securities are valued on the exchange determined by A I M Advisors, Inc. (the
"Manager") to be the primary market.
Fixed income investments are valued at the mean of representative quoted bid and
ask prices for such investments or, if such prices are not available, at prices
for investments of comparative maturity, quality, and type; however, when the
Manager deems it appropriate, prices obtained for the day of valuation from a
bond pricing service will be used. Short-term investments with a maturity of 60
days or less are valued at amortized cost adjusted for foreign exchange
translation and market fluctuation, if any.
Investments for which market quotations are not readily available (including
restricted securities which are subject to limitations on their sale) are valued
at fair value as determined in good faith by or under the direction of the
Trust's Board of Trustees.
Portfolio securities which are primarily traded on foreign exchanges are
generally valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S. dollars at
the current exchange rates, except that when an occurrence subsequent to the
time a value was so established is likely to have materially changed such value,
then the fair value of those securities will be determined by consideration of
other factors by or under the direction of the Trust's Board of Trustees.
(B) FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings, and other assets and
liabilities are recorded in the books and records of the Fund after translation
to U.S. dollars based on the exchange rates on that day. The cost of each
security is determined using historical exchange rates. Income and withholding
taxes are translated at prevailing exchange rates when earned or incurred.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from fluctuations arising
from changes in market prices of securities held. Such fluctuations are included
with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, forward foreign currency contracts, sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains or losses arise from changes in the
value of assets and liabilities other than investments in securities at period
end, resulting from changes in exchange rates.
(C) REPURCHASE AGREEMENTS
With respect to repurchase agreements entered into by the Fund, it is the Fund's
policy to always receive, as collateral, United States government securities or
other high quality debt securities of which the value, including accrued
interest, is at least equal to the amount to be repaid to the Fund under each
agreement at its maturity.
(D) FORWARD FOREIGN CURRENCY CONTRACTS
A forward foreign currency contract ("Forward Contract") is an agreement between
two parties to buy and sell a currency at a set
FS-62
<PAGE> 858
price on a future date. The market value of the Forward Contract fluctuates with
changes in currency exchange rates. The Forward Contract is marked-to-market
daily and the change in market value is recorded by the Fund as an unrealized
gain or loss. When the Forward Contract is closed, the Fund records a realized
gain or loss equal to the difference between the value at the time it was opened
and the value at the time it was closed. Forward Contracts involve market risk
in excess of the amount shown in the Fund's "Statement of Assets and
Liabilities". The Fund could be exposed to risk if a counterparty is unable to
meet the terms of the contract or if the value of the currency changes
unfavorably. The Fund may enter into Forward Contracts in connection with
planned purchases or sales of securities, or to hedge against adverse
fluctuations in exchange rates between currencies.
(E) OPTION ACCOUNTING PRINCIPLES
When the Fund writes a call or put option, an amount equal to the premium
received is included in the Fund's "Statement of Assets and Liabilities" as an
asset and an equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option. The current
market value of an option listed on a traded exchange is valued at its last bid
price, or, in the case of an over-the-counter option, is valued at the average
of the last bid prices obtained from brokers, unless a quotation from only one
broker is available, in which case only that broker's price will be used. If an
option expires on its stipulated expiration date or if the Fund enters into a
closing purchase transaction, a gain or loss is realized without regard to any
unrealized gain or loss on the underlying security and the liability related to
such option is extinguished. If a written call option is exercised, a gain or
loss is realized from the sale of the underlying security and the proceeds of
the sale are increased by the premium originally received. If a written put
option is exercised, the cost of the underlying security purchased would be
decreased by the premium originally received. The Fund can write options only on
a covered basis, which, for a call, requires that the Fund hold the underlying
security and, for a put, requires the Fund to set aside cash, U.S. government
securities or other liquid securities in an amount not less than the exercise
price, or otherwise provide adequate cover at all times while the put option is
outstanding. The Fund may use options to manage its exposure to the stock market
and to fluctuations in currency values or interest rates.
The premium paid by the Fund for the purchase of a call or put option is
included in the Fund's "Statement of Assets and Liabilities" as an investment
and subsequently "marked-to-market" to reflect the current market value of the
option. If an option which the Fund has purchased expires on the stipulated
expiration date, the Fund realizes a loss in the amount of the cost of the
option. If the Fund enters into a closing sale transaction, the Fund realizes a
gain or loss, depending on whether proceeds from the closing sale transaction
are greater or less than the cost of the option. If the Fund exercises a call
option, the cost of the securities acquired by exercising the call is increased
by the premium paid to buy the call. If the Fund exercises a put option, it
realizes a gain or loss from the sale of the underlying security, and the
proceeds from such sale are decreased by the premium originally paid.
The risk associated with purchasing options is limited to the premium originally
paid. The risk in writing a call option is that the Fund may forego the
opportunity of profit if the market value of the underlying security or index
increases and the option is exercised. The risk in writing a put option is that
the Fund may incur a loss if the market value of the underlying security or
index decreases and the option is exercised. In addition, there is the risk the
Fund may not be able to enter into a closing transaction because of an illiquid
secondary market.
(F) FUTURES CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
security at a set price on a future date. Upon entering into such a contract the
Fund is required to pledge to the broker an amount of cash or securities equal
to the minimum "initial margin" requirements of the exchange on which the
contract is traded. Pursuant to the contract, the Fund agrees to receive from or
pay to the broker an amount of cash equal to the daily fluctuation in value of
the contract. Such receipts or payments are known as "variation margin" and are
recorded by the Fund as unrealized gains or losses. When the contract is closed,
the Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the time it was
closed. The potential risk to the Fund is that the change in value of the
underlying securities may not correlate to the change in value of the contracts.
The Fund may use futures contracts to manage its exposure to the stock market
and to fluctuations in currency values or interest rates.
(G) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). The cost of securities sold is determined on a first-in,
first-out-basis, unless otherwise specified. Dividends are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. Where a high
level of uncertainty exists as to its collection, income is recorded net of all
withholding tax with any rebate recorded when received. The Fund may trade
securities on other than normal settlement terms. This may increase the risk if
the other party to the transaction fails to deliver and causes the Fund to
subsequently invest at less advantageous prices.
(H) PORTFOLIO SECURITIES LOANED
At October 31, 1998, stocks with an aggregate value of $2,582,613 were on loan
to brokers. The loans were secured by cash collateral of $2,731,376 received by
the Fund. For the year ended October 31, 1998, the Fund received fees of
$741,430.
For international securities, cash collateral is received by the Fund against
loaned securities in an amount at least equal to 105% of the market value of the
loaned securities at the inception of each loan. This collateral must be
maintained at not less than 103% of the market value of the loaned securities
during the period of the loan. For domestic securities, cash collateral is
received by the Fund against loaned securities in the amount at least equal to
102% of the market
FS-63
<PAGE> 859
value of the loaned securities at the inception of each loan. This collateral
must be maintained at not less than 100% of the market value of the loaned
securities during the period of the loan. The cash collateral is invested in a
securities lending trust which consists of a portfolio of high quality short
duration securities whose average effective duration is restricted to 120 days
or less.
(I) TAXES
It is the intended policy of the Fund to meet the requirements for qualification
as a "regulated investment company" under the Internal Revenue Code of 1986, as
amended ("Code"). It is also the intention of the Fund to make distributions
sufficient to avoid imposition of any excise tax under Section 4982 of the Code.
Therefore, no provision has been made for Federal taxes on income, capital
gains, or unrealized appreciation of securities held, and excise tax on income
and capital gains. The Fund has a capital loss carryforward of $72,184,684 of
which $65,749,433 expires in 2003, and $6,435,251 expires in 2006.
(J) DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded by each Fund on the ex-date. Income
and capital gain distributions are determined in accordance with Federal income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Fund and timing differences.
(K) FOREIGN SECURITIES
There are certain additional considerations and risks associated with investing
in foreign securities and currency transactions that are not inherent in
investments of domestic origin. The Fund's investment in emerging market
countries may involve greater risks than investments in more developed markets
and the price of such investments may be volatile. These risks of investing in
foreign and emerging markets may include foreign currency exchange rate
fluctuations, perceived credit risk, adverse political and economic developments
and possible adverse foreign government intervention.
(L) INDEXED SECURITIES
The Fund may invest in indexed securities whose value is linked either directly
or indirectly to changes in foreign currencies, interest rates, equities,
indices, or other reference instruments. Indexed securities may be more volatile
than the reference instrument itself, but any loss is limited to the amount of
the original investment.
(M) RESTRICTED SECURITIES
The Fund is permitted to invest in privately placed restricted securities. These
securities may be resold in transactions exempt from registration or to the
public if the securities are registered. Disposal of these securities may
involve time-consuming negotiations and expense, and prompt sale at an
acceptable price may be difficult. At the end of the year, restricted
securities, if any, (excluding 144A issues), are shown at the end of the Fund's
Portfolio of Investments.
(N) LINE OF CREDIT
The Fund, along with certain other funds advised and/or administered by the
Manager, has a line of credit with BankBoston. The arrangement with the bank
allows the Fund and certain other Funds to borrow, on a first come, first serve
basis, an aggregate maximum amount of $150,000,000. The Fund is limited to
borrowing up to 33 1/3% of the value of the Fund's total assets. On October 31,
1998, the Fund had no loans outstanding.
For the year ended October 31, 1998, the weighted average outstanding daily
balance of bank loans (based on the number of days the loans were outstanding)
for the Fund was $8,506,098, with a weighted average interest rate of 6.28%.
Interest expense for the year ended October 31, 1998 was $243,306 and is
included in "Other Expenses" on the Statement of Operations.
(O) SECURITIES PURCHASED ON A WHEN-ISSUED OR FORWARD COMMITMENT BASIS
The Fund may trade securities on a when-issued or forward commitment basis, with
payment and delivery scheduled for a future date. These transactions are subject
to market fluctuations and are subject to the risk that the value at delivery
may be more or less than the trade date purchase price. Although the Fund will
generally purchase these securities with the intention of acquiring such
securities, they may sell such securities before the settlement date. These
securities are identified on the accompanying Portfolio of Investments. The Fund
has set aside sufficient cash or liquid securities as collateral for these
purchase commitments.
2. RELATED PARTIES
A I M Advisors, Inc. (the "Manager"), an indirect wholly-owned subsidiary of
AMVESCAP PLC, is the Fund's investment manager and administrator and INVESCO
(NY), Inc., (formerly, Chancellor LGT Asset Management, Inc.) is the Fund's
investment sub-advisor and sub-administrator. As of the close of business on May
29, 1998, Liechtenstein Global Trust AG ("LGT"), the former indirect parent
organization of Chancellor LGT Asset Management, Inc. ("Chancellor LGT")
consummated a purchase agreement with AMVESCAP PLC pursuant to which AMVESCAP
PLC acquired LGT's Asset Management Division, which included Chancellor LGT and
certain other affiliates. As a result of this transaction, Chancellor LGT was
renamed INVESCO (NY), Inc., and is now an indirect wholly-owned subsidiary of
AMVESCAP PLC. A I M Distributors, Inc. ("AIM Distributors"), a wholly-owned
subsidiary of the Manager, became the Fund's distributor as of the close of
business on May 29, 1998. The Trust was reorganized from a Maryland corporation
into a Delaware business trust on September 8, 1998. Finally, as of the close of
business on September 4, 1998, A I M Fund Services, Inc. ("AFS"), an affiliate
of the Manager and AIM Distributors, replaced GT Global Investor Services, Inc.
("GT Services") as the transfer agent of the Fund.
The Fund pays the Manager investment management and administration fees at the
annualized rate of 0.725% on the first $500 million of the average daily net
assets of the Fund; 0.70% on the next $1 billion; 0.675% on the next $1 billion;
and 0.65% on amounts thereafter. These fees are computed daily and paid monthly.
FS-64
<PAGE> 860
AIM Distributors, an affiliate of the Manager, serves as the Fund's distributor.
For the period ended May 29, 1998, GT Global, Inc. ("GT Global"), an affiliate
of the investment sub-advisor, served as the Fund's distributor. The Fund offers
Class A, Class B, and Advisor Class shares for purchase.
Class A shares are subject to initial sales charges imposed at the time of
purchase, in accordance with the schedule included in the Fund's current
prospectus. AIM Distributors collects the sales charges imposed on sales of
Class A shares, and reallows a portion of such charges to dealers through which
the sales are made. For the year ended October 31, 1998, AIM Distributors and GT
Global retained the following sales charges: $6,190 and $14,511, respectively.
Purchases of Class A shares exceeding $1,000,000 may be subject to a contingent
deferred sales charge ("CDSC") upon redemption, in accordance with the Fund's
current prospectus. AIM Distributors and GT Global collected CDSCs for the year
ended October 31, 1998 of $10,171 and $1,119, respectively. AIM Distributors
also makes ongoing shareholder servicing and trail commission payments to
dealers whose clients hold Class A shares.
Class B shares are not subject to initial sales charges. When Class B shares are
sold, AIM Distributors, from its own resources, pays commissions to dealers
through which the sales are made. Certain redemptions of Class B shares made
within six years of purchase are subject to CDSCs, in accordance with the Fund's
current prospectus. For the year ended October 31, 1998, AIM Distributors and GT
Global collected CDSCs in the amount of $379,657 and $916,697, respectively. In
addition, AIM Distributors makes ongoing shareholder servicing and trail
commission payments to dealers whose clients hold Class B shares.
For the period ended May 29, 1998, pursuant to the then effective separate
distribution plans adopted under the 1940 Act Rule 12b-1 by the Trust's Board of
Trustees with respect to the Fund's Class A shares ("Class A Plan") and Class B
shares ("Class B Plan"), the Fund reimbursed GT Global for a portion of its
shareholder servicing and distribution expenses. Under the Class A Plan, the
Fund was permitted to pay GT Global a service fee at the annualized rate of up
to 0.25% of the average daily net assets of the Fund's Class A shares for GT
Global's expenditures incurred in servicing and maintaining shareholder
accounts, and was permitted to pay GT Global a distribution fee at the
annualized rate of up to 0.35% of the average daily net assets of the Fund's
Class A shares, less any amounts paid by the Fund as the aforementioned service
fee, for GT Global's expenditures incurred in providing services as distributor.
All expenses for which GT Global was reimbursed under the Class A Plan would
have been incurred within one year of such reimbursement.
For the period ended May 29, 1998, pursuant to the Class B Plan, the Fund was
permitted to pay GT Global a service fee at the annualized rate of up to 0.25%
of the average daily net assets of the Fund's Class B shares for GT Global's
expenditures incurred in servicing and maintaining shareholder accounts, and was
permitted to pay GT Global a distribution fee at the annualized rate of up to
0.75% of the average daily net assets of the Fund's Class B shares for GT
Global's expenditures incurred in providing services as distributor. Expenses
incurred under the Class B Plan in excess of 1.00% annually were permitted to be
carried forward for reimbursement in subsequent years as long as that Plan
continued in effect.
Effective as of the close of business May 29, 1998, pursuant to Rule 12b-1 under
the 1940 Act, the Trust's Board of Trustees adopted a Master Distribution Plan
applicable to the Fund's Class A shares ("Class A Plan") and Class B shares
("Class B Plan"), pursuant to which the Fund compensates AIM Distributors for
the purpose of financing any activity that is intended to result in the sale of
Class A or Class B shares of the Fund. Under the Class A Plan, the Fund
compensates AIM Distributors at the annualized rate of 0.35% of the average
daily net assets of the Fund's Class A shares. Under the Class B Plan, the Fund
compensates AIM Distributors at an annualized rate of 1.00% of the average daily
net assets of the Fund's Class B shares.
The Class A Plan and the Class B Plan (together, the "Plans") are designed to
compensate AIM Distributors for certain promotional and other sales-related
costs, and to implement a dealer incentive program that provides for periodic
payments to selected dealers who furnish continuing personal shareholder
services to their customers who purchase and own Class A and Class B shares of
the Fund. Payments also can be directed by AIM Distributors to financial
institutions who have entered into service agreements with respect to Class A
and Class B shares of the Fund and who provide continuing personal services to
their customers who own Class A and Class B shares of the Fund. The service fees
payable to selected financial 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 that were purchased on or after a
prescribed date set forth in the Plans.
The Manager and AIM Distributors voluntarily have undertaken to limit the Fund's
expenses (exclusive of brokerage commissions, taxes, interest, and extraordinary
expense) to the maximum annual rate of 1.75%, 2.40%, and 1.40% of the average
daily net assets of the Fund's Class A, Class B, and Advisor Class shares,
respectively. If necessary, this limitation will be effected by waivers by the
Manager of investment management and administration fees, waivers by AIM
Distributors of payments under the Class A Plan and/or Class B Plan and/or
reimbursements by the Manager or AIM Distributors of portions of the Fund's
other operating expenses.
Effective as of the close of business September 4, 1998, the Fund, pursuant to a
transfer agency and service agreement, has agreed to pay A I M Fund Services,
Inc. ("AFS") an annualized fee of $24.85 per shareholder accounts that are open
during any monthly period (this fee includes all out-of-pocket expenses), and an
annualized fee of $0.70 per shareholder account that is closed during any
monthly period. Both fees shall be billed by AFS monthly in arrears on a
prorated basis of 1/12 of the annualized fee for all such accounts.
For the period November 1, 1997 to September 4, 1998, GT Services, an affiliate
of the Manager and AIM Distributors, was the transfer
FS-65
<PAGE> 861
agent of the Fund. For performing shareholder servicing, reporting, and general
transfer agent services, GT Services received an annual maintenance fee of
$17.50 per account, a new account fee of $4.00 per account, a per transaction
fee of $1.75 for all transactions other than exchanges and a per exchange fee of
$2.25. GT Services also was reimbursed by the Fund for its out-of-pocket
expenses for such items as postage, forms, telephone charges, stationery and
office supplies.
The Manager is the pricing and accounting agent for the Fund. The monthly fee
for these services paid to the Manager is a percentage, not to exceed 0.03%
annually, of a Fund's average daily net assets. The annual fee rate is derived
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% to 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.
The Trust pays each Trustee who is not an employee, officer or director of the
Manager, or any other affiliated company, $5,000 per year plus $300 for each
meeting of the board or any committee thereof attended by the Trustee.
3. PURCHASES AND SALES OF SECURITIES
For the year ended October 31, 1998, purchases and sales of investment
securities by the Fund, other than U.S. government obligations and short-term
investments, aggregated $653,771,935 and $689,755,218, respectively. For the
year ended October 31, 1998,
purchases and sales of U.S. government obligations aggregated $419,099,394 and
$458,023,980, respectively.
4. CAPITAL SHARES
At October 31, 1998, there were 6,000,000,000 shares of the Trust's common stock
authorized, at $0.0001 par value. Of this amount, 400,000,000 were classified as
shares of the AIM Global Telecommunications Fund; 400,000,000 were classified as
shares of AIM Global Government Income Fund; 200,000,000 were classified as
shares of AIM Global Health Care Fund; 200,000,000 were classified as shares of
AIM Strategic Income Fund; 200,000,000 were classified as shares of AIM
Developing Markets Fund; 200,000,000 were classified as shares of GT Global
Currency Fund (inactive); 200,000,000 were classified as shares of AIM Global
Growth & Income Fund; 200,000,000 were classified as shares of GT Global Small
Companies Fund (inactive); 200,000,000 were classified as shares of AIM Latin
American Growth Fund; 200,000,000 were classified as shares of AIM Emerging
Markets Fund; 200,000,000 were classified as shares of AIM Emerging Markets Debt
Fund; 200,000,000 were classified as shares of AIM Global Financial Services
Fund; 200,000,000 were classified as shares of AIM Global Resources Fund;
200,000,000 were classified as shares of AIM Global Infrastructure Fund;
200,000,000 were classified as shares of AIM Global Consumer Products and
Services Fund. The shares of each of the foregoing series of the Trusts were
divided equally into two classes, designated Class A and Class B common stock.
With respect to the issuance of Advisor Class shares, 100,000,000 shares were
classified as shares of each of the fifteen series of the Trusts and designated
as Advisor Class common stock. 1,100,000,000 shares remain unclassified.
Transactions in capital shares of the Fund were as follows:
CAPITAL SHARE TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997
-------------------------- ----------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------- ----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C>
Shares sold....................................... 11,087,862 $ 132,840,707 13,750,221 $ 167,009,888
Shares issued in connection with reinvestment of
distributions................................... 520,006 6,103,698 615,860 7,488,021
----------- ------------- ----------- ---------------
11,607,868 138,944,405 14,366,081 174,497,909
Shares repurchased................................ (13,690,399) (162,830,760) (18,557,237) (225,311,673)
----------- ------------- ----------- ---------------
Net decrease...................................... (2,082,531) $ (23,886,355) (4,191,156) $ (50,813,764)
----------- ------------- ----------- ---------------
----------- ------------- ----------- ---------------
<CAPTION>
CLASS B
- --------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold....................................... 2,712,341 $ 32,431,379 11,499,580 $ 140,731,511
Shares issued in connection with reinvestment of
distributions................................... 752,045 8,848,630 896,610 10,918,610
----------- ------------- ----------- ---------------
3,464,386 41,280,009 12,396,190 151,650,121
Shares repurchased................................ (9,428,771) (110,869,956) (17,287,235) (211,600,543)
----------- ------------- ----------- ---------------
Net decrease...................................... (5,964,385) $ (69,589,947) (4,891,045) $ (59,950,422)
----------- ------------- ----------- ---------------
----------- ------------- ----------- ---------------
<CAPTION>
ADVISOR CLASS
- --------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold....................................... 396,726 $ 4,766,864 712,165 $ 8,839,212
Shares issued in connection with reinvestment of
distributions................................... 4,186 50,201 3,581 43,784
----------- ------------- ----------- ---------------
400,912 4,817,065 715,746 8,882,996
Shares repurchased................................ (367,030) (4,447,852) (712,116) (8,911,324)
----------- ------------- ----------- ---------------
Net increase (decrease)........................... 33,882 $ 369,213 3,630 $ (28,328)
----------- ------------- ----------- ---------------
----------- ------------- ----------- ---------------
</TABLE>
FS-66
<PAGE> 862
5. PROXY RESULTS (UNAUDITED)
The Special Meeting of Shareholders of the G.T. Investment Funds, Inc., now
known as AIM Investment Funds (the "Trust") was held on May 20, 1998 at the
Trust's offices, 50 California Street, 26th Floor, San Francisco, California.
The meeting was held for the following purposes:
(1) To elect Trustees as follows: C. Derek Anderson, Frank S. Bayley, William J.
Guilfoyle, Arthur C. Patterson, Ruth H. Quigley.
(2) To approve a new Investment Management and Administration Contract and
Sub-Advisory and Sub-Administration Contract with respect to each series of
the Trust (each, a "Fund," and collectively, the "Funds").
(3) To approve replacement Rule 12b-1 plans of distribution with respect to
Class A and B Shares of the Fund.
(4) To approve changes to the fundamental investment restrictions of the Fund.
(5) To approve an agreement and plan of conversion and termination for the
Trust.
(6) To ratify the selection of Coopers & Lybrand L.L.P., now known as
PricewaterhouseCoopers LLP, as the Trust's independent public accountants.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
VOTES WITHHELD/
TRUSTEE/MATTER VOTES FOR AGAINST ABSTENTIONS
------------------------------------------------------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
(1) C. Derek Anderson........................................... 191,685,088 N/A 13,123,292
Frank S. Bayley............................................. 191,766,811 N/A 13,041,568
William J. Guilfoyle........................................ 191,828,959 N/A 12,979,420
Arthur C. Patterson......................................... 191,845,270 N/A 12,963,109
Ruth H. Quigley............................................. 191,869,887 N/A 12,938,492
(2)(a) Approval of investment management and administration
contract................................................... 14,153,757 379,517 4,085,251*
(2)(b) Approval of sub-advisory and sub-administration contract.... 14,047,606 428,882 1,142,037*
(3) Approval of replacement Rule 12b-1 plans of distribution
CLASS A SHARES.............................................. 5,895,532 233,405 531,389
CLASS B SHARES.............................................. 10,735,339 271,273 981,531
(4)(a) Modification of Fundamental Restriction on Concentration.... 13,819,624 462,105 4,336,796*
(4)(b) Modification of Fundamental Restriction on Issuing Senior
Securities and Borrowing Money............................. 13,817,763 463,966 4,336,796*
(4)(c) Modification of Fundamental Restriction on Making Loans..... 13,819,624 462,105 4,336,796*
(4)(d) Modification of Fundamental Restriction on Underwriting
Securities................................................. 13,819,624 462,105 4,336,796*
(4)(e) Modification of Fundamental Restriction on Real Estate
Investments................................................ 13,817,763 463,966 4,336,796*
(4)(f) Modification of Fundamental Restriction on Investing in
Commodities................................................ 13,815,902 465,827 4,336,796*
(4)(g) Modification of Fundamental Restriction on Margin
Transactions............................................... 13,815,902 465,827 4,336,796*
(4)(h) Elimination of Fundamental Restriction on Investing in
Futures Contracts.......................................... 13,817,763 463,966 4,336,796*
(4)(i) Elimination of Fundamental Restriction on Pledging Assets... 13,817,763 463,966 4,336,796*
(4)(j) Elimination of Fundamental Restriction on Investments in
Oil, Gas and Mineral Leases and Programs................... 13,817,763 463,996 4,336,796*
(4)(k) Elimination of Fundamental Restriction on Investing for the
Purpose of Control......................................... 13,817,763 463,996 4,336,796*
(4)(l) Elimination of Fundamental Restriction on Purchasing
Securities of Issuers in Which Officers and Board Members
of Each Company and its Affiliates Own Securities.......... 13,817,763 463,996 4,336,796*
(4)(m) Elimination of Fundamental Restriction on Investing in
Securities of Companies That Have Been in Operation for
Less than Three Years...................................... 13,819,624 462,105 4,336,796*
(4)(n) Elimination of Fundamental Restriction on Selling Securities
Short...................................................... 13,802,093 479,636 4,336,796*
(4)(o) Approval of New Fundamental Investment Policy Regarding
Investment of All of Each Fund's Assets in an Open-End
Fund....................................................... 13,819,624 462,105 4,336,796*
(5) Approval of an agreement and plan of conversion and
termination with respect to the Trust...................... 190,027,469 6,362,084 94,055,040*
(6) Ratification of the selection of Coopers and Lybrand L.L.P.,
now known as PricewaterhouseCoopers LLP, as the Trust's
independent public accountants............................. 191,358,779 2,114,168 11,333,063
</TABLE>
- ------------------------
* Includes Broker Non-Votes
FS-67
<PAGE> 863
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> 864
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....................................... 10
Warrants or Rights........................................ 11
Lending of Portfolio Securities........................... 11
Money Market Instruments.................................. 11
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................................... 16
Index Options............................................. 18
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.......................... 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.......................................... 23
Infrastructure Fund....................................... 24
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.......................................... 32
Telecommunications Fund................................... 33
EXECUTION OF PORTFOLIO TRANSACTIONS......................... 34
Portfolio Trading and Turnover............................ 36
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
</TABLE>
2
<PAGE> 865
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
THE DISTRIBUTION PLANS...................................... 40
The Class A and C Plan.................................... 40
The Class B Plan.......................................... 41
Both Plans................................................ 41
THE DISTRIBUTOR............................................. 43
Sales Charges and Dealer Concessions...................... 45
REDUCTIONS IN INITIAL SALES CHARGES......................... 47
Contingent Deferred Sales Charge Exceptions............... 49
HOW TO PURCHASE AND REDEEM SHARES........................... 50
Backup Withholding........................................ 51
NET ASSET VALUE DETERMINATION............................... 52
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS.................... 53
Reinvestment of Dividends and Distributions............... 53
Tax Matters............................................... 53
Taxation of the Funds..................................... 53
Taxation of the Theme Portfolios.......................... 53
Reinstatement Privilege................................... 54
Foreign Taxes............................................. 54
Taxation of the Funds' Shareholders....................... 55
SHAREHOLDER INFORMATION..................................... 56
MISCELLANEOUS INFORMATION................................... 58
Charges for Certain Account Information................... 58
Custodian and Transfer Agent.............................. 58
Independent Accountants................................... 58
Legal Matters............................................. 58
Shareholder Liability..................................... 58
Special Servicing Agreement............................... 59
Control Persons and Principal Holders of Securities....... 59
INVESTMENT RESULTS.......................................... 61
Total Return Quotations................................... 61
Performance Information................................... 65
General Information about the Theme Funds and Theme
Portfolios............................................. 66
Health Care Fund.......................................... 66
Information about the Global Health Care Industries....... 67
Telecommunications Fund................................... 67
Deregulation in the United States......................... 67
Consumer Products and Services Fund....................... 68
Infrastructure Fund....................................... 68
Financial Services Fund................................... 69
Resources Fund............................................ 69
APPENDIX.................................................... 70
Description of Bond Ratings............................... 70
Description of Commercial Paper Ratings................... 71
Absence of Rating......................................... 71
FINANCIAL STATEMENTS........................................ FS
</TABLE>
3
<PAGE> 866
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 serves as the administrator 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 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. 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 (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.
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
4
<PAGE> 867
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. 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, Healthcare Fund and
Telecommunications Fund is long-term capital growth. 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
5
<PAGE> 868
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
employ innovative manufacturing, marketing, retailing and distribution methods
to open new markets and/or expand existing markets.
6
<PAGE> 869
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 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.
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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.
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
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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 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 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 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 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 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 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
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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 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.
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
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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 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.
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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 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
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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.
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
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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 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
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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 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.
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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
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 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.
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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 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
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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 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
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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.
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
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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 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.
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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. 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
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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 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.
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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.
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.
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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.
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.
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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 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
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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 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
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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 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.
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<PAGE> 890
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 is known as the "euro." Each participating
country 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 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 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 "Dividends, Distributions and Tax Matters."
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
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<PAGE> 891
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.
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
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<PAGE> 892
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.
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
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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.
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
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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
(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
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(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;
(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;
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(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 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.
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.
34
<PAGE> 897
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 $1,647,939, $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
$2,740,833, $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 $404,804, $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 $317,191, $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 $798,398, $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 $1,004,439, $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
35
<PAGE> 898
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 75% and 35%,
respectively. For the fiscal years ended October 31, 1998 and 1997, the Health
Care Fund's portfolio turnover rates were 187% 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 111% and 91%, 96% and 41%, and 201% 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 221% and 392%,
respectively.
36
<PAGE> 899
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 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; and Director, PremiumWear, Inc.
(formerly Munsingwear, Inc.) (a casual
apparel company); Director, "R" Homes,
Inc. and various other companies.
- ----------------------------------------------------------------------------------------------------
FRANK S. BAYLEY (59) Trustee Partner, law firm of Baker & McKenzie;
Two Embarcadero Center and Director and Chairman, C.D. Stimson
Suite 2400 Company (a private investment company).
San Francisco, CA 94111
- ----------------------------------------------------------------------------------------------------
ARTHUR C. PATTERSON (54) Trustee Managing Partner, Accel Partners (a
428 University Avenue venture capital firm); and Director,
Palo Alto, CA 94301 Viasoft and PageMart, Inc. (both public
software companies) and several other
privately held software and
communications companies.
- ----------------------------------------------------------------------------------------------------
RUTH H. QUIGLEY (63) Trustee Private investor; and President,
1055 California Street Quigley Friedlander & Co., Inc. (a
San Francisco, CA 94108 financial advisory services firm) from
1984 to 1986.
- ----------------------------------------------------------------------------------------------------
+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.
- ----------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
* A Trustee who is an "interested person" of the Trust and A I M Advisors, Inc.,
as defined in the 1940 Act.
+ Mr. Arthur and Ms. Relihan are married to each other.
37
<PAGE> 900
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
NAME, ADDRESS AND AGE POSITIONS HELD WITH REGISTRANT PRINCIPAL OCCUPATION WITH REGISTRANT
--------------------- ------------------------------ ------------------------------------
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
SAMUEL D. SIRKO (39) Vice President and Secretary Vice President, Assistant General
Counsel and Assistant Secretary, AIM
Advisors, Inc.; and Assistant General
Counsel and Assistant Secretary, AIM
Managment Group Inc., AIM Capial
Management, Inc., AIM Distributors,
Inc., AIM Fund Services, Inc. and Fund
Management Company.
- ----------------------------------------------------------------------------------------------------
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 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 any affiliated company,
received total compensation of $46,350, $43,350, $47,700 and $48,000,
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 any other affiliated
company, received total compensation of $97,600, $97,500, $105,450 and $106,350,
respectively, from the investment companies managed or administered by AIM and
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.
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES RELATING TO THE FEEDER FUNDS
AND THE PORTFOLIOS
AIM, 11 Greenway Plaza, Suite 100, Houston, Texas 77046, was organized in 1976
and, together with its subsidiaries, manages or advises approximately 110
investment portfolios encompassing a broad range of investment objectives. AIM
and its worldwide asset management affiliates provide investment management
and/or administrative services to institutional, corporate and individual
clients around the world.
38
<PAGE> 901
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.
AIM Management and AIM are indirect wholly owned subsidiaries of AMVESCAP PLC,
11 Devonshire Square, London EC2M 4YR, England. AMVESCAP PLC and its
subsidiaries are an independent 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 office, AIM draws
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 and
the Portfolio, the Advisor employs a team approach, taking advantage of its
investment resources around the world.
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 to each Feeder
Fund under an administration contract between the Trust and AIM ("Administration
Contract"). The Administration Contract will not be deemed an advisory contract,
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 pays 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 its 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 pays 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).
39
<PAGE> 902
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............... $ 1,329,063 $ 1,207,854 $ 422,640
Financial Services Portfolio........................... 726,002 346,965 99,991
Health Care Fund....................................... 5,149,191 5,820,067 5,495,494
Infrastructure Portfolio............................... 612,027 772,727 635,456
Resources Portfolio.................................... 678,775 979,215 213,856
Telecommunications Fund................................ 15,344,878 17,999,111 23,119,601
</TABLE>
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.
AIM may from time to time waive or reduce its fee. Voluntary fee waivers or
reductions may be rescinded at any time without further notice to investors.
During periods of voluntary fee waivers or reductions, AIM will retain its
ability to be reimbursed for such fee prior to the end of each fiscal year.
Contractual fee waivers or reductions set forth in the FEE Tables in the
Prospectus may not be terminated without the approval of the Board of Trustees.
EXPENSES OF THE FUNDS AND OF THE PORTFOLIOS
Each Fund and each Portfolio pays all expenses not assumed by AIM, 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.
40
<PAGE> 903
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 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.
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 and C Plan, the "Plans"). Under the Class B
Plan, each Fund pays compensation to AIM Distributors at an annual rate of 1.00%
of the average daily net assets attributable to Class B shares. Of such amount,
each Fund pays a service fee of 0.25% of the average daily net assets
attributable to Class B shares to selected dealers and other institutions which
furnish continuing personal shareholder services to their customers who purchase
and own Class B shares. Amounts paid in accordance with the Class B Plan may be
used to finance any activity primarily intended to result in the sale of Class B
shares, including but not limited to printing of prospectuses and statements of
additional information and reports for other than existing shareholders;
overhead; preparation and distribution of advertising material and sales
literature; expenses of organizing and conducting sales seminars; supplemental
payments to dealers and other institutions such as asset-based sales charges or
as payments of service fees under shareholder service arrangements; and costs of
administering the Class B Plan. AIM Distributors may transfer and sell its
rights to payments under the Class B Plan in order to finance distribution
expenditures in respect of Class B shares.
BOTH PLANS
Pursuant to an incentive program, AIM Distributors may enter into agreements
("Shareholder Service Agreements") with investment dealers selected from time to
time by AIM Distributors for the provision of distribution assistance in
connection with the sale of the Funds' shares to such dealers' customers, and
for the provision of continuing personal shareholder services to customers who
may from time to time directly or beneficially own shares of the Funds. The
distribution assistance and continuing personal shareholder services to be
rendered by dealers under the Shareholder Service Agreements may include, but
shall not be limited to, the following: distributing sales literature; answering
routine customer inquiries concerning the 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
41
<PAGE> 904
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 may from time to time waive or reduce any portion of its
12b-1 fee for Class A and Class C shares. Voluntary fee waivers or reductions
may be rescinded at any time without further notice to investors. During periods
of voluntary fee waivers or reductions, AIM Distributors will retain its ability
to be reimbursed for such fee prior to the end of each fiscal year. Contractual
fee waivers or reductions set forth in the Fee Table in the Prospectus may not
be terminated without the approval of the Board of Trustees.
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.
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.
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.
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.......... $ 335,139 $1,005,968 .50% 1.00%
Health Care Fund............................. $2,017,811 $1,188,118 .50% 1.00%
Financial Services Fund...................... $ 167,776 $ 565,170 .50% 1.00%
Infrastructure Fund.......................... $ 157,270 $ 451,823 .50% 1.00%
Resources Fund............................... $ 158,613 $ 489,016 .50% 1.00%
Telecommunications Fund...................... $4,293,131 $7,582,290 .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,
$11,171,511 in payments under the Prior Plan for 1998. For 1998, the Trust
provided AIM Distributors, the current distributor of the Funds, $7,270,614.
42
<PAGE> 905
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
Advertising..................... $ 59,451 $ 28,329 $ 354,468 $ 30,422 $ 30,902 $ 779,296
Printing and Mailing
prospectuses, semi-annual
reports and annual reports
(other than to current
shareholders)................ 7,536 3,863 51,862 4,148 4,214 111,487
Seminars........................ 8,373 3,577 29,551 0 0 62,633
Compensation to Underwriters to
partially offset other
marketing expenses........... 0 0 0 0 0 0
Compensation to Dealers
including Finder's Fees...... 259,718 131,799 1,579,837 122,447 152,044 3,334,221
Compensation to Sales
Personnel.................... 0 0 0 0 0 0
Annual Report Total............. 335,078 167,568 2,015,718 157,017 187,160 4,287,637
</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
Advertising..................... $ 6,467 $ 3,787 $ 7,786 $ 3,340 $ 3,334 $ 48,632
Printing and Mailing
prospectuses, semi-annual
reports and annual reports
(other than to current
shareholders)................ 806 516 951 456 455 6,862
Seminars........................ 839 574 1,422 0 632 3,860
Compensation to Underwriters to
partially offset other
marketing expenses........... 754,443 423,993 890,061 338,194 365,167 5,684,193
Compensation to Dealers......... 243,369 136,454 286,528 108,936 117,301 1,835,377
Compensation to Sales
Personnel.................... 0 0 0 0 0 0
Annual Report Total............. 1,005,924 565,324 1,186,748 450,926 486,889 7,578,924
</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.
43
<PAGE> 906
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 heading "Purchasing
Shares." Master Distribution Agreements with AIM Distributors relating to the
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 December 10, 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
44
<PAGE> 907
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.
From time to time, AIM Distributors may transfer and sell its right to
payments under the Distribution Agreement relating to Class B shares in order to
finance distribution expenditures in respect of Class B shares.
The following chart reflects the total sales charges paid in connection with
the sale of Class A shares of each Fund and the amount retained by 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........... $14,898 $13,455 $286,139 $ 85,990
Financial Services Fund....................... $ 5,454 $ 5,299 $ 84,341 $ 22,263
Health Care Fund.............................. $ 8,771 $ 9,735 $ 13,880 $ 54,971
Infrastructure Fund........................... $ 1,469 $ 1,423 $100,622 $ 24,988
Resources Fund................................ $ 3,733 $ 3,635 $221,895 $ 63,915
Telecommunications Fund....................... $36,792 $34,813 $497,045 $131,495
</TABLE>
Prior to June 1, 1998, GT Global Inc. was the Trust's distributor, and a total
of $389,099 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 $97,425.
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......................... $ 353,264 $ 545,758
Financial Services Fund..................................... $ 191,418 $7,116,869
Health Care Fund............................................ $ 511,753 $ 81,031
Infrastructure Fund......................................... $ 352,924 $ 261,619
Resources Fund.............................................. $ 357,602 $ 417,878
Telecommunications Fund..................................... $2,950,006 $ 508,410
</TABLE>
SALES CHARGES AND DEALER CONCESSIONS
CATEGORY I. Certain AIM Funds are currently sold with a sales charge ranging
from 5.50% to 2.00% of the offering price on purchases of less than $1,000,000.
These AIM Funds include Class A shares of each of AIM Advisor Flex Fund, AIM
Advisor International Value Fund, AIM Advisor Large Cap Value Fund, AIM 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 Japan Growth Fund, AIM Large Cap Growth
45
<PAGE> 908
Fund, AIM Mid Cap Equity Fund, AIM Mid Cap Opportunities Fund, AIM New Pacific
Growth Fund, AIM Select Growth Fund, AIM Small Cap Growth Fund, AIM Small Cap
Opportunities Fund, AIM Value Fund and AIM Weingarten Fund.
<TABLE>
<CAPTION>
DEALER
CONCESSION
INVESTOR'S SALES CHARGE ----------
-------------------------- AS A
AS A AS A PERCENTAGE
PERCENTAGE PERCENTAGE OF THE
OF THE PUBLIC OF THE NET PUBLIC
AMOUNT OF INVESTMENT IN OFFERING AMOUNT OFFERING
SINGLE TRANSACTION PRICE INVESTED PRICE
----------------------- ------------- ---------- ----------
<S> <C> <C> <C>
Less than $25,000........................................... 5.50% 5.82% 4.75%
$25,000 but less than $50,000............................... 5.25 5.54 4.50
$50,000 but less than $100,000.............................. 4.75 4.99 4.00
$100,000 but less than $250,000............................. 3.75 3.90 3.00
$250,000 but less than $500,000............................. 3.00 3.09 2.50
$500,000 but less than $1,000,000........................... 2.00 2.04 1.60
</TABLE>
CATEGORY II. Certain AIM Funds are currently sold with a sales charge ranging
from 4.75% to 2.00% of the offering price on purchases of less than $1,000,000.
These AIM Funds are: the Class A shares of each of AIM Advisor Real Estate Fund,
AIM Balanced Fund, AIM Developing Markets Fund, AIM Emerging Markets Debt Fund,
AIM Global Aggressive Growth Fund, AIM Global Consumer Products and Services
Fund, AIM Global Financial Services Fund, AIM Global Government Income Fund, AIM
Global Growth Fund, AIM Global Health Care Fund, AIM Global Income Fund, AIM
Global Infrastructure Fund, AIM Global Resources Fund, AIM Global
Telecommunications 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>
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.
46
<PAGE> 909
ALL GROUPS OF AIM FUNDS. AIM Distributors may elect to re-allow the entire
initial sales charge to dealers for all sales with respect to which orders are
placed with AIM Distributors during a particular period. Dealers to whom
substantially the entire sales charge is re-allowed may be deemed to be
"underwriters" as that term is defined under the Securities Act of 1933.
In addition to amounts paid to dealers as a dealer concession out of the
initial sales charge paid by investors, AIM Distributors may, from time to time,
at its expense or as an expense for which it may be compensated under a
distribution plan, if applicable, pay a bonus or other consideration or
incentive to dealers who sell a minimum dollar amount of the shares of the AIM
Funds during a specified period of time. At the 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 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.
47
<PAGE> 910
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 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
48
<PAGE> 911
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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<PAGE> 912
- Purchases through approved fee-based programs;
- Employee benefit plans designated as purchasers as defined above, and
non-qualified plans offered in conjunction therewith, provided the initial
investment in the plan(s) is at least $1 million; the sponsor signs a $1
million LOI; the employer-sponsored plan(s) has at least 100 eligible
employees; or all plan transactions are executed through a single omnibus
account per Fund and the financial institution or service organization has
entered into the appropriate agreements with the distributor. Section 403(b)
plans sponsored by public educational institutions are not eligible for a
sales charge exception based on the aggregate investment made by the plan or
the number of eligible employees. Purchases of AIM Small Cap Opportunities
Fund by such plans are subject to initial sales charges;
- Shareholders of record or discretionary advised clients of any investment
advisor holding shares of AIM Weingarten Fund or AIM Constellation Fund on
September 8, 1986, or of AIM Charter Fund on November 17, 1986, who have
continuously owned shares having a market value of at least $500 and who
purchase additional shares of the same Fund;
- Shareholders of record of Advisor Class shares of AIM International Growth
Fund or AIM Worldwide Growth Fund on February 12, 1999 who have continuously
owned shares of the AIM Funds.
- Unitholders of G/SET series unit investment trusts investing proceeds from
such trusts in shares of AIM Weingarten Fund or AIM Constellation Fund;
provided, however, prior to the termination date of the trusts, a unitholder
may invest proceeds from the redemption or repurchase of his units only when
the investment in shares of AIM Weingarten Fund and AIM Constellation Fund
is effected within 30 days of the redemption or repurchase;
- 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;
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<PAGE> 913
- 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.
HOW TO PURCHASE AND REDEEM SHARES
A complete description of the manner by which shares of each Fund's may be
purchased appears in the Prospectus under the heading "Purchasing 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 AIM Funds is set forth in the Prospectus under the
heading "Exchanging Shares."
Information concerning redemption of the Funds' shares is set forth in each
Fund's Prospectus under the caption "Redeeming 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: or (800) 347-4246 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 a Fund
not reasonably practicable.
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<PAGE> 914
BACKUP WITHHOLDING
Accounts submitted without a correct, certified taxpayer identification number
or, alternatively, a completed Internal Revenue Service ("IRS") Form W-8 (for
non-resident aliens) or Form W-9 (certifying exempt status) accompanying the
registration information will generally be subject to backup withholding.
Each AIM Fund, and other payers, must, according to IRS regulations, withhold
31% of redemption payments and reportable dividends (whether paid or accrued) in
the case of any shareholder who fails to provide the Fund with a taxpayer
identification number ("TIN") and a certification that he is not subject to
backup withholding.
An investor is subject to backup withholding if:
(1) the investor fails to furnish a correct TIN to the Fund, or
(2) the IRS notifies the Fund that the investor furnished an incorrect
TIN, or
(3) the investor is notified by the IRS that the investor is subject
to backup withholding because the investor failed to report all of the
interest and dividends on such investor's tax return (for reportable
interest and dividends only), or
(4) the investor fails to certify to the Fund that the investor is not
subject to backup withholding under (3) above (for reportable interest and
dividend accounts opened after 1983 only), or
(5) the investor does not certify his TIN. This applies only to
reportable interest, dividend, broker or barter exchange accounts opened
after 1983, or broker accounts considered inactive during 1983.
Except as explained in (5) above, other reportable payments are subject to
backup withholding only if (1) or (2) above applies.
Certain payees and payments are exempt from backup withholding and information
reporting. A complete listing of such exempt entities appears in the
Instructions for the Requester of Form W-9 (which can be obtained from the IRS)
and includes, among others, the following:
- 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.
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<PAGE> 915
NOTE: Section references are to sections of the Code.
IRS PENALTIES -- Investors who do not supply the AIM Funds with a correct TIN
will be subject to a $50 penalty imposed by the IRS unless such failure is due
to reasonable cause and not willful neglect. If an investor falsifies
information on this form or makes any other false statement resulting in no
backup withholding on an account which should be subject to backup withholding,
such investor may be subject to a $500 penalty imposed by the IRS and to certain
criminal penalties including fines and/or imprisonment.
NONRESIDENT ALIENS -- Nonresident alien individuals and foreign entities are
not subject to the backup withholding previously discussed, but must certify
their foreign status by attaching IRS Form W-8 to their application. Form W-8
remains in effect for three calendar years beginning with the calendar year in
which it is received by the Fund. Such shareholders may, however, be subject to
federal income tax withholding at a 30% rate on ordinary income dividends and
distributions and return of capital distributions. Under applicable treaty law,
residents of treaty countries may qualify for a reduced rate of withholding or a
withholding exemption.
NET ASSET VALUE DETERMINATION
The net asset value per share of each Fund is normally determined daily as of
the close of trading of the NYSE (generally 4:00 p.m. Eastern time) on each
business day of the Fund. In the event the NYSE closes early (i.e., before 4:00
p.m. Eastern time) on a particular day, the net asset value of a Fund is
determined as of the close of the NYSE on such day. Net asset value per share is
determined by dividing the value of 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 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.
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<PAGE> 916
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
Income dividends and capital gains distributions are automatically reinvested
in additional shares of the same class of each Fund unless the shareholder has
requested in writing to receive such dividends and distributions in cash or that
they be invested in shares of another AIM Fund, subject to the terms and
conditions set forth in "Shareholder Information -- Dividends and Distributions"
If a shareholder's account does not have any shares in it on a dividend or
capital gains distribution payment date, the dividend or distribution will be
paid in cash whether or not the shareholder has elected to have such dividends
or distributions reinvested.
TAX MATTERS
The following is only a summary of certain additional tax considerations
generally affecting the Funds and their shareholders that are not described in
the Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of each Fund or its shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning.
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.
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<PAGE> 917
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.
REINSTATEMENT PRIVILEGE
For federal income tax purposes, exercise of your reinstatement privilege may
increase the amount of gain or reduce the amount of loss recognized in the
original redemption transaction, because the initial sales charge will not be
taken into account in determining such gain or loss to the extent there has been
a reduction in the initial sales charge payable upon reinstatement.
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 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
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<PAGE> 918
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 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
56
<PAGE> 919
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.
SHARE 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), 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
57
<PAGE> 920
Funds, provided that such fund is available for sale and provided that the
registration and mailing address of the shares to be purchased are identical to
the registration of the shares being redeemed. An investor acknowledges by
signing the form that he understands and agrees that the Transfer Agent and AIM
Distributors may not be liable for any loss, expense or cost arising out of any
telephone exchange requests effected in accordance with the authorization set
forth in these instructions if they reasonably believe such request to be
genuine, but may in certain cases be liable for losses due to unauthorized or
fraudulent transactions. The Transfer Agent reserves the right to modify or
terminate the telephone exchange privilege at any time without notice. An
investor may elect not to have this privilege by marking the appropriate box on
the application. Then any exchanges must be effected in writing by the investor.
REDEMPTIONS BY TELEPHONE. By signing an account application form, an investor
appoints the Transfer Agent as his true and lawful attorney-in-fact to surrender
for redemption any and all unissued shares held by the Transfer Agent in the
designated account(s), present or future, with full power of substitution in the
premises. The Transfer Agent and AIM Distributors are thereby authorized and
directed to accept and act upon any telephone redemptions of shares held in any
of the account(s) listed, from any person who requests the redemption. An
investor acknowledges by signing the form that he understands and agrees that
the Transfer Agent and AIM Distributors may not be liable for any loss, expense
or cost arising out of any telephone redemption requests effected in accordance
with the authorization set forth in these instructions if they reasonably
believe such request to be genuine, but may in certain cases be liable for
losses due to unauthorized or fraudulent transactions. 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.
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.
58
<PAGE> 921
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.
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 Funds.
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.
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 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.
59
<PAGE> 922
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 February 1, 1999, 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 MLPF&S 7.54% -0-
Fund -- Class B for the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Consumer Products and Services GT New Dimension Fund 91.45% -0-
Fund -- Advisor Class Theme Fund Omnibus Account
2121 N. California Blvd., Ste. 395
Walnut Creek, CA 94596-7305
LGT Asset Management 6.27% -0-
401(K) Plan
11 Greenway Plaza, Ste. 100
Houston, TX 77046-1173
Financial Services Fund -- Class A MLPF&S 9.62% -0-
for the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Financial Services Fund -- Class B MLPF&S 15.94% -0-
for the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Financial Services Fund -- GT New Dimension Fund 94.65% -0-
Advisor Class Theme Fund Omnibus Account
2121 N. California Blvd., Ste. 395
Walnut Creek, CA 94596-7305
Health Care Fund -- Class A MLPF&S 13.33% -0-
for the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Health Care Fund -- Class B MLPF&S 12.05% -0-
for the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Health Care Fund -- Advisor Class GT New Dimension Fund 79.76% -0-
Theme Fund Omnibus Account
2121 N. California Blvd., Ste. 395
Walnut Creek, CA 94596-7305
LGT Asset Management 7.57% -0-
401(K) Plan
11 Greenway Plaza, Ste. 100
Houston, TX 77046-1173
</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>
60
<PAGE> 923
<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 7.63% -0-
for the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Infrastructure Fund -- Advisor Class GT New Dimension Fund 98.21% -0-
Theme Fund Omnibus Account
2121 N. California Blvd., Ste. 395
Walnut Creek, CA 94596-7305
Resources Fund -- Advisor Class GT New Dimension Fund 88.82% -0-
Theme Fund Omnibus Account
2121 N. California Blvd., Ste. 395
Walnut Creek, CA 94596-7305
Telecommunications Fund -- Class A MLPF&S 9.87% -0-
for the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Telecommunications Fund -- Class B MLPF&S 10.60% -0-
for the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Telecommunications Fund -- Advisor GT New Dimension Fund 73.01% -0-
Class Theme Fund Omnibus Account
2121 N. California Blvd., Ste. 395
Walnut Creek, CA 94596-7305
LGT Asset Management 10.76% -0-
401(K) Plan
11 Greenway Plaza, Ste. 100
Houston, TX 77046-1173
</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 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>
61
<PAGE> 924
The standardized returns for the Class A shares of Consumer Products and
Services Fund, Financial Services Fund, Health Care Fund, Infrastructure Fund,
Resources Fund and Telecommunications Fund, stated as average annualized total
returns for the periods shown, were:
<TABLE>
<CAPTION>
ONE FIVE TEN SINCE
YEAR YEAR YEAR INCEPTION*
-------- ----- ---- ----------
<S> <C> <C> <C> <C>
Consumer Products and Services Fund.............. 16.94 % N/A N/A 26.64 %
Financial Services Fund.......................... 7.74 % N/A N/A 14.15 %
Health Care Fund................................. 12.81 % 15.68 N/A 14.51 %
Infrastructure Fund.............................. (0.58)% N/A N/A 7.17 %
Resources Fund................................... (37.42)% N/A N/A (0.26)%
Telecommunications Fund.......................... 12.52 % 6.82% N/A 11.71 %
</TABLE>
- ---------------
* The inception dates for Class A shares of the Funds are as follows: Consumer
Products and Services Fund 02/01/95, Financial Services Fund 05/31/94, Health
Care Fund 08/07/89, Infrastructure Fund 05/31/94, Resources Fund 05/31/94 and
Telecommunications Fund 01/27/92.
The standardized returns for the Class B shares of Consumer Products and
Services Fund, Financial Services Fund, Health Care Fund, Infrastructure Fund,
Resources Fund and Telecommunications Fund, stated as average annualized total
returns for the periods shown, were:
<TABLE>
<CAPTION>
ONE FIVE TEN SINCE
YEAR YEAR YEAR INCEPTION*
-------- ----- ---- ----------
<S> <C> <C> <C> <C>
Consumer Products and Services Fund.............. 17.13 % N/A N/A 27.31 %
Financial Services Fund.......................... 7.53 % N/A N/A 14.54 %
Health Care Fund................................. 12.84 % 16.02 N/A 17.84 %
Infrastructure Fund.............................. (1.10)% N/A N/A 7.43 %
Resources Fund................................... (37.92)% N/A N/A (0.12)%
Telecommunications Fund.......................... 12.54 % 7.04% N/A 12.27 %
</TABLE>
- ---------------
* The inception dates for Class B shares of the Funds are as follows: Consumer
Products and Services Fund 02/01/95, Financial Services Fund 05/31/94, Health
Care Fund 04/01/93, Infrastructure Fund 05/31/94, Resources Fund 05/31/94 and
Telecommunications Fund 04/01/93.
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-standardized returns for Class A shares of Consumer
Products and Services Fund, Health Care Fund and Telecommunications Fund, stated
as average annualized total returns for the periods shown, were:
<TABLE>
<CAPTION>
ONE FIVE TEN SINCE
YEAR YEAR YEAR INCEPTION*
------ ----- ---- ----------
<S> <C> <C> <C> <C>
Consumer Products and Services Fund....................... 22.80% N/A N/A 28.19%
Health Care Fund.......................................... 18.43% 16.81% N/A 15.11%
Telecommunications Fund................................... 18.14% 7.87% N/A 12.50%
</TABLE>
- ---------------
* The inception dates for Class A shares of the Funds are as follows: Consumer
Products and Services Fund 02/01/95, Health Care Fund 08/07/89 and
Telecommunications Fund 01/27/92.
62
<PAGE> 925
The average annual non-standardized returns for Class B shares of Consumer
Products and Services Fund, Health Care Fund and Telecommunications Fund, stated
as average annualized total returns for the periods shown, were:
<TABLE>
<CAPTION>
ONE FIVE TEN SINCE
YEAR YEAR YEAR INCEPTION*
------ ----- ---- ----------
<S> <C> <C> <C> <C>
Consumer Products and Services Fund....................... 22.13% N/A N/A 27.55%
Health Care Fund.......................................... 17.84% 16.24% N/A 17.92%
Telecommunications Fund................................... 17.54% 7.34% N/A 12.37%
</TABLE>
- ---------------
* The inception dates for Class B shares of the Funds are as follows: Consumer
Products and Services Fund 02/01/95, Health Care Fund 04/01/93 and
Telecommunications Fund 04/01/93.
The average annual non-standardized returns for Class A shares of Financial
Services Fund, Infrastructure Fund and Resources Fund, stated as aggregate total
returns for the periods shown, were:
<TABLE>
<CAPTION>
ONE FIVE TEN SINCE
YEAR YEAR YEAR INCEPTION*
-------- ---- ---- ----------
<S> <C> <C> <C> <C>
Financial Services Fund.................................... 13.13 % N/A N/A 92.67%
Infrastructure Fund........................................ 4.35 % N/A N/A 44.20%
Resources Fund............................................. (34.31)% N/A N/A 3.73%
</TABLE>
- ---------------
* The inception dates for Class A shares of the Funds are as follows: Financial
Services Fund 05/31/94, Infrastructure Fund 05/31/94 and Resources Fund
05/31/94.
The average annual non-standardized returns for Class B shares of Financial
Services Fund, Infrastructure Fund and Resources Fund, stated as aggregate total
returns for the periods shown, were:
<TABLE>
<CAPTION>
ONE FIVE TEN SINCE
YEAR YEAR YEAR INCEPTION*
-------- ---- ---- ----------
<S> <C> <C> <C> <C>
Financial Services Fund.................................... 12.53 % N/A N/A 88.35%
Infrastructure Fund........................................ 3.79 % N/A N/A 40.94%
Resources Fund............................................. (34.65)% N/A N/A 1.35%
</TABLE>
- ---------------
* The inception dates for Class B shares of the Funds are as follows: Financial
Services Fund 05/31/94, Infrastructure Fund 05/31/94 and Resources Fund
05/31/94.
63
<PAGE> 926
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 shares of Consumer Products and Services Fund, Financial
Services Fund, Health Care Fund, Infrastructure Fund, Resources Fund and
Telecommunications Fund, stated as aggregate total returns for the periods
shown, were:
<TABLE>
<CAPTION>
ONE FIVE TEN SINCE
YEAR YEAR YEAR INCEPTION*
-------- ------ ---- ----------
<S> <C> <C> <C> <C>
Consumer Products and Services Fund.................... 22.80 % N/A N/A 170.24%
Financial Services Fund................................ 13.13 % N/A N/A 92.7%
Health Care Fund....................................... 18.43 % 117.50% N/A 275.24%
Infrastructure Fund.................................... 4.35 % N/A N/A 44.20%
Resources Fund......................................... (34.31)% N/A N/A 3.73%
Telecommunications Fund................................ 18.14 % 46.07% N/A 126.14%
</TABLE>
- ---------------
* The inception dates for Class A shares of the Funds are as follows: Consumer
Products and Services Fund 02/01/95, Financial Services Fund 05/31/94, Health
Care Fund 08/07/89, Infrastructure Fund 05/31/94, Resources Fund 05/31/94 and
Telecommunications Fund 01/27/92.
The aggregate non-standardized returns (not taking sales charges into account)
for the Class B shares of Consumer Products and Services Fund, Financial
Services Fund, Health Care Fund, Infrastructure Fund, Resources Fund and
Telecommunications Fund, stated as aggregate total returns for the periods
shown, were:
<TABLE>
<CAPTION>
ONE FIVE TEN SINCE
YEAR YEAR YEAR INCEPTION*
-------- ------ ---- ----------
<S> <C> <C> <C> <C>
Consumer Products and Services Fund.................... 22.13 % N/A N/A 164.89%
Financial Services Fund................................ 12.53 % N/A N/A 88.35%
Health Care Fund....................................... 17.84 % 112.23% N/A 158.08%
Infrastructure Fund.................................... 3.79 % N/A N/A 40.94%
Resources Fund......................................... (34.65)% N/A N/A 1.35%
Telecommunications Fund................................ 17.54 % 42.52% N/A 95.54%
</TABLE>
- ---------------
* The inception dates for Class B shares of the Funds are as follows: Consumer
Products and Services Fund 02/01/95, Financial Services Fund 05/31/94, Health
Care Fund 04/01/93, Infrastructure Fund 05/31/94, Resources Fund 05/31/94 and
Telecommunications Fund 04/01/93.
The aggregate standardized returns (taking sales charges into account) for the
Class A shares of Financial Services Fund, Health Care Fund, Infrastructure
Fund, Resources Fund and Telecommunications Fund, stated as aggregate total
returns for the periods shown were:
<TABLE>
<CAPTION>
ONE FIVE TEN SINCE
YEAR YEAR YEAR INCEPTION*
-------- ------ ---- ----------
<S> <C> <C> <C> <C>
Financial Services Fund................................ 7.74 % N/A N/A 83.52 %
Health Care Fund....................................... 12.81 % 107.13% N/A 257.40 %
Infrastructure Fund.................................... (.58)% N/A N/A 37.35 %
Resources Fund......................................... (37.42)% N/A N/A (1.20)%
Telecommunications Fund................................ 12.52 % 39.10% N/A 115.39 %
</TABLE>
- ---------------
64
<PAGE> 927
* The inception dates for Class A shares of each Fund are as follows: Financial
Services Fund 05/31/94, Health Care Fund 08/07/89, Infrastructure Fund
05/31/94, Resources Fund 05/31/94, and Telecommunications Fund 01/27/92.
The aggregate standardized returns (taking sales charges into account) for the
Class B shares of Financial Services Fund, Health Care Fund, Infrastructure
Fund, Resources Fund and Telecommunications Fund, stated as aggregate total
returns for the periods shown were:
<TABLE>
<CAPTION>
SINCE
ONE YEAR FIVE YEAR TEN YEAR INCEPTION*
-------- --------- -------- ----------
<S> <C> <C> <C> <C>
Financial Services Fund................................. 7.53% N/A N/A 86.35%
Health Care Fund........................................ 12.84% 110.23% N/A 157.08%
Infrastructure Fund..................................... (1.10)% N/A N/A 38.94%
Resources Fund.......................................... (37.92)% N/A N/A (.53)%
Telecommunications Fund................................. 12.54% 40.52% N/A 94.54%
</TABLE>
- ---------------
* The inception dates for Class B shares of each Fund are as follows: Financial
Services Fund 05/31/94, Health Care Fund 04/01/93, Infrastructure Fund
05/31/94, Resources Fund 05/31/94, and Telecommunications Fund 04/01/93.
The aggregate non-standardized returns (taking sales charges into account) for
the Class A shares of the Consumer Products and Services Fund, stated as
aggregate total returns for the periods shown, were:
<TABLE>
<CAPTION>
SINCE
ONE YEAR FIVE YEAR TEN YEAR INCEPTION*
-------- --------- -------- ----------
<S> <C> <C> <C> <C>
Consumer Products and Services Fund..................... 16.94% N/A N/A 157.40%
</TABLE>
- ---------------
* The inception date for Class A shares of Consumer Products and Services Fund
is 02/01/95.
The aggregate non-standardized returns (taking sales charges into account) for
the Class B shares of Consumer Products and Services Fund stated as aggregate
total returns for the periods shown were:
<TABLE>
<CAPTION>
SINCE
ONE YEAR FIVE YEAR TEN YEAR INCEPTION*
-------- --------- -------- ----------
<S> <C> <C> <C> <C>
Consumer Products and Services Fund..................... 17.13% N/A N/A 162.89%
</TABLE>
- ---------------
* The inception dates for Class B shares of Consumer Products and Services Fund
is 02/01/95.
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.
65
<PAGE> 928
PERFORMANCE INFORMATION
All advertisements of a Fund will disclose the maximum sales charge
(including deferred sales charges) imposed on purchases of the Fund's shares. If
any advertised performance data does not reflect the maximum sales charge (if
any), such advertisement will disclose that the sales charge has not been
deducted in computing the performance data, and that, if reflected, the maximum
sales charge would reduce the performance quoted. Further information regarding
the Fund's performance is contained in the Fund's annual report to shareholders,
which is available upon request and without charge.
A Fund's total return is calculated in accordance with a standardized
formula for computation of annualized total return. Standardized total return
for Class A shares reflects the deduction of the Fund's maximum front-end sales
charge at the time of purchase. Standardized total return for Class B shares
reflects the deduction of the maximum applicable contingent deferred sales
charge on a redemption of shares held for the period.
A Fund's total return shows its overall change in value, including changes
in share price and assuming all the Fund's dividends and capital gain
distributions are reinvested. A cumulative total return reflects the Fund's
performance over a stated period of time. An average annual total return
reflects the hypothetical compounded annual rate of return that would have
produced the same cumulative total return if the Fund's performance had been
constant over the entire period. BECAUSE AVERAGE ANNUAL RETURNS TEND TO EVEN OUT
VARIATIONS IN THE FUND'S RETURN, INVESTORS SHOULD RECOGNIZE THAT SUCH RETURNS
ARE NOT THE SAME AS ACTUAL YEAR-BY-YEAR RESULTS. To illustrate the components of
overall performance, the Fund may separate its cumulative and average annual
returns into income results and capital gains or losses.
From time to time and in its discretion, AIM or its affiliates may waive all
or a portion of their fees and/or assume certain expenses of any Fund. Voluntary
fee waivers or reductions or commitments to assume expenses may be rescinded at
any time without further notice to investors. During periods of voluntary fee
waivers or reductions or commitments to assume expenses, AIM will retain its
ability to be reimbursed for such fee prior to the end of each fiscal year.
Contractual fee waivers or reductions or reimbursement of expenses set forth in
the Fee Table in the Prospectus may not be terminated without the approval of
the Board of Trustees.
A practice of waiving or reducing fees or reimbursing expenses will have the
effect of increasing that Fund's yield and total return. The performance of each
Fund will vary from time to time and past results are not necessarily indicative
of future results. A Fund's performance is a function of its portfolio
management in selecting the type and quality of portfolio securities and is
affected by operating expenses of the Fund and market conditions. A
shareholder's investment in a Fund is not insured or guaranteed. These factors
should be carefully considered by the investor before making an investment in
any Fund.
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
66
<PAGE> 929
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.
67
<PAGE> 930
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 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 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 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 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 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.
68
<PAGE> 931
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 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
69
<PAGE> 932
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
70
<PAGE> 933
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.
71
<PAGE> 934
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.
72
<PAGE> 935
FINANCIAL STATEMENTS
FS
<PAGE> 936
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders of AIM Global Consumer Products and Services Fund (formerly
GT Global Consumer Products and Services Fund) and Board of Trustees of AIM
Investment Funds (formerly G.T. Investment Funds, Inc.):
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Global Consumer Products
and Services Fund - Consolidated at October 31, 1998, and the results of its
operations, the changes in its net assets and the financial highlights for the
periods indicated, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at October
31, 1998 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
------------------------------
PRICEWATERHOUSECOOPERS LLP
BOSTON, MASSACHUSETTS
DECEMBER 18, 1998
FS-1
<PAGE> 937
PORTFOLIO OF INVESTMENTS
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Services (43.6%)
Safeway, Inc.-/- .......................................... US 79,300 $ 3,791,531 2.3
RETAILERS-FOOD
Meyer (Fred), Inc.-/- ..................................... US 71,000 3,785,180 2.3
RETAILERS-FOOD
Telecom Italia Mobile S.p.A. .............................. ITLY 631,100 3,667,546 2.2
TELEPHONE NETWORKS
Outdoor Systems, Inc.-/- .................................. US 152,000 3,353,500 2.0
BROADCASTING & PUBLISHING
Lamar Advertising Co.-/- .................................. US 105,500 3,293,578 2.0
BROADCASTING & PUBLISHING
Cinar Films, Inc. "B"-/- {\/} ............................. CAN 152,000 3,211,000 1.9
BROADCASTING & PUBLISHING
Time Warner, Inc. ......................................... US 34,000 3,155,625 1.9
BROADCASTING & PUBLISHING
Ames Department Stores, Inc.-/- ........................... US 132,600 2,436,525 1.5
RETAILERS-OTHER
Railtrack Group PLC-/- .................................... UK 90,590 2,432,607 1.5
TRANSPORTATION - ROAD & RAIL
Loblaw Cos., Ltd. ......................................... CAN 130,300 2,428,606 1.5
RETAILERS-FOOD
Etablissements Economiques du Casino Guichard-Perrachon
S.A. ..................................................... FR 24,230 2,412,660 1.5
LEISURE & TOURISM
Clear Channel Communications, Inc.-/- ..................... US 50,400 2,296,350 1.4
BROADCASTING & PUBLISHING
Tandy Corp. ............................................... US 45,000 2,230,313 1.3
RETAILERS-OTHER
Family Dollar Stores, Inc. ................................ US 118,100 2,140,563 1.3
RETAILERS-APPAREL
Promodes .................................................. FR 3,350 2,110,602 1.3
RETAILERS-FOOD
American Stores Co. ....................................... US 59,900 1,950,494 1.2
RETAILERS-FOOD
Avis Europe PLC ........................................... UK 443,600 1,937,085 1.2
TRANSPORTATION - ROAD
Musicland Stores Corp.-/- ................................. US 137,800 1,817,238 1.1
RETAILERS-OTHER
Tricon Global Restaurants, Inc. ........................... US 40,000 1,740,000 1.0
RETAILERS-FOOD
Duane Reade, Inc.-/- ...................................... US 43,300 1,672,463 1.0
RETAILERS-OTHER
Wal-Mart Stores, Inc. ..................................... US 24,000 1,656,000 1.0
RETAILERS-OTHER
Home Depot, Inc. .......................................... US 37,800 1,644,300 1.0
RETAILERS-OTHER
Dollar Tree Stores, Inc.-/- ............................... US 41,850 1,613,841 1.0
RETAILERS-OTHER
Linens 'N Things, Inc.-/- ................................. US 52,000 1,608,750 1.0
RETAILERS-APPAREL
Gap, Inc. ................................................. US 26,000 1,563,250 0.9
RETAILERS-APPAREL
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-2
<PAGE> 938
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Services (Continued)
Longs Drug Stores Corp. ................................... US 36,600 $ 1,429,688 0.9
RETAILERS-OTHER
Carnival Corp. ............................................ US 43,600 1,411,550 0.8
LEISURE & TOURISM
The Kroger Co. ............................................ US 24,000 1,332,000 0.8
RETAILERS-FOOD
Costco Companies, Inc.-/- ................................. US 19,000 1,078,250 0.6
RETAILERS-FOOD
CBS Corp. ................................................. US 35,000 977,813 0.6
BROADCASTING & PUBLISHING
American Eagle Outfitters, Inc.-/- ........................ US 22,000 891,000 0.5
RETAILERS-APPAREL
Bed Bath & Beyond-/- ...................................... US 32,000 882,000 0.5
RETAILERS-OTHER
Abercrombie & Fitch Co.-/- ................................ US 22,000 873,125 0.5
RETAILERS-APPAREL
Fred's, Inc. .............................................. US 65,500 855,594 0.5
RETAILERS-OTHER
Paychex, Inc. ............................................. US 17,000 845,750 0.5
CONSUMER SERVICES
TJX Cos., Inc. ............................................ US 43,000 814,313 0.5
RETAILERS-APPAREL
Pacific Sunwear of California-/- .......................... US 32,100 694,163 0.4
RETAILERS-APPAREL
Young & Rubicam, Inc.-/- .................................. US 13,100 342,238 0.2
BUSINESS & PUBLIC SERVICES
------------
72,377,091
------------
Consumer Non-Durables (30.0%)
Heineken N.V. ............................................. NETH 99,225 5,285,838 3.2
BEVERAGES - ALCOHOLIC
The Dial Corp. ............................................ US 157,400 4,338,338 2.6
HOUSEHOLD PRODUCTS
Philip Morris Cos., Inc. .................................. US 80,400 4,110,450 2.5
TOBACCO AND FOOD
Clorox Co. ................................................ US 35,200 3,845,600 2.3
HOUSEHOLD PRODUCTS
Compagnie Financiere Richemont AG "A" Units ............... SWTZ 2,650 3,521,335 2.1
TOBACCO
Coca-Cola Co. ............................................. US 46,000 3,110,750 1.9
BEVERAGES - NON-ALCOHOLIC
Anheuser-Busch Cos., Inc. ................................. US 52,000 3,090,750 1.9
BEVERAGES - ALCOHOLIC
Nestle S.A. - Registered .................................. SWTZ 1,372 2,916,994 1.8
FOOD
Danone .................................................... FR 10,400 2,750,887 1.7
FOOD
Adolph Coors Co. "B" ...................................... US 47,200 2,360,000 1.4
BEVERAGES - ALCOHOLIC
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-3
<PAGE> 939
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Consumer Non-Durables (Continued)
Quaker Oats Co. ........................................... US 37,100 $ 2,191,219 1.3
FOOD
Unilever PLC-/- ........................................... UK 212,210 2,130,266 1.3
HOUSEHOLD PRODUCTS
British American Tobacco PLC - ADR-/- ..................... US 116,600 2,120,663 1.3
TOBACCO
Diageo PLC ................................................ UK 174,500 1,883,094 1.1
BEVERAGES - ALCOHOLIC
Foster's Brewing Group Ltd. ............................... AUSL 750,000 1,842,188 1.1
BEVERAGES - ALCOHOLIC
SEITA (Societe Nationale d'Exploitation Industrielle des
Tabacs et Allumettes) .................................... FR 29,400 1,746,943 1.1
TOBACCO
The Earthgrains Co. ....................................... US 47,000 1,410,000 0.8
FOOD
Interstate Bakeries Corp. ................................. US 24,800 621,550 0.4
FOOD
Saputo Group, Inc. ........................................ CAN 13,700 293,096 0.2
FOOD
------------
49,569,961
------------
Consumer Durables (6.7%)
Microsoft Corp.-/- ........................................ US 48,900 5,177,288 3.1
COMPUTER SOFTWARE
Sonic Automotive, Inc.-/- ................................. US 91,300 1,854,531 1.1
AUTOMOBILES
Daimler Benz AG ........................................... GER 21,565 1,674,281 1.0
AUTOMOBILES
Maytag Corporation ........................................ US 31,900 1,577,056 0.9
APPLIANCES & HOUSEHOLD
Best Buy Co., Inc.-/- ..................................... US 20,000 960,000 0.6
CONSUMER ELECTRONICS
------------
11,243,156
------------
Finance (5.8%)
Fannie Mae ................................................ US 40,900 2,896,231 1.7
OTHER FINANCIAL
Axa - UAP ................................................. FR 18,850 2,131,516 1.3
INSURANCE - MULTI-LINE
Providian Financial Corp. ................................. US 21,000 1,666,875 1.0
CONSUMER FINANCE
SunAmerica, Inc. .......................................... US 22,200 1,565,100 0.9
INSURANCE - MULTI-LINE
Metris Cos., Inc. ......................................... US 44,000 1,446,500 0.9
CONSUMER FINANCE
------------
9,706,222
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-4
<PAGE> 940
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Materials/Basic Industry (3.4%)
CRH PLC ................................................... UK 212,679 $ 3,099,271 1.9
BUILDING MATERIALS & COMPONENTS
Tyco International Ltd. ................................... US 41,000 2,539,438 1.5
MISC. MATERIALS & COMMODITIES
------------
5,638,709
------------
Multi-Industry/Miscellaneous (2.6%)
General Electric Co. ...................................... US 49,400 4,322,500 2.6
------------ -----
CONGLOMERATE
TOTAL EQUITY INVESTMENTS (cost $133,549,669) ................ 152,857,639 92.1
------------ -----
<CAPTION>
VALUE % OF NET
REPURCHASE AGREEMENT (NOTE 1) ASSETS
- ------------------------------------------------------------- ------------ -------------
<S> <C> <C> <C> <C>
Dated October 30, 1998, with State Street Bank & Trust Co.,
due November 2, 1998, for an effective yield of 5.30%,
collateralized by $17,540,000 U.S. Treasury Notes, 5.75%
due 9/30/99 (market value of collateral is $17,842,372,
including accrued interest). (cost $17,489,000) .......... 17,489,000 10.5
------------ -----
TOTAL INVESTMENTS (cost $151,038,669) * .................... 170,346,639 102.6
Other Assets and Liabilities ................................ (4,330,217) (2.6)
------------ -----
NET ASSETS .................................................. $166,016,422 100.0
------------ -----
------------ -----
</TABLE>
- --------------
-/- Non-income producing security.
{\/} U.S. currency denominated.
* For Federal income tax purposes, cost is $153,515,812 and
appreciation (depreciation) is as follows:
<TABLE>
<S> <C>
Unrealized appreciation: $ 18,855,154
Unrealized depreciation: (2,024,327)
-------------
Net unrealized appreciation: $ 16,830,827
-------------
-------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Fund's Portfolio of Investments at October 31, 1998, was concentrated in the
following countries:
<TABLE>
<CAPTION>
PERCENTAGE OF NET ASSETS {D}
----------------------------
SHORT-TERM
COUNTRY (COUNTRY CODE/CURRENCY CODE) EQUITY & OTHER TOTAL
- -------------------------------------- ----- ------------ -----
<S> <C> <C> <C>
Australia (AUSL/AUD) ................. 1.1 1.1
Canada (CAN/CAD) ..................... 3.6 3.6
France (FR/FRF) ...................... 6.9 6.9
Germany (GER/DEM) .................... 1.0 1.0
Italy (ITLY/ITL) ..................... 2.2 2.2
Netherlands (NETH/NLG) ............... 3.2 3.2
Switzerland (SWTZ/CHF) ............... 3.9 3.9
United Kingdom (UK/GBP) .............. 7.0 7.0
United States (US/USD) ............... 63.2 7.9 71.1
----- --- -----
Total ............................... 92.1 7.9 100.0
----- --- -----
----- --- -----
</TABLE>
- --------------
{d} Percentages indicated are based on net assets of $166,016,422.
The accompanying notes are an integral part of the financial statements.
FS-5
<PAGE> 941
STATEMENT OF ASSETS
AND LIABILITIES
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at value (cost $133,549,669) (Note 1).......................... $152,857,639
Repurchase Agreement, at value and cost (Note 1).......................................... 17,489,000
U.S. currency................................................................. $ 535
Foreign currencies (cost $2,750,495).......................................... 2,755,656 2,756,191
----------
Receivable for securities sold............................................................ 1,546,087
Receivable for Fund shares sold........................................................... 323,204
Dividends and dividend withholding tax reclaims receivable................................ 150,278
Miscellaneous receivable.................................................................. 12,035
Unamortized organizational costs (Note 1)................................................. 11,964
Interest receivable....................................................................... 5,148
------------
Total assets............................................................................ 175,151,546
------------
Liabilities:
Payable for securities purchased.......................................................... 8,091,057
Payable for Fund shares repurchased....................................................... 442,536
Payable for service and distribution expenses (Note 2).................................... 241,953
Payable for investment management and administration fees (Note 2)........................ 130,694
Payable for transfer agent fees (Note 2).................................................. 100,185
Payable for printing and postage expenses................................................. 42,237
Payable for professional fees............................................................. 24,648
Payable for Trustees' fees and expenses (Note 2).......................................... 12,056
Payable for registration and filing fees.................................................. 5,125
Payable for fund accounting fees (Note 2)................................................. 2,449
Payable for custodian fees................................................................ 848
Other accrued expenses.................................................................... 41,236
------------
Total liabilities....................................................................... 9,135,024
Minority interest (Notes 1 & 2)........................................................... 100
------------
Net assets.................................................................................. $166,016,422
------------
------------
Class A:
Net asset value and redemption price per share ($59,879,529 DIVIDED BY 2,702,075 shares
outstanding)............................................................................. $ 22.16
------------
------------
Maximum offering price per share (100/95.25 of $22.16) *.................................. $ 23.27
------------
------------
Class B:+
Net asset value and offering price per share ($91,613,414 DIVIDED BY 4,222,200 shares
outstanding)............................................................................. $ 21.70
------------
------------
Advisor Class:
Net asset value, offering price per share, and redemption price per share ($14,523,479
DIVIDED BY 642,459 shares outstanding)................................................... $ 22.61
------------
------------
Net assets consist of:
Paid in capital (Note 4).................................................................. $144,231,004
Accumulated net realized gain on investments and foreign currency transactions............ 2,459,227
Net unrealized appreciation on translation of assets and liabilities in foreign
currencies............................................................................... 18,221
Net unrealized appreciation of investments................................................ 19,307,970
------------
Total -- representing net assets applicable to capital shares outstanding................... $166,016,422
------------
------------
<FN>
- --------------
* On sales of $50,000 or more, the offering price is reduced.
+ Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-6
<PAGE> 942
STATEMENT OF OPERATIONS
Year ended October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment income: (Note 1)
Dividend income (net of foreign withholding tax of $109,205)............................... $ 1,263,585
Interest income............................................................................ 727,860
Securities lending income.................................................................. 61,127
-----------
Total investment income.................................................................. 2,052,572
-----------
Expenses:
Investment management and administration fees (Note 2)..................................... 1,786,377
Service and distribution expenses: (Note 2)
Class A..................................................................... $ 335,139
Class B..................................................................... 1,005,968 1,341,107
-----------
Transfer agent fees (Note 2)............................................................... 478,410
Printing and postage expenses.............................................................. 117,338
Professional fees.......................................................................... 85,210
Fund accounting fees (Note 2).............................................................. 47,155
Registration and filing fees............................................................... 44,460
Custodian fees............................................................................. 43,690
Trustees' fees and expenses (Note 2)....................................................... 22,550
Amortization of organization costs (Note 1)................................................ 10,300
Other expenses............................................................................. 21,447
-----------
Total expenses before reductions......................................................... 3,998,044
-----------
Expense reductions (Note 5)............................................................ (40,195)
-----------
Total net expenses....................................................................... 3,957,849
-----------
Net investment loss.......................................................................... (1,905,277)
-----------
Net realized and unrealized gain (loss) on investments and foreign currencies:
(Note 1)
Net realized gain on investments.............................................. 4,701,157
Net realized loss on foreign currency transactions............................ (45,712)
-----------
Net realized gain during the year........................................................ 4,655,445
Net change in unrealized appreciation on translation of assets and liabilities
in foreign currencies........................................................ 13,162
Net change in unrealized appreciation of investments.......................... 10,759,527
-----------
Net unrealized appreciation during the year.............................................. 10,772,689
-----------
Net realized and unrealized gain on investments and foreign currencies....................... 15,428,134
-----------
Net increase in net assets resulting from operations......................................... $13,522,857
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-7
<PAGE> 943
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1998 1997
--------------- ---------------
<S> <C> <C>
Increase (decrease) in net assets
Operations:
Net investment loss..................................................................... $ (1,905,277) $ (1,662,851)
Net realized gain on investments and foreign currency transactions...................... 4,655,445 16,167,449
Net change in unrealized appreciation on translation of assets and liabilities in
foreign currencies..................................................................... 13,162 5,172
Net change in unrealized appreciation (depreciation) of investments..................... 10,759,527 (714,518)
--------------- ---------------
Net increase in net assets resulting from operations.................................. 13,522,857 13,795,252
--------------- ---------------
Class A:
Distributions to shareholders: (Note 1)
From net realized gain on investments................................................... (5,574,558) (3,424,902)
Class B:
Distributions to shareholders: (Note 1)
From net realized gain on investments................................................... (8,128,120) (4,055,905)
Advisor Class:
Distributions to shareholders: (Note 1)
From net realized gain on investments................................................... (962,828) (308,573)
--------------- ---------------
Total distributions................................................................... (14,665,506) (7,789,380)
--------------- ---------------
Capital share transactions: (Note 4)
Increase from capital shares sold and reinvested........................................ 92,335,349 136,239,369
Decrease from capital shares repurchased................................................ (87,838,591) (151,833,735)
--------------- ---------------
Net increase (decrease) from capital share transactions............................... 4,496,758 (15,594,366)
--------------- ---------------
Total increase (decrease) in net assets................................................... 3,354,109 (9,588,494)
Net assets:
Beginning of year....................................................................... 162,662,313 172,250,807
--------------- ---------------
End of year *........................................................................... $166,016,422 $162,662,313
--------------- ---------------
--------------- ---------------
* Includes undistributed net investment income........................................... $ -- --
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-8
<PAGE> 944
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------
DECEMBER 30, 1994
YEAR ENDED OCTOBER 31, (COMMENCEMENT OF
---------------------------------- OPERATIONS)
1998 (d) 1997 (d) 1996 (d) TO OCTOBER 31, 1995 (d)
---------- ---------- ---------- ---------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.......................... $ 22.19 $ 20.98 $ 14.59 $ 11.43
---------- ---------- ---------- --------
Income from investment operations:
Net investment income (loss)................................ (0.19) (0.15) (0.22) 0.02*
Net realized and unrealized gain on investments............. 2.05 2.27 7.13 3.14
---------- ---------- ---------- --------
Net increase from investment operations................... 1.86 2.12 6.91 3.16
---------- ---------- ---------- --------
Distributions to shareholders:
From net realized gain on investments....................... (1.89) (0.91) (0.52) --
---------- ---------- ---------- --------
Total distributions....................................... (1.89) (0.91) (0.52) --
---------- ---------- ---------- --------
Net asset value, end of period................................ $ 22.16 $ 22.19 $ 20.98 $ 14.59
---------- ---------- ---------- --------
---------- ---------- ---------- --------
Total investment return (c)................................... 8.66% 10.55% 48.82% 27.65% (b)
Ratios and supplemental data:
Net assets, end of period (in 000's).......................... $ 59,880 $ 62,637 $ 76,900 $ 4,082
Ratio of net investment income (loss) to average net assets:
With expense reductions and/or reimbursement (Notes 2 &
5)......................................................... (0.81)% (0.72)% (1.14)% 0.20% (a)
Without expense reductions and/or reimbursement............. (0.83)% (0.87)% (1.24)% (11.11)% (a)
Ratio of expenses to average net assets:
With expense reductions and/or reimbursement (Notes 2 &
5)......................................................... 1.93% 1.84% 2.24% 2.32% (a)
Without expense reductions and/or reimbursement............. 1.95% 1.99% 2.34% 13.63% (a)
Portfolio turnover rate++..................................... 221% 392% 169% 240% (a)
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share operating data were calculated based upon
average shares outstanding during the period.
* Before reimbursement net investment income (loss) per share would have
been reduced (increased) by $1.12, $1.04 and $0.61 for Class A, Class
B and Advisor Class, respectively.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover is calculated on the basis of the Portfolio as a
whole without distinguishing between the classes of shares issued.
The accompanying notes are an integral part of the financial statements.
FS-9
<PAGE> 945
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------------------------
DECEMBER 30, 1994
YEAR ENDED OCTOBER 31, (COMMENCEMENT OF
---------------------------------- OPERATIONS)
1998 (d) 1997 (d) 1996 (d) TO OCTOBER 31, 1995 (d)
---------- ---------- ---------- ---------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period............................. $ 21.86 $ 20.79 $ 14.53 $ 11.43
---------- ---------- ---------- --------
Income from investment operations:
Net investment income (loss)................................... (0.30) (0.24) (0.31) (0.04) *
Net realized and unrealized gain on investments................ 2.03 2.22 7.09 3.14
---------- ---------- ---------- --------
Net increase from investment operations...................... 1.73 1.98 6.78 3.10
---------- ---------- ---------- --------
Distributions to shareholders:
From net realized gain on investments.......................... (1.89) (0.91) (0.52) --
---------- ---------- ---------- --------
Total distributions.......................................... (1.89) (0.91) (0.52) --
---------- ---------- ---------- --------
Net asset value, end of period................................... $ 21.70 $ 21.86 $ 20.79 $ 14.53
---------- ---------- ---------- --------
---------- ---------- ---------- --------
Total investment return (c)...................................... 8.16% 9.95% 48.11% 27.12% (b)
Ratios and supplemental data:
Net assets, end of period (in 000's)............................. $ 91,613 $ 93,978 $ 87,904 $ 2,959
Ratio of net investment income (loss) to average net assets:
With expense reductions and/or reimbursement (Notes 2 & 5)..... (1.31)% (1.22)% (1.64)% (0.30)% (a)
Without expense reductions and/or reimbursement................ (1.33)% (1.37)% (1.74)% (11.61)% (a)
Ratio of expenses to average net assets:
With expense reductions and/or reimbursement (Notes 2 & 5)..... 2.43% 2.34% 2.74% 2.82% (a)
Without expense reductions and/or reimbursement................ 2.45% 2.49% 2.84% 14.13% (a)
Portfolio turnover rate++........................................ 221% 392% 169% 240% (a)
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share operating data were calculated based upon
average shares outstanding during the period.
* Before reimbursement net investment income (loss) per share would have
been reduced (increased) by $1.12, $1.04 and $0.61 for Class A, Class
B and Advisor Class, respectively.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover is calculated on the basis of the Portfolio as a
whole without distinguishing between the classes of shares issued.
The accompanying notes are an integral part of the financial statements.
FS-10
<PAGE> 946
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
ADVISOR CLASS+
---------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------- JUNE 1, 1995
1998 (d) 1997 (d) 1996 (d) TO OCTOBER 31, 1995 (d)
---------- ---------- ---------- ---------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period............................. $ 22.50 $ 21.15 $ 14.64 $ 11.84
---------- ---------- ---------- --------
Income from investment operations:
Net investment income (loss)................................... (0.08) (0.04) (0.13) 0.04*
Net realized and unrealized gain on investments................ 2.08 2.30 7.16 2.76
---------- ---------- ---------- --------
Net increase from investment operations...................... 2.00 2.26 7.03 2.80
---------- ---------- ---------- --------
Distributions to shareholders:
From net realized gain on investments.......................... (1.89) (0.91) (0.52) --
---------- ---------- ---------- --------
Total distributions.......................................... (1.89) (0.91) (0.52) --
---------- ---------- ---------- --------
Net asset value, end of period................................... $ 22.61 $ 22.50 $ 21.15 $ 14.64
---------- ---------- ---------- --------
---------- ---------- ---------- --------
Total investment return (c)...................................... 9.20% 11.15% 49.50% 23.65% (b)
Ratios and supplemental data:
Net assets, end of period (in 000's)............................. $ 14,523 $ 6,047 $ 7,446 $ 164
Ratio of net investment income (loss) to average net assets:
With expense reductions and/or reimbursement (Notes 2 & 5)..... (0.31)% (0.22)% (0.64)% 0.70% (a)
Without expense reductions and/or reimbursement................ (0.33)% (0.37)% (0.74)% (10.61)% (a)
Ratio of expenses to average net assets:
With expense reductions and/or reimbursement (Notes 2 & 5)..... 1.43% 1.34% 1.74% 1.82% (a)
Without expense reductions and/or reimbursement................ 1.45% 1.49% 1.84% 13.13% (a)
Portfolio turnover rate++........................................ 221% 392% 169% 240% (a)
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share operating data were calculated based upon
average shares outstanding during the period.
* Before reimbursement net investment income (loss) per share would have
been reduced (increased) by $1.12, $1.04 and $0.61 for Class A, Class
B and Advisor Class, respectively.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover is calculated on the basis of the Portfolio as a
whole without distinguishing between the classes of shares issued.
The accompanying notes are an integral part of the financial statements.
FS-11
<PAGE> 947
NOTES TO
FINANCIAL STATEMENTS
October 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (SEE ALSO NOTE 2)
AIM Global Consumer Products and Services Fund (the "Fund"), formerly GT Global
Consumer Products and Services Fund, is a separate series of AIM Investment
Funds (the "Trust"), formerly G.T. Investment Funds, Inc. The Trust is organized
as a Delaware business trust and is registered under the Investment Company Act
of 1940, as amended ("1940 Act"), as an open-end management investment company.
The Trust has thirteen series of shares in operation, each series corresponding
to a distinct portfolio of investments.
The Fund invests substantially all of its investable assets in Global Consumer
Products and Services Portfolio, (the "Portfolio"). The Portfolio is organized
as a subtrust of Global Investment Portfolio, a Delaware business trust and is
registered under the 1940 Act as an open-end management investment company.
The Portfolio has investment objectives, policies, and limitations substantially
identical to those of its corresponding Fund. Therefore, the financial
statements of the Fund and Portfolio have been presented on a consolidated
basis, and represent all activities of both the Fund and Portfolio. Through
October 31, 1998, all of the shares of beneficial interest of the Portfolio were
owned by either the Fund or A I M Advisors, Inc. (the "Manager"), which has a
nominal ($100) investment in the Portfolio.
The Fund offers Class A, Class B, and Advisor Class shares, each of which has
equal rights as to assets and voting privileges except that Class A and Class B
each has exclusive voting rights with respect to its distribution plan.
Investment income, realized and unrealized capital gains and losses, and the
common expenses of the Fund are allocated on a pro rata basis to each class
based on the relative net assets of each class to the total net assets of the
Fund. Each class of shares differs in its respective service and distribution
expenses, and may differ in its transfer agent, registration, and certain other
class-specific fees and expenses.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies in conformity with generally accepted accounting
principles consistently followed by the Fund in the preparation of the financial
statements.
(A) PORTFOLIO VALUATION
The Fund calculates the net asset value of and completes orders to purchase,
exchange or repurchase Fund shares on each business day, with the exception of
those days on which the New York Stock Exchange is closed.
Equity securities are valued at the last sale price on the exchange on which
such securities are traded, or on the principal over-the-counter market on which
such securities are traded, as of the close of business on the day the
securities are being valued, or, lacking any sales, at the last available bid
price. In cases where securities are traded on more than one exchange, the
securities are valued on the exchange determined by the Manager to be the
primary market.
Fixed income investments are valued at the mean of representative quoted bid and
ask prices for such investments or, if such prices are not available, at prices
for investments of comparative maturity, quality and type; however, when the
Manager deems it appropriate, prices obtained for the day of valuation from a
bond pricing service will be used. Short-term investments are valued at
amortized cost adjusted for foreign exchange translation and market fluctuation,
if any.
Investments for which market quotations are not readily available (including
restricted securities which are subject to limitations on their sale) are valued
at fair value as determined in good faith by or under the direction of the
Trust's Board of Trustees.
Portfolio securities which are primarily traded on foreign exchanges are
generally valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S. dollars at
the current exchange rates, except that when an occurrence subsequent to the
time a value was so established is likely to have materially changed such value,
then the fair value of those securities will be determined by consideration of
other factors by or under the direction of the Trust's Board of Trustees.
(B) FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund and Portfolio are maintained in U.S. dollars.
The market values of foreign securities, currency holdings, and other assets and
liabilities are recorded in the books and records of the Portfolio after
translation to U.S. dollars based on the exchange rates on that day. The cost of
each security is determined using historical exchange rates. Income and
withholding taxes are translated at prevailing exchange rates when earned or
incurred.
The Portfolio does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, forward foreign currency contracts, sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Portfolio's books and the U.S. dollar equivalent of the amounts actually
received or paid. Net unrealized foreign exchange gains or losses arise from
changes in the value of assets and liabilities other than investments in
securities at year end, resulting from changes in exchange rates.
(C) REPURCHASE AGREEMENTS
With respect to repurchase agreements entered into by the Portfolio, it is the
Portfolio's policy to always receive, as collateral, United States government
securities or other high quality debt securities of which the value, including
accrued interest, is at least equal to the amount to be repaid to the Portfolio
under each agreement at its maturity.
FS-12
<PAGE> 948
(D) FORWARD FOREIGN CURRENCY CONTRACTS
A forward foreign currency contract ("Forward Contract") is an agreement between
two parties to buy and sell a currency at a set price on a future date. The
market value of the Forward Contract fluctuates with changes in currency
exchange rates. The Forward Contract is marked-to-market daily and the change in
market value is recorded by the Portfolio as an unrealized gain or loss. When
the Forward Contract is closed, the Portfolio records a realized gain or loss
equal to the difference between the value at the time it was opened and the
value at the time it was closed. Forward Contracts involve market risk in excess
of the amount shown in the Portfolio's "Statement of Assets and Liabilities".
The Portfolio could be exposed to risk if a counter party is unable to meet the
terms of the contract or if the value of the currency changes unfavorably. The
Portfolio may enter into Forward Contracts in connection with planned purchases
or sales of securities, or to hedge against adverse fluctuations in exchange
rates between currencies.
(E) OPTION ACCOUNTING PRINCIPLES
When the Portfolio writes a call or put option, an amount equal to the premium
received is included in the Portfolio's "Statement of Assets and Liabilities" as
an asset and an equivalent liability. The amount of the liability is
subsequently marked-to-market to reflect the current market value of the option.
The current market value of an option listed on a traded exchange is valued at
its last bid price, or, in the case of an over-the-counter option, is valued at
the average of the last bid prices obtained from brokers, unless a quotation
from only one broker is available, in which case only that broker's price will
be used. If an option expires on its stipulated expiration date or if the
Portfolio enters into a closing purchase transaction, a gain or loss is realized
without regard to any unrealized gain or loss on the underlying security and the
liability related to such option is extinguished. If a written call option is
exercised, a gain or loss is realized from the sale of the underlying security
and the proceeds of the sale are increased by the premium originally received.
If a written put option is exercised, the cost of the underlying security
purchased would be decreased by the premium originally received. The Portfolio
can write options only on a covered basis, which, for a call, requires that the
Portfolio hold the underlying security and, for a put, requires the Portfolio to
set aside cash, U.S. government securities or other liquid securities in an
amount not less than the exercise price, or otherwise provide adequate cover at
all times while the put option is outstanding. The Portfolio may use options to
manage its exposure to the stock market and to fluctuations in currency values
or interest rates.
The premium paid by the Portfolio for the purchase of a call or put option is
included in the Portfolio's "Statement of Assets and Liabilities" as an
investment and subsequently "marked-to-market" to reflect the current market
value of the option. If an option which the Portfolio has purchased expires on
the stipulated expiration date, the Portfolio realizes a loss in the amount of
the cost of the option. If the Portfolio enters into a closing sale transaction,
the Portfolio realizes a gain or loss, depending on whether proceeds from the
closing sale transaction are greater or less than the cost of the option. If the
Portfolio exercises a call option, the cost of the securities acquired by
exercising the call is increased by the premium paid to buy the call. If the
Portfolio exercises a put option, it realizes a gain or loss from the sale of
the underlying security, and the proceeds from such sale are decreased by the
premium originally paid.
The risk associated with purchasing options is limited to the premium originally
paid. The risk in writing a call option is that the Portfolio may forego the
opportunity of profit if the market value of the underlying security or index
increases and the option is exercised. The risk in writing a put option is that
the Portfolio may incur a loss if the market value of the underlying security or
index decreases and the option is exercised. In addition, there is the risk the
Portfolio may not be able to enter into a closing transaction because of an
illiquid secondary market.
(F) FUTURES CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
security at a set price on a future date. Upon entering into such a contract the
Portfolio is required to pledge to the broker an amount of cash or securities
equal to the minimum "initial margin" requirements of the exchange on which the
contract is traded. Pursuant to the contract, the Portfolio agrees to receive
from or pay to the broker an amount of cash equal to the daily fluctuation in
value of the contract. Such receipts or payments are known as "variation margin"
and are recorded by the Portfolio as unrealized gains or losses. When the
contract is closed, the Portfolio records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed. The potential risk to the Portfolio is that the
change in value of the underlying securities may not correlate to the change in
value of the contracts. The Portfolio may use futures contracts to manage its
exposure to the stock market and to fluctuations in currency values or interest
rates.
(G) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). The cost of securities sold is determined on a first-in,
first-out-basis, unless otherwise specified. Dividends are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. Where a high
level of uncertainty exists as to its collection, income is recorded net of all
withholding tax with any rebate recorded when received. The Portfolio may trade
securities on other than normal settlement terms. This may increase the risk if
the other party to the transaction fails to deliver and causes the Portfolio to
subsequently invest at less advantageous prices.
(H) PORTFOLIO SECURITIES LOANED
At October 31, 1998, stocks with an aggregate value of $23,872,564 were on loan
to brokers. The loans were secured by cash collateral of $24,380,125 received by
the Portfolio. For the year ended October 31, 1998, the Fund received fees of
$61,127.
For international securities, cash collateral is received by the Portfolio
against loaned securities in an amount at least equal to 105% of the market
value of the loaned securities at the inception of each loan. This collateral
must be maintained at not less than 103% of the market value of the loaned
securities during the period of the loan. For domestic securities, cash
collateral is received by the Portfolio against loaned securities in the amount
at least equal to 102% of the market value of the loaned securities at the
inception of each loan. This collateral must be maintained at not less than 100%
of the market value of the loaned securities during the period of the loan. The
cash collateral is invested in a securities lending trust which consists of a
portfolio of high quality short duration securities whose average effective
duration is restricted to 120 days or less.
FS-13
<PAGE> 949
(I) TAXES
It is the intended policy of the Fund to meet the requirements for qualification
as a "regulated investment company" under the Internal Revenue Code of 1986, as
amended ("Code"). It is also the intention of the Fund to make distributions
sufficient to avoid imposition of any excise tax under Section 4982 of the Code.
Therefore, no provision has been made for Federal taxes on income, capital
gains, unrealized appreciation of securities held, or excise tax on income and
capital gains.
(J) DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded by the Fund on the ex-date. Income
and capital gain distributions are determined in accordance with Federal income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Portfolio and timing differences.
(K) DEFERRED ORGANIZATIONAL EXPENSES
Expenses incurred by the Fund in connection with its organization, its initial
registration with the Securities and Exchange Commission and with various states
and the initial public offering of its shares aggregated $51,500. These expenses
are being amortized on a straightline basis over a five-year period.
(L) FOREIGN SECURITIES
There are certain additional considerations and risks associated with investing
in foreign securities and currency transactions that are not inherent in
investments of domestic origin. The Portfolio's investment in emerging market
countries may involve greater risks than investments in more developed markets
and the price of such investments may be volatile. These risks of investing in
foreign and emerging markets may include foreign currency exchange rate
fluctuations, perceived credit risk, adverse political and economic developments
and possible adverse foreign government intervention.
In addition, the Portfolio's policy of concentrating its investments in
companies in the consumer products and services industry subject the Portfolio
to greater risk than a fund that is more diversified.
(M) INDEXED SECURITIES
The Portfolio may invest in indexed securities whose value is linked either
directly or indirectly to changes in foreign currencies, interest rates,
equities, indices, or other reference instruments. Indexed securities may be
more volatile than the reference instrument itself, but any loss is limited to
the amount of the original investment.
(N) RESTRICTED SECURITIES
The Portfolio is permitted to invest in privately placed restricted securities.
These securities may be resold in transactions exempt from registration or to
the public if the securities are registered. Disposal of these securities may
involve time-consuming negotiations and expense, and prompt sale at an
acceptable price may be difficult. At the end of the year, restricted
securities, if any, (excluding 144A issues), are shown at the end of the Fund's
Portfolio of Investments.
(O) LINE OF CREDIT
The Fund, along with certain other funds advised and/or administered by the
Manager, has a line of credit with each of BankBoston and State Street Bank and
Trust Company. The arrangements with the banks allow the Fund and certain other
Funds to borrow, on a first come, first serve basis, an aggregate maximum amount
of $250,000,000. The Fund is limited to borrowing up to 33 1/3% of the value of
the Fund's total assets. On October 31, 1998, the Fund had no loans outstanding.
For the year ended October 31, 1998, the weighted average outstanding daily
balance of bank loans (based on the number of days the loans were outstanding)
was $1,349,405, with a weighted average interest rate of 6.27%. Interest expense
for the year ended October 31, 1998 was $10,094 and is included in "Other
Expenses" on the Statement of Operations.
2. RELATED PARTIES
A I M Advisors, Inc. (the "Manager"), an indirect wholly-owned subsidiary of
AMVESCAP PLC, is the Fund's and Portfolio's investment manager and
administrator. As of the close of business on May 29, 1998, Liechtenstein Global
Trust AG ("LGT"), the former indirect parent organization of Chancellor LGT
Asset Management, Inc. ("Chancellor LGT") consummated a purchase agreement with
AMVESCAP PLC pursuant to which AMVESCAP PLC acquired LGT's Asset Management
Division, which included Chancellor LGT and certain other affiliates. A I M
Distributors, Inc. ("AIM Distributors"), a wholly-owned subsidiary of the
Manager, is the Fund's distributor as of the close of business on May 29, 1998.
The Trust was reorganized from a Maryland corporation into a Delaware business
trust, and the Portfolio was reorganized from a New York common law trust into a
Delaware business trust on September 8, 1998. Finally, as of the close of
business on September 4, 1998, A I M Fund Services, Inc. ("AFS"), an affiliate
of the Manager and AIM Distributors, replaced GT Global Investor Services, Inc.
("GT Services") as the transfer agent of the Fund.
The Fund pays the Manager administration fees at the annualized rate of 0.25% of
such Fund's average daily net assets. The Portfolio pays investment management
and administration fees to the Manager at the annualized rate of 0.725% on the
first $500 million of average daily net assets of the Portfolio; 0.70% on the
next $500 million; 0.675% on the next $500 million; and 0.65% on amounts
thereafter. These fees are computed daily and paid monthly.
AIM Distributors, an affiliate of the Manager, serves as the Fund's distributor.
For the period ended May 29, 1998, GT Global, Inc. ("GT Global") served as the
Fund's distributor. The Fund offers Class A, Class B, and Advisor Class shares
for purchase.
Class A shares are subject to initial sales charges imposed at the time of
purchase, in accordance with the schedule included in the Fund's current
prospectus. AIM Distributors collects the sales charges imposed on sales of
Class A shares, and re allows a portion of such charges to dealers through which
the sales are made. For the year ended October 31, 1998, AIM Distributors and GT
Global retained sales charges of $14,898 and $11,522, respectively. Purchases of
Class A shares exceeding $1,000,000 may be subject to a contingent deferred
sales charge ("CDSC") upon redemption, in accordance with the Fund's current
prospectus. AIM Distributors and GT Global collected no CDSCs for the year ended
October 31, 1998. AIM Distributors also makes ongoing shareholder servicing and
trail commission payments to dealers whose clients hold Class A shares.
Class B shares are not subject to initial sales charges. When Class B shares are
sold, AIM Distributors, from its own resources, pays commissions to dealers
through which the sales are made. Certain redemptions of Class B shares made
within six years of purchase are subject to CDSCs, in accordance with the Fund's
current prospectus. For the year ended October 31, 1998, AIM Distributors and GT
Global
FS-14
<PAGE> 950
collected CDSCs in the amount of $107,172 and $246,092, respectively. In
addition, AIM Distributors makes ongoing shareholder servicing and trail
commission payments to dealers whose clients hold Class B shares.
For the period ended May 29, 1998, pursuant to the then effective separate
distribution plans adopted under the 1940 Act Rule 12b-1 by the Trust's Board of
Trustees with respect to the Fund's Class A shares ("Class A Plan") and Class B
shares ("Class B Plan"), the Fund reimbursed GT Global for a portion of its
shareholder servicing and distribution expenses. Under the Class A Plan, the
Fund was permitted to pay GT Global a service fee at the annualized rate of up
to 0.25% of the average daily net assets of the Fund's Class A shares for GT
Global's expenditures incurred in servicing and maintaining shareholder
accounts, and was permitted to pay GT Global a distribution fee at the
annualized rate of up to 0.50% of the average daily net assets of the Fund's
Class A shares, less any amounts paid by the Fund as the aforementioned service
fee, for GT Global's expenditures incurred in providing services as distributor.
All expenses for which GT Global was reimbursed under the Class A Plan would
have been incurred within one year of such reimbursement.
For the period ended May 29, 1998, pursuant to the Class B Plan, the Fund was
permitted to pay GT Global a service fee at the annualized rate of up to 0.25%
of the average daily net assets of the Fund's Class B shares for GT Global's
expenditures incurred in servicing and maintaining shareholder accounts, and was
permitted to pay GT Global a distribution fee at the annualized rate of up to
0.75% of the average daily net assets of the Fund's Class B shares for GT
Global's expenditures incurred in providing services as distributor. Expenses
incurred under the Class B Plan in excess of 1.00% annually were permitted to be
carried forward for reimbursement in subsequent years as long as that Plan
continued in effect.
Effective as of the close of business May 29, 1998, pursuant to Rule 12b-1 under
the 1940 Act, the Trust's Board of Trustees adopted a Master Distribution Plan
applicable to the Fund's Class A shares ("Class A Plan") and Class B shares
("Class B Plan"), pursuant to which the Fund compensates AIM Distributors for
the purpose of financing any activity that is intended to result in the sale of
Class A or Class B shares of the Fund. Under the Class A Plan, the Fund
compensates AIM Distributors at the annualized rate of 0.50% of the average
daily net assets of the Fund's Class A shares. Under the Class B Plan, the Fund
compensates AIM Distributors at an annualized rate of 1.00% of the average daily
net assets of the Fund's Class B shares.
The Class A Plan and the Class B Plan (together, the "Plans") are designed to
compensate AIM Distributors for certain promotional and other sales-related
costs, and to implement a dealer incentive program that provides for periodic
payments to selected dealers who furnish continuing personal shareholder
services to their customers who purchase and own Class A and Class B shares of
the Fund. Payments also can be directed by AIM Distributors to Financial
Institutions who have entered into service agreements with respect to Class A
and Class B shares of the Fund and who provide continuing personal services to
their customers who own Class A and Class B shares of the Fund. The service fees
payable to selected Financial 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 that were purchased on or after a
prescribed date set forth in the Plans.
The Manager and AIM Distributors voluntarily have undertaken to limit the Fund's
expenses (exclusive of brokerage commissions, taxes, interest, and extraordinary
expense) to the maximum annual rate of 2.00%, 2.50%, and 1.50% of the average
daily net assets of the Fund's Class A, Class B, and Advisor Class shares,
respectively. If necessary, this limitation will be effected by waivers by the
Manager of investment management and administration fees, waivers by AIM
Distributors of payments under the Class A Plan and/or Class B Plan and/or
reimbursements by the Manager or AIM Distributors of portions of the Fund's
other operating expenses.
Effective as of the close of business September 4, 1998, the Fund, pursuant to a
transfer agency and service agreement, has agreed to pay A I M Fund Services,
Inc. ("AFS") an annualized fee of $24.85 per shareholder accounts that are open
during any monthly period (this fee includes all out-of-pocket expenses), and an
annualized fee of $0.70 per shareholder account that is closed during any
monthly period. Both fees shall be billed by AFS monthly in arrears on a
prorated basis of 1/12 of the annualized fee for all such accounts.
For the period November 1, 1997 to September 4, 1998, GT Services, an affiliate
of the Manager and AIM Distributors, was the transfer agent of the Fund. For
performing shareholder servicing, reporting, and general transfer agent
services, GT Services received an annual maintenance fee of $17.50 per account,
a new account fee of $4.00 per account, a per transaction fee of $1.75 for all
transactions other than exchanges and a per exchange fee of $2.25. GT Services
also was reimbursed by the Fund for its out-of-pocket expenses for such items as
postage, forms, telephone charges, stationery and office supplies.
The Manager is the pricing and accounting agent for the Fund and Portfolio. The
monthly fee for these services paid to the Manager is a percentage, not to
exceed 0.03% annually, of a Fund's average daily net assets. The annual fee rate
is derived 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% to 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.
The Trust pays each Trustee who is not an employee, officer or director of the
Manager, or any other affiliated company, $5,000 per year plus $300 for each
meeting of the board or any committee thereof attended by the Trustee.
3. PURCHASES AND SALES OF SECURITIES
For the year ended October 31, 1998, purchases and sales of investment
securities by the Portfolio, other than U.S. government obligations and
short-term investments, aggregated $340,437,744 and $336,491,637, respectively.
For the year ended October 31, 1998, purchases and sales of U.S. government
obligations aggregated $34,683,892 and $33,938,540, respectively.
FS-15
<PAGE> 951
4. CAPITAL SHARES
At October 31, 1998, there were 6,000,000,000 shares of the Trust's common stock
authorized, at $0.0001 par value. Of this amount, 400,000,000 were classified as
shares of the AIM Global Telecommunications Fund; 400,000,000 were classified as
shares of AIM Global Government Income Fund; 200,000,000 were classified as
shares of AIM Global Health Care Fund; 200,000,000 were classified as shares of
AIM Strategic Income Fund; 200,000,000 were classified as shares of AIM
Developing Markets Fund; 200,000,000 were classified as shares of GT Global
Currency Fund (inactive); 200,000,000 were classified as shares of AIM Global
Growth & Income Fund; 200,000,000 were classified as shares of GT Global Small
Companies Fund (inactive); 200,000,000 were classified as shares of AIM Latin
American Growth Fund; 200,000,000 were classified as shares of AIM Emerging
Markets Fund; 200,000,000 were classified as shares of AIM Emerging Markets Debt
Fund; 200,000,000 were classified as shares of AIM Global Financial Services
Fund; 200,000,000 were classified as shares of AIM Global Resources Fund;
200,000,000 were classified as shares of AIM Global Infrastructure Fund;
200,000,000 were classified as shares of AIM Global Consumer Products and
Services Fund. The shares of each of the foregoing series of the Trust's were
divided equally into two classes, designated Class A and Class B common stock.
With respect to the issuance of Advisor Class shares, 100,000,000 shares were
classified as shares of each of the fifteen series of the Trust's and designated
as Advisor Class common stock. 1,100,000,000 shares remain unclassified.
Transactions in capital shares of the Fund were as follows:
CAPITAL SHARE TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997
----------------------- -----------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Shares sold........................................................ 1,525,543 $35,645,676 3,438,964 $69,880,587
Shares issued in connection with reinvestment of distributions..... 232,572 5,000,306 143,274 2,884,089
---------- ----------- ---------- -----------
1,758,115 40,645,982 3,582,238 72,764,676
Shares repurchased................................................. (1,879,330) (43,281,212) (4,424,828) (88,957,730)
---------- ----------- ---------- -----------
Net decrease....................................................... (121,215) $(2,635,230) (842,590) $(16,193,054)
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
<CAPTION>
CLASS B
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold........................................................ 1,214,959 $28,040,109 2,703,434 $53,329,784
Shares issued in connection with reinvestment of distributions..... 327,547 6,924,836 168,859 3,364,713
---------- ----------- ---------- -----------
1,542,506 34,964,945 2,872,293 56,694,497
Shares repurchased................................................. (1,618,880) (36,544,113) (2,802,820) (55,171,454)
---------- ----------- ---------- -----------
Net increase (decrease)............................................ (76,374) $(1,579,168) 69,473 $ 1,523,043
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
<CAPTION>
ADVISOR CLASS
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold........................................................ 675,379 $15,761,998 287,832 $ 6,471,623
Shares issued in connection with reinvestment of distributions..... 44,088 962,424 15,186 308,573
---------- ----------- ---------- -----------
719,467 16,724,422 303,018 6,780,196
Shares repurchased................................................. (345,732) (8,013,266) (386,341) (7,704,551)
---------- ----------- ---------- -----------
Net increase (decrease)............................................ 373,735 $ 8,711,156 (83,323) $ (924,355)
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
5. EXPENSE REDUCTIONS
The Manager has directed certain portfolio trades to brokers who then paid a
portion of the Portfolio's expenses. For the year ended October 31, 1998, the
Portfolio's expenses were reduced by $40,195 under these arrangements.
FS-16
<PAGE> 952
6. PROXY RESULTS (UNAUDITED)
The Special Meeting of Shareholders of the G.T. Investment Funds, Inc., now
known as AIM Investment Funds (the "Trust"), was held on May 20, 1998 at the
Trust's offices, 50 California Street, 26th Floor, San Francisco, California.
The meeting was held for the following purposes:
(1) To elect Trustees as follows: C. Derek Anderson, Frank S. Bayley, William J.
Guilfoyle, Arthur C. Patterson, Ruth H. Quigley.
(2) To approve a new Investment Management and Administration Contract and
Sub-Advisory and Sub-Administration Contract with respect to each series of
the Trust (each, a "Fund," and collectively, the "Funds").
(3) To approve replacement Rule 12b-1 plans of distribution with respect to
Class A and B Shares of the Fund.
(4) To approve changes to the fundamental investment restrictions of the Fund.
(5) To approve an agreement and plan of conversion and termination for the
Trust.
(6) To approve the conversion of the portfolios in which certain Funds invest to
Delaware business trusts.
(7) To ratify the selection of Coopers & Lybrand L.L.P., now known as
PricewaterhouseCoopers LLP, as the Trust's independent public accountants.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
VOTES WITHHELD/
TRUSTEE/MATTER VOTES FOR AGAINST ABSTENTIONS
------------------------------------------------------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
(1) C. Derek Anderson........................................... 191,685,088 N/A 13,123,292
Frank S. Bayley............................................. 191,766,811 N/A 13,041,568
William J. Guilfoyle........................................ 191,828,959 N/A 12,979,420
Arthur C. Patterson......................................... 191,845,270 N/A 12,963,109
Ruth H. Quigley............................................. 191,869,887 N/A 12,938,492
(2)(a) Approval of investment management and administration
contract................................................... 3,261,661 143,193 1,148,028*
(2)(b) Approval of sub-advisory and sub-administration contract.... 3,246,354 152,082 1,154,446*
(3) Approval of replacement Rule 12b-1 plans of distribution
CLASS A SHARES.............................................. 1,367,697 66,289 137,847
CLASS B SHARES.............................................. 2,090,063 80,546 169,123
(4)(a) Modification of Fundamental Restriction on Portfolio
Diversification............................................ 3,234,115 159,402 1,159,366*
(4)(b) Modification of Fundamental Restriction on Issuing Senior
Securities and Borrowing Money............................. 3,234,136 159,381 1,159,366*
(4)(c) Modification of Fundamental Restriction on Making Loans..... 3,235,430 158,087 1,159,366*
(4)(d) Modification of Fundamental Restriction on Underwriting
Securities................................................. 3,235,430 158,087 1,159,366*
(4)(e) Modification of Fundamental Restriction on Real Estate
Investments................................................ 3,235,304 158,213 1,159,366*
(4)(f) Modification of Fundamental Restriction on Investing in
Commodities................................................ 3,235,430 158,087 1,159,366*
(4)(g) Modification of Fundamental Restriction on Margin
Transactions............................................... 3,235,304 158,213 1,159,366*
(4)(h) Elimination of Fundamental Restriction on Pledging Assets... 3,235,325 158,192 1,159,366*
(4)(i) Elimination of Fundamental Restriction on Investments in
Oil, Gas and Mineral Leases and Programs................... 3,235,199 158,318 1,159,366*
(5) Approval of an agreement and plan of conversion and
termination with respect to the Trust...................... 190,027,469 6,362,084 94,055,040*
(6) Approval of the conversion of the portfolios in which
certain Funds invest....................................... 3,267,649 116,825 1,168,407*
(7) Ratification of the selection of Coopers and Lybrand L.L.P.,
now known as PricewaterhouseCoopers LLP, as the Trust's
independent public accountants............................. 191,358,779 2,114,168 11,333,063
</TABLE>
- ------------------------
* Includes Broker Non-Votes
- ------------------------
FEDERAL TAX INFORMATION (UNAUDITED):
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$800,000 as capital gain dividends for the fiscal year ended October 31, 1998.
Pursuant to Section 854 of the Internal Revenue Code, the Fund designates
18.56% of ordinary income dividends paid (including short-term capital gain
distributions, if any) by the Fund as income qualifying for the dividends
received deduction for corporations for the fiscal year ended October 31, 1998.
FS-17
<PAGE> 953
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders of AIM Global Financial Services Fund (formerly GT Global
Financial Services Fund) and Board of Trustees of AIM Investment Funds (formerly
G.T. Investment Funds, Inc.):
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Global Financial Services
Fund - Consolidated at October 31, 1998, and the results of its operations, the
changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at October
31, 1998 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
------------------------------
PRICEWATERHOUSECOOPERS LLP
BOSTON, MASSACHUSETTS
DECEMBER 18, 1998
FS-18
<PAGE> 954
PORTFOLIO OF INVESTMENTS
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Banks-Regional (29.2%)
Allied Irish Bank PLC: ..................................... IRE -- -- 2.9
Common{V} ................................................ -- 98,797 $ 1,413,275 --
Common ................................................... -- 79,460 1,147,550 --
First Union Corp. (N.C.) ................................... US 42,433 2,461,114 2.8
GreenPoint Financial Corp. ................................. US 66,200 2,172,188 2.5
Bank of Ireland ............................................ IRE 111,659 2,063,410 2.4
City National Corp. ........................................ US 52,550 1,796,553 2.0
Crestar Financial Corp. .................................... US 21,800 1,436,075 1.6
Sparebanken NOR (Union Bank of Norway) ..................... NOR 71,436 1,359,391 1.6
Norwest Corp. .............................................. US 35,000 1,301,563 1.5
St. George Bank Ltd. ....................................... AUSL 191,555 1,277,672 1.5
Bayerische Vereinsbank ..................................... GER 16,070 1,276,784 1.4
Bank of Nova Scotia ........................................ CAN 54,600 1,139,786 1.3
North Fork Bancorporation, Inc. ............................ US 50,000 993,750 1.2
Sovereign Bancorp, Inc. .................................... US 73,840 969,150 1.1
Fleet Financial Group, Inc. ................................ US 24,000 958,500 1.1
TeleBanc Financial Corp.-/- ................................ US 52,100 950,825 1.1
UnionBanCal Corp. .......................................... US 8,000 740,000 0.9
Halifax PLC ................................................ UK 49,600 657,239 0.8
Banco Commercial S.A.: ..................................... URGY -- -- 0.8
144A GDR(::) {.} {\/} .................................... -- 15,300 306,000 --
Reg S GDR{c} {\/} ........................................ -- 15,200 304,000 --
Banca Turco Romana S.A. - Reg S GDR-/- {c} {\/} ............ ROM 88,000 402,600 0.5
ForeningsSparbanken AB ..................................... SWDN 5,750 155,933 0.2
-----------
25,283,358
-----------
Banks-Money Center (18.2%)
Citigroup, Inc. ............................................ US 39,925 1,878,970 2.2
BankAmerica Corp. .......................................... US 30,143 1,731,339 2.0
HSBC Holdings PLC .......................................... UK 59,990 1,405,153 1.6
UBS AG - Registered ........................................ SWTZ 4,836 1,326,276 1.5
Lloyds TSB Group PLC ....................................... UK 101,401 1,251,183 1.5
ABN AMRO Holdings N.V. ..................................... NETH 56,347 1,055,865 1.2
Deutsche Bank AG ........................................... GER 14,770 919,165 1.1
Mellon Bank Corp. .......................................... US 14,600 877,825 1.0
National Australia Bank Ltd. ............................... AUSL 66,137 876,315 1.0
Bank Hapoalim Ltd. ......................................... ISRL 483,000 873,834 1.0
Chase Manhattan Corp. ...................................... US 14,500 823,781 1.0
Istituto Banc San Paolo Tori-/- ............................ ITLY 55,000 817,042 1.0
Anglo-Irish Bank Corp., PLC{V} ............................. IRE 325,168 783,406 0.9
Barclays PLC ............................................... UK 25,000 538,314 0.6
Dresdner Bank AG ........................................... GER 13,620 530,778 0.6
-----------
15,689,246
-----------
Other Financial (14.3%)
Newcourt Credit Group, Inc. ................................ CAN 74,400 2,447,844 2.8
Fannie Mae ................................................. US 31,000 2,195,188 2.6
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-19
<PAGE> 955
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Other Financial (Continued)
Doral Financial Corp. ...................................... US 102,400 $ 1,792,000 2.1
Investors Financial Services Corp. ......................... US 25,500 1,373,813 1.6
UniCapital Corp.-/- ........................................ US 160,000 1,110,000 1.3
ING Groep N.V. ............................................. NETH 20,035 969,678 1.1
Merita Ltd. "A" ............................................ FIN 178,850 963,107 1.1
Fidelity National Financial, Inc. .......................... US 22,000 676,500 0.8
Household International, Inc. .............................. US 12,752 466,245 0.5
Shohkoh Fund ............................................... JPN 1,200 365,590 0.4
-----------
12,359,965
-----------
Consumer Finance (11.6%)
Providian Financial Corp. .................................. US 46,000 3,651,249 4.2
Capital One Financial Corp. ................................ US 19,600 1,994,300 2.3
Aeon Credit Service ........................................ HK 8,894,000 1,481,472 1.7
Acom Co., Ltd. ............................................. JPN 20,000 1,118,941 1.3
Metris Cos., Inc. .......................................... US 30,000 986,250 1.1
American Express Co. ....................................... US 9,500 839,563 1.0
-----------
10,071,775
-----------
Insurance - Multi-Line (10.8%)
SunAmerica, Inc. ........................................... US 47,800 3,369,899 3.9
Allianz AG ................................................. GER 7,503 2,574,892 3.0
Allstate Corp. ............................................. US 44,400 1,911,975 2.2
Axa - UAP .................................................. FR 13,150 1,486,973 1.7
-----------
9,343,739
-----------
Insurance-Life (3.3%)
Conseco, Inc. .............................................. US 44,155 1,531,627 1.8
AEGON N.V. ................................................. NETH 14,457 1,254,674 1.5
-----------
2,786,301
-----------
Securities Broker (3.1%)
Athlon Groep N.V. .......................................... NETH 55,670 1,579,671 1.8
Knight/Trimark Group, Inc. "A"-/- .......................... US 138,200 1,122,875 1.3
Peregrine Investment Holdings Ltd.(::) ..................... HK 532,000 -- --
-----------
2,702,546
-----------
Investment Management (2.0%)
Alliance Capital Management L.P. ........................... US 68,800 1,707,100 2.0
-----------
Banks-Super Regional (1.0%)
Abbey National PLC ......................................... UK 44,000 855,412 1.0
-----------
Consumer Services (0.8%)
Rent-Way, Inc.-/- .......................................... US 30,000 708,750 0.8
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-20
<PAGE> 956
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Transportation - Road (0.7%)
Avis Rent A Car, Inc.-/- ................................... US 30,000 $ 611,250 0.7
----------- -----
TOTAL EQUITY INVESTMENTS (cost $72,533,065) .................. 82,119,442 95.0
----------- -----
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Corporate Bonds (2.4%)
United States (2.4%)
Citicorp, 7.125% due 6/1/03 .............................. USD 1,000,000 1,053,240 1.2
BankAmerica Corp., 6.85% due 3/1/03 ...................... USD 1,000,000 1,037,530 1.2
-----------
Total Corporate Bonds (cost $2,085,050) ...................... 2,090,770
----------- -----
TOTAL FIXED INCOME INVESTMENTS (cost $2,085,050) ............. 2,090,770 2.4
----------- -----
<CAPTION>
VALUE % OF NET
REPURCHASE AGREEMENT (NOTE 1) ASSETS
- -------------------------------------------------------------- ----------- -------------
<S> <C> <C> <C> <C>
Dated October 30, 1998, with State Street Bank & Trust Co.,
due November 2, 1998, for an effective yield of 5.30%,
collateralized by $3,475,000 U.S. Treasury Notes, 5.75% due
9/30/99 (market value of collateral is $3,534,906,
including accrued interest). (cost $3,464,000) ............ 3,464,000 4.0
----------- -----
TOTAL INVESTMENTS (cost $78,082,115) * ...................... 87,674,212 101.4
Other Assets and Liabilities ................................. (1,179,228) (1.4)
----------- -----
NET ASSETS ................................................... $86,494,984 100.0
----------- -----
----------- -----
</TABLE>
- --------------
{V} Security is denominated in GBP.
-/- Non-income producing security.
(::) Valued in good faith at fair value using procedures approved by the
Board of Trustees (See Note 1 of Notes to Financial Statements).
{\/} U.S. currency denominated.
{.} Security exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers.
{c} Security issued under Regulation S. Rule 144A and additional
restrictions may apply in the resale of such securities.
* For Federal income tax purposes, cost is $79,608,503 and
appreciation (depreciation) is as follows:
<TABLE>
<S> <C>
Unrealized appreciation: $ 13,063,563
Unrealized depreciation: (4,997,854)
-------------
Net unrealized appreciation: $ 8,065,709
-------------
-------------
</TABLE>
Abbreviation:
GDR--Global Depositary Receipt
The accompanying notes are an integral part of the financial statements.
FS-21
<PAGE> 957
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
The Fund's Portfolio of Investments at October 31, 1998, was concentrated in the
following countries:
<TABLE>
<CAPTION>
PERCENTAGE OF NET ASSETS {D}
-------------------------------------------
SHORT-TERM
COUNTRY (COUNTRY CODE/ CURRENCY CODE) EQUITY FIXED INCOME & OTHER TOTAL
- -------------------------------------- ------ ------------- ---------- -----
<S> <C> <C> <C> <C>
Australia (AUSL/AUD) ................. 2.5 2.5
Canada (CAN/CAD) ..................... 4.1 4.1
Finland (FIN/FIM) .................... 1.1 1.1
France (FR/FRF) ...................... 1.7 1.7
Germany (GER/DEM) .................... 6.1 6.1
Hong Kong (HK/HKD) ................... 1.7 1.7
Ireland (IRE/IEP) .................... 6.2 6.2
Israel (ISRL/ILS) .................... 1.0 1.0
Italy (ITLY/ITL) ..................... 1.0 1.0
Japan (JPN/JPY) ...................... 1.7 1.7
Netherlands (NETH/NLG) ............... 5.6 5.6
Norway (NOR/NOK) ..................... 1.6 1.6
Romania (ROM/ROL) .................... 0.5 0.5
Sweden (SWDN/SEK) .................... 0.2 0.2
Switzerland (SWTZ/CHF) ............... 1.5 1.5
United Kingdom (UK/GBP) .............. 5.5 5.5
United States (US/USD) ............... 52.2 2.4 2.6 57.2
Uruguay (URGY/UYP) ................... 0.8 0.8
------ ----- ----- -----
Total ............................... 95.0 2.4 2.6 100.0
------ ----- ----- -----
------ ----- ----- -----
</TABLE>
- --------------
{d} Percentages indicated are based on net assets of $86,494,984.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS OUTSTANDING
OCTOBER 31, 1998
<TABLE>
<CAPTION>
UNREALIZED
MARKET VALUE CONTRACT DELIVERY APPRECIATION
CONTRACTS TO BUY: (U.S. DOLLARS) PRICE DATE (DEPRECIATION)
- ---------------------------------------- -------------- ----------- -------- --------------
<S> <C> <C> <C> <C>
Australian Dollars...................... 1,062,858 1.57888 11/27/98 $ (13,854)
Canadian Dollars........................ 2,366,270 1.54610 11/24/98 5,491
Canadian Dollars........................ 1,147,479 1.54560 11/24/98 2,293
-------------- --------------
Total Contracts to Buy (Payable amount
$4,582,677).......................... 4,576,607 (6,070)
-------------- --------------
THE VALUE OF CONTRACTS TO BUY AS A
PERCENTAGE OF NET ASSETS IS 5.29%.
</TABLE>
<TABLE>
<CAPTION>
CONTRACTS TO SELL:
- ----------------------------------------
<S> <C> <C> <C> <C>
Australian Dollars...................... 2,313,279 1.72236 11/27/98 (165,059)
Canadian Dollars........................ 3,662,856 1.52600 11/24/98 39,634
Canadian Dollars........................ 1,147,479 1.52600 11/24/98 12,416
Japanese Yen............................ 859,402 144.60000 11/12/98 (167,839)
-------------- --------------
Total Contracts to Sell (Receivable
amount $7,702,168)................... 7,983,016 (280,848)
-------------- --------------
THE VALUE OF CONTRACTS TO SELL AS A
PERCENTAGE OF NET ASSETS IS 9.23%.
Total Open Forward Foreign Currency
Contracts, Net....................... $ (286,918)
--------------
--------------
</TABLE>
- ----------------
See Note 1 of Notes to the Financial Statements.
The accompanying notes are an integral part of the financial statements.
FS-22
<PAGE> 958
STATEMENT OF ASSETS
AND LIABILITIES
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at value (cost $78,082,115) (Note 1)................................ $87,674,212
U.S. currency....................................................................... $ 938
Foreign currencies (cost $4,377).................................................... 4,380 5,318
---------
Receivable for securities sold................................................................. 4,129,995
Receivable for Fund shares sold................................................................ 104,187
Dividends and dividend withholding tax reclaims receivable..................................... 88,587
Interest receivable............................................................................ 42,125
Unamortized organizational costs (Note 1)...................................................... 7,323
Miscellaneous receivable....................................................................... 2,937
----------
Total assets................................................................................. 92,054,684
----------
Liabilities:
Payable for securities purchased............................................................... 4,776,801
Payable for open forward foreign currency contracts, net (Note 1).............................. 286,918
Payable for Fund shares repurchased............................................................ 202,495
Payable for service and distribution expenses (Note 2)......................................... 139,817
Payable for investment management and administration fees (Note 2)............................. 79,722
Payable for professional fees.................................................................. 22,216
Payable for transfer agent fees (Note 2)....................................................... 21,064
Payable for registration and filing fees....................................................... 7,076
Payable for printing and postage expenses...................................................... 5,080
Payable for Trustees' fees and expenses (Note 2)............................................... 4,040
Payable for fund accounting fees (Note 2)...................................................... 2,080
Payable for custodian fees..................................................................... 924
Other accrued expenses......................................................................... 11,367
----------
Total liabilities............................................................................ 5,559,600
Minority interest (Notes 1 & 2)................................................................ 100
----------
Net assets....................................................................................... $86,494,984
----------
----------
Class A:
Net asset value and redemption price per share ($28,433,478 DIVIDED BY 1,667,488 shares
outstanding).................................................................................. $ 17.05
----------
----------
Maximum offering price per share (100/95.25 of $17.05) *....................................... $ 17.90
----------
----------
Class B:+
Net asset value and offering price per share ($48,785,265 DIVIDED BY 2,919,965 shares
outstanding).................................................................................. $ 16.71
----------
----------
Advisor Class:
Net asset value, offering price per share, and redemption price per share ($9,276,241 DIVIDED
BY 535,745 shares outstanding)................................................................ $ 17.31
----------
----------
Net assets consist of:
Paid in capital (Note 4)....................................................................... $78,345,098
Undistributed net investment income............................................................ 88,991
Accumulated net realized loss on investments and foreign currency transactions................. (1,245,109)
Net unrealized depreciation on translation of assets and liabilities in foreign currencies..... (286,093)
Net unrealized appreciation of investments..................................................... 9,592,097
----------
Total -- representing net assets applicable to capital shares outstanding........................ $86,494,984
----------
----------
<FN>
- --------------
* On sales of $50,000 or more, the offering price is reduced.
+ Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-23
<PAGE> 959
STATEMENT OF OPERATIONS
Year ended October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment income: (Note 1)
Dividend income (net of foreign withholding tax of $137,628)................................. $2,001,511
Interest income.............................................................................. 272,885
Securities lending income.................................................................... 74,782
---------
Total investment income.................................................................... 2,349,178
---------
Expenses:
Investment management and administration fees (Note 2)....................................... 976,095
Service and distribution expenses: (Note 2)
Class A........................................................................ $ 167,776
Class B........................................................................ 565,170 732,946
----------
Transfer agent fees (Note 2)................................................................. 232,225
Professional fees............................................................................ 73,585
Registration and filing fees................................................................. 65,845
Printing and postage expenses................................................................ 44,885
Custodian fees............................................................................... 31,835
Fund accounting fees (Note 2)................................................................ 27,027
Trustees' fees and expenses (Note 2)......................................................... 17,060
Amortization of organization costs (Note 1).................................................. 12,621
Other expenses............................................................................... 9,777
---------
Total expenses before reductions........................................................... 2,223,901
---------
Expense reductions (Note 5).............................................................. (15,228)
---------
Total net expenses......................................................................... 2,208,673
---------
Net investment income.......................................................................... 140,505
---------
Net realized and unrealized gain (loss) on investments and foreign currencies:
(Note 1)
Net realized loss on investments................................................. (1,401,803)
Net realized gain on foreign currency transactions............................... 698,914
----------
Net realized loss during the year.......................................................... (702,889)
Net change in unrealized depreciation on translation of assets and liabilities in
foreign currencies.............................................................. (351,998)
Net change in unrealized appreciation of investments............................. 1,750,599
----------
Net unrealized appreciation during the year................................................ 1,398,601
---------
Net realized and unrealized gain on investments and foreign currencies......................... 695,712
---------
Net increase in net assets resulting from operations........................................... $ 836,217
---------
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-24
<PAGE> 960
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1998 1997
----------- -----------
<S> <C> <C>
Increase in net assets
Operations:
Net investment income (loss)................................................. $ 140,505 $ (31,012)
Net realized gain (loss) on investments and foreign currency transactions.... (702,889) 2,628,562
Net change in unrealized appreciation (depreciation) on translation of assets
and liabilities in
foreign currencies.......................................................... (351,998) 58,275
Net change in unrealized appreciation of investments......................... 1,750,599 6,449,986
----------- -----------
Net increase in net assets resulting from operations....................... 836,217 9,105,811
----------- -----------
Class A:
Distributions to shareholders: (Note 1)
From net investment income................................................... (11,044) --
From net realized gain on investments........................................ (1,099,618) (580,522)
Class B:
Distributions to shareholders: (Note 1)
From net investment income................................................... (16,883) --
From net realized gain on investments........................................ (1,681,050) (823,692)
Advisor Class:
Distributions to shareholders: (Note 1)
From net investment income................................................... (2,239) --
From net realized gain on investments........................................ (222,890) (5,018)
----------- -----------
Total distributions........................................................ (3,033,724) (1,409,232)
----------- -----------
Capital share transactions: (Note 4)
Increase from capital shares sold and reinvested............................. 118,551,242 130,520,030
Decrease from capital shares repurchased..................................... (110,820,385) (74,514,633)
----------- -----------
Net increase from capital share transactions............................... 7,730,857 56,005,397
----------- -----------
Total increase in net assets................................................... 5,533,350 63,701,976
Net assets:
Beginning of year............................................................ 80,961,634 17,259,658
----------- -----------
End of year *................................................................ $86,494,984 $80,961,634
----------- -----------
----------- -----------
* Includes undistributed net investment income of............................. $ 88,991 $ --
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-25
<PAGE> 961
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------
MAY 31, 1994
YEAR ENDED OCTOBER 31, (COMMENCEMENT OF
------------------------------------------------ OPERATIONS) TO
1998 (D) 1997 (D) 1996 (D) 1995 (D) OCTOBER 31, 1994
---------- ---------- ----------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 17.22 $ 14.20 $ 11.92 $ 11.62 $ 11.43
---------- ---------- ----------- ----------- --------
Income from investment operations:
Net investment income (loss).......... 0.07 0.04 0.05* 0.17* * 0.02* * *
Net realized and unrealized gain on
investments.......................... 0.37 3.97 2.36 0.13 0.17
---------- ---------- ----------- ----------- --------
Net increase from investment
operations......................... 0.44 4.01 2.41 0.30 0.19
---------- ---------- ----------- ----------- --------
Distributions to shareholders:
From net investment income............ (0.01) -- (0.12) -- --
From net realized gain on
investments.......................... (0.60) (0.99) (0.01) -- --
---------- ---------- ----------- ----------- --------
Total distributions................. (0.61) (0.99) (0.13) -- --
---------- ---------- ----------- ----------- --------
Net asset value, end of period.......... $ 17.05 $ 17.22 $ 14.20 $ 11.92 $ 11.62
---------- ---------- ----------- ----------- --------
---------- ---------- ----------- ----------- --------
Total investment return (c)............. 2.53% 29.91% 20.21% 2.58% 1.66 % (b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 28,433 $ 29,639 $ 7,302 $ 5,687 $ 3,175
Ratio of net investment income (loss) to
average net assets:
With expense reductions and/or
reimbursement (Notes 2 & 5).......... 0.37% 0.23% 0.41% 1.46% 0.66 % (a)
Without expense reductions and/or
reimbursement........................ 0.35% 0.16% (0.66)% (5.34)% (7.26)% (a)
Ratio of expenses to average net assets:
With expense reductions and/or
reimbursement (Notes 2 & 5).......... 1.97% 2.29% 2.32% 2.34% 2.40 % (a)
Without expense reductions and/or
reimbursement........................ 1.99% 2.36% 3.39% 9.14% 10.32 % (a)
Portfolio turnover rate++............... 111% 91% 103% 170% 53 % (a)
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
* Before reimbursement the net investment income per share would have
been reduced by $0.13 for each of the three classes.
* * Before reimbursement the net investment income per share would have
been reduced by $0.59, $0.59, $0.30 for Class A, Class B, and Advisor
Class, respectively.
* * * Before reimbursement the net investment income per share would have
been reduced by $0.23 for Class A and Class B.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates are calculated on the basis of the Portfolio
as a whole without distinguishing between the classes of shares
issued.
The accompanying notes are an integral part of the financial statements.
FS-26
<PAGE> 962
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------------------------
MAY 31, 1994
YEAR ENDED OCTOBER 31, (COMMENCEMENT OF
------------------------------------------------ OPERATIONS) TO
1998 (D) 1997 (D) 1996 (D) 1995 (D) OCTOBER 31, 1994
---------- ---------- ----------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 16.97 $ 14.06 $ 11.83 $ 11.60 $ 11.43
---------- ---------- ----------- ----------- --------
Income from investment operations:
Net investment income (loss).......... (0.02) (0.04) (0.01) * 0.11* * 0.00* * *
Net realized and unrealized gain on
investments.......................... 0.37 3.94 2.34 0.12 0.17
---------- ---------- ----------- ----------- --------
Net increase from investment
operations......................... 0.35 3.90 2.33 0.23 0.17
---------- ---------- ----------- ----------- --------
Distributions to shareholders:
From net investment income............ (0.01) -- (0.09) -- --
From net realized gain on
investments.......................... (0.60) (0.99) (0.01) -- --
---------- ---------- ----------- ----------- --------
Total distributions................. (0.61) (0.99) (0.10) -- --
---------- ---------- ----------- ----------- --------
Net asset value, end of period.......... $ 16.71 $ 16.97 $ 14.06 $ 11.83 $ 11.60
---------- ---------- ----------- ----------- --------
---------- ---------- ----------- ----------- --------
Total investment return (c)............. 2.08% 29.13% 19.81% 1.98% 1.49 % (b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 48,785 $ 47,585 $ 9,886 $ 4,548 $ 2,235
Ratio of net investment income (loss) to
average net assets:
With expense reductions and/or
reimbursement (Notes 2 & 5).......... (0.13)% (0.27)% (0.09)% 0.96% 0.16 % (a)
Without expense reductions and/or
reimbursement........................ (0.15)% (0.34)% (1.16)% (5.84)% (7.76)% (a)
Ratio of expenses to average net assets:
With expense reductions and/or
reimbursement (Notes 2 & 5).......... 2.47% 2.79% 2.82% 2.84% 2.90 % (a)
Without expense reductions and/or
reimbursement........................ 2.49% 2.86% 3.89% 9.64% 10.82 % (a)
Portfolio turnover rate++............... 111% 91% 103% 170% 53 % (a)
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
* Before reimbursement the net investment income per share would have
been reduced by $0.13 for each of the three classes.
* * Before reimbursement the net investment income per share would have
been reduced by $0.59, $0.59, $0.30 for Class A, Class B, and Advisor
Class, respectively.
* * * Before reimbursement the net investment income per share would have
been reduced by $0.23 for Class A and Class B.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates are calculated on the basis of the Portfolio
as a whole without distinguishing between the classes of shares
issued.
The accompanying notes are an integral part of the financial statements.
FS-27
<PAGE> 963
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
ADVISOR CLASS+
------------------------------------------------------
JUNE 1, 1995
YEAR ENDED OCTOBER 31, TO
------------------------------------- OCTOBER 31,
1998 (D) 1997 (D) 1996 (D) 1995 (D)
----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 17.40 $ 14.26 $ 11.95 $ 11.09
----------- ----------- ----------- ---------------
Income from investment operations:
Net investment income (loss).......... 0.17 0.12 0.12* 0.09* *
Net realized and unrealized gain on
investments.......................... 0.35 4.01 2.36 0.77
----------- ----------- ----------- ---------------
Net increase from investment
operations......................... 0.52 4.13 2.48 0.86
----------- ----------- ----------- ---------------
Distributions to shareholders:
From net investment income............ (0.01) -- (0.16) --
From net realized gain on
investments.......................... (0.60) (0.99) (0.01) --
----------- ----------- ----------- ---------------
Total distributions................. (0.61) (0.99) (0.17) --
----------- ----------- ----------- ---------------
Net asset value, end of period.......... $ 17.31 $ 17.40 $ 14.26 $ 11.95
----------- ----------- ----------- ---------------
----------- ----------- ----------- ---------------
Total investment return (c)............. 3.03% 30.52% 20.87% 7.75% (b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 9,276 $ 3,738 $ 72 $ 31
Ratio of net investment income (loss) to
average net assets:
With expense reductions and/or
reimbursement (Notes 2 & 5).......... 0.87% 0.73% 0.91% 1.96% (a)
Without expense reductions and/or
reimbursement........................ 0.85% 0.66% (0.16)% (4.84)% (a)
Ratio of expenses to average net assets:
With expense reductions and/or
reimbursement (Notes 2 & 5).......... 1.47% 1.79% 1.82% 1.84% (a)
Without expense reductions and/or
reimbursement........................ 1.49% 1.86% 2.89% 8.64% (a)
Portfolio turnover rate++............... 111% 91% 103% 170%
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
* Before reimbursement the net investment income per share would have
been reduced by $0.13 for each of the three classes.
* * Before reimbursement the net investment income per share would have
been reduced by $0.59, $0.59, $0.30 for Class A, Class B, and Advisor
Class, respectively.
* * * Before reimbursement the net investment income per share would have
been reduced by $0.23 for Class A and Class B.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates are calculated on the basis of the Portfolio
as a whole without distinguishing between the classes of shares
issued.
The accompanying notes are an integral part of the financial statements.
FS-28
<PAGE> 964
NOTES TO
FINANCIAL STATEMENTS
October 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (SEE ALSO NOTE 2)
AIM Global Financial Services Fund (the "Fund"), formerly GT Global Financial
Services Fund, is a separate series of AIM Investment Funds (the "Trust"),
formerly G.T. Investment Funds, Inc. The Trust is organized as a Delaware
business trust and is registered under the Investment Company Act of 1940, as
amended ("1940 Act"), as an open-end management investment company. The Trust
has thirteen series of shares in operation, each series corresponding to a
distinct portfolio of investments.
The Fund invests substantially all of its investable assets in Global Financial
Services Portfolio, (the "Portfolio"). The Portfolio is organized as a subtrust
of Global Investment Portfolio, a Delaware business trust and is registered
under the 1940 Act as an open-end management investment company.
The Portfolio has investment objectives, policies, and limitations substantially
identical to those of its corresponding Fund. Therefore, the financial
statements of the Fund and Portfolio have been presented on a consolidated
basis, and represent all activities of both the Fund and Portfolio. Through
October 31, 1998, all of the shares of beneficial interest of the Portfolio were
owned by either the Fund or A I M Advisors, Inc. (the "Manager"), which has a
nominal ($100) investment in the Portfolio.
The Fund offers Class A, Class B, and Advisor Class shares, each of which has
equal rights as to assets and voting privileges except that Class A and Class B
each has exclusive voting rights with respect to its distribution plan.
Investment income, realized and unrealized capital gains and losses, and the
common expenses of the Fund are allocated on a pro rata basis to each class
based on the relative net assets of each class to the total net assets of the
Fund. Each class of shares differs in its respective service and distribution
expenses, and may differ in its transfer agent, registration, and certain other
class-specific fees and expenses.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies in conformity with generally accepted accounting
principles consistently followed by the Fund in the preparation of the financial
statements.
(A) PORTFOLIO VALUATION
The Fund calculates the net asset value of and completes orders to purchase,
exchange or repurchase Fund shares on each business day, with the exception of
those days on which the New York Stock Exchange is closed.
Equity securities are valued at the last sale price on the exchange on which
such securities are traded, or on the principal over-the-counter market on which
such securities are traded, as of the close of business on the day the
securities are being valued, or, lacking any sales, at the last available bid
price. In cases where securities are traded on more than one exchange, the
securities are valued on the exchange determined by the Manager to be the
primary market.
Fixed income investments are valued at the mean of representative quoted bid and
ask prices for such investments or, if such prices are not available, at prices
for investments of comparative maturity, quality and type; however, when the
Manager deems it appropriate, prices obtained for the day of valuation from a
bond pricing service will be used. Short-term investments are valued at
amortized cost adjusted for foreign exchange translation and market fluctuation,
if any.
Investments for which market quotations are not readily available (including
restricted securities which are subject to limitations on their sale) are valued
at fair value as determined in good faith by or under the direction of the
Trust's Board of Trustees.
Portfolio securities which are primarily traded on foreign exchanges are
generally valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S. dollars at
the current exchange rates, except that when an occurrence subsequent to the
time a value was so established is likely to have materially changed such value,
then the fair value of those securities will be determined by consideration of
other factors by or under the direction of the Trust's Board of Trustees.
(B) FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund and Portfolio are maintained in U.S. dollars.
The market values of foreign securities, currency holdings, and other assets and
liabilities are recorded in the books and records of the Portfolio after
translation to U.S. dollars based on the exchange rates on that day. The cost of
each security is determined using historical exchange rates. Income and
withholding taxes are translated at prevailing exchange rates when earned or
incurred.
The Portfolio does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, forward foreign currency contracts, sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Portfolio's books and the U.S. dollar equivalent of the amounts actually
received or paid. Net unrealized foreign exchange gains or losses arise from
changes in the value of assets and liabilities other than investments in
securities at year end, resulting from changes in exchange rates.
FS-29
<PAGE> 965
(C) REPURCHASE AGREEMENTS
With respect to repurchase agreements entered into by the Portfolio, it is the
Portfolio's policy to always receive, as collateral, United States government
securities or other high quality debt securities of which the value, including
accrued interest, is at least equal to the amount to be repaid to the Portfolio
under each agreement at its maturity.
(D) FORWARD FOREIGN CURRENCY CONTRACTS
A forward foreign currency contract ("Forward Contract") is an agreement between
two parties to buy and sell a currency at a set price on a future date. The
market value of the Forward Contract fluctuates with changes in currency
exchange rates. The Forward Contract is marked-to-market daily and the change in
market value is recorded by the Portfolio as an unrealized gain or loss. When
the Forward Contract is closed, the Portfolio records a realized gain or loss
equal to the difference between the value at the time it was opened and the
value at the time it was closed. Forward Contracts involve market risk in excess
of the amount shown in the Portfolio's "Statement of Assets and Liabilities".
The Portfolio could be exposed to risk if a counter party is unable to meet the
terms of the contract or if the value of the currency changes unfavorably. The
Portfolio may enter into Forward Contracts in connection with planned purchases
or sales of securities, or to hedge against adverse fluctuations in exchange
rates between currencies.
(E) OPTION ACCOUNTING PRINCIPLES
When the Portfolio writes a call or put option, an amount equal to the premium
received is included in the Portfolio's "Statement of Assets and Liabilities" as
an asset and an equivalent liability. The amount of the liability is
subsequently marked-to-market to reflect the current market value of the option.
The current market value of an option listed on a traded exchange is valued at
its last bid price, or, in the case of an over-the-counter option, is valued at
the average of the last bid prices obtained from brokers, unless a quotation
from only one broker is available, in which case only that broker's price will
be used. If an option expires on its stipulated expiration date or if the
Portfolio enters into a closing purchase transaction, a gain or loss is realized
without regard to any unrealized gain or loss on the underlying security and the
liability related to such option is extinguished. If a written call option is
exercised, a gain or loss is realized from the sale of the underlying security
and the proceeds of the sale are increased by the premium originally received.
If a written put option is exercised, the cost of the underlying security
purchased would be decreased by the premium originally received. The Portfolio
can write options only on a covered basis, which, for a call, requires that the
Portfolio hold the underlying security and, for a put, requires the Portfolio to
set aside cash, U.S. government securities or other liquid securities in an
amount not less than the exercise price, or otherwise provide adequate cover at
all times while the put option is outstanding. The Portfolio may use options to
manage its exposure to the stock market and to fluctuations in currency values
or interest rates.
The premium paid by the Portfolio for the purchase of a call or put option is
included in the Portfolio's "Statement of Assets and Liabilities" as an
investment and subsequently "marked-to-market" to reflect the current market
value of the option. If an option which the Portfolio has purchased expires on
the stipulated expiration date, the Portfolio realizes a loss in the amount of
the cost of the option. If the Portfolio enters into a closing sale transaction,
the Portfolio realizes a gain or loss, depending on whether proceeds from the
closing sale transaction are greater or less than the cost of the option. If the
Portfolio exercises a call option, the cost of the securities acquired by
exercising the call is increased by the premium paid to buy the call. If the
Portfolio exercises a put option, it realizes a gain or loss from the sale of
the underlying security, and the proceeds from such sale are decreased by the
premium originally paid.
The risk associated with purchasing options is limited to the premium originally
paid. The risk in writing a call option is that the Portfolio may forego the
opportunity of profit if the market value of the underlying security or index
increases and the option is exercised. The risk in writing a put option is that
the Portfolio may incur a loss if the market value of the underlying security or
index decreases and the option is exercised. In addition, there is the risk the
Portfolio may not be able to enter into a closing transaction because of an
illiquid secondary market.
(F) FUTURES CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
security at a set price on a future date. Upon entering into such a contract the
Portfolio is required to pledge to the broker an amount of cash or securities
equal to the minimum "initial margin" requirements of the exchange on which the
contract is traded. Pursuant to the contract, the Portfolio agrees to receive
from or pay to the broker an amount of cash equal to the daily fluctuation in
value of the contract. Such receipts or payments are known as "variation margin"
and are recorded by the Portfolio as unrealized gains or losses. When the
contract is closed, the Portfolio records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed. The potential risk to the Portfolio is that the
change in value of the underlying securities may not correlate to the change in
value of the contracts. The Portfolio may use futures contracts to manage its
exposure to the stock market and to fluctuations in currency values or interest
rates.
(G) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). The cost of securities sold is determined on a first-in,
first-out-basis, unless otherwise specified. Dividends are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. Where a high
level of uncertainty exists as to its collection, income is recorded net of all
withholding tax with any rebate recorded when received. The Portfolio may trade
securities on other than normal settlement terms. This may increase the risk if
the other party to the transaction fails to deliver and causes the Portfolio to
subsequently invest at less advantageous prices.
(H) PORTFOLIO SECURITIES LOANED
At October 31, 1998, stocks with an aggregate value of $6,839,546 were on loan
to brokers. The loans were secured by cash collateral of $6,903,878 received by
the Portfolio. For the year ended October 31, 1998, the Fund received fees of
$74,782.
FS-30
<PAGE> 966
For international securities, cash collateral is received by the Portfolio
against loaned securities in an amount at least equal to 105% of the market
value of the loaned securities at the inception of each loan. This collateral
must be maintained at not less than 103% of the market value of the loaned
securities during the period of the loan. For domestic securities, cash
collateral is received by the Portfolio against loaned securities in the amount
at least equal to 102% of the market value of the loaned securities at the
inception of each loan. This collateral must be maintained at not less than 100%
of the market value of the loaned securities during the period of the loan. The
cash collateral is invested in a securities lending trust which consists of a
portfolio of high quality short duration securities whose average effective
duration is restricted to 120 days or less.
(I) TAXES
It is the intended policy of the Fund to meet the requirements for qualification
as a "regulated investment company" under the Internal Revenue Code of 1986, as
amended ("Code"). It is also the intention of the Fund to make distributions
sufficient to avoid imposition of any excise tax under Section 4982 of the Code.
Therefore, no provision has been made for Federal taxes on income, capital
gains, unrealized appreciation of securities held, or excise tax on income and
capital gains. The Fund currently has a capital loss carryforward of $159,536
which expires in 2006.
(J) DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded by the Fund on the ex-date. Income
and capital gain distributions are determined in accordance with Federal income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Portfolio and timing differences.
(K) DEFERRED ORGANIZATIONAL EXPENSES
Expenses incurred by the Fund in connection with its organization, its initial
registration with the Securities and Exchange Commission and with various states
and the initial public offering of its shares aggregated $63,100. These expenses
are being amortized on a straightline basis over a five-year period.
(L) FOREIGN SECURITIES
There are certain additional considerations and risks associated with investing
in foreign securities and currency transactions that are not inherent in
investments of domestic origin. The Portfolio's investment in emerging market
countries may involve greater risks than investments in more developed markets
and the price of such investments may be volatile. These risks of investing in
foreign and emerging markets may include foreign currency exchange rate
fluctuations, perceived credit risk, adverse political and economic developments
and possible adverse foreign government intervention.
In addition, the Portfolio's policy of concentrating its investments in
companies in the financial services industry subject the Portfolio to greater
risk than a fund that is more diversified.
(M) INDEXED SECURITIES
The Portfolio may invest in indexed securities whose value is linked either
directly or indirectly to changes in foreign currencies, interest rates,
equities, indices, or other reference instruments. Indexed securities may be
more volatile than the reference instrument itself, but any loss is limited to
the amount of the original investment.
(N) RESTRICTED SECURITIES
The Portfolio is permitted to invest in privately placed restricted securities.
These securities may be resold in transactions exempt from registration or to
the public if the securities are registered. Disposal of these securities may
involve time-consuming negotiations and expense, and prompt sale at an
acceptable price may be difficult. At the end of the year, restricted
securities, if any, (excluding 144A issues), are shown at the end of the Fund's
Portfolio of Investments.
(O) LINE OF CREDIT
The Fund, along with certain other funds advised and/or administered by the
Manager, has a line of credit with each of BankBoston and State Street Bank and
Trust Company. The arrangements with the banks allow the Fund and certain other
Funds to borrow, on a first come, first serve basis, an aggregate maximum amount
of $250,000,000. The Fund is limited to borrowing up to 33 1/3% of the value of
the Fund's total assets. On October 31, 1998, the Fund had no loans outstanding.
For the year ended October 31, 1998, the weighted average outstanding daily
balance of bank loans (based on the number of days the loans were outstanding)
was $1,290,000, with a weighted average interest rate of 6.18%. Interest expense
for the year ended October 31, 1998 was $2,214 and is included in "Other
Expenses" on the Statement of Operations.
2. RELATED PARTIES
A I M Advisors, Inc. (the "Manager"), an indirect wholly-owned subsidiary of
AMVESCAP PLC, is the Fund's and Portfolio's investment manager and
administrator. As of the close of business on May 29, 1998, Liechtenstein Global
Trust AG ("LGT"), the former indirect parent organization of Chancellor LGT
Asset Management, Inc. ("Chancellor LGT") consummated a purchase agreement with
AMVESCAP PLC pursuant to which AMVESCAP PLC acquired LGT's Asset Management
Division, which included Chancellor LGT and certain other affiliates. A I M
Distributors, Inc. ("AIM Distributors"), a wholly-owned subsidiary of the
Manager, became the Fund's distributor as of the close of business on May 29,
1998. The Trust was reorganized from a Maryland corporation into a Delaware
business trust, and the Portfolio was reorganized from a New York common law
trust into a Delaware business trust on September 8, 1998. Finally, as of the
close of business on September 4, 1998, A I M Fund Services, Inc. ("AFS"), an
affiliate of the Manager and AIM Distributors, replaced GT Global Investor
Services, Inc. ("GT Services") as the transfer agent of the Fund.
The Fund pays the Manager administration fees at the annualized rate of 0.25% of
such Fund's average daily net assets. The Portfolio pays investment management
and administration fees to the Manager at the annualized rate of 0.725% on the
first $500 million of average daily net assets of the Portfolio; 0.70% on the
next $500 million; 0.675% on the next $500 million; and 0.65% on amounts
thereafter. These fees are computed daily and paid monthly.
AIM Distributors, an affiliate of the Manager, serves as the Fund's distributor.
For the period ended May 29, 1998, GT Global, Inc.
FS-31
<PAGE> 967
("GT Global") served as the Fund's distributor. The Fund offers Class A, Class
B, and Advisor Class shares for purchase.
Class A shares are subject to initial sales charges imposed at the time of
purchase, in accordance with the schedule included in the Fund's current
prospectus. AIM Distributors collects the sales charges imposed on sales of
Class A shares, and reallows a portion of such charges to dealers through which
the sales are made. For the year ended October 31, 1998, AIM Distributors and GT
Global retained sales charges of $5,454 and $9,448, respectively. Purchases of
Class A shares exceeding $1,000,000 may be subject to a contingent deferred
sales charge ("CDSC") upon redemption, in accordance with the Fund's current
prospectus. AIM Distributors and GT Global collected CDSCs for the year ended
October 31, 1998 of $3,131 and $0, respectively. AIM Distributors also makes
ongoing shareholder servicing and trail commission payments to dealers whose
clients hold Class A shares.
Class B shares are not subject to initial sales charges. When Class B shares are
sold, AIM Distributors, from its own resources, pays commissions to dealers
through which the sales are made. Certain redemptions of Class B shares made
within six years of purchase are subject to CDSCs, in accordance with the Fund's
current prospectus. For the year ended October 31, 1998, AIM Distributors and GT
Global collected CDSCs in the amount of $67,472 and $120,815, respectively. In
addition, AIM Distributors makes ongoing shareholder servicing and trail
commission payments to dealers whose clients hold Class B shares.
For the period ended May 29, 1998, pursuant to the then effective separate
distribution plans adopted under the 1940 Act Rule 12b-1 by the Trust's Board of
Trustees with respect to the Fund's Class A shares ("Class A Plan") and Class B
shares ("Class B Plan"), the Fund reimbursed GT Global for a portion of its
shareholder servicing and distribution expenses. Under the Class A Plan, the
Fund was permitted to pay GT Global a service fee at the annualized rate of up
to 0.25% of the average daily net assets of the Fund's Class A shares for GT
Global's expenditures incurred in servicing and maintaining shareholder
accounts, and was permitted to pay GT Global a distribution fee at the
annualized rate of up to 0.50% of the average daily net assets of the Fund's
Class A shares, less any amounts paid by the Fund as the aforementioned service
fee, for GT Global's expenditures incurred in providing services as distributor.
All expenses for which GT Global was reimbursed under the Class A Plan would
have been incurred within one year of such reimbursement.
For the period ended May 29, 1998, pursuant to the Class B Plan, the Fund was
permitted to pay GT Global a service fee at the annualized rate of up to 0.25%
of the average daily net assets of the Fund's Class B shares for GT Global's
expenditures incurred in servicing and maintaining shareholder accounts, and was
permitted to pay GT Global a distribution fee at the annualized rate of up to
0.75% of the average daily net assets of the Fund's Class B shares for GT
Global's expenditures incurred in providing services as distributor. Expenses
incurred under the Class B Plan in excess of 1.00% annually were permitted to be
carried forward for reimbursement in subsequent years as long as that Plan
continued in effect.
Effective as of the close of business May 29, 1998, pursuant to Rule 12b-1 under
the 1940 Act, the Trust's Board of Trustees adopted a Master Distribution Plan
applicable to the Fund's Class A shares ("Class A Plan") and Class B shares
("Class B Plan"), pursuant to which the Fund compensates AIM Distributors for
the purpose of financing any activity that is intended to result in the sale of
Class A or Class B shares of the Fund. Under the Class A Plan, the Fund
compensates AIM Distributors at the annualized rate of 0.50% of the average
daily net assets of the Fund's Class A shares. Under the Class B Plan, the Fund
compensates AIM Distributors at an annualized rate of 1.00% of the average daily
net assets of the Fund's Class B shares.
The Class A Plan and the Class B Plan (together, the "Plans") are designed to
compensate AIM Distributors for certain promotional and other sales-related
costs, and to implement a dealer incentive program that provides for periodic
payments to selected dealers who furnish continuing personal shareholder
services to their customers who purchase and own Class A and Class B shares of
the Fund. Payments also can be directed by AIM Distributors to Financial
Institutions who have entered into service agreements with respect to Class A
and Class B shares of the Fund and who provide continuing personal services to
their customers who own Class A and Class B shares of the Fund. The service fees
payable to selected Financial 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 that were purchased on or after a
prescribed date set forth in the Plans.
The Manager and AIM Distributors voluntarily have undertaken to limit the Fund's
expenses (exclusive of brokerage commissions, taxes, interest, and extraordinary
expense) to the maximum annual rate of 2.00%, 2.50%, and 1.50% of the average
daily net assets of the Fund's Class A, Class B, and Advisor Class shares,
respectively. If necessary, this limitation will be effected by waivers by the
Manager of investment management and administration fees, waivers by AIM
Distributors of payments under the Class A Plan and/or Class B Plan and/or
reimbursements by the Manager or AIM Distributors of portions of the Fund's
other operating expenses.
Effective as of the close of business September 4, 1998, the Fund, pursuant to a
transfer agency and service agreement, has agreed to pay A I M Fund Services,
Inc. ("AFS") an annualized fee of $24.85 per shareholder accounts that are open
during any monthly period (this fee includes all out-of-pocket expenses), and an
annualized fee of $0.70 per shareholder account that is closed during any
monthly period. Both fees shall be billed by AFS monthly in arrears on a
prorated basis of 1/12 of the annualized fee for all such accounts.
For the period November 1, 1997 to September 4, 1998, GT Services, an affiliate
of the Manager and AIM Distributors, was the transfer agent of the Fund. For
performing shareholder servicing, reporting, and general transfer agent
services, GT Services received an annual maintenance fee of $17.50 per account,
a new account fee of $4.00 per account, a per transaction fee of $1.75 for all
transactions other than exchanges and a per exchange fee of $2.25. GT Services
also was reimbursed by the Fund for its out-of-pocket expenses for such items as
postage, forms, telephone charges, stationery and office supplies.
FS-32
<PAGE> 968
The Manager is the pricing and accounting agent for the Fund and Portfolio. The
monthly fee for these services paid to the Manager is a percentage, not to
exceed 0.03% annually, of a Fund's average daily net assets. The annual fee rate
is derived 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% to 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.
The Trust pays each Trustee who is not an employee, officer or director of the
Manager, or any other affiliated company, $5,000 per year plus $300 for each
meeting of the board or any committee thereof attended by the Trustee.
3. PURCHASES AND SALES OF SECURITIES
For the year ended October 31, 1998, purchases and sales of investment
securities by the Portfolio, other than U.S. government obligations and
short-term investments, aggregated $110,772,267 and $103,481,033, respectively.
For the year ended October 31, 1998, there were no purchases and sales of U.S.
government obligations.
4. CAPITAL SHARES
At October 31, 1998, there were 6,000,000,000 shares of the Trust's common stock
authorized, at $0.0001 par value. Of this amount, 400,000,000 were classified as
shares of the AIM Global Telecommunications Fund; 400,000,000 were classified as
shares of AIM Global Government Income Fund; 200,000,000 were classified as
shares of AIM Global Health Care Fund; 200,000,000 were classified as shares of
AIM Strategic Income Fund; 200,000,000 were classified as shares of AIM
Developing Markets Fund; 200,000,000 were classified as shares of GT Global
Currency Fund (inactive); 200,000,000 were classified as shares of AIM Global
Growth & Income Fund; 200,000,000 were classified as shares of GT Global Small
Companies Fund (inactive); 200,000,000 were classified as shares of AIM Latin
American Growth Fund; 200,000,000 were classified as shares of AIM Emerging
Markets Fund; 200,000,000 were classified as shares of AIM Emerging Markets Debt
Fund; 200,000,000 were classified as shares of AIM Global Financial Services
Fund; 200,000,000 were classified as shares of AIM Global Resources Fund;
200,000,000 were classified as shares of AIM Global Infrastructure Fund;
200,000,000 were classified as shares of AIM Global Consumer Products and
Services Fund. The shares of each of the foregoing series of the Trust's were
divided equally into two classes, designated Class A and Class B common stock.
With respect to the issuance of Advisor Class shares, 100,000,000 shares were
classified as shares of each of the fifteen series of the Trust's and designated
as Advisor Class common stock. 1,100,000,000 shares remain unclassified.
Transactions in capital shares of the Fund were as follows:
CAPITAL SHARE TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997
-------------------------- --------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------- ----------- ------------- ----------- -------------
Shares sold............................. 3,687,543 $ 67,971,118 3,783,353 $ 60,418,186
<S> <C> <C> <C> <C>
Shares issued in connection with
reinvestment of distributions......... 54,738 960,105 35,121 488,531
----------- ------------- ----------- -------------
3,742,281 68,931,223 3,818,474 60,906,717
Shares repurchased...................... (3,795,511) (69,778,399) (2,611,893) (41,931,634)
----------- ------------- ----------- -------------
Net increase (decrease)................. (53,230) $ (847,176) 1,206,581 $ 18,975,083
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
- ----------------------------------------
<S> <C> <C> <C> <C>
Shares sold............................. 2,101,129 $ 37,907,965 4,102,099 $ 64,968,183
Shares issued in connection with
reinvestment of distributions......... 76,614 1,322,362 44,922 618,563
----------- ------------- ----------- -------------
2,177,743 39,230,327 4,147,021 65,586,746
Shares repurchased...................... (2,061,758) (36,498,531) (2,045,933) (32,384,709)
----------- ------------- ----------- -------------
Net increase............................ 115,985 $ 2,731,796 2,101,088 $ 33,202,037
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
</TABLE>
<TABLE>
<CAPTION>
ADVISOR CLASS
- ----------------------------------------
<S> <C> <C> <C> <C>
Shares sold............................. 563,080 $ 10,164,684 220,956 $ 4,021,549
Shares issued in connection with
reinvestment of distributions......... 12,691 225,008 359 5,018
----------- ------------- ----------- -------------
575,771 10,389,692 221,315 4,026,567
Shares repurchased...................... (254,804) (4,543,455) (11,568) (198,290)
----------- ------------- ----------- -------------
Net increase............................ 320,967 $ 5,846,237 209,747 $ 3,828,277
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
</TABLE>
FS-33
<PAGE> 969
5. EXPENSE REDUCTIONS
The Manager has directed certain portfolio trades to brokers who then paid a
portion of the Portfolio's expenses. For the year ended October 31, 1998, the
Portfolio's expenses were reduced by $15,228 under these arrangements.
6. PROXY RESULTS (UNAUDITED)
The Special Meeting of Shareholders of the G.T. Investment Funds, Inc., now
known as AIM Investment Funds (the "Trust"), was held on May 20, 1998 at the
Trust's offices, 50 California Street, 26th Floor, San Francisco, California.
The meeting was held for the following purposes:
(1) To elect Trustees as follows: C. Derek Anderson, Frank S. Bayley, William J.
Guilfoyle, Arthur C. Patterson, Ruth H. Quigley.
(2) To approve a new Investment Management and Administration Contract and
Sub-Advisory and Sub-Administration Contract with respect to each series of
the Trust (each, a "Fund," and collectively, the "Funds").
(3) To approve replacement Rule 12b-1 plans of distribution with respect to
Class A and B Shares of the Fund.
(4) To approve changes to the fundamental investment restrictions of the Fund.
(5) To approve an agreement and plan of conversion and termination for the
Trust.
(6) To approve the conversion of the portfolios in which certain Funds invest to
Delaware business trusts.
(7) To ratify the selection of Coopers & Lybrand L.L.P., now known as
PricewaterhouseCoopers LLP, as the Trust's independent public accountants.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
VOTES WITHHELD/
TRUSTEE/MATTER VOTES FOR AGAINST ABSTENTIONS
------------------------------------------------------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
(1) C. Derek Anderson........................................... 191,685,088 N/A 13,123,292
Frank S. Bayley............................................. 191,766,811 N/A 13,041,568
William J. Guilfoyle........................................ 191,828,959 N/A 12,979,420
Arthur C. Patterson......................................... 191,845,270 N/A 12,963,109
Ruth H. Quigley............................................. 191,869,887 N/A 12,938,492
(2)(a) Approval of investment management and administration
contract................................................... 2,367,476 83,815 803,685*
(2)(b) Approval of sub-advisory and sub-administration contract.... 2,340,636 101,116 813,224*
(3) Approval of replacement Rule 12b-1 plans of distribution
CLASS A SHARES.............................................. 882,319 45,827 76,485
CLASS B SHARES.............................................. 1,564,175 34,241 127,535
(4)(a) Modification of Fundamental Restriction on Portfolio
Diversification............................................ 2,325,974 100,433 828,568*
(4)(b) Modification of Fundamental Restriction on Issuing Senior
Securities and Borrowing Money............................. 2,325,387 101,020 828,568*
(4)(c) Modification of Fundamental Restriction on Making Loans..... 2,325,974 100,433 828,568*
(4)(d) Modification of Fundamental Restriction on Underwriting
Securities................................................. 2,325,974 100,433 828,568*
(4)(e) Modification of Fundamental Restriction on Real Estate
Investments................................................ 2,325,871 100,536 828,568*
(4)(f) Modification of Fundamental Restriction on Investing in
Commodities................................................ 2,325,336 101,071 828,568*
(4)(g) Elimination of Fundamental Restriction on Margin
Transactions............................................... 2,322,619 103,788 828,568*
(4)(h) Elimination of Fundamental Restriction on Pledging Assets... 2,322,032 104,375 828,568*
(4)(i) Elimination of Fundamental Restriction on Investments in
Oil, Gas and Mineral Leases and Programs................... 2,322,135 104,272 828,568*
(5) Approval of an agreement and plan of conversion and
termination with respect to the Trust...................... 190,027,469 6,362,084 94,055,040*
(6) Approval of the conversion of the portfolios in which
certain Funds invest....................................... 2,345,919 78,750 830,306*
(7) Ratification of the selection of Coopers and Lybrand L.L.P.,
now known as PricewaterhouseCoopers LLP, as the Trust's
independent public accountants............................. 191,358,779 2,114,168 11,333,063
</TABLE>
- ------------------------
* Includes Broker Non-Votes
- ------------------------
FEDERAL TAX INFORMATION (UNAUDITED):
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$1,025,171 as capital gain dividends for the fiscal year ended October 31, 1998.
Pursuant to Section 854 of the Internal Revenue Code, the Fund designates 100%
of ordinary income dividends paid (including short- term capital gain
distributions, if any) by the Fund as income qualifying for the dividends
received deduction for corporations for the fiscal year ended October 31, 1998.
FS-34
<PAGE> 970
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders of AIM Global Health Care Fund (formerly GT Global Health
Care Fund) and Board of Trustees of AIM Investment Funds (formerly G.T.
Investment Funds, Inc.):
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Global Health Care Fund at
October 31, 1998, and the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
------------------------------
PRICEWATERHOUSECOOPERS LLP
BOSTON, MASSACHUSETTS
DECEMBER 18, 1998
FS-35
<PAGE> 971
PORTFOLIO OF INVESTMENTS
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Pharmaceuticals (62.3%)
Warner-Lambert Co. ........................................ US 467,800 $ 36,663,821 7.9
Merck & Co., Inc. ......................................... US 236,400 31,973,100 6.9
TheraTech, Inc.{::} -/- ................................... US 1,905,000 27,027,188 5.8
Bristol Myers Squibb Co. .................................. US 215,700 23,848,331 5.1
Schering-Plough Corp. ..................................... US 198,500 20,420,688 4.4
Zeneca Group PLC - ADR{\/} ................................ UK 451,500 17,608,500 3.8
Novartis AG ............................................... SWTZ 8,744 15,750,303 3.4
Johnson & Johnson ......................................... US 189,100 15,411,650 3.3
Roche Holding AG .......................................... SWTZ 1,251 14,591,614 3.2
Glaxo Wellcome PLC - ADR{\/} .............................. UK 220,600 13,732,350 3.0
Mylan Laboratories ........................................ US 321,500 11,071,656 2.4
Astra AB - ADR{\/} ........................................ SWDN 596,100 9,798,394 2.1
Abbott Laboratories ....................................... US 179,400 8,420,588 1.8
Sanofi S.A. ............................................... FR 32,430 5,080,235 1.1
Takeda Chemical Industries ................................ JPN 154,000 5,015,985 1.1
Bergen Brunswig Corp. "A" ................................. US 98,700 4,817,794 1.0
Pharmacia & Upjohn, Inc. .................................. US 82,000 4,340,875 0.9
Akzo Nobel N.V.: .......................................... NETH -- -- 0.8
Common .................................................. -- 64,750 2,516,784 --
ADR{\/} ................................................. -- 28,000 1,106,000 --
Barr Laboratories, Inc.-/- ................................ US 105,500 3,606,781 0.8
Altana AG ................................................. GER 30,000 2,030,089 0.4
Allergan, Inc. ............................................ US 32,000 1,998,000 0.4
Taisho Pharmaceuticals .................................... JPN 50,000 1,340,667 0.3
Yamanouchi Pharmaceutical ................................. JPN 46,000 1,320,385 0.3
Sankyo Co., Ltd. .......................................... JPN 57,000 1,288,329 0.3
Schering AG ............................................... GER 8,540 1,007,195 0.2
Chugai Pharmaceutical Co., Ltd. ........................... JPN 108,000 983,843 0.2
UCB S.A. .................................................. BEL 150 876,244 0.2
Merck KGaA-/- ............................................. GER 20,880 857,858 0.2
Daiichi Pharmaceutical Co., Ltd. .......................... JPN 39,000 651,899 0.1
Spiros Development Corporation II, Inc. - Units-/-{=} ..... US 59,000 634,250 0.1
Eisai Co., Ltd. ........................................... JPN 40,000 628,395 0.1
Banyu Pharmaceutical Co., Ltd. ............................ JPN 36,000 612,272 0.1
Ares-Serono Group "B" ..................................... SWTZ 389 584,677 0.1
Rohto Pharmaceutical Co., Ltd. ............................ JPN 76,000 552,561 0.1
Kyowa Hakko Kogyo Co., Ltd. ............................... JPN 69,000 391,372 0.1
Teva Pharmaceutical Industries Ltd. - ADR{\/} ............. ISRL 8,700 343,106 0.1
Shionogi & Co., Ltd. ...................................... JPN 44,000 324,820 0.1
Kissei Pharmaceutical ..................................... JPN 14,000 206,824 0.1
------------
289,435,423
------------
Medical Technology & Supplies (11.9%)
Guidant Corp. ............................................. US 191,500 14,649,750 3.2
Visx, Inc.-/- ............................................. US 291,200 14,596,400 3.2
Arterial Vascular Engineering, Inc.-/- .................... US 386,000 11,869,500 2.6
AVECOR Cardiovascular, Inc.{::} -/- ....................... US 527,000 5,566,438 1.2
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-36
<PAGE> 972
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Medical Technology & Supplies (Continued)
Waters Corp.-/- ........................................... US 62,000 $ 4,557,000 1.0
Becton, Dickinson & Co. ................................... US 34,300 1,444,888 0.3
Safeskin Corp. ............................................ US 43,500 962,438 0.2
Beiersdorf AG ............................................. GER 8,684 519,434 0.1
Essilor International ..................................... FR 660 267,389 0.1
------------
54,433,237
------------
Biotechnology (3.9%)
Amgen, Inc.-/- ............................................ US 177,300 13,929,131 3.0
Biogen, Inc.-/- ........................................... US 46,500 3,231,750 0.7
The Perkin-Elmer Corp. .................................... US 7,100 598,619 0.1
Enzon, Inc. Preferred-/- .................................. US 16,000 217,920 0.1
------------
17,977,420
------------
Health Care Services (2.5%)
Allegiance Corp. .......................................... US 250,500 9,315,469 2.0
AmeriSource Health Corp. "A"-/- ........................... US 44,500 2,333,469 0.5
------------
11,648,938
------------
Consumer Services (0.4%)
Stewart Enterprises, Inc. "A" ............................. US 66,000 1,522,125 0.3
The Uni-Charm Corp. ....................................... JPN 5,400 245,961 0.1
------------
1,768,086
------------
Personal Care/Cosmetics (0.1%)
Kimberly-Clark de Mexico, S.A. de C.V. "A" ................ MEX 204,000 597,684 0.1
------------ -----
TOTAL EQUITY INVESTMENTS (cost $331,814,548) ................ 375,860,788 81.1
------------ -----
<CAPTION>
NO. OF VALUE % OF NET
WARRANTS COUNTRY WARRANTS (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Rhone-Poulenc Warrants, expire 11/5/01 (cost $32,137) ..... FR 190,736 669,707 0.1
------------ -----
PHARMACEUTICALS
<CAPTION>
VALUE % OF NET
REPURCHASE AGREEMENTS (NOTE 1) ASSETS
- ------------------------------------------------------------- ------------ -------------
<S> <C> <C> <C> <C>
Dated October 30, 1998, with State Street Bank & Trust Co.,
due November 2, 1998, for an effective yield of 5.30%,
collateralized by $49,370,000 U.S. Treasury Notes, 5.625%
due 12/31/99 (market value of collateral is $51,000,346,
including accrued interest) ............................. 50,000,000 10.8
Dated October 30, 1998 with State Street Bank & Trust Co.,
due November 2, 1998, for an effective yield of 5.30%,
collateralized by $24,860,000 U.S. Treasury Notes, 5.375%
due 01/31/00 (market value of collateral is $25,505,067,
including accrued interest) ............................. 25,000,000 5.4
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-37
<PAGE> 973
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
REPURCHASE AGREEMENTS (NOTE 1) ASSETS
- ------------------------------------------------------------- ------------ -------------
<S> <C> <C> <C> <C>
Dated October 30, 1998, with State Street Bank & Trust Co.,
due November 2, 1998, for an effective yield of 5.30%,
collateralized by $12,655,000 U.S Treasury Notes, 7.75%
due 01/31/00 (market value of collateral is $13,419,539,
including accrued interest) ............................. $ 13,154,000 2.8
------------ -----
TOTAL REPURCHASE AGREEMENTS (cost $88,154,000) .............. 88,154,000 19.0
------------ -----
TOTAL INVESTMENTS (cost $420,000,685) * .................... 464,684,495 100.2
Other Assets and Liabilities ................................ (947,150) (0.2)
------------ -----
NET ASSETS .................................................. $463,737,345 100.0
------------ -----
------------ -----
</TABLE>
- --------------
-/- Non-income producing security.
{::} See Note 6 of Notes to Financial Statements.
{\/} U.S. currency denominated.
{=} Each unit consists of one callable common share of Spiros
Development Corp. II and one warrant to purchase 0.25 shares of
Dura Pharmaceuticals.
* For Federal income tax purposes, cost is $420,372,604 and
appreciation (depreciation) is as follows:
<TABLE>
<S> <C>
Unrealized appreciation: $ 50,843,304
Unrealized depreciation: (6,531,413)
-------------
Net unrealized appreciation: $ 44,311,891
-------------
-------------
</TABLE>
Abbreviation:
ADR--American Depositary Receipt
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Fund's Portfolio of Investments at October 31, 1998, was concentrated in the
following countries:
<TABLE>
<CAPTION>
PERCENTAGE OF NET ASSETS {D}
-------------------------------------------
SHORT-TERM
COUNTRY (COUNTRY CODE/CURRENCY CODE) EQUITY WARRANTS & OTHER TOTAL
- -------------------------------------- ------ ------------- ---------- -----
<S> <C> <C> <C> <C>
Belgium (BEL/BEF) .................... 0.2 0.2
France (FR/FRF) ...................... 1.2 0.1 1.3
Germany (GER/DEM) .................... 0.9 0.9
Israel (ISRL/ILS) .................... 0.1 0.1
Japan (JPN/JPY) ...................... 3.0 3.0
Mexico (MEX/MXN) ..................... 0.1 0.1
Netherlands (NETH/NLG) ............... 0.6 0.6
Sweden (SWDN/SEK) .................... 2.1 2.1
Switzerland (SWTZ/CHF) ............... 6.7 6.7
United Kingdom (UK/GBP) .............. 6.8 6.8
United States (US/USD) ............... 59.4 18.8 78.2
------ ----- ----- -----
Total ............................... 81.1 0.1 18.8 100.0
------ ----- ----- -----
------ ----- ----- -----
</TABLE>
- --------------
{d} Percentages indicated are based on net assets of $463,737,345.
The accompanying notes are an integral part of the financial statements.
FS-38
<PAGE> 974
STATEMENT OF ASSETS
AND LIABILITIES
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at value (cost $331,846,685) (Note 1)........................... $376,530,495
Repurchase agreement, at value and cost.................................................... 88,154,000
U.S. currency.................................................................. $ 847
Foreign currencies (cost $3,392,812)........................................... 3,389,063 3,389,910
----------
Receivable for Fund shares sold............................................................ 2,221,492
Dividends and dividend withholding tax reclaims receivable................................. 304,733
Interest receivable........................................................................ 25,956
Receivable for securities sold............................................................. 25,936
------------
Total assets............................................................................. 470,652,522
------------
Liabilities:
Payable for securities purchased........................................................... 3,023,243
Payable for Fund shares repurchased........................................................ 2,659,446
Payable for service and distribution expenses (Note 2)..................................... 400,127
Payable for investment management and administration fees (Note 2)......................... 359,240
Payable for transfer agent fees (Note 2)................................................... 260,984
Payable for printing and postage expenses.................................................. 75,851
Payable for professional fees.............................................................. 53,436
Payable for registration and filing fees................................................... 26,393
Payable for Trustees' fees and expenses (Note 2)........................................... 13,176
Payable for custodian fees................................................................. 11,138
Payable for fund accounting fees (Note 2).................................................. 10,655
Other accrued expenses..................................................................... 21,488
------------
Total liabilities........................................................................ 6,915,177
------------
Net assets................................................................................... $463,737,345
------------
------------
Class A:
Net asset value and redemption price per share ($357,534,099 DIVIDED BY 17,744,660 shares
outstanding)................................................................................ $ 20.15
------------
------------
Maximum offering price per share (100/95.25 of $20.15) *..................................... $ 21.15
------------
------------
Class B:+
Net asset value and offering price per share ($100,311,077 DIVIDED BY 5,178,631 shares
outstanding)................................................................................ $ 19.37
------------
------------
Advisor Class:
Net asset value, offering price per share, and redemption price per share ($5,892,169 DIVIDED
BY 286,128 shares outstanding).............................................................. $ 20.59
------------
------------
Net assets consist of:
Paid in capital (Note 4)................................................................... $420,849,043
Accumulated net realized loss on investments and foreign currency transactions............. (1,759,592)
Net unrealized depreciation on translation of assets and liabilities in foreign
currencies................................................................................ (35,916)
Net unrealized appreciation of investments................................................. 44,683,810
------------
Total -- representing net assets applicable to capital shares outstanding.................... $463,737,345
------------
------------
<FN>
- --------------
* On sales of $50,000 or more, the offering price is reduced.
+ Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-39
<PAGE> 975
STATEMENT OF OPERATIONS
Year ended October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment income: (Note 1)
Interest income........................................................................... $ 2,459,834
Dividend income (net of foreign withholding tax of $41,675)............................... 1,970,384
Securities lending income................................................................. 127,509
-----------
Total investment income................................................................. 4,557,727
-----------
Expenses:
Investment management and administration fees (Note 2).................................... 5,149,191
Service and distribution expenses: (Note 2)
Class A.................................................................... $ 2,017,811
Class B.................................................................... 1,188,118 3,205,929
-----------
Transfer agent fees (Note 2).............................................................. 1,228,300
Printing and postage expenses............................................................. 284,550
Fund accounting fees (Note 2)............................................................. 142,357
Professional fees......................................................................... 126,582
Registration and filing fees.............................................................. 73,000
Custodian fees............................................................................ 40,625
Trustees' fees and expenses (Note 2)...................................................... 21,594
Other expenses............................................................................ 29,939
-----------
Total expenses before reductions........................................................ 10,302,067
-----------
Expense reductions (Note 5)........................................................... (45,003)
-----------
Total net expenses...................................................................... 10,257,064
-----------
Net investment loss......................................................................... (5,699,337)
-----------
Net realized and unrealized loss on investments and foreign currencies: (Note
1)
Net realized gain on investments............................................. 108,367
Net realized loss on foreign currency transactions........................... (913,909)
-----------
Net realized loss during the year....................................................... (805,542)
Net change in unrealized depreciation on translation of assets and
liabilities in foreign currencies........................................... 221,096
Net change in unrealized appreciation of investments......................... (18,766,554)
-----------
Net unrealized depreciation during the year............................................. (18,545,458)
-----------
Net realized and unrealized loss on investments and foreign currencies...................... (19,351,000)
-----------
Net decrease in net assets resulting from operations........................................ $(25,050,337)
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-40
<PAGE> 976
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997
---------------- ----------------
<S> <C> <C>
Increase (Decrease) in net assets
Operations:
Net investment loss....................................................... $ (5,699,337) $ (6,665,748)
Net realized gain (loss) on investments and foreign currency
transactions............................................................. (805,542) 153,599,307
Net change in unrealized appreciation (depreciation) on translation of
assets and liabilities in foreign currencies............................. 221,096 (569,426)
Net change in unrealized appreciation (depreciation) of investments....... (18,766,554) 1,308,779
---------------- ----------------
Net increase (decrease) in net assets resulting from operations......... (25,050,337) 147,672,912
---------------- ----------------
Class A:
Distributions to shareholders: (Note 1)
From net realized gain on investments..................................... (110,820,788) (34,613,411)
In excess of net realized gain on investments............................. (211,033) --
Class B:
Distributions to shareholders: (Note 1)
From net realized gain on investments..................................... (34,067,362) (8,701,491)
In excess of net realized gain on investments............................. (64,874) --
Advisor Class:
Distributions to shareholders: (Note 1)
From net realized gain on investments..................................... (1,789,552) (57,488)
In excess of net realized gain on investments............................. (3,408) --
---------------- ----------------
Total distributions..................................................... (146,957,017) (43,372,390)
---------------- ----------------
Capital share transactions: (Note 4)
Increase from capital shares sold and reinvested.......................... 785,847,410 1,007,452,632
Decrease from capital shares repurchased.................................. (776,444,828) (1,062,045,275)
---------------- ----------------
Net increase (decrease) from capital share transactions................. 9,402,582 (54,592,643)
---------------- ----------------
Total increase (decrease) in net assets..................................... (162,604,772) 49,707,879
Net assets:
Beginning of year......................................................... 626,342,117 576,634,238
---------------- ----------------
End of year *............................................................. $ 463,737,345 $ 626,342,117
---------------- ----------------
---------------- ----------------
* Includes undistributed net investment income............................. -- $ --
---------------- ----------------
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-41
<PAGE> 977
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1998 (d) 1997 (d) 1996 (d) 1995 1994 (d)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 27.98 $ 23.60 $ 21.84 $ 19.60 $ 17.86
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment loss................... (0.21) (0.25) (0.17) (0.15) (0.22)
Net realized and unrealized gain
(loss) on investments................ (0.91) 6.48 4.79 3.73 2.02
---------- ---------- ---------- ---------- ----------
Net increase (decrease) from
investment operations.............. (1.12) 6.23 4.62 3.58 1.80
---------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net realized gain on
investments.......................... (6.70) (1.85) (2.86) (1.34) --
In excess of net realized gain on
investments.......................... (0.01) -- -- -- (0.06)
---------- ---------- ---------- ---------- ----------
Total distributions................. (6.71) (1.85) (2.86) (1.34) (0.06)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 20.15 $ 27.98 $ 23.60 $ 21.84 $ 19.60
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return (c)............. (4.71)% 28.36% 23.14% 19.79% 10.11%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 357,534 $ 472,083 $ 467,861 $ 426,380 $ 438,940
Ratio of net investment loss to average
net assets:
With expense reductions (Note 5)...... (0.97)% (1.00)% (0.71)% (0.72)% (1.23)%
Without expense reductions............ (0.98)% (1.03)% (0.75)% (0.78)% N/A
Ratio of expenses to average net assets:
With expense reductions (Note 5)...... 1.83% 1.77% 1.80% 1.85% 1.98%
Without expense reductions............ 1.84% 1.80% 1.84% 1.91% N/A
Portfolio turnover rate++............... 187% 149% 157% 99% 64%
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates are calculated on the basis of the Fund as a
whole without distinguishing between the classes of shares issued.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-42
<PAGE> 978
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1998 (d) 1997 (d) 1996 (d) 1995 1994 (d)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 27.27 $ 23.15 $ 21.56 $ 19.46 $ 17.80
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment loss................... (0.30) (0.37) (0.27) (0.25) (0.32)
Net realized and unrealized gain
(loss) on investments................ (0.89) 6.34 4.72 3.69 2.02
---------- ---------- ---------- ---------- ----------
Net increase (decrease) from
investment operations.............. (1.19) 5.97 4.45 3.44 1.70
---------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net realized gain on
investments.......................... (6.70) (1.85) (2.86) (1.34) --
In excess of net realized gain on
investments.......................... (0.01) -- -- -- (0.04)
---------- ---------- ---------- ---------- ----------
Total distributions................. (6.71) (1.85) (2.86) (1.34) (0.04)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 19.37 $ 27.27 $ 23.15 $ 21.56 $ 19.46
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return (c)............. (5.20)% 27.75% 22.59% 19.17% 9.55%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 100,311 $ 147,440 $ 107,622 $ 70,740 $ 39,100
Ratio of net investment loss to average
net assets:
With expense reductions (Note 5)...... (1.47)% (1.50)% (1.21)% (1.22)% (1.73)%
Without expense reductions............ (1.48)% (1.53)% (1.25)% (1.28)% N/A
Ratio of expenses to average net assets:
With expense reductions (Note 5)...... 2.33% 2.27% 2.30% 2.35% 2.48%
Without expense reductions............ 2.34% 2.30% 2.34% 2.41% N/A
Portfolio turnover rate++............... 187% 149% 157% 99% 64%
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates are calculated on the basis of the Fund as a
whole without distinguishing between the classes of shares issued.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-43
<PAGE> 979
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
ADVISOR CLASS+
----------------------------------------------------
JUNE 1, 1995
YEAR ENDED OCTOBER 31, TO
------------------------------------- OCTOBER 31,
1998 (d) 1997 (d) 1996 (d) 1995
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 28.34 $ 23.77 $ 21.88 $ 18.66
----------- ----------- ----------- -------------
Income from investment operations:
Net investment loss................... (0.10) (0.12) (0.05) (0.02)
Net realized and unrealized gain
(loss) on investments................ (0.94) 6.54 4.80 3.24
----------- ----------- ----------- -------------
Net increase (decrease) from
investment operations.............. (1.04) 6.42 4.75 3.22
----------- ----------- ----------- -------------
Distributions to shareholders:
From net realized gain on
investments.......................... (6.70) (1.85) (2.86) --
In excess of net realized gain on
investments.......................... (0.01) -- -- --
----------- ----------- ----------- -------------
Total distributions................. (6.71) (1.85) (2.86) --
----------- ----------- ----------- -------------
Net asset value, end of period.......... $ 20.59 $ 28.34 $ 23.77 $ 21.88
----------- ----------- ----------- -------------
----------- ----------- ----------- -------------
Total investment return (c)............. (4.28)% 29.00% 23.82% 17.10(b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 5,892 $ 6,819 $ 1,152 $ 539
Ratio of net investment loss to average
net assets:
With expense reductions (Note 5)...... (0.47)% (0.50)% (0.21)% (0.22)%(a)
Without expense reductions............ (0.48)% (0.53)% (0.25)% (0.28)%(a)
Ratio of expenses to average net assets:
With expense reductions (Note 5)...... 1.33% 1.27% 1.30% 1.35%(a)
Without expense reductions............ 1.34% 1.30% 1.34% 1.41%(a)
Portfolio turnover rate++............... 187% 149% 157% 99%(a)
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates are calculated on the basis of the Fund as a
whole without distinguishing between the classes of shares issued.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-44
<PAGE> 980
NOTES TO
FINANCIAL STATEMENTS
October 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (SEE ALSO NOTE 2)
AIM Global Health Care Fund (the "Fund"), formerly, GT Global Health Care Fund,
is a separate series of AIM Investment Funds (the "Trust"), formerly G.T.
Investment Funds, Inc. The Trust is organized as a Delaware business trust and
is registered under the Investment Company Act of 1940, as amended ("1940 Act"),
as an open-end management investment company. The Trust has thirteen series of
shares in operation, each series corresponding to a distinct portfolio of
investments.
The Fund offers Class A, Class B, and Advisor Class shares, each of which has
equal rights as to assets and voting privileges except that Class A and Class B
each has exclusive voting rights with respect to its distribution plan.
Investment income, realized and unrealized capital gains and losses, and the
common expenses of the Fund are allocated on a pro rata basis to each class
based on the relative net assets of each class to the total net assets of the
Fund. Each class of shares differs in its respective service and distribution
expenses, and may differ in its transfer agent, registration, and certain other
class-specific fees and expenses.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies in conformity with generally accepted accounting
principles consistently followed by the Fund in the preparation of the financial
statements.
(A) PORTFOLIO VALUATION
The Fund calculates the net asset value of and completes orders to purchase,
exchange or repurchase Fund shares on each business day, with the exception of
those days on which the New York Stock Exchange is closed.
Equity securities are valued at the last sale price on the exchange on which
such securities are traded, or on the principal over-the-counter market on which
such securities are traded, as of the close of business on the day the
securities are being valued, or, lacking any sales, at the last available bid
price. In cases where securities are traded on more than one exchange, the
securities are valued on the exchange determined by A I M Advisors, Inc. (the
"Manager") to be the primary market.
Fixed income investments are valued at the mean of representative quoted bid and
ask prices for such investments or, if such prices are not available, at prices
for investments of comparative maturity, quality and type; however, when the
Manager deems it appropriate, prices obtained for the day of valuation from a
bond pricing service will be used. Short-term investments are valued at
amortized cost adjusted for foreign exchange translation and market fluctuation,
if any.
Investments for which market quotations are not readily available (including
restricted securities which are subject to limitations on their sale) are valued
at fair value as determined in good faith by or under the direction of the
Trust's Board of Trustees.
Portfolio securities which are primarily traded on foreign exchanges are
generally valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S. dollars at
the current exchange rates, except that when an occurrence subsequent to the
time a value was so established is likely to have materially changed such value,
then the fair value of those securities will be determined by consideration of
other factors by or under the direction of the Trust's Board of Trustees.
(B) FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings, and other assets and
liabilities are recorded in the books and records of the Fund after translation
to U.S. dollars based on the exchange rates on that day. The cost of each
security is determined using historical exchange rates. Income and withholding
taxes are translated at prevailing exchange rates when earned or incurred.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, forward foreign currency contracts, sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains or losses arise from changes in the
value of assets and liabilities other than investments in securities at year
end, resulting from changes in exchange rates.
(C) REPURCHASE AGREEMENTS
With respect to repurchase agreements entered into by the Fund, it is the Fund's
policy to always receive, as collateral, United States government securities or
other high quality debt securities of which the value, including accrued
interest, is at least equal to the amount to be repaid to the Fund under each
agreement at its maturity.
(D) FORWARD FOREIGN CURRENCY CONTRACTS
A forward foreign currency contract ("Forward Contract") is an agreement between
two parties to buy and sell a currency at a set price on a future date. The
market value of the Forward Contract
FS-45
<PAGE> 981
fluctuates with changes in currency exchange rates. The Forward Contract is
marked-to-market daily and the change in market value is recorded by the Fund as
an unrealized gain or loss. When the Forward Contract is closed, the Fund
records a realized gain or loss equal to the difference between the value at the
time it was opened and the value at the time it was closed. Forward Contracts
involve market risk in excess of the amount shown in the Fund's "Statement of
Assets and Liabilities". The Fund could be exposed to risk if a counter party is
unable to meet the terms of the contract or if the value of the currency changes
unfavorably. The Fund may enter into Forward Contracts in connection with
planned purchases or sales of securities, or to hedge against adverse
fluctuations in exchange rates between currencies.
(E) OPTION ACCOUNTING PRINCIPLES
When the Fund writes a call or put option, an amount equal to the premium
received is included in the Fund's "Statement of Assets and Liabilities" as an
asset and an equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option. The current
market value of an option listed on a traded exchange is valued at its last bid
price, or, in the case of an over-the-counter option, is valued at the average
of the last bid prices obtained from brokers, unless a quotation from only one
broker is available, in which case only that broker's price will be used. If an
option expires on its stipulated expiration date or if the Fund enters into a
closing purchase transaction, a gain or loss is realized without regard to any
unrealized gain or loss on the underlying security and the liability related to
such option is extinguished. If a written call option is exercised, a gain or
loss is realized from the sale of the underlying security and the proceeds of
the sale are increased by the premium originally received. If a written put
option is exercised, the cost of the underlying security purchased would be
decreased by the premium originally received. The Fund can write options only on
a covered basis, which, for a call, requires that the Fund hold the underlying
security and, for a put, requires the Fund to set aside cash, U.S. government
securities or other liquid securities in an amount not less than the exercise
price, or otherwise provide adequate cover at all times while the put option is
outstanding. The Fund may use options to manage its exposure to the stock market
and to fluctuations in currency values or interest rates.
The premium paid by the Fund for the purchase of a call or put option is
included in the Fund's "Statement of Assets and Liabilities" as an investment
and subsequently "marked-to-market" to reflect the current market value of the
option. If an option which the Fund has purchased expires on the stipulated
expiration date, the Fund realizes a loss in the amount of the cost of the
option. If the Fund enters into a closing sale transaction, the Fund realizes a
gain or loss, depending on whether proceeds from the closing sale transaction
are greater or less than the cost of the option. If the Fund exercises a call
option, the cost of the securities acquired by exercising the call is increased
by the premium paid to buy the call. If the Fund exercises a put option, it
realizes a gain or loss from the sale of the underlying security, and the
proceeds from such sale are decreased by the premium originally paid.
The risk associated with purchasing options is limited to the premium originally
paid. The risk in writing a call option is that the Fund may forego the
opportunity of profit if the market value of the underlying security or index
increases and the option is exercised. The risk in writing a put option is that
the Fund may incur a loss if the market value of the underlying security or
index decreases and the option is exercised. In addition, there is the risk the
Fund may not be able to enter into a closing transaction because of an illiquid
secondary market.
(F) FUTURES CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
security at a set price on a future date. Upon entering into such a contract the
Fund is required to pledge to the broker an amount of cash or securities equal
to the minimum "initial margin" requirements of the exchange on which the
contract is traded. Pursuant to the contract, the Fund agrees to receive from or
pay to the broker an amount of cash equal to the daily fluctuation in value of
the contract. Such receipts or payments are known as "variation margin" and are
recorded by the Fund as unrealized gains or losses. When the contract is closed,
the Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the time it was
closed. The potential risk to the Fund is that the change in value of the
underlying securities may not correlate to the change in value of the contracts.
The Fund may use futures contracts to manage its exposure to the stock market
and to fluctuations in currency values or interest rates.
(G) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). The cost of securities sold is determined on a first-in,
first-out-basis, unless otherwise specified. Dividends are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. Where a high
level of uncertainty exists as to its collection, income is recorded net of all
withholding tax with any rebate recorded when received. The Fund may trade
securities on other than normal settlement terms. This may increase the risk if
the other party to the transaction fails to deliver and causes the Fund to
subsequently invest at less advantageous prices.
(H) PORTFOLIO SECURITIES LOANED
At October 31, 1998, stocks with an aggregate value of $65,970,926 were on loan
to brokers. The loans were secured by cash collateral of $67,591,665 received by
the Fund. For the year ended October 31, 1998, the Fund received fees of
$127,509.
For international securities, cash collateral is received by the Fund against
loaned securities in an amount at least equal to 105% of the market value of the
loaned securities at the inception of each loan. This collateral must be
maintained at not less than 103% of the market value of the loaned securities
during the period of the loan. For domestic securities, cash collateral is
received by the Fund against loaned securities in the amount at least equal to
102% of the market value of the loaned securities at the inception of each loan.
This collateral must be maintained at not less than 100% of the market value of
the loaned securities during the period of the loan. The cash
FS-46
<PAGE> 982
collateral is invested in a securities lending trust which consists of a
portfolio of high quality short duration securities whose average effective
duration is restricted to 120 days or less.
(I) TAXES
It is the intended policy of the Fund to meet the requirements for qualification
as a "regulated investment company" under the Internal Revenue Code of 1986, as
amended ("Code"). It is also the intention of the Fund to make distributions
sufficient to avoid imposition of any excise tax under Section 4982 of the Code.
Therefore, no provision has been made for Federal taxes on income, capital
gains, unrealized appreciation of securities held, or excise tax on income and
capital gains. The Fund currently has a capital loss carryforward of $1,387,673
which expires in 2006.
(J) DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded by the Fund on the ex-date. Income
and capital gain distributions are determined in accordance with Federal income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Fund and timing differences.
(K) FOREIGN SECURITIES
There are certain additional considerations and risks associated with investing
in foreign securities and currency transactions that are not inherent in
investments of domestic origin. The Fund's investment in emerging market
countries may involve greater risks than investments in more developed markets
and the price of such investments may be volatile. These risks of investing in
foreign and emerging markets may include foreign currency exchange rate
fluctuations, perceived credit risk, adverse political and economic developments
and possible adverse foreign government intervention.
In addition, the Fund's policy of concentrating its investments in companies in
the health care industry subject the Fund to greater risk than a fund that is
more diversified.
(L) INDEXED SECURITIES
The Fund may invest in indexed securities whose value is linked either directly
or indirectly to changes in foreign currencies, interest rates, equities,
indices, or other reference instruments. Indexed securities may be more volatile
than the reference instrument itself, but any loss is limited to the amount of
the original investment.
(M) RESTRICTED SECURITIES
The Fund is permitted to invest in privately placed restricted securities. These
securities may be resold in transactions exempt from registration or to the
public if the securities are registered. Disposal of these securities may
involve time-consuming negotiations and expense, and prompt sale at an
acceptable price may be difficult. At the end of the year, restricted
securities, if any, (excluding 144A issues), are shown at the end of the Fund's
Portfolio of Investments.
(N) LINE OF CREDIT
The Fund, along with certain other funds advised and/or administered by the
Manager, has a line of credit with each of BankBoston and State Street Bank and
Trust Company. The arrangements with the banks allow the Fund and certain other
Funds to borrow, on a first come, first serve basis, an aggregate maximum amount
of $250,000,000. The Fund is limited to borrowing up to 33 1/3% of the value of
the Fund's total assets. At October 31, 1998, the Fund had no loans outstanding.
For the year ended October 31, 1998, the weighted average outstanding daily
balance of bank loans (based on the number of days the loans were outstanding)
was $2,447,333, with a weighted average interest rate of 6.39%. Interest expense
for the year ended October 31, 1998 was $2,605 and is included in "Other
Expenses" on the Statement of Operations.
2. RELATED PARTIES
A I M Advisors, Inc. (the "Manager"), an indirect wholly-owned subsidiary of
AMVESCAP PLC, is the Fund's investment manager and administrator. As of the
close of business on May 29, 1998, Liechtenstein Global Trust AG ("LGT"), the
former indirect parent organization of Chancellor LGT Asset Management, Inc.
("Chancellor LGT") consummated a purchase agreement with AMVESCAP PLC pursuant
to which AMVESCAP PLC acquired LGT's Asset Management Division, which included
Chancellor LGT and certain other affiliates. A I M Distributors, Inc. ("AIM
Distributors"), a wholly-owned subsidiary of the Manager, is the Fund's
distributor as of the close of business on May 29, 1998. The Trust was
reorganized from a Maryland corporation into a Delaware business trust on
September 8, 1998. Finally, as of the close of business on September 4, 1998,
A I M Fund Services, Inc. ("AFS"), an affiliate of the Manager and AIM
Distributors, replaced GT Global Investor Services, Inc. ("GT Services") as the
transfer agent of the Fund.
The Fund pays investment management and administration fees to the Manager at
the annualized rate of 0.975% on the first $500 million of average daily net
assets of the Fund; 0.95% on the next $500 million; 0.925% on the next $500
million; and 0.90% on amounts thereafter. These fees are computed daily and paid
monthly.
AIM Distributors, an affiliate of the Manager, serves as the Fund's distributor.
For the period ended May 29, 1998, GT Global, Inc. ("GT Global") served as the
Fund's distributor. The Fund offers Class A, Class B, and Advisor Class shares
for purchase.
Class A shares are subject to initial sales charges imposed at the time of
purchase, in accordance with the schedule included in the Fund's current
prospectus. AIM Distributors collects the sales charges imposed on sales of
Class A shares, and reallows a portion of such charges to dealers through which
the sales are made. For the year ended October 31, 1998, AIM Distributors and GT
Global retained sales charges of $8,771 and $15,832, respectively. Purchases of
Class A shares exceeding $1,000,000 may be subject to a contingent deferred
sales charge ("CDSC") upon redemption, in accordance with the Fund's current
prospectus. AIM Distributors and GT Global collected CDSCs for the year ended
October 31, 1998 of $26 and $207, respectively. AIM Distributors also makes
ongoing shareholder
FS-47
<PAGE> 983
servicing and trail commission payments to dealers whose clients hold Class A
shares.
Class B shares are not subject to initial sales charges. When Class B shares are
sold, AIM Distributors, from its own resources, pays commissions to dealers
through which the sales are made. Certain redemptions of Class B shares made
within six years of purchase are subject to CDSCs, in accordance with the Fund's
current prospectus. For the year ended October 31, 1998, AIM Distributors and GT
Global collected CDSCs in the amount of $169,183 and $341,707, respectively. In
addition, AIM Distributors makes ongoing shareholder servicing and trail
commission payments to dealers whose clients hold Class B shares.
For the period ended May 29, 1998, pursuant to the then effective separate
distribution plans adopted under the 1940 Act Rule 12b-1 by the Trust's Board of
Trustees with respect to the Fund's Class A shares ("Class A Plan") and Class B
shares ("Class B Plan"), the Fund reimbursed GT Global for a portion of its
shareholder servicing and distribution expenses. Under the Class A Plan, the
Fund was permitted to pay GT Global a service fee at the annualized rate of up
to 0.25% of the average daily net assets of the Fund's Class A shares for GT
Global's expenditures incurred in servicing and maintaining shareholder
accounts, and was permitted to pay GT Global a distribution fee at the
annualized rate of up to 0.50% of the average daily net assets of the Fund's
Class A shares, less any amounts paid by the Fund as the aforementioned service
fee, for GT Global's expenditures incurred in providing services as distributor.
All expenses for which GT Global was reimbursed under the Class A Plan would
have been incurred within one year of such reimbursement.
For the period ended May 29, 1998, pursuant to the Class B Plan, the Fund was
permitted to pay GT Global a service fee at the annualized rate of up to 0.25%
of the average daily net assets of the Fund's Class B shares for GT Global's
expenditures incurred in servicing and maintaining shareholder accounts, and was
permitted to pay GT Global a distribution fee at the annualized rate of up to
0.75% of the average daily net assets of the Fund's Class B shares for GT
Global's expenditures incurred in providing services as distributor. Expenses
incurred under the Class B Plan in excess of 1.00% annually were permitted to be
carried forward for reimbursement in subsequent years as long as that Plan
continued in effect.
Effective as of the close of business May 29, 1998, pursuant to Rule 12b-1 under
the 1940 Act, the Trust's Board of Trustees adopted a Master Distribution Plan
applicable to the Fund's Class A shares ("Class A Plan") and Class B shares
("Class B Plan"), pursuant to which the Fund compensates AIM Distributors for
the purpose of financing any activity that is intended to result in the sale of
Class A or Class B shares of the Fund. Under the Class A Plan, the Fund
compensates AIM Distributors at the annualized rate of 0.50% of the average
daily net assets of the Fund's Class A shares. Under the Class B Plan, the Fund
compensates AIM Distributors at an annualized rate of 1.00% of the average daily
net assets of the Fund's Class B shares.
The Class A Plan and the Class B Plan (together, the "Plans") are designed to
compensate AIM Distributors for certain promotional and other sales-related
costs, and to implement a dealer incentive program that provides for periodic
payments to selected dealers who furnish continuing personal shareholder
services to their customers who purchase and own Class A and Class B shares of
the Fund. Payments also can be directed by AIM Distributors to fnancial
institutions who have entered into service agreements with respect to Class A
and Class B shares of the Fund and who provide continuing personal services to
their customers who own Class A and Class B shares of the Fund. The service fees
payable to selected financial 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 that were purchased on or after a
prescribed date set forth in the Plans.
The Manager and AIM Distributors voluntarily have undertaken to limit the Fund's
expenses (exclusive of brokerage commissions, taxes, interest, and extraordinary
expense) to the maximum annual rate of 2.00%, 2.50%, and 1.50% of the average
daily net assets of the Fund's Class A, Class B, and Advisor Class shares,
respectively. If necessary, this limitation will be effected by waivers by the
Manager of investment management and administration fees, waivers by AIM
Distributors of payments under the Class A Plan and/or Class B Plan and/or
reimbursements by the Manager or AIM Distributors of portions of the Fund's
other operating expenses.
Effective as of the close of business September 4, 1998, the Fund, pursuant to a
transfer agency and service agreement, has agreed to pay A I M Fund Services,
Inc. ("AFS") an annualized fee of $24.85 per shareholder accounts that are open
during any monthly period (this fee includes all out-of-pocket expenses), and an
annualized fee of $0.70 per shareholder account that is closed during any
monthly period. Both fees shall be billed by AFS monthly in arrears on a
prorated basis of 1/12 of the annualized fee for all such accounts.
For the period November 1, 1997 to September 4, 1998, GT Services, an affiliate
of the Manager and AIM Distributors, was the transfer agent of the Fund. For
performing shareholder servicing, reporting, and general transfer agent
services, GT Services received an annual maintenance fee of $17.50 per account,
a new account fee of $4.00 per account, a per transaction fee of $1.75 for all
transactions other than exchanges and a per exchange fee of $2.25. GT Services
also was reimbursed by the Fund for its out-of-pocket expenses for such items as
postage, forms, telephone charges, stationery and office supplies.
The Manager is the pricing and accounting agent for the Fund. The monthly fee
for these services paid to the Manager is a percentage, not to exceed 0.03%
annually, of a Fund's average daily net assets. The annual fee rate is derived
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% to the assets in excess of
FS-48
<PAGE> 984
$5 billion. An amount is allocated to and paid by each such fund based on its
relative average daily net assets.
The Trust pays each Trustee who is not an employee, officer or director of the
Manager, or any other affiliated company, $5,000 per year plus $300 for each
meeting of the board or any committee thereof attended by the Trustee.
3. PURCHASES AND SALES OF SECURITIES
For the year ended October 31, 1998, purchases and sales of investment
securities by the Fund, other than U.S. government obligations and short-term
investments, aggregated $896,895,873 and $1,049,291,456, respectively. For the
year ended October 31, 1998, there were no purchases and sales of U.S.
government obligations.
4. CAPITAL SHARES
At October 31, 1998, there were 6,000,000,000 shares of the Trust's common stock
authorized, at $0.0001 par value. Of this amount, 400,000,000 were classified as
shares of the AIM Global Telecommunications Fund; 400,000,000 were classified as
shares of AIM Global Government Income Fund; 200,000,000 were classified as
shares of AIM Global Health Care Fund; 200,000,000 were classified as shares of
AIM Strategic Income Fund; 200,000,000 were classified as shares of AIM
Developing Markets Fund; 200,000,000 were classified as shares of GT Global
Currency Fund (inactive); 200,000,000 were classified as shares of AIM Global
Growth & Income Fund; 200,000,000 were classified as shares of GT Global Small
Companies Fund (inactive); 200,000,000 were classified as shares of AIM Latin
American Growth Fund; 200,000,000 were classified as shares of AIM Emerging
Markets Fund; 200,000,000 were classified as shares of AIM Emerging Markets Debt
Fund; 200,000,000 were classified as shares of AIM Global Financial Services
Fund; 200,000,000 were classified as shares of AIM Global Resources Fund;
200,000,000 were classified as shares of AIM Global Infrastructure Fund;
200,000,000 were classified as shares of AIM Global Consumer Products and
Services Fund. The shares of each of the foregoing series of the Trust's were
divided equally into two classes, designated Class A and Class B common stock.
With respect to the issuance of Advisor Class shares, 100,000,000 shares were
classified as shares of each of the fifteen series of the Trust's and designated
as Advisor Class common stock. 1,100,000,000 shares remain unclassified.
Transactions in capital shares of the Fund were as follows:
CAPITAL SHARE TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER, 31 1998 OCTOBER 31, 1997
------------------------- -------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold...................................................... 24,980,706 $526,818,779 31,631,342 $772,292,073
Shares issued in connection with reinvestment of distributions... 4,212,044 87,484,194 1,208,813 27,043,227
----------- ------------ ----------- ------------
29,192,750 614,302,973 32,840,155 799,335,300
Shares repurchased............................................... (28,318,023) (599,732,573) (35,792,763) (876,621,319)
----------- ------------ ----------- ------------
Net increase (decrease).......................................... 874,727 $ 14,570,400 (2,952,608) $(77,286,019)
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
<CAPTION>
CLASS B
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold...................................................... 3,933,442 $ 81,783,021 6,206,431 $152,327,079
Shares issued in connection with reinvestment of distributions... 1,393,872 27,961,083 321,688 7,045,104
----------- ------------ ----------- ------------
5,327,314 109,744,104 6,528,119 159,372,183
Shares repurchased............................................... (5,554,950) (115,825,819) (5,770,947) (142,017,878)
----------- ------------ ----------- ------------
Net increase (decrease).......................................... (227,636) $ (6,081,715) 757,172 $ 17,354,305
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
<CAPTION>
ADVISOR CLASS
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold...................................................... 2,760,416 $ 60,020,116 1,865,809 $ 48,687,774
Shares issued in connection with reinvestment of distributions... 84,210 1,780,217 2,543 57,375
----------- ------------ ----------- ------------
2,844,626 61,800,333 1,868,352 48,745,149
Shares repurchased............................................... (2,799,107) (60,886,436) (1,676,189) (43,406,078)
----------- ------------ ----------- ------------
Net increase..................................................... 45,519 $ 913,897 192,163 $ 5,339,071
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
</TABLE>
5. EXPENSE REDUCTIONS
The Manager has directed certain portfolio trades to brokers who then paid a
portion of the Fund's expenses. For the year ended October 31, 1998, the Fund's
expenses were reduced by $45,003 under these arrangements.
6. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
Investments of 5% or more of an issuer's outstanding voting securities by the
Fund are defined in the Investment Company Act of 1940 as an affiliated company.
Investments in affiliated companies by the Fund at October 31, 1998, amounted to
$32,593,626, at value.
FS-49
<PAGE> 985
Transactions with affiliated companies for the year are as follows:
<TABLE>
<CAPTION>
PURCHASES SALES NET REALIZED DIVIDEND
COST PROCEEDS GAIN (LOSS) INCOME
---------- ----------- ------------ --------
<S> <C> <C> <C> <C>
AVECOR Cardiovascular........................ $ 951,984 $ 1,158,394 $ (660,045) --
TheraTech, Inc............................... -- 2,219,055 (1,305,046) --
</TABLE>
7. PROXY RESULTS (UNAUDITED)
The Special Meeting of Shareholders of the G.T. Investment Funds, Inc. now known
as AIM Investment Funds (the "Trust") was held on May 20, 1998 at the Trust's
offices, 50 California Street, 26th Floor, San Francisco, California. The
meeting was held for the following purposes:
(1) To elect Trustees as follows: C. Derek Anderson, Frank S. Bayley, William
J. Guilfoyle, Arthur C. Patterson, Ruth H. Quigley.
(2) To approve a new Investment Management and Administration Contract and
Sub-Advisory and Sub-Administration Contract with respect to each series of
the Trust (each, a "Fund," and collectively, the "Funds").
(3) To approve replacement Rule 12b-1 plans of distribution with respect to
Class A and B Shares of the Fund.
(4) To approve changes to the fundamental investment restrictions of the Fund.
(5) To approve an agreement and plan of conversion and termination for the
Trust.
(6) To ratify the selection of Coopers & Lybrand, now known as
PricewaterhouseCoopers LLP, as the Trust's independent public accountants.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
TRUSTEE/MATTER
---------------------------------------------------------------------------------------------------------------
<S> <C>
(1) C. Derek Anderson..............................................................................................
Frank S. Bayley................................................................................................
William J. Guilfoyle...........................................................................................
Arthur C. Patterson............................................................................................
Ruth H. Quigley................................................................................................
(2)(a) Approval of investment management and administration contract..................................................
(2)(b) Approval of sub-advisory and sub-administration contract.......................................................
(3) Approval of replacement Rule 12b-1 plans of distribution
CLASS A SHARES.................................................................................................
CLASS B SHARES.................................................................................................
(4)(a) Modification of Fundamental Restriction on Portfolio Diversification...........................................
(4)(b) Modification of Fundamental Restriction on Issuing Senior Securities and Borrowing Money.......................
(4)(c) Modification of Fundamental Restriction on Making Loans........................................................
(4)(d) Modification of Fundamental Restriction on Underwriting Securities.............................................
(4)(e) Modification of Fundamental Restriction on Real Estate Investments.............................................
(4)(f) Modification of Fundamental Restriction on Investing in Commodities............................................
(4)(g) Elimination of Fundamental Restriction on Margin Transactions..................................................
(4)(h) Elimination of Fundamental Restriction on Investing in Illiquid Securities.....................................
(4)(i) Elimination of Fundamental Restriction on Pledging Assets......................................................
(4)(j) Elimination of Fundamental Restriction on Investment in Oil, Gas and Mineral Leases and Programs...............
(4)(k) Elimination of Fundamental Restriction on Investing for the Purpose of Control.................................
(4)(l) Elimination of Fundamental Restriction on Investing in Securities of Companies That Have Been in Operation for
Less than Three Years........................................................................................
(4)(m) Elimination of Fundamental Restriction on Selling Securities Short.............................................
(4)(n) Approval of New Fundamental Investment Policy Regarding Investment of All of Each Fund's Assets in an Open-End
Fund.........................................................................................................
(5) Approval of an agreement and plan of conversion and termination with respect to the Trust......................
(6) Ratification of the selection of Coopers and Lybrand, now known as PricewaterhouseCoopers LLP, as the Trust's
Independent Public Accountants...............................................................................
<CAPTION>
VOTES WITHHELD/
VOTES FOR AGAINST ABSTENTIONS
--------------- ------------ --------------
<S> <C> <C> <C>
(1) 191,685,088 N/A 13,123,292
191,766,811 N/A 13,041,568
191,828,959 N/A 12,979,420
191,845,270 N/A 12,963,109
191,869,887 N/A 12,938,492
(2)(a) 10,036,876 377,037 3,286,380*
(2)(b) 9,924,807 438,232 3,337,254*
(3)
9,243,174 408,228 848,675
2,844,133 91,446 203,388
(4)(a) 9,785,679 486,780 3,427,834*
(4)(b) 9,785,679 486,780 3,427,834*
(4)(c) 9,785,679 486,780 3,427,834*
(4)(d) 9,785,524 486,935 3,427,834*
(4)(e) 9,785,679 486,780 3,427,834*
(4)(f) 9,784,205 488,254 3,427,834*
(4)(g) 9,785,524 486,935 3,427,834*
(4)(h) 9,782,717 489,742 3,427,824
(4)(i) 9,785,524 486,935 3,427,834*
(4)(j) 9,785,679 486,780 3,427,834*
(4)(k) 9,785,549 486,910 3,427,834*
(4)(l)
9,784,035 488,424 3,427,834*
(4)(m) 9,781,946 490,513 3,427,834*
(4)(n)
9,785,300 487,159 3,427,834*
(5) 190,027,469 6,362,084 94,055,040*
(6)
191,358,779 2,114,168 11,333,063
</TABLE>
- --------------
* Includes Broker Non-Votes
- --------------
FEDERAL TAX INFORMATION (UNAUDITED):
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$34,293,657 as capital gain dividends for the fiscal year ended October 31,
1998.
FS-50
<PAGE> 986
REPORT OF
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders of AIM Global Infrastructure Fund (formerly GT Global
Infrastructure Fund) and Board of Trustees of AIM Investment Funds (formerly
G.T. Investment Funds, Inc.):
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Global Infrastructure
Fund - Consolidated at October 31, 1998, and the results of its operations, the
changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at October
31, 1998 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
BOSTON, MASSACHUSETTS
DECEMBER 18, 1998
FS-51
<PAGE> 987
PORTFOLIO OF INVESTMENTS
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Energy (35.3%)
AES Corp.-/- ............................................... US 48,264 $ 1,975,808 3.1
ELECTRICAL & GAS UTILITIES
Enron Corp. ................................................ US 35,001 1,846,303 2.9
GAS PRODUCTION & DISTRIBUTION
Houston Industries, Inc. ................................... US 59,000 1,832,688 2.9
ELECTRICAL & GAS UTILITIES
Dominion Resources, Inc. ................................... US 38,000 1,755,125 2.8
ELECTRICAL & GAS UTILITIES
Endesa S.A. - ADR{\/} ...................................... SPN 68,400 1,739,925 2.8
ELECTRICAL & GAS UTILITIES
Pinnacle West Capital Corp. ................................ US 32,000 1,402,000 2.2
ELECTRICAL & GAS UTILITIES
National Grid Group PLC .................................... UK 200,000 1,368,580 2.2
ELECTRICAL & GAS UTILITIES
Edison S.p.A. .............................................. ITLY 150,000 1,325,549 2.1
ELECTRICAL & GAS UTILITIES
BG PLC ..................................................... UK 200,000 1,310,022 2.1
ELECTRICAL & GAS UTILITIES
Union Electrica Fenosa S.A.-/- ............................. SPN 60,000 973,652 1.5
ELECTRICAL & GAS UTILITIES
Texas Utilities Co. ........................................ US 20,000 875,000 1.4
ELECTRICAL & GAS UTILITIES
EVN Energie-Versorgung Niederoesterreich AG ................ ASTRI 5,600 798,420 1.3
ELECTRICAL & GAS UTILITIES
Montana Power Co. .......................................... US 18,000 779,625 1.2
ELECTRICAL & GAS UTILITIES
Interstate Energy Corp. .................................... US 23,740 734,456 1.2
ELECTRICAL & GAS UTILITIES
GPU, Inc. .................................................. US 16,000 690,000 1.1
ELECTRICAL & GAS UTILITIES
Public Service Enterprise Group, Inc. ...................... US 17,000 646,000 1.0
ELECTRICAL & GAS UTILITIES
EDP-Electricidade de Portugal S.A. ......................... PORT 25,400 638,739 1.0
ELECTRICAL & GAS UTILITIES
USEC, Inc.-/- .............................................. US 39,600 579,150 0.9
ENERGY SOURCES
Viag AG .................................................... GER 800 543,774 0.9
ELECTRICAL & GAS UTILITIES
El Paso Energy Corp. ....................................... US 12,400 439,425 0.7
GAS PRODUCTION & DISTRIBUTION
Hub Power Co. .............................................. PAK 400 79 --
ELECTRICAL & GAS UTILITIES
-----------
22,254,320
-----------
Services (29.5%)
Vivendi .................................................... FR 11,982 2,737,841 4.4
CONSUMER SERVICES
Mannesmann AG .............................................. GER 19,000 1,871,186 3.0
WIRELESS COMMUNICATIONS
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-52
<PAGE> 988
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Services (Continued)
Telecom Italia SpA - Di Risp ............................... ITLY 300,000 $ 1,519,597 2.4
TELEPHONE NETWORKS
SBC Communications ......................................... US 29,000 1,343,063 2.1
TELEPHONE - REGIONAL/LOCAL
Portugal Telecom S.A. - ADR{\/} ............................ PORT 28,000 1,323,000 2.1
TELEPHONE NETWORKS
Bell Atlantic Corp. ........................................ US 22,000 1,168,750 1.9
TELEPHONE - REGIONAL/LOCAL
MCI WorldCom, Inc.-/- ...................................... US 20,000 1,105,000 1.8
TELEPHONE NETWORKS
Comair Holdings, Inc. ...................................... US 32,300 1,061,863 1.7
TRANSPORTATION - AIRLINES
Swisscom AG-/- ............................................. SWTZ 2,671 905,056 1.4
TELEPHONE NETWORKS
Tele-Communications, Inc. "A"-/- ........................... US 20,000 842,500 1.3
CABLE TELEVISION
Equant N.V.-/- {\/} ........................................ NETH 18,880 826,000 1.3
TELEPHONE NETWORKS
Brisa-Auto Estradas de Portugal S.A. ....................... PORT 16,000 744,230 1.2
TRANSPORTATION - ROAD & RAIL
Canadian National Railway Co. .............................. CAN 12,800 639,378 1.0
TRANSPORTATION - ROAD & RAIL
Aeroporti di Roma SpA ...................................... ITLY 96,000 600,615 1.0
TRANSPORTATION - AIRLINES
Deutsche Lufthansa AG ...................................... GER 20,000 435,019 0.7
TRANSPORTATION - AIRLINES
AirTouch Communications, Inc.-/- ........................... US 7,100 397,600 0.6
WIRELESS COMMUNICATIONS
AMR Corp.-/- ............................................... US 5,700 381,900 0.6
TRANSPORTATION - AIRLINES
Stagecoach Holdings PLC .................................... UK 96,000 372,628 0.6
TRANSPORTATION - ROAD & RAIL
RailWorks Corp.-/- ......................................... US 23,700 157,013 0.2
TRANSPORTATION - ROAD & RAIL
China Telecom (Hong Kong) Ltd.-/- .......................... HK 80,000 150,300 0.2
WIRELESS COMMUNICATIONS
Hellenic Telecommunication Organization S.A. (OTE) ......... GREC 11 250 --
TELEPHONE NETWORKS
-----------
18,582,789
-----------
Capital Goods (11.2%)
Kaufman and Broad Home Corp. ............................... US 42,000 1,199,625 1.9
CONSTRUCTION
Gulfstream Aerospace Corp.-/- .............................. US 25,000 1,106,250 1.8
AEROSPACE/DEFENSE
General Electric Co. PLC ................................... UK 122,500 978,647 1.6
AEROSPACE/DEFENSE
Nokia Oyj "A" - ADR{\/} .................................... FIN 10,000 930,625 1.5
TELECOM EQUIPMENT
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-53
<PAGE> 989
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Capital Goods (Continued)
United Technologies Corp. .................................. US 7,000 $ 666,750 1.1
AEROSPACE/DEFENSE
Tellabs, Inc.-/- ........................................... US 12,000 660,000 1.0
TELECOM EQUIPMENT
MAN AG ..................................................... GER 1,500 489,396 0.8
MACHINERY & ENGINEERING
British Aerospace PLC ...................................... UK 65,000 483,395 0.8
AEROSPACE/DEFENSE
Boeing Co. ................................................. US 9,700 363,750 0.6
AEROSPACE/DEFENSE
L-3 Communications Holdings, Inc.-/- ....................... US 1,300 55,900 0.1
AEROSPACE/DEFENSE
-----------
6,934,338
-----------
Materials/Basic Industry (9.1%)
Lafarge S.A. ............................................... FR 20,000 2,045,483 3.3
BUILDING MATERIALS & COMPONENTS
Martin Marietta Materials, Inc. ............................ US 25,000 1,226,563 1.9
MISC. MATERIALS & COMMODITIES
La Cementos Nacional, C.A. - 144A GDR{.} {\/} .............. ECDR 5,975 687,125 1.1
CEMENT
Hanson PLC - ADR{\/} ....................................... UK 16,000 565,000 0.9
BUILDING MATERIALS & COMPONENTS
CRH PLC .................................................... UK 38,000 553,756 0.9
BUILDING MATERIALS & COMPONENTS
Suez Cement Co. - Reg S GDR{c} {\/} ........................ EGPT 22,000 324,500 0.5
CEMENT
Centex Corp. ............................................... US 9,400 314,900 0.5
BUILDING MATERIALS & COMPONENTS
-----------
5,717,327
-----------
Technology (2.8%)
Cisco Systems, Inc.-/- ..................................... US 17,250 1,086,750 1.7
NETWORKING
Tekelec-/- ................................................. US 40,000 717,500 1.1
TELECOM TECHNOLOGY
-----------
1,804,250
----------- -----
TOTAL EQUITY INVESTMENTS (cost $44,438,182) .................. 55,293,024 87.9
----------- -----
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-54
<PAGE> 990
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
REPURCHASE AGREEMENT (NOTE 1) ASSETS
- -------------------------------------------------------------- ----------- -------------
<S> <C> <C> <C> <C>
Dated October 30, 1998, with State Street Bank & Trust Co.,
due November 2, 1998, for an effective yield of 5.30%,
collateralized by $5,070,000 U.S. Treasury Notes, 6.50% due
5/15/05 (market value of collateral is $5,810,321,
including accrued interest). (cost $5,694,000) ............ $ 5,694,000 9.1
----------- -----
TOTAL INVESTMENTS (cost $50,132,182) * ....................... 60,987,024 97.0
Other Assets and Liabilities ................................. 1,890,613 3.0
----------- -----
NET ASSETS ................................................... $62,877,637 100.0
----------- -----
----------- -----
</TABLE>
- --------------
-/- Non-income producing security.
{\/} U.S. currency denominated.
{c} Security issued under Regulation S. Rule 144A and additional
restrictions may apply in the resale of such securities.
{.} Security exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers.
* For Federal income tax purposes, cost is $50,132,182 and
appreciation (depreciation) is as follows:
<TABLE>
<S> <C>
Unrealized appreciation: $ 11,779,031
Unrealized depreciation: (924,189)
-------------
Net unrealized appreciation: $ 10,854,842
-------------
-------------
</TABLE>
Abbreviations:
ADR--American Depositary Receipt
GDR--Global Depositary Receipt
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Fund's Portfolio of Investments at October 31, 1998, was concentrated in the
following countries:
<TABLE>
<CAPTION>
PERCENTAGE OF NET ASSETS {D}
------------------------------
SHORT-TERM
COUNTRY (COUNTRY CODE/CURRENCY CODE) EQUITY & OTHER TOTAL
- -------------------------------------- ------ ------------- -----
<S> <C> <C> <C>
Austria (ASTRI/ATS) .................. 1.3 1.3
Canada (CAN/CAD) ..................... 1.0 1.0
Ecuador (ECDR/ECS) ................... 1.1 1.1
Egypt (EGPT/EGP) ..................... 0.5 0.5
Finland (FIN/FIM) .................... 1.5 1.5
France (FR/FRF) ...................... 7.7 7.7
Germany (GER/DEM) .................... 5.4 5.4
Hong Kong (HK/HKD) ................... 0.2 0.2
Italy (ITLY/ITL) ..................... 5.5 5.5
Netherlands (NETH/NLG) ............... 1.3 1.3
Portugal (PORT/PTE) .................. 4.3 4.3
Spain (SPN/ESP) ...................... 4.3 4.3
Switzerland (SWTZ/CHF) ............... 1.4 1.4
United Kingdom (UK/GBP) .............. 9.1 9.1
United States (US/USD) ............... 43.3 12.1 55.4
------ ----- -----
Total ............................... 87.9 12.1 100.0
------ ----- -----
------ ----- -----
</TABLE>
- --------------
{d} Percentages indicated are based on net assets of $62,877,637.
The accompanying notes are an integral part of the financial statements.
FS-55
<PAGE> 991
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS OUTSTANDING
OCTOBER 31, 1998
<TABLE>
<CAPTION>
UNREALIZED
MARKET VALUE CONTRACT DELIVERY APPRECIATION
CONTRACTS TO BUY: (U.S. DOLLARS) PRICE DATE (DEPRECIATION)
- ---------------------------------------- -------------- ------------ -------- --------------
<S> <C> <C> <C> <C>
Deutsche Marks.......................... 2,117,189 1.63655 11/27/98 $ (21,456)
Deutsche Marks.......................... 604,912 1.67875 11/27/98 9,230
Deutsche Marks.......................... 483,929 1.74405 11/27/98 25,227
French Francs........................... 2,525,704 5.47050 12/8/98 (33,477)
-------------- --------------
Total Contracts to Buy (Payable amount
$5,752,210).......................... 5,731,734 (20,476)
-------------- --------------
THE VALUE OF CONTRACTS TO BUY AS
PERCENTAGE OF NET ASSETS IS 9.12%.
<CAPTION>
CONTRACTS TO SELL:
- ----------------------------------------
<S> <C> <C> <C> <C>
Deutsche Marks.......................... 3,206,030 1.78600 11/27/98 (238,505)
French Francs........................... 2,525,704 5.76105 12/8/98 (95,591)
-------------- --------------
Total Contracts to Sell (Receivable
amount $5,397,638)................... 5,731,734 (334,096)
-------------- --------------
THE VALUE OF CONTRACTS TO SELL AS
PERCENTAGE OF NET ASSETS IS 9.12%.
Total Open Forward Foreign Currency
Contracts, Net....................... $ (354,572)
--------------
--------------
</TABLE>
- ----------------
See Note 1 of Notes to the Financial Statements.
The accompanying notes are an integral part of the financial statements.
FS-56
<PAGE> 992
STATEMENT OF ASSETS
AND LIABILITIES
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at value (cost $50,132,182) (Note 1)............................ $60,987,024
U.S. currency................................................................... $ 187
Foreign currencies (cost $1,246,112)............................................ 1,222,705 1,222,892
---------
Receivable for securities sold............................................................. 2,900,604
Dividends and dividend withholding tax reclaims receivable................................. 71,072
Unamortized organizational costs (Note 1).................................................. 5,980
Receivable for Fund shares sold............................................................ 3,337
Interest and miscellaneous receivable...................................................... 2,860
----------
Total assets............................................................................. 65,193,769
----------
Liabilities:
Payable for securities purchased........................................................... 1,353,704
Payable for open forward foreign currency contracts, net (Note 1).......................... 354,572
Payable for Fund shares repurchased........................................................ 271,106
Payable for service and distribution expenses (Note 2)..................................... 91,358
Payable for transfer agent fees (Note 2)................................................... 73,036
Payable for printing and postage expenses.................................................. 54,875
Payable for professional fees.............................................................. 42,068
Payable for investment management and administration fees (Note 2)......................... 25,654
Payable for registration and filing fees................................................... 23,067
Payable for custodian fees................................................................. 11,419
Payable for Trustees' fees and expenses (Note 2)........................................... 3,587
Payable for fund accounting fees (Note 2).................................................. 1,541
Other accrued expenses..................................................................... 10,045
----------
Total liabilities........................................................................ 2,316,032
Minority interest (Notes 1 & 2)............................................................ 100
----------
Net assets................................................................................... $62,877,637
----------
----------
Class A:
Net asset value and redemption price per share ($23,531,410 DIVIDED BY 1,659,002 shares
outstanding)................................................................................ $ 14.18
----------
----------
Maximum offering price per share (100/95.25 of $14.18) *..................................... $ 14.89
----------
----------
Class B:+
Net asset value and offering price per share ($32,349,296 DIVIDED BY 2,333,106 shares
outstanding)................................................................................ $ 13.87
----------
----------
Advisor Class:
Net asset value, offering price per share, and redemption price per share ($6,996,931 DIVIDED
BY 483,874 shares outstanding).............................................................. $ 14.46
----------
----------
Net assets consist of:
Paid in capital (Note 4)................................................................... $47,321,830
Undistributed net investment income........................................................ 147,120
Accumulated net realized gain on investments and foreign currency transactions............. 4,932,520
Net unrealized depreciation on translation of assets and liabilities in foreign
currencies................................................................................ (378,675)
Net unrealized appreciation of investments................................................. 10,854,842
----------
Total -- representing net assets applicable to capital shares outstanding.................... $62,877,637
----------
----------
<FN>
- --------------
* On sales of $50,000 or more, the offering price is reduced.
+ Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-57
<PAGE> 993
STATEMENT OF OPERATIONS
Year ended October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment income: (Note 1)
Dividend income (net of foreign withholding tax of $181,399)............................... $1,666,460
Interest income............................................................................ 396,324
Securities lending income.................................................................. 45,192
----------
Total investment income.................................................................. 2,107,976
----------
Expenses:
Investment management and administration fees (Note 2)..................................... 822,356
Service and distribution expenses: (Note 2)
Class A....................................................................... $ 157,270
Class B....................................................................... 451,823 609,093
---------
Transfer agent fees (Note 2)............................................................... 300,290
Professional fees.......................................................................... 93,695
Printing and postage expenses.............................................................. 73,214
Registration and filing fees............................................................... 72,670
Custodian fees............................................................................. 39,785
Fund accounting fees (Note 2).............................................................. 22,640
Trustees' fees and expenses (Note 2)....................................................... 13,870
Amortization of organization costs (Note 1)................................................ 10,300
Other expenses............................................................................. 6,446
----------
Total expenses before reductions......................................................... 2,064,359
----------
Expenses reimbursed by A I M Advisors, Inc. (Note 2)................................... (193,053)
Expense reductions (Note 5)............................................................ (7,816)
----------
Total net expenses....................................................................... 1,863,490
----------
Net investment income........................................................................ 244,486
----------
Net realized and unrealized gain (loss) on investments and foreign currencies:
(Note 1)
Net realized gain on investments................................................ 4,932,911
Net realized loss on foreign currency transactions.............................. (76,810)
---------
Net realized gain during the year........................................................ 4,856,101
Net change in unrealized depreciation on translation of assets and liabilities
in foreign currencies.......................................................... (333,974)
Net change in unrealized appreciation of investments............................ (7,919,952)
---------
Net unrealized depreciation during the year.............................................. (8,253,926)
----------
Net realized and unrealized loss on investments and foreign currencies....................... (3,397,825)
----------
Net decrease in net assets resulting from operations......................................... $(3,153,339)
----------
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-58
<PAGE> 994
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
YEAR ENDED OCTOBER
OCTOBER 31, 31,
1998 1997
----------- ----------
<S> <C> <C>
Increase (decrease) in net assets
Operations:
Net investment income (loss)................................................... $ 244,486 $ (405,469)
Net realized gain on investments and foreign currency transactions............. 4,856,101 778,612
Net change in unrealized depreciation on translation of assets and liabilities
in foreign currencies......................................................... (333,974) (116,926)
Net change in unrealized appreciation (depreciation) of investments............ (7,919,952) 8,647,635
----------- ----------
Net increase (decrease) in net assets resulting from operations.............. (3,153,339) 8,903,852
----------- ----------
Class A:
Distributions to shareholders: (Note 1)
From net realized gain on investments.......................................... (275,162) (1,943,050)
Class B:
Distributions to shareholders: (Note 1)
From net realized gain on investments.......................................... (454,982) (2,733,339)
Advisor Class:
Distributions to shareholders: (Note 1)
From net realized gain on investments.......................................... (39,917) (17,129)
----------- ----------
Total distributions.......................................................... (770,061) (4,693,518)
----------- ----------
Capital share transactions: (Note 4)
Increase from capital shares sold and reinvested............................... 15,304,011 44,324,471
Decrease from capital shares repurchased....................................... (46,522,033) (42,934,337)
----------- ----------
Net increase (decrease) from capital share transactions...................... (31,218,022) 1,390,134
----------- ----------
Total increase (decrease) in net assets.......................................... (35,141,422) 5,600,468
Net assets:
Beginning of year.............................................................. 98,019,059 92,418,591
----------- ----------
End of year *.................................................................. $62,877,637 $98,019,059
----------- ----------
----------- ----------
* Includes undistributed net investment income of............................. $ 147,120 $ --
----------- ----------
----------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-59
<PAGE> 995
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------
MAY 31, 1994
YEAR ENDED OCTOBER 31, (COMMENCEMENT OF
---------------------------------------------- OPERATIONS) TO
1998 (d) 1997 (d) 1996 (d) 1995 OCTOBER 31, 1994
---------- ---------- ---------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 15.01 $ 14.42 $ 12.11 $ 12.47 $ 11.43
---------- ---------- ---------- ---------- -----------------
Income from investment operations:
Net investment income (loss).......... 0.07* (0.01) (0.03) (0.03) ** 0.01* * *
Net realized and unrealized gain
(loss) on investments................ (0.79) 1.32 2.34 (0.33) 1.03
---------- ---------- ---------- ---------- -----------------
Net increase (decrease) from
investment operations.............. (0.72) 1.31 2.31 (0.36) 1.04
---------- ---------- ---------- ---------- -----------------
Distributions to shareholders:
From net realized gain on
investments.......................... (0.11) (0.72) -- -- --
---------- ---------- ---------- ---------- -----------------
Total distributions................. (0.11) (0.72) -- -- --
---------- ---------- ---------- ---------- -----------------
Net asset value, end of period.......... $ 14.18 $ 15.01 $ 14.42 $ 12.11 $ 12.47
---------- ---------- ---------- ---------- -----------------
---------- ---------- ---------- ---------- -----------------
Total investment return (c)............. (4.82)% 9.38% 19.08% (2.89)% 9.10% (b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 23,531 $ 38,281 $ 38,397 $ 36,241 $ 23,615
Ratio of net investment income (loss) to
average net assets:
With expense reductions and
reimbursement (Notes 2 & 5).......... 0.52% (0.09)% (0.19)% (0.32)% 0.41% (a)
Without expense reductions and
reimbursement........................ 0.28% (0.17)% (0.30)% (0.58)% (0.47)% (a)
Ratio of expenses to average net assets:
With expense reductions and
reimbursement (Notes 2 & 5).......... 1.99% 2.00% 2.14% 2.36% 2.40% (a)
Without expense reductions and
reimbursement........................ 2.23% 2.08% 2.25% 2.62% 3.28% (a)
Portfolio turnover rate++............... 96% 41% 41% 45% 18%
</TABLE>
- ----------------
(a) Annualized
(b) Not Annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
* Before reimbursement the net investment income per share would have
been reduced by $0.03 for Class A shares, $0.03 for Class B shares,
and $0.04 for Advisor Class shares.
* * Before reimbursement the net investment income per share would have
been reduced by $0.03 for Class A shares, $0.03 for Class B shares,
and $0.02 for Advisor Class shares.
* * * Before reimbursement the net investment income per share would have
been reduced by $0.02 for Class A and Class B from May 31, 1994 to
October 31, 1994.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates are calculated on the basis of the Portfolio
as a whole without distinguishing between the classes of shares
issued.
The accompanying notes are an integral part of the financial statements.
FS-60
<PAGE> 996
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------------------------------
MAY 31, 1994
YEAR ENDED OCTOBER 31, (COMMENCEMENT OF
---------------------------------------------- OPERATIONS) TO
1998 (d) 1997 (d) 1996 (d) 1995 OCTOBER 31, 1994
---------- ---------- ---------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 14.75 $ 14.24 $ 12.03 $ 12.45 $ 11.43
---------- ---------- ---------- ---------- -----------------
Income from investment operations:
Net investment income (loss).......... --* (0.09) (0.09) (0.09) ** (0.01) * * *
Net realized and unrealized gain
(loss) on investments................ (0.77) 1.32 2.30 (0.33) 1.03
---------- ---------- ---------- ---------- -----------------
Net increase (decrease) from
investment operations.............. (0.77) 1.23 2.21 (0.42) 1.02
---------- ---------- ---------- ---------- -----------------
Distributions to shareholders:
From net realized gain on
investments.......................... (0.11) (0.72) -- -- --
---------- ---------- ---------- ---------- -----------------
Total distributions................. (0.11) (0.72) -- -- --
---------- ---------- ---------- ---------- -----------------
Net asset value, end of period.......... $ 13.87 $ 14.75 $ 14.24 $ 12.03 $ 12.45
---------- ---------- ---------- ---------- -----------------
---------- ---------- ---------- ---------- -----------------
Total investment return (c)............. (5.31)% 8.83% 18.37% (3.37)% 8.92% (b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 32,349 $ 57,199 $ 53,678 $ 50,181 $ 30,954
Ratio of net investment income (loss) to
average net assets:
With expense reductions and
reimbursement (Notes 2 & 5).......... 0.02% (0.59)% (0.69)% (0.82)% (0.09)% (a)
Without expense reductions and
reimbursement........................ (0.22)% (0.67)% (0.80)% (1.08)% (0.97)% (a)
Ratio of expenses to average net assets:
With expense reductions and
reimbursement (Notes 2 & 5).......... 2.49% 2.50% 2.64% 2.86% 2.90% (a)
Without expense reductions and
reimbursement........................ 2.73% 2.58% 2.75% 3.12% 3.78% (a)
Portfolio turnover rate++............... 96% 41% 41% 45% 18%
</TABLE>
- ----------------
(a) Annualized
(b) Not Annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
* Before reimbursement the net investment income per share would have
been reduced by $0.03 for Class A shares, $0.03 for Class B shares,
and $0.04 for Advisor Class shares.
* * Before reimbursement the net investment income per share would have
been reduced by $0.03 for Class A shares, $0.03 for Class B shares,
and $0.02 for Advisor Class shares.
* * * Before reimbursement the net investment income per share would have
been reduced by $0.02 for Class A and Class B from May 31, 1994 to
October 31, 1994.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates are calculated on the basis of the Portfolio
as a whole without distinguishing between the classes of shares
issued.
The accompanying notes are an integral part of the financial statements.
FS-61
<PAGE> 997
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
ADVISOR CLASS+
---------------------------------------------------
JUNE 1, 1995
YEAR ENDED OCTOBER 31, TO
------------------------------------ OCTOBER 31,
1998 (d) 1997 (d) 1996 (d) 1995
----------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 15.23 $ 14.52 $ 12.14 $ 12.00
----------- ----------- ---------- -------------
Income from investment operations:
Net investment income (loss).......... 0.16* 0.05 0.04 0.02* *
Net realized and unrealized gain
(loss) on investments................ (0.82) 1.38 2.34 0.12
----------- ----------- ---------- -------------
Net increase (decrease) from
investment operations.............. (0.66) 1.43 2.38 0.14
----------- ----------- ---------- -------------
Distributions to shareholders:
From net realized gain on
investments.......................... (0.11) (0.72) -- --
----------- ----------- ---------- -------------
Total distributions................. (0.11) (0.72) -- --
----------- ----------- ---------- -------------
Net asset value, end of period.......... $ 14.46 $ 15.23 $ 14.52 $ 12.14
----------- ----------- ---------- -------------
----------- ----------- ---------- -------------
Total investment return (c)............. (4.35)% 10.10% 19.60% 1.17%(b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 6,997 $ 2,539 $ 344 $ 216
Ratio of net investment income (loss) to
average net assets:
With expense reductions and
reimbursement (Notes 2 & 5).......... 1.02% 0.41% 0.31% 0.18%(a)
Without expense reductions and
reimbursement........................ 0.78% 0.33% 0.20% (0.08)%(a)
Ratio of expenses to average net assets:
With expense reductions and
reimbursement (Notes 2 & 5).......... 1.49% 1.50% 1.64% 1.86%(a)
Without expense reductions and
reimbursement........................ 1.73% 1.58% 1.75% 2.12%(a)
Portfolio turnover rate++............... 96% 41% 41% 45%
</TABLE>
- ----------------
(a) Annualized
(b) Not Annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
* Before reimbursement the net investment income per share would have
been reduced by $0.03 for Class A shares, $0.03 for Class B shares,
and $0.04 for Advisor Class shares.
* * Before reimbursement the net investment income per share would have
been reduced by $0.03 for Class A shares, $0.03 for Class B shares,
and $0.02 for Advisor Class shares.
* * * Before reimbursement the net investment income per share would have
been reduced by $0.02 for Class A and Class B from May 31, 1994 to
October 31, 1994.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates are calculated on the basis of the Portfolio
as a whole without distinguishing between the classes of shares
issued.
The accompanying notes are an integral part of the financial statements.
FS-62
<PAGE> 998
NOTES TO
FINANCIAL STATEMENTS
October 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (SEE ALSO NOTE 2)
AIM Global Infrastructure Fund (the "Fund"), formerly GT Global Infrastructure
Fund, is a separate series of AIM Investment Funds (the "Trust"), formerly G.T.
Investment Funds, Inc. The Trust is organized as a Delaware business trust and
is registered under the Investment Company Act of 1940, as amended ("1940 Act"),
as an open-end management investment company. The Trust has thirteen series of
shares in operation, each series corresponding to a distinct portfolio of
investments.
The Fund invests substantially all of its investable assets in Global
Infrastructure Portfolio, (the "Portfolio"). The Portfolio is organized as a
subtrust of Global Investment Portfolio, a Delaware business trust and is
registered under the 1940 Act as an open-end management investment company.
The Portfolio has investment objectives, policies, and limitations substantially
identical to those of its corresponding Fund. Therefore, the financial
statements of the Fund and Portfolio have been presented on a consolidated
basis, and represent all activities of both the Fund and Portfolio. Through
October 31, 1998, all of the shares of beneficial interest of the Portfolio were
owned by either the Fund or A I M Advisors, Inc. (the "Manager"), which has a
nominal ($100) investment in the Portfolio.
The Fund offers Class A, Class B, and Advisor Class shares, each of which has
equal rights as to assets and voting privileges except that Class A and Class B
each has exclusive voting rights with respect to its distribution plan.
Investment income, realized and unrealized capital gains and losses, and the
common expenses of the Fund are allocated on a pro rata basis to each class
based on the relative net assets of each class to the total net assets of the
Fund. Each class of shares differs in its respective service and distribution
expenses, and may differ in its transfer agent, registration, and certain other
class-specific fees and expenses.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies in conformity with generally accepted accounting
principles consistently followed by the Fund in the preparation of the financial
statements.
(A) PORTFOLIO VALUATION
The Fund calculates the net asset value of and completes orders to purchase,
exchange or repurchase Fund shares on each business day, with the exception of
those days on which the New York Stock Exchange is closed.
Equity securities are valued at the last sale price on the exchange on which
such securities are traded, or on the principal over-the-counter market on which
such securities are traded, as of the close of business on the day the
securities are being valued, or, lacking any sales, at the last available bid
price. In cases where securities are traded on more than one exchange, the
securities are valued on the exchange determined by the Manager to be the
primary market.
Fixed income investments are valued at the mean of representative quoted bid and
ask prices for such investments or, if such prices are not available, at prices
for investments of comparative maturity, quality and type; however, when the
Manager deems it appropriate, prices obtained for the day of valuation from a
bond pricing service will be used. Short-term investments are valued at
amortized cost adjusted for foreign exchange translation and market fluctuation,
if any.
Investments for which market quotations are not readily available (including
restricted securities which are subject to limitations on their sale) are valued
at fair value as determined in good faith by or under the direction of the
Trust's Board of Trustees.
Portfolio securities which are primarily traded on foreign exchanges are
generally valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S. dollars at
the current exchange rates, except that when an occurrence subsequent to the
time a value was so established is likely to have materially changed such value,
then the fair value of those securities will be determined by consideration of
other factors by or under the direction of the Trust's Board of Trustees.
(B) FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund and Portfolio are maintained in U.S. dollars.
The market values of foreign securities, currency holdings, and other assets and
liabilities are recorded in the books and records of the Portfolio after
translation to U.S. dollars based on the exchange rates on that day. The cost of
each security is determined using historical exchange rates. Income and
withholding taxes are translated at prevailing exchange rates when earned or
incurred.
The Portfolio does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, forward foreign currency contracts, sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Portfolio's books and the U.S. dollar equivalent of the amounts actually
received or paid. Net unrealized foreign exchange gains or losses arise from
changes in the value of assets and liabilities other than investments in
securities at year end, resulting from changes in exchange rates.
(C) REPURCHASE AGREEMENTS
With respect to repurchase agreements entered into by the Portfolio, it is the
Portfolio's policy to always receive, as collateral, United States government
securities or other high quality debt securities of which the value, including
accrued interest, is at least equal to the amount to be repaid to the Portfolio
under each agreement at its maturity.
FS-63
<PAGE> 999
(D) FORWARD FOREIGN CURRENCY CONTRACTS
A forward foreign currency contract ("Forward Contract") is an agreement between
two parties to buy and sell a currency at a set price on a future date. The
market value of the Forward Contract fluctuates with changes in currency
exchange rates. The Forward Contract is marked-to-market daily and the change in
market value is recorded by the Portfolio as an unrealized gain or loss. When
the Forward Contract is closed, the Portfolio records a realized gain or loss
equal to the difference between the value at the time it was opened and the
value at the time it was closed. Forward Contracts involve market risk in excess
of the amount shown in the Portfolio's "Statement of Assets and Liabilities".
The Portfolio could be exposed to risk if a counter party is unable to meet the
terms of the contract or if the value of the currency changes unfavorably. The
Portfolio may enter into Forward Contracts in connection with planned purchases
or sales of securities, or to hedge against adverse fluctuations in exchange
rates between currencies.
(E) OPTION ACCOUNTING PRINCIPLES
When the Portfolio writes a call or put option, an amount equal to the premium
received is included in the Portfolio's "Statement of Assets and Liabilities" as
an asset and an equivalent liability. The amount of the liability is
subsequently marked-to-market to reflect the current market value of the option.
The current market value of an option listed on a traded exchange is valued at
its last bid price, or, in the case of an over-the-counter option, is valued at
the average of the last bid prices obtained from brokers, unless a quotation
from only one broker is available, in which case only that broker's price will
be used. If an option expires on its stipulated expiration date or if the
Portfolio enters into a closing purchase transaction, a gain or loss is realized
without regard to any unrealized gain or loss on the underlying security and the
liability related to such option is extinguished. If a written call option is
exercised, a gain or loss is realized from the sale of the underlying security
and the proceeds of the sale are increased by the premium originally received.
If a written put option is exercised, the cost of the underlying security
purchased would be decreased by the premium originally received. The Portfolio
can write options only on a covered basis, which, for a call, requires that the
Portfolio hold the underlying security and, for a put, requires the Portfolio to
set aside cash, U.S. government securities or other liquid securities in an
amount not less than the exercise price, or otherwise provide adequate cover at
all times while the put option is outstanding. The Portfolio may use options to
manage its exposure to the stock market and to fluctuations in currency values
or interest rates.
The premium paid by the Portfolio for the purchase of a call or put option is
included in the Portfolio's "Statement of Assets and Liabilities" as an
investment and subsequently "marked-to-market" to reflect the current market
value of the option. If an option which the Portfolio has purchased expires on
the stipulated expiration date, the Portfolio realizes a loss in the amount of
the cost of the option. If the Portfolio enters into a closing sale transaction,
the Portfolio realizes a gain or loss, depending on whether proceeds from the
closing sale transaction are greater or less than the cost of the option. If the
Portfolio exercises a call option, the cost of the securities acquired by
exercising the call is increased by the premium paid to buy the call. If the
Portfolio exercises a put option, it realizes a gain or loss from the sale of
the underlying security, and the proceeds from such sale are decreased by the
premium originally paid.
The risk associated with purchasing options is limited to the premium originally
paid. The risk in writing a call option is that the Portfolio may forego the
opportunity of profit if the market value of the underlying security or index
increases and the option is exercised. The risk in writing a put option is that
the Portfolio may incur a loss if the market value of the underlying security or
index decreases and the option is exercised. In addition, there is the risk the
Portfolio may not be able to enter into a closing transaction because of an
illiquid secondary market.
(F) FUTURES CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
security at a set price on a future date. Upon entering into such a contract the
Portfolio is required to pledge to the broker an amount of cash or securities
equal to the minimum "initial margin" requirements of the exchange on which the
contract is traded. Pursuant to the contract, the Portfolio agrees to receive
from or pay to the broker an amount of cash equal to the daily fluctuation in
value of the contract. Such receipts or payments are known as "variation margin"
and are recorded by the Portfolio as unrealized gains or losses. When the
contract is closed, the Portfolio records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed. The potential risk to the Portfolio is that the
change in value of the underlying securities may not correlate to the change in
value of the contracts. The Portfolio may use futures contracts to manage its
exposure to the stock market and to fluctuations in currency values or interest
rates.
(G) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). The cost of securities sold is determined on a first-in,
first-out-basis, unless otherwise specified. Dividends are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. Where a high
level of uncertainty exists as to its collection, income is recorded net of all
withholding tax with any rebate recorded when received. The Portfolio may trade
securities on other than normal settlement terms. This may increase the risk if
the other party to the transaction fails to deliver and causes the Portfolio to
subsequently invest at less advantageous prices.
(H) PORTFOLIO SECURITIES LOANED
At October 31, 1998, stocks with an aggregate value of $9,982,375 were on loan
to brokers. The loans were secured by cash collateral of $10,007,255 received by
the Portfolio. For the year ended October 31, 1998, the Fund received fees of
$45,192.
For international securities, cash collateral is received by the Portfolio
against loaned securities in an amount at least equal to 105% of the market
value of the loaned securities at the inception of each loan. This collateral
must be maintained at not less than 103% of the market value of the loaned
securities during the period of the loan. For domestic securities, cash
collateral is received by the Portfolio against loaned securities in the amount
at least equal to 102% of the market value of the loaned securities at the
inception of each loan. This collateral must be maintained at not less than 100%
of the market value of the loaned securities during the period of the loan. The
cash collateral is invested in a securities lending trust which consists of a
portfolio of high quality short duration securities whose average effective
duration is restricted to 120 days or less.
FS-64
<PAGE> 1000
(I) TAXES
It is the intended policy of the Fund to meet the requirements for qualification
as a "regulated investment company" under the Internal Revenue Code of 1986, as
amended ("Code"). It is also the intention of the Fund to make distributions
sufficient to avoid imposition of any excise tax under Section 4982 of the Code.
Therefore, no provision has been made for Federal taxes on income, capital
gains, unrealized appreciation of securities held, or excise tax on income and
capital gains.
(J) DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded by the Fund on the ex-date. Income
and capital gain distributions are determined in accordance with Federal income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Portfolio and timing differences.
(K) DEFERRED ORGANIZATIONAL EXPENSES
Expenses incurred by the Fund in connection with its organization, its initial
registration with the Securities and Exchange Commission and with various states
and the initial public offering of its shares aggregated $51,500. These expenses
are being amortized on a straightline basis over a five-year period.
(L) FOREIGN SECURITIES
There are certain additional considerations and risks associated with investing
in foreign securities and currency transactions that are not inherent in
investments of domestic origin. The Portfolio's investment in emerging market
countries may involve greater risks than investments in more developed markets
and the price of such investments may be volatile. These risks of investing in
foreign and emerging markets may include foreign currency exchange rate
fluctuations, perceived credit risk, adverse political and economic developments
and possible adverse foreign government intervention.
In addition, the Portfolio's policy of concentrating its investments in
companies in the infrastructure industry subject the Portfolio to greater risk
than a fund that is more diversified.
(M) INDEXED SECURITIES
The Portfolio may invest in indexed securities whose value is linked either
directly or indirectly to changes in foreign currencies, interest rates,
equities, indices, or other reference instruments. Indexed securities may be
more volatile than the reference instrument itself, but any loss is limited to
the amount of the original investment.
(N) RESTRICTED SECURITIES
The Portfolio is permitted to invest in privately placed restricted securities.
These securities may be resold in transactions exempt from registration or to
the public if the securities are registered. Disposal of these securities may
involve time-consuming negotiations and expense, and prompt sale at an
acceptable price may be difficult. At the end of the year, restricted
securities, if any, (excluding 144A issues), are shown at the end of the Fund's
Portfolio of Investments.
(O) LINE OF CREDIT
The Fund, along with certain other funds advised and/or administered by the
Manager, has a line of credit with each of BankBoston and State Street Bank and
Trust Company. The arrangements with the banks allow the Fund and certain other
Funds to borrow, on a first come, first serve basis, an aggregate maximum amount
of $250,000,000. The Fund is limited to borrowing up to 33 1/3% of the value of
the Fund's total assets. There were no loans throughout the year. On October 31,
1998, the Fund had no loans outstanding.
2. RELATED PARTIES
A I M Advisors, Inc. (the "Manager"), an indirect wholly-owned subsidiary of
AMVESCAP PLC, is the Fund's and Portfolio's investment manager and
administrator. As of the close of business on May 29, 1998, Liechtenstein Global
Trust AG ("LGT"), the former indirect parent organization of Chancellor LGT
Asset Management, Inc. ("Chancellor LGT") consummated a purchase agreement with
AMVESCAP PLC pursuant to which AMVESCAP PLC acquired LGT's Asset Management
Division, which included Chancellor LGT and certain other affiliates. A I M
Distributors, Inc. ("AIM Distributors"), a wholly-owned subsidiary of the
Manager, is the Fund's distributor as of the close of business on May 29, 1998.
The Trust was reorganized from a Maryland corporation into a Delaware business
trust, and the Portfolio was reorganized from a New York common law trust into a
Delaware business trust on September 8, 1998. Finally, as of the close of
business on September 4, 1998, A I M Fund Services, Inc. ("AFS"), an affiliate
of the Manager and AIM Distributors, replaced GT Global Investor Services, Inc.
("GT Services") as the transfer agent of the Fund.
The Fund pays the Manager administration fees at the annualized rate of 0.25% of
such Fund's average daily net assets. The Portfolio pays investment management
and administration fees to the Manager at the annualized rate of 0.725% on the
first $500 million of average daily net assets of the Portfolio; 0.70% on the
next $500 million; 0.675% on the next $500 million; and 0.65% on amounts
thereafter. These fees are computed daily and paid monthly.
AIM Distributors, an affiliate of the Manager, serves as the Fund's distributor.
For the period ended May 29, 1998, GT Global, Inc. ("GT Global") served as the
Fund's distributor. The Fund offers Class A, Class B, and Advisor Class shares
for purchase.
Class A shares are subject to initial sales charges imposed at the time of
purchase, in accordance with the schedule included in the Fund's current
prospectus. AIM Distributors collects the sales charges imposed on sales of
Class A shares, and reallows a portion of such charges to dealers through which
the sales are made. For the year ended October 31, 1998, AIM Distributors and GT
Global retained sales charges of $1,469 and $3,607, respectively. Purchases of
Class A shares exceeding $1,000,000 may be subject to a contingent deferred
sales charge ("CDSC") upon redemption, in accordance with the Fund's current
prospectus. AIM Distributors and GT Global collected no CDSCs for the year ended
October 31, 1998. AIM Distributors also makes ongoing shareholder servicing and
trail commission payments to dealers whose clients hold Class A shares.
Class B shares are not subject to initial sales charges. When Class B shares are
sold, AIM Distributors, from its own resources, pays commissions to dealers
through which the sales are made. Certain redemptions of Class B shares made
within six years of purchase are subject to CDSCs, in accordance with the Fund's
current prospectus. For the year ended October 31, 1998, AIM Distributors and GT
Global collected CDSCs in the amount of $108,570 and $244,354, respectively. In
addition, AIM Distributors makes ongoing shareholder servicing and trail
commission payments to dealers whose clients hold Class B shares.
For the period ended May 29, 1998, pursuant to the then effective separate
distribution plans adopted under the 1940 Act Rule 12b-1 by
FS-65
<PAGE> 1001
the Trust's Board of Trustees with respect to the Fund's Class A shares ("Class
A Plan") and Class B shares ("Class B Plan"), the Fund reimbursed GT Global for
a portion of its shareholder servicing and distribution expenses. Under the
Class A Plan, the Fund was permitted to pay GT Global a service fee at the
annualized rate of up to 0.25% of the average daily net assets of the Fund's
Class A shares for GT Global's expenditures incurred in servicing and
maintaining shareholder accounts, and was permitted to pay GT Global a
distribution fee at the annualized rate of up to 0.50% of the average daily net
assets of the Fund's Class A shares, less any amounts paid by the Fund as the
aforementioned service fee, for GT Global's expenditures incurred in providing
services as distributor. All expenses for which GT Global was reimbursed under
the Class A Plan would have been incurred within one year of such reimbursement.
For the period ended May 29, 1998, pursuant to the Class B Plan, the Fund was
permitted to pay GT Global a service fee at the annualized rate of up to 0.25%
of the average daily net assets of the Fund's Class B shares for GT Global's
expenditures incurred in servicing and maintaining shareholder accounts, and was
permitted to pay GT Global a distribution fee at the annualized rate of up to
0.75% of the average daily net assets of the Fund's Class B shares for GT
Global's expenditures incurred in providing services as distributor. Expenses
incurred under the Class B Plan in excess of 1.00% annually were permitted to be
carried forward for reimbursement in subsequent years as long as that Plan
continued in effect.
Effective as of the close of business May 29, 1998, pursuant to Rule 12b-1 under
the 1940 Act, the Trust's Board of Trustees adopted a Master Distribution Plan
applicable to the Fund's Class A shares ("Class A Plan") and Class B shares
("Class B Plan"), pursuant to which the Fund compensates AIM Distributors for
the purpose of financing any activity that is intended to result in the sale of
Class A or Class B shares of the Fund. Under the Class A Plan, the Fund
compensates AIM Distributors at the annualized rate of 0.50% of the average
daily net assets of the Fund's Class A shares. Under the Class B Plan, the Fund
compensates AIM Distributors at an annualized rate of 1.00% of the average daily
net assets of the Fund's Class B shares.
The Class A Plan and the Class B Plan (together, the "Plans") are designed to
compensate AIM Distributors for certain promotional and other sales-related
costs, and to implement a dealer incentive program that provides for periodic
payments to selected dealers who furnish continuing personal shareholder
services to their customers who purchase and own Class A and Class B shares of
the Fund. Payments also can be directed by AIM Distributors to Financial
Institutions who have entered into service agreements with respect to Class A
and Class B shares of the Fund and who provide continuing personal services to
their customers who own Class A and Class B shares of the Fund. The service fees
payable to selected Financial 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 that were purchased on or after a
prescribed date set forth in the Plans.
The Manager and AIM Distributors voluntarily have undertaken to limit the Fund's
expenses (exclusive of brokerage commissions, taxes, interest, and extraordinary
expense) to the maximum annual rate of 2.00%, 2.50%, and 1.50% of the average
daily net assets of the Fund's Class A, Class B, and Advisor Class shares,
respectively. If necessary, this limitation will be effected by waivers by the
Manager of investment management and administration fees, waivers by AIM
Distributors of payments under the Class A Plan and/or Class B Plan and/or
reimbursements by the Manager or AIM Distributors of portions of the Fund's
other operating expenses.
Effective as of the close of business September 4, 1998, the Fund, pursuant to a
transfer agency and service agreement, has agreed to pay A I M Fund Services,
Inc. ("AFS") an annualized fee of $24.85 per shareholder accounts that are open
during any monthly period (this fee includes all out-of-pocket expenses), and an
annualized fee of $0.70 per shareholder account that is closed during any
monthly period. Both fees shall be billed by AFS monthly in arrears on a
prorated basis of 1/12 of the annualized fee for all such accounts.
For the period November 1, 1997 to September 4, 1998, GT Services, an affiliate
of the Manager and AIM Distributors, was the transfer agent of the Fund. For
performing shareholder servicing, reporting, and general transfer agent
services, GT Services received an annual maintenance fee of $17.50 per account,
a new account fee of $4.00 per account, a per transaction fee of $1.75 for all
transactions other than exchanges and a per exchange fee of $2.25. GT Services
also was reimbursed by the Fund for its out-of-pocket expenses for such items as
postage, forms, telephone charges, stationery and office supplies.
The Manager is the pricing and accounting agent for the Fund and Portfolio. The
monthly fee for these services paid to the Manager is a percentage, not to
exceed 0.03% annually, of a Fund's average daily net assets. The annual fee rate
is derived 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% to 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.
The Trust pays each Trustee who is not an employee, officer or director of the
Manager, or any other affiliated company, $5,000 per year plus $300 for each
meeting of the board or any committee thereof attended by the Trustee.
3. PURCHASES AND SALES OF SECURITIES
For the year ended October 31, 1998, purchases and sales of investment
securities by the Portfolio, other than U.S. government obligations and
short-term investments, aggregated $73,625,025 and $110,306,469, respectively.
For the year ended October 31, 1998, there were no purchases and sales of U.S.
government obligations.
FS-66
<PAGE> 1002
4. CAPITAL SHARES
At October 31, 1998, there were 6,000,000,000 shares of the Trust's common stock
authorized, at $0.0001 par value. Of this amount, 400,000,000 were classified as
shares of the AIM Global Telecommunications Fund; 400,000,000 were classified as
shares of AIM Global Government Income Fund; 200,000,000 were classified as
shares of AIM Global Health Care Fund; 200,000,000 were classified as shares of
AIM Strategic Income Fund; 200,000,000 were classified as shares of AIM
Developing Markets Fund; 200,000,000 were classified as shares of GT Global
Currency Fund (inactive); 200,000,000 were classified as shares of AIM Global
Growth & Income Fund; 200,000,000 were classified as shares of GT Global Small
Companies Fund (inactive); 200,000,000 were classified as shares of AIM Latin
American Growth Fund; 200,000,000 were classified as shares of AIM Emerging
Markets Fund; 200,000,000 were classified as shares of AIM Emerging Markets Debt
Fund; 200,000,000 were classified as shares of AIM Global Financial Services
Fund; 200,000,000 were classified as shares of AIM Global Resources Fund;
200,000,000 were classified as shares of AIM Global Infrastructure Fund;
200,000,000 were classified as shares of AIM Global Consumer Products and
Services Fund. The shares of each of the foregoing series of the Trust's were
divided equally into two classes, designated Class A and Class B common stock.
With respect to the issuance of Advisor Class shares, 100,000,000 shares were
classified as shares of each of the fifteen series of the Trust's and designated
as Advisor Class common stock. 1,100,000,000 shares remain unclassified.
Transactions in capital shares of the Fund were as follows:
CAPITAL SHARE TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997
------------------------- -------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold................................................. 127,344 $ 1,959,159 1,282,535 $ 19,272,428
Shares issued in connection with reinvestment of
distributions............................................. 16,842 254,490 123,795 1,776,449
----------- ------------ ----------- ------------
144,186 2,213,649 1,406,330 21,048,877
Shares repurchased.......................................... (1,036,046) (15,749,628) (1,518,962) (23,157,570)
----------- ------------ ----------- ------------
Net decrease................................................ (891,860) $(13,535,979) (112,632) $ (2,108,693)
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
<CAPTION>
CLASS B
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold................................................. 378,526 $ 5,629,835 1,233,796 $ 18,394,879
Shares issued in connection with reinvestment of
distributions............................................. 24,629 365,775 164,966 2,337,575
----------- ------------ ----------- ------------
403,155 5,995,610 1,398,762 20,732,454
Shares repurchased.......................................... (1,949,017) (28,654,028) (1,288,192) (19,574,097)
----------- ------------ ----------- ------------
Net increase (decrease)..................................... (1,545,862) $(22,658,418) 110,570 $ 1,158,357
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
<CAPTION>
ADVISOR CLASS
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold................................................. 454,559 $ 7,054,949 154,643 $ 2,526,548
Shares issued in connection with reinvestment of
distributions............................................. 2,594 39,803 1,147 16,592
----------- ------------ ----------- ------------
457,153 7,094,752 155,790 2,543,140
Shares repurchased.......................................... (139,981) (2,118,377) (12,773) (202,670)
----------- ------------ ----------- ------------
Net increase................................................ 317,172 $ 4,976,375 143,017 $ 2,340,470
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
</TABLE>
5. EXPENSE REDUCTIONS
The Manager has directed certain portfolio trades to brokers who then paid a
portion of the Portfolio's expenses. For the year ended October 31, 1998, the
Portfolio's expenses were reduced by $7,816 under these arrangements.
FS-67
<PAGE> 1003
6. PROXY RESULTS (UNAUDITED)
The Special Meeting of Shareholders of the G.T. Investment Funds, Inc., now
known as AIM Investment Funds (the "Trust") was held on May 20, 1998 at the
Trust's offices, 50 California Street, 26th Floor, San Francisco, California.
The meeting was held for the following purposes:
(1) To elect Trustees as follows: C. Derek Anderson, Frank S. Bayley, William
J. Guilfoyle, Arthur C. Patterson, Ruth H. Quigley.
(2) To approve a new Investment Management and Administration Contract and
Sub-Advisory and Sub-Administration Contract with respect to each series of
the Trust (each, a "Fund," and collectively, the "Funds").
(3) To approve replacement Rule 12b-1 plans of distribution with respect to
Class A and B Shares of the Fund.
(4) To approve changes to the fundamental investment restrictions of the Fund.
(5) To approve an agreement and plan of conversion and termination for the
Trust.
(6) To approve the conversion of the portfolios in which certain Funds invest
to Delaware business trusts.
(7) To ratify the selection of Coopers & Lybrand L.L.P., now known as
PricewaterhouseCoopers LLP, as the Trust's independent public accountants.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
TRUSTEE/MATTER
------------------------------------------------------------------------------------------------------------------
<S> <C>
(1) C. Derek Anderson.................................................................................................
Frank S. Bayley...................................................................................................
William J. Guilfoyle..............................................................................................
Arthur C. Patterson...............................................................................................
Ruth H. Quigley...................................................................................................
(2)(a) Approval of investment management and administration contract.....................................................
(2)(b) Approval of sub-advisory and sub-administration contract..........................................................
(3) Approval of replacement Rule 12b-1 plans of distribution
CLASS A SHARES....................................................................................................
CLASS B SHARES....................................................................................................
(4)(a) Modification of Fundamental Restriction on Portfolio Diversification..............................................
(4)(b) Modification of Fundamental Restriction on Issuing Senior Securities and Borrowing Money..........................
(4)(c) Modification of Fundamental Restriction on Making Loans...........................................................
(4)(d) Modification of Fundamental Restriction on Underwriting Securities................................................
(4)(e) Modification of Fundamental Restriction on Real Estate Investments................................................
(4)(f) Modification of Fundamental Restriction on Investing in Commodities...............................................
(4)(g) Elimination of Fundamental Restriction on Margin Transactions.....................................................
(4)(h) Elimination of Fundamental Restriction on Pledging Assets.........................................................
(4)(i) Elimination of Fundamental Restriction on Investments in Oil, Gas and Mineral Leases and Programs.................
(5) Approval of an agreement and plan of conversion and termination with respect to the Company.......................
(6) Approval of the conversion of the portfolios in which certain Funds invest........................................
(7) Ratification of the selection of Coopers and Lybrand L.L.P., now known as PricewaterhouseCoopers LLP, as the
Trust's independent public accountants..........................................................................
<CAPTION>
VOTES WITHHELD/
VOTES FOR AGAINST ABSTENTIONS
--------------- ------------ --------------
<S> <C> <C> <C>
(1) 191,685,088 N/A 13,123,292
191,766,811 N/A 13,041,568
191,828,959 N/A 12,979,420
191,845,270 N/A 12,963,109
191,869,887 N/A 12,938,492
(2)(a) 2,456,601 64,860 710,610*
(2)(b) 2,435,836 77,094 719,142*
(3)
1,010,727 35,515 74,004
1,450,391 37,959 123,720
(4)(a) 2,406,080 95,041 730,950*
(4)(b) 2,406,080 95,041 730,950*
(4)(c) 2,406,080 95,041 730,950*
(4)(d) 2,406,080 95,041 730,950*
(4)(e) 2,406,080 95,041 730,950*
(4)(f) 2,406,080 95,041 730,950*
(4)(g) 2,406,080 95,041 730,950*
(4)(h) 2,406,080 95,041 730,950*
(4)(i) 2,406,080 95,041 730,950*
(5) 190,027,470 6,362,084 94,055,040*
(6) 2,429,777 61,704 740,590*
(7)
191,358,779 2,114,168 11,333,063
</TABLE>
- --------------
* Includes Broker Non-Votes
- --------------
FEDERAL TAX INFORMATION (UNAUDITED):
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$1,670,060 as capital gain dividends for the fiscal year ended October 31, 1998.
Pursuant to Section 854 of the Internal Revenue Code, the Fund designates 100%
of ordinary income dividends paid (including short-term capital gain
distributions, if any) by the Fund as income qualifying for the dividends
received deduction for corporations for the fiscal year ended October 31, 1998.
FS-68
<PAGE> 1004
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders of AIM Global Resources Fund (formerly GT Global Natural
Resources Fund) and Board of Trustees of AIM Investment Funds (formerly G.T.
Investment Funds, Inc.):
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Global Resources Fund -
Consolidated at October 31, 1998, and the results of its operations, the changes
in its net assets and the financial highlights for the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
------------------------------
PRICEWATERHOUSECOOPERS LLP
BOSTON, MASSACHUSETTS
DECEMBER 18, 1998
FS-69
<PAGE> 1005
PORTFOLIO OF INVESTMENTS
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Energy Sources (27.0%)
Exxon Corp. ................................................ US 21,900 $ 1,560,370 2.9
Mobil Corp. ................................................ US 19,600 1,483,475 2.8
Total Compagnie Francaise des Petroles S.A. - ADR{\/} ...... FR 24,700 1,444,950 2.7
Chevron Corp. .............................................. US 17,600 1,434,400 2.7
Santa Fe Energy Resources, Inc.-/- ......................... US 163,700 1,330,063 2.5
Ente Nazionale Idrocarburi (ENI) S.p.A. - ADR{\/} .......... ITLY 20,400 1,239,300 2.3
Amoco Corp. ................................................ US 20,800 1,167,400 2.2
ERG SpA .................................................... ITLY 373,000 1,124,237 2.1
Elf Aquitaine ADR{\/} ...................................... FR 19,000 1,102,000 2.1
Suncor Energy, Inc. ........................................ CAN 30,000 952,998 1.8
Repsol S.A. ................................................ SPN 11,900 597,493 1.1
Orogen Minerals Ltd. - 144A ADR{.} {\/} .................... AUSL 37,100 505,488 0.9
Triton Energy Ltd.-/- ...................................... US 43,900 477,413 0.9
-----------
14,419,587
-----------
Electrical & Gas Utilities (19.4%)
Montana Power Co. .......................................... US 26,000 1,126,125 2.1
AGL Resources, Inc. ........................................ US 50,000 1,046,875 1.9
Suburban Propane Partners L.P. ............................. US 46,000 868,250 1.6
Leviathan Gas Pipeline Partners L.P. ....................... US 24,900 638,063 1.2
Northern Border Partners L.P. .............................. US 18,100 633,500 1.2
Buckeye Partners L.P. ...................................... US 21,600 610,200 1.1
Lakehead Pipe Line Partners L.P. ........................... US 11,300 596,075 1.1
TEPPCO Partners L.P. ....................................... US 20,400 594,150 1.1
AmeriGas Partners L.P. ..................................... US 23,000 576,438 1.1
Ferrellgas Partners L.P. ................................... US 26,600 555,275 1.0
Kaneb Pipe Line Partners L.P. .............................. US 14,700 467,644 0.9
Pembina Pipeline Income Fund Trust Units{=} ................ CAN 80,500 443,598 0.8
Heritage Propane Partners L.P. ............................. US 17,800 409,400 0.8
TransCanada Power L.P. ..................................... CAN 22,800 407,961 0.8
Cornerstone Propane Partners L.P. .......................... US 19,600 404,250 0.7
Superior Propane Income Fund ............................... CAN 44,100 403,118 0.7
AEC Pipelines L.P. ......................................... CAN 66,000 374,392 0.7
The OPTUS Natural Gas Distribution Income Fund ............. CAN 20,000 306,645 0.6
-----------
10,461,959
-----------
Chemicals (10.5%)
Henkel KGaA Non-Voting Preferred ........................... GER 10,645 910,076 1.7
BASF AG .................................................... GER 20,400 865,253 1.6
Solutia, Inc. .............................................. US 35,400 776,588 1.4
Solvay S.A. "A" ............................................ BEL 7,900 619,789 1.2
Air Liquide ................................................ FR 3,600 602,841 1.1
Crompton & Knowles Corp. ................................... US 35,900 576,644 1.1
Potash Corporation of Saskatchewan, Inc.{\/} ............... CAN 8,200 568,875 1.1
Monsanto Co. ............................................... US 10,250 416,406 0.8
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-70
<PAGE> 1006
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Chemicals (Continued)
Tesoro Petroleum Corp. ..................................... US 17,700 $ 262,181 0.5
-----------
5,598,653
-----------
Misc. Materials & Commodities (8.3%)
USG Corp. .................................................. US 36,900 1,759,669 3.3
Martin Marietta Materials, Inc. ............................ US 27,900 1,368,844 2.5
Encore Wire Corp.-/- ....................................... US 46,425 516,478 1.0
Scheid Vineyards, Inc. "A" ................................. US 79,700 448,313 0.8
Fresh Del Monte Produce, Inc. .............................. US 12,300 219,863 0.4
Chiquita Brands International .............................. US 13,100 139,188 0.3
-----------
4,452,355
-----------
Cement (6.3%)
Southdown, Inc. ............................................ US 28,372 1,544,501 2.9
Lafarge S.A. ............................................... FR 13,200 1,350,019 2.5
Lafarge Corp. .............................................. US 14,600 491,838 0.9
-----------
3,386,358
-----------
Metals - Non-Ferrous (6.3%)
USEC, Inc.-/- .............................................. US 72,300 1,057,388 2.0
Aluminum Company of America (ALCOA) ........................ US 9,300 737,025 1.4
Rio Tinto PLC .............................................. UK 50,900 617,408 1.1
Phelps Dodge Corporation ................................... US 9,000 518,625 1.0
EdperBrascan Corp. "A" ..................................... CAN 27,819 407,591 0.8
-----------
3,338,037
-----------
Energy Equipment & Services (5.1%)
Enerflex Systems Ltd. ...................................... CAN 30,600 644,733 1.2
Stolt Comex Seaway S.A.: ................................... UK -- -- 1.1
Common-/- {\/} ........................................... -- 32,500 414,375 --
ADR-/- {\/} .............................................. -- 14,000 144,375 --
J. Ray McDermott S.A.-/- ................................... US 17,400 545,925 1.0
Coflexip - ADR{\/} ......................................... FR 10,100 486,063 0.9
Core Laboratories N.V.-/-{\/} .............................. NETH 21,500 485,094 0.9
-----------
2,720,565
-----------
Building Materials & Components (3.8%)
Centex Construction Products, Inc. ......................... US 25,400 854,075 1.6
Centex Corp. ............................................... US 21,400 716,900 1.3
Pulte Corp. ................................................ US 19,200 494,400 0.9
-----------
2,065,375
-----------
Gold (3.1%)
Barrick Gold Corp.{\/} ..................................... CAN 31,700 677,588 1.3
Freeport-McMoRan Copper & Gold, Inc. "B" ................... US 38,000 467,875 0.9
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-71
<PAGE> 1007
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Gold (Continued)
Placer Dome, Inc. .......................................... US 29,700 $ 467,775 0.9
-----------
1,613,238
-----------
Gas Production & Distribution (2.8%)
Coastal Corp. .............................................. US 42,600 1,501,650 2.8
-----------
Forest Products (2.6%)
Stora Kopparbergs Bergslags Aktiebolag (STORA) "A" ......... SWDN 46,280 510,332 0.9
Plum Creek Timber Company L.P. ............................. US 15,711 439,908 0.8
Crown Pacific Partners L.P. ................................ US 16,300 402,406 0.7
Doman Industries Ltd. "B"-/- ............................... CAN 117,130 95,678 0.2
-----------
1,448,324
-----------
Metals - Steel (2.6%)
IPSCO, Inc. ................................................ CAN 45,700 896,224 1.7
British Steel PLC - ADR{\/} ................................ UK 28,300 495,250 0.9
-----------
1,391,474
-----------
Consumer Services (0.4%)
United Road Services, Inc.-/- .............................. US 13,200 211,200 0.4
----------- -----
TOTAL EQUITY INVESTMENTS (cost $57,535,092) .................. 52,608,775 98.2
----------- -----
TOTAL INVESTMENTS (cost $57,535,092) * ...................... 52,608,775 98.2
Other Assets and Liabilities ................................. 938,248 1.8
----------- -----
NET ASSETS ................................................... $53,547,023 100.0
----------- -----
----------- -----
</TABLE>
- --------------
{\/} U.S. currency denominated.
-/- Non-income producing security.
{.} Security exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers.
{=} Pembina Pipeline Income Fund acquired and holds all of the Notes
and issued and outstanding common shares of Pembina Corp.
* For Federal income tax purposes, cost is $58,097,575 and
appreciation (depreciation) is as follows:
<TABLE>
<S> <C>
Unrealized appreciation: $ 1,895,512
Unrealized depreciation: (7,384,312)
-------------
Net unrealized depreciation: $ (5,488,800)
-------------
-------------
</TABLE>
Abbreviations:
ADR--American Depositary Receipt
The accompanying notes are an integral part of the financial statements.
FS-72
<PAGE> 1008
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
The Fund's Portfolio of Investments at October 31, 1998, was concentrated in the
following countries:
<TABLE>
<CAPTION>
PERCENTAGE OF NET ASSETS{d}
------------------------------
COUNTRY (COUNTRY CODE/CURRENCY CODE) EQUITY OTHER TOTAL
- -------------------------------------- ------ ------------- -----
<S> <C> <C> <C>
Australia (AUSL/AUD) ................. 0.9 0.9
Belgium (BEL/BEF) .................... 1.2 1.2
Canada (CAN/CAD) ..................... 11.7 11.7
France (FR/FRF) ...................... 9.3 9.3
Germany (GER/DEM) .................... 3.3 3.3
Italy (ITLY/ITL) ..................... 4.4 4.4
Netherlands (NETH/NLG) ............... 0.9 0.9
Spain (SPN/ESP) ...................... 1.1 1.1
Sweden (SWDN/SEK) .................... 0.9 0.9
United Kingdom (UK/GBP) .............. 3.1 3.1
United States (US/USD) ............... 61.4 1.8 63.2
------ --- -----
Total ............................... 98.2 1.8 100.0
------ --- -----
------ --- -----
</TABLE>
- --------------
{d} Percentages indicated are based on net assets of $53,547,023.
The accompanying notes are an integral part of the financial statements.
FS-73
<PAGE> 1009
STATEMENT OF ASSETS
AND LIABILITIES
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at value (cost $57,535,092) (Note 1).............................. $52,608,775
U.S. currency..................................................................... $ 29
Foreign currencies (cost $776,844)................................................ 777,050 777,079
---------
Receivable for Fund shares sold.............................................................. 1,354,626
Receivable for securities sold............................................................... 222,089
Dividends and dividend withholding tax reclaims receivable................................... 117,621
Unamortized organizational costs (Note 1).................................................... 5,925
Miscellaneous receivable..................................................................... 1,429
----------
Total assets............................................................................... 55,087,544
----------
Liabilities:
Payable for securities purchased............................................................. 950,376
Payable for Fund shares repurchased.......................................................... 205,174
Payable for loan outstanding (Note 1)........................................................ 87,000
Payable for service and distribution expenses (Note 2)....................................... 78,542
Payable for transfer agent fees (Note 2)..................................................... 70,818
Payable for printing and postage expenses.................................................... 48,316
Payable for professional fees................................................................ 39,070
Payable for registration and filing fees..................................................... 19,436
Payable for custodian fees................................................................... 12,283
Payable for Trustees' fees and expenses (Note 2)............................................. 7,592
Payable for investment management and administration fees (Note 2)........................... 6,651
Payable for fund accounting fees (Note 2).................................................... 1,257
Other accrued expenses....................................................................... 13,906
----------
Total liabilities.......................................................................... 1,540,421
Minority interest (Notes 1 & 2).............................................................. 100
----------
Net assets..................................................................................... $53,547,023
----------
----------
Class A:
Net asset value and redemption price per share ($19,462,555 DIVIDED BY 1,776,625 shares
outstanding)................................................................................ $ 10.95
----------
----------
Maximum offering price per share (100/95.25 of $10.95) *..................................... $ 11.50
----------
----------
Class B:+
Net asset value and offering price per share ($28,995,617 DIVIDED BY 2,697,440 shares
outstanding)................................................................................ $ 10.75
----------
----------
Advisor Class:
Net asset value, offering price per share, and redemption price per share ($5,088,851 DIVIDED
BY 459,330 shares outstanding).............................................................. $ 11.08
----------
----------
Net assets consist of:
Paid in capital (Note 4)..................................................................... $80,825,848
Accumulated net realized loss on investments and foreign currency transactions............... (22,352,329)
Net unrealized depreciation on translation of assets and liabilities in foreign currencies... (179)
Net unrealized depreciation of investments................................................... (4,926,317)
----------
Total -- representing net assets applicable to capital shares outstanding...................... $53,547,023
----------
----------
<FN>
- --------------
* On sales of $50,000 or more, the offering price is reduced.
+ Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-74
<PAGE> 1010
STATEMENT OF OPERATIONS
Year ended October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment income: (Note 1)
Dividend income (net of foreign withholding tax of $94,244).................................. $ 848,873
Interest income.............................................................................. 271,397
Securities lending income.................................................................... 28,903
-------------
Total investment income.................................................................... 1,149,173
-------------
Expenses:
Investment management and administration fees (Note 2)....................................... 912,175
Service and distribution expenses: (Note 2)
Class A..................................................................... $ 188,613
Class B..................................................................... 489,016 677,629
-------------
Transfer agent fees (Note 2)................................................................. 388,595
Professional fees............................................................................ 87,855
Registration and filing fees................................................................. 78,115
Printing and postage expenses................................................................ 73,580
Custodian fees............................................................................... 40,150
Fund accounting fees (Note 2)................................................................ 24,981
Trustees' fees and expenses (Note 2)......................................................... 20,100
Amortization of organization costs (Note 1).................................................. 10,300
Other expenses............................................................................... 38,194
-------------
Total expenses before reductions........................................................... 2,351,674
-------------
Expenses reimbursed by A I M Advisors, Inc. (Note 2)..................................... (244,561)
Expense reductions (Note 5).............................................................. (45,111)
-------------
Total net expenses......................................................................... 2,062,002
-------------
Net investment loss............................................................................ (912,829)
-------------
Net realized and unrealized loss on investments: (Note 1)
Net realized loss on investments.............................................. (21,765,337)
Net realized loss on foreign currency transactions............................ (113,638)
-------------
Net realized loss during the year.......................................................... (21,878,975)
Net change in unrealized depreciation on translation of assets and liabilities
in foreign currencies........................................................ 108,725
Net change in unrealized depreciation of investments.......................... (39,300,386)
-------------
Net unrealized depreciation during the year................................................ (39,191,661)
-------------
Net realized and unrealized loss on investments and foreign currencies......................... (61,070,636)
-------------
Net decrease in net assets resulting from operations........................................... $ (61,983,465)
-------------
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-75
<PAGE> 1011
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1998 1997
-------------- --------------
<S> <C> <C>
Increase (decrease) in net assets
Operations:
Net investment loss................... $ (912,829) $ (2,255,658)
Net realized gain (loss) on
investments and foreign currency
transactions......................... (21,878,975) 7,540,578
Net change in unrealized appreciation
(depreciation) on translation of
assets and liabilities in foreign
currencies........................... 108,725 (125,779)
Net change in unrealized appreciation
(depreciation) of investments........ (39,300,386) 18,607,939
-------------- --------------
Net increase (decrease) in net
assets resulting from operations... (61,983,465) 23,767,080
-------------- --------------
Class A:
Distributions to shareholders: (Note 1)
From net investment income............ (602,063) --
From net realized gain on
investments.......................... (1,584,312) (1,915,988)
Class B:
Distributions to shareholders: (Note 1)
From net investment income............ (769,604) --
From net realized gain on
investments.......................... (2,025,190) (2,369,395)
Advisor Class:
Distributions to shareholders: (Note 1)
From net investment income............ (57,919) --
From net realized gain on
investments.......................... (152,412) (134,145)
-------------- --------------
Total distributions................. (5,191,500) (4,419,528)
-------------- --------------
Capital share transactions: (Note 4)
Increase from capital shares sold and
reinvested........................... 204,985,048 377,334,346
Decrease from capital shares
repurchased.......................... (255,936,633) (336,987,548)
-------------- --------------
Net increase (decrease) from capital
share transactions................. (50,951,585) 40,346,798
-------------- --------------
Total increase (decrease) in net
assets................................. (118,126,550) 59,694,350
Net assets:
Beginning of year..................... 171,673,573 111,979,223
-------------- --------------
End of year *......................... $ 53,547,023 $ 171,673,573
-------------- --------------
-------------- --------------
* Includes accumulated net investment
loss of................................ $ -- $ --
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-76
<PAGE> 1012
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout the period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------
MAY 31, 1994
(COMMENCEMENT
YEAR ENDED OCTOBER 31, OF OPERATIONS) TO
----------------------------------------- OCTOBER 31,
1998 (d) 1997 (d) 1996 (d) 1995 1994
-------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 20.65 $ 17.43 $ 11.44 $ 12.41 $ 11.43
-------- -------- -------- -------- -----------------
Income from investment operations:
Net investment income (loss).......... (0.11) * (0.25) (0.24) 0.04* * 0.06* * *
Net realized and unrealized gain
(loss) on investments................ (8.91) 4.08 6.28 (0.98) 0.92
-------- -------- -------- -------- -----------------
Net increase (decrease) from investment
operations............................. (9.02) 3.83 6.04 (0.94) 0.98
-------- -------- -------- -------- -----------------
Distributions to shareholders:
From net investment income............ (0.19) -- (0.04) (0.03) --
From net realized gain on
investments.......................... (0.49) (0.61) (0.01) -- --
-------- -------- -------- -------- -----------------
Total distributions................. (0.68) (0.61) (0.05) (0.03) --
-------- -------- -------- -------- -----------------
Net asset value, end of period.......... $ 10.95 $ 20.65 $ 17.43 $ 11.44 $ 12.41
-------- -------- -------- -------- -----------------
-------- -------- -------- -------- -----------------
Total investment return (c)............. (45.02)% 22.64% 53.04% (7.58)% 8.57% (b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $19,463 $69,975 $48,729 $12,598 $14,797
Ratio of net investment income (loss) to
average net assets:
With expense reductions and/or
reimbursement (Notes 2 & 5).......... (0.75)% (1.41)% (1.55)% 0.41% 2.63% (a)
Without expense reductions and/or
reimbursement........................ (1.06)% (1.51)% (1.65)% (0.69)% 0.65% (a)
Ratio of expenses to average net assets:
With expense reductions and/or
reimbursement (Notes 2 & 5).......... 1.98% 2.03% 2.20% 2.37% 2.40% (a)
Without expense reductions and/or
reimbursement........................ 2.29% 2.13% 2.30% 3.47% 4.38% (a)
Portfolio turnover rate++............... 201% 321% 94% 87% 137%
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
* Before reimbursement the net investment loss per share would have been
increased by $0.04 for each class.
* * Before reimbursement the net investment income (loss) per share would
have been reduced (increased) by $0.14, $0.13, and $0.12 for Class A,
Class B, and Advisor Class, respectively.
* * * Before reimbursement the net investment income per share would have
been reduced by $0.04 for Class A and Class B.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates are calculated on the basis of the Portfolio
as a whole without distinguishing between the classes of shares
issued.
The accompanying notes are an integral part of the financial statements.
FS-77
<PAGE> 1013
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout the period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------------------
MAY 31, 1994
(COMMENCEMENT
YEAR ENDED OCTOBER 31, OF OPERATIONS) TO
----------------------------------------- OCTOBER 31,
1998 (d) 1997 (d) 1996 (d) 1995 1994
-------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 20.37 $ 17.29 $ 11.36 $ 12.38 $ 11.43
-------- -------- -------- -------- -----------------
Income from investment operations:
Net investment income (loss).......... (0.18) * (0.33) (0.31) (0.02) * * 0.03* * *
Net realized and unrealized gain
(loss) on investments................ (8.76) 4.02 6.25 (0.98) 0.92
-------- -------- -------- -------- -----------------
Net increase (decrease) from investment
operations............................. (8.94) 3.69 5.94 (1.00) 0.95
-------- -------- -------- -------- -----------------
Distributions to shareholders:
From net investment income............ (0.19) -- -- (0.02) --
From net realized gain on
investments.......................... (0.49) (0.61) (0.01) -- --
-------- -------- -------- -------- -----------------
Total distributions................. (0.68) (0.61) (0.01) (0.02) --
-------- -------- -------- -------- -----------------
Net asset value, end of period.......... $ 10.75 $ 20.37 $ 17.29 $ 11.36 $ 12.38
-------- -------- -------- -------- -----------------
-------- -------- -------- -------- -----------------
Total investment return (c)............. (45.25)% 21.99% 52.39% (8.05)% 8.31% (b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $28,996 $86,812 $57,749 $13,978 $13,404
Ratio of net investment income (loss) to
average net assets:
With expense reductions and/or
reimbursement (Notes 2 & 5).......... (1.25)% (1.91)% (2.05)% (0.09)% 2.13% (a)
Without expense reductions and/or
reimbursement........................ (1.56)% (2.01)% (2.15)% (1.19)% 0.15% (a)
Ratio of expenses to average net assets:
With expense reductions and/or
reimbursement (Notes 2 & 5).......... 2.48% 2.53% 2.70% 2.87% 2.90% (a)
Without expense reductions and/or
reimbursement........................ 2.79% 2.63% 2.80% 3.97% 4.88% (a)
Portfolio turnover rate++............... 201% 321% 94% 87% 137%
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
* Before reimbursement the net investment loss per share would have been
increased by $0.04 for each class.
* * Before reimbursement the net investment income (loss) per share would
have been reduced (increased) by $0.14, $0.13, and $0.12 for Class A,
Class B, and Advisor Class, respectively.
* * * Before reimbursement the net investment income per share would have
been reduced by $0.04 for Class A and Class B.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates are calculated on the basis of the Portfolio
as a whole without distinguishing between the classes of shares
issued.
The accompanying notes are an integral part of the financial statements.
FS-78
<PAGE> 1014
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout the period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
ADVISOR CLASS+
-----------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------- JUNE 1, 1995 TO
1998 (d) 1997 (d) 1996 (d) OCTOBER 31, 1995
---------- ---------- ----------- ----------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 20.80 $ 17.47 $ 11.47 $ 11.45
---------- ---------- ----------- --------
Income from investment operations:
Net investment income (loss).......... (0.03) * (0.14) (0.17) 0.11* *
Net realized and unrealized gain
(loss) on investments................ (9.01) 4.08 6.28 (0.09)
---------- ---------- ----------- --------
Net increase (decrease) from investment
operations............................. (9.04) 3.94 6.11 0.02
---------- ---------- ----------- --------
Distributions to shareholders:
From net investment income............ (0.19) -- (0.10) --
From net realized gain on
investments.......................... (0.49) (0.61) (0.01) --
---------- ---------- ----------- --------
Total distributions................. (0.68) (0.61) (0.11) --
---------- ---------- ----------- --------
Net asset value, end of period.......... $ 11.08 $ 20.80 $ 17.47 $ 11.47
---------- ---------- ----------- --------
---------- ---------- ----------- --------
Total investment return (c)............. (44.79)% 23.23% 53.76% 0.17 % (b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 5,089 $ 14,886 $ 5,502 $ 95
Ratio of net investment income (loss) to
average net assets:
With expense reductions and/or
reimbursement (Notes 2 & 5).......... (0.25)% (0.91)% (1.05)% 0.91 % (a)
Without expense reductions and/or
reimbursement........................ (0.56)% (1.01)% (1.15)% (0.19)% (a)
Ratio of expenses to average net assets:
With expense reductions and/or
reimbursement (Notes 2 & 5).......... 1.48% 1.53% 1.70% 1.87 % (a)
Without expense reductions and/or
reimbursement........................ 1.79% 1.63% 1.80% 2.97 % (a)
Portfolio turnover rate++............... 201% 321% 94% 87 %
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
* Before reimbursement the net investment loss per share would have been
increased by $0.04 for each class.
* * Before reimbursement the net investment income (loss) per share would
have been reduced (increased) by $0.14, $0.13, and $0.12 for Class A,
Class B, and Advisor Class, respectively.
* * * Before reimbursement the net investment income per share would have
been reduced by $0.04 for Class A and Class B.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates are calculated on the basis of the Portfolio
as a whole without distinguishing between the classes of shares
issued.
The accompanying notes are an integral part of the financial statements.
FS-79
<PAGE> 1015
NOTES TO
FINANCIAL STATEMENTS
October 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (SEE ALSO NOTE 2)
AIM Global Resources Fund (the "Fund"), formerly GT Global Natural Resources
Fund, is a separate series of AIM Investment Funds (the "Trust"), formerly G.T.
Investment Funds, Inc. The Trust is organized as a Delaware business trust and
is registered under the Investment Company Act of 1940, as amended ("1940 Act"),
as an open-end management investment company. The Trust has thirteen series of
shares in operation, each series corresponding to a distinct portfolio of
investments.
The Fund invests substantially all of its investable assets in Global Resources
Portfolio, (the "Portfolio"). The Portfolio is organized as a subtrust of Global
Investment Portfolio, a Delaware business trust and is registered under the 1940
Act as an open-end management investment company.
The Portfolio has investment objectives, policies, and limitations substantially
identical to those of its corresponding Fund. Therefore, the financial
statements of the Fund and Portfolio have been presented on a consolidated
basis, and represent all activities of both the Fund and Portfolio. Through
October 31, 1998, all of the shares of beneficial interest of the Portfolio were
owned by either the Fund or A I M Advisors, Inc. (the "Manager"), which has a
nominal ($100) investment in the Portfolio.
The Fund offers Class A, Class B, and Advisor Class shares, each of which has
equal rights as to assets and voting privileges except that Class A and Class B
each has exclusive voting rights with respect to its distribution plan.
Investment income, realized and unrealized capital gains and losses, and the
common expenses of the Fund are allocated on a pro rata basis to each class
based on the relative net assets of each class to the total net assets of the
Fund. Each class of shares differs in its respective service and distribution
expenses, and may differ in its transfer agent, registration, and certain other
class-specific fees and expenses.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies in conformity with generally accepted accounting
principles consistently followed by the Fund in the preparation of the financial
statements.
(A) PORTFOLIO VALUATION
The Fund calculates the net asset value of and completes orders to purchase,
exchange or repurchase Fund shares on each business day, with the exception of
those days on which the New York Stock Exchange is closed.
Equity securities are valued at the last sale price on the exchange on which
such securities are traded, or on the principal over-the-counter market on which
such securities are traded, as of the close of business on the day the
securities are being valued, or, lacking any sales, at the last available bid
price. In cases where securities are traded on more than one exchange, the
securities are valued on the exchange determined by the Manager to be the
primary market.
Fixed income investments are valued at the mean of representative quoted bid and
ask prices for such investments or, if such prices are not available, at prices
for investments of comparative maturity, quality and type; however, when the
Manager deems it appropriate, prices obtained for the day of valuation from a
bond pricing service will be used. Short-term investments are valued at
amortized cost adjusted for foreign exchange translation and market fluctuation,
if any.
Investments for which market quotations are not readily available (including
restricted securities which are subject to limitations on their sale) are valued
at fair value as determined in good faith by or under the direction of the
Trust's Board of Trustees.
Portfolio securities which are primarily traded on foreign exchanges are
generally valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S. dollars at
the current exchange rates, except that when an occurrence subsequent to the
time a value was so established is likely to have materially changed such value,
then the fair value of those securities will be determined by consideration of
other factors by or under the direction of the Trust's Board of Trustees.
(B) FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund and Portfolio are maintained in U.S. dollars.
The market values of foreign securities, currency holdings, and other assets and
liabilities are recorded in the books and records of the Portfolio after
translation to U.S. dollars based on the exchange rates on that day. The cost of
each security is determined using historical exchange rates. Income and
withholding taxes are translated at prevailing exchange rates when earned or
incurred.
The Portfolio does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, forward foreign currency contracts, sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Portfolio's books and the U.S. dollar equivalent of the amounts actually
received or paid. Net unrealized foreign exchange gains or losses arise from
changes in the value of assets and liabilities other than investments in
securities at year end, resulting from changes in exchange rates.
FS-80
<PAGE> 1016
(C) REPURCHASE AGREEMENTS
With respect to repurchase agreements entered into by the Portfolio, it is the
Portfolio's policy to always receive, as collateral, United States government
securities or other high quality debt securities of which the value, including
accrued interest, is at least equal to the amount to be repaid to the Portfolio
under each agreement at its maturity.
(D) FORWARD FOREIGN CURRENCY CONTRACTS
A forward foreign currency contract ("Forward Contract") is an agreement between
two parties to buy and sell a currency at a set price on a future date. The
market value of the Forward Contract fluctuates with changes in currency
exchange rates. The Forward Contract is marked-to-market daily and the change in
market value is recorded by the Portfolio as an unrealized gain or loss. When
the Forward Contract is closed, the Portfolio records a realized gain or loss
equal to the difference between the value at the time it was opened and the
value at the time it was closed. Forward Contracts involve market risk in excess
of the amount shown in the Portfolio's "Statement of Assets and Liabilities".
The Portfolio could be exposed to risk if a counter party is unable to meet the
terms of the contract or if the value of the currency changes unfavorably. The
Portfolio may enter into Forward Contracts in connection with planned purchases
or sales of securities, or to hedge against adverse fluctuations in exchange
rates between currencies.
(E) OPTION ACCOUNTING PRINCIPLES
When the Portfolio writes a call or put option, an amount equal to the premium
received is included in the Portfolio's "Statement of Assets and Liabilities" as
an asset and an equivalent liability. The amount of the liability is
subsequently marked-to-market to reflect the current market value of the option.
The current market value of an option listed on a traded exchange is valued at
its last bid price, or, in the case of an over-the-counter option, is valued at
the average of the last bid prices obtained from brokers, unless a quotation
from only one broker is available, in which case only that broker's price will
be used. If an option expires on its stipulated expiration date or if the
Portfolio enters into a closing purchase transaction, a gain or loss is realized
without regard to any unrealized gain or loss on the underlying security and the
liability related to such option is extinguished. If a written call option is
exercised, a gain or loss is realized from the sale of the underlying security
and the proceeds of the sale are increased by the premium originally received.
If a written put option is exercised, the cost of the underlying security
purchased would be decreased by the premium originally received. The Portfolio
can write options only on a covered basis, which, for a call, requires that the
Portfolio hold the underlying security and, for a put, requires the Portfolio to
set aside cash, U.S. government securities or other liquid securities in an
amount not less than the exercise price, or otherwise provide adequate cover at
all times while the put option is outstanding. The Portfolio may use options to
manage its exposure to the stock market and to fluctuations in currency values
or interest rates.
The premium paid by the Portfolio for the purchase of a call or put option is
included in the Portfolio's "Statement of Assets and Liabilities" as an
investment and subsequently "marked-to-market" to reflect the current market
value of the option. If an option which the Portfolio has purchased expires on
the stipulated expiration date, the Portfolio realizes a loss in the amount of
the cost of the option. If the Portfolio enters into a closing sale transaction,
the Portfolio realizes a gain or loss, depending on whether proceeds from the
closing sale transaction are greater or less than the cost of the option. If the
Portfolio exercises a call option, the cost of the securities acquired by
exercising the call is increased by the premium paid to buy the call. If the
Portfolio exercises a put option, it realizes a gain or loss from the sale of
the underlying security, and the proceeds from such sale are decreased by the
premium originally paid.
The risk associated with purchasing options is limited to the premium originally
paid. The risk in writing a call option is that the Portfolio may forego the
opportunity of profit if the market value of the underlying security or index
increases and the option is exercised. The risk in writing a put option is that
the Portfolio may incur a loss if the market value of the underlying security or
index decreases and the option is exercised. In addition, there is the risk the
Portfolio may not be able to enter into a closing transaction because of an
illiquid secondary market.
(F) FUTURES CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
security at a set price on a future date. Upon entering into such a contract the
Portfolio is required to pledge to the broker an amount of cash or securities
equal to the minimum "initial margin" requirements of the exchange on which the
contract is traded. Pursuant to the contract, the Portfolio agrees to receive
from or pay to the broker an amount of cash equal to the daily fluctuation in
value of the contract. Such receipts or payments are known as "variation margin"
and are recorded by the Portfolio as unrealized gains or losses. When the
contract is closed, the Portfolio records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed. The potential risk to the Portfolio is that the
change in value of the underlying securities may not correlate to the change in
value of the contracts. The Portfolio may use futures contracts to manage its
exposure to the stock market and to fluctuations in currency values or interest
rates.
(G) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). The cost of securities sold is determined on a first-in,
first-out-basis, unless otherwise specified. Dividends are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. Where a high
level of uncertainty exists as to its collection, income is recorded net of all
withholding tax with any rebate recorded when received. The Portfolio may trade
securities on other than normal settlement terms. This may increase the risk if
the other party to the transaction fails to deliver and causes the Portfolio to
subsequently invest at less advantageous prices.
(H) PORTFOLIO SECURITIES LOANED
At October 31, 1998, stocks with an aggregate value of $6,432,456 were on loan
to brokers. The loans were secured by cash collateral of $6,546,297 received by
the Portfolio. For the year ended October 31, 1998, the Fund received fees of
$28,903.
FS-81
<PAGE> 1017
For international securities, cash collateral is received by the Portfolio
against loaned securities in an amount at least equal to 105% of the market
value of the loaned securities at the inception of each loan. This collateral
must be maintained at not less than 103% of the market value of the loaned
securities during the period of the loan. For domestic securities, cash
collateral is received by the Portfolio against loaned securities in the amount
at least equal to 102% of the market value of the loaned securities at the
inception of each loan. This collateral must be maintained at not less than 100%
of the market value of the loaned securities during the period of the loan. The
cash collateral is invested in a securities lending trust which consists of a
portfolio of high quality short duration securities whose average effective
duration is restricted to 120 days or less.
(I) TAXES
It is the intended policy of the Fund to meet the requirements for qualification
as a "regulated investment company" under the Internal Revenue Code of 1986, as
amended ("Code"). It is also the intention of the Fund to make distributions
sufficient to avoid imposition of any excise tax under Section 4982 of the Code.
Therefore, no provision has been made for Federal taxes on income, capital
gains, unrealized appreciation of securities held, or excise tax on income and
capital gains. The Fund currently has a capital loss carryforward of $21,789,846
which expires in 2006.
(J) DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded by the Fund on the ex-date. Income
and capital gain distributions are determined in accordance with Federal income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Portfolio and timing differences.
(K) DEFERRED ORGANIZATIONAL EXPENSES
Expenses incurred by the Fund in connection with its organization, its initial
registration with the Securities and Exchange Commission and with various states
and the initial public offering of its shares aggregated $51,500. These expenses
are being amortized on a straightline basis over a five-year period.
(L) FOREIGN SECURITIES
There are certain additional considerations and risks associated with investing
in foreign securities and currency transactions that are not inherent in
investments of domestic origin. The Portfolio's investment in emerging market
countries may involve greater risks than investments in more developed markets
and the price of such investments may be volatile. These risks of investing in
foreign and emerging markets may include foreign currency exchange rate
fluctuations, perceived credit risk, adverse political and economic developments
and possible adverse foreign government intervention.
In addition, the Portfolio's policy of concentrating its investments in
companies in the natural resources industry subject the Portfolio to greater
risk than a fund that is more diversified.
(M) INDEXED SECURITIES
The Portfolio may invest in indexed securities whose value is linked either
directly or indirectly to changes in foreign currencies, interest rates,
equities, indices, or other reference instruments. Indexed securities may be
more volatile than the reference instrument itself, but any loss is limited to
the amount of the original investment.
(N) RESTRICTED SECURITIES
The Portfolio is permitted to invest in privately placed restricted securities.
These securities may be resold in transactions exempt from registration or to
the public if the securities are registered. Disposal of these securities may
involve time-consuming negotiations and expense, and prompt sale at an
acceptable price may be difficult. At the end of the year, restricted
securities, if any, (excluding 144A issues), are shown at the end of the Fund's
Portfolio of Investments.
(O) LINE OF CREDIT
The Fund, along with certain other funds advised and/or administered by the
Manager, has a line of credit with each of BankBoston and State Street Bank and
Trust Company. The arrangements with the banks allow the Fund and certain other
Funds to borrow, on a first come, first serve basis, an aggregate maximum amount
of $250,000,000. The Fund is limited to borrowing up to 33 1/3% of the value of
the Fund's total assets. On October 31, 1998, the Fund had no loan outstanding.
For the year ended October 31, 1998, the weighted average outstanding daily
balance of bank loans (based on the number of days the loans were outstanding)
was $1,955,914, with a weighted average interest rate of 6.28%. Interest expense
for the year ended October 31, 1998 was $27,626 and is included in "Other
Expenses" on the Statement of Operations.
2. RELATED PARTIES
A I M Advisors, Inc. (the "Manager"), an indirect wholly-owned subsidiary of
AMVESCAP PLC, is the Fund's and Portfolio's investment manager and
administrator. As of the close of business on May 29, 1998, Liechtenstein Global
Trust AG ("LGT"), the former indirect parent organization of Chancellor LGT
Asset Management, Inc. ("Chancellor LGT") consummated a purchase agreement with
AMVESCAP PLC pursuant to which AMVESCAP PLC acquired LGT's Asset Management
Division, which included Chancellor LGT and certain other affiliates. A I M
Distributors, Inc. ("AIM Distributors"), a wholly-owned subsidiary of the
Manager, became the Fund's distributor as of the close of business on May 29,
1998. The Trust was reorganized from a Maryland corporation into a Delaware
business trust, and the Portfolio was reorganized from a New York common law
trust into a Delaware business trust on September 8, 1998. Finally, as of the
close of business on September 4, 1998, A I M Fund Services, Inc. ("AFS"), an
affiliate of the Manager and AIM Distributors, replaced GT Global Investor
Services, Inc. ("GT Services") as the transfer agent of the Fund.
The Fund pays the Manager administration fees at the annualized rate of 0.25% of
such Fund's average daily net assets. The Portfolio pays investment management
and administration fees to the Manager at the annualized rate of 0.725% on the
first $500 million of average daily net assets of the Portfolio; 0.70% on the
next $500 million; 0.675% on the next $500 million; and 0.65% on amounts
thereafter. These fees are computed daily and paid monthly.
AIM Distributors, an affiliate of the Manager, serves as the Fund's distributor.
For the period ended May 29, 1998, GT Global, Inc. ("GT
FS-82
<PAGE> 1018
Global") served as the Fund's distributor. The Fund offers Class A, Class B, and
Advisor Class shares for purchase.
Class A shares are subject to initial sales charges imposed at the time of
purchase, in accordance with the schedule included in the Fund's current
prospectus. AIM Distributors collects the sales charges imposed on sales of
Class A shares, and reallows a portion of such charges to dealers through which
the sales are made. For the year ended October 31, 1998, AIM Distributors and GT
Global retained sales charges of $3,733 and $12,704, respectively. Purchases of
Class A shares exceeding $1,000,000 may be subject to a contingent deferred
sales charge ("CDSC") upon redemption, in accordance with the Fund's current
prospectus. AIM Distributors and GT Global collected CDSCs for the year ended
October 31, 1998 of $0 and $1,704, respectively. AIM Distributors also makes
ongoing shareholder servicing and trail commission payments to dealers whose
clients hold Class A shares.
Class B shares are not subject to initial sales charges. When Class B shares are
sold, AIM Distributors, from its own resources, pays commissions to dealers
through which the sales are made. Certain redemptions of Class B shares made
within six years of purchase are subject to CDSCs, in accordance with the Fund's
current prospectus. For the year ended October 31, 1998, AIM Distributors and GT
Global collected CDSCs in the amount of $130,737 and $225,161, respectively. In
addition, AIM Distributors makes ongoing shareholder servicing and trail
commission payments to dealers whose clients hold Class B shares.
For the period ended May 29, 1998, pursuant to the then effective separate
distribution plans adopted under the 1940 Act Rule 12b-1 by the Trust's Board of
Trustees with respect to the Fund's Class A shares ("Class A Plan") and Class B
shares ("Class B Plan"), the Fund reimbursed GT Global for a portion of its
shareholder servicing and distribution expenses. Under the Class A Plan, the
Fund was permitted to pay GT Global a service fee at the annualized rate of up
to 0.25% of the average daily net assets of the Fund's Class A shares for GT
Global's expenditures incurred in servicing and maintaining shareholder
accounts, and was permitted to pay GT Global a distribution fee at the
annualized rate of up to 0.50% of the average daily net assets of the Fund's
Class A shares, less any amounts paid by the Fund as the aforementioned service
fee, for GT Global's expenditures incurred in providing services as distributor.
All expenses for which GT Global was reimbursed under the Class A Plan would
have been incurred within one year of such reimbursement.
For the period ended May 29, 1998, pursuant to the Class B Plan, the Fund was
permitted to pay GT Global a service fee at the annualized rate of up to 0.25%
of the average daily net assets of the Fund's Class B shares for GT Global's
expenditures incurred in servicing and maintaining shareholder accounts, and was
permitted to pay GT Global a distribution fee at the annualized rate of up to
0.75% of the average daily net assets of the Fund's Class B shares for GT
Global's expenditures incurred in providing services as distributor. Expenses
incurred under the Class B Plan in excess of 1.00% annually were permitted to be
carried forward for reimbursement in subsequent years as long as that Plan
continued in effect.
Effective as of the close of business May 29, 1998, pursuant to Rule 12b-1 under
the 1940 Act, the Trust's Board of Trustees adopted a Master Distribution Plan
applicable to the Fund's Class A shares ("Class A Plan") and Class B shares
("Class B Plan"), pursuant to which the Fund compensates AIM Distributors for
the purpose of financing any activity that is intended to result in the sale of
Class A or Class B shares of the Fund. Under the Class A Plan, the Fund
compensates AIM Distributors at the annualized rate of 0.50% of the average
daily net assets of the Fund's Class A shares. Under the Class B Plan, the Fund
compensates AIM Distributors at an annualized rate of 1.00% of the average daily
net assets of the Fund's Class B shares.
The Class A Plan and the Class B Plan (together, the "Plans") are designed to
compensate AIM Distributors for certain promotional and other sales-related
costs, and to implement a dealer incentive program that provides for periodic
payments to selected dealers who furnish continuing personal shareholder
services to their customers who purchase and own Class A and Class B shares of
the Fund. Payments also can be directed by AIM Distributors to Financial
Institutions who have entered into service agreements with respect to Class A
and Class B shares of the Fund and who provide continuing personal services to
their customers who own Class A and Class B shares of the Fund. The service fees
payable to selected Financial 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 that were purchased on or after a
prescribed date set forth in the Plans.
The Manager and AIM Distributors voluntarily have undertaken to limit the Fund's
expenses (exclusive of brokerage commissions, taxes, interest, and extraordinary
expense) to the maximum annual rate of 2.00%, 2.50%, and 1.50% of the average
daily net assets of the Fund's Class A, Class B, and Advisor Class shares,
respectively. If necessary, this limitation will be effected by waivers by the
Manager of investment management and administration fees, waivers by AIM
Distributors of payments under the Class A Plan and/or Class B Plan and/or
reimbursements by the Manager or AIM Distributors of portions of the Fund's
other operating expenses.
Effective as of the close of business September 4, 1998, the Fund, pursuant to a
transfer agency and service agreement, has agreed to pay A I M Fund Services,
Inc. ("AFS") an annualized fee of $24.85 per shareholder accounts that are open
during any monthly period (this fee includes all out-of-pocket expenses), and an
annualized fee of $0.70 per shareholder account that is closed during any
monthly period. Both fees shall be billed by AFS monthly in arrears on a
prorated basis of 1/12 of the annualized fee for all such accounts.
For the period November 1, 1997 to September 4, 1998, GT Services, an affiliate
of the Manager and AIM Distributors, was the transfer agent of the Fund. For
performing shareholder servicing, reporting, and general transfer agent
services, GT Services received an annual maintenance fee of $17.50 per account,
a new account fee of $4.00 per account, a per transaction fee of $1.75 for all
transactions other than exchanges and a per exchange fee of $2.25. GT Services
also was reimbursed by the Fund for its out-of-pocket expenses for such items as
postage, forms, telephone charges, stationery and office supplies.
FS-83
<PAGE> 1019
The Manager is the pricing and accounting agent for the Fund and Portfolio. The
monthly fee for these services to the Manager is a percentage, not to exceed
0.03% annually, of a Fund's average daily net assets. The annual fee rate is
derived 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% to 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.
The Trust pays each Trustee who is not an employee, officer or director of the
Manager, or any other affiliated company, $5,000 per year plus $300 for each
meeting of the board or any committee thereof attended by the Trustee.
3. PURCHASES AND SALES OF SECURITIES
For the year ended October 31, 1998, purchases and sales of investment
securities by the Portfolio, other than U.S. government obligations and
short-term investments, aggregated $171,815,753 and $229,084,684, respectively.
For the year ended October 31, 1998, purchases and sales of U.S. government
obligations aggregated $9,032,740 and $9,264,039, respectively.
4. CAPITAL SHARES
At October 31, 1998, there were 6,000,000,000 shares of the Trust's common stock
authorized, at $0.0001 par value. Of this amount, 400,000,000 were classified as
shares of the AIM Global Telecommunications Fund; 400,000,000 were classified as
shares of AIM Global Government Income Fund; 200,000,000 were classified as
shares of AIM Global Health Care Fund; 200,000,000 were classified as shares of
AIM Strategic Income Fund; 200,000,000 were classified as shares of AIM
Developing Markets Fund; 200,000,000 were classified as shares of GT Global
Currency Fund (inactive); 200,000,000 were classified as shares of AIM Global
Growth & Income Fund; 200,000,000 were classified as shares of GT Global Small
Companies Fund (inactive); 200,000,000 were classified as shares of AIM Latin
American Growth Fund; 200,000,000 were classified as shares of AIM Emerging
Markets Fund; 200,000,000 were classified as shares of AIM Emerging Markets Debt
Fund; 200,000,000 were classified as shares of AIM Global Financial Services
Fund; 200,000,000 were classified as shares of AIM Global Resources Fund;
200,000,000 were classified as shares of AIM Global Infrastructure Fund;
200,000,000 were classified as shares of AIM Global Consumer Products and
Services Fund. The shares of each of the foregoing series of the Trust's were
divided equally into two classes, designated Class A and Class B common stock.
With respect to the issuance of Advisor Class shares, 100,000,000 shares were
classified as shares of each of the fifteen series of the Trust's and designated
as Advisor Class common stock. 1,100,000,000 shares remain unclassified.
Transactions in capital shares of the Fund were as follows:
CAPITAL SHARE TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997
--------------------------- ---------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Shares sold...................................................... 11,040,421 $ 157,454,416 14,008,426 $ 250,536,207
Shares issued in connection with reinvestment of distributions... 107,234 1,988,098 97,424 1,671,792
------------ ------------- ------------ -------------
11,147,655 159,442,514 14,105,850 252,207,999
Shares repurchased............................................... (12,759,254) (183,076,072) (13,512,928) (239,425,288)
------------ ------------- ------------ -------------
Net increase (decrease).......................................... (1,611,599) $ (23,633,558) 592,922 $ 12,782,711
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
<CAPTION>
CLASS B
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold...................................................... 1,539,841 $ 23,469,862 5,227,207 $ 91,103,073
Shares issued in connection with reinvestment of distributions... 132,618 2,421,607 120,229 2,044,194
------------ ------------- ------------ -------------
1,672,459 25,891,469 5,347,436 93,147,267
Shares repurchased............................................... (3,237,031) (47,877,579) (4,425,914) (75,084,090)
------------ ------------- ------------ -------------
Net increase (decrease).......................................... (1,564,572) $ (21,986,110) 921,522 $ 18,063,177
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
<CAPTION>
ADVISOR CLASS
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold...................................................... 1,211,598 $ 19,441,802 1,573,656 $ 31,848,691
Shares issued in connection with reinvestment of distributions... 11,203 209,263 7,576 130,389
------------ ------------- ------------ -------------
1,222,801 19,651,065 1,581,232 31,979,080
Shares repurchased............................................... (1,479,078) (24,982,982) (1,180,622) (22,478,170)
------------ ------------- ------------ -------------
Net increase (decrease).......................................... (256,277) $ (5,331,917) 400,610 $ 9,500,910
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
</TABLE>
FS-84
<PAGE> 1020
5. EXPENSE REDUCTIONS
The Manager has directed certain portfolio trades to brokers who then paid a
portion of the Portfolio's expenses. For the year ended October 31, 1998, the
Portfolio's expenses were reduced by $45,111 under these arrangements.
6. PROXY RESULTS (UNAUDITED)
The Special Meeting of Shareholders of the G.T. Investment Funds, Inc., now
known as AIM Investment Funds (the "Trust"), was held on May 20, 1998 at the
Trust's offices, 50 California Street, 26th Floor, San Francisco, California.
The meeting was held for the following purposes:
(1) To elect Trustees as follows: C. Derek Anderson, Frank S. Bayley, William J.
Guilfoyle, Arthur C. Patterson, Ruth H. Quigley.
(2) To approve a new Investment Management and Administration Contract and
Sub-Advisory and Sub-Administration Contract with respect to each series of
the Trust (each, a "Fund," and collectively, the "Funds").
(3) To approve replacement Rule 12b-1 plans of distribution with respect to
Class A and B Shares of the Fund.
(4) To approve changes to the fundamental investment restrictions of the Fund.
(5) To approve an agreement and plan of conversion and termination for the
Trust.
(6) To approve the conversion of the portfolios in which certain Funds invest to
Delaware business trusts.
(7) To ratify the selection of Coopers & Lybrand L.L.P., now known as
PricewaterhouseCoopers LLP, as the Trust's independent public accountants.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
VOTES WITHHELD/
TRUSTEE/MATTER VOTES FOR AGAINST ABSTENTIONS
------------------------------------------------------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
(1) C. Derek Anderson........................................... 191,685,088 N/A 13,123,292
Frank S. Bayley............................................. 191,766,811 N/A 13,041,568
William J. Guilfoyle........................................ 191,828,959 N/A 12,979,420
Arthur C. Patterson......................................... 191,845,270 N/A 12,963,109
Ruth H. Quigley............................................. 191,869,887 N/A 12,938,492
(2)(a) Approval of investment management and administration
contract................................................... 2,628,774 84,005 1,096,053*
(2)(b) Approval of sub-advisory and sub-administration contract.... 2,609,716 93,910 1,105,207*
(3) Approval of replacement Rule 12b-1 plans of distribution
CLASS A SHARES.............................................. 1,848,382 49,482 141,232
CLASS B SHARES.............................................. 1,142,152 54,567 142,678
(4)(a) Modification of Fundamental Restriction on Portfolio
Diversification............................................ 2,588,203 110,874 1,109,756*
(4)(b) Modification of Fundamental Restriction on Issuing Senior
Securities and Borrowing Money............................. 2,558,203 110,874 1,109,756*
(4)(c) Modification of Fundamental Restriction on Making Loans..... 2,588,203 110,874 1,109,756*
(4)(d) Modification of Fundamental Restriction on Underwriting
Securities................................................. 2,588,170 110,907 1,109,756*
(4)(e) Modification of Fundamental Restriction on Real Estate
Investment................................................. 2,587,733 111,344 1,109,756*
(4)(f) Modification of Fundamental Restriction on Investing in
Commodities................................................ 2,588,203 110,874 1,109,756*
(4)(g) Elimination of Fundamental Restriction on Margin
Transactions............................................... 2,588,170 110,907 1,109,756*
(4)(h) Elimination of Fundamental Restriction on Pledging Assets... 2,588,170 110,907 1,109,756*
(4)(i) Elimination of Fundamental Restriction on Investments in
Oil, Gas and Mineral Leases and Programs................... 2,588,203 110,874 1,109,756*
(5) Approval of an agreement and plan of conversion and
termination with respect to the Trust...................... 190,027,469 6,362,084 94,055,040*
(6) Approval of the conversion of the portfolios in which
certain Funds invest....................................... 2,615,848 80,623 1,112,362*
(7) Ratification of the selection of Coopers and Lybrand L.L.P.,
now known as PricewaterhouseCoopers LLP, as the Trust's
independent public accountants............................. 191,358,779 2,114,168 11,333,063
</TABLE>
- ------------------------
* Includes Broker Non-Votes
- ------------------------
FEDERAL TAX INFORMATION (UNAUDITED):
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$3,761,914 as capital gain dividends for the fiscal year ended October 31, 1998.
FS-85
<PAGE> 1021
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders of AIM Global Telecommunications Fund (formerly GT Global
Telecommunications Fund) and Board of Trustees of AIM Investment Funds (formerly
G.T. Investment Funds, Inc.):
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Global Telecommunications
Fund at October 31, 1998, and the results of its operations, the changes in its
net assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
------------------------------
PRICEWATERHOUSECOOPERS LLP
BOSTON, MASSACHUSETTS
DECEMBER 18, 1998
FS-86
<PAGE> 1022
PORTFOLIO OF INVESTMENTS
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- ----------------------------------------------------------- -------- ----------- -------------- -------------
<S> <C> <C> <C> <C>
Telephone Networks (32.9%)
Telecom Italia S.p.A.: .................................. ITLY -- -- 4.2
Di Risp ............................................... -- 9,326,517 $ 47,241,821 --
Common ................................................ -- 1,263,333 9,136,412 --
MCI WorldCom, Inc.-/- ................................... US 976,718 53,963,670 4.0
GTE Corp. ............................................... US 675,000 39,614,063 3.0
NTL, Inc.-/- {\/} ....................................... UK 755,418 36,212,826 2.7
Telefonica de Espana .................................... SPN 787,666 35,576,704 2.7
SPT Telecom-/- .......................................... CZCH 1,948,398 29,501,433 2.2
Nippon Telegraph & Telephone Corp. ...................... JPN 3,400 26,648,333 2.0
Swisscom AG-/- .......................................... SWTZ 61,203 20,738,356 1.6
Deutsche Telekom AG ..................................... GER 644,000 17,556,208 1.3
Helsingin Puhelin Oyj (Helsinki Telephone Corp.) ........ FIN 307,001 16,849,215 1.3
BCE, Inc. ............................................... CAN 463,025 15,699,324 1.2
Carso Global Telecom "A1" ............................... MEX 5,654,982 15,392,656 1.2
Koninklijke KPN N.V. .................................... NETH 348,000 13,526,502 1.0
British Telecommunications PLC .......................... UK 1,005,000 12,980,760 1.0
France Telecom S.A. ..................................... FR 175,000 12,210,328 0.9
Magyar Tavkozlesi Rt. - ADR{\/} ......................... HGRY 448,350 12,049,406 0.9
Esat Telecom Group PLC - ADR-/- {\/} .................... IRE 335,300 10,142,825 0.8
Telecom Corporation of New Zealand Ltd. - Installment
Receipts ............................................... NZ 3,495,700 6,807,883 0.5
Equant N.V.-/- {\/} ..................................... NETH 54,700 2,393,125 0.2
Russian Telecommunications Development Corp.: ........... RUS -- -- 0.2
Non-Voting(.) -/- {\/} (::) ........................... -- 453,000 1,114,380 --
Voting(.) -/- {\/} (::) ............................... -- 331,000 814,260 --
--------------
436,170,490
--------------
Wireless Communications (20.1%)
Mannesmann AG ........................................... GER 436,000 42,938,795 3.2
Millicom International Cellular S.A.-/- {\/} {::} ....... LUX 1,035,000 34,543,125 2.6
Vodafone Group PLC ...................................... UK 1,882,000 25,189,895 1.9
Nextel Communications, Inc. "A"-/- ...................... US 1,190,700 21,581,438 1.6
Orange PLC-/- ........................................... UK 2,160,800 20,082,389 1.5
NTT Mobile Communications ............................... JPN 434 15,702,475 1.2
Western Wireless Corp. "A"-/- ........................... US 750,300 15,193,575 1.1
Smartone Telecommunications ............................. HK 5,048,000 14,339,983 1.1
WinStar Communications, Inc.-/- ......................... US 502,500 13,567,500 1.0
Securicor PLC ........................................... UK 1,550,007 11,462,324 0.9
Grupo Iusacell S.A. "L" - ADR-/- {\/} ................... MEX 1,663,700 11,437,938 0.9
Netcom ASA-/- ........................................... NOR 295,732 9,084,604 0.7
AirTouch Communications, Inc.-/- ........................ US 158,800 8,892,800 0.7
Advanced Info. Service - Foreign ........................ THAI 993,150 7,304,563 0.5
ICO Global Communications (Holdings) Ltd. ............... US 620,200 5,039,125 0.4
Bell Canada International, Inc.-/- ...................... CAN 393,800 4,110,327 0.3
Clearnet Communications, Inc. "A"-/- {\/} ............... CAN 451,200 3,299,400 0.2
STET Hellas Telecommunications S.A. - ADR-/- {\/} ....... GREC 108,650 2,852,063 0.2
Microcell Telecommunications, Inc. "B"-/- {\/} .......... CAN 296,400 1,537,575 0.1
Telesp Celular Participacoes S.A.-/- .................... BRZL 51,800,000 168,932 --
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-87
<PAGE> 1023
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- ----------------------------------------------------------- -------- ----------- -------------- -------------
<S> <C> <C> <C> <C>
Wireless Communications (Continued)
Tele Sudeste Celular Participacoes S.A.-/- .............. BRZL 51,800,000 $ 99,883 --
Tele Celular Sul Participacoes S.A.-/- .................. BRZL 51,800,000 33,005 --
Tele Centro Oeste Celular Participacoes S.A.-/- ......... BRZL 51,800,000 32,570 --
Telemig Celular Participacoes S.A.-/- ................... BRZL 51,800,000 31,702 --
Tele Nordeste Celular Participacoes S.A.-/- ............. BRZL 51,800,000 19,542 --
Tele Leste Celular Participacoes S.A.-/- ................ BRZL 51,800,000 16,068 --
Tele Norte Celular Participacoes S.A.-/- ................ BRZL 51,800,000 10,423 --
Telecommunicacoes Brasileiras S.A. (Telebras).-/- ....... BRZL 51,800,000 5,211 --
--------------
268,577,230
--------------
Telecom Equipment (10.6%)
Nokia Oyj "A" ........................................... FIN 533,320 48,642,599 3.6
ECI Telecommunications Ltd.{\/} ......................... ISRL 1,213,000 40,180,625 3.0
Tekelec-/- .............................................. US 1,297,800 23,279,288 1.7
Tellabs, Inc.-/- ........................................ US 290,000 15,950,000 1.2
ANTEC Corp.-/- .......................................... US 605,900 10,073,088 0.8
Orckit Communications Ltd.-/- {\/} ...................... ISRL 225,000 2,896,875 0.2
Netas Northern Electric Telekomunikayson AS: ............ TRKY -- -- 0.1
Tradeable Receipts-/- ................................. -- 74,844,000 1,664,182 --
Common-/- ............................................. -- 17,358,300 385,968 --
--------------
143,072,625
--------------
Telephone - Regional/Local (8.7%)
SBC Communications ...................................... US 1,193,834 55,289,437 4.1
Bell Atlantic Corp. ..................................... US 350,000 18,593,750 1.4
ICG Communications, Inc.-/- ............................. US 706,200 14,609,513 1.1
Intermedia Communications of Florida, Inc.-/- ........... US 681,100 12,600,350 0.9
BellSouth Corporation ................................... US 115,000 9,178,438 0.7
MetroNet Communications Corp. "B"-/- {\/} ............... CAN 146,200 3,362,600 0.3
Telesp Participacoes S.A.-/- ............................ BRZL 51,800,000 929,343 0.1
ING Barings Russian Regional Telecommunications Basket
Bridge Certificates-/- {=} {\/} ........................ RUS 1,749 802,039 0.1
Tele Norte Leste Participacoes S.A.-/- .................. BRZL 51,800,000 290,962 --
Tele Centro Sul Participacoes S.A.-/- ................... BRZL 51,800,000 238,850 --
--------------
115,895,282
--------------
Cable Television (4.5%)
Comcast Corp. "A" ....................................... US 604,300 29,837,313 2.2
Tele-Communications, Inc. "A"-/- ........................ US 604,100 25,447,713 1.9
United International Holdings, Inc. "A"-/- .............. US 365,800 4,755,400 0.4
--------------
60,040,426
--------------
Multi-Industry (2.9%)
Vivendi ................................................. FR 168,500 38,501,630 2.9
--------------
Telecom - Other (2.8%)
Cable & Wireless Communications PLC-/- .................. UK 5,009,945 37,719,178 2.8
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-88
<PAGE> 1024
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- ----------------------------------------------------------- -------- ----------- -------------- -------------
<S> <C> <C> <C> <C>
Broadcasting & Publishing (2.7%)
Time Warner, Inc. ....................................... US 200,000 $ 18,562,500 1.4
EchoStar Communications Corp. "A"-/- {::} ............... US 609,200 16,448,400 1.2
Sistem Televisyen Malaysia Bhd. ......................... MAL 3,573,000 713,033 0.1
--------------
35,723,933
--------------
Telecom Technology (1.2%)
Uniphase Corp.-/- ....................................... US 284,800 14,097,600 1.1
Three-Five Systems, Inc.-/- {::} ........................ US 164,900 1,442,875 0.1
--------------
15,540,475
--------------
Networking (0.8%)
3Com Corp.-/- ........................................... US 315,000 11,359,688 0.8
--------------
Computers & Peripherals (0.6%)
NEC Corp. ............................................... JPN 1,000,000 7,416,638 0.6
--------------
Telephone - Long Distance (0.3%)
Global Crossing Ltd.-/- ................................. US 142,500 4,096,875 0.3
Embratel Participacoes S.A.-/- .......................... BRZL 51,800,000 399,531 --
--------------
4,496,406
-------------- -----
TOTAL EQUITY INVESTMENTS (cost $911,835,870) .............. 1,174,514,001 88.1
-------------- -----
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- ----------------------------------------------------------- -------- ----------- -------------- -------------
<S> <C> <C> <C> <C>
Government & Government Agency Obligations (4.3%)
United States (4.3%)
United States Strip Principal due 8/15/20 (cost
$60,068,002) ......................................... USD 199,000,000 57,556,300 4.3
-------------- -----
<CAPTION>
NO. OF VALUE % OF NET
WARRANTS COUNTRY WARRANTS (NOTE 1) ASSETS
- ----------------------------------------------------------- -------- ----------- -------------- -------------
<S> <C> <C> <C> <C>
American Satellite Network Warrants, expire 1/1/99 (cost
$0)(.) (::) ............................................ US 65,825 -- --
-------------- -----
WIRELESS COMMUNICATIONS
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-89
<PAGE> 1025
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
REPURCHASE AGREEMENTS (NOTE 1) ASSETS
- ----------------------------------------------------------- -------------- -------------
<S> <C> <C> <C> <C>
Dated October 30, 1998, with State Street Bank & Trust
Co.,
due November 2, 1998, for an effective yield of 5.3%,
collateralized by $47,040,000 U.S Treasury Notes,
6.375% due 8/15/02 (market value of collateral is
$51,003,590, including accrued interest). ............ $ 50,000,000 3.7
Dated October 30, 1998, with State Street Bank & Trust
Co.,
due November 2, 1998, for an effective yield of 5.3%,
collateralized by $24,860,000 U.S. Treasury Notes,
5.375% due 1/31/00 (market value of collateral is
$25,505,067, including accrued interest). ............ 25,000,000 1.9
Dated October 30, 1998, with State Street Bank & Trust
Co.,
due November 2, 1998, for an effective yield of 5.3%,
collateralized by $19,640,000 U.S. Treasury Notes,
5.25% due 1/31/01 (market value of collateral is
$20,315,400, including accrued interest). ............ 19,915,000 1.5
-------------- -----
TOTAL REPURCHASE AGREEMENTS (cost $94,915,000) ............ 94,915,000 7.1
-------------- -----
TOTAL INVESTMENTS (cost $1,066,818,872) * ................ 1,326,985,301 99.5
Other Assets and Liabilities .............................. 6,390,559 0.5
-------------- -----
NET ASSETS ................................................ $1,333,375,860 100.0
-------------- -----
-------------- -----
</TABLE>
- --------------
{\/} U.S. currency denominated.
-/- Non-income producing security.
{=} Issued by ING Barings, the value of which is linked to the
underlying value of a basket of shares issued by Russian regional
telephone companies.
(::) Valued in good faith at fair value using procedures approved by the
Board of Trustees (See Note 1 of Notes to Financial Statements).
{::} See Note 6 of Notes to Financial Statements.
(.) Restricted Securities: At October 31, 1998 the Fund owned the
following restricted securities constituting less than .2% of net
assets which may not be publicly sold without registration under
the Securities Act of 1933 (Note 1). Additional information on the
securities is as follows:
<TABLE>
<CAPTION>
VALUE
ACQUISITION PER SHARE
DESCRIPTION DATE SHARES COST (NOTE 1)
- ------------------------------------------------------------ ----------- ------- ---------- ---------
<S> <C> <C> <C> <C>
American Satellite Network Warrants, expire 1/1/99.......... 12/31/93 65,825 -- --
Russian Telecommunications Development Corp.:
Non-voting................................................ 12/22/93 453,000 $4,530,000 $2.46
Voting.................................................... 12/22/93 331,000 3,310,000 2.46
</TABLE>
* For Federal income tax purposes, cost is $1,071,126,276 and
appreciation (depreciation) is as follows:
<TABLE>
<S> <C>
Unrealized appreciation: $ 331,853,916
Unrealized depreciation: (75,994,891)
-------------
Net unrealized appreciation: $ 255,859,025
-------------
-------------
</TABLE>
Abbreviation:
ADR--American Depositary Receipt
The accompanying notes are an integral part of the financial statements.
FS-90
<PAGE> 1026
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
The Fund's Portfolio of Investments at October 31, 1998, was concentrated in the
following countries:
<TABLE>
<CAPTION>
PERCENTAGE OF NET ASSETS {D}
-------------------------------------------
FIXED INCOME SHORT-TERM
COUNTRY (COUNTRY CODE/CURRENCY CODE) EQUITY & WARRANTS & OTHER TOTAL
- -------------------------------------- ------ ------------- ---------- -----
<S> <C> <C> <C> <C>
Brazil (BRZL/BRL) .................... 0.1 0.1
Canada (CAN/CAD) ..................... 2.1 2.1
Czech Republic (CZCH/CSK) ............ 2.2 2.2
Finland (FIN/FIM) .................... 4.9 4.9
France (FR/FRF) ...................... 3.8 3.8
Germany (GER/DEM) .................... 4.5 4.5
Greece (GREC/GRD) .................... 0.2 0.2
Hong Kong (HK/HKD) ................... 1.1 1.1
Hungary (HGRY/HUF) ................... 0.9 0.9
Ireland (IRE/IEP) .................... 0.8 0.8
Israel (ISRL/ILS) .................... 3.2 3.2
Italy (ITLY/ITL) ..................... 4.2 4.2
Japan (JPN/JPY) ...................... 3.8 3.8
Luxembourg (LUX/LUF) ................. 2.6 2.6
Malaysia (MAL/MYR) ................... 0.1 0.1
Mexico (MEX/MXN) ..................... 2.1 2.1
Netherlands (NETH/NLG) ............... 1.2 1.2
New Zealand (NZ/NZD) ................. 0.5 0.5
Norway (NOR/NOK) ..................... 0.7 0.7
Russia (RUS/SUR) ..................... 0.3 0.3
Spain (SPN/ESP) ...................... 2.7 2.7
Switzerland (SWTZ/CHF) ............... 1.6 1.6
Thailand (THAI/THB) .................. 0.5 0.5
Turkey (TRKY/TRL) .................... 0.1 0.1
United Kingdom (UK/GBP) .............. 10.8 10.8
United States (US/USD) ............... 33.1 4.3 7.6 45.0
------ --- --- -----
Total ............................... 88.1 4.3 7.6 100.0
------ --- --- -----
------ --- --- -----
</TABLE>
- --------------
{d} Percentages indicated are based on net assets of $1,333,375,860.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS OUTSTANDING
OCTOBER 31, 1998
<TABLE>
<CAPTION>
MARKET VALUE UNREALIZED
(U.S. CONTRACT DELIVERY APPRECIATION
CONTRACTS TO SELL: DOLLARS) PRICE DATE (DEPRECIATION)
- ---------------------------------------- ------------- ----------- -------- ---------------
<S> <C> <C> <C> <C>
British Pounds.......................... 41,628,230 0.60131 11/30/98 $ (51,980)
Italian Liras........................... 25,888,897 1601.49000 12/21/98 586,448
Japanese Yen............................ 9,023,719 134.95500 11/12/98 (1,243,348)
Japanese Yen............................ 8,164,318 130.86250 11/12/98 (904,789)
Japanese Yen............................ 7,304,916 118.69000 11/12/98 (143,403)
Japanese Yen............................ 2,148,504 134.52000 11/12/98 (290,045)
------------- ---------------
Total Contracts to Sell (Receivable
amount $92,111,467).................. 94,158,584 (2,047,117)
------------- ---------------
THE VALUE OF CONTRACTS TO SELL AS A
PERCENTAGE OF NET ASSETS IS 7.06%.
Total Open Forward Foreign Currency
Contracts............................ $ (2,047,117)
---------------
---------------
</TABLE>
- ----------------
See Note 1 to the financial statements.
The accompanying notes are an integral part of the financial statements.
FS-91
<PAGE> 1027
STATEMENT OF ASSETS
AND LIABILITIES
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at value (cost $1,066,818,872) (Note 1)........................ $1,326,985,301
U.S. currency................................................................ $ 638
Foreign currencies (cost $12,115,289)........................................ 12,098,850 12,099,488
-----------
Receivable for securities sold............................................................ 4,998,458
Receivable for Fund shares sold........................................................... 1,108,983
Dividends and dividend withholding tax reclaims receivable................................ 928,347
Interest receivable....................................................................... 27,947
--------------
Total assets............................................................................ 1,346,148,524
--------------
Liabilities:
Payable for Fund shares repurchased....................................................... 5,144,176
Payable for open forward foreign currency contracts, net (Note 1)......................... 2,047,117
Payable for service and distribution expenses (Note 2).................................... 1,857,913
Payable for transfer agent fees (Note 2).................................................. 1,354,901
Payable for investment management and administration fees (Note 2)........................ 992,645
Payable for forward foreign currency contracts -- closed (Note 1)......................... 689,048
Payable for custodian fees................................................................ 287,512
Payable for printing and postage expenses................................................. 168,175
Payable for registration and filing fees.................................................. 60,980
Payable for professional fees............................................................. 57,782
Payable for fund accounting fees (Note 2)................................................. 31,491
Payable for Trustees' fees and expenses (Note 2).......................................... 23,244
Other accrued expenses.................................................................... 57,680
--------------
Total liabilities....................................................................... 12,772,664
--------------
Net assets.................................................................................. $1,333,375,860
--------------
--------------
Class A:
Net asset value and redemption price per share ($713,903,569 DIVIDED BY 43,840,500 shares
outstanding)............................................................................... $ 16.28
--------------
--------------
Maximum offering price per share (100/95.25 of $16.28) *.................................... $ 17.09
--------------
--------------
Class B:+
Net asset value and offering price per share ($614,715,460 DIVIDED BY 39,008,010 shares
outstanding)............................................................................... $ 15.76
--------------
--------------
Advisor Class:
Net asset value, offering price per share, and redemption price per share ($4,756,831
DIVIDED BY 286,313 shares outstanding)..................................................... $ 16.61
--------------
--------------
Net assets consist of:
Paid in capital (Note 4).................................................................. $1,003,778,129
Undistributed net investment income....................................................... 5,534
Accumulated net realized gain on investments and foreign currency transactions............ 71,483,704
Net unrealized depreciation on translation of assets and liabilities in foreign
currencies............................................................................... (2,057,936)
Net unrealized appreciation of investments................................................ 260,166,429
--------------
Total -- representing net assets applicable to capital shares outstanding................... $1,333,375,860
--------------
--------------
<FN>
- --------------
* On sales of $50,000 or more, the offering price is reduced.
+ Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-92
<PAGE> 1028
STATEMENT OF OPERATIONS
Year ended October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment income: (Note 1)
Dividend income (net of foreign withholding tax of $859,719)............................... $ 9,991,960
Interest income............................................................................ 3,702,326
Securities lending income.................................................................. 1,645,390
------------
Total investment income.................................................................. 15,339,676
------------
Expenses:
Investment management and administration fees (Note 2)..................................... 15,344,878
Service and distribution expenses:(Note 2)
Class A.................................................................... $ 4,293,131
Class B.................................................................... 7,582,290 11,875,421
------------
Transfer agent fees (Note 2)............................................................... 4,714,560
Printing and postage expenses.............................................................. 761,235
Custodian fees............................................................................. 641,305
Fund accounting fees (Note 2).............................................................. 437,627
Professional fees.......................................................................... 207,125
Registration and filing fees............................................................... 106,215
Trustees' fees and expenses (Note 2)....................................................... 34,900
Other expenses............................................................................. 113,524
------------
Total expenses before reductions......................................................... 34,236,790
------------
Expense reductions (Note 5)............................................................ (109,953)
------------
Total net expenses....................................................................... 34,126,837
------------
Net investment loss.......................................................................... (18,787,161)
------------
Net realized and unrealized gain (loss) on investments and foreign currencies:
(Note 1)
Net realized gain on investments............................................. 71,036,101
Net realized gain on foreign currency transactions........................... 112,098
------------
Net realized gain during the year........................................................ 71,148,199
Net change in unrealized depreciation on translation of assets and
liabilities in foreign currencies........................................... 689,850
Net change in unrealized appreciation of investments......................... (65,785,548)
------------
Net unrealized depreciation during the year.............................................. (65,095,698)
------------
Net realized and unrealized gain on investments and foreign currencies....................... 6,052,501
------------
Net decrease in net assets resulting from operations......................................... $(12,734,660)
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-93
<PAGE> 1029
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997
---------------- ----------------
<S> <C> <C>
Increase/(decrease) in net assets
Operations:
Net investment loss...................................................... $ (18,787,161) $ (23,856,621)
Net realized gain on investments and foreign currency transactions....... 71,148,199 120,426,746
Net change in unrealized appreciation (depreciation) on translation of
assets and liabilities in foreign currencies............................ 689,850 (7,132,389)
Net change in unrealized appreciation (depreciation) of investments...... (65,785,548) 217,773,979
---------------- ----------------
Net increase (decrease) in net assets resulting from operations........ (12,734,660) 307,211,715
---------------- ----------------
Class A:
Distributions to shareholders: (Note 1)
From net realized gain on investments.................................... (59,979,418) (95,676,425)
Class B:
Distributions to shareholders: (Note 1)
From net realized gain on investments.................................... (54,057,223) (83,596,023)
Advisor Class:
Distributions to shareholders: (Note 1)
From net realized gain on investments.................................... (239,075) (176,806)
---------------- ----------------
Total distributions.................................................... (114,275,716) (179,449,254)
---------------- ----------------
Capital share transactions: (Note 4)
Increase from capital shares sold and reinvested......................... 2,274,548,973 1,783,734,946
Decrease from capital shares repurchased................................. (2,535,281,796) (2,403,405,013)
---------------- ----------------
Net decrease from capital share transactions........................... (260,732,823) (619,670,067)
---------------- ----------------
Total decrease in net assets............................................... (387,743,199) (491,907,606)
Net assets:
Beginning of year........................................................ 1,721,119,059 2,213,026,665
---------------- ----------------
End of year *............................................................ $ 1,333,375,860 $ 1,721,119,059
---------------- ----------------
---------------- ----------------
* Includes undistributed net investment income of:........................ $ 5,534 $ 5,534
---------------- ----------------
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-94
<PAGE> 1030
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1998 (d) 1997 (d) 1996 (d) 1995 1994 (d)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 18.04 $ 16.69 $ 16.42 $ 17.80 $ 16.92
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income (loss).......... (0.17) (0.17) (0.13) (0.09) (0.01)
Net realized and unrealized gain
(loss) on investments................ (0.39) 2.93 1.22 (0.43) 1.17
---------- ---------- ---------- ---------- ----------
Net increase (decrease) from
investment operations.............. (0.56) 2.76 1.09 (0.52) 1.16
---------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income............ -- -- -- -- (0.01)
From net realized gain on
investments.......................... (1.20) (1.41) (0.82) (0.86) (0.27)
---------- ---------- ---------- ---------- ----------
Total distributions..................... (1.20) (1.41) (0.82) (0.86) (0.28)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 16.28 $ 18.04 $ 16.69 $ 16.42 $ 17.80
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return (c)............. (3.16)% 17.70% 7.00% (2.88)% 7.02%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 713,904 $ 910,801 $1,204,428 $1,353,722 $1,644,402
Ratio of net investment income (loss) to
average net assets:
With expense reductions (Notes 5)..... (0.92)% (1.01)% (0.84)% (0.49)% (0.02)%
Without expense reductions............ (0.93)% (1.06)% (0.89)% (0.55)% N/A
Ratio of expenses to average net assets:
With expense reductions (Notes 5)..... 1.87% 1.79% 1.74% 1.77% 1.80%
Without expense reductions............ 1.88% 1.84% 1.79% 1.83% N/A
Portfolio turnover rate++............... 75% 35% 37% 62% 57%
</TABLE>
- ----------------
(a) Annualized
(b) Not Annualized
(c) Total investment return does not include sales charge.
(d) These selected per share data were calculated based upon the average
shares outstanding during the period.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates are calculated on the basis of the Fund as a
whole without distinguishing between the classes of shares issued.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-95
<PAGE> 1031
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1998 (d) 1997 (d) 1996 (d) 1995 1994 (d)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 17.58 $ 16.37 $ 16.20 $ 17.66 $ 16.87
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income (loss).......... (0.25) (0.25) (0.23) (0.17) (0.10)
Net realized and unrealized gain
(loss) on investments................ (0.37) 2.87 1.22 (0.43) 1.17
---------- ---------- ---------- ---------- ----------
Net increase (decrease) from
investment operations.............. (0.62) 2.62 0.99 (0.60) 1.07
---------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income............ -- -- -- -- (0.01)
From net realized gain on
investments.......................... (1.20) (1.41) (0.82) (0.86) (0.27)
---------- ---------- ---------- ---------- ----------
Total distributions..................... (1.20) (1.41) (0.82) (0.86) (0.28)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 15.76 $ 17.58 $ 16.37 $ 16.20 $ 17.66
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return (c)............. (3.67)% 17.15% 6.46% (3.37)% 6.50%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 614,715 $ 805,535 $1,007,654 $1,111,520 $1,184,081
Ratio of net investment income (loss) to
average net assets:
With expense reductions (Notes 5)..... (1.42)% (1.51)% (1.34)% (0.99)% (0.52)%
Without expense reductions............ (1.43)% (1.56)% (1.39)% (1.05)% N/A
Ratio of expenses to average net assets:
With expense reductions (Notes 5)..... 2.37% 2.29% 2.24% 2.27% 2.30%
Without expense reductions............ 2.38% 2.34% 2.29% 2.33% N/A
Portfolio turnover rate++............... 75% 35% 37% 62% 57%
</TABLE>
- ----------------
(a) Annualized
(b) Not Annualized
(c) Total investment return does not include sales charge.
(d) These selected per share data were calculated based upon the average
shares outstanding during the period.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates are calculated on the basis of the Fund as a
whole without distinguishing between the classes of shares issued.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-96
<PAGE> 1032
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
ADVISOR CLASS+
-----------------------------------------------------
YEAR ENDED OCTOBER 31, JUNE 1, 1995
----------------------------------- TO
1998 (d) 1997 (d) 1996 (d) OCTOBER 31, 1995
---------- ---------- ----------- ----------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 18.28 $ 16.81 $ 16.46 $ 15.24
---------- ---------- ----------- --------
Income from investment operations:
Net investment income (loss).......... (0.08) (0.09) (0.05) --
Net realized and unrealized gain
(loss) on investments................ (0.39) 2.97 1.22 1.22
---------- ---------- ----------- --------
Net increase (decrease) from
investment operations.............. (0.47) 2.88 1.17 1.22
---------- ---------- ----------- --------
Distributions to shareholders:
From net investment income............ -- -- -- --
From net realized gain on
investments.......................... (1.20) (1.41) (0.82) --
---------- ---------- ----------- --------
Total distributions..................... (1.20) (1.41) (0.82) --
---------- ---------- ----------- --------
Net asset value, end of period.......... $ 16.61 $ 18.28 $ 16.81 $ 16.46
---------- ---------- ----------- --------
---------- ---------- ----------- --------
Total investment return (c)............. (2.59)% 18.33% 7.49% 7.94 % (b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 4,757 $ 4,783 $ 945 $ 681
Ratio of net investment income (loss) to
average net assets:
With expense reductions (Notes 5)..... (0.42)% (0.51)% (0.34)% 0.01 % (a)
Without expense reductions............ (0.43)% (0.56)% (0.39)% (0.05)% (a)
Ratio of expenses to average net assets:
With expense reductions (Notes 5)..... 1.37% 1.29% 1.24% 1.27 % (a)
Without expense reductions............ 1.38% 1.34% 1.29% 1.33 % (a)
Portfolio turnover rate++............... 75% 35% 37% 62 %
</TABLE>
- ----------------
(a) Annualized
(b) Not Annualized
(c) Total investment return does not include sales charge.
(d) These selected per share data were calculated based upon the average
shares outstanding during the period.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates are calculated on the basis of the Fund as a
whole without distinguishing between the classes of shares issued.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-97
<PAGE> 1033
NOTES TO
FINANCIAL STATEMENTS
October 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (SEE ALSO NOTE 2)
AIM Global Telecommunications Fund (the "Fund"), formerly, GT Global
Telecommunications Fund, is a separate series of AIM Investment Funds (the
"Trust"), formerly G.T. Investment Funds, Inc. The Trust is organized as a
Delaware business trust and is registered under the Investment Company Act of
1940, as amended ("1940 Act"), as an open-end management investment company. The
Trust has thirteen series of shares in operation, each series corresponding to a
distinct portfolio of investments.
The Fund offers Class A, Class B, and Advisor Class shares, each of which has
equal rights as to assets and voting privileges except that Class A and Class B
each has exclusive voting rights with respect to its distribution plan.
Investment income, realized and unrealized capital gains and losses, and the
common expenses of the Fund are allocated on a pro rata basis to each class
based on the relative net assets of each class to the total net assets of the
Fund. Each class of shares differs in its respective service and distribution
expenses, and may differ in its transfer agent, registration, and certain other
class-specific fees and expenses.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies in conformity with generally accepted accounting
principles consistently followed by the Fund in the preparation of the financial
statements.
(A) PORTFOLIO VALUATION
The Fund calculates the net asset value of and completes orders to purchase,
exchange or repurchase Fund shares on each business day, with the exception of
those days on which the New York Stock Exchange is closed.
Equity securities are valued at the last sale price on the exchange on which
such securities are traded, or on the principal over-the-counter market on which
such securities are traded, as of the close of business on the day the
securities are being valued, or, lacking any sales, at the last available bid
price. In cases where securities are traded on more than one exchange, the
securities are valued on the exchange determined by A I M Advisors, Inc. (the
"Manager") to be the primary market.
Fixed income investments are valued at the mean of representative quoted bid and
ask prices for such investments or, if such prices are not available, at prices
for investments of comparative maturity, quality and type; however, when the
Manager deems it appropriate, prices obtained for the day of valuation from a
bond pricing service will be used. Short-term investments are valued at
amortized cost adjusted for foreign exchange translation and market fluctuation,
if any.
Investments for which market quotations are not readily available (including
restricted securities which are subject to limitations on their sale) are valued
at fair value as determined in good faith by or under the direction of the
Trust's Board of Trustees.
Portfolio securities which are primarily traded on foreign exchanges are
generally valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S. dollars at
the current exchange rates, except that when an occurrence subsequent to the
time a value was so established is likely to have materially changed such value,
then the fair value of those securities will be determined by consideration of
other factors by or under the direction of the Trust's Board of Trustees.
(B) FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings, and other assets and
liabilities are recorded in the books and records of the Fund after translation
to U.S. dollars based on the exchange rates on that day. The cost of each
security is determined using historical exchange rates. Income and withholding
taxes are translated at prevailing exchange rates when earned or incurred.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, forward foreign currency contracts, sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains or losses arise from changes in the
value of assets and liabilities other than investments in securities at year
end, resulting from changes in exchange rates.
(C) REPURCHASE AGREEMENTS
With respect to repurchase agreements entered into by the Fund, it is the Fund's
policy to always receive, as collateral, United States government securities or
other high quality debt securities of which the value, including accrued
interest, is at least equal to the amount to be repaid to the Fund under each
agreement at its maturity.
(D) FORWARD FOREIGN CURRENCY CONTRACTS
A forward foreign currency contract ("Forward Contract") is an agreement between
two parties to buy and sell a currency at a set price on a future date. The
market value of the Forward Contract
FS-98
<PAGE> 1034
fluctuates with changes in currency exchange rates. The Forward Contract is
marked-to-market daily and the change in market value is recorded by the Fund as
an unrealized gain or loss. When the Forward Contract is closed, the Fund
records a realized gain or loss equal to the difference between the value at the
time it was opened and the value at the time it was closed. Forward Contracts
involve market risk in excess of the amount shown in the Fund's "Statement of
Assets and Liabilities". The Fund could be exposed to risk if a counter party is
unable to meet the terms of the contract or if the value of the currency changes
unfavorably. The Fund may enter into Forward Contracts in connection with
planned purchases or sales of securities, or to hedge against adverse
fluctuations in exchange rates between currencies.
(E) OPTION ACCOUNTING PRINCIPLES
When the Fund writes a call or put option, an amount equal to the premium
received is included in the Fund's "Statement of Assets and Liabilities" as an
asset and an equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option. The current
market value of an option listed on a traded exchange is valued at its last bid
price, or, in the case of an over-the-counter option, is valued at the average
of the last bid prices obtained from brokers, unless a quotation from only one
broker is available, in which case only that broker's price will be used. If an
option expires on its stipulated expiration date or if the Fund enters into a
closing purchase transaction, a gain or loss is realized without regard to any
unrealized gain or loss on the underlying security and the liability related to
such option is extinguished. If a written call option is exercised, a gain or
loss is realized from the sale of the underlying security and the proceeds of
the sale are increased by the premium originally received. If a written put
option is exercised, the cost of the underlying security purchased would be
decreased by the premium originally received. The Fund can write options only on
a covered basis, which, for a call, requires that the Fund hold the underlying
security and, for a put, requires the Fund to set aside cash, U.S. government
securities or other liquid securities in an amount not less than the exercise
price, or otherwise provide adequate cover at all times while the put option is
outstanding. The Fund may use options to manage its exposure to the stock market
and to fluctuations in currency values or interest rates.
The premium paid by the Fund for the purchase of a call or put option is
included in the Fund's "Statement of Assets and Liabilities" as an investment
and subsequently "marked-to-market" to reflect the current market value of the
option. If an option which the Fund has purchased expires on the stipulated
expiration date, the Fund realizes a loss in the amount of the cost of the
option. If the Fund enters into a closing sale transaction, the Fund realizes a
gain or loss, depending on whether proceeds from the closing sale transaction
are greater or less than the cost of the option. If the Fund exercises a call
option, the cost of the securities acquired by exercising the call is increased
by the premium paid to buy the call. If the Fund exercises a put option, it
realizes a gain or loss from the sale of the underlying security, and the
proceeds from such sale are decreased by the premium originally paid.
The risk associated with purchasing options is limited to the premium originally
paid. The risk in writing a call option is that the Fund may forego the
opportunity of profit if the market value of the underlying security or index
increases and the option is exercised. The risk in writing a put option is that
the Fund may incur a loss if the market value of the underlying security or
index decreases and the option is exercised. In addition, there is the risk the
Fund may not be able to enter into a closing transaction because of an illiquid
secondary market.
(F) FUTURES CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
security at a set price on a future date. Upon entering into such a contract the
Fund is required to pledge to the broker an amount of cash or securities equal
to the minimum "initial margin" requirements of the exchange on which the
contract is traded. Pursuant to the contract, the Fund agrees to receive from or
pay to the broker an amount of cash equal to the daily fluctuation in value of
the contract. Such receipts or payments are known as "variation margin" and are
recorded by the Fund as unrealized gains or losses. When the contract is closed,
the Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the time it was
closed. The potential risk to the Fund is that the change in value of the
underlying securities may not correlate to the change in value of the contracts.
The Fund may use futures contracts to manage its exposure to the stock market
and to fluctuations in currency values or interest rates.
(G) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). The cost of securities sold is determined on a first-in,
first-out-basis, unless otherwise specified. Dividends are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. Where a high
level of uncertainty exists as to its collection, income is recorded net of all
withholding tax with any rebate recorded when received. The Fund may trade
securities on other than normal settlement terms. This may increase the risk if
the other party to the transaction fails to deliver and causes the Fund to
subsequently invest at less advantageous prices.
(H) PORTFOLIO SECURITIES LOANED
At October 31, 1998, stocks with an aggregate value of $131,247,071 were on loan
to brokers. The loans were secured by cash collateral of $135,796,495 received
by the Fund. For the year ended October 31, 1998, the Fund received fees of
$1,645,390.
For international securities, cash collateral is received by the Fund against
loaned securities in an amount at least equal to 105% of the market value of the
loaned securities at the inception of each loan. This collateral must be
maintained at not less than 103% of the market value of the loaned securities
during the period of the loan. For domestic securities, cash collateral is
received by the Fund against loaned securities in the amount at least equal to
102% of the market value of the loaned securities at the inception of each loan.
This collateral must be maintained at not less than 100% of the market value of
the loaned securities during the period of the loan. The cash
FS-99
<PAGE> 1035
collateral is invested in a securities lending trust which consists of a
portfolio of high quality short duration securities whose average effective
duration is restricted to 120 days or less.
(I) TAXES
It is the intended policy of the Fund to meet the requirements for qualification
as a "regulated investment company" under the Internal Revenue Code of 1986, as
amended ("Code"). It is also the intention of the Fund to make distributions
sufficient to avoid imposition of any excise tax under Section 4982 of the Code.
Therefore, no provision has been made for Federal taxes on income, capital
gains, unrealized appreciation of securities held, or excise tax on income and
capital gains.
(J) DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded by the Fund on the ex-date. Income
and capital gain distributions are determined in accordance with Federal income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Fund and timing differences.
(K) FOREIGN SECURITIES
There are certain additional considerations and risks associated with investing
in foreign securities and currency transactions that are not inherent in
investments of domestic origin. The Fund's investment in emerging market
countries may involve greater risks than investments in more developed markets
and the price of such investments may be volatile. These risks of investing in
foreign and emerging markets may include foreign currency exchange rate
fluctuations, perceived credit risk, adverse political and economic developments
and possible adverse foreign government intervention.
In addition, the Fund's policy of concentrating its investments in companies in
the telecommunications industry subject the Fund to greater risk than a fund
that is more diversified.
(L) INDEXED SECURITIES
The Fund may invest in indexed securities whose value is linked either directly
or indirectly to changes in foreign currencies, interest rates, equities,
indices, or other reference instruments. Indexed securities may be more volatile
than the reference instrument itself, but any loss is limited to the amount of
the original investment.
(M) RESTRICTED SECURITIES
The Fund is permitted to invest in privately placed restricted securities. These
securities may be resold in transactions exempt from registration or to the
public if the securities are registered. Disposal of these securities may
involve time-consuming negotiations and expense, and prompt sale at an
acceptable price may be difficult. At the end of the year, restricted
securities, if any, (excluding 144A issues), are shown at the end of the Fund's
Portfolio of Investments.
(N) LINE OF CREDIT
The Fund, along with certain other funds advised and/or administered by the
Manager, has a line of credit with each of BankBoston and State Street Bank and
Trust Company. The arrangements with the banks allow the Fund and certain other
Funds to borrow, on a first come, first serve basis, an aggregate maximum amount
of $250,000,000. The Fund is limited to borrowing up to 33 1/3% of the value of
the Fund's total assets. At October 31, 1998, the Fund had no loans outstanding.
For the year ended October 31, 1998, the weighted average outstanding daily
balance of bank loans (based on the number of days the loans were outstanding)
was $11,141,844, with a weighted average interest rate of 6.30%. Interest
expense for the year ended October 31, 1998 was $62,397 and is included in
"Other Expenses" on the Statement of Operations.
2. RELATED PARTIES
A I M Advisors, Inc. (the "Manager"), an indirect wholly-owned subsidiary of
AMVESCAP PLC, is the Fund's investment manager and administrator. As of the
close of business on May 29, 1998, Liechtenstein Global Trust AG ("LGT"), the
former indirect parent organization of Chancellor LGT Asset Management, Inc.
("Chancellor LGT") consummated a purchase agreement with AMVESCAP PLC pursuant
to which AMVESCAP PLC acquired LGT's Asset Management Division, which included
Chancellor LGT and certain other affiliates. A I M Distributors, Inc. ("AIM
Distributors"), a wholly-owned subsidiary of the Manager, is the Fund's
distributor as of the close of business on May 29, 1998. The Trust was
reorganized from a Maryland corporation into a Delaware business trust on
September 8, 1998. Finally, as of the close of business on September 4, 1998,
A I M Fund Services, Inc. ("AFS"), an affiliate of the Manager and AIM
Distributors, replaced GT Global Investor Services, Inc. ("GT Services") as the
transfer agent of the Fund.
The Fund pays investment management and administration fees to the Manager at
the annualized rate of 0.975% on the first $500 million of average daily net
assets of the Fund; 0.95% on the next $500 million; 0.925% on the next $500
million; and 0.90% on amounts thereafter. These fees are computed daily and paid
monthly.
AIM Distributors, an affiliate of the Manager, serves as the Fund's distributor.
For the period ended May 29, 1998, GT Global, Inc. ("GT Global") served as the
Fund's distributor. The Fund offers Class A, Class B, and Advisor Class shares
for purchase.
Class A shares are subject to initial sales charges imposed at the time of
purchase, in accordance with the schedule included in the Fund's current
prospectus. AIM Distributors collects the sales charges imposed on sales of
Class A shares, and reallows a portion of such charges to dealers through which
the sales are made. For the year ended October 31, 1998. AIM Distributors and GT
Global retained sales charges of $36,792 and $44,312, respectively. Purchases of
Class A shares exceeding $1,000,000 may be subject to a contingent deferred
sales charge ("CDSC") upon redemption, in accordance with the Fund's current
prospectus. AIM Distributors and GT Global collected CDSCs for the year ended
October 31, 1998 of $1,565 and $28,868, respectively. AIM Distributors also
makes ongoing shareholder servicing and trail commission payments to dealers
whose clients hold Class A shares.
FS-100
<PAGE> 1036
Class B shares are not subject to initial sales charges. When Class B shares are
sold, AIM Distributors, from its own resources, pays commissions to dealers
through which the sales are made. Certain redemptions of Class B shares made
within six years of purchase are subject to CDSCs, in accordance with the Fund's
current prospectus. For the year ended October 31, 1998, AIM Distributors and GT
Global collected CDSCs in the amount of $896,639 and $2,022,934, respectively.
In addition, AIM Distributors makes ongoing shareholder servicing and trail
commission payments to dealers whose clients hold Class B shares.
For the period ended May 29, 1998, pursuant to the then effective separate
distribution plans adopted under the 1940 Act Rule 12b-1 by the Trust's Board of
Trustees with respect to the Fund's Class A shares ("Class A Plan") and Class B
shares ("Class B Plan"), the Fund reimbursed GT Global for a portion of its
shareholder servicing and distribution expenses. Under the Class A Plan, the
Fund was permitted to pay GT Global a service fee at the annualized rate of up
to 0.25% of the average daily net assets of the Fund's Class A shares for GT
Global's expenditures incurred in servicing and maintaining shareholder
accounts, and was permitted to pay GT Global a distribution fee at the
annualized rate of up to 0.50% of the average daily net assets of the Fund's
Class A shares, less any amounts paid by the Fund as the aforementioned service
fee, for GT Global's expenditures incurred in providing services as distributor.
All expenses for which GT Global was reimbursed under the Class A Plan would
have been incurred within one year of such reimbursement.
For the period ended May 29, 1998, pursuant to the Class B Plan, the Fund was
permitted to pay GT Global a service fee at the annualized rate of up to 0.25%
of the average daily net assets of the Fund's Class B shares for GT Global's
expenditures incurred in servicing and maintaining shareholder accounts, and was
permitted to pay GT Global a distribution fee at the annualized rate of up to
0.75% of the average daily net assets of the Fund's Class B shares for GT
Global's expenditures incurred in providing services as distributor. Expenses
incurred under the Class B Plan in excess of 1.00% annually were permitted to be
carried forward for reimbursement in subsequent years as long as that Plan
continued in effect.
Effective as of the close of business May 29, 1998, pursuant to Rule 12b-1 under
the 1940 Act, the Trust's Board of Trustees adopted a Master Distribution Plan
applicable to the Fund's Class A shares ("Class A Plan") and Class B shares
("Class B Plan"), pursuant to which the Fund compensates AIM Distributors for
the purpose of financing any activity that is intended to result in the sale of
Class A or Class B shares of the Fund. Under the Class A Plan, the Fund
compensates AIM Distributors at the annualized rate of 0.50% of the average
daily net assets of the Fund's Class A shares. Under the Class B Plan, the Fund
compensates AIM Distributors at an annualized rate of 1.00% of the average daily
net assets of the Fund's Class B shares.
The Class A Plan and the Class B Plan (together, the "Plans") are designed to
compensate AIM Distributors for certain promotional and other sales-related
costs, and to implement a dealer incentive program that provides for periodic
payments to selected dealers who furnish continuing personal shareholder
services to their customers who purchase and own Class A and Class B shares of
the Fund. Payments also can be directed by AIM Distributors to financial
institutions who have entered into service agreements with respect to Class A
and Class B shares of the Fund and who provide continuing personal services to
their customers who own Class A and Class B shares of the Fund. The service fees
payable to selected financial 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 that were purchased on or after a
prescribed date set forth in the Plans.
The Manager and AIM Distributors voluntarily have undertaken to limit the Fund's
expenses (exclusive of brokerage commissions, taxes, interest, and extraordinary
expense) to the maximum annual rate of 2.00%, 2.50%, and 1.50% of the average
daily net assets of the Fund's Class A, Class B, and Advisor Class shares,
respectively. If necessary, this limitation will be effected by waivers by the
Manager of investment management and administration fees, waivers by AIM
Distributors of payments under the Class A Plan and/or Class B Plan and/or
reimbursements by the Manager or AIM Distributors of portions of the Fund's
other operating expenses.
Effective as of the close of business September 4, 1998, the Fund, pursuant to a
transfer agency and service agreement, has agreed to pay A I M Fund Services,
Inc. ("AFS") an annualized fee of $24.85 per shareholder accounts that are open
during any monthly period (this fee includes all out-of-pocket expenses), and an
annualized fee of $0.70 per shareholder account that is closed during any
monthly period. Both fees shall be billed by AFS monthly in arrears on a
prorated basis of 1/12 of the annualized fee for all such accounts.
For the period November 1, 1997 to September 4, 1998, GT Services, an affiliate
of the Manager and AIM Distributors, was the transfer agent of the Fund. For
performing shareholder servicing, reporting, and general transfer agent
services, GT Services received an annual maintenance fee of $17.50 per account,
a new account fee of $4.00 per account, a per transaction fee of $1.75 for all
transactions other than exchanges and a per exchange fee of $2.25. GT Services
also was reimbursed by the Fund for its out-of-pocket expenses for such items as
postage, forms, telephone charges, stationery and office supplies.
The Manager is the pricing and accounting agent for the Fund. The monthly fee
for these services paid to the Manager is a percentage, not to exceed 0.03%
annually, of a Fund's average daily net assets. The annual fee rate is derived
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% to 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.
FS-101
<PAGE> 1037
The Trust pays each Trustee who is not an employee, officer or director of the
Manager, or any other affiliated company, $5,000 per year plus $300 for each
meeting of the board or any committee thereof attended by the Trustee.
3. PURCHASES AND SALES OF SECURITIES
For the year ended October 31, 1998, purchases and sales of investment
securities by the Fund, other than U.S. government obligations and short-term
investments, aggregated $948,232,105 and $1,382,868,876, respectively. For the
year ended October 31, 1998, purchases and sales of U.S. government obligations
aggregated $59,707,960 and $0, respectively.
4. CAPITAL SHARES
At October 31, 1998, there were 6,000,000,000 shares of the Trust's common stock
authorized, at $0.0001 par value. Of this amount, 400,000,000 were classified as
shares of the AIM Global Telecommunications Fund; 400,000,000 were classified as
shares of AIM Global Government Income Fund; 200,000,000 were classified as
shares of AIM Global Health Care Fund; 200,000,000 were classified as shares of
AIM Strategic Income Fund; 200,000,000 were classified as shares of AIM
Developing Markets Fund; 200,000,000 were classified as shares of GT Global
Currency Fund (inactive); 200,000,000 were classified as shares of AIM Global
Growth & Income Fund; 200,000,000 were classified as shares of GT Global Small
Companies Fund (inactive); 200,000,000 were classified as shares of AIM Latin
American Growth Fund; 200,000,000 were classified as shares of AIM Emerging
Markets Fund; 200,000,000 were classified as shares of AIM Emerging Markets Debt
Fund; 200,000,000 were classified as shares of AIM Global Financial Services
Fund; 200,000,000 were classified as shares of AIM Global Resources Fund;
200,000,000 were classified as shares of AIM Global Infrastructure Fund;
200,000,000 were classified as shares of AIM Global Consumer Products and
Services Fund. The shares of each of the foregoing series of the Trust's were
divided equally into two classes, designated Class A and Class B common stock.
With respect to the issuance of Advisor Class shares, 100,000,000 shares were
classified as shares of each of the fifteen series of the Trust's and designated
as Advisor Class common stock. 1,100,000,000 shares remain unclassified.
Transactions in capital shares of the Fund were as follows:
CAPITAL SHARE TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997
------------------------------ -----------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------ ------------- --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Shares sold................................................. 108,008,301 $ 1,941,688,002 86,491,272 $ 1,449,735,933
Shares issued in connection with reinvestment of
distributions............................................. 3,004,072 49,839,899 4,872,560 77,134,577
------------- --------------- ------------ ---------------
111,012,373 1,991,527,901 91,363,832 1,526,870,510
Shares repurchased.......................................... (117,654,141) (2,131,610,935) (113,032,156) (1,893,258,359)
------------- --------------- ------------ ---------------
Net decrease................................................ (6,641,768) $ (140,083,034) (21,668,324) $ (366,387,849)
------------- --------------- ------------ ---------------
------------- --------------- ------------ ---------------
<CAPTION>
CLASS B
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold................................................. 10,070,976 $ 179,810,719 9,249,969 $ 152,245,081
Shares issued in connection with reinvestment of
distributions............................................. 2,786,131 44,943,256 4,413,826 68,371,781
------------- --------------- ------------ ---------------
12,857,107 224,753,975 13,663,795 220,616,862
Shares repurchased.......................................... (19,680,426) (345,310,805) (29,383,147) (477,593,385)
------------- --------------- ------------ ---------------
Net decrease................................................ (6,823,319) $ (120,556,830) (15,719,352) $ (256,976,523)
------------- --------------- ------------ ---------------
------------- --------------- ------------ ---------------
<CAPTION>
ADVISOR CLASS
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold................................................. 3,217,206 $ 58,029,142 2,029,510 $ 36,070,768
Shares issued in connection with reinvestment of
distributions............................................. 14,131 237,955 11,071 176,806
------------- --------------- ------------ ---------------
3,231,337 58,267,097 2,040,581 36,247,574
Shares repurchased.......................................... (3,206,646) (58,360,056) (1,835,151) (32,553,269)
------------- --------------- ------------ ---------------
Net increase (decrease)..................................... 24,691 $ (92,959) 205,430 $ 3,694,305
------------- --------------- ------------ ---------------
------------- --------------- ------------ ---------------
</TABLE>
FS-102
<PAGE> 1038
5. EXPENSE REDUCTIONS
The Manager has directed certain portfolio trades to brokers who then paid a
portion of the Fund's expenses. For the year ended October 31, 1998, the Fund's
expenses were reduced by $109,953 under these arrangements.
6. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
Investments of 5% or more of an issuer's outstanding voting securities by the
Fund are defined in the Investment Company Act of 1940 as an affiliated company.
At October 31, 1998 the Fund owned no investments in affiliated companies.
Transactions with affiliated companies for the year are as follows:
<TABLE>
<CAPTION>
NET REALIZED
PURCHASES COST SALES PROCEEDS GAIN (LOSS) DIVIDEND INCOME
-------------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Champion Technology Holdings Ltd.................. $ 3,417,731 $ 3,098,253 $ (13,662,219) $ 55,192
Echostar Communications Corp. "A"................. -- -- -- --
Millicom International Cellular S.A............... 5,887,008 6,681,341 2,990,814 --
Orbital Sciences Corp............................. -- 49,451,312 19,414,579 --
Three-Five Systems, Inc........................... -- 3,600,294 (6,737,052) --
</TABLE>
7. PROXY RESULTS (UNAUDITED)
The Special Meeting of Shareholders of the G.T. Investment Funds, Inc. now known
as AIM Investment Funds (the "Trust") was held on May 20, 1998 at the Trust's
offices, 50 California Street, 26th Floor, San Francisco, California. The
meeting was held for the following purposes:
(1) To elect Trustees as follows: C. Derek Anderson, Frank S. Bayley, William
J. Guilfoyle, Arthur C. Patterson, Ruth H. Quigley.
(2) To approve a new Investment Management and Administration Contract and
Sub-Advisory and Sub-Administration Contract with respect to each series of
the Trust (each, a "Fund," and collectively, the "Funds").
(3) To approve replacement Rule 12b-1 plans of distribution with respect to
Class A and B Shares of the Fund.
(4) To approve changes to the fundamental investment restrictions of the Fund.
(5) To approve an agreement and plan of conversion and termination for the
Trust.
(6) To ratify the selection of Coopers & Lybrand, now known as
PricewaterhouseCoopers LLP, as the Trust's independent public accountants.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
TRUSTEE/MATTER
----------------------------------------------------------------------------------------------------------------
<S> <C>
(1) C. Derek Anderson...............................................................................................
Frank S. Bayley.................................................................................................
William J. Guilfoyle............................................................................................
Arthur C. Patterson.............................................................................................
Ruth H. Quigley.................................................................................................
(2)(a) Approval of investment management and administration contract...................................................
(2)(b) Approval of sub-advisory and sub-administration contract........................................................
(3) Approval of replacement Rule 12b-1 plans of distribution
CLASS A SHARES..................................................................................................
CLASS B SHARES..................................................................................................
(4)(a) Modification of Fundamental Restriction on Portfolio Diversification............................................
(4)(b) Modification of Fundamental Restriction on Issuing Senior Securities and Borrowing Money........................
(4)(c) Modification of Fundamental Restriction on Making Loans.........................................................
(4)(d) Modification of Fundamental Restriction on Underwriting Securities..............................................
(4)(e) Modification of Fundamental Restriction on Real Estate Investments..............................................
(4)(f) Modification of Fundamental Restriction on Investing in Commodities.............................................
(4)(g) Elimination of Fundamental Restriction on Margin Transactions...................................................
(4)(h) Elimination of Fundamental Restriction on Pledging Assets.......................................................
(4)(i) Elimination of Fundamental Restriction on Investment in Oil, Gas and Mineral Leases and Programs................
(4)(j) Approval of New Fundamental Investment Policy Regarding Investment of All of Each Fund's Assets in an Open-End
Fund..........................................................................................................
(5) Approval of an agreement and plan of conversion and termination with respect to the Trust.......................
(6) Ratification of the selection of Coopers and Lybrand, now known as PricewaterhouseCoopers LLP, as the Trust's
Independent Public Accountants................................................................................
<CAPTION>
VOTES WITHHELD/
VOTES FOR AGAINST ABSTENTIONS
--------------- ------------ --------------
<S> <C> <C> <C>
(1) 191,685,088 N/A 13,123,292
191,766,811 N/A 13,041,568
191,828,959 N/A 12,979,420
191,845,270 N/A 12,963,109
191,869,887 N/A 12,938,492
(2)(a) 34,387,274 1,226,472 12,894,821*
(2)(b) 34,024,097 1,418,923 13,065,547*
(3)
22,543,757 917,090 2,176,036
20,212,179 746,999 1,830,786
(4)(a) 33,672,510 1,600,402 13,235,655*
(4)(b) 33,673,644 1,599,268 13,235,655*
(4)(c) 33,674,165 1,598,747 13,235,655*
(4)(d) 33,675,313 1,597,599 13,235,655*
(4)(e) 33,673,936 1,598,976 13,235,655*
(4)(f) 33,667,659 1,605,253 13,235,655*
(4)(g) 33,660,368 1,612,544 13,235,655*
(4)(h) 33,669,714 1,603,198 13,235,655*
(4)(i) 33,675,877 1,597,035 13,235,655*
(4)(j)
33,663,325 1,609,587 13,235,655*
(5) 190,027,469 6,362,084 94,055,040*
(6)
191,358,779 2,114,168 11,333,063
</TABLE>
- --------------
* Includes Broker Non-Votes
FS-103
<PAGE> 1039
STATEMENT OF
ADDITIONAL INFORMATION
ADVISOR CLASS 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, 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 CONSUMER PRODUCTS AND SERVICES FUND PROSPECTUS, THE AIM GLOBAL FINANCIAL
SERVICES FUND PROSPECTUS, THE AIM GLOBAL HEALTH CARE FUND PROSPECTUS, THE AIM
GLOBAL INFRASTRUCTURE FUND PROSPECTUS, THE AIM GLOBAL RESOURCES FUND PROSPECTUS
AND THE AIM GLOBAL TELECOMMUNICATIONS FUND PROSPECTUS EACH DATED MARCH 1, 1999
<PAGE> 1040
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............. 8
Privatizations............................................ 9
Temporary Defensive Strategies............................ 9
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> 1041
<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................ 37
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
HOW TO PURCHASE AND REDEEM SHARES........................... 39
Backup Withholding........................................ 40
NET ASSET VALUE DETERMINATION............................... 41
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS.................... 42
Taxation of the Funds..................................... 42
Taxation of the Theme Portfolios.......................... 42
Foreign Taxes............................................. 42
Taxation of the Funds' Shareholders....................... 44
SHAREHOLDER INFORMATION..................................... 45
Timing of Purchase Order.................................. 45
Share Certificates........................................ 45
Special Plans............................................. 45
Terms and Conditions of Exchanges......................... 46
Exchanges by Mail......................................... 47
Exchanges by Telephone.................................... 47
Redemptions by Mail....................................... 47
Redemptions by Telephone.................................. 48
Timing and Pricing of Redemption Orders................... 48
Signature Guarantees...................................... 48
Dividends and Distributions............................... 49
Minimum Account Balance................................... 49
MISCELLANEOUS INFORMATION................................... 50
Charges for Certain Account Information................... 50
Custodian and Transfer Agent.............................. 50
Independent Accountants................................... 50
Legal Matters............................................. 50
Shareholder Liability..................................... 50
Special Servicing Agreement............................... 51
Control Persons and Principal Holders of Security......... 51
INVESTMENT RESULTS.......................................... 53
Total Return Quotations................................... 53
Performance Information................................... 54
General Information About the Theme Funds and Theme
Portfolios............................................. 55
Health Care Fund.......................................... 56
Information About the Global Health Care Industries....... 56
Telecommunications Fund................................... 57
Deregulation in the United States......................... 57
Consumer Products and Services Fund....................... 57
Infrastructure Fund....................................... 58
Financial Services Fund................................... 58
Resources Fund............................................ 58
APPENDIX.................................................... 59
Description of Bond Ratings............................... 59
Description of Commercial Paper Ratings................... 60
Absence of Rating......................................... 60
FINANCIAL STATEMENTS........................................ FS
</TABLE>
3
<PAGE> 1042
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" 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 serves as the administrator 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 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. 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 (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 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, such class or such Portfolio.
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
4
<PAGE> 1043
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.
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, Health Care Fund and
Telecommunications Fund is long-term capital growth. 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 exclusively in the Portfolio. As of the date of this
Prospectus, the Feeder Fund is the only institutional investor in the Portfolio.
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<PAGE> 1044
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.
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
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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 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
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<PAGE> 1046
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
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 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 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 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.
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The 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 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 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,
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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 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
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<PAGE> 1049
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 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
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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
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
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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 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.
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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.
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
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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
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
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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 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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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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<PAGE> 1064
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> 1065
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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<PAGE> 1066
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 "Dividends, Distributions and Tax Matters."
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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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
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(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;
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(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> 1071
(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.
33
<PAGE> 1072
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 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.
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
34
<PAGE> 1073
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 $1,647,939, $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
$2,740,833, $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 $404,804, $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 $317,191, $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 $798,398, $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 $1,004,439, $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 75% and 35%,
respectively. For the fiscal years ended October 31, 1998 and 1997, the Health
Care Fund's portfolio turnover rates were 187% 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 111% and 91%, 96% and 41%, and 201% and 321%, respectively. For
the fiscal years ended
35
<PAGE> 1074
October 31, 1998 and 1997, the portfolio turnover rates for the Consumer
Products and Services Portfolio were 221% 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 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; and Director, PremiumWear, Inc.
(formerly Munsingwear, Inc.) (a casual apparel
company); Director, "R" Homes, Inc. and various
other companies.
- ---------------------------------------------------------------------------------------------------------
FRANK S. BAYLEY (59) Trustee Partner, law firm of Baker & McKenzie; and Director
Two Embarcadero Center and Chairman, C.D. Stimson Company (a private
Suite 2400 investment company).
San Francisco, CA 94111
- ---------------------------------------------------------------------------------------------------------
ARTHUR C. PATTERSON (54) Trustee Managing Partner, Accel Partners (a venture capital
428 University Avenue firm); and Director, Viasoft and PageMart, Inc.
Palo Alto, CA 94301 (both public software companies) and several other
privately held software and communications
companies.
- ---------------------------------------------------------------------------------------------------------
RUTH H. QUIGLEY (63) Trustee Private investor; and President, Quigley
1055 California Street Friedlander & Co., Inc. (a financial advisory
San Francisco, CA 94108 services firm) from 1984 to 1986.
- ---------------------------------------------------------------------------------------------------------
+ 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.
- ---------------------------------------------------------------------------------------------------------
</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.
+ Mr. Arthur and Ms. Relihan are married to each other.
</TABLE>
36
<PAGE> 1075
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
POSITIONS HELD
NAME, ADDRESS AND AGE WITH REGISTRANT PRINCIPAL OCCUPATION DURING PAST 5 YEARS
--------------------- --------------- ----------------------------------------
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
SAMUEL D. SIRKO (39) Vice President and Vice President, Assistant General Counsel and
Secretary Assistant Secretary, A I M Advisors, Inc.; and
Assistant General Counsel and Assistant Secretary,
A I M Management Group Inc., A I M Capital
Management, Inc., A I M Distributors, Inc., A I M
Fund Services, Inc. and Fund Management Company.
- ---------------------------------------------------------------------------------------------------------
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 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 any affiliated company,
received total compensation of $46,350, $43,350, $47,700 and $48,000,
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 any other affiliated
company, received total compensation of $97,600, $97,500, $105,450 and $106,350,
respectively, from the investment companies managed or administered by AIM and
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.
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES RELATING TO THE FEEDER FUNDS
AND THE PORTFOLIOS
AIM, 11 Greenway Plaza, Suite 100, Houston, Texas 77046, was organized in 1976
and, together with its subsidiaries, manages or advises approximately 110
investment portfolios encompassing a broad range of investment objectives. AIM
and its worldwide asset management affiliates provide investment management
and/or administrative services to institutional, corporate and individual
clients around the world.
37
<PAGE> 1076
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.
AIM Management and AIM are indirect wholly owned subsidiaries of AMVESCAP PLC,
11 Devonshire Square, London EC2M 4YR, England. AMVESCAP PLC and its
subsidiaries are an independent 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 office, AIM draws
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 and
the Portfolio, the Advisor employs a team approach, taking advantage of its
investment resources around the world.
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 to each Feeder
Fund under an administration contract between the Trust and AIM ("Administration
Contract"). The Administration Contract will not be deemed an advisory contract,
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 pays 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 Contract without penalty upon sixty days' written notice to
the other party. The Portfolio Management Contract terminates automatically in
the event of its 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
the Telecommunications Fund's affairs. Among other things, AIM furnishes the
services and pays 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 AIM may terminate the
Contract without penalty upon sixty days' written notice to the other party. The
Management Contract terminates automatically in the event of its assignment (as
defined in the 1940 Act).
38
<PAGE> 1077
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............... $ 1,329,063 $ 1,207,854 $ 422,640
Financial Services Portfolio........................... 726,002 346,965 99,991
Health Care Fund....................................... 5,149,191 5,820,067 5,495,494
Infrastructure Portfolio............................... 612,027 772,727 635,456
Resources Portfolio.................................... 678,775 979,215 213,856
Telecommunications Fund................................ 15,344,878 17,999,111 23,119,601
</TABLE>
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.
AIM may from time to time waive or reduce its fee. Voluntary fee waivers or
reductions may be rescinded at any time without further notice to investors.
During periods of voluntary fee waivers or reductions, AIM will retain its
ability to be reimbursed for such fee prior to the end of each fiscal year.
Contractual fee waivers or reductions set forth in the Fee Tables in the
Prospectus may not be terminated without the approval of the Board of Trustees.
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, 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.
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<PAGE> 1078
HOW TO PURCHASE AND REDEEM SHARES
A complete description of the manner in which shares of the Funds may be
purchased appears in each Fund's Prospectus under the heading "Purchasing
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 herein under the heading "Terms
and Conditions of Exchanging Shares."
Information concerning redemption of the Funds' shares is set forth in each
Fund's Prospectus under the heading "Redeeming 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.
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 herein 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 generally be subject to backup withholding.
Each AIM Fund, and other payers, must, according to IRS regulations, withhold
31% of redemption payments and reportable dividends (whether paid or accrued) in
the case of any shareholder who fails to provide the Fund with a taxpayer
identification number ("TIN") and a certification that he is not subject to
backup withholding.
An investor is subject to backup withholding if:
(1) the investor fails to furnish a correct TIN to the Fund, or
(2) the IRS notifies the Fund that the investor furnished an incorrect
TIN, or
(3) the investor is notified by the IRS that the investor is subject
to backup withholding because the investor failed to report all of the
interest and dividends on such investor's tax return (for reportable
interest and dividends only), or
(4) the investor fails to certify to the Fund that the investor is not
subject to backup withholding under (3) above (for reportable interest and
dividend accounts opened after 1983 only), or
(5) the investor does not certify his TIN. This applies only to
reportable interest, dividend, broker or barter exchange accounts opened
after 1983, or broker accounts considered inactive during 1983.
Except as explained in (5) above, other reportable payments are subject to
backup withholding only if (1) or (2) above applies.
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<PAGE> 1079
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.
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.
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<PAGE> 1080
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.
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
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<PAGE> 1081
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> 1082
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> 1083
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 for Advisor Class Shares."
TIMING OF PURCHASE ORDERS
Orders for the purchase of Advisor Class shares received prior to the close of
regular trading on the 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.
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<PAGE> 1084
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" 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 "Exchanging Shares" in each Fund's
Prospectus. 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." 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 each Fund may be exchanged either for Advisor Class
shares of any other Fund, or for AIM Cash Reserve Shares of AIM Money Market
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.
46
<PAGE> 1085
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"), 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 "Redeeming Shares" in each Fund's Prospectus.
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
47
<PAGE> 1086
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.
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 "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
48
<PAGE> 1087
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.
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.
49
<PAGE> 1088
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 "Terms and
Conditions of Exchanges."
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.
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 Funds.
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
50
<PAGE> 1089
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.
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, 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.
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
February 1, 1999, 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 MLPF&S 7.54% -0-
Fund -- Class B for the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Consumer Products and Services GT New Dimension Fund 91.45% -0-
Fund -- Advisor Class Theme Fund Omnibus Account
2121 N. California Blvd., Ste. 395
Walnut Creek, CA 94596-7305
LGT Asset Management 6.27% -0-
401(K) Plan
11 Greenway Plaza, Ste. 100
Houston, TX 77046-1173
Financial Services Fund -- Class A MLPF&S 9.62% -0-
for the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Financial Services Fund -- Class B MLPF&S 15.94% -0-
for the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Financial Services Fund -- GT New Dimension Fund 94.65% -0-
Advisor Class Theme Fund Omnibus Account
2121 N. California Blvd., Ste. 395
Walnut Creek, CA 94596-7305
Health Care Fund -- Class A MLPF&S 13.33% -0-
for the Sole Benefit of Its Customers
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.
51
<PAGE> 1090
<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 B MLPF&S 12.05% -0-
for the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Health Care Fund -- Advisor Class GT New Dimension Fund 79.76% -0-
Theme Fund Omnibus Account
2121 N. California Blvd., Ste. 395
Walnut Creek, CA 94596-7305
LGT Asset Management 7.57% -0-
401(K) Plan
11 Greenway Plaza, Ste. 100
Houston, TX 77046-1173
Infrastructure Fund -- Class B MLPF&S 7.63% -0-
for the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Infrastructure Fund -- Advisor Class GT New Dimension Fund 98.21% -0-
Theme Fund Omnibus Account
2121 N. California Blvd., Ste. 395
Walnut Creek, CA 94596-7305
Resources Fund -- Advisor Class GT New Dimension Fund 88.82% -0-
Theme Fund Omnibus Account
2121 N. California Blvd., Ste. 395
Walnut Creek, CA 94596-7305
Telecommunications Fund -- Class A MLPF&S 9.87% -0-
for the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Telecommunications Fund -- Class B MLPF&S 10.60% -0-
for the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Telecommunications Fund -- Advisor GT New Dimension Fund 73.01% -0-
Class Theme Fund Omnibus Account
2121 N. California Blvd., Ste. 395
Walnut Creek, CA 94596-7305
LGT Asset Management 10.76% -0-
401(K) Plan
11 Greenway Plaza, Ste. 100
Houston, TX 77046-1173
</TABLE>
52
<PAGE> 1091
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 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>
ONE FIVE TEN SINCE
YEAR YEAR YEAR INCEPTION*
------ ---- ---- ----------
<S> <C> <C> <C> <C>
Health Care Fund............................................ 19.09% N/A N/A 22.76%
</TABLE>
- ---------------
* The inception date for Advisor Class shares of Health Care Fund is 06/01/95.
The non-standardized returns for the Advisor Class shares of Consumer Products
and Services Fund, Financial Services Fund, Infrastructure Fund, Resources Fund
and Telecommunications Fund, stated as average annualized total returns for the
periods shown, were:
<TABLE>
<CAPTION>
ONE FIVE TEN SINCE
YEAR YEAR YEAR INCEPTION*
-------- ---- ---- ----------
<S> <C> <C> <C> <C>
Consumer Products and Services Fund......................... 23.35 % N/A N/A 31.34%
Financial Services Fund..................................... 13.68 % N/A N/A 21.40%
Infrastructure Fund......................................... 4.82 % N/A N/A 9.72%
Resources Fund.............................................. (34.09)% N/A N/A 1.25%
Telecommunications Fund..................................... 18.76 % N/A N/A 13.55%
</TABLE>
- ---------------
* The inception date for Advisor Class shares of each Fund is 06/01/95.
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>
53
<PAGE> 1092
The aggregate non-standardized returns (not taking sales charges into account)
for the Advisor Class shares of Consumer Products and Services Fund, Financial
Services Fund, Health Care Fund, Infrastructure Fund, Resources Fund and
Telecommunications Fund, stated as aggregate total returns for the periods
shown, were:
<TABLE>
<CAPTION>
ONE FIVE TEN SINCE
YEAR YEAR YEAR INCEPTION*
---- ---- ---- ----------
<S> <C> <C> <C> <C>
Consumer Products and Services Fund......................... 23.35% N/A N/A 165.66%
Financial Services Fund..................................... 13.68% N/A N/A 100.33%
Health Care Fund............................................ 19.09% N/A N/A 108.50%
Infrastructure Fund......................................... 4.82% N/A N/A 39.45%
Resources Fund.............................................. (34.09)% N/A N/A 4.54%
Telecommunications Fund..................................... 18.76% N/A N/A 57.66%
</TABLE>
- ---------------
* The inception date for Advisor Class shares of each Fund is 06/01/95.
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
All advertisements of a Fund will disclose the maximum sales charge
(including deferred sales charges) imposed on purchases of the Fund's shares. If
any advertised performance data does not reflect the maximum sales charge (if
any), such advertisement will disclose that the sales charge has not been
deducted in computing the performance data, and that, if reflected, the maximum
sales charge would reduce the performance quoted. Further information regarding
the Fund's performance is contained in the Fund's annual report to shareholders,
which is available upon request and without charge.
A Fund's total return is calculated in accordance with a standardized
formula for computation of annualized total return.
A Fund's total return shows its overall change in value, including changes
in share price and assuming all the Fund's dividends and capital gain
distributions are reinvested. A cumulative total return reflects the Fund's
performance over a stated period of time. An average annual total return
reflects the hypothetical compounded annual rate of return that would have
produced the same cumulative total return if the Fund's performance had been
constant over the entire period. BECAUSE AVERAGE ANNUAL RETURNS TEND TO EVEN OUT
VARIATIONS IN THE FUND'S RETURN, INVESTORS SHOULD RECOGNIZE THAT SUCH RETURNS
ARE NOT THE SAME AS ACTUAL YEAR-BY-YEAR RESULTS. To illustrate the components of
overall performance, the Fund may separate its cumulative and average annual
returns into income results and capital gains or losses.
From time to time and in its discretion, AIM or its affiliates may waive all
or a portion of their fees and/or assume certain expenses of any Fund. Voluntary
fee waivers or reductions or commitments to assume expenses may be rescinded at
any time without further notice to investors. During periods of voluntary fee
waivers or reductions or commitments to assume expenses, AIM will retain its
ability to be reimbursed for such fee prior to the end of each fiscal year.
Contractual fee waivers or reductions or reimbursement of expenses set forth in
the Fee Table in the Prospectus may not be terminated without the approval of
the Board of Trustees.
A practice of waiving or reducing fees or reimbursing expenses will have the
effect of increasing that Fund's yield and total return. The performance of each
Fund will vary from time to time and past results are not necessarily indicative
of future results. A Fund's performance is a function of its portfolio
management in selecting the type and quality of portfolio securities and is
affected by operating expenses of the Fund and market conditions. A
shareholder's investment in a Fund is not insured or guaranteed. These factors
should be carefully considered by the investor before making an investment in
any Fund.
54
<PAGE> 1093
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
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
55
<PAGE> 1094
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.
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
56
<PAGE> 1095
INFORMATION ABOUT THE GLOBAL HEALTH CARE INDUSTRIES
The Fund and the 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 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 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 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 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.
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 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.
57
<PAGE> 1096
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
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
58
<PAGE> 1097
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
59
<PAGE> 1098
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.
60
<PAGE> 1099
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.
61
<PAGE> 1100
FINANCIAL STATEMENTS
FS
<PAGE> 1101
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders of AIM Global Consumer Products and Services Fund (formerly
GT Global Consumer Products and Services Fund) and Board of Trustees of AIM
Investment Funds (formerly G.T. Investment Funds, Inc.):
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Global Consumer Products
and Services Fund - Consolidated at October 31, 1998, and the results of its
operations, the changes in its net assets and the financial highlights for the
periods indicated, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at October
31, 1998 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
------------------------------
PRICEWATERHOUSECOOPERS LLP
BOSTON, MASSACHUSETTS
DECEMBER 18, 1998
FS-1
<PAGE> 1102
PORTFOLIO OF INVESTMENTS
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Services (43.6%)
Safeway, Inc.-/- .......................................... US 79,300 $ 3,791,531 2.3
RETAILERS-FOOD
Meyer (Fred), Inc.-/- ..................................... US 71,000 3,785,180 2.3
RETAILERS-FOOD
Telecom Italia Mobile S.p.A. .............................. ITLY 631,100 3,667,546 2.2
TELEPHONE NETWORKS
Outdoor Systems, Inc.-/- .................................. US 152,000 3,353,500 2.0
BROADCASTING & PUBLISHING
Lamar Advertising Co.-/- .................................. US 105,500 3,293,578 2.0
BROADCASTING & PUBLISHING
Cinar Films, Inc. "B"-/- {\/} ............................. CAN 152,000 3,211,000 1.9
BROADCASTING & PUBLISHING
Time Warner, Inc. ......................................... US 34,000 3,155,625 1.9
BROADCASTING & PUBLISHING
Ames Department Stores, Inc.-/- ........................... US 132,600 2,436,525 1.5
RETAILERS-OTHER
Railtrack Group PLC-/- .................................... UK 90,590 2,432,607 1.5
TRANSPORTATION - ROAD & RAIL
Loblaw Cos., Ltd. ......................................... CAN 130,300 2,428,606 1.5
RETAILERS-FOOD
Etablissements Economiques du Casino Guichard-Perrachon
S.A. ..................................................... FR 24,230 2,412,660 1.5
LEISURE & TOURISM
Clear Channel Communications, Inc.-/- ..................... US 50,400 2,296,350 1.4
BROADCASTING & PUBLISHING
Tandy Corp. ............................................... US 45,000 2,230,313 1.3
RETAILERS-OTHER
Family Dollar Stores, Inc. ................................ US 118,100 2,140,563 1.3
RETAILERS-APPAREL
Promodes .................................................. FR 3,350 2,110,602 1.3
RETAILERS-FOOD
American Stores Co. ....................................... US 59,900 1,950,494 1.2
RETAILERS-FOOD
Avis Europe PLC ........................................... UK 443,600 1,937,085 1.2
TRANSPORTATION - ROAD
Musicland Stores Corp.-/- ................................. US 137,800 1,817,238 1.1
RETAILERS-OTHER
Tricon Global Restaurants, Inc. ........................... US 40,000 1,740,000 1.0
RETAILERS-FOOD
Duane Reade, Inc.-/- ...................................... US 43,300 1,672,463 1.0
RETAILERS-OTHER
Wal-Mart Stores, Inc. ..................................... US 24,000 1,656,000 1.0
RETAILERS-OTHER
Home Depot, Inc. .......................................... US 37,800 1,644,300 1.0
RETAILERS-OTHER
Dollar Tree Stores, Inc.-/- ............................... US 41,850 1,613,841 1.0
RETAILERS-OTHER
Linens 'N Things, Inc.-/- ................................. US 52,000 1,608,750 1.0
RETAILERS-APPAREL
Gap, Inc. ................................................. US 26,000 1,563,250 0.9
RETAILERS-APPAREL
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-2
<PAGE> 1103
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Services (Continued)
Longs Drug Stores Corp. ................................... US 36,600 $ 1,429,688 0.9
RETAILERS-OTHER
Carnival Corp. ............................................ US 43,600 1,411,550 0.8
LEISURE & TOURISM
The Kroger Co. ............................................ US 24,000 1,332,000 0.8
RETAILERS-FOOD
Costco Companies, Inc.-/- ................................. US 19,000 1,078,250 0.6
RETAILERS-FOOD
CBS Corp. ................................................. US 35,000 977,813 0.6
BROADCASTING & PUBLISHING
American Eagle Outfitters, Inc.-/- ........................ US 22,000 891,000 0.5
RETAILERS-APPAREL
Bed Bath & Beyond-/- ...................................... US 32,000 882,000 0.5
RETAILERS-OTHER
Abercrombie & Fitch Co.-/- ................................ US 22,000 873,125 0.5
RETAILERS-APPAREL
Fred's, Inc. .............................................. US 65,500 855,594 0.5
RETAILERS-OTHER
Paychex, Inc. ............................................. US 17,000 845,750 0.5
CONSUMER SERVICES
TJX Cos., Inc. ............................................ US 43,000 814,313 0.5
RETAILERS-APPAREL
Pacific Sunwear of California-/- .......................... US 32,100 694,163 0.4
RETAILERS-APPAREL
Young & Rubicam, Inc.-/- .................................. US 13,100 342,238 0.2
BUSINESS & PUBLIC SERVICES
------------
72,377,091
------------
Consumer Non-Durables (30.0%)
Heineken N.V. ............................................. NETH 99,225 5,285,838 3.2
BEVERAGES - ALCOHOLIC
The Dial Corp. ............................................ US 157,400 4,338,338 2.6
HOUSEHOLD PRODUCTS
Philip Morris Cos., Inc. .................................. US 80,400 4,110,450 2.5
TOBACCO AND FOOD
Clorox Co. ................................................ US 35,200 3,845,600 2.3
HOUSEHOLD PRODUCTS
Compagnie Financiere Richemont AG "A" Units ............... SWTZ 2,650 3,521,335 2.1
TOBACCO
Coca-Cola Co. ............................................. US 46,000 3,110,750 1.9
BEVERAGES - NON-ALCOHOLIC
Anheuser-Busch Cos., Inc. ................................. US 52,000 3,090,750 1.9
BEVERAGES - ALCOHOLIC
Nestle S.A. - Registered .................................. SWTZ 1,372 2,916,994 1.8
FOOD
Danone .................................................... FR 10,400 2,750,887 1.7
FOOD
Adolph Coors Co. "B" ...................................... US 47,200 2,360,000 1.4
BEVERAGES - ALCOHOLIC
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-3
<PAGE> 1104
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Consumer Non-Durables (Continued)
Quaker Oats Co. ........................................... US 37,100 $ 2,191,219 1.3
FOOD
Unilever PLC-/- ........................................... UK 212,210 2,130,266 1.3
HOUSEHOLD PRODUCTS
British American Tobacco PLC - ADR-/- ..................... US 116,600 2,120,663 1.3
TOBACCO
Diageo PLC ................................................ UK 174,500 1,883,094 1.1
BEVERAGES - ALCOHOLIC
Foster's Brewing Group Ltd. ............................... AUSL 750,000 1,842,188 1.1
BEVERAGES - ALCOHOLIC
SEITA (Societe Nationale d'Exploitation Industrielle des
Tabacs et Allumettes) .................................... FR 29,400 1,746,943 1.1
TOBACCO
The Earthgrains Co. ....................................... US 47,000 1,410,000 0.8
FOOD
Interstate Bakeries Corp. ................................. US 24,800 621,550 0.4
FOOD
Saputo Group, Inc. ........................................ CAN 13,700 293,096 0.2
FOOD
------------
49,569,961
------------
Consumer Durables (6.7%)
Microsoft Corp.-/- ........................................ US 48,900 5,177,288 3.1
COMPUTER SOFTWARE
Sonic Automotive, Inc.-/- ................................. US 91,300 1,854,531 1.1
AUTOMOBILES
Daimler Benz AG ........................................... GER 21,565 1,674,281 1.0
AUTOMOBILES
Maytag Corporation ........................................ US 31,900 1,577,056 0.9
APPLIANCES & HOUSEHOLD
Best Buy Co., Inc.-/- ..................................... US 20,000 960,000 0.6
CONSUMER ELECTRONICS
------------
11,243,156
------------
Finance (5.8%)
Fannie Mae ................................................ US 40,900 2,896,231 1.7
OTHER FINANCIAL
Axa - UAP ................................................. FR 18,850 2,131,516 1.3
INSURANCE - MULTI-LINE
Providian Financial Corp. ................................. US 21,000 1,666,875 1.0
CONSUMER FINANCE
SunAmerica, Inc. .......................................... US 22,200 1,565,100 0.9
INSURANCE - MULTI-LINE
Metris Cos., Inc. ......................................... US 44,000 1,446,500 0.9
CONSUMER FINANCE
------------
9,706,222
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-4
<PAGE> 1105
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Materials/Basic Industry (3.4%)
CRH PLC ................................................... UK 212,679 $ 3,099,271 1.9
BUILDING MATERIALS & COMPONENTS
Tyco International Ltd. ................................... US 41,000 2,539,438 1.5
MISC. MATERIALS & COMMODITIES
------------
5,638,709
------------
Multi-Industry/Miscellaneous (2.6%)
General Electric Co. ...................................... US 49,400 4,322,500 2.6
------------ -----
CONGLOMERATE
TOTAL EQUITY INVESTMENTS (cost $133,549,669) ................ 152,857,639 92.1
------------ -----
<CAPTION>
VALUE % OF NET
REPURCHASE AGREEMENT (NOTE 1) ASSETS
- ------------------------------------------------------------- ------------ -------------
<S> <C> <C> <C> <C>
Dated October 30, 1998, with State Street Bank & Trust Co.,
due November 2, 1998, for an effective yield of 5.30%,
collateralized by $17,540,000 U.S. Treasury Notes, 5.75%
due 9/30/99 (market value of collateral is $17,842,372,
including accrued interest). (cost $17,489,000) .......... 17,489,000 10.5
------------ -----
TOTAL INVESTMENTS (cost $151,038,669) * .................... 170,346,639 102.6
Other Assets and Liabilities ................................ (4,330,217) (2.6)
------------ -----
NET ASSETS .................................................. $166,016,422 100.0
------------ -----
------------ -----
</TABLE>
- --------------
-/- Non-income producing security.
{\/} U.S. currency denominated.
* For Federal income tax purposes, cost is $153,515,812 and
appreciation (depreciation) is as follows:
<TABLE>
<S> <C>
Unrealized appreciation: $ 18,855,154
Unrealized depreciation: (2,024,327)
-------------
Net unrealized appreciation: $ 16,830,827
-------------
-------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Fund's Portfolio of Investments at October 31, 1998, was concentrated in the
following countries:
<TABLE>
<CAPTION>
PERCENTAGE OF NET ASSETS {D}
----------------------------
SHORT-TERM
COUNTRY (COUNTRY CODE/CURRENCY CODE) EQUITY & OTHER TOTAL
- -------------------------------------- ----- ------------ -----
<S> <C> <C> <C>
Australia (AUSL/AUD) ................. 1.1 1.1
Canada (CAN/CAD) ..................... 3.6 3.6
France (FR/FRF) ...................... 6.9 6.9
Germany (GER/DEM) .................... 1.0 1.0
Italy (ITLY/ITL) ..................... 2.2 2.2
Netherlands (NETH/NLG) ............... 3.2 3.2
Switzerland (SWTZ/CHF) ............... 3.9 3.9
United Kingdom (UK/GBP) .............. 7.0 7.0
United States (US/USD) ............... 63.2 7.9 71.1
----- --- -----
Total ............................... 92.1 7.9 100.0
----- --- -----
----- --- -----
</TABLE>
- --------------
{d} Percentages indicated are based on net assets of $166,016,422.
The accompanying notes are an integral part of the financial statements.
FS-5
<PAGE> 1106
STATEMENT OF ASSETS
AND LIABILITIES
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at value (cost $133,549,669) (Note 1).......................... $152,857,639
Repurchase Agreement, at value and cost (Note 1).......................................... 17,489,000
U.S. currency................................................................. $ 535
Foreign currencies (cost $2,750,495).......................................... 2,755,656 2,756,191
----------
Receivable for securities sold............................................................ 1,546,087
Receivable for Fund shares sold........................................................... 323,204
Dividends and dividend withholding tax reclaims receivable................................ 150,278
Miscellaneous receivable.................................................................. 12,035
Unamortized organizational costs (Note 1)................................................. 11,964
Interest receivable....................................................................... 5,148
------------
Total assets............................................................................ 175,151,546
------------
Liabilities:
Payable for securities purchased.......................................................... 8,091,057
Payable for Fund shares repurchased....................................................... 442,536
Payable for service and distribution expenses (Note 2).................................... 241,953
Payable for investment management and administration fees (Note 2)........................ 130,694
Payable for transfer agent fees (Note 2).................................................. 100,185
Payable for printing and postage expenses................................................. 42,237
Payable for professional fees............................................................. 24,648
Payable for Trustees' fees and expenses (Note 2).......................................... 12,056
Payable for registration and filing fees.................................................. 5,125
Payable for fund accounting fees (Note 2)................................................. 2,449
Payable for custodian fees................................................................ 848
Other accrued expenses.................................................................... 41,236
------------
Total liabilities....................................................................... 9,135,024
Minority interest (Notes 1 & 2)........................................................... 100
------------
Net assets.................................................................................. $166,016,422
------------
------------
Class A:
Net asset value and redemption price per share ($59,879,529 DIVIDED BY 2,702,075 shares
outstanding)............................................................................. $ 22.16
------------
------------
Maximum offering price per share (100/95.25 of $22.16) *.................................. $ 23.27
------------
------------
Class B:+
Net asset value and offering price per share ($91,613,414 DIVIDED BY 4,222,200 shares
outstanding)............................................................................. $ 21.70
------------
------------
Advisor Class:
Net asset value, offering price per share, and redemption price per share ($14,523,479
DIVIDED BY 642,459 shares outstanding)................................................... $ 22.61
------------
------------
Net assets consist of:
Paid in capital (Note 4).................................................................. $144,231,004
Accumulated net realized gain on investments and foreign currency transactions............ 2,459,227
Net unrealized appreciation on translation of assets and liabilities in foreign
currencies............................................................................... 18,221
Net unrealized appreciation of investments................................................ 19,307,970
------------
Total -- representing net assets applicable to capital shares outstanding................... $166,016,422
------------
------------
<FN>
- --------------
* On sales of $50,000 or more, the offering price is reduced.
+ Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-6
<PAGE> 1107
STATEMENT OF OPERATIONS
Year ended October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment income: (Note 1)
Dividend income (net of foreign withholding tax of $109,205)............................... $ 1,263,585
Interest income............................................................................ 727,860
Securities lending income.................................................................. 61,127
-----------
Total investment income.................................................................. 2,052,572
-----------
Expenses:
Investment management and administration fees (Note 2)..................................... 1,786,377
Service and distribution expenses: (Note 2)
Class A..................................................................... $ 335,139
Class B..................................................................... 1,005,968 1,341,107
-----------
Transfer agent fees (Note 2)............................................................... 478,410
Printing and postage expenses.............................................................. 117,338
Professional fees.......................................................................... 85,210
Fund accounting fees (Note 2).............................................................. 47,155
Registration and filing fees............................................................... 44,460
Custodian fees............................................................................. 43,690
Trustees' fees and expenses (Note 2)....................................................... 22,550
Amortization of organization costs (Note 1)................................................ 10,300
Other expenses............................................................................. 21,447
-----------
Total expenses before reductions......................................................... 3,998,044
-----------
Expense reductions (Note 5)............................................................ (40,195)
-----------
Total net expenses....................................................................... 3,957,849
-----------
Net investment loss.......................................................................... (1,905,277)
-----------
Net realized and unrealized gain (loss) on investments and foreign currencies:
(Note 1)
Net realized gain on investments.............................................. 4,701,157
Net realized loss on foreign currency transactions............................ (45,712)
-----------
Net realized gain during the year........................................................ 4,655,445
Net change in unrealized appreciation on translation of assets and liabilities
in foreign currencies........................................................ 13,162
Net change in unrealized appreciation of investments.......................... 10,759,527
-----------
Net unrealized appreciation during the year.............................................. 10,772,689
-----------
Net realized and unrealized gain on investments and foreign currencies....................... 15,428,134
-----------
Net increase in net assets resulting from operations......................................... $13,522,857
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-7
<PAGE> 1108
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1998 1997
--------------- ---------------
<S> <C> <C>
Increase (decrease) in net assets
Operations:
Net investment loss..................................................................... $ (1,905,277) $ (1,662,851)
Net realized gain on investments and foreign currency transactions...................... 4,655,445 16,167,449
Net change in unrealized appreciation on translation of assets and liabilities in
foreign currencies..................................................................... 13,162 5,172
Net change in unrealized appreciation (depreciation) of investments..................... 10,759,527 (714,518)
--------------- ---------------
Net increase in net assets resulting from operations.................................. 13,522,857 13,795,252
--------------- ---------------
Class A:
Distributions to shareholders: (Note 1)
From net realized gain on investments................................................... (5,574,558) (3,424,902)
Class B:
Distributions to shareholders: (Note 1)
From net realized gain on investments................................................... (8,128,120) (4,055,905)
Advisor Class:
Distributions to shareholders: (Note 1)
From net realized gain on investments................................................... (962,828) (308,573)
--------------- ---------------
Total distributions................................................................... (14,665,506) (7,789,380)
--------------- ---------------
Capital share transactions: (Note 4)
Increase from capital shares sold and reinvested........................................ 92,335,349 136,239,369
Decrease from capital shares repurchased................................................ (87,838,591) (151,833,735)
--------------- ---------------
Net increase (decrease) from capital share transactions............................... 4,496,758 (15,594,366)
--------------- ---------------
Total increase (decrease) in net assets................................................... 3,354,109 (9,588,494)
Net assets:
Beginning of year....................................................................... 162,662,313 172,250,807
--------------- ---------------
End of year *........................................................................... $166,016,422 $162,662,313
--------------- ---------------
--------------- ---------------
* Includes undistributed net investment income........................................... $ -- --
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-8
<PAGE> 1109
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------
DECEMBER 30, 1994
YEAR ENDED OCTOBER 31, (COMMENCEMENT OF
---------------------------------- OPERATIONS)
1998 (d) 1997 (d) 1996 (d) TO OCTOBER 31, 1995 (d)
---------- ---------- ---------- ---------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.......................... $ 22.19 $ 20.98 $ 14.59 $ 11.43
---------- ---------- ---------- --------
Income from investment operations:
Net investment income (loss)................................ (0.19) (0.15) (0.22) 0.02*
Net realized and unrealized gain on investments............. 2.05 2.27 7.13 3.14
---------- ---------- ---------- --------
Net increase from investment operations................... 1.86 2.12 6.91 3.16
---------- ---------- ---------- --------
Distributions to shareholders:
From net realized gain on investments....................... (1.89) (0.91) (0.52) --
---------- ---------- ---------- --------
Total distributions....................................... (1.89) (0.91) (0.52) --
---------- ---------- ---------- --------
Net asset value, end of period................................ $ 22.16 $ 22.19 $ 20.98 $ 14.59
---------- ---------- ---------- --------
---------- ---------- ---------- --------
Total investment return (c)................................... 8.66% 10.55% 48.82% 27.65% (b)
Ratios and supplemental data:
Net assets, end of period (in 000's).......................... $ 59,880 $ 62,637 $ 76,900 $ 4,082
Ratio of net investment income (loss) to average net assets:
With expense reductions and/or reimbursement (Notes 2 &
5)......................................................... (0.81)% (0.72)% (1.14)% 0.20% (a)
Without expense reductions and/or reimbursement............. (0.83)% (0.87)% (1.24)% (11.11)% (a)
Ratio of expenses to average net assets:
With expense reductions and/or reimbursement (Notes 2 &
5)......................................................... 1.93% 1.84% 2.24% 2.32% (a)
Without expense reductions and/or reimbursement............. 1.95% 1.99% 2.34% 13.63% (a)
Portfolio turnover rate++..................................... 221% 392% 169% 240% (a)
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share operating data were calculated based upon
average shares outstanding during the period.
* Before reimbursement net investment income (loss) per share would have
been reduced (increased) by $1.12, $1.04 and $0.61 for Class A, Class
B and Advisor Class, respectively.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover is calculated on the basis of the Portfolio as a
whole without distinguishing between the classes of shares issued.
The accompanying notes are an integral part of the financial statements.
FS-9
<PAGE> 1110
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------------------------
DECEMBER 30, 1994
YEAR ENDED OCTOBER 31, (COMMENCEMENT OF
---------------------------------- OPERATIONS)
1998 (d) 1997 (d) 1996 (d) TO OCTOBER 31, 1995 (d)
---------- ---------- ---------- ---------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period............................. $ 21.86 $ 20.79 $ 14.53 $ 11.43
---------- ---------- ---------- --------
Income from investment operations:
Net investment income (loss)................................... (0.30) (0.24) (0.31) (0.04) *
Net realized and unrealized gain on investments................ 2.03 2.22 7.09 3.14
---------- ---------- ---------- --------
Net increase from investment operations...................... 1.73 1.98 6.78 3.10
---------- ---------- ---------- --------
Distributions to shareholders:
From net realized gain on investments.......................... (1.89) (0.91) (0.52) --
---------- ---------- ---------- --------
Total distributions.......................................... (1.89) (0.91) (0.52) --
---------- ---------- ---------- --------
Net asset value, end of period................................... $ 21.70 $ 21.86 $ 20.79 $ 14.53
---------- ---------- ---------- --------
---------- ---------- ---------- --------
Total investment return (c)...................................... 8.16% 9.95% 48.11% 27.12% (b)
Ratios and supplemental data:
Net assets, end of period (in 000's)............................. $ 91,613 $ 93,978 $ 87,904 $ 2,959
Ratio of net investment income (loss) to average net assets:
With expense reductions and/or reimbursement (Notes 2 & 5)..... (1.31)% (1.22)% (1.64)% (0.30)% (a)
Without expense reductions and/or reimbursement................ (1.33)% (1.37)% (1.74)% (11.61)% (a)
Ratio of expenses to average net assets:
With expense reductions and/or reimbursement (Notes 2 & 5)..... 2.43% 2.34% 2.74% 2.82% (a)
Without expense reductions and/or reimbursement................ 2.45% 2.49% 2.84% 14.13% (a)
Portfolio turnover rate++........................................ 221% 392% 169% 240% (a)
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share operating data were calculated based upon
average shares outstanding during the period.
* Before reimbursement net investment income (loss) per share would have
been reduced (increased) by $1.12, $1.04 and $0.61 for Class A, Class
B and Advisor Class, respectively.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover is calculated on the basis of the Portfolio as a
whole without distinguishing between the classes of shares issued.
The accompanying notes are an integral part of the financial statements.
FS-10
<PAGE> 1111
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
ADVISOR CLASS+
---------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------- JUNE 1, 1995
1998 (d) 1997 (d) 1996 (d) TO OCTOBER 31, 1995 (d)
---------- ---------- ---------- ---------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period............................. $ 22.50 $ 21.15 $ 14.64 $ 11.84
---------- ---------- ---------- --------
Income from investment operations:
Net investment income (loss)................................... (0.08) (0.04) (0.13) 0.04*
Net realized and unrealized gain on investments................ 2.08 2.30 7.16 2.76
---------- ---------- ---------- --------
Net increase from investment operations...................... 2.00 2.26 7.03 2.80
---------- ---------- ---------- --------
Distributions to shareholders:
From net realized gain on investments.......................... (1.89) (0.91) (0.52) --
---------- ---------- ---------- --------
Total distributions.......................................... (1.89) (0.91) (0.52) --
---------- ---------- ---------- --------
Net asset value, end of period................................... $ 22.61 $ 22.50 $ 21.15 $ 14.64
---------- ---------- ---------- --------
---------- ---------- ---------- --------
Total investment return (c)...................................... 9.20% 11.15% 49.50% 23.65% (b)
Ratios and supplemental data:
Net assets, end of period (in 000's)............................. $ 14,523 $ 6,047 $ 7,446 $ 164
Ratio of net investment income (loss) to average net assets:
With expense reductions and/or reimbursement (Notes 2 & 5)..... (0.31)% (0.22)% (0.64)% 0.70% (a)
Without expense reductions and/or reimbursement................ (0.33)% (0.37)% (0.74)% (10.61)% (a)
Ratio of expenses to average net assets:
With expense reductions and/or reimbursement (Notes 2 & 5)..... 1.43% 1.34% 1.74% 1.82% (a)
Without expense reductions and/or reimbursement................ 1.45% 1.49% 1.84% 13.13% (a)
Portfolio turnover rate++........................................ 221% 392% 169% 240% (a)
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share operating data were calculated based upon
average shares outstanding during the period.
* Before reimbursement net investment income (loss) per share would have
been reduced (increased) by $1.12, $1.04 and $0.61 for Class A, Class
B and Advisor Class, respectively.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover is calculated on the basis of the Portfolio as a
whole without distinguishing between the classes of shares issued.
The accompanying notes are an integral part of the financial statements.
FS-11
<PAGE> 1112
NOTES TO
FINANCIAL STATEMENTS
October 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (SEE ALSO NOTE 2)
AIM Global Consumer Products and Services Fund (the "Fund"), formerly GT Global
Consumer Products and Services Fund, is a separate series of AIM Investment
Funds (the "Trust"), formerly G.T. Investment Funds, Inc. The Trust is organized
as a Delaware business trust and is registered under the Investment Company Act
of 1940, as amended ("1940 Act"), as an open-end management investment company.
The Trust has thirteen series of shares in operation, each series corresponding
to a distinct portfolio of investments.
The Fund invests substantially all of its investable assets in Global Consumer
Products and Services Portfolio, (the "Portfolio"). The Portfolio is organized
as a subtrust of Global Investment Portfolio, a Delaware business trust and is
registered under the 1940 Act as an open-end management investment company.
The Portfolio has investment objectives, policies, and limitations substantially
identical to those of its corresponding Fund. Therefore, the financial
statements of the Fund and Portfolio have been presented on a consolidated
basis, and represent all activities of both the Fund and Portfolio. Through
October 31, 1998, all of the shares of beneficial interest of the Portfolio were
owned by either the Fund or A I M Advisors, Inc. (the "Manager"), which has a
nominal ($100) investment in the Portfolio.
The Fund offers Class A, Class B, and Advisor Class shares, each of which has
equal rights as to assets and voting privileges except that Class A and Class B
each has exclusive voting rights with respect to its distribution plan.
Investment income, realized and unrealized capital gains and losses, and the
common expenses of the Fund are allocated on a pro rata basis to each class
based on the relative net assets of each class to the total net assets of the
Fund. Each class of shares differs in its respective service and distribution
expenses, and may differ in its transfer agent, registration, and certain other
class-specific fees and expenses.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies in conformity with generally accepted accounting
principles consistently followed by the Fund in the preparation of the financial
statements.
(A) PORTFOLIO VALUATION
The Fund calculates the net asset value of and completes orders to purchase,
exchange or repurchase Fund shares on each business day, with the exception of
those days on which the New York Stock Exchange is closed.
Equity securities are valued at the last sale price on the exchange on which
such securities are traded, or on the principal over-the-counter market on which
such securities are traded, as of the close of business on the day the
securities are being valued, or, lacking any sales, at the last available bid
price. In cases where securities are traded on more than one exchange, the
securities are valued on the exchange determined by the Manager to be the
primary market.
Fixed income investments are valued at the mean of representative quoted bid and
ask prices for such investments or, if such prices are not available, at prices
for investments of comparative maturity, quality and type; however, when the
Manager deems it appropriate, prices obtained for the day of valuation from a
bond pricing service will be used. Short-term investments are valued at
amortized cost adjusted for foreign exchange translation and market fluctuation,
if any.
Investments for which market quotations are not readily available (including
restricted securities which are subject to limitations on their sale) are valued
at fair value as determined in good faith by or under the direction of the
Trust's Board of Trustees.
Portfolio securities which are primarily traded on foreign exchanges are
generally valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S. dollars at
the current exchange rates, except that when an occurrence subsequent to the
time a value was so established is likely to have materially changed such value,
then the fair value of those securities will be determined by consideration of
other factors by or under the direction of the Trust's Board of Trustees.
(B) FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund and Portfolio are maintained in U.S. dollars.
The market values of foreign securities, currency holdings, and other assets and
liabilities are recorded in the books and records of the Portfolio after
translation to U.S. dollars based on the exchange rates on that day. The cost of
each security is determined using historical exchange rates. Income and
withholding taxes are translated at prevailing exchange rates when earned or
incurred.
The Portfolio does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, forward foreign currency contracts, sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Portfolio's books and the U.S. dollar equivalent of the amounts actually
received or paid. Net unrealized foreign exchange gains or losses arise from
changes in the value of assets and liabilities other than investments in
securities at year end, resulting from changes in exchange rates.
(C) REPURCHASE AGREEMENTS
With respect to repurchase agreements entered into by the Portfolio, it is the
Portfolio's policy to always receive, as collateral, United States government
securities or other high quality debt securities of which the value, including
accrued interest, is at least equal to the amount to be repaid to the Portfolio
under each agreement at its maturity.
FS-12
<PAGE> 1113
(D) FORWARD FOREIGN CURRENCY CONTRACTS
A forward foreign currency contract ("Forward Contract") is an agreement between
two parties to buy and sell a currency at a set price on a future date. The
market value of the Forward Contract fluctuates with changes in currency
exchange rates. The Forward Contract is marked-to-market daily and the change in
market value is recorded by the Portfolio as an unrealized gain or loss. When
the Forward Contract is closed, the Portfolio records a realized gain or loss
equal to the difference between the value at the time it was opened and the
value at the time it was closed. Forward Contracts involve market risk in excess
of the amount shown in the Portfolio's "Statement of Assets and Liabilities".
The Portfolio could be exposed to risk if a counter party is unable to meet the
terms of the contract or if the value of the currency changes unfavorably. The
Portfolio may enter into Forward Contracts in connection with planned purchases
or sales of securities, or to hedge against adverse fluctuations in exchange
rates between currencies.
(E) OPTION ACCOUNTING PRINCIPLES
When the Portfolio writes a call or put option, an amount equal to the premium
received is included in the Portfolio's "Statement of Assets and Liabilities" as
an asset and an equivalent liability. The amount of the liability is
subsequently marked-to-market to reflect the current market value of the option.
The current market value of an option listed on a traded exchange is valued at
its last bid price, or, in the case of an over-the-counter option, is valued at
the average of the last bid prices obtained from brokers, unless a quotation
from only one broker is available, in which case only that broker's price will
be used. If an option expires on its stipulated expiration date or if the
Portfolio enters into a closing purchase transaction, a gain or loss is realized
without regard to any unrealized gain or loss on the underlying security and the
liability related to such option is extinguished. If a written call option is
exercised, a gain or loss is realized from the sale of the underlying security
and the proceeds of the sale are increased by the premium originally received.
If a written put option is exercised, the cost of the underlying security
purchased would be decreased by the premium originally received. The Portfolio
can write options only on a covered basis, which, for a call, requires that the
Portfolio hold the underlying security and, for a put, requires the Portfolio to
set aside cash, U.S. government securities or other liquid securities in an
amount not less than the exercise price, or otherwise provide adequate cover at
all times while the put option is outstanding. The Portfolio may use options to
manage its exposure to the stock market and to fluctuations in currency values
or interest rates.
The premium paid by the Portfolio for the purchase of a call or put option is
included in the Portfolio's "Statement of Assets and Liabilities" as an
investment and subsequently "marked-to-market" to reflect the current market
value of the option. If an option which the Portfolio has purchased expires on
the stipulated expiration date, the Portfolio realizes a loss in the amount of
the cost of the option. If the Portfolio enters into a closing sale transaction,
the Portfolio realizes a gain or loss, depending on whether proceeds from the
closing sale transaction are greater or less than the cost of the option. If the
Portfolio exercises a call option, the cost of the securities acquired by
exercising the call is increased by the premium paid to buy the call. If the
Portfolio exercises a put option, it realizes a gain or loss from the sale of
the underlying security, and the proceeds from such sale are decreased by the
premium originally paid.
The risk associated with purchasing options is limited to the premium originally
paid. The risk in writing a call option is that the Portfolio may forego the
opportunity of profit if the market value of the underlying security or index
increases and the option is exercised. The risk in writing a put option is that
the Portfolio may incur a loss if the market value of the underlying security or
index decreases and the option is exercised. In addition, there is the risk the
Portfolio may not be able to enter into a closing transaction because of an
illiquid secondary market.
(F) FUTURES CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
security at a set price on a future date. Upon entering into such a contract the
Portfolio is required to pledge to the broker an amount of cash or securities
equal to the minimum "initial margin" requirements of the exchange on which the
contract is traded. Pursuant to the contract, the Portfolio agrees to receive
from or pay to the broker an amount of cash equal to the daily fluctuation in
value of the contract. Such receipts or payments are known as "variation margin"
and are recorded by the Portfolio as unrealized gains or losses. When the
contract is closed, the Portfolio records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed. The potential risk to the Portfolio is that the
change in value of the underlying securities may not correlate to the change in
value of the contracts. The Portfolio may use futures contracts to manage its
exposure to the stock market and to fluctuations in currency values or interest
rates.
(G) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). The cost of securities sold is determined on a first-in,
first-out-basis, unless otherwise specified. Dividends are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. Where a high
level of uncertainty exists as to its collection, income is recorded net of all
withholding tax with any rebate recorded when received. The Portfolio may trade
securities on other than normal settlement terms. This may increase the risk if
the other party to the transaction fails to deliver and causes the Portfolio to
subsequently invest at less advantageous prices.
(H) PORTFOLIO SECURITIES LOANED
At October 31, 1998, stocks with an aggregate value of $23,872,564 were on loan
to brokers. The loans were secured by cash collateral of $24,380,125 received by
the Portfolio. For the year ended October 31, 1998, the Fund received fees of
$61,127.
For international securities, cash collateral is received by the Portfolio
against loaned securities in an amount at least equal to 105% of the market
value of the loaned securities at the inception of each loan. This collateral
must be maintained at not less than 103% of the market value of the loaned
securities during the period of the loan. For domestic securities, cash
collateral is received by the Portfolio against loaned securities in the amount
at least equal to 102% of the market value of the loaned securities at the
inception of each loan. This collateral must be maintained at not less than 100%
of the market value of the loaned securities during the period of the loan. The
cash collateral is invested in a securities lending trust which consists of a
portfolio of high quality short duration securities whose average effective
duration is restricted to 120 days or less.
FS-13
<PAGE> 1114
(I) TAXES
It is the intended policy of the Fund to meet the requirements for qualification
as a "regulated investment company" under the Internal Revenue Code of 1986, as
amended ("Code"). It is also the intention of the Fund to make distributions
sufficient to avoid imposition of any excise tax under Section 4982 of the Code.
Therefore, no provision has been made for Federal taxes on income, capital
gains, unrealized appreciation of securities held, or excise tax on income and
capital gains.
(J) DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded by the Fund on the ex-date. Income
and capital gain distributions are determined in accordance with Federal income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Portfolio and timing differences.
(K) DEFERRED ORGANIZATIONAL EXPENSES
Expenses incurred by the Fund in connection with its organization, its initial
registration with the Securities and Exchange Commission and with various states
and the initial public offering of its shares aggregated $51,500. These expenses
are being amortized on a straightline basis over a five-year period.
(L) FOREIGN SECURITIES
There are certain additional considerations and risks associated with investing
in foreign securities and currency transactions that are not inherent in
investments of domestic origin. The Portfolio's investment in emerging market
countries may involve greater risks than investments in more developed markets
and the price of such investments may be volatile. These risks of investing in
foreign and emerging markets may include foreign currency exchange rate
fluctuations, perceived credit risk, adverse political and economic developments
and possible adverse foreign government intervention.
In addition, the Portfolio's policy of concentrating its investments in
companies in the consumer products and services industry subject the Portfolio
to greater risk than a fund that is more diversified.
(M) INDEXED SECURITIES
The Portfolio may invest in indexed securities whose value is linked either
directly or indirectly to changes in foreign currencies, interest rates,
equities, indices, or other reference instruments. Indexed securities may be
more volatile than the reference instrument itself, but any loss is limited to
the amount of the original investment.
(N) RESTRICTED SECURITIES
The Portfolio is permitted to invest in privately placed restricted securities.
These securities may be resold in transactions exempt from registration or to
the public if the securities are registered. Disposal of these securities may
involve time-consuming negotiations and expense, and prompt sale at an
acceptable price may be difficult. At the end of the year, restricted
securities, if any, (excluding 144A issues), are shown at the end of the Fund's
Portfolio of Investments.
(O) LINE OF CREDIT
The Fund, along with certain other funds advised and/or administered by the
Manager, has a line of credit with each of BankBoston and State Street Bank and
Trust Company. The arrangements with the banks allow the Fund and certain other
Funds to borrow, on a first come, first serve basis, an aggregate maximum amount
of $250,000,000. The Fund is limited to borrowing up to 33 1/3% of the value of
the Fund's total assets. On October 31, 1998, the Fund had no loans outstanding.
For the year ended October 31, 1998, the weighted average outstanding daily
balance of bank loans (based on the number of days the loans were outstanding)
was $1,349,405, with a weighted average interest rate of 6.27%. Interest expense
for the year ended October 31, 1998 was $10,094 and is included in "Other
Expenses" on the Statement of Operations.
2. RELATED PARTIES
A I M Advisors, Inc. (the "Manager"), an indirect wholly-owned subsidiary of
AMVESCAP PLC, is the Fund's and Portfolio's investment manager and
administrator. As of the close of business on May 29, 1998, Liechtenstein Global
Trust AG ("LGT"), the former indirect parent organization of Chancellor LGT
Asset Management, Inc. ("Chancellor LGT") consummated a purchase agreement with
AMVESCAP PLC pursuant to which AMVESCAP PLC acquired LGT's Asset Management
Division, which included Chancellor LGT and certain other affiliates. A I M
Distributors, Inc. ("AIM Distributors"), a wholly-owned subsidiary of the
Manager, is the Fund's distributor as of the close of business on May 29, 1998.
The Trust was reorganized from a Maryland corporation into a Delaware business
trust, and the Portfolio was reorganized from a New York common law trust into a
Delaware business trust on September 8, 1998. Finally, as of the close of
business on September 4, 1998, A I M Fund Services, Inc. ("AFS"), an affiliate
of the Manager and AIM Distributors, replaced GT Global Investor Services, Inc.
("GT Services") as the transfer agent of the Fund.
The Fund pays the Manager administration fees at the annualized rate of 0.25% of
such Fund's average daily net assets. The Portfolio pays investment management
and administration fees to the Manager at the annualized rate of 0.725% on the
first $500 million of average daily net assets of the Portfolio; 0.70% on the
next $500 million; 0.675% on the next $500 million; and 0.65% on amounts
thereafter. These fees are computed daily and paid monthly.
AIM Distributors, an affiliate of the Manager, serves as the Fund's distributor.
For the period ended May 29, 1998, GT Global, Inc. ("GT Global") served as the
Fund's distributor. The Fund offers Class A, Class B, and Advisor Class shares
for purchase.
Class A shares are subject to initial sales charges imposed at the time of
purchase, in accordance with the schedule included in the Fund's current
prospectus. AIM Distributors collects the sales charges imposed on sales of
Class A shares, and re allows a portion of such charges to dealers through which
the sales are made. For the year ended October 31, 1998, AIM Distributors and GT
Global retained sales charges of $14,898 and $11,522, respectively. Purchases of
Class A shares exceeding $1,000,000 may be subject to a contingent deferred
sales charge ("CDSC") upon redemption, in accordance with the Fund's current
prospectus. AIM Distributors and GT Global collected no CDSCs for the year ended
October 31, 1998. AIM Distributors also makes ongoing shareholder servicing and
trail commission payments to dealers whose clients hold Class A shares.
Class B shares are not subject to initial sales charges. When Class B shares are
sold, AIM Distributors, from its own resources, pays commissions to dealers
through which the sales are made. Certain redemptions of Class B shares made
within six years of purchase are subject to CDSCs, in accordance with the Fund's
current prospectus. For the year ended October 31, 1998, AIM Distributors and GT
Global
FS-14
<PAGE> 1115
collected CDSCs in the amount of $107,172 and $246,092, respectively. In
addition, AIM Distributors makes ongoing shareholder servicing and trail
commission payments to dealers whose clients hold Class B shares.
For the period ended May 29, 1998, pursuant to the then effective separate
distribution plans adopted under the 1940 Act Rule 12b-1 by the Trust's Board of
Trustees with respect to the Fund's Class A shares ("Class A Plan") and Class B
shares ("Class B Plan"), the Fund reimbursed GT Global for a portion of its
shareholder servicing and distribution expenses. Under the Class A Plan, the
Fund was permitted to pay GT Global a service fee at the annualized rate of up
to 0.25% of the average daily net assets of the Fund's Class A shares for GT
Global's expenditures incurred in servicing and maintaining shareholder
accounts, and was permitted to pay GT Global a distribution fee at the
annualized rate of up to 0.50% of the average daily net assets of the Fund's
Class A shares, less any amounts paid by the Fund as the aforementioned service
fee, for GT Global's expenditures incurred in providing services as distributor.
All expenses for which GT Global was reimbursed under the Class A Plan would
have been incurred within one year of such reimbursement.
For the period ended May 29, 1998, pursuant to the Class B Plan, the Fund was
permitted to pay GT Global a service fee at the annualized rate of up to 0.25%
of the average daily net assets of the Fund's Class B shares for GT Global's
expenditures incurred in servicing and maintaining shareholder accounts, and was
permitted to pay GT Global a distribution fee at the annualized rate of up to
0.75% of the average daily net assets of the Fund's Class B shares for GT
Global's expenditures incurred in providing services as distributor. Expenses
incurred under the Class B Plan in excess of 1.00% annually were permitted to be
carried forward for reimbursement in subsequent years as long as that Plan
continued in effect.
Effective as of the close of business May 29, 1998, pursuant to Rule 12b-1 under
the 1940 Act, the Trust's Board of Trustees adopted a Master Distribution Plan
applicable to the Fund's Class A shares ("Class A Plan") and Class B shares
("Class B Plan"), pursuant to which the Fund compensates AIM Distributors for
the purpose of financing any activity that is intended to result in the sale of
Class A or Class B shares of the Fund. Under the Class A Plan, the Fund
compensates AIM Distributors at the annualized rate of 0.50% of the average
daily net assets of the Fund's Class A shares. Under the Class B Plan, the Fund
compensates AIM Distributors at an annualized rate of 1.00% of the average daily
net assets of the Fund's Class B shares.
The Class A Plan and the Class B Plan (together, the "Plans") are designed to
compensate AIM Distributors for certain promotional and other sales-related
costs, and to implement a dealer incentive program that provides for periodic
payments to selected dealers who furnish continuing personal shareholder
services to their customers who purchase and own Class A and Class B shares of
the Fund. Payments also can be directed by AIM Distributors to Financial
Institutions who have entered into service agreements with respect to Class A
and Class B shares of the Fund and who provide continuing personal services to
their customers who own Class A and Class B shares of the Fund. The service fees
payable to selected Financial 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 that were purchased on or after a
prescribed date set forth in the Plans.
The Manager and AIM Distributors voluntarily have undertaken to limit the Fund's
expenses (exclusive of brokerage commissions, taxes, interest, and extraordinary
expense) to the maximum annual rate of 2.00%, 2.50%, and 1.50% of the average
daily net assets of the Fund's Class A, Class B, and Advisor Class shares,
respectively. If necessary, this limitation will be effected by waivers by the
Manager of investment management and administration fees, waivers by AIM
Distributors of payments under the Class A Plan and/or Class B Plan and/or
reimbursements by the Manager or AIM Distributors of portions of the Fund's
other operating expenses.
Effective as of the close of business September 4, 1998, the Fund, pursuant to a
transfer agency and service agreement, has agreed to pay A I M Fund Services,
Inc. ("AFS") an annualized fee of $24.85 per shareholder accounts that are open
during any monthly period (this fee includes all out-of-pocket expenses), and an
annualized fee of $0.70 per shareholder account that is closed during any
monthly period. Both fees shall be billed by AFS monthly in arrears on a
prorated basis of 1/12 of the annualized fee for all such accounts.
For the period November 1, 1997 to September 4, 1998, GT Services, an affiliate
of the Manager and AIM Distributors, was the transfer agent of the Fund. For
performing shareholder servicing, reporting, and general transfer agent
services, GT Services received an annual maintenance fee of $17.50 per account,
a new account fee of $4.00 per account, a per transaction fee of $1.75 for all
transactions other than exchanges and a per exchange fee of $2.25. GT Services
also was reimbursed by the Fund for its out-of-pocket expenses for such items as
postage, forms, telephone charges, stationery and office supplies.
The Manager is the pricing and accounting agent for the Fund and Portfolio. The
monthly fee for these services paid to the Manager is a percentage, not to
exceed 0.03% annually, of a Fund's average daily net assets. The annual fee rate
is derived 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% to 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.
The Trust pays each Trustee who is not an employee, officer or director of the
Manager, or any other affiliated company, $5,000 per year plus $300 for each
meeting of the board or any committee thereof attended by the Trustee.
3. PURCHASES AND SALES OF SECURITIES
For the year ended October 31, 1998, purchases and sales of investment
securities by the Portfolio, other than U.S. government obligations and
short-term investments, aggregated $340,437,744 and $336,491,637, respectively.
For the year ended October 31, 1998, purchases and sales of U.S. government
obligations aggregated $34,683,892 and $33,938,540, respectively.
FS-15
<PAGE> 1116
4. CAPITAL SHARES
At October 31, 1998, there were 6,000,000,000 shares of the Trust's common stock
authorized, at $0.0001 par value. Of this amount, 400,000,000 were classified as
shares of the AIM Global Telecommunications Fund; 400,000,000 were classified as
shares of AIM Global Government Income Fund; 200,000,000 were classified as
shares of AIM Global Health Care Fund; 200,000,000 were classified as shares of
AIM Strategic Income Fund; 200,000,000 were classified as shares of AIM
Developing Markets Fund; 200,000,000 were classified as shares of GT Global
Currency Fund (inactive); 200,000,000 were classified as shares of AIM Global
Growth & Income Fund; 200,000,000 were classified as shares of GT Global Small
Companies Fund (inactive); 200,000,000 were classified as shares of AIM Latin
American Growth Fund; 200,000,000 were classified as shares of AIM Emerging
Markets Fund; 200,000,000 were classified as shares of AIM Emerging Markets Debt
Fund; 200,000,000 were classified as shares of AIM Global Financial Services
Fund; 200,000,000 were classified as shares of AIM Global Resources Fund;
200,000,000 were classified as shares of AIM Global Infrastructure Fund;
200,000,000 were classified as shares of AIM Global Consumer Products and
Services Fund. The shares of each of the foregoing series of the Trust's were
divided equally into two classes, designated Class A and Class B common stock.
With respect to the issuance of Advisor Class shares, 100,000,000 shares were
classified as shares of each of the fifteen series of the Trust's and designated
as Advisor Class common stock. 1,100,000,000 shares remain unclassified.
Transactions in capital shares of the Fund were as follows:
CAPITAL SHARE TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997
----------------------- -----------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Shares sold........................................................ 1,525,543 $35,645,676 3,438,964 $69,880,587
Shares issued in connection with reinvestment of distributions..... 232,572 5,000,306 143,274 2,884,089
---------- ----------- ---------- -----------
1,758,115 40,645,982 3,582,238 72,764,676
Shares repurchased................................................. (1,879,330) (43,281,212) (4,424,828) (88,957,730)
---------- ----------- ---------- -----------
Net decrease....................................................... (121,215) $(2,635,230) (842,590) $(16,193,054)
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
<CAPTION>
CLASS B
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold........................................................ 1,214,959 $28,040,109 2,703,434 $53,329,784
Shares issued in connection with reinvestment of distributions..... 327,547 6,924,836 168,859 3,364,713
---------- ----------- ---------- -----------
1,542,506 34,964,945 2,872,293 56,694,497
Shares repurchased................................................. (1,618,880) (36,544,113) (2,802,820) (55,171,454)
---------- ----------- ---------- -----------
Net increase (decrease)............................................ (76,374) $(1,579,168) 69,473 $ 1,523,043
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
<CAPTION>
ADVISOR CLASS
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold........................................................ 675,379 $15,761,998 287,832 $ 6,471,623
Shares issued in connection with reinvestment of distributions..... 44,088 962,424 15,186 308,573
---------- ----------- ---------- -----------
719,467 16,724,422 303,018 6,780,196
Shares repurchased................................................. (345,732) (8,013,266) (386,341) (7,704,551)
---------- ----------- ---------- -----------
Net increase (decrease)............................................ 373,735 $ 8,711,156 (83,323) $ (924,355)
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
5. EXPENSE REDUCTIONS
The Manager has directed certain portfolio trades to brokers who then paid a
portion of the Portfolio's expenses. For the year ended October 31, 1998, the
Portfolio's expenses were reduced by $40,195 under these arrangements.
FS-16
<PAGE> 1117
6. PROXY RESULTS (UNAUDITED)
The Special Meeting of Shareholders of the G.T. Investment Funds, Inc., now
known as AIM Investment Funds (the "Trust"), was held on May 20, 1998 at the
Trust's offices, 50 California Street, 26th Floor, San Francisco, California.
The meeting was held for the following purposes:
(1) To elect Trustees as follows: C. Derek Anderson, Frank S. Bayley, William J.
Guilfoyle, Arthur C. Patterson, Ruth H. Quigley.
(2) To approve a new Investment Management and Administration Contract and
Sub-Advisory and Sub-Administration Contract with respect to each series of
the Trust (each, a "Fund," and collectively, the "Funds").
(3) To approve replacement Rule 12b-1 plans of distribution with respect to
Class A and B Shares of the Fund.
(4) To approve changes to the fundamental investment restrictions of the Fund.
(5) To approve an agreement and plan of conversion and termination for the
Trust.
(6) To approve the conversion of the portfolios in which certain Funds invest to
Delaware business trusts.
(7) To ratify the selection of Coopers & Lybrand L.L.P., now known as
PricewaterhouseCoopers LLP, as the Trust's independent public accountants.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
VOTES WITHHELD/
TRUSTEE/MATTER VOTES FOR AGAINST ABSTENTIONS
------------------------------------------------------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
(1) C. Derek Anderson........................................... 191,685,088 N/A 13,123,292
Frank S. Bayley............................................. 191,766,811 N/A 13,041,568
William J. Guilfoyle........................................ 191,828,959 N/A 12,979,420
Arthur C. Patterson......................................... 191,845,270 N/A 12,963,109
Ruth H. Quigley............................................. 191,869,887 N/A 12,938,492
(2)(a) Approval of investment management and administration
contract................................................... 3,261,661 143,193 1,148,028*
(2)(b) Approval of sub-advisory and sub-administration contract.... 3,246,354 152,082 1,154,446*
(3) Approval of replacement Rule 12b-1 plans of distribution
CLASS A SHARES.............................................. 1,367,697 66,289 137,847
CLASS B SHARES.............................................. 2,090,063 80,546 169,123
(4)(a) Modification of Fundamental Restriction on Portfolio
Diversification............................................ 3,234,115 159,402 1,159,366*
(4)(b) Modification of Fundamental Restriction on Issuing Senior
Securities and Borrowing Money............................. 3,234,136 159,381 1,159,366*
(4)(c) Modification of Fundamental Restriction on Making Loans..... 3,235,430 158,087 1,159,366*
(4)(d) Modification of Fundamental Restriction on Underwriting
Securities................................................. 3,235,430 158,087 1,159,366*
(4)(e) Modification of Fundamental Restriction on Real Estate
Investments................................................ 3,235,304 158,213 1,159,366*
(4)(f) Modification of Fundamental Restriction on Investing in
Commodities................................................ 3,235,430 158,087 1,159,366*
(4)(g) Modification of Fundamental Restriction on Margin
Transactions............................................... 3,235,304 158,213 1,159,366*
(4)(h) Elimination of Fundamental Restriction on Pledging Assets... 3,235,325 158,192 1,159,366*
(4)(i) Elimination of Fundamental Restriction on Investments in
Oil, Gas and Mineral Leases and Programs................... 3,235,199 158,318 1,159,366*
(5) Approval of an agreement and plan of conversion and
termination with respect to the Trust...................... 190,027,469 6,362,084 94,055,040*
(6) Approval of the conversion of the portfolios in which
certain Funds invest....................................... 3,267,649 116,825 1,168,407*
(7) Ratification of the selection of Coopers and Lybrand L.L.P.,
now known as PricewaterhouseCoopers LLP, as the Trust's
independent public accountants............................. 191,358,779 2,114,168 11,333,063
</TABLE>
- ------------------------
* Includes Broker Non-Votes
- ------------------------
FEDERAL TAX INFORMATION (UNAUDITED):
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$800,000 as capital gain dividends for the fiscal year ended October 31, 1998.
Pursuant to Section 854 of the Internal Revenue Code, the Fund designates
18.56% of ordinary income dividends paid (including short-term capital gain
distributions, if any) by the Fund as income qualifying for the dividends
received deduction for corporations for the fiscal year ended October 31, 1998.
FS-17
<PAGE> 1118
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders of AIM Global Financial Services Fund (formerly GT Global
Financial Services Fund) and Board of Trustees of AIM Investment Funds (formerly
G.T. Investment Funds, Inc.):
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Global Financial Services
Fund - Consolidated at October 31, 1998, and the results of its operations, the
changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at October
31, 1998 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
------------------------------
PRICEWATERHOUSECOOPERS LLP
BOSTON, MASSACHUSETTS
DECEMBER 18, 1998
FS-18
<PAGE> 1119
PORTFOLIO OF INVESTMENTS
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Banks-Regional (29.2%)
Allied Irish Bank PLC: ..................................... IRE -- -- 2.9
Common{V} ................................................ -- 98,797 $ 1,413,275 --
Common ................................................... -- 79,460 1,147,550 --
First Union Corp. (N.C.) ................................... US 42,433 2,461,114 2.8
GreenPoint Financial Corp. ................................. US 66,200 2,172,188 2.5
Bank of Ireland ............................................ IRE 111,659 2,063,410 2.4
City National Corp. ........................................ US 52,550 1,796,553 2.0
Crestar Financial Corp. .................................... US 21,800 1,436,075 1.6
Sparebanken NOR (Union Bank of Norway) ..................... NOR 71,436 1,359,391 1.6
Norwest Corp. .............................................. US 35,000 1,301,563 1.5
St. George Bank Ltd. ....................................... AUSL 191,555 1,277,672 1.5
Bayerische Vereinsbank ..................................... GER 16,070 1,276,784 1.4
Bank of Nova Scotia ........................................ CAN 54,600 1,139,786 1.3
North Fork Bancorporation, Inc. ............................ US 50,000 993,750 1.2
Sovereign Bancorp, Inc. .................................... US 73,840 969,150 1.1
Fleet Financial Group, Inc. ................................ US 24,000 958,500 1.1
TeleBanc Financial Corp.-/- ................................ US 52,100 950,825 1.1
UnionBanCal Corp. .......................................... US 8,000 740,000 0.9
Halifax PLC ................................................ UK 49,600 657,239 0.8
Banco Commercial S.A.: ..................................... URGY -- -- 0.8
144A GDR(::) {.} {\/} .................................... -- 15,300 306,000 --
Reg S GDR{c} {\/} ........................................ -- 15,200 304,000 --
Banca Turco Romana S.A. - Reg S GDR-/- {c} {\/} ............ ROM 88,000 402,600 0.5
ForeningsSparbanken AB ..................................... SWDN 5,750 155,933 0.2
-----------
25,283,358
-----------
Banks-Money Center (18.2%)
Citigroup, Inc. ............................................ US 39,925 1,878,970 2.2
BankAmerica Corp. .......................................... US 30,143 1,731,339 2.0
HSBC Holdings PLC .......................................... UK 59,990 1,405,153 1.6
UBS AG - Registered ........................................ SWTZ 4,836 1,326,276 1.5
Lloyds TSB Group PLC ....................................... UK 101,401 1,251,183 1.5
ABN AMRO Holdings N.V. ..................................... NETH 56,347 1,055,865 1.2
Deutsche Bank AG ........................................... GER 14,770 919,165 1.1
Mellon Bank Corp. .......................................... US 14,600 877,825 1.0
National Australia Bank Ltd. ............................... AUSL 66,137 876,315 1.0
Bank Hapoalim Ltd. ......................................... ISRL 483,000 873,834 1.0
Chase Manhattan Corp. ...................................... US 14,500 823,781 1.0
Istituto Banc San Paolo Tori-/- ............................ ITLY 55,000 817,042 1.0
Anglo-Irish Bank Corp., PLC{V} ............................. IRE 325,168 783,406 0.9
Barclays PLC ............................................... UK 25,000 538,314 0.6
Dresdner Bank AG ........................................... GER 13,620 530,778 0.6
-----------
15,689,246
-----------
Other Financial (14.3%)
Newcourt Credit Group, Inc. ................................ CAN 74,400 2,447,844 2.8
Fannie Mae ................................................. US 31,000 2,195,188 2.6
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-19
<PAGE> 1120
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Other Financial (Continued)
Doral Financial Corp. ...................................... US 102,400 $ 1,792,000 2.1
Investors Financial Services Corp. ......................... US 25,500 1,373,813 1.6
UniCapital Corp.-/- ........................................ US 160,000 1,110,000 1.3
ING Groep N.V. ............................................. NETH 20,035 969,678 1.1
Merita Ltd. "A" ............................................ FIN 178,850 963,107 1.1
Fidelity National Financial, Inc. .......................... US 22,000 676,500 0.8
Household International, Inc. .............................. US 12,752 466,245 0.5
Shohkoh Fund ............................................... JPN 1,200 365,590 0.4
-----------
12,359,965
-----------
Consumer Finance (11.6%)
Providian Financial Corp. .................................. US 46,000 3,651,249 4.2
Capital One Financial Corp. ................................ US 19,600 1,994,300 2.3
Aeon Credit Service ........................................ HK 8,894,000 1,481,472 1.7
Acom Co., Ltd. ............................................. JPN 20,000 1,118,941 1.3
Metris Cos., Inc. .......................................... US 30,000 986,250 1.1
American Express Co. ....................................... US 9,500 839,563 1.0
-----------
10,071,775
-----------
Insurance - Multi-Line (10.8%)
SunAmerica, Inc. ........................................... US 47,800 3,369,899 3.9
Allianz AG ................................................. GER 7,503 2,574,892 3.0
Allstate Corp. ............................................. US 44,400 1,911,975 2.2
Axa - UAP .................................................. FR 13,150 1,486,973 1.7
-----------
9,343,739
-----------
Insurance-Life (3.3%)
Conseco, Inc. .............................................. US 44,155 1,531,627 1.8
AEGON N.V. ................................................. NETH 14,457 1,254,674 1.5
-----------
2,786,301
-----------
Securities Broker (3.1%)
Athlon Groep N.V. .......................................... NETH 55,670 1,579,671 1.8
Knight/Trimark Group, Inc. "A"-/- .......................... US 138,200 1,122,875 1.3
Peregrine Investment Holdings Ltd.(::) ..................... HK 532,000 -- --
-----------
2,702,546
-----------
Investment Management (2.0%)
Alliance Capital Management L.P. ........................... US 68,800 1,707,100 2.0
-----------
Banks-Super Regional (1.0%)
Abbey National PLC ......................................... UK 44,000 855,412 1.0
-----------
Consumer Services (0.8%)
Rent-Way, Inc.-/- .......................................... US 30,000 708,750 0.8
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-20
<PAGE> 1121
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Transportation - Road (0.7%)
Avis Rent A Car, Inc.-/- ................................... US 30,000 $ 611,250 0.7
----------- -----
TOTAL EQUITY INVESTMENTS (cost $72,533,065) .................. 82,119,442 95.0
----------- -----
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Corporate Bonds (2.4%)
United States (2.4%)
Citicorp, 7.125% due 6/1/03 .............................. USD 1,000,000 1,053,240 1.2
BankAmerica Corp., 6.85% due 3/1/03 ...................... USD 1,000,000 1,037,530 1.2
-----------
Total Corporate Bonds (cost $2,085,050) ...................... 2,090,770
----------- -----
TOTAL FIXED INCOME INVESTMENTS (cost $2,085,050) ............. 2,090,770 2.4
----------- -----
<CAPTION>
VALUE % OF NET
REPURCHASE AGREEMENT (NOTE 1) ASSETS
- -------------------------------------------------------------- ----------- -------------
<S> <C> <C> <C> <C>
Dated October 30, 1998, with State Street Bank & Trust Co.,
due November 2, 1998, for an effective yield of 5.30%,
collateralized by $3,475,000 U.S. Treasury Notes, 5.75% due
9/30/99 (market value of collateral is $3,534,906,
including accrued interest). (cost $3,464,000) ............ 3,464,000 4.0
----------- -----
TOTAL INVESTMENTS (cost $78,082,115) * ...................... 87,674,212 101.4
Other Assets and Liabilities ................................. (1,179,228) (1.4)
----------- -----
NET ASSETS ................................................... $86,494,984 100.0
----------- -----
----------- -----
</TABLE>
- --------------
{V} Security is denominated in GBP.
-/- Non-income producing security.
(::) Valued in good faith at fair value using procedures approved by the
Board of Trustees (See Note 1 of Notes to Financial Statements).
{\/} U.S. currency denominated.
{.} Security exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers.
{c} Security issued under Regulation S. Rule 144A and additional
restrictions may apply in the resale of such securities.
* For Federal income tax purposes, cost is $79,608,503 and
appreciation (depreciation) is as follows:
<TABLE>
<S> <C>
Unrealized appreciation: $ 13,063,563
Unrealized depreciation: (4,997,854)
-------------
Net unrealized appreciation: $ 8,065,709
-------------
-------------
</TABLE>
Abbreviation:
GDR--Global Depositary Receipt
The accompanying notes are an integral part of the financial statements.
FS-21
<PAGE> 1122
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
The Fund's Portfolio of Investments at October 31, 1998, was concentrated in the
following countries:
<TABLE>
<CAPTION>
PERCENTAGE OF NET ASSETS {D}
-------------------------------------------
SHORT-TERM
COUNTRY (COUNTRY CODE/ CURRENCY CODE) EQUITY FIXED INCOME & OTHER TOTAL
- -------------------------------------- ------ ------------- ---------- -----
<S> <C> <C> <C> <C>
Australia (AUSL/AUD) ................. 2.5 2.5
Canada (CAN/CAD) ..................... 4.1 4.1
Finland (FIN/FIM) .................... 1.1 1.1
France (FR/FRF) ...................... 1.7 1.7
Germany (GER/DEM) .................... 6.1 6.1
Hong Kong (HK/HKD) ................... 1.7 1.7
Ireland (IRE/IEP) .................... 6.2 6.2
Israel (ISRL/ILS) .................... 1.0 1.0
Italy (ITLY/ITL) ..................... 1.0 1.0
Japan (JPN/JPY) ...................... 1.7 1.7
Netherlands (NETH/NLG) ............... 5.6 5.6
Norway (NOR/NOK) ..................... 1.6 1.6
Romania (ROM/ROL) .................... 0.5 0.5
Sweden (SWDN/SEK) .................... 0.2 0.2
Switzerland (SWTZ/CHF) ............... 1.5 1.5
United Kingdom (UK/GBP) .............. 5.5 5.5
United States (US/USD) ............... 52.2 2.4 2.6 57.2
Uruguay (URGY/UYP) ................... 0.8 0.8
------ ----- ----- -----
Total ............................... 95.0 2.4 2.6 100.0
------ ----- ----- -----
------ ----- ----- -----
</TABLE>
- --------------
{d} Percentages indicated are based on net assets of $86,494,984.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS OUTSTANDING
OCTOBER 31, 1998
<TABLE>
<CAPTION>
UNREALIZED
MARKET VALUE CONTRACT DELIVERY APPRECIATION
CONTRACTS TO BUY: (U.S. DOLLARS) PRICE DATE (DEPRECIATION)
- ---------------------------------------- -------------- ----------- -------- --------------
<S> <C> <C> <C> <C>
Australian Dollars...................... 1,062,858 1.57888 11/27/98 $ (13,854)
Canadian Dollars........................ 2,366,270 1.54610 11/24/98 5,491
Canadian Dollars........................ 1,147,479 1.54560 11/24/98 2,293
-------------- --------------
Total Contracts to Buy (Payable amount
$4,582,677).......................... 4,576,607 (6,070)
-------------- --------------
THE VALUE OF CONTRACTS TO BUY AS A
PERCENTAGE OF NET ASSETS IS 5.29%.
</TABLE>
<TABLE>
<CAPTION>
CONTRACTS TO SELL:
- ----------------------------------------
<S> <C> <C> <C> <C>
Australian Dollars...................... 2,313,279 1.72236 11/27/98 (165,059)
Canadian Dollars........................ 3,662,856 1.52600 11/24/98 39,634
Canadian Dollars........................ 1,147,479 1.52600 11/24/98 12,416
Japanese Yen............................ 859,402 144.60000 11/12/98 (167,839)
-------------- --------------
Total Contracts to Sell (Receivable
amount $7,702,168)................... 7,983,016 (280,848)
-------------- --------------
THE VALUE OF CONTRACTS TO SELL AS A
PERCENTAGE OF NET ASSETS IS 9.23%.
Total Open Forward Foreign Currency
Contracts, Net....................... $ (286,918)
--------------
--------------
</TABLE>
- ----------------
See Note 1 of Notes to the Financial Statements.
The accompanying notes are an integral part of the financial statements.
FS-22
<PAGE> 1123
STATEMENT OF ASSETS
AND LIABILITIES
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at value (cost $78,082,115) (Note 1)................................ $87,674,212
U.S. currency....................................................................... $ 938
Foreign currencies (cost $4,377).................................................... 4,380 5,318
---------
Receivable for securities sold................................................................. 4,129,995
Receivable for Fund shares sold................................................................ 104,187
Dividends and dividend withholding tax reclaims receivable..................................... 88,587
Interest receivable............................................................................ 42,125
Unamortized organizational costs (Note 1)...................................................... 7,323
Miscellaneous receivable....................................................................... 2,937
----------
Total assets................................................................................. 92,054,684
----------
Liabilities:
Payable for securities purchased............................................................... 4,776,801
Payable for open forward foreign currency contracts, net (Note 1).............................. 286,918
Payable for Fund shares repurchased............................................................ 202,495
Payable for service and distribution expenses (Note 2)......................................... 139,817
Payable for investment management and administration fees (Note 2)............................. 79,722
Payable for professional fees.................................................................. 22,216
Payable for transfer agent fees (Note 2)....................................................... 21,064
Payable for registration and filing fees....................................................... 7,076
Payable for printing and postage expenses...................................................... 5,080
Payable for Trustees' fees and expenses (Note 2)............................................... 4,040
Payable for fund accounting fees (Note 2)...................................................... 2,080
Payable for custodian fees..................................................................... 924
Other accrued expenses......................................................................... 11,367
----------
Total liabilities............................................................................ 5,559,600
Minority interest (Notes 1 & 2)................................................................ 100
----------
Net assets....................................................................................... $86,494,984
----------
----------
Class A:
Net asset value and redemption price per share ($28,433,478 DIVIDED BY 1,667,488 shares
outstanding).................................................................................. $ 17.05
----------
----------
Maximum offering price per share (100/95.25 of $17.05) *....................................... $ 17.90
----------
----------
Class B:+
Net asset value and offering price per share ($48,785,265 DIVIDED BY 2,919,965 shares
outstanding).................................................................................. $ 16.71
----------
----------
Advisor Class:
Net asset value, offering price per share, and redemption price per share ($9,276,241 DIVIDED
BY 535,745 shares outstanding)................................................................ $ 17.31
----------
----------
Net assets consist of:
Paid in capital (Note 4)....................................................................... $78,345,098
Undistributed net investment income............................................................ 88,991
Accumulated net realized loss on investments and foreign currency transactions................. (1,245,109)
Net unrealized depreciation on translation of assets and liabilities in foreign currencies..... (286,093)
Net unrealized appreciation of investments..................................................... 9,592,097
----------
Total -- representing net assets applicable to capital shares outstanding........................ $86,494,984
----------
----------
<FN>
- --------------
* On sales of $50,000 or more, the offering price is reduced.
+ Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-23
<PAGE> 1124
STATEMENT OF OPERATIONS
Year ended October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment income: (Note 1)
Dividend income (net of foreign withholding tax of $137,628)................................. $2,001,511
Interest income.............................................................................. 272,885
Securities lending income.................................................................... 74,782
---------
Total investment income.................................................................... 2,349,178
---------
Expenses:
Investment management and administration fees (Note 2)....................................... 976,095
Service and distribution expenses: (Note 2)
Class A........................................................................ $ 167,776
Class B........................................................................ 565,170 732,946
----------
Transfer agent fees (Note 2)................................................................. 232,225
Professional fees............................................................................ 73,585
Registration and filing fees................................................................. 65,845
Printing and postage expenses................................................................ 44,885
Custodian fees............................................................................... 31,835
Fund accounting fees (Note 2)................................................................ 27,027
Trustees' fees and expenses (Note 2)......................................................... 17,060
Amortization of organization costs (Note 1).................................................. 12,621
Other expenses............................................................................... 9,777
---------
Total expenses before reductions........................................................... 2,223,901
---------
Expense reductions (Note 5).............................................................. (15,228)
---------
Total net expenses......................................................................... 2,208,673
---------
Net investment income.......................................................................... 140,505
---------
Net realized and unrealized gain (loss) on investments and foreign currencies:
(Note 1)
Net realized loss on investments................................................. (1,401,803)
Net realized gain on foreign currency transactions............................... 698,914
----------
Net realized loss during the year.......................................................... (702,889)
Net change in unrealized depreciation on translation of assets and liabilities in
foreign currencies.............................................................. (351,998)
Net change in unrealized appreciation of investments............................. 1,750,599
----------
Net unrealized appreciation during the year................................................ 1,398,601
---------
Net realized and unrealized gain on investments and foreign currencies......................... 695,712
---------
Net increase in net assets resulting from operations........................................... $ 836,217
---------
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-24
<PAGE> 1125
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1998 1997
----------- -----------
<S> <C> <C>
Increase in net assets
Operations:
Net investment income (loss)................................................. $ 140,505 $ (31,012)
Net realized gain (loss) on investments and foreign currency transactions.... (702,889) 2,628,562
Net change in unrealized appreciation (depreciation) on translation of assets
and liabilities in
foreign currencies.......................................................... (351,998) 58,275
Net change in unrealized appreciation of investments......................... 1,750,599 6,449,986
----------- -----------
Net increase in net assets resulting from operations....................... 836,217 9,105,811
----------- -----------
Class A:
Distributions to shareholders: (Note 1)
From net investment income................................................... (11,044) --
From net realized gain on investments........................................ (1,099,618) (580,522)
Class B:
Distributions to shareholders: (Note 1)
From net investment income................................................... (16,883) --
From net realized gain on investments........................................ (1,681,050) (823,692)
Advisor Class:
Distributions to shareholders: (Note 1)
From net investment income................................................... (2,239) --
From net realized gain on investments........................................ (222,890) (5,018)
----------- -----------
Total distributions........................................................ (3,033,724) (1,409,232)
----------- -----------
Capital share transactions: (Note 4)
Increase from capital shares sold and reinvested............................. 118,551,242 130,520,030
Decrease from capital shares repurchased..................................... (110,820,385) (74,514,633)
----------- -----------
Net increase from capital share transactions............................... 7,730,857 56,005,397
----------- -----------
Total increase in net assets................................................... 5,533,350 63,701,976
Net assets:
Beginning of year............................................................ 80,961,634 17,259,658
----------- -----------
End of year *................................................................ $86,494,984 $80,961,634
----------- -----------
----------- -----------
* Includes undistributed net investment income of............................. $ 88,991 $ --
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-25
<PAGE> 1126
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------
MAY 31, 1994
YEAR ENDED OCTOBER 31, (COMMENCEMENT OF
------------------------------------------------ OPERATIONS) TO
1998 (D) 1997 (D) 1996 (D) 1995 (D) OCTOBER 31, 1994
---------- ---------- ----------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 17.22 $ 14.20 $ 11.92 $ 11.62 $ 11.43
---------- ---------- ----------- ----------- --------
Income from investment operations:
Net investment income (loss).......... 0.07 0.04 0.05* 0.17* * 0.02* * *
Net realized and unrealized gain on
investments.......................... 0.37 3.97 2.36 0.13 0.17
---------- ---------- ----------- ----------- --------
Net increase from investment
operations......................... 0.44 4.01 2.41 0.30 0.19
---------- ---------- ----------- ----------- --------
Distributions to shareholders:
From net investment income............ (0.01) -- (0.12) -- --
From net realized gain on
investments.......................... (0.60) (0.99) (0.01) -- --
---------- ---------- ----------- ----------- --------
Total distributions................. (0.61) (0.99) (0.13) -- --
---------- ---------- ----------- ----------- --------
Net asset value, end of period.......... $ 17.05 $ 17.22 $ 14.20 $ 11.92 $ 11.62
---------- ---------- ----------- ----------- --------
---------- ---------- ----------- ----------- --------
Total investment return (c)............. 2.53% 29.91% 20.21% 2.58% 1.66 % (b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 28,433 $ 29,639 $ 7,302 $ 5,687 $ 3,175
Ratio of net investment income (loss) to
average net assets:
With expense reductions and/or
reimbursement (Notes 2 & 5).......... 0.37% 0.23% 0.41% 1.46% 0.66 % (a)
Without expense reductions and/or
reimbursement........................ 0.35% 0.16% (0.66)% (5.34)% (7.26)% (a)
Ratio of expenses to average net assets:
With expense reductions and/or
reimbursement (Notes 2 & 5).......... 1.97% 2.29% 2.32% 2.34% 2.40 % (a)
Without expense reductions and/or
reimbursement........................ 1.99% 2.36% 3.39% 9.14% 10.32 % (a)
Portfolio turnover rate++............... 111% 91% 103% 170% 53 % (a)
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
* Before reimbursement the net investment income per share would have
been reduced by $0.13 for each of the three classes.
* * Before reimbursement the net investment income per share would have
been reduced by $0.59, $0.59, $0.30 for Class A, Class B, and Advisor
Class, respectively.
* * * Before reimbursement the net investment income per share would have
been reduced by $0.23 for Class A and Class B.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates are calculated on the basis of the Portfolio
as a whole without distinguishing between the classes of shares
issued.
The accompanying notes are an integral part of the financial statements.
FS-26
<PAGE> 1127
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------------------------
MAY 31, 1994
YEAR ENDED OCTOBER 31, (COMMENCEMENT OF
------------------------------------------------ OPERATIONS) TO
1998 (D) 1997 (D) 1996 (D) 1995 (D) OCTOBER 31, 1994
---------- ---------- ----------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 16.97 $ 14.06 $ 11.83 $ 11.60 $ 11.43
---------- ---------- ----------- ----------- --------
Income from investment operations:
Net investment income (loss).......... (0.02) (0.04) (0.01) * 0.11* * 0.00* * *
Net realized and unrealized gain on
investments.......................... 0.37 3.94 2.34 0.12 0.17
---------- ---------- ----------- ----------- --------
Net increase from investment
operations......................... 0.35 3.90 2.33 0.23 0.17
---------- ---------- ----------- ----------- --------
Distributions to shareholders:
From net investment income............ (0.01) -- (0.09) -- --
From net realized gain on
investments.......................... (0.60) (0.99) (0.01) -- --
---------- ---------- ----------- ----------- --------
Total distributions................. (0.61) (0.99) (0.10) -- --
---------- ---------- ----------- ----------- --------
Net asset value, end of period.......... $ 16.71 $ 16.97 $ 14.06 $ 11.83 $ 11.60
---------- ---------- ----------- ----------- --------
---------- ---------- ----------- ----------- --------
Total investment return (c)............. 2.08% 29.13% 19.81% 1.98% 1.49 % (b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 48,785 $ 47,585 $ 9,886 $ 4,548 $ 2,235
Ratio of net investment income (loss) to
average net assets:
With expense reductions and/or
reimbursement (Notes 2 & 5).......... (0.13)% (0.27)% (0.09)% 0.96% 0.16 % (a)
Without expense reductions and/or
reimbursement........................ (0.15)% (0.34)% (1.16)% (5.84)% (7.76)% (a)
Ratio of expenses to average net assets:
With expense reductions and/or
reimbursement (Notes 2 & 5).......... 2.47% 2.79% 2.82% 2.84% 2.90 % (a)
Without expense reductions and/or
reimbursement........................ 2.49% 2.86% 3.89% 9.64% 10.82 % (a)
Portfolio turnover rate++............... 111% 91% 103% 170% 53 % (a)
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
* Before reimbursement the net investment income per share would have
been reduced by $0.13 for each of the three classes.
* * Before reimbursement the net investment income per share would have
been reduced by $0.59, $0.59, $0.30 for Class A, Class B, and Advisor
Class, respectively.
* * * Before reimbursement the net investment income per share would have
been reduced by $0.23 for Class A and Class B.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates are calculated on the basis of the Portfolio
as a whole without distinguishing between the classes of shares
issued.
The accompanying notes are an integral part of the financial statements.
FS-27
<PAGE> 1128
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
ADVISOR CLASS+
------------------------------------------------------
JUNE 1, 1995
YEAR ENDED OCTOBER 31, TO
------------------------------------- OCTOBER 31,
1998 (D) 1997 (D) 1996 (D) 1995 (D)
----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 17.40 $ 14.26 $ 11.95 $ 11.09
----------- ----------- ----------- ---------------
Income from investment operations:
Net investment income (loss).......... 0.17 0.12 0.12* 0.09* *
Net realized and unrealized gain on
investments.......................... 0.35 4.01 2.36 0.77
----------- ----------- ----------- ---------------
Net increase from investment
operations......................... 0.52 4.13 2.48 0.86
----------- ----------- ----------- ---------------
Distributions to shareholders:
From net investment income............ (0.01) -- (0.16) --
From net realized gain on
investments.......................... (0.60) (0.99) (0.01) --
----------- ----------- ----------- ---------------
Total distributions................. (0.61) (0.99) (0.17) --
----------- ----------- ----------- ---------------
Net asset value, end of period.......... $ 17.31 $ 17.40 $ 14.26 $ 11.95
----------- ----------- ----------- ---------------
----------- ----------- ----------- ---------------
Total investment return (c)............. 3.03% 30.52% 20.87% 7.75% (b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 9,276 $ 3,738 $ 72 $ 31
Ratio of net investment income (loss) to
average net assets:
With expense reductions and/or
reimbursement (Notes 2 & 5).......... 0.87% 0.73% 0.91% 1.96% (a)
Without expense reductions and/or
reimbursement........................ 0.85% 0.66% (0.16)% (4.84)% (a)
Ratio of expenses to average net assets:
With expense reductions and/or
reimbursement (Notes 2 & 5).......... 1.47% 1.79% 1.82% 1.84% (a)
Without expense reductions and/or
reimbursement........................ 1.49% 1.86% 2.89% 8.64% (a)
Portfolio turnover rate++............... 111% 91% 103% 170%
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
* Before reimbursement the net investment income per share would have
been reduced by $0.13 for each of the three classes.
* * Before reimbursement the net investment income per share would have
been reduced by $0.59, $0.59, $0.30 for Class A, Class B, and Advisor
Class, respectively.
* * * Before reimbursement the net investment income per share would have
been reduced by $0.23 for Class A and Class B.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates are calculated on the basis of the Portfolio
as a whole without distinguishing between the classes of shares
issued.
The accompanying notes are an integral part of the financial statements.
FS-28
<PAGE> 1129
NOTES TO
FINANCIAL STATEMENTS
October 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (SEE ALSO NOTE 2)
AIM Global Financial Services Fund (the "Fund"), formerly GT Global Financial
Services Fund, is a separate series of AIM Investment Funds (the "Trust"),
formerly G.T. Investment Funds, Inc. The Trust is organized as a Delaware
business trust and is registered under the Investment Company Act of 1940, as
amended ("1940 Act"), as an open-end management investment company. The Trust
has thirteen series of shares in operation, each series corresponding to a
distinct portfolio of investments.
The Fund invests substantially all of its investable assets in Global Financial
Services Portfolio, (the "Portfolio"). The Portfolio is organized as a subtrust
of Global Investment Portfolio, a Delaware business trust and is registered
under the 1940 Act as an open-end management investment company.
The Portfolio has investment objectives, policies, and limitations substantially
identical to those of its corresponding Fund. Therefore, the financial
statements of the Fund and Portfolio have been presented on a consolidated
basis, and represent all activities of both the Fund and Portfolio. Through
October 31, 1998, all of the shares of beneficial interest of the Portfolio were
owned by either the Fund or A I M Advisors, Inc. (the "Manager"), which has a
nominal ($100) investment in the Portfolio.
The Fund offers Class A, Class B, and Advisor Class shares, each of which has
equal rights as to assets and voting privileges except that Class A and Class B
each has exclusive voting rights with respect to its distribution plan.
Investment income, realized and unrealized capital gains and losses, and the
common expenses of the Fund are allocated on a pro rata basis to each class
based on the relative net assets of each class to the total net assets of the
Fund. Each class of shares differs in its respective service and distribution
expenses, and may differ in its transfer agent, registration, and certain other
class-specific fees and expenses.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies in conformity with generally accepted accounting
principles consistently followed by the Fund in the preparation of the financial
statements.
(A) PORTFOLIO VALUATION
The Fund calculates the net asset value of and completes orders to purchase,
exchange or repurchase Fund shares on each business day, with the exception of
those days on which the New York Stock Exchange is closed.
Equity securities are valued at the last sale price on the exchange on which
such securities are traded, or on the principal over-the-counter market on which
such securities are traded, as of the close of business on the day the
securities are being valued, or, lacking any sales, at the last available bid
price. In cases where securities are traded on more than one exchange, the
securities are valued on the exchange determined by the Manager to be the
primary market.
Fixed income investments are valued at the mean of representative quoted bid and
ask prices for such investments or, if such prices are not available, at prices
for investments of comparative maturity, quality and type; however, when the
Manager deems it appropriate, prices obtained for the day of valuation from a
bond pricing service will be used. Short-term investments are valued at
amortized cost adjusted for foreign exchange translation and market fluctuation,
if any.
Investments for which market quotations are not readily available (including
restricted securities which are subject to limitations on their sale) are valued
at fair value as determined in good faith by or under the direction of the
Trust's Board of Trustees.
Portfolio securities which are primarily traded on foreign exchanges are
generally valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S. dollars at
the current exchange rates, except that when an occurrence subsequent to the
time a value was so established is likely to have materially changed such value,
then the fair value of those securities will be determined by consideration of
other factors by or under the direction of the Trust's Board of Trustees.
(B) FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund and Portfolio are maintained in U.S. dollars.
The market values of foreign securities, currency holdings, and other assets and
liabilities are recorded in the books and records of the Portfolio after
translation to U.S. dollars based on the exchange rates on that day. The cost of
each security is determined using historical exchange rates. Income and
withholding taxes are translated at prevailing exchange rates when earned or
incurred.
The Portfolio does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, forward foreign currency contracts, sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Portfolio's books and the U.S. dollar equivalent of the amounts actually
received or paid. Net unrealized foreign exchange gains or losses arise from
changes in the value of assets and liabilities other than investments in
securities at year end, resulting from changes in exchange rates.
FS-29
<PAGE> 1130
(C) REPURCHASE AGREEMENTS
With respect to repurchase agreements entered into by the Portfolio, it is the
Portfolio's policy to always receive, as collateral, United States government
securities or other high quality debt securities of which the value, including
accrued interest, is at least equal to the amount to be repaid to the Portfolio
under each agreement at its maturity.
(D) FORWARD FOREIGN CURRENCY CONTRACTS
A forward foreign currency contract ("Forward Contract") is an agreement between
two parties to buy and sell a currency at a set price on a future date. The
market value of the Forward Contract fluctuates with changes in currency
exchange rates. The Forward Contract is marked-to-market daily and the change in
market value is recorded by the Portfolio as an unrealized gain or loss. When
the Forward Contract is closed, the Portfolio records a realized gain or loss
equal to the difference between the value at the time it was opened and the
value at the time it was closed. Forward Contracts involve market risk in excess
of the amount shown in the Portfolio's "Statement of Assets and Liabilities".
The Portfolio could be exposed to risk if a counter party is unable to meet the
terms of the contract or if the value of the currency changes unfavorably. The
Portfolio may enter into Forward Contracts in connection with planned purchases
or sales of securities, or to hedge against adverse fluctuations in exchange
rates between currencies.
(E) OPTION ACCOUNTING PRINCIPLES
When the Portfolio writes a call or put option, an amount equal to the premium
received is included in the Portfolio's "Statement of Assets and Liabilities" as
an asset and an equivalent liability. The amount of the liability is
subsequently marked-to-market to reflect the current market value of the option.
The current market value of an option listed on a traded exchange is valued at
its last bid price, or, in the case of an over-the-counter option, is valued at
the average of the last bid prices obtained from brokers, unless a quotation
from only one broker is available, in which case only that broker's price will
be used. If an option expires on its stipulated expiration date or if the
Portfolio enters into a closing purchase transaction, a gain or loss is realized
without regard to any unrealized gain or loss on the underlying security and the
liability related to such option is extinguished. If a written call option is
exercised, a gain or loss is realized from the sale of the underlying security
and the proceeds of the sale are increased by the premium originally received.
If a written put option is exercised, the cost of the underlying security
purchased would be decreased by the premium originally received. The Portfolio
can write options only on a covered basis, which, for a call, requires that the
Portfolio hold the underlying security and, for a put, requires the Portfolio to
set aside cash, U.S. government securities or other liquid securities in an
amount not less than the exercise price, or otherwise provide adequate cover at
all times while the put option is outstanding. The Portfolio may use options to
manage its exposure to the stock market and to fluctuations in currency values
or interest rates.
The premium paid by the Portfolio for the purchase of a call or put option is
included in the Portfolio's "Statement of Assets and Liabilities" as an
investment and subsequently "marked-to-market" to reflect the current market
value of the option. If an option which the Portfolio has purchased expires on
the stipulated expiration date, the Portfolio realizes a loss in the amount of
the cost of the option. If the Portfolio enters into a closing sale transaction,
the Portfolio realizes a gain or loss, depending on whether proceeds from the
closing sale transaction are greater or less than the cost of the option. If the
Portfolio exercises a call option, the cost of the securities acquired by
exercising the call is increased by the premium paid to buy the call. If the
Portfolio exercises a put option, it realizes a gain or loss from the sale of
the underlying security, and the proceeds from such sale are decreased by the
premium originally paid.
The risk associated with purchasing options is limited to the premium originally
paid. The risk in writing a call option is that the Portfolio may forego the
opportunity of profit if the market value of the underlying security or index
increases and the option is exercised. The risk in writing a put option is that
the Portfolio may incur a loss if the market value of the underlying security or
index decreases and the option is exercised. In addition, there is the risk the
Portfolio may not be able to enter into a closing transaction because of an
illiquid secondary market.
(F) FUTURES CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
security at a set price on a future date. Upon entering into such a contract the
Portfolio is required to pledge to the broker an amount of cash or securities
equal to the minimum "initial margin" requirements of the exchange on which the
contract is traded. Pursuant to the contract, the Portfolio agrees to receive
from or pay to the broker an amount of cash equal to the daily fluctuation in
value of the contract. Such receipts or payments are known as "variation margin"
and are recorded by the Portfolio as unrealized gains or losses. When the
contract is closed, the Portfolio records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed. The potential risk to the Portfolio is that the
change in value of the underlying securities may not correlate to the change in
value of the contracts. The Portfolio may use futures contracts to manage its
exposure to the stock market and to fluctuations in currency values or interest
rates.
(G) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). The cost of securities sold is determined on a first-in,
first-out-basis, unless otherwise specified. Dividends are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. Where a high
level of uncertainty exists as to its collection, income is recorded net of all
withholding tax with any rebate recorded when received. The Portfolio may trade
securities on other than normal settlement terms. This may increase the risk if
the other party to the transaction fails to deliver and causes the Portfolio to
subsequently invest at less advantageous prices.
(H) PORTFOLIO SECURITIES LOANED
At October 31, 1998, stocks with an aggregate value of $6,839,546 were on loan
to brokers. The loans were secured by cash collateral of $6,903,878 received by
the Portfolio. For the year ended October 31, 1998, the Fund received fees of
$74,782.
FS-30
<PAGE> 1131
For international securities, cash collateral is received by the Portfolio
against loaned securities in an amount at least equal to 105% of the market
value of the loaned securities at the inception of each loan. This collateral
must be maintained at not less than 103% of the market value of the loaned
securities during the period of the loan. For domestic securities, cash
collateral is received by the Portfolio against loaned securities in the amount
at least equal to 102% of the market value of the loaned securities at the
inception of each loan. This collateral must be maintained at not less than 100%
of the market value of the loaned securities during the period of the loan. The
cash collateral is invested in a securities lending trust which consists of a
portfolio of high quality short duration securities whose average effective
duration is restricted to 120 days or less.
(I) TAXES
It is the intended policy of the Fund to meet the requirements for qualification
as a "regulated investment company" under the Internal Revenue Code of 1986, as
amended ("Code"). It is also the intention of the Fund to make distributions
sufficient to avoid imposition of any excise tax under Section 4982 of the Code.
Therefore, no provision has been made for Federal taxes on income, capital
gains, unrealized appreciation of securities held, or excise tax on income and
capital gains. The Fund currently has a capital loss carryforward of $159,536
which expires in 2006.
(J) DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded by the Fund on the ex-date. Income
and capital gain distributions are determined in accordance with Federal income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Portfolio and timing differences.
(K) DEFERRED ORGANIZATIONAL EXPENSES
Expenses incurred by the Fund in connection with its organization, its initial
registration with the Securities and Exchange Commission and with various states
and the initial public offering of its shares aggregated $63,100. These expenses
are being amortized on a straightline basis over a five-year period.
(L) FOREIGN SECURITIES
There are certain additional considerations and risks associated with investing
in foreign securities and currency transactions that are not inherent in
investments of domestic origin. The Portfolio's investment in emerging market
countries may involve greater risks than investments in more developed markets
and the price of such investments may be volatile. These risks of investing in
foreign and emerging markets may include foreign currency exchange rate
fluctuations, perceived credit risk, adverse political and economic developments
and possible adverse foreign government intervention.
In addition, the Portfolio's policy of concentrating its investments in
companies in the financial services industry subject the Portfolio to greater
risk than a fund that is more diversified.
(M) INDEXED SECURITIES
The Portfolio may invest in indexed securities whose value is linked either
directly or indirectly to changes in foreign currencies, interest rates,
equities, indices, or other reference instruments. Indexed securities may be
more volatile than the reference instrument itself, but any loss is limited to
the amount of the original investment.
(N) RESTRICTED SECURITIES
The Portfolio is permitted to invest in privately placed restricted securities.
These securities may be resold in transactions exempt from registration or to
the public if the securities are registered. Disposal of these securities may
involve time-consuming negotiations and expense, and prompt sale at an
acceptable price may be difficult. At the end of the year, restricted
securities, if any, (excluding 144A issues), are shown at the end of the Fund's
Portfolio of Investments.
(O) LINE OF CREDIT
The Fund, along with certain other funds advised and/or administered by the
Manager, has a line of credit with each of BankBoston and State Street Bank and
Trust Company. The arrangements with the banks allow the Fund and certain other
Funds to borrow, on a first come, first serve basis, an aggregate maximum amount
of $250,000,000. The Fund is limited to borrowing up to 33 1/3% of the value of
the Fund's total assets. On October 31, 1998, the Fund had no loans outstanding.
For the year ended October 31, 1998, the weighted average outstanding daily
balance of bank loans (based on the number of days the loans were outstanding)
was $1,290,000, with a weighted average interest rate of 6.18%. Interest expense
for the year ended October 31, 1998 was $2,214 and is included in "Other
Expenses" on the Statement of Operations.
2. RELATED PARTIES
A I M Advisors, Inc. (the "Manager"), an indirect wholly-owned subsidiary of
AMVESCAP PLC, is the Fund's and Portfolio's investment manager and
administrator. As of the close of business on May 29, 1998, Liechtenstein Global
Trust AG ("LGT"), the former indirect parent organization of Chancellor LGT
Asset Management, Inc. ("Chancellor LGT") consummated a purchase agreement with
AMVESCAP PLC pursuant to which AMVESCAP PLC acquired LGT's Asset Management
Division, which included Chancellor LGT and certain other affiliates. A I M
Distributors, Inc. ("AIM Distributors"), a wholly-owned subsidiary of the
Manager, became the Fund's distributor as of the close of business on May 29,
1998. The Trust was reorganized from a Maryland corporation into a Delaware
business trust, and the Portfolio was reorganized from a New York common law
trust into a Delaware business trust on September 8, 1998. Finally, as of the
close of business on September 4, 1998, A I M Fund Services, Inc. ("AFS"), an
affiliate of the Manager and AIM Distributors, replaced GT Global Investor
Services, Inc. ("GT Services") as the transfer agent of the Fund.
The Fund pays the Manager administration fees at the annualized rate of 0.25% of
such Fund's average daily net assets. The Portfolio pays investment management
and administration fees to the Manager at the annualized rate of 0.725% on the
first $500 million of average daily net assets of the Portfolio; 0.70% on the
next $500 million; 0.675% on the next $500 million; and 0.65% on amounts
thereafter. These fees are computed daily and paid monthly.
AIM Distributors, an affiliate of the Manager, serves as the Fund's distributor.
For the period ended May 29, 1998, GT Global, Inc.
FS-31
<PAGE> 1132
("GT Global") served as the Fund's distributor. The Fund offers Class A, Class
B, and Advisor Class shares for purchase.
Class A shares are subject to initial sales charges imposed at the time of
purchase, in accordance with the schedule included in the Fund's current
prospectus. AIM Distributors collects the sales charges imposed on sales of
Class A shares, and reallows a portion of such charges to dealers through which
the sales are made. For the year ended October 31, 1998, AIM Distributors and GT
Global retained sales charges of $5,454 and $9,448, respectively. Purchases of
Class A shares exceeding $1,000,000 may be subject to a contingent deferred
sales charge ("CDSC") upon redemption, in accordance with the Fund's current
prospectus. AIM Distributors and GT Global collected CDSCs for the year ended
October 31, 1998 of $3,131 and $0, respectively. AIM Distributors also makes
ongoing shareholder servicing and trail commission payments to dealers whose
clients hold Class A shares.
Class B shares are not subject to initial sales charges. When Class B shares are
sold, AIM Distributors, from its own resources, pays commissions to dealers
through which the sales are made. Certain redemptions of Class B shares made
within six years of purchase are subject to CDSCs, in accordance with the Fund's
current prospectus. For the year ended October 31, 1998, AIM Distributors and GT
Global collected CDSCs in the amount of $67,472 and $120,815, respectively. In
addition, AIM Distributors makes ongoing shareholder servicing and trail
commission payments to dealers whose clients hold Class B shares.
For the period ended May 29, 1998, pursuant to the then effective separate
distribution plans adopted under the 1940 Act Rule 12b-1 by the Trust's Board of
Trustees with respect to the Fund's Class A shares ("Class A Plan") and Class B
shares ("Class B Plan"), the Fund reimbursed GT Global for a portion of its
shareholder servicing and distribution expenses. Under the Class A Plan, the
Fund was permitted to pay GT Global a service fee at the annualized rate of up
to 0.25% of the average daily net assets of the Fund's Class A shares for GT
Global's expenditures incurred in servicing and maintaining shareholder
accounts, and was permitted to pay GT Global a distribution fee at the
annualized rate of up to 0.50% of the average daily net assets of the Fund's
Class A shares, less any amounts paid by the Fund as the aforementioned service
fee, for GT Global's expenditures incurred in providing services as distributor.
All expenses for which GT Global was reimbursed under the Class A Plan would
have been incurred within one year of such reimbursement.
For the period ended May 29, 1998, pursuant to the Class B Plan, the Fund was
permitted to pay GT Global a service fee at the annualized rate of up to 0.25%
of the average daily net assets of the Fund's Class B shares for GT Global's
expenditures incurred in servicing and maintaining shareholder accounts, and was
permitted to pay GT Global a distribution fee at the annualized rate of up to
0.75% of the average daily net assets of the Fund's Class B shares for GT
Global's expenditures incurred in providing services as distributor. Expenses
incurred under the Class B Plan in excess of 1.00% annually were permitted to be
carried forward for reimbursement in subsequent years as long as that Plan
continued in effect.
Effective as of the close of business May 29, 1998, pursuant to Rule 12b-1 under
the 1940 Act, the Trust's Board of Trustees adopted a Master Distribution Plan
applicable to the Fund's Class A shares ("Class A Plan") and Class B shares
("Class B Plan"), pursuant to which the Fund compensates AIM Distributors for
the purpose of financing any activity that is intended to result in the sale of
Class A or Class B shares of the Fund. Under the Class A Plan, the Fund
compensates AIM Distributors at the annualized rate of 0.50% of the average
daily net assets of the Fund's Class A shares. Under the Class B Plan, the Fund
compensates AIM Distributors at an annualized rate of 1.00% of the average daily
net assets of the Fund's Class B shares.
The Class A Plan and the Class B Plan (together, the "Plans") are designed to
compensate AIM Distributors for certain promotional and other sales-related
costs, and to implement a dealer incentive program that provides for periodic
payments to selected dealers who furnish continuing personal shareholder
services to their customers who purchase and own Class A and Class B shares of
the Fund. Payments also can be directed by AIM Distributors to Financial
Institutions who have entered into service agreements with respect to Class A
and Class B shares of the Fund and who provide continuing personal services to
their customers who own Class A and Class B shares of the Fund. The service fees
payable to selected Financial 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 that were purchased on or after a
prescribed date set forth in the Plans.
The Manager and AIM Distributors voluntarily have undertaken to limit the Fund's
expenses (exclusive of brokerage commissions, taxes, interest, and extraordinary
expense) to the maximum annual rate of 2.00%, 2.50%, and 1.50% of the average
daily net assets of the Fund's Class A, Class B, and Advisor Class shares,
respectively. If necessary, this limitation will be effected by waivers by the
Manager of investment management and administration fees, waivers by AIM
Distributors of payments under the Class A Plan and/or Class B Plan and/or
reimbursements by the Manager or AIM Distributors of portions of the Fund's
other operating expenses.
Effective as of the close of business September 4, 1998, the Fund, pursuant to a
transfer agency and service agreement, has agreed to pay A I M Fund Services,
Inc. ("AFS") an annualized fee of $24.85 per shareholder accounts that are open
during any monthly period (this fee includes all out-of-pocket expenses), and an
annualized fee of $0.70 per shareholder account that is closed during any
monthly period. Both fees shall be billed by AFS monthly in arrears on a
prorated basis of 1/12 of the annualized fee for all such accounts.
For the period November 1, 1997 to September 4, 1998, GT Services, an affiliate
of the Manager and AIM Distributors, was the transfer agent of the Fund. For
performing shareholder servicing, reporting, and general transfer agent
services, GT Services received an annual maintenance fee of $17.50 per account,
a new account fee of $4.00 per account, a per transaction fee of $1.75 for all
transactions other than exchanges and a per exchange fee of $2.25. GT Services
also was reimbursed by the Fund for its out-of-pocket expenses for such items as
postage, forms, telephone charges, stationery and office supplies.
FS-32
<PAGE> 1133
The Manager is the pricing and accounting agent for the Fund and Portfolio. The
monthly fee for these services paid to the Manager is a percentage, not to
exceed 0.03% annually, of a Fund's average daily net assets. The annual fee rate
is derived 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% to 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.
The Trust pays each Trustee who is not an employee, officer or director of the
Manager, or any other affiliated company, $5,000 per year plus $300 for each
meeting of the board or any committee thereof attended by the Trustee.
3. PURCHASES AND SALES OF SECURITIES
For the year ended October 31, 1998, purchases and sales of investment
securities by the Portfolio, other than U.S. government obligations and
short-term investments, aggregated $110,772,267 and $103,481,033, respectively.
For the year ended October 31, 1998, there were no purchases and sales of U.S.
government obligations.
4. CAPITAL SHARES
At October 31, 1998, there were 6,000,000,000 shares of the Trust's common stock
authorized, at $0.0001 par value. Of this amount, 400,000,000 were classified as
shares of the AIM Global Telecommunications Fund; 400,000,000 were classified as
shares of AIM Global Government Income Fund; 200,000,000 were classified as
shares of AIM Global Health Care Fund; 200,000,000 were classified as shares of
AIM Strategic Income Fund; 200,000,000 were classified as shares of AIM
Developing Markets Fund; 200,000,000 were classified as shares of GT Global
Currency Fund (inactive); 200,000,000 were classified as shares of AIM Global
Growth & Income Fund; 200,000,000 were classified as shares of GT Global Small
Companies Fund (inactive); 200,000,000 were classified as shares of AIM Latin
American Growth Fund; 200,000,000 were classified as shares of AIM Emerging
Markets Fund; 200,000,000 were classified as shares of AIM Emerging Markets Debt
Fund; 200,000,000 were classified as shares of AIM Global Financial Services
Fund; 200,000,000 were classified as shares of AIM Global Resources Fund;
200,000,000 were classified as shares of AIM Global Infrastructure Fund;
200,000,000 were classified as shares of AIM Global Consumer Products and
Services Fund. The shares of each of the foregoing series of the Trust's were
divided equally into two classes, designated Class A and Class B common stock.
With respect to the issuance of Advisor Class shares, 100,000,000 shares were
classified as shares of each of the fifteen series of the Trust's and designated
as Advisor Class common stock. 1,100,000,000 shares remain unclassified.
Transactions in capital shares of the Fund were as follows:
CAPITAL SHARE TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997
-------------------------- --------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------- ----------- ------------- ----------- -------------
Shares sold............................. 3,687,543 $ 67,971,118 3,783,353 $ 60,418,186
<S> <C> <C> <C> <C>
Shares issued in connection with
reinvestment of distributions......... 54,738 960,105 35,121 488,531
----------- ------------- ----------- -------------
3,742,281 68,931,223 3,818,474 60,906,717
Shares repurchased...................... (3,795,511) (69,778,399) (2,611,893) (41,931,634)
----------- ------------- ----------- -------------
Net increase (decrease)................. (53,230) $ (847,176) 1,206,581 $ 18,975,083
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
- ----------------------------------------
<S> <C> <C> <C> <C>
Shares sold............................. 2,101,129 $ 37,907,965 4,102,099 $ 64,968,183
Shares issued in connection with
reinvestment of distributions......... 76,614 1,322,362 44,922 618,563
----------- ------------- ----------- -------------
2,177,743 39,230,327 4,147,021 65,586,746
Shares repurchased...................... (2,061,758) (36,498,531) (2,045,933) (32,384,709)
----------- ------------- ----------- -------------
Net increase............................ 115,985 $ 2,731,796 2,101,088 $ 33,202,037
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
</TABLE>
<TABLE>
<CAPTION>
ADVISOR CLASS
- ----------------------------------------
<S> <C> <C> <C> <C>
Shares sold............................. 563,080 $ 10,164,684 220,956 $ 4,021,549
Shares issued in connection with
reinvestment of distributions......... 12,691 225,008 359 5,018
----------- ------------- ----------- -------------
575,771 10,389,692 221,315 4,026,567
Shares repurchased...................... (254,804) (4,543,455) (11,568) (198,290)
----------- ------------- ----------- -------------
Net increase............................ 320,967 $ 5,846,237 209,747 $ 3,828,277
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
</TABLE>
FS-33
<PAGE> 1134
5. EXPENSE REDUCTIONS
The Manager has directed certain portfolio trades to brokers who then paid a
portion of the Portfolio's expenses. For the year ended October 31, 1998, the
Portfolio's expenses were reduced by $15,228 under these arrangements.
6. PROXY RESULTS (UNAUDITED)
The Special Meeting of Shareholders of the G.T. Investment Funds, Inc., now
known as AIM Investment Funds (the "Trust"), was held on May 20, 1998 at the
Trust's offices, 50 California Street, 26th Floor, San Francisco, California.
The meeting was held for the following purposes:
(1) To elect Trustees as follows: C. Derek Anderson, Frank S. Bayley, William J.
Guilfoyle, Arthur C. Patterson, Ruth H. Quigley.
(2) To approve a new Investment Management and Administration Contract and
Sub-Advisory and Sub-Administration Contract with respect to each series of
the Trust (each, a "Fund," and collectively, the "Funds").
(3) To approve replacement Rule 12b-1 plans of distribution with respect to
Class A and B Shares of the Fund.
(4) To approve changes to the fundamental investment restrictions of the Fund.
(5) To approve an agreement and plan of conversion and termination for the
Trust.
(6) To approve the conversion of the portfolios in which certain Funds invest to
Delaware business trusts.
(7) To ratify the selection of Coopers & Lybrand L.L.P., now known as
PricewaterhouseCoopers LLP, as the Trust's independent public accountants.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
VOTES WITHHELD/
TRUSTEE/MATTER VOTES FOR AGAINST ABSTENTIONS
------------------------------------------------------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
(1) C. Derek Anderson........................................... 191,685,088 N/A 13,123,292
Frank S. Bayley............................................. 191,766,811 N/A 13,041,568
William J. Guilfoyle........................................ 191,828,959 N/A 12,979,420
Arthur C. Patterson......................................... 191,845,270 N/A 12,963,109
Ruth H. Quigley............................................. 191,869,887 N/A 12,938,492
(2)(a) Approval of investment management and administration
contract................................................... 2,367,476 83,815 803,685*
(2)(b) Approval of sub-advisory and sub-administration contract.... 2,340,636 101,116 813,224*
(3) Approval of replacement Rule 12b-1 plans of distribution
CLASS A SHARES.............................................. 882,319 45,827 76,485
CLASS B SHARES.............................................. 1,564,175 34,241 127,535
(4)(a) Modification of Fundamental Restriction on Portfolio
Diversification............................................ 2,325,974 100,433 828,568*
(4)(b) Modification of Fundamental Restriction on Issuing Senior
Securities and Borrowing Money............................. 2,325,387 101,020 828,568*
(4)(c) Modification of Fundamental Restriction on Making Loans..... 2,325,974 100,433 828,568*
(4)(d) Modification of Fundamental Restriction on Underwriting
Securities................................................. 2,325,974 100,433 828,568*
(4)(e) Modification of Fundamental Restriction on Real Estate
Investments................................................ 2,325,871 100,536 828,568*
(4)(f) Modification of Fundamental Restriction on Investing in
Commodities................................................ 2,325,336 101,071 828,568*
(4)(g) Elimination of Fundamental Restriction on Margin
Transactions............................................... 2,322,619 103,788 828,568*
(4)(h) Elimination of Fundamental Restriction on Pledging Assets... 2,322,032 104,375 828,568*
(4)(i) Elimination of Fundamental Restriction on Investments in
Oil, Gas and Mineral Leases and Programs................... 2,322,135 104,272 828,568*
(5) Approval of an agreement and plan of conversion and
termination with respect to the Trust...................... 190,027,469 6,362,084 94,055,040*
(6) Approval of the conversion of the portfolios in which
certain Funds invest....................................... 2,345,919 78,750 830,306*
(7) Ratification of the selection of Coopers and Lybrand L.L.P.,
now known as PricewaterhouseCoopers LLP, as the Trust's
independent public accountants............................. 191,358,779 2,114,168 11,333,063
</TABLE>
- ------------------------
* Includes Broker Non-Votes
- ------------------------
FEDERAL TAX INFORMATION (UNAUDITED):
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$1,025,171 as capital gain dividends for the fiscal year ended October 31, 1998.
Pursuant to Section 854 of the Internal Revenue Code, the Fund designates 100%
of ordinary income dividends paid (including short- term capital gain
distributions, if any) by the Fund as income qualifying for the dividends
received deduction for corporations for the fiscal year ended October 31, 1998.
FS-34
<PAGE> 1135
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders of AIM Global Health Care Fund (formerly GT Global Health
Care Fund) and Board of Trustees of AIM Investment Funds (formerly G.T.
Investment Funds, Inc.):
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Global Health Care Fund at
October 31, 1998, and the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
------------------------------
PRICEWATERHOUSECOOPERS LLP
BOSTON, MASSACHUSETTS
DECEMBER 18, 1998
FS-35
<PAGE> 1136
PORTFOLIO OF INVESTMENTS
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Pharmaceuticals (62.3%)
Warner-Lambert Co. ........................................ US 467,800 $ 36,663,821 7.9
Merck & Co., Inc. ......................................... US 236,400 31,973,100 6.9
TheraTech, Inc.{::} -/- ................................... US 1,905,000 27,027,188 5.8
Bristol Myers Squibb Co. .................................. US 215,700 23,848,331 5.1
Schering-Plough Corp. ..................................... US 198,500 20,420,688 4.4
Zeneca Group PLC - ADR{\/} ................................ UK 451,500 17,608,500 3.8
Novartis AG ............................................... SWTZ 8,744 15,750,303 3.4
Johnson & Johnson ......................................... US 189,100 15,411,650 3.3
Roche Holding AG .......................................... SWTZ 1,251 14,591,614 3.2
Glaxo Wellcome PLC - ADR{\/} .............................. UK 220,600 13,732,350 3.0
Mylan Laboratories ........................................ US 321,500 11,071,656 2.4
Astra AB - ADR{\/} ........................................ SWDN 596,100 9,798,394 2.1
Abbott Laboratories ....................................... US 179,400 8,420,588 1.8
Sanofi S.A. ............................................... FR 32,430 5,080,235 1.1
Takeda Chemical Industries ................................ JPN 154,000 5,015,985 1.1
Bergen Brunswig Corp. "A" ................................. US 98,700 4,817,794 1.0
Pharmacia & Upjohn, Inc. .................................. US 82,000 4,340,875 0.9
Akzo Nobel N.V.: .......................................... NETH -- -- 0.8
Common .................................................. -- 64,750 2,516,784 --
ADR{\/} ................................................. -- 28,000 1,106,000 --
Barr Laboratories, Inc.-/- ................................ US 105,500 3,606,781 0.8
Altana AG ................................................. GER 30,000 2,030,089 0.4
Allergan, Inc. ............................................ US 32,000 1,998,000 0.4
Taisho Pharmaceuticals .................................... JPN 50,000 1,340,667 0.3
Yamanouchi Pharmaceutical ................................. JPN 46,000 1,320,385 0.3
Sankyo Co., Ltd. .......................................... JPN 57,000 1,288,329 0.3
Schering AG ............................................... GER 8,540 1,007,195 0.2
Chugai Pharmaceutical Co., Ltd. ........................... JPN 108,000 983,843 0.2
UCB S.A. .................................................. BEL 150 876,244 0.2
Merck KGaA-/- ............................................. GER 20,880 857,858 0.2
Daiichi Pharmaceutical Co., Ltd. .......................... JPN 39,000 651,899 0.1
Spiros Development Corporation II, Inc. - Units-/-{=} ..... US 59,000 634,250 0.1
Eisai Co., Ltd. ........................................... JPN 40,000 628,395 0.1
Banyu Pharmaceutical Co., Ltd. ............................ JPN 36,000 612,272 0.1
Ares-Serono Group "B" ..................................... SWTZ 389 584,677 0.1
Rohto Pharmaceutical Co., Ltd. ............................ JPN 76,000 552,561 0.1
Kyowa Hakko Kogyo Co., Ltd. ............................... JPN 69,000 391,372 0.1
Teva Pharmaceutical Industries Ltd. - ADR{\/} ............. ISRL 8,700 343,106 0.1
Shionogi & Co., Ltd. ...................................... JPN 44,000 324,820 0.1
Kissei Pharmaceutical ..................................... JPN 14,000 206,824 0.1
------------
289,435,423
------------
Medical Technology & Supplies (11.9%)
Guidant Corp. ............................................. US 191,500 14,649,750 3.2
Visx, Inc.-/- ............................................. US 291,200 14,596,400 3.2
Arterial Vascular Engineering, Inc.-/- .................... US 386,000 11,869,500 2.6
AVECOR Cardiovascular, Inc.{::} -/- ....................... US 527,000 5,566,438 1.2
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-36
<PAGE> 1137
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Medical Technology & Supplies (Continued)
Waters Corp.-/- ........................................... US 62,000 $ 4,557,000 1.0
Becton, Dickinson & Co. ................................... US 34,300 1,444,888 0.3
Safeskin Corp. ............................................ US 43,500 962,438 0.2
Beiersdorf AG ............................................. GER 8,684 519,434 0.1
Essilor International ..................................... FR 660 267,389 0.1
------------
54,433,237
------------
Biotechnology (3.9%)
Amgen, Inc.-/- ............................................ US 177,300 13,929,131 3.0
Biogen, Inc.-/- ........................................... US 46,500 3,231,750 0.7
The Perkin-Elmer Corp. .................................... US 7,100 598,619 0.1
Enzon, Inc. Preferred-/- .................................. US 16,000 217,920 0.1
------------
17,977,420
------------
Health Care Services (2.5%)
Allegiance Corp. .......................................... US 250,500 9,315,469 2.0
AmeriSource Health Corp. "A"-/- ........................... US 44,500 2,333,469 0.5
------------
11,648,938
------------
Consumer Services (0.4%)
Stewart Enterprises, Inc. "A" ............................. US 66,000 1,522,125 0.3
The Uni-Charm Corp. ....................................... JPN 5,400 245,961 0.1
------------
1,768,086
------------
Personal Care/Cosmetics (0.1%)
Kimberly-Clark de Mexico, S.A. de C.V. "A" ................ MEX 204,000 597,684 0.1
------------ -----
TOTAL EQUITY INVESTMENTS (cost $331,814,548) ................ 375,860,788 81.1
------------ -----
<CAPTION>
NO. OF VALUE % OF NET
WARRANTS COUNTRY WARRANTS (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Rhone-Poulenc Warrants, expire 11/5/01 (cost $32,137) ..... FR 190,736 669,707 0.1
------------ -----
PHARMACEUTICALS
<CAPTION>
VALUE % OF NET
REPURCHASE AGREEMENTS (NOTE 1) ASSETS
- ------------------------------------------------------------- ------------ -------------
<S> <C> <C> <C> <C>
Dated October 30, 1998, with State Street Bank & Trust Co.,
due November 2, 1998, for an effective yield of 5.30%,
collateralized by $49,370,000 U.S. Treasury Notes, 5.625%
due 12/31/99 (market value of collateral is $51,000,346,
including accrued interest) ............................. 50,000,000 10.8
Dated October 30, 1998 with State Street Bank & Trust Co.,
due November 2, 1998, for an effective yield of 5.30%,
collateralized by $24,860,000 U.S. Treasury Notes, 5.375%
due 01/31/00 (market value of collateral is $25,505,067,
including accrued interest) ............................. 25,000,000 5.4
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-37
<PAGE> 1138
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
REPURCHASE AGREEMENTS (NOTE 1) ASSETS
- ------------------------------------------------------------- ------------ -------------
<S> <C> <C> <C> <C>
Dated October 30, 1998, with State Street Bank & Trust Co.,
due November 2, 1998, for an effective yield of 5.30%,
collateralized by $12,655,000 U.S Treasury Notes, 7.75%
due 01/31/00 (market value of collateral is $13,419,539,
including accrued interest) ............................. $ 13,154,000 2.8
------------ -----
TOTAL REPURCHASE AGREEMENTS (cost $88,154,000) .............. 88,154,000 19.0
------------ -----
TOTAL INVESTMENTS (cost $420,000,685) * .................... 464,684,495 100.2
Other Assets and Liabilities ................................ (947,150) (0.2)
------------ -----
NET ASSETS .................................................. $463,737,345 100.0
------------ -----
------------ -----
</TABLE>
- --------------
-/- Non-income producing security.
{::} See Note 6 of Notes to Financial Statements.
{\/} U.S. currency denominated.
{=} Each unit consists of one callable common share of Spiros
Development Corp. II and one warrant to purchase 0.25 shares of
Dura Pharmaceuticals.
* For Federal income tax purposes, cost is $420,372,604 and
appreciation (depreciation) is as follows:
<TABLE>
<S> <C>
Unrealized appreciation: $ 50,843,304
Unrealized depreciation: (6,531,413)
-------------
Net unrealized appreciation: $ 44,311,891
-------------
-------------
</TABLE>
Abbreviation:
ADR--American Depositary Receipt
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Fund's Portfolio of Investments at October 31, 1998, was concentrated in the
following countries:
<TABLE>
<CAPTION>
PERCENTAGE OF NET ASSETS {D}
-------------------------------------------
SHORT-TERM
COUNTRY (COUNTRY CODE/CURRENCY CODE) EQUITY WARRANTS & OTHER TOTAL
- -------------------------------------- ------ ------------- ---------- -----
<S> <C> <C> <C> <C>
Belgium (BEL/BEF) .................... 0.2 0.2
France (FR/FRF) ...................... 1.2 0.1 1.3
Germany (GER/DEM) .................... 0.9 0.9
Israel (ISRL/ILS) .................... 0.1 0.1
Japan (JPN/JPY) ...................... 3.0 3.0
Mexico (MEX/MXN) ..................... 0.1 0.1
Netherlands (NETH/NLG) ............... 0.6 0.6
Sweden (SWDN/SEK) .................... 2.1 2.1
Switzerland (SWTZ/CHF) ............... 6.7 6.7
United Kingdom (UK/GBP) .............. 6.8 6.8
United States (US/USD) ............... 59.4 18.8 78.2
------ ----- ----- -----
Total ............................... 81.1 0.1 18.8 100.0
------ ----- ----- -----
------ ----- ----- -----
</TABLE>
- --------------
{d} Percentages indicated are based on net assets of $463,737,345.
The accompanying notes are an integral part of the financial statements.
FS-38
<PAGE> 1139
STATEMENT OF ASSETS
AND LIABILITIES
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at value (cost $331,846,685) (Note 1)........................... $376,530,495
Repurchase agreement, at value and cost.................................................... 88,154,000
U.S. currency.................................................................. $ 847
Foreign currencies (cost $3,392,812)........................................... 3,389,063 3,389,910
----------
Receivable for Fund shares sold............................................................ 2,221,492
Dividends and dividend withholding tax reclaims receivable................................. 304,733
Interest receivable........................................................................ 25,956
Receivable for securities sold............................................................. 25,936
------------
Total assets............................................................................. 470,652,522
------------
Liabilities:
Payable for securities purchased........................................................... 3,023,243
Payable for Fund shares repurchased........................................................ 2,659,446
Payable for service and distribution expenses (Note 2)..................................... 400,127
Payable for investment management and administration fees (Note 2)......................... 359,240
Payable for transfer agent fees (Note 2)................................................... 260,984
Payable for printing and postage expenses.................................................. 75,851
Payable for professional fees.............................................................. 53,436
Payable for registration and filing fees................................................... 26,393
Payable for Trustees' fees and expenses (Note 2)........................................... 13,176
Payable for custodian fees................................................................. 11,138
Payable for fund accounting fees (Note 2).................................................. 10,655
Other accrued expenses..................................................................... 21,488
------------
Total liabilities........................................................................ 6,915,177
------------
Net assets................................................................................... $463,737,345
------------
------------
Class A:
Net asset value and redemption price per share ($357,534,099 DIVIDED BY 17,744,660 shares
outstanding)................................................................................ $ 20.15
------------
------------
Maximum offering price per share (100/95.25 of $20.15) *..................................... $ 21.15
------------
------------
Class B:+
Net asset value and offering price per share ($100,311,077 DIVIDED BY 5,178,631 shares
outstanding)................................................................................ $ 19.37
------------
------------
Advisor Class:
Net asset value, offering price per share, and redemption price per share ($5,892,169 DIVIDED
BY 286,128 shares outstanding).............................................................. $ 20.59
------------
------------
Net assets consist of:
Paid in capital (Note 4)................................................................... $420,849,043
Accumulated net realized loss on investments and foreign currency transactions............. (1,759,592)
Net unrealized depreciation on translation of assets and liabilities in foreign
currencies................................................................................ (35,916)
Net unrealized appreciation of investments................................................. 44,683,810
------------
Total -- representing net assets applicable to capital shares outstanding.................... $463,737,345
------------
------------
<FN>
- --------------
* On sales of $50,000 or more, the offering price is reduced.
+ Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-39
<PAGE> 1140
STATEMENT OF OPERATIONS
Year ended October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment income: (Note 1)
Interest income........................................................................... $ 2,459,834
Dividend income (net of foreign withholding tax of $41,675)............................... 1,970,384
Securities lending income................................................................. 127,509
-----------
Total investment income................................................................. 4,557,727
-----------
Expenses:
Investment management and administration fees (Note 2).................................... 5,149,191
Service and distribution expenses: (Note 2)
Class A.................................................................... $ 2,017,811
Class B.................................................................... 1,188,118 3,205,929
-----------
Transfer agent fees (Note 2).............................................................. 1,228,300
Printing and postage expenses............................................................. 284,550
Fund accounting fees (Note 2)............................................................. 142,357
Professional fees......................................................................... 126,582
Registration and filing fees.............................................................. 73,000
Custodian fees............................................................................ 40,625
Trustees' fees and expenses (Note 2)...................................................... 21,594
Other expenses............................................................................ 29,939
-----------
Total expenses before reductions........................................................ 10,302,067
-----------
Expense reductions (Note 5)........................................................... (45,003)
-----------
Total net expenses...................................................................... 10,257,064
-----------
Net investment loss......................................................................... (5,699,337)
-----------
Net realized and unrealized loss on investments and foreign currencies: (Note
1)
Net realized gain on investments............................................. 108,367
Net realized loss on foreign currency transactions........................... (913,909)
-----------
Net realized loss during the year....................................................... (805,542)
Net change in unrealized depreciation on translation of assets and
liabilities in foreign currencies........................................... 221,096
Net change in unrealized appreciation of investments......................... (18,766,554)
-----------
Net unrealized depreciation during the year............................................. (18,545,458)
-----------
Net realized and unrealized loss on investments and foreign currencies...................... (19,351,000)
-----------
Net decrease in net assets resulting from operations........................................ $(25,050,337)
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-40
<PAGE> 1141
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997
---------------- ----------------
<S> <C> <C>
Increase (Decrease) in net assets
Operations:
Net investment loss....................................................... $ (5,699,337) $ (6,665,748)
Net realized gain (loss) on investments and foreign currency
transactions............................................................. (805,542) 153,599,307
Net change in unrealized appreciation (depreciation) on translation of
assets and liabilities in foreign currencies............................. 221,096 (569,426)
Net change in unrealized appreciation (depreciation) of investments....... (18,766,554) 1,308,779
---------------- ----------------
Net increase (decrease) in net assets resulting from operations......... (25,050,337) 147,672,912
---------------- ----------------
Class A:
Distributions to shareholders: (Note 1)
From net realized gain on investments..................................... (110,820,788) (34,613,411)
In excess of net realized gain on investments............................. (211,033) --
Class B:
Distributions to shareholders: (Note 1)
From net realized gain on investments..................................... (34,067,362) (8,701,491)
In excess of net realized gain on investments............................. (64,874) --
Advisor Class:
Distributions to shareholders: (Note 1)
From net realized gain on investments..................................... (1,789,552) (57,488)
In excess of net realized gain on investments............................. (3,408) --
---------------- ----------------
Total distributions..................................................... (146,957,017) (43,372,390)
---------------- ----------------
Capital share transactions: (Note 4)
Increase from capital shares sold and reinvested.......................... 785,847,410 1,007,452,632
Decrease from capital shares repurchased.................................. (776,444,828) (1,062,045,275)
---------------- ----------------
Net increase (decrease) from capital share transactions................. 9,402,582 (54,592,643)
---------------- ----------------
Total increase (decrease) in net assets..................................... (162,604,772) 49,707,879
Net assets:
Beginning of year......................................................... 626,342,117 576,634,238
---------------- ----------------
End of year *............................................................. $ 463,737,345 $ 626,342,117
---------------- ----------------
---------------- ----------------
* Includes undistributed net investment income............................. -- $ --
---------------- ----------------
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-41
<PAGE> 1142
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1998 (d) 1997 (d) 1996 (d) 1995 1994 (d)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 27.98 $ 23.60 $ 21.84 $ 19.60 $ 17.86
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment loss................... (0.21) (0.25) (0.17) (0.15) (0.22)
Net realized and unrealized gain
(loss) on investments................ (0.91) 6.48 4.79 3.73 2.02
---------- ---------- ---------- ---------- ----------
Net increase (decrease) from
investment operations.............. (1.12) 6.23 4.62 3.58 1.80
---------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net realized gain on
investments.......................... (6.70) (1.85) (2.86) (1.34) --
In excess of net realized gain on
investments.......................... (0.01) -- -- -- (0.06)
---------- ---------- ---------- ---------- ----------
Total distributions................. (6.71) (1.85) (2.86) (1.34) (0.06)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 20.15 $ 27.98 $ 23.60 $ 21.84 $ 19.60
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return (c)............. (4.71)% 28.36% 23.14% 19.79% 10.11%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 357,534 $ 472,083 $ 467,861 $ 426,380 $ 438,940
Ratio of net investment loss to average
net assets:
With expense reductions (Note 5)...... (0.97)% (1.00)% (0.71)% (0.72)% (1.23)%
Without expense reductions............ (0.98)% (1.03)% (0.75)% (0.78)% N/A
Ratio of expenses to average net assets:
With expense reductions (Note 5)...... 1.83% 1.77% 1.80% 1.85% 1.98%
Without expense reductions............ 1.84% 1.80% 1.84% 1.91% N/A
Portfolio turnover rate++............... 187% 149% 157% 99% 64%
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates are calculated on the basis of the Fund as a
whole without distinguishing between the classes of shares issued.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-42
<PAGE> 1143
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1998 (d) 1997 (d) 1996 (d) 1995 1994 (d)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 27.27 $ 23.15 $ 21.56 $ 19.46 $ 17.80
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment loss................... (0.30) (0.37) (0.27) (0.25) (0.32)
Net realized and unrealized gain
(loss) on investments................ (0.89) 6.34 4.72 3.69 2.02
---------- ---------- ---------- ---------- ----------
Net increase (decrease) from
investment operations.............. (1.19) 5.97 4.45 3.44 1.70
---------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net realized gain on
investments.......................... (6.70) (1.85) (2.86) (1.34) --
In excess of net realized gain on
investments.......................... (0.01) -- -- -- (0.04)
---------- ---------- ---------- ---------- ----------
Total distributions................. (6.71) (1.85) (2.86) (1.34) (0.04)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 19.37 $ 27.27 $ 23.15 $ 21.56 $ 19.46
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return (c)............. (5.20)% 27.75% 22.59% 19.17% 9.55%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 100,311 $ 147,440 $ 107,622 $ 70,740 $ 39,100
Ratio of net investment loss to average
net assets:
With expense reductions (Note 5)...... (1.47)% (1.50)% (1.21)% (1.22)% (1.73)%
Without expense reductions............ (1.48)% (1.53)% (1.25)% (1.28)% N/A
Ratio of expenses to average net assets:
With expense reductions (Note 5)...... 2.33% 2.27% 2.30% 2.35% 2.48%
Without expense reductions............ 2.34% 2.30% 2.34% 2.41% N/A
Portfolio turnover rate++............... 187% 149% 157% 99% 64%
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates are calculated on the basis of the Fund as a
whole without distinguishing between the classes of shares issued.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-43
<PAGE> 1144
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
ADVISOR CLASS+
----------------------------------------------------
JUNE 1, 1995
YEAR ENDED OCTOBER 31, TO
------------------------------------- OCTOBER 31,
1998 (d) 1997 (d) 1996 (d) 1995
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 28.34 $ 23.77 $ 21.88 $ 18.66
----------- ----------- ----------- -------------
Income from investment operations:
Net investment loss................... (0.10) (0.12) (0.05) (0.02)
Net realized and unrealized gain
(loss) on investments................ (0.94) 6.54 4.80 3.24
----------- ----------- ----------- -------------
Net increase (decrease) from
investment operations.............. (1.04) 6.42 4.75 3.22
----------- ----------- ----------- -------------
Distributions to shareholders:
From net realized gain on
investments.......................... (6.70) (1.85) (2.86) --
In excess of net realized gain on
investments.......................... (0.01) -- -- --
----------- ----------- ----------- -------------
Total distributions................. (6.71) (1.85) (2.86) --
----------- ----------- ----------- -------------
Net asset value, end of period.......... $ 20.59 $ 28.34 $ 23.77 $ 21.88
----------- ----------- ----------- -------------
----------- ----------- ----------- -------------
Total investment return (c)............. (4.28)% 29.00% 23.82% 17.10(b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 5,892 $ 6,819 $ 1,152 $ 539
Ratio of net investment loss to average
net assets:
With expense reductions (Note 5)...... (0.47)% (0.50)% (0.21)% (0.22)%(a)
Without expense reductions............ (0.48)% (0.53)% (0.25)% (0.28)%(a)
Ratio of expenses to average net assets:
With expense reductions (Note 5)...... 1.33% 1.27% 1.30% 1.35%(a)
Without expense reductions............ 1.34% 1.30% 1.34% 1.41%(a)
Portfolio turnover rate++............... 187% 149% 157% 99%(a)
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates are calculated on the basis of the Fund as a
whole without distinguishing between the classes of shares issued.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-44
<PAGE> 1145
NOTES TO
FINANCIAL STATEMENTS
October 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (SEE ALSO NOTE 2)
AIM Global Health Care Fund (the "Fund"), formerly, GT Global Health Care Fund,
is a separate series of AIM Investment Funds (the "Trust"), formerly G.T.
Investment Funds, Inc. The Trust is organized as a Delaware business trust and
is registered under the Investment Company Act of 1940, as amended ("1940 Act"),
as an open-end management investment company. The Trust has thirteen series of
shares in operation, each series corresponding to a distinct portfolio of
investments.
The Fund offers Class A, Class B, and Advisor Class shares, each of which has
equal rights as to assets and voting privileges except that Class A and Class B
each has exclusive voting rights with respect to its distribution plan.
Investment income, realized and unrealized capital gains and losses, and the
common expenses of the Fund are allocated on a pro rata basis to each class
based on the relative net assets of each class to the total net assets of the
Fund. Each class of shares differs in its respective service and distribution
expenses, and may differ in its transfer agent, registration, and certain other
class-specific fees and expenses.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies in conformity with generally accepted accounting
principles consistently followed by the Fund in the preparation of the financial
statements.
(A) PORTFOLIO VALUATION
The Fund calculates the net asset value of and completes orders to purchase,
exchange or repurchase Fund shares on each business day, with the exception of
those days on which the New York Stock Exchange is closed.
Equity securities are valued at the last sale price on the exchange on which
such securities are traded, or on the principal over-the-counter market on which
such securities are traded, as of the close of business on the day the
securities are being valued, or, lacking any sales, at the last available bid
price. In cases where securities are traded on more than one exchange, the
securities are valued on the exchange determined by A I M Advisors, Inc. (the
"Manager") to be the primary market.
Fixed income investments are valued at the mean of representative quoted bid and
ask prices for such investments or, if such prices are not available, at prices
for investments of comparative maturity, quality and type; however, when the
Manager deems it appropriate, prices obtained for the day of valuation from a
bond pricing service will be used. Short-term investments are valued at
amortized cost adjusted for foreign exchange translation and market fluctuation,
if any.
Investments for which market quotations are not readily available (including
restricted securities which are subject to limitations on their sale) are valued
at fair value as determined in good faith by or under the direction of the
Trust's Board of Trustees.
Portfolio securities which are primarily traded on foreign exchanges are
generally valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S. dollars at
the current exchange rates, except that when an occurrence subsequent to the
time a value was so established is likely to have materially changed such value,
then the fair value of those securities will be determined by consideration of
other factors by or under the direction of the Trust's Board of Trustees.
(B) FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings, and other assets and
liabilities are recorded in the books and records of the Fund after translation
to U.S. dollars based on the exchange rates on that day. The cost of each
security is determined using historical exchange rates. Income and withholding
taxes are translated at prevailing exchange rates when earned or incurred.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, forward foreign currency contracts, sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains or losses arise from changes in the
value of assets and liabilities other than investments in securities at year
end, resulting from changes in exchange rates.
(C) REPURCHASE AGREEMENTS
With respect to repurchase agreements entered into by the Fund, it is the Fund's
policy to always receive, as collateral, United States government securities or
other high quality debt securities of which the value, including accrued
interest, is at least equal to the amount to be repaid to the Fund under each
agreement at its maturity.
(D) FORWARD FOREIGN CURRENCY CONTRACTS
A forward foreign currency contract ("Forward Contract") is an agreement between
two parties to buy and sell a currency at a set price on a future date. The
market value of the Forward Contract
FS-45
<PAGE> 1146
fluctuates with changes in currency exchange rates. The Forward Contract is
marked-to-market daily and the change in market value is recorded by the Fund as
an unrealized gain or loss. When the Forward Contract is closed, the Fund
records a realized gain or loss equal to the difference between the value at the
time it was opened and the value at the time it was closed. Forward Contracts
involve market risk in excess of the amount shown in the Fund's "Statement of
Assets and Liabilities". The Fund could be exposed to risk if a counter party is
unable to meet the terms of the contract or if the value of the currency changes
unfavorably. The Fund may enter into Forward Contracts in connection with
planned purchases or sales of securities, or to hedge against adverse
fluctuations in exchange rates between currencies.
(E) OPTION ACCOUNTING PRINCIPLES
When the Fund writes a call or put option, an amount equal to the premium
received is included in the Fund's "Statement of Assets and Liabilities" as an
asset and an equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option. The current
market value of an option listed on a traded exchange is valued at its last bid
price, or, in the case of an over-the-counter option, is valued at the average
of the last bid prices obtained from brokers, unless a quotation from only one
broker is available, in which case only that broker's price will be used. If an
option expires on its stipulated expiration date or if the Fund enters into a
closing purchase transaction, a gain or loss is realized without regard to any
unrealized gain or loss on the underlying security and the liability related to
such option is extinguished. If a written call option is exercised, a gain or
loss is realized from the sale of the underlying security and the proceeds of
the sale are increased by the premium originally received. If a written put
option is exercised, the cost of the underlying security purchased would be
decreased by the premium originally received. The Fund can write options only on
a covered basis, which, for a call, requires that the Fund hold the underlying
security and, for a put, requires the Fund to set aside cash, U.S. government
securities or other liquid securities in an amount not less than the exercise
price, or otherwise provide adequate cover at all times while the put option is
outstanding. The Fund may use options to manage its exposure to the stock market
and to fluctuations in currency values or interest rates.
The premium paid by the Fund for the purchase of a call or put option is
included in the Fund's "Statement of Assets and Liabilities" as an investment
and subsequently "marked-to-market" to reflect the current market value of the
option. If an option which the Fund has purchased expires on the stipulated
expiration date, the Fund realizes a loss in the amount of the cost of the
option. If the Fund enters into a closing sale transaction, the Fund realizes a
gain or loss, depending on whether proceeds from the closing sale transaction
are greater or less than the cost of the option. If the Fund exercises a call
option, the cost of the securities acquired by exercising the call is increased
by the premium paid to buy the call. If the Fund exercises a put option, it
realizes a gain or loss from the sale of the underlying security, and the
proceeds from such sale are decreased by the premium originally paid.
The risk associated with purchasing options is limited to the premium originally
paid. The risk in writing a call option is that the Fund may forego the
opportunity of profit if the market value of the underlying security or index
increases and the option is exercised. The risk in writing a put option is that
the Fund may incur a loss if the market value of the underlying security or
index decreases and the option is exercised. In addition, there is the risk the
Fund may not be able to enter into a closing transaction because of an illiquid
secondary market.
(F) FUTURES CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
security at a set price on a future date. Upon entering into such a contract the
Fund is required to pledge to the broker an amount of cash or securities equal
to the minimum "initial margin" requirements of the exchange on which the
contract is traded. Pursuant to the contract, the Fund agrees to receive from or
pay to the broker an amount of cash equal to the daily fluctuation in value of
the contract. Such receipts or payments are known as "variation margin" and are
recorded by the Fund as unrealized gains or losses. When the contract is closed,
the Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the time it was
closed. The potential risk to the Fund is that the change in value of the
underlying securities may not correlate to the change in value of the contracts.
The Fund may use futures contracts to manage its exposure to the stock market
and to fluctuations in currency values or interest rates.
(G) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). The cost of securities sold is determined on a first-in,
first-out-basis, unless otherwise specified. Dividends are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. Where a high
level of uncertainty exists as to its collection, income is recorded net of all
withholding tax with any rebate recorded when received. The Fund may trade
securities on other than normal settlement terms. This may increase the risk if
the other party to the transaction fails to deliver and causes the Fund to
subsequently invest at less advantageous prices.
(H) PORTFOLIO SECURITIES LOANED
At October 31, 1998, stocks with an aggregate value of $65,970,926 were on loan
to brokers. The loans were secured by cash collateral of $67,591,665 received by
the Fund. For the year ended October 31, 1998, the Fund received fees of
$127,509.
For international securities, cash collateral is received by the Fund against
loaned securities in an amount at least equal to 105% of the market value of the
loaned securities at the inception of each loan. This collateral must be
maintained at not less than 103% of the market value of the loaned securities
during the period of the loan. For domestic securities, cash collateral is
received by the Fund against loaned securities in the amount at least equal to
102% of the market value of the loaned securities at the inception of each loan.
This collateral must be maintained at not less than 100% of the market value of
the loaned securities during the period of the loan. The cash
FS-46
<PAGE> 1147
collateral is invested in a securities lending trust which consists of a
portfolio of high quality short duration securities whose average effective
duration is restricted to 120 days or less.
(I) TAXES
It is the intended policy of the Fund to meet the requirements for qualification
as a "regulated investment company" under the Internal Revenue Code of 1986, as
amended ("Code"). It is also the intention of the Fund to make distributions
sufficient to avoid imposition of any excise tax under Section 4982 of the Code.
Therefore, no provision has been made for Federal taxes on income, capital
gains, unrealized appreciation of securities held, or excise tax on income and
capital gains. The Fund currently has a capital loss carryforward of $1,387,673
which expires in 2006.
(J) DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded by the Fund on the ex-date. Income
and capital gain distributions are determined in accordance with Federal income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Fund and timing differences.
(K) FOREIGN SECURITIES
There are certain additional considerations and risks associated with investing
in foreign securities and currency transactions that are not inherent in
investments of domestic origin. The Fund's investment in emerging market
countries may involve greater risks than investments in more developed markets
and the price of such investments may be volatile. These risks of investing in
foreign and emerging markets may include foreign currency exchange rate
fluctuations, perceived credit risk, adverse political and economic developments
and possible adverse foreign government intervention.
In addition, the Fund's policy of concentrating its investments in companies in
the health care industry subject the Fund to greater risk than a fund that is
more diversified.
(L) INDEXED SECURITIES
The Fund may invest in indexed securities whose value is linked either directly
or indirectly to changes in foreign currencies, interest rates, equities,
indices, or other reference instruments. Indexed securities may be more volatile
than the reference instrument itself, but any loss is limited to the amount of
the original investment.
(M) RESTRICTED SECURITIES
The Fund is permitted to invest in privately placed restricted securities. These
securities may be resold in transactions exempt from registration or to the
public if the securities are registered. Disposal of these securities may
involve time-consuming negotiations and expense, and prompt sale at an
acceptable price may be difficult. At the end of the year, restricted
securities, if any, (excluding 144A issues), are shown at the end of the Fund's
Portfolio of Investments.
(N) LINE OF CREDIT
The Fund, along with certain other funds advised and/or administered by the
Manager, has a line of credit with each of BankBoston and State Street Bank and
Trust Company. The arrangements with the banks allow the Fund and certain other
Funds to borrow, on a first come, first serve basis, an aggregate maximum amount
of $250,000,000. The Fund is limited to borrowing up to 33 1/3% of the value of
the Fund's total assets. At October 31, 1998, the Fund had no loans outstanding.
For the year ended October 31, 1998, the weighted average outstanding daily
balance of bank loans (based on the number of days the loans were outstanding)
was $2,447,333, with a weighted average interest rate of 6.39%. Interest expense
for the year ended October 31, 1998 was $2,605 and is included in "Other
Expenses" on the Statement of Operations.
2. RELATED PARTIES
A I M Advisors, Inc. (the "Manager"), an indirect wholly-owned subsidiary of
AMVESCAP PLC, is the Fund's investment manager and administrator. As of the
close of business on May 29, 1998, Liechtenstein Global Trust AG ("LGT"), the
former indirect parent organization of Chancellor LGT Asset Management, Inc.
("Chancellor LGT") consummated a purchase agreement with AMVESCAP PLC pursuant
to which AMVESCAP PLC acquired LGT's Asset Management Division, which included
Chancellor LGT and certain other affiliates. A I M Distributors, Inc. ("AIM
Distributors"), a wholly-owned subsidiary of the Manager, is the Fund's
distributor as of the close of business on May 29, 1998. The Trust was
reorganized from a Maryland corporation into a Delaware business trust on
September 8, 1998. Finally, as of the close of business on September 4, 1998,
A I M Fund Services, Inc. ("AFS"), an affiliate of the Manager and AIM
Distributors, replaced GT Global Investor Services, Inc. ("GT Services") as the
transfer agent of the Fund.
The Fund pays investment management and administration fees to the Manager at
the annualized rate of 0.975% on the first $500 million of average daily net
assets of the Fund; 0.95% on the next $500 million; 0.925% on the next $500
million; and 0.90% on amounts thereafter. These fees are computed daily and paid
monthly.
AIM Distributors, an affiliate of the Manager, serves as the Fund's distributor.
For the period ended May 29, 1998, GT Global, Inc. ("GT Global") served as the
Fund's distributor. The Fund offers Class A, Class B, and Advisor Class shares
for purchase.
Class A shares are subject to initial sales charges imposed at the time of
purchase, in accordance with the schedule included in the Fund's current
prospectus. AIM Distributors collects the sales charges imposed on sales of
Class A shares, and reallows a portion of such charges to dealers through which
the sales are made. For the year ended October 31, 1998, AIM Distributors and GT
Global retained sales charges of $8,771 and $15,832, respectively. Purchases of
Class A shares exceeding $1,000,000 may be subject to a contingent deferred
sales charge ("CDSC") upon redemption, in accordance with the Fund's current
prospectus. AIM Distributors and GT Global collected CDSCs for the year ended
October 31, 1998 of $26 and $207, respectively. AIM Distributors also makes
ongoing shareholder
FS-47
<PAGE> 1148
servicing and trail commission payments to dealers whose clients hold Class A
shares.
Class B shares are not subject to initial sales charges. When Class B shares are
sold, AIM Distributors, from its own resources, pays commissions to dealers
through which the sales are made. Certain redemptions of Class B shares made
within six years of purchase are subject to CDSCs, in accordance with the Fund's
current prospectus. For the year ended October 31, 1998, AIM Distributors and GT
Global collected CDSCs in the amount of $169,183 and $341,707, respectively. In
addition, AIM Distributors makes ongoing shareholder servicing and trail
commission payments to dealers whose clients hold Class B shares.
For the period ended May 29, 1998, pursuant to the then effective separate
distribution plans adopted under the 1940 Act Rule 12b-1 by the Trust's Board of
Trustees with respect to the Fund's Class A shares ("Class A Plan") and Class B
shares ("Class B Plan"), the Fund reimbursed GT Global for a portion of its
shareholder servicing and distribution expenses. Under the Class A Plan, the
Fund was permitted to pay GT Global a service fee at the annualized rate of up
to 0.25% of the average daily net assets of the Fund's Class A shares for GT
Global's expenditures incurred in servicing and maintaining shareholder
accounts, and was permitted to pay GT Global a distribution fee at the
annualized rate of up to 0.50% of the average daily net assets of the Fund's
Class A shares, less any amounts paid by the Fund as the aforementioned service
fee, for GT Global's expenditures incurred in providing services as distributor.
All expenses for which GT Global was reimbursed under the Class A Plan would
have been incurred within one year of such reimbursement.
For the period ended May 29, 1998, pursuant to the Class B Plan, the Fund was
permitted to pay GT Global a service fee at the annualized rate of up to 0.25%
of the average daily net assets of the Fund's Class B shares for GT Global's
expenditures incurred in servicing and maintaining shareholder accounts, and was
permitted to pay GT Global a distribution fee at the annualized rate of up to
0.75% of the average daily net assets of the Fund's Class B shares for GT
Global's expenditures incurred in providing services as distributor. Expenses
incurred under the Class B Plan in excess of 1.00% annually were permitted to be
carried forward for reimbursement in subsequent years as long as that Plan
continued in effect.
Effective as of the close of business May 29, 1998, pursuant to Rule 12b-1 under
the 1940 Act, the Trust's Board of Trustees adopted a Master Distribution Plan
applicable to the Fund's Class A shares ("Class A Plan") and Class B shares
("Class B Plan"), pursuant to which the Fund compensates AIM Distributors for
the purpose of financing any activity that is intended to result in the sale of
Class A or Class B shares of the Fund. Under the Class A Plan, the Fund
compensates AIM Distributors at the annualized rate of 0.50% of the average
daily net assets of the Fund's Class A shares. Under the Class B Plan, the Fund
compensates AIM Distributors at an annualized rate of 1.00% of the average daily
net assets of the Fund's Class B shares.
The Class A Plan and the Class B Plan (together, the "Plans") are designed to
compensate AIM Distributors for certain promotional and other sales-related
costs, and to implement a dealer incentive program that provides for periodic
payments to selected dealers who furnish continuing personal shareholder
services to their customers who purchase and own Class A and Class B shares of
the Fund. Payments also can be directed by AIM Distributors to fnancial
institutions who have entered into service agreements with respect to Class A
and Class B shares of the Fund and who provide continuing personal services to
their customers who own Class A and Class B shares of the Fund. The service fees
payable to selected financial 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 that were purchased on or after a
prescribed date set forth in the Plans.
The Manager and AIM Distributors voluntarily have undertaken to limit the Fund's
expenses (exclusive of brokerage commissions, taxes, interest, and extraordinary
expense) to the maximum annual rate of 2.00%, 2.50%, and 1.50% of the average
daily net assets of the Fund's Class A, Class B, and Advisor Class shares,
respectively. If necessary, this limitation will be effected by waivers by the
Manager of investment management and administration fees, waivers by AIM
Distributors of payments under the Class A Plan and/or Class B Plan and/or
reimbursements by the Manager or AIM Distributors of portions of the Fund's
other operating expenses.
Effective as of the close of business September 4, 1998, the Fund, pursuant to a
transfer agency and service agreement, has agreed to pay A I M Fund Services,
Inc. ("AFS") an annualized fee of $24.85 per shareholder accounts that are open
during any monthly period (this fee includes all out-of-pocket expenses), and an
annualized fee of $0.70 per shareholder account that is closed during any
monthly period. Both fees shall be billed by AFS monthly in arrears on a
prorated basis of 1/12 of the annualized fee for all such accounts.
For the period November 1, 1997 to September 4, 1998, GT Services, an affiliate
of the Manager and AIM Distributors, was the transfer agent of the Fund. For
performing shareholder servicing, reporting, and general transfer agent
services, GT Services received an annual maintenance fee of $17.50 per account,
a new account fee of $4.00 per account, a per transaction fee of $1.75 for all
transactions other than exchanges and a per exchange fee of $2.25. GT Services
also was reimbursed by the Fund for its out-of-pocket expenses for such items as
postage, forms, telephone charges, stationery and office supplies.
The Manager is the pricing and accounting agent for the Fund. The monthly fee
for these services paid to the Manager is a percentage, not to exceed 0.03%
annually, of a Fund's average daily net assets. The annual fee rate is derived
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% to the assets in excess of
FS-48
<PAGE> 1149
$5 billion. An amount is allocated to and paid by each such fund based on its
relative average daily net assets.
The Trust pays each Trustee who is not an employee, officer or director of the
Manager, or any other affiliated company, $5,000 per year plus $300 for each
meeting of the board or any committee thereof attended by the Trustee.
3. PURCHASES AND SALES OF SECURITIES
For the year ended October 31, 1998, purchases and sales of investment
securities by the Fund, other than U.S. government obligations and short-term
investments, aggregated $896,895,873 and $1,049,291,456, respectively. For the
year ended October 31, 1998, there were no purchases and sales of U.S.
government obligations.
4. CAPITAL SHARES
At October 31, 1998, there were 6,000,000,000 shares of the Trust's common stock
authorized, at $0.0001 par value. Of this amount, 400,000,000 were classified as
shares of the AIM Global Telecommunications Fund; 400,000,000 were classified as
shares of AIM Global Government Income Fund; 200,000,000 were classified as
shares of AIM Global Health Care Fund; 200,000,000 were classified as shares of
AIM Strategic Income Fund; 200,000,000 were classified as shares of AIM
Developing Markets Fund; 200,000,000 were classified as shares of GT Global
Currency Fund (inactive); 200,000,000 were classified as shares of AIM Global
Growth & Income Fund; 200,000,000 were classified as shares of GT Global Small
Companies Fund (inactive); 200,000,000 were classified as shares of AIM Latin
American Growth Fund; 200,000,000 were classified as shares of AIM Emerging
Markets Fund; 200,000,000 were classified as shares of AIM Emerging Markets Debt
Fund; 200,000,000 were classified as shares of AIM Global Financial Services
Fund; 200,000,000 were classified as shares of AIM Global Resources Fund;
200,000,000 were classified as shares of AIM Global Infrastructure Fund;
200,000,000 were classified as shares of AIM Global Consumer Products and
Services Fund. The shares of each of the foregoing series of the Trust's were
divided equally into two classes, designated Class A and Class B common stock.
With respect to the issuance of Advisor Class shares, 100,000,000 shares were
classified as shares of each of the fifteen series of the Trust's and designated
as Advisor Class common stock. 1,100,000,000 shares remain unclassified.
Transactions in capital shares of the Fund were as follows:
CAPITAL SHARE TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER, 31 1998 OCTOBER 31, 1997
------------------------- -------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold...................................................... 24,980,706 $526,818,779 31,631,342 $772,292,073
Shares issued in connection with reinvestment of distributions... 4,212,044 87,484,194 1,208,813 27,043,227
----------- ------------ ----------- ------------
29,192,750 614,302,973 32,840,155 799,335,300
Shares repurchased............................................... (28,318,023) (599,732,573) (35,792,763) (876,621,319)
----------- ------------ ----------- ------------
Net increase (decrease).......................................... 874,727 $ 14,570,400 (2,952,608) $(77,286,019)
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
<CAPTION>
CLASS B
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold...................................................... 3,933,442 $ 81,783,021 6,206,431 $152,327,079
Shares issued in connection with reinvestment of distributions... 1,393,872 27,961,083 321,688 7,045,104
----------- ------------ ----------- ------------
5,327,314 109,744,104 6,528,119 159,372,183
Shares repurchased............................................... (5,554,950) (115,825,819) (5,770,947) (142,017,878)
----------- ------------ ----------- ------------
Net increase (decrease).......................................... (227,636) $ (6,081,715) 757,172 $ 17,354,305
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
<CAPTION>
ADVISOR CLASS
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold...................................................... 2,760,416 $ 60,020,116 1,865,809 $ 48,687,774
Shares issued in connection with reinvestment of distributions... 84,210 1,780,217 2,543 57,375
----------- ------------ ----------- ------------
2,844,626 61,800,333 1,868,352 48,745,149
Shares repurchased............................................... (2,799,107) (60,886,436) (1,676,189) (43,406,078)
----------- ------------ ----------- ------------
Net increase..................................................... 45,519 $ 913,897 192,163 $ 5,339,071
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
</TABLE>
5. EXPENSE REDUCTIONS
The Manager has directed certain portfolio trades to brokers who then paid a
portion of the Fund's expenses. For the year ended October 31, 1998, the Fund's
expenses were reduced by $45,003 under these arrangements.
6. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
Investments of 5% or more of an issuer's outstanding voting securities by the
Fund are defined in the Investment Company Act of 1940 as an affiliated company.
Investments in affiliated companies by the Fund at October 31, 1998, amounted to
$32,593,626, at value.
FS-49
<PAGE> 1150
Transactions with affiliated companies for the year are as follows:
<TABLE>
<CAPTION>
PURCHASES SALES NET REALIZED DIVIDEND
COST PROCEEDS GAIN (LOSS) INCOME
---------- ----------- ------------ --------
<S> <C> <C> <C> <C>
AVECOR Cardiovascular........................ $ 951,984 $ 1,158,394 $ (660,045) --
TheraTech, Inc............................... -- 2,219,055 (1,305,046) --
</TABLE>
7. PROXY RESULTS (UNAUDITED)
The Special Meeting of Shareholders of the G.T. Investment Funds, Inc. now known
as AIM Investment Funds (the "Trust") was held on May 20, 1998 at the Trust's
offices, 50 California Street, 26th Floor, San Francisco, California. The
meeting was held for the following purposes:
(1) To elect Trustees as follows: C. Derek Anderson, Frank S. Bayley, William
J. Guilfoyle, Arthur C. Patterson, Ruth H. Quigley.
(2) To approve a new Investment Management and Administration Contract and
Sub-Advisory and Sub-Administration Contract with respect to each series of
the Trust (each, a "Fund," and collectively, the "Funds").
(3) To approve replacement Rule 12b-1 plans of distribution with respect to
Class A and B Shares of the Fund.
(4) To approve changes to the fundamental investment restrictions of the Fund.
(5) To approve an agreement and plan of conversion and termination for the
Trust.
(6) To ratify the selection of Coopers & Lybrand, now known as
PricewaterhouseCoopers LLP, as the Trust's independent public accountants.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
TRUSTEE/MATTER
---------------------------------------------------------------------------------------------------------------
<S> <C>
(1) C. Derek Anderson..............................................................................................
Frank S. Bayley................................................................................................
William J. Guilfoyle...........................................................................................
Arthur C. Patterson............................................................................................
Ruth H. Quigley................................................................................................
(2)(a) Approval of investment management and administration contract..................................................
(2)(b) Approval of sub-advisory and sub-administration contract.......................................................
(3) Approval of replacement Rule 12b-1 plans of distribution
CLASS A SHARES.................................................................................................
CLASS B SHARES.................................................................................................
(4)(a) Modification of Fundamental Restriction on Portfolio Diversification...........................................
(4)(b) Modification of Fundamental Restriction on Issuing Senior Securities and Borrowing Money.......................
(4)(c) Modification of Fundamental Restriction on Making Loans........................................................
(4)(d) Modification of Fundamental Restriction on Underwriting Securities.............................................
(4)(e) Modification of Fundamental Restriction on Real Estate Investments.............................................
(4)(f) Modification of Fundamental Restriction on Investing in Commodities............................................
(4)(g) Elimination of Fundamental Restriction on Margin Transactions..................................................
(4)(h) Elimination of Fundamental Restriction on Investing in Illiquid Securities.....................................
(4)(i) Elimination of Fundamental Restriction on Pledging Assets......................................................
(4)(j) Elimination of Fundamental Restriction on Investment in Oil, Gas and Mineral Leases and Programs...............
(4)(k) Elimination of Fundamental Restriction on Investing for the Purpose of Control.................................
(4)(l) Elimination of Fundamental Restriction on Investing in Securities of Companies That Have Been in Operation for
Less than Three Years........................................................................................
(4)(m) Elimination of Fundamental Restriction on Selling Securities Short.............................................
(4)(n) Approval of New Fundamental Investment Policy Regarding Investment of All of Each Fund's Assets in an Open-End
Fund.........................................................................................................
(5) Approval of an agreement and plan of conversion and termination with respect to the Trust......................
(6) Ratification of the selection of Coopers and Lybrand, now known as PricewaterhouseCoopers LLP, as the Trust's
Independent Public Accountants...............................................................................
<CAPTION>
VOTES WITHHELD/
VOTES FOR AGAINST ABSTENTIONS
--------------- ------------ --------------
<S> <C> <C> <C>
(1) 191,685,088 N/A 13,123,292
191,766,811 N/A 13,041,568
191,828,959 N/A 12,979,420
191,845,270 N/A 12,963,109
191,869,887 N/A 12,938,492
(2)(a) 10,036,876 377,037 3,286,380*
(2)(b) 9,924,807 438,232 3,337,254*
(3)
9,243,174 408,228 848,675
2,844,133 91,446 203,388
(4)(a) 9,785,679 486,780 3,427,834*
(4)(b) 9,785,679 486,780 3,427,834*
(4)(c) 9,785,679 486,780 3,427,834*
(4)(d) 9,785,524 486,935 3,427,834*
(4)(e) 9,785,679 486,780 3,427,834*
(4)(f) 9,784,205 488,254 3,427,834*
(4)(g) 9,785,524 486,935 3,427,834*
(4)(h) 9,782,717 489,742 3,427,824
(4)(i) 9,785,524 486,935 3,427,834*
(4)(j) 9,785,679 486,780 3,427,834*
(4)(k) 9,785,549 486,910 3,427,834*
(4)(l)
9,784,035 488,424 3,427,834*
(4)(m) 9,781,946 490,513 3,427,834*
(4)(n)
9,785,300 487,159 3,427,834*
(5) 190,027,469 6,362,084 94,055,040*
(6)
191,358,779 2,114,168 11,333,063
</TABLE>
- --------------
* Includes Broker Non-Votes
- --------------
FEDERAL TAX INFORMATION (UNAUDITED):
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$34,293,657 as capital gain dividends for the fiscal year ended October 31,
1998.
FS-50
<PAGE> 1151
REPORT OF
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders of AIM Global Infrastructure Fund (formerly GT Global
Infrastructure Fund) and Board of Trustees of AIM Investment Funds (formerly
G.T. Investment Funds, Inc.):
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Global Infrastructure
Fund - Consolidated at October 31, 1998, and the results of its operations, the
changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at October
31, 1998 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
BOSTON, MASSACHUSETTS
DECEMBER 18, 1998
FS-51
<PAGE> 1152
PORTFOLIO OF INVESTMENTS
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Energy (35.3%)
AES Corp.-/- ............................................... US 48,264 $ 1,975,808 3.1
ELECTRICAL & GAS UTILITIES
Enron Corp. ................................................ US 35,001 1,846,303 2.9
GAS PRODUCTION & DISTRIBUTION
Houston Industries, Inc. ................................... US 59,000 1,832,688 2.9
ELECTRICAL & GAS UTILITIES
Dominion Resources, Inc. ................................... US 38,000 1,755,125 2.8
ELECTRICAL & GAS UTILITIES
Endesa S.A. - ADR{\/} ...................................... SPN 68,400 1,739,925 2.8
ELECTRICAL & GAS UTILITIES
Pinnacle West Capital Corp. ................................ US 32,000 1,402,000 2.2
ELECTRICAL & GAS UTILITIES
National Grid Group PLC .................................... UK 200,000 1,368,580 2.2
ELECTRICAL & GAS UTILITIES
Edison S.p.A. .............................................. ITLY 150,000 1,325,549 2.1
ELECTRICAL & GAS UTILITIES
BG PLC ..................................................... UK 200,000 1,310,022 2.1
ELECTRICAL & GAS UTILITIES
Union Electrica Fenosa S.A.-/- ............................. SPN 60,000 973,652 1.5
ELECTRICAL & GAS UTILITIES
Texas Utilities Co. ........................................ US 20,000 875,000 1.4
ELECTRICAL & GAS UTILITIES
EVN Energie-Versorgung Niederoesterreich AG ................ ASTRI 5,600 798,420 1.3
ELECTRICAL & GAS UTILITIES
Montana Power Co. .......................................... US 18,000 779,625 1.2
ELECTRICAL & GAS UTILITIES
Interstate Energy Corp. .................................... US 23,740 734,456 1.2
ELECTRICAL & GAS UTILITIES
GPU, Inc. .................................................. US 16,000 690,000 1.1
ELECTRICAL & GAS UTILITIES
Public Service Enterprise Group, Inc. ...................... US 17,000 646,000 1.0
ELECTRICAL & GAS UTILITIES
EDP-Electricidade de Portugal S.A. ......................... PORT 25,400 638,739 1.0
ELECTRICAL & GAS UTILITIES
USEC, Inc.-/- .............................................. US 39,600 579,150 0.9
ENERGY SOURCES
Viag AG .................................................... GER 800 543,774 0.9
ELECTRICAL & GAS UTILITIES
El Paso Energy Corp. ....................................... US 12,400 439,425 0.7
GAS PRODUCTION & DISTRIBUTION
Hub Power Co. .............................................. PAK 400 79 --
ELECTRICAL & GAS UTILITIES
-----------
22,254,320
-----------
Services (29.5%)
Vivendi .................................................... FR 11,982 2,737,841 4.4
CONSUMER SERVICES
Mannesmann AG .............................................. GER 19,000 1,871,186 3.0
WIRELESS COMMUNICATIONS
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-52
<PAGE> 1153
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Services (Continued)
Telecom Italia SpA - Di Risp ............................... ITLY 300,000 $ 1,519,597 2.4
TELEPHONE NETWORKS
SBC Communications ......................................... US 29,000 1,343,063 2.1
TELEPHONE - REGIONAL/LOCAL
Portugal Telecom S.A. - ADR{\/} ............................ PORT 28,000 1,323,000 2.1
TELEPHONE NETWORKS
Bell Atlantic Corp. ........................................ US 22,000 1,168,750 1.9
TELEPHONE - REGIONAL/LOCAL
MCI WorldCom, Inc.-/- ...................................... US 20,000 1,105,000 1.8
TELEPHONE NETWORKS
Comair Holdings, Inc. ...................................... US 32,300 1,061,863 1.7
TRANSPORTATION - AIRLINES
Swisscom AG-/- ............................................. SWTZ 2,671 905,056 1.4
TELEPHONE NETWORKS
Tele-Communications, Inc. "A"-/- ........................... US 20,000 842,500 1.3
CABLE TELEVISION
Equant N.V.-/- {\/} ........................................ NETH 18,880 826,000 1.3
TELEPHONE NETWORKS
Brisa-Auto Estradas de Portugal S.A. ....................... PORT 16,000 744,230 1.2
TRANSPORTATION - ROAD & RAIL
Canadian National Railway Co. .............................. CAN 12,800 639,378 1.0
TRANSPORTATION - ROAD & RAIL
Aeroporti di Roma SpA ...................................... ITLY 96,000 600,615 1.0
TRANSPORTATION - AIRLINES
Deutsche Lufthansa AG ...................................... GER 20,000 435,019 0.7
TRANSPORTATION - AIRLINES
AirTouch Communications, Inc.-/- ........................... US 7,100 397,600 0.6
WIRELESS COMMUNICATIONS
AMR Corp.-/- ............................................... US 5,700 381,900 0.6
TRANSPORTATION - AIRLINES
Stagecoach Holdings PLC .................................... UK 96,000 372,628 0.6
TRANSPORTATION - ROAD & RAIL
RailWorks Corp.-/- ......................................... US 23,700 157,013 0.2
TRANSPORTATION - ROAD & RAIL
China Telecom (Hong Kong) Ltd.-/- .......................... HK 80,000 150,300 0.2
WIRELESS COMMUNICATIONS
Hellenic Telecommunication Organization S.A. (OTE) ......... GREC 11 250 --
TELEPHONE NETWORKS
-----------
18,582,789
-----------
Capital Goods (11.2%)
Kaufman and Broad Home Corp. ............................... US 42,000 1,199,625 1.9
CONSTRUCTION
Gulfstream Aerospace Corp.-/- .............................. US 25,000 1,106,250 1.8
AEROSPACE/DEFENSE
General Electric Co. PLC ................................... UK 122,500 978,647 1.6
AEROSPACE/DEFENSE
Nokia Oyj "A" - ADR{\/} .................................... FIN 10,000 930,625 1.5
TELECOM EQUIPMENT
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-53
<PAGE> 1154
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Capital Goods (Continued)
United Technologies Corp. .................................. US 7,000 $ 666,750 1.1
AEROSPACE/DEFENSE
Tellabs, Inc.-/- ........................................... US 12,000 660,000 1.0
TELECOM EQUIPMENT
MAN AG ..................................................... GER 1,500 489,396 0.8
MACHINERY & ENGINEERING
British Aerospace PLC ...................................... UK 65,000 483,395 0.8
AEROSPACE/DEFENSE
Boeing Co. ................................................. US 9,700 363,750 0.6
AEROSPACE/DEFENSE
L-3 Communications Holdings, Inc.-/- ....................... US 1,300 55,900 0.1
AEROSPACE/DEFENSE
-----------
6,934,338
-----------
Materials/Basic Industry (9.1%)
Lafarge S.A. ............................................... FR 20,000 2,045,483 3.3
BUILDING MATERIALS & COMPONENTS
Martin Marietta Materials, Inc. ............................ US 25,000 1,226,563 1.9
MISC. MATERIALS & COMMODITIES
La Cementos Nacional, C.A. - 144A GDR{.} {\/} .............. ECDR 5,975 687,125 1.1
CEMENT
Hanson PLC - ADR{\/} ....................................... UK 16,000 565,000 0.9
BUILDING MATERIALS & COMPONENTS
CRH PLC .................................................... UK 38,000 553,756 0.9
BUILDING MATERIALS & COMPONENTS
Suez Cement Co. - Reg S GDR{c} {\/} ........................ EGPT 22,000 324,500 0.5
CEMENT
Centex Corp. ............................................... US 9,400 314,900 0.5
BUILDING MATERIALS & COMPONENTS
-----------
5,717,327
-----------
Technology (2.8%)
Cisco Systems, Inc.-/- ..................................... US 17,250 1,086,750 1.7
NETWORKING
Tekelec-/- ................................................. US 40,000 717,500 1.1
TELECOM TECHNOLOGY
-----------
1,804,250
----------- -----
TOTAL EQUITY INVESTMENTS (cost $44,438,182) .................. 55,293,024 87.9
----------- -----
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-54
<PAGE> 1155
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
REPURCHASE AGREEMENT (NOTE 1) ASSETS
- -------------------------------------------------------------- ----------- -------------
<S> <C> <C> <C> <C>
Dated October 30, 1998, with State Street Bank & Trust Co.,
due November 2, 1998, for an effective yield of 5.30%,
collateralized by $5,070,000 U.S. Treasury Notes, 6.50% due
5/15/05 (market value of collateral is $5,810,321,
including accrued interest). (cost $5,694,000) ............ $ 5,694,000 9.1
----------- -----
TOTAL INVESTMENTS (cost $50,132,182) * ....................... 60,987,024 97.0
Other Assets and Liabilities ................................. 1,890,613 3.0
----------- -----
NET ASSETS ................................................... $62,877,637 100.0
----------- -----
----------- -----
</TABLE>
- --------------
-/- Non-income producing security.
{\/} U.S. currency denominated.
{c} Security issued under Regulation S. Rule 144A and additional
restrictions may apply in the resale of such securities.
{.} Security exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers.
* For Federal income tax purposes, cost is $50,132,182 and
appreciation (depreciation) is as follows:
<TABLE>
<S> <C>
Unrealized appreciation: $ 11,779,031
Unrealized depreciation: (924,189)
-------------
Net unrealized appreciation: $ 10,854,842
-------------
-------------
</TABLE>
Abbreviations:
ADR--American Depositary Receipt
GDR--Global Depositary Receipt
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Fund's Portfolio of Investments at October 31, 1998, was concentrated in the
following countries:
<TABLE>
<CAPTION>
PERCENTAGE OF NET ASSETS {D}
------------------------------
SHORT-TERM
COUNTRY (COUNTRY CODE/CURRENCY CODE) EQUITY & OTHER TOTAL
- -------------------------------------- ------ ------------- -----
<S> <C> <C> <C>
Austria (ASTRI/ATS) .................. 1.3 1.3
Canada (CAN/CAD) ..................... 1.0 1.0
Ecuador (ECDR/ECS) ................... 1.1 1.1
Egypt (EGPT/EGP) ..................... 0.5 0.5
Finland (FIN/FIM) .................... 1.5 1.5
France (FR/FRF) ...................... 7.7 7.7
Germany (GER/DEM) .................... 5.4 5.4
Hong Kong (HK/HKD) ................... 0.2 0.2
Italy (ITLY/ITL) ..................... 5.5 5.5
Netherlands (NETH/NLG) ............... 1.3 1.3
Portugal (PORT/PTE) .................. 4.3 4.3
Spain (SPN/ESP) ...................... 4.3 4.3
Switzerland (SWTZ/CHF) ............... 1.4 1.4
United Kingdom (UK/GBP) .............. 9.1 9.1
United States (US/USD) ............... 43.3 12.1 55.4
------ ----- -----
Total ............................... 87.9 12.1 100.0
------ ----- -----
------ ----- -----
</TABLE>
- --------------
{d} Percentages indicated are based on net assets of $62,877,637.
The accompanying notes are an integral part of the financial statements.
FS-55
<PAGE> 1156
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS OUTSTANDING
OCTOBER 31, 1998
<TABLE>
<CAPTION>
UNREALIZED
MARKET VALUE CONTRACT DELIVERY APPRECIATION
CONTRACTS TO BUY: (U.S. DOLLARS) PRICE DATE (DEPRECIATION)
- ---------------------------------------- -------------- ------------ -------- --------------
<S> <C> <C> <C> <C>
Deutsche Marks.......................... 2,117,189 1.63655 11/27/98 $ (21,456)
Deutsche Marks.......................... 604,912 1.67875 11/27/98 9,230
Deutsche Marks.......................... 483,929 1.74405 11/27/98 25,227
French Francs........................... 2,525,704 5.47050 12/8/98 (33,477)
-------------- --------------
Total Contracts to Buy (Payable amount
$5,752,210).......................... 5,731,734 (20,476)
-------------- --------------
THE VALUE OF CONTRACTS TO BUY AS
PERCENTAGE OF NET ASSETS IS 9.12%.
<CAPTION>
CONTRACTS TO SELL:
- ----------------------------------------
<S> <C> <C> <C> <C>
Deutsche Marks.......................... 3,206,030 1.78600 11/27/98 (238,505)
French Francs........................... 2,525,704 5.76105 12/8/98 (95,591)
-------------- --------------
Total Contracts to Sell (Receivable
amount $5,397,638)................... 5,731,734 (334,096)
-------------- --------------
THE VALUE OF CONTRACTS TO SELL AS
PERCENTAGE OF NET ASSETS IS 9.12%.
Total Open Forward Foreign Currency
Contracts, Net....................... $ (354,572)
--------------
--------------
</TABLE>
- ----------------
See Note 1 of Notes to the Financial Statements.
The accompanying notes are an integral part of the financial statements.
FS-56
<PAGE> 1157
STATEMENT OF ASSETS
AND LIABILITIES
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at value (cost $50,132,182) (Note 1)............................ $60,987,024
U.S. currency................................................................... $ 187
Foreign currencies (cost $1,246,112)............................................ 1,222,705 1,222,892
---------
Receivable for securities sold............................................................. 2,900,604
Dividends and dividend withholding tax reclaims receivable................................. 71,072
Unamortized organizational costs (Note 1).................................................. 5,980
Receivable for Fund shares sold............................................................ 3,337
Interest and miscellaneous receivable...................................................... 2,860
----------
Total assets............................................................................. 65,193,769
----------
Liabilities:
Payable for securities purchased........................................................... 1,353,704
Payable for open forward foreign currency contracts, net (Note 1).......................... 354,572
Payable for Fund shares repurchased........................................................ 271,106
Payable for service and distribution expenses (Note 2)..................................... 91,358
Payable for transfer agent fees (Note 2)................................................... 73,036
Payable for printing and postage expenses.................................................. 54,875
Payable for professional fees.............................................................. 42,068
Payable for investment management and administration fees (Note 2)......................... 25,654
Payable for registration and filing fees................................................... 23,067
Payable for custodian fees................................................................. 11,419
Payable for Trustees' fees and expenses (Note 2)........................................... 3,587
Payable for fund accounting fees (Note 2).................................................. 1,541
Other accrued expenses..................................................................... 10,045
----------
Total liabilities........................................................................ 2,316,032
Minority interest (Notes 1 & 2)............................................................ 100
----------
Net assets................................................................................... $62,877,637
----------
----------
Class A:
Net asset value and redemption price per share ($23,531,410 DIVIDED BY 1,659,002 shares
outstanding)................................................................................ $ 14.18
----------
----------
Maximum offering price per share (100/95.25 of $14.18) *..................................... $ 14.89
----------
----------
Class B:+
Net asset value and offering price per share ($32,349,296 DIVIDED BY 2,333,106 shares
outstanding)................................................................................ $ 13.87
----------
----------
Advisor Class:
Net asset value, offering price per share, and redemption price per share ($6,996,931 DIVIDED
BY 483,874 shares outstanding).............................................................. $ 14.46
----------
----------
Net assets consist of:
Paid in capital (Note 4)................................................................... $47,321,830
Undistributed net investment income........................................................ 147,120
Accumulated net realized gain on investments and foreign currency transactions............. 4,932,520
Net unrealized depreciation on translation of assets and liabilities in foreign
currencies................................................................................ (378,675)
Net unrealized appreciation of investments................................................. 10,854,842
----------
Total -- representing net assets applicable to capital shares outstanding.................... $62,877,637
----------
----------
<FN>
- --------------
* On sales of $50,000 or more, the offering price is reduced.
+ Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-57
<PAGE> 1158
STATEMENT OF OPERATIONS
Year ended October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment income: (Note 1)
Dividend income (net of foreign withholding tax of $181,399)............................... $1,666,460
Interest income............................................................................ 396,324
Securities lending income.................................................................. 45,192
----------
Total investment income.................................................................. 2,107,976
----------
Expenses:
Investment management and administration fees (Note 2)..................................... 822,356
Service and distribution expenses: (Note 2)
Class A....................................................................... $ 157,270
Class B....................................................................... 451,823 609,093
---------
Transfer agent fees (Note 2)............................................................... 300,290
Professional fees.......................................................................... 93,695
Printing and postage expenses.............................................................. 73,214
Registration and filing fees............................................................... 72,670
Custodian fees............................................................................. 39,785
Fund accounting fees (Note 2).............................................................. 22,640
Trustees' fees and expenses (Note 2)....................................................... 13,870
Amortization of organization costs (Note 1)................................................ 10,300
Other expenses............................................................................. 6,446
----------
Total expenses before reductions......................................................... 2,064,359
----------
Expenses reimbursed by A I M Advisors, Inc. (Note 2)................................... (193,053)
Expense reductions (Note 5)............................................................ (7,816)
----------
Total net expenses....................................................................... 1,863,490
----------
Net investment income........................................................................ 244,486
----------
Net realized and unrealized gain (loss) on investments and foreign currencies:
(Note 1)
Net realized gain on investments................................................ 4,932,911
Net realized loss on foreign currency transactions.............................. (76,810)
---------
Net realized gain during the year........................................................ 4,856,101
Net change in unrealized depreciation on translation of assets and liabilities
in foreign currencies.......................................................... (333,974)
Net change in unrealized appreciation of investments............................ (7,919,952)
---------
Net unrealized depreciation during the year.............................................. (8,253,926)
----------
Net realized and unrealized loss on investments and foreign currencies....................... (3,397,825)
----------
Net decrease in net assets resulting from operations......................................... $(3,153,339)
----------
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-58
<PAGE> 1159
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
YEAR ENDED OCTOBER
OCTOBER 31, 31,
1998 1997
----------- ----------
<S> <C> <C>
Increase (decrease) in net assets
Operations:
Net investment income (loss)................................................... $ 244,486 $ (405,469)
Net realized gain on investments and foreign currency transactions............. 4,856,101 778,612
Net change in unrealized depreciation on translation of assets and liabilities
in foreign currencies......................................................... (333,974) (116,926)
Net change in unrealized appreciation (depreciation) of investments............ (7,919,952) 8,647,635
----------- ----------
Net increase (decrease) in net assets resulting from operations.............. (3,153,339) 8,903,852
----------- ----------
Class A:
Distributions to shareholders: (Note 1)
From net realized gain on investments.......................................... (275,162) (1,943,050)
Class B:
Distributions to shareholders: (Note 1)
From net realized gain on investments.......................................... (454,982) (2,733,339)
Advisor Class:
Distributions to shareholders: (Note 1)
From net realized gain on investments.......................................... (39,917) (17,129)
----------- ----------
Total distributions.......................................................... (770,061) (4,693,518)
----------- ----------
Capital share transactions: (Note 4)
Increase from capital shares sold and reinvested............................... 15,304,011 44,324,471
Decrease from capital shares repurchased....................................... (46,522,033) (42,934,337)
----------- ----------
Net increase (decrease) from capital share transactions...................... (31,218,022) 1,390,134
----------- ----------
Total increase (decrease) in net assets.......................................... (35,141,422) 5,600,468
Net assets:
Beginning of year.............................................................. 98,019,059 92,418,591
----------- ----------
End of year *.................................................................. $62,877,637 $98,019,059
----------- ----------
----------- ----------
* Includes undistributed net investment income of............................. $ 147,120 $ --
----------- ----------
----------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-59
<PAGE> 1160
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------
MAY 31, 1994
YEAR ENDED OCTOBER 31, (COMMENCEMENT OF
---------------------------------------------- OPERATIONS) TO
1998 (d) 1997 (d) 1996 (d) 1995 OCTOBER 31, 1994
---------- ---------- ---------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 15.01 $ 14.42 $ 12.11 $ 12.47 $ 11.43
---------- ---------- ---------- ---------- -----------------
Income from investment operations:
Net investment income (loss).......... 0.07* (0.01) (0.03) (0.03) ** 0.01* * *
Net realized and unrealized gain
(loss) on investments................ (0.79) 1.32 2.34 (0.33) 1.03
---------- ---------- ---------- ---------- -----------------
Net increase (decrease) from
investment operations.............. (0.72) 1.31 2.31 (0.36) 1.04
---------- ---------- ---------- ---------- -----------------
Distributions to shareholders:
From net realized gain on
investments.......................... (0.11) (0.72) -- -- --
---------- ---------- ---------- ---------- -----------------
Total distributions................. (0.11) (0.72) -- -- --
---------- ---------- ---------- ---------- -----------------
Net asset value, end of period.......... $ 14.18 $ 15.01 $ 14.42 $ 12.11 $ 12.47
---------- ---------- ---------- ---------- -----------------
---------- ---------- ---------- ---------- -----------------
Total investment return (c)............. (4.82)% 9.38% 19.08% (2.89)% 9.10% (b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 23,531 $ 38,281 $ 38,397 $ 36,241 $ 23,615
Ratio of net investment income (loss) to
average net assets:
With expense reductions and
reimbursement (Notes 2 & 5).......... 0.52% (0.09)% (0.19)% (0.32)% 0.41% (a)
Without expense reductions and
reimbursement........................ 0.28% (0.17)% (0.30)% (0.58)% (0.47)% (a)
Ratio of expenses to average net assets:
With expense reductions and
reimbursement (Notes 2 & 5).......... 1.99% 2.00% 2.14% 2.36% 2.40% (a)
Without expense reductions and
reimbursement........................ 2.23% 2.08% 2.25% 2.62% 3.28% (a)
Portfolio turnover rate++............... 96% 41% 41% 45% 18%
</TABLE>
- ----------------
(a) Annualized
(b) Not Annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
* Before reimbursement the net investment income per share would have
been reduced by $0.03 for Class A shares, $0.03 for Class B shares,
and $0.04 for Advisor Class shares.
* * Before reimbursement the net investment income per share would have
been reduced by $0.03 for Class A shares, $0.03 for Class B shares,
and $0.02 for Advisor Class shares.
* * * Before reimbursement the net investment income per share would have
been reduced by $0.02 for Class A and Class B from May 31, 1994 to
October 31, 1994.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates are calculated on the basis of the Portfolio
as a whole without distinguishing between the classes of shares
issued.
The accompanying notes are an integral part of the financial statements.
FS-60
<PAGE> 1161
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------------------------------
MAY 31, 1994
YEAR ENDED OCTOBER 31, (COMMENCEMENT OF
---------------------------------------------- OPERATIONS) TO
1998 (d) 1997 (d) 1996 (d) 1995 OCTOBER 31, 1994
---------- ---------- ---------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 14.75 $ 14.24 $ 12.03 $ 12.45 $ 11.43
---------- ---------- ---------- ---------- -----------------
Income from investment operations:
Net investment income (loss).......... --* (0.09) (0.09) (0.09) ** (0.01) * * *
Net realized and unrealized gain
(loss) on investments................ (0.77) 1.32 2.30 (0.33) 1.03
---------- ---------- ---------- ---------- -----------------
Net increase (decrease) from
investment operations.............. (0.77) 1.23 2.21 (0.42) 1.02
---------- ---------- ---------- ---------- -----------------
Distributions to shareholders:
From net realized gain on
investments.......................... (0.11) (0.72) -- -- --
---------- ---------- ---------- ---------- -----------------
Total distributions................. (0.11) (0.72) -- -- --
---------- ---------- ---------- ---------- -----------------
Net asset value, end of period.......... $ 13.87 $ 14.75 $ 14.24 $ 12.03 $ 12.45
---------- ---------- ---------- ---------- -----------------
---------- ---------- ---------- ---------- -----------------
Total investment return (c)............. (5.31)% 8.83% 18.37% (3.37)% 8.92% (b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 32,349 $ 57,199 $ 53,678 $ 50,181 $ 30,954
Ratio of net investment income (loss) to
average net assets:
With expense reductions and
reimbursement (Notes 2 & 5).......... 0.02% (0.59)% (0.69)% (0.82)% (0.09)% (a)
Without expense reductions and
reimbursement........................ (0.22)% (0.67)% (0.80)% (1.08)% (0.97)% (a)
Ratio of expenses to average net assets:
With expense reductions and
reimbursement (Notes 2 & 5).......... 2.49% 2.50% 2.64% 2.86% 2.90% (a)
Without expense reductions and
reimbursement........................ 2.73% 2.58% 2.75% 3.12% 3.78% (a)
Portfolio turnover rate++............... 96% 41% 41% 45% 18%
</TABLE>
- ----------------
(a) Annualized
(b) Not Annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
* Before reimbursement the net investment income per share would have
been reduced by $0.03 for Class A shares, $0.03 for Class B shares,
and $0.04 for Advisor Class shares.
* * Before reimbursement the net investment income per share would have
been reduced by $0.03 for Class A shares, $0.03 for Class B shares,
and $0.02 for Advisor Class shares.
* * * Before reimbursement the net investment income per share would have
been reduced by $0.02 for Class A and Class B from May 31, 1994 to
October 31, 1994.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates are calculated on the basis of the Portfolio
as a whole without distinguishing between the classes of shares
issued.
The accompanying notes are an integral part of the financial statements.
FS-61
<PAGE> 1162
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
ADVISOR CLASS+
---------------------------------------------------
JUNE 1, 1995
YEAR ENDED OCTOBER 31, TO
------------------------------------ OCTOBER 31,
1998 (d) 1997 (d) 1996 (d) 1995
----------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 15.23 $ 14.52 $ 12.14 $ 12.00
----------- ----------- ---------- -------------
Income from investment operations:
Net investment income (loss).......... 0.16* 0.05 0.04 0.02* *
Net realized and unrealized gain
(loss) on investments................ (0.82) 1.38 2.34 0.12
----------- ----------- ---------- -------------
Net increase (decrease) from
investment operations.............. (0.66) 1.43 2.38 0.14
----------- ----------- ---------- -------------
Distributions to shareholders:
From net realized gain on
investments.......................... (0.11) (0.72) -- --
----------- ----------- ---------- -------------
Total distributions................. (0.11) (0.72) -- --
----------- ----------- ---------- -------------
Net asset value, end of period.......... $ 14.46 $ 15.23 $ 14.52 $ 12.14
----------- ----------- ---------- -------------
----------- ----------- ---------- -------------
Total investment return (c)............. (4.35)% 10.10% 19.60% 1.17%(b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 6,997 $ 2,539 $ 344 $ 216
Ratio of net investment income (loss) to
average net assets:
With expense reductions and
reimbursement (Notes 2 & 5).......... 1.02% 0.41% 0.31% 0.18%(a)
Without expense reductions and
reimbursement........................ 0.78% 0.33% 0.20% (0.08)%(a)
Ratio of expenses to average net assets:
With expense reductions and
reimbursement (Notes 2 & 5).......... 1.49% 1.50% 1.64% 1.86%(a)
Without expense reductions and
reimbursement........................ 1.73% 1.58% 1.75% 2.12%(a)
Portfolio turnover rate++............... 96% 41% 41% 45%
</TABLE>
- ----------------
(a) Annualized
(b) Not Annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
* Before reimbursement the net investment income per share would have
been reduced by $0.03 for Class A shares, $0.03 for Class B shares,
and $0.04 for Advisor Class shares.
* * Before reimbursement the net investment income per share would have
been reduced by $0.03 for Class A shares, $0.03 for Class B shares,
and $0.02 for Advisor Class shares.
* * * Before reimbursement the net investment income per share would have
been reduced by $0.02 for Class A and Class B from May 31, 1994 to
October 31, 1994.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates are calculated on the basis of the Portfolio
as a whole without distinguishing between the classes of shares
issued.
The accompanying notes are an integral part of the financial statements.
FS-62
<PAGE> 1163
NOTES TO
FINANCIAL STATEMENTS
October 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (SEE ALSO NOTE 2)
AIM Global Infrastructure Fund (the "Fund"), formerly GT Global Infrastructure
Fund, is a separate series of AIM Investment Funds (the "Trust"), formerly G.T.
Investment Funds, Inc. The Trust is organized as a Delaware business trust and
is registered under the Investment Company Act of 1940, as amended ("1940 Act"),
as an open-end management investment company. The Trust has thirteen series of
shares in operation, each series corresponding to a distinct portfolio of
investments.
The Fund invests substantially all of its investable assets in Global
Infrastructure Portfolio, (the "Portfolio"). The Portfolio is organized as a
subtrust of Global Investment Portfolio, a Delaware business trust and is
registered under the 1940 Act as an open-end management investment company.
The Portfolio has investment objectives, policies, and limitations substantially
identical to those of its corresponding Fund. Therefore, the financial
statements of the Fund and Portfolio have been presented on a consolidated
basis, and represent all activities of both the Fund and Portfolio. Through
October 31, 1998, all of the shares of beneficial interest of the Portfolio were
owned by either the Fund or A I M Advisors, Inc. (the "Manager"), which has a
nominal ($100) investment in the Portfolio.
The Fund offers Class A, Class B, and Advisor Class shares, each of which has
equal rights as to assets and voting privileges except that Class A and Class B
each has exclusive voting rights with respect to its distribution plan.
Investment income, realized and unrealized capital gains and losses, and the
common expenses of the Fund are allocated on a pro rata basis to each class
based on the relative net assets of each class to the total net assets of the
Fund. Each class of shares differs in its respective service and distribution
expenses, and may differ in its transfer agent, registration, and certain other
class-specific fees and expenses.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies in conformity with generally accepted accounting
principles consistently followed by the Fund in the preparation of the financial
statements.
(A) PORTFOLIO VALUATION
The Fund calculates the net asset value of and completes orders to purchase,
exchange or repurchase Fund shares on each business day, with the exception of
those days on which the New York Stock Exchange is closed.
Equity securities are valued at the last sale price on the exchange on which
such securities are traded, or on the principal over-the-counter market on which
such securities are traded, as of the close of business on the day the
securities are being valued, or, lacking any sales, at the last available bid
price. In cases where securities are traded on more than one exchange, the
securities are valued on the exchange determined by the Manager to be the
primary market.
Fixed income investments are valued at the mean of representative quoted bid and
ask prices for such investments or, if such prices are not available, at prices
for investments of comparative maturity, quality and type; however, when the
Manager deems it appropriate, prices obtained for the day of valuation from a
bond pricing service will be used. Short-term investments are valued at
amortized cost adjusted for foreign exchange translation and market fluctuation,
if any.
Investments for which market quotations are not readily available (including
restricted securities which are subject to limitations on their sale) are valued
at fair value as determined in good faith by or under the direction of the
Trust's Board of Trustees.
Portfolio securities which are primarily traded on foreign exchanges are
generally valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S. dollars at
the current exchange rates, except that when an occurrence subsequent to the
time a value was so established is likely to have materially changed such value,
then the fair value of those securities will be determined by consideration of
other factors by or under the direction of the Trust's Board of Trustees.
(B) FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund and Portfolio are maintained in U.S. dollars.
The market values of foreign securities, currency holdings, and other assets and
liabilities are recorded in the books and records of the Portfolio after
translation to U.S. dollars based on the exchange rates on that day. The cost of
each security is determined using historical exchange rates. Income and
withholding taxes are translated at prevailing exchange rates when earned or
incurred.
The Portfolio does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, forward foreign currency contracts, sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Portfolio's books and the U.S. dollar equivalent of the amounts actually
received or paid. Net unrealized foreign exchange gains or losses arise from
changes in the value of assets and liabilities other than investments in
securities at year end, resulting from changes in exchange rates.
(C) REPURCHASE AGREEMENTS
With respect to repurchase agreements entered into by the Portfolio, it is the
Portfolio's policy to always receive, as collateral, United States government
securities or other high quality debt securities of which the value, including
accrued interest, is at least equal to the amount to be repaid to the Portfolio
under each agreement at its maturity.
FS-63
<PAGE> 1164
(D) FORWARD FOREIGN CURRENCY CONTRACTS
A forward foreign currency contract ("Forward Contract") is an agreement between
two parties to buy and sell a currency at a set price on a future date. The
market value of the Forward Contract fluctuates with changes in currency
exchange rates. The Forward Contract is marked-to-market daily and the change in
market value is recorded by the Portfolio as an unrealized gain or loss. When
the Forward Contract is closed, the Portfolio records a realized gain or loss
equal to the difference between the value at the time it was opened and the
value at the time it was closed. Forward Contracts involve market risk in excess
of the amount shown in the Portfolio's "Statement of Assets and Liabilities".
The Portfolio could be exposed to risk if a counter party is unable to meet the
terms of the contract or if the value of the currency changes unfavorably. The
Portfolio may enter into Forward Contracts in connection with planned purchases
or sales of securities, or to hedge against adverse fluctuations in exchange
rates between currencies.
(E) OPTION ACCOUNTING PRINCIPLES
When the Portfolio writes a call or put option, an amount equal to the premium
received is included in the Portfolio's "Statement of Assets and Liabilities" as
an asset and an equivalent liability. The amount of the liability is
subsequently marked-to-market to reflect the current market value of the option.
The current market value of an option listed on a traded exchange is valued at
its last bid price, or, in the case of an over-the-counter option, is valued at
the average of the last bid prices obtained from brokers, unless a quotation
from only one broker is available, in which case only that broker's price will
be used. If an option expires on its stipulated expiration date or if the
Portfolio enters into a closing purchase transaction, a gain or loss is realized
without regard to any unrealized gain or loss on the underlying security and the
liability related to such option is extinguished. If a written call option is
exercised, a gain or loss is realized from the sale of the underlying security
and the proceeds of the sale are increased by the premium originally received.
If a written put option is exercised, the cost of the underlying security
purchased would be decreased by the premium originally received. The Portfolio
can write options only on a covered basis, which, for a call, requires that the
Portfolio hold the underlying security and, for a put, requires the Portfolio to
set aside cash, U.S. government securities or other liquid securities in an
amount not less than the exercise price, or otherwise provide adequate cover at
all times while the put option is outstanding. The Portfolio may use options to
manage its exposure to the stock market and to fluctuations in currency values
or interest rates.
The premium paid by the Portfolio for the purchase of a call or put option is
included in the Portfolio's "Statement of Assets and Liabilities" as an
investment and subsequently "marked-to-market" to reflect the current market
value of the option. If an option which the Portfolio has purchased expires on
the stipulated expiration date, the Portfolio realizes a loss in the amount of
the cost of the option. If the Portfolio enters into a closing sale transaction,
the Portfolio realizes a gain or loss, depending on whether proceeds from the
closing sale transaction are greater or less than the cost of the option. If the
Portfolio exercises a call option, the cost of the securities acquired by
exercising the call is increased by the premium paid to buy the call. If the
Portfolio exercises a put option, it realizes a gain or loss from the sale of
the underlying security, and the proceeds from such sale are decreased by the
premium originally paid.
The risk associated with purchasing options is limited to the premium originally
paid. The risk in writing a call option is that the Portfolio may forego the
opportunity of profit if the market value of the underlying security or index
increases and the option is exercised. The risk in writing a put option is that
the Portfolio may incur a loss if the market value of the underlying security or
index decreases and the option is exercised. In addition, there is the risk the
Portfolio may not be able to enter into a closing transaction because of an
illiquid secondary market.
(F) FUTURES CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
security at a set price on a future date. Upon entering into such a contract the
Portfolio is required to pledge to the broker an amount of cash or securities
equal to the minimum "initial margin" requirements of the exchange on which the
contract is traded. Pursuant to the contract, the Portfolio agrees to receive
from or pay to the broker an amount of cash equal to the daily fluctuation in
value of the contract. Such receipts or payments are known as "variation margin"
and are recorded by the Portfolio as unrealized gains or losses. When the
contract is closed, the Portfolio records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed. The potential risk to the Portfolio is that the
change in value of the underlying securities may not correlate to the change in
value of the contracts. The Portfolio may use futures contracts to manage its
exposure to the stock market and to fluctuations in currency values or interest
rates.
(G) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). The cost of securities sold is determined on a first-in,
first-out-basis, unless otherwise specified. Dividends are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. Where a high
level of uncertainty exists as to its collection, income is recorded net of all
withholding tax with any rebate recorded when received. The Portfolio may trade
securities on other than normal settlement terms. This may increase the risk if
the other party to the transaction fails to deliver and causes the Portfolio to
subsequently invest at less advantageous prices.
(H) PORTFOLIO SECURITIES LOANED
At October 31, 1998, stocks with an aggregate value of $9,982,375 were on loan
to brokers. The loans were secured by cash collateral of $10,007,255 received by
the Portfolio. For the year ended October 31, 1998, the Fund received fees of
$45,192.
For international securities, cash collateral is received by the Portfolio
against loaned securities in an amount at least equal to 105% of the market
value of the loaned securities at the inception of each loan. This collateral
must be maintained at not less than 103% of the market value of the loaned
securities during the period of the loan. For domestic securities, cash
collateral is received by the Portfolio against loaned securities in the amount
at least equal to 102% of the market value of the loaned securities at the
inception of each loan. This collateral must be maintained at not less than 100%
of the market value of the loaned securities during the period of the loan. The
cash collateral is invested in a securities lending trust which consists of a
portfolio of high quality short duration securities whose average effective
duration is restricted to 120 days or less.
FS-64
<PAGE> 1165
(I) TAXES
It is the intended policy of the Fund to meet the requirements for qualification
as a "regulated investment company" under the Internal Revenue Code of 1986, as
amended ("Code"). It is also the intention of the Fund to make distributions
sufficient to avoid imposition of any excise tax under Section 4982 of the Code.
Therefore, no provision has been made for Federal taxes on income, capital
gains, unrealized appreciation of securities held, or excise tax on income and
capital gains.
(J) DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded by the Fund on the ex-date. Income
and capital gain distributions are determined in accordance with Federal income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Portfolio and timing differences.
(K) DEFERRED ORGANIZATIONAL EXPENSES
Expenses incurred by the Fund in connection with its organization, its initial
registration with the Securities and Exchange Commission and with various states
and the initial public offering of its shares aggregated $51,500. These expenses
are being amortized on a straightline basis over a five-year period.
(L) FOREIGN SECURITIES
There are certain additional considerations and risks associated with investing
in foreign securities and currency transactions that are not inherent in
investments of domestic origin. The Portfolio's investment in emerging market
countries may involve greater risks than investments in more developed markets
and the price of such investments may be volatile. These risks of investing in
foreign and emerging markets may include foreign currency exchange rate
fluctuations, perceived credit risk, adverse political and economic developments
and possible adverse foreign government intervention.
In addition, the Portfolio's policy of concentrating its investments in
companies in the infrastructure industry subject the Portfolio to greater risk
than a fund that is more diversified.
(M) INDEXED SECURITIES
The Portfolio may invest in indexed securities whose value is linked either
directly or indirectly to changes in foreign currencies, interest rates,
equities, indices, or other reference instruments. Indexed securities may be
more volatile than the reference instrument itself, but any loss is limited to
the amount of the original investment.
(N) RESTRICTED SECURITIES
The Portfolio is permitted to invest in privately placed restricted securities.
These securities may be resold in transactions exempt from registration or to
the public if the securities are registered. Disposal of these securities may
involve time-consuming negotiations and expense, and prompt sale at an
acceptable price may be difficult. At the end of the year, restricted
securities, if any, (excluding 144A issues), are shown at the end of the Fund's
Portfolio of Investments.
(O) LINE OF CREDIT
The Fund, along with certain other funds advised and/or administered by the
Manager, has a line of credit with each of BankBoston and State Street Bank and
Trust Company. The arrangements with the banks allow the Fund and certain other
Funds to borrow, on a first come, first serve basis, an aggregate maximum amount
of $250,000,000. The Fund is limited to borrowing up to 33 1/3% of the value of
the Fund's total assets. There were no loans throughout the year. On October 31,
1998, the Fund had no loans outstanding.
2. RELATED PARTIES
A I M Advisors, Inc. (the "Manager"), an indirect wholly-owned subsidiary of
AMVESCAP PLC, is the Fund's and Portfolio's investment manager and
administrator. As of the close of business on May 29, 1998, Liechtenstein Global
Trust AG ("LGT"), the former indirect parent organization of Chancellor LGT
Asset Management, Inc. ("Chancellor LGT") consummated a purchase agreement with
AMVESCAP PLC pursuant to which AMVESCAP PLC acquired LGT's Asset Management
Division, which included Chancellor LGT and certain other affiliates. A I M
Distributors, Inc. ("AIM Distributors"), a wholly-owned subsidiary of the
Manager, is the Fund's distributor as of the close of business on May 29, 1998.
The Trust was reorganized from a Maryland corporation into a Delaware business
trust, and the Portfolio was reorganized from a New York common law trust into a
Delaware business trust on September 8, 1998. Finally, as of the close of
business on September 4, 1998, A I M Fund Services, Inc. ("AFS"), an affiliate
of the Manager and AIM Distributors, replaced GT Global Investor Services, Inc.
("GT Services") as the transfer agent of the Fund.
The Fund pays the Manager administration fees at the annualized rate of 0.25% of
such Fund's average daily net assets. The Portfolio pays investment management
and administration fees to the Manager at the annualized rate of 0.725% on the
first $500 million of average daily net assets of the Portfolio; 0.70% on the
next $500 million; 0.675% on the next $500 million; and 0.65% on amounts
thereafter. These fees are computed daily and paid monthly.
AIM Distributors, an affiliate of the Manager, serves as the Fund's distributor.
For the period ended May 29, 1998, GT Global, Inc. ("GT Global") served as the
Fund's distributor. The Fund offers Class A, Class B, and Advisor Class shares
for purchase.
Class A shares are subject to initial sales charges imposed at the time of
purchase, in accordance with the schedule included in the Fund's current
prospectus. AIM Distributors collects the sales charges imposed on sales of
Class A shares, and reallows a portion of such charges to dealers through which
the sales are made. For the year ended October 31, 1998, AIM Distributors and GT
Global retained sales charges of $1,469 and $3,607, respectively. Purchases of
Class A shares exceeding $1,000,000 may be subject to a contingent deferred
sales charge ("CDSC") upon redemption, in accordance with the Fund's current
prospectus. AIM Distributors and GT Global collected no CDSCs for the year ended
October 31, 1998. AIM Distributors also makes ongoing shareholder servicing and
trail commission payments to dealers whose clients hold Class A shares.
Class B shares are not subject to initial sales charges. When Class B shares are
sold, AIM Distributors, from its own resources, pays commissions to dealers
through which the sales are made. Certain redemptions of Class B shares made
within six years of purchase are subject to CDSCs, in accordance with the Fund's
current prospectus. For the year ended October 31, 1998, AIM Distributors and GT
Global collected CDSCs in the amount of $108,570 and $244,354, respectively. In
addition, AIM Distributors makes ongoing shareholder servicing and trail
commission payments to dealers whose clients hold Class B shares.
For the period ended May 29, 1998, pursuant to the then effective separate
distribution plans adopted under the 1940 Act Rule 12b-1 by
FS-65
<PAGE> 1166
the Trust's Board of Trustees with respect to the Fund's Class A shares ("Class
A Plan") and Class B shares ("Class B Plan"), the Fund reimbursed GT Global for
a portion of its shareholder servicing and distribution expenses. Under the
Class A Plan, the Fund was permitted to pay GT Global a service fee at the
annualized rate of up to 0.25% of the average daily net assets of the Fund's
Class A shares for GT Global's expenditures incurred in servicing and
maintaining shareholder accounts, and was permitted to pay GT Global a
distribution fee at the annualized rate of up to 0.50% of the average daily net
assets of the Fund's Class A shares, less any amounts paid by the Fund as the
aforementioned service fee, for GT Global's expenditures incurred in providing
services as distributor. All expenses for which GT Global was reimbursed under
the Class A Plan would have been incurred within one year of such reimbursement.
For the period ended May 29, 1998, pursuant to the Class B Plan, the Fund was
permitted to pay GT Global a service fee at the annualized rate of up to 0.25%
of the average daily net assets of the Fund's Class B shares for GT Global's
expenditures incurred in servicing and maintaining shareholder accounts, and was
permitted to pay GT Global a distribution fee at the annualized rate of up to
0.75% of the average daily net assets of the Fund's Class B shares for GT
Global's expenditures incurred in providing services as distributor. Expenses
incurred under the Class B Plan in excess of 1.00% annually were permitted to be
carried forward for reimbursement in subsequent years as long as that Plan
continued in effect.
Effective as of the close of business May 29, 1998, pursuant to Rule 12b-1 under
the 1940 Act, the Trust's Board of Trustees adopted a Master Distribution Plan
applicable to the Fund's Class A shares ("Class A Plan") and Class B shares
("Class B Plan"), pursuant to which the Fund compensates AIM Distributors for
the purpose of financing any activity that is intended to result in the sale of
Class A or Class B shares of the Fund. Under the Class A Plan, the Fund
compensates AIM Distributors at the annualized rate of 0.50% of the average
daily net assets of the Fund's Class A shares. Under the Class B Plan, the Fund
compensates AIM Distributors at an annualized rate of 1.00% of the average daily
net assets of the Fund's Class B shares.
The Class A Plan and the Class B Plan (together, the "Plans") are designed to
compensate AIM Distributors for certain promotional and other sales-related
costs, and to implement a dealer incentive program that provides for periodic
payments to selected dealers who furnish continuing personal shareholder
services to their customers who purchase and own Class A and Class B shares of
the Fund. Payments also can be directed by AIM Distributors to Financial
Institutions who have entered into service agreements with respect to Class A
and Class B shares of the Fund and who provide continuing personal services to
their customers who own Class A and Class B shares of the Fund. The service fees
payable to selected Financial 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 that were purchased on or after a
prescribed date set forth in the Plans.
The Manager and AIM Distributors voluntarily have undertaken to limit the Fund's
expenses (exclusive of brokerage commissions, taxes, interest, and extraordinary
expense) to the maximum annual rate of 2.00%, 2.50%, and 1.50% of the average
daily net assets of the Fund's Class A, Class B, and Advisor Class shares,
respectively. If necessary, this limitation will be effected by waivers by the
Manager of investment management and administration fees, waivers by AIM
Distributors of payments under the Class A Plan and/or Class B Plan and/or
reimbursements by the Manager or AIM Distributors of portions of the Fund's
other operating expenses.
Effective as of the close of business September 4, 1998, the Fund, pursuant to a
transfer agency and service agreement, has agreed to pay A I M Fund Services,
Inc. ("AFS") an annualized fee of $24.85 per shareholder accounts that are open
during any monthly period (this fee includes all out-of-pocket expenses), and an
annualized fee of $0.70 per shareholder account that is closed during any
monthly period. Both fees shall be billed by AFS monthly in arrears on a
prorated basis of 1/12 of the annualized fee for all such accounts.
For the period November 1, 1997 to September 4, 1998, GT Services, an affiliate
of the Manager and AIM Distributors, was the transfer agent of the Fund. For
performing shareholder servicing, reporting, and general transfer agent
services, GT Services received an annual maintenance fee of $17.50 per account,
a new account fee of $4.00 per account, a per transaction fee of $1.75 for all
transactions other than exchanges and a per exchange fee of $2.25. GT Services
also was reimbursed by the Fund for its out-of-pocket expenses for such items as
postage, forms, telephone charges, stationery and office supplies.
The Manager is the pricing and accounting agent for the Fund and Portfolio. The
monthly fee for these services paid to the Manager is a percentage, not to
exceed 0.03% annually, of a Fund's average daily net assets. The annual fee rate
is derived 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% to 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.
The Trust pays each Trustee who is not an employee, officer or director of the
Manager, or any other affiliated company, $5,000 per year plus $300 for each
meeting of the board or any committee thereof attended by the Trustee.
3. PURCHASES AND SALES OF SECURITIES
For the year ended October 31, 1998, purchases and sales of investment
securities by the Portfolio, other than U.S. government obligations and
short-term investments, aggregated $73,625,025 and $110,306,469, respectively.
For the year ended October 31, 1998, there were no purchases and sales of U.S.
government obligations.
FS-66
<PAGE> 1167
4. CAPITAL SHARES
At October 31, 1998, there were 6,000,000,000 shares of the Trust's common stock
authorized, at $0.0001 par value. Of this amount, 400,000,000 were classified as
shares of the AIM Global Telecommunications Fund; 400,000,000 were classified as
shares of AIM Global Government Income Fund; 200,000,000 were classified as
shares of AIM Global Health Care Fund; 200,000,000 were classified as shares of
AIM Strategic Income Fund; 200,000,000 were classified as shares of AIM
Developing Markets Fund; 200,000,000 were classified as shares of GT Global
Currency Fund (inactive); 200,000,000 were classified as shares of AIM Global
Growth & Income Fund; 200,000,000 were classified as shares of GT Global Small
Companies Fund (inactive); 200,000,000 were classified as shares of AIM Latin
American Growth Fund; 200,000,000 were classified as shares of AIM Emerging
Markets Fund; 200,000,000 were classified as shares of AIM Emerging Markets Debt
Fund; 200,000,000 were classified as shares of AIM Global Financial Services
Fund; 200,000,000 were classified as shares of AIM Global Resources Fund;
200,000,000 were classified as shares of AIM Global Infrastructure Fund;
200,000,000 were classified as shares of AIM Global Consumer Products and
Services Fund. The shares of each of the foregoing series of the Trust's were
divided equally into two classes, designated Class A and Class B common stock.
With respect to the issuance of Advisor Class shares, 100,000,000 shares were
classified as shares of each of the fifteen series of the Trust's and designated
as Advisor Class common stock. 1,100,000,000 shares remain unclassified.
Transactions in capital shares of the Fund were as follows:
CAPITAL SHARE TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997
------------------------- -------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold................................................. 127,344 $ 1,959,159 1,282,535 $ 19,272,428
Shares issued in connection with reinvestment of
distributions............................................. 16,842 254,490 123,795 1,776,449
----------- ------------ ----------- ------------
144,186 2,213,649 1,406,330 21,048,877
Shares repurchased.......................................... (1,036,046) (15,749,628) (1,518,962) (23,157,570)
----------- ------------ ----------- ------------
Net decrease................................................ (891,860) $(13,535,979) (112,632) $ (2,108,693)
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
<CAPTION>
CLASS B
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold................................................. 378,526 $ 5,629,835 1,233,796 $ 18,394,879
Shares issued in connection with reinvestment of
distributions............................................. 24,629 365,775 164,966 2,337,575
----------- ------------ ----------- ------------
403,155 5,995,610 1,398,762 20,732,454
Shares repurchased.......................................... (1,949,017) (28,654,028) (1,288,192) (19,574,097)
----------- ------------ ----------- ------------
Net increase (decrease)..................................... (1,545,862) $(22,658,418) 110,570 $ 1,158,357
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
<CAPTION>
ADVISOR CLASS
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold................................................. 454,559 $ 7,054,949 154,643 $ 2,526,548
Shares issued in connection with reinvestment of
distributions............................................. 2,594 39,803 1,147 16,592
----------- ------------ ----------- ------------
457,153 7,094,752 155,790 2,543,140
Shares repurchased.......................................... (139,981) (2,118,377) (12,773) (202,670)
----------- ------------ ----------- ------------
Net increase................................................ 317,172 $ 4,976,375 143,017 $ 2,340,470
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
</TABLE>
5. EXPENSE REDUCTIONS
The Manager has directed certain portfolio trades to brokers who then paid a
portion of the Portfolio's expenses. For the year ended October 31, 1998, the
Portfolio's expenses were reduced by $7,816 under these arrangements.
FS-67
<PAGE> 1168
6. PROXY RESULTS (UNAUDITED)
The Special Meeting of Shareholders of the G.T. Investment Funds, Inc., now
known as AIM Investment Funds (the "Trust") was held on May 20, 1998 at the
Trust's offices, 50 California Street, 26th Floor, San Francisco, California.
The meeting was held for the following purposes:
(1) To elect Trustees as follows: C. Derek Anderson, Frank S. Bayley, William
J. Guilfoyle, Arthur C. Patterson, Ruth H. Quigley.
(2) To approve a new Investment Management and Administration Contract and
Sub-Advisory and Sub-Administration Contract with respect to each series of
the Trust (each, a "Fund," and collectively, the "Funds").
(3) To approve replacement Rule 12b-1 plans of distribution with respect to
Class A and B Shares of the Fund.
(4) To approve changes to the fundamental investment restrictions of the Fund.
(5) To approve an agreement and plan of conversion and termination for the
Trust.
(6) To approve the conversion of the portfolios in which certain Funds invest
to Delaware business trusts.
(7) To ratify the selection of Coopers & Lybrand L.L.P., now known as
PricewaterhouseCoopers LLP, as the Trust's independent public accountants.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
TRUSTEE/MATTER
------------------------------------------------------------------------------------------------------------------
<S> <C>
(1) C. Derek Anderson.................................................................................................
Frank S. Bayley...................................................................................................
William J. Guilfoyle..............................................................................................
Arthur C. Patterson...............................................................................................
Ruth H. Quigley...................................................................................................
(2)(a) Approval of investment management and administration contract.....................................................
(2)(b) Approval of sub-advisory and sub-administration contract..........................................................
(3) Approval of replacement Rule 12b-1 plans of distribution
CLASS A SHARES....................................................................................................
CLASS B SHARES....................................................................................................
(4)(a) Modification of Fundamental Restriction on Portfolio Diversification..............................................
(4)(b) Modification of Fundamental Restriction on Issuing Senior Securities and Borrowing Money..........................
(4)(c) Modification of Fundamental Restriction on Making Loans...........................................................
(4)(d) Modification of Fundamental Restriction on Underwriting Securities................................................
(4)(e) Modification of Fundamental Restriction on Real Estate Investments................................................
(4)(f) Modification of Fundamental Restriction on Investing in Commodities...............................................
(4)(g) Elimination of Fundamental Restriction on Margin Transactions.....................................................
(4)(h) Elimination of Fundamental Restriction on Pledging Assets.........................................................
(4)(i) Elimination of Fundamental Restriction on Investments in Oil, Gas and Mineral Leases and Programs.................
(5) Approval of an agreement and plan of conversion and termination with respect to the Company.......................
(6) Approval of the conversion of the portfolios in which certain Funds invest........................................
(7) Ratification of the selection of Coopers and Lybrand L.L.P., now known as PricewaterhouseCoopers LLP, as the
Trust's independent public accountants..........................................................................
<CAPTION>
VOTES WITHHELD/
VOTES FOR AGAINST ABSTENTIONS
--------------- ------------ --------------
<S> <C> <C> <C>
(1) 191,685,088 N/A 13,123,292
191,766,811 N/A 13,041,568
191,828,959 N/A 12,979,420
191,845,270 N/A 12,963,109
191,869,887 N/A 12,938,492
(2)(a) 2,456,601 64,860 710,610*
(2)(b) 2,435,836 77,094 719,142*
(3)
1,010,727 35,515 74,004
1,450,391 37,959 123,720
(4)(a) 2,406,080 95,041 730,950*
(4)(b) 2,406,080 95,041 730,950*
(4)(c) 2,406,080 95,041 730,950*
(4)(d) 2,406,080 95,041 730,950*
(4)(e) 2,406,080 95,041 730,950*
(4)(f) 2,406,080 95,041 730,950*
(4)(g) 2,406,080 95,041 730,950*
(4)(h) 2,406,080 95,041 730,950*
(4)(i) 2,406,080 95,041 730,950*
(5) 190,027,470 6,362,084 94,055,040*
(6) 2,429,777 61,704 740,590*
(7)
191,358,779 2,114,168 11,333,063
</TABLE>
- --------------
* Includes Broker Non-Votes
- --------------
FEDERAL TAX INFORMATION (UNAUDITED):
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$1,670,060 as capital gain dividends for the fiscal year ended October 31, 1998.
Pursuant to Section 854 of the Internal Revenue Code, the Fund designates 100%
of ordinary income dividends paid (including short-term capital gain
distributions, if any) by the Fund as income qualifying for the dividends
received deduction for corporations for the fiscal year ended October 31, 1998.
FS-68
<PAGE> 1169
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders of AIM Global Resources Fund (formerly GT Global Natural
Resources Fund) and Board of Trustees of AIM Investment Funds (formerly G.T.
Investment Funds, Inc.):
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Global Resources Fund -
Consolidated at October 31, 1998, and the results of its operations, the changes
in its net assets and the financial highlights for the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
------------------------------
PRICEWATERHOUSECOOPERS LLP
BOSTON, MASSACHUSETTS
DECEMBER 18, 1998
FS-69
<PAGE> 1170
PORTFOLIO OF INVESTMENTS
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Energy Sources (27.0%)
Exxon Corp. ................................................ US 21,900 $ 1,560,370 2.9
Mobil Corp. ................................................ US 19,600 1,483,475 2.8
Total Compagnie Francaise des Petroles S.A. - ADR{\/} ...... FR 24,700 1,444,950 2.7
Chevron Corp. .............................................. US 17,600 1,434,400 2.7
Santa Fe Energy Resources, Inc.-/- ......................... US 163,700 1,330,063 2.5
Ente Nazionale Idrocarburi (ENI) S.p.A. - ADR{\/} .......... ITLY 20,400 1,239,300 2.3
Amoco Corp. ................................................ US 20,800 1,167,400 2.2
ERG SpA .................................................... ITLY 373,000 1,124,237 2.1
Elf Aquitaine ADR{\/} ...................................... FR 19,000 1,102,000 2.1
Suncor Energy, Inc. ........................................ CAN 30,000 952,998 1.8
Repsol S.A. ................................................ SPN 11,900 597,493 1.1
Orogen Minerals Ltd. - 144A ADR{.} {\/} .................... AUSL 37,100 505,488 0.9
Triton Energy Ltd.-/- ...................................... US 43,900 477,413 0.9
-----------
14,419,587
-----------
Electrical & Gas Utilities (19.4%)
Montana Power Co. .......................................... US 26,000 1,126,125 2.1
AGL Resources, Inc. ........................................ US 50,000 1,046,875 1.9
Suburban Propane Partners L.P. ............................. US 46,000 868,250 1.6
Leviathan Gas Pipeline Partners L.P. ....................... US 24,900 638,063 1.2
Northern Border Partners L.P. .............................. US 18,100 633,500 1.2
Buckeye Partners L.P. ...................................... US 21,600 610,200 1.1
Lakehead Pipe Line Partners L.P. ........................... US 11,300 596,075 1.1
TEPPCO Partners L.P. ....................................... US 20,400 594,150 1.1
AmeriGas Partners L.P. ..................................... US 23,000 576,438 1.1
Ferrellgas Partners L.P. ................................... US 26,600 555,275 1.0
Kaneb Pipe Line Partners L.P. .............................. US 14,700 467,644 0.9
Pembina Pipeline Income Fund Trust Units{=} ................ CAN 80,500 443,598 0.8
Heritage Propane Partners L.P. ............................. US 17,800 409,400 0.8
TransCanada Power L.P. ..................................... CAN 22,800 407,961 0.8
Cornerstone Propane Partners L.P. .......................... US 19,600 404,250 0.7
Superior Propane Income Fund ............................... CAN 44,100 403,118 0.7
AEC Pipelines L.P. ......................................... CAN 66,000 374,392 0.7
The OPTUS Natural Gas Distribution Income Fund ............. CAN 20,000 306,645 0.6
-----------
10,461,959
-----------
Chemicals (10.5%)
Henkel KGaA Non-Voting Preferred ........................... GER 10,645 910,076 1.7
BASF AG .................................................... GER 20,400 865,253 1.6
Solutia, Inc. .............................................. US 35,400 776,588 1.4
Solvay S.A. "A" ............................................ BEL 7,900 619,789 1.2
Air Liquide ................................................ FR 3,600 602,841 1.1
Crompton & Knowles Corp. ................................... US 35,900 576,644 1.1
Potash Corporation of Saskatchewan, Inc.{\/} ............... CAN 8,200 568,875 1.1
Monsanto Co. ............................................... US 10,250 416,406 0.8
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-70
<PAGE> 1171
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Chemicals (Continued)
Tesoro Petroleum Corp. ..................................... US 17,700 $ 262,181 0.5
-----------
5,598,653
-----------
Misc. Materials & Commodities (8.3%)
USG Corp. .................................................. US 36,900 1,759,669 3.3
Martin Marietta Materials, Inc. ............................ US 27,900 1,368,844 2.5
Encore Wire Corp.-/- ....................................... US 46,425 516,478 1.0
Scheid Vineyards, Inc. "A" ................................. US 79,700 448,313 0.8
Fresh Del Monte Produce, Inc. .............................. US 12,300 219,863 0.4
Chiquita Brands International .............................. US 13,100 139,188 0.3
-----------
4,452,355
-----------
Cement (6.3%)
Southdown, Inc. ............................................ US 28,372 1,544,501 2.9
Lafarge S.A. ............................................... FR 13,200 1,350,019 2.5
Lafarge Corp. .............................................. US 14,600 491,838 0.9
-----------
3,386,358
-----------
Metals - Non-Ferrous (6.3%)
USEC, Inc.-/- .............................................. US 72,300 1,057,388 2.0
Aluminum Company of America (ALCOA) ........................ US 9,300 737,025 1.4
Rio Tinto PLC .............................................. UK 50,900 617,408 1.1
Phelps Dodge Corporation ................................... US 9,000 518,625 1.0
EdperBrascan Corp. "A" ..................................... CAN 27,819 407,591 0.8
-----------
3,338,037
-----------
Energy Equipment & Services (5.1%)
Enerflex Systems Ltd. ...................................... CAN 30,600 644,733 1.2
Stolt Comex Seaway S.A.: ................................... UK -- -- 1.1
Common-/- {\/} ........................................... -- 32,500 414,375 --
ADR-/- {\/} .............................................. -- 14,000 144,375 --
J. Ray McDermott S.A.-/- ................................... US 17,400 545,925 1.0
Coflexip - ADR{\/} ......................................... FR 10,100 486,063 0.9
Core Laboratories N.V.-/-{\/} .............................. NETH 21,500 485,094 0.9
-----------
2,720,565
-----------
Building Materials & Components (3.8%)
Centex Construction Products, Inc. ......................... US 25,400 854,075 1.6
Centex Corp. ............................................... US 21,400 716,900 1.3
Pulte Corp. ................................................ US 19,200 494,400 0.9
-----------
2,065,375
-----------
Gold (3.1%)
Barrick Gold Corp.{\/} ..................................... CAN 31,700 677,588 1.3
Freeport-McMoRan Copper & Gold, Inc. "B" ................... US 38,000 467,875 0.9
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-71
<PAGE> 1172
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Gold (Continued)
Placer Dome, Inc. .......................................... US 29,700 $ 467,775 0.9
-----------
1,613,238
-----------
Gas Production & Distribution (2.8%)
Coastal Corp. .............................................. US 42,600 1,501,650 2.8
-----------
Forest Products (2.6%)
Stora Kopparbergs Bergslags Aktiebolag (STORA) "A" ......... SWDN 46,280 510,332 0.9
Plum Creek Timber Company L.P. ............................. US 15,711 439,908 0.8
Crown Pacific Partners L.P. ................................ US 16,300 402,406 0.7
Doman Industries Ltd. "B"-/- ............................... CAN 117,130 95,678 0.2
-----------
1,448,324
-----------
Metals - Steel (2.6%)
IPSCO, Inc. ................................................ CAN 45,700 896,224 1.7
British Steel PLC - ADR{\/} ................................ UK 28,300 495,250 0.9
-----------
1,391,474
-----------
Consumer Services (0.4%)
United Road Services, Inc.-/- .............................. US 13,200 211,200 0.4
----------- -----
TOTAL EQUITY INVESTMENTS (cost $57,535,092) .................. 52,608,775 98.2
----------- -----
TOTAL INVESTMENTS (cost $57,535,092) * ...................... 52,608,775 98.2
Other Assets and Liabilities ................................. 938,248 1.8
----------- -----
NET ASSETS ................................................... $53,547,023 100.0
----------- -----
----------- -----
</TABLE>
- --------------
{\/} U.S. currency denominated.
-/- Non-income producing security.
{.} Security exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers.
{=} Pembina Pipeline Income Fund acquired and holds all of the Notes
and issued and outstanding common shares of Pembina Corp.
* For Federal income tax purposes, cost is $58,097,575 and
appreciation (depreciation) is as follows:
<TABLE>
<S> <C>
Unrealized appreciation: $ 1,895,512
Unrealized depreciation: (7,384,312)
-------------
Net unrealized depreciation: $ (5,488,800)
-------------
-------------
</TABLE>
Abbreviations:
ADR--American Depositary Receipt
The accompanying notes are an integral part of the financial statements.
FS-72
<PAGE> 1173
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
The Fund's Portfolio of Investments at October 31, 1998, was concentrated in the
following countries:
<TABLE>
<CAPTION>
PERCENTAGE OF NET ASSETS{d}
------------------------------
COUNTRY (COUNTRY CODE/CURRENCY CODE) EQUITY OTHER TOTAL
- -------------------------------------- ------ ------------- -----
<S> <C> <C> <C>
Australia (AUSL/AUD) ................. 0.9 0.9
Belgium (BEL/BEF) .................... 1.2 1.2
Canada (CAN/CAD) ..................... 11.7 11.7
France (FR/FRF) ...................... 9.3 9.3
Germany (GER/DEM) .................... 3.3 3.3
Italy (ITLY/ITL) ..................... 4.4 4.4
Netherlands (NETH/NLG) ............... 0.9 0.9
Spain (SPN/ESP) ...................... 1.1 1.1
Sweden (SWDN/SEK) .................... 0.9 0.9
United Kingdom (UK/GBP) .............. 3.1 3.1
United States (US/USD) ............... 61.4 1.8 63.2
------ --- -----
Total ............................... 98.2 1.8 100.0
------ --- -----
------ --- -----
</TABLE>
- --------------
{d} Percentages indicated are based on net assets of $53,547,023.
The accompanying notes are an integral part of the financial statements.
FS-73
<PAGE> 1174
STATEMENT OF ASSETS
AND LIABILITIES
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at value (cost $57,535,092) (Note 1).............................. $52,608,775
U.S. currency..................................................................... $ 29
Foreign currencies (cost $776,844)................................................ 777,050 777,079
---------
Receivable for Fund shares sold.............................................................. 1,354,626
Receivable for securities sold............................................................... 222,089
Dividends and dividend withholding tax reclaims receivable................................... 117,621
Unamortized organizational costs (Note 1).................................................... 5,925
Miscellaneous receivable..................................................................... 1,429
----------
Total assets............................................................................... 55,087,544
----------
Liabilities:
Payable for securities purchased............................................................. 950,376
Payable for Fund shares repurchased.......................................................... 205,174
Payable for loan outstanding (Note 1)........................................................ 87,000
Payable for service and distribution expenses (Note 2)....................................... 78,542
Payable for transfer agent fees (Note 2)..................................................... 70,818
Payable for printing and postage expenses.................................................... 48,316
Payable for professional fees................................................................ 39,070
Payable for registration and filing fees..................................................... 19,436
Payable for custodian fees................................................................... 12,283
Payable for Trustees' fees and expenses (Note 2)............................................. 7,592
Payable for investment management and administration fees (Note 2)........................... 6,651
Payable for fund accounting fees (Note 2).................................................... 1,257
Other accrued expenses....................................................................... 13,906
----------
Total liabilities.......................................................................... 1,540,421
Minority interest (Notes 1 & 2).............................................................. 100
----------
Net assets..................................................................................... $53,547,023
----------
----------
Class A:
Net asset value and redemption price per share ($19,462,555 DIVIDED BY 1,776,625 shares
outstanding)................................................................................ $ 10.95
----------
----------
Maximum offering price per share (100/95.25 of $10.95) *..................................... $ 11.50
----------
----------
Class B:+
Net asset value and offering price per share ($28,995,617 DIVIDED BY 2,697,440 shares
outstanding)................................................................................ $ 10.75
----------
----------
Advisor Class:
Net asset value, offering price per share, and redemption price per share ($5,088,851 DIVIDED
BY 459,330 shares outstanding).............................................................. $ 11.08
----------
----------
Net assets consist of:
Paid in capital (Note 4)..................................................................... $80,825,848
Accumulated net realized loss on investments and foreign currency transactions............... (22,352,329)
Net unrealized depreciation on translation of assets and liabilities in foreign currencies... (179)
Net unrealized depreciation of investments................................................... (4,926,317)
----------
Total -- representing net assets applicable to capital shares outstanding...................... $53,547,023
----------
----------
<FN>
- --------------
* On sales of $50,000 or more, the offering price is reduced.
+ Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-74
<PAGE> 1175
STATEMENT OF OPERATIONS
Year ended October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment income: (Note 1)
Dividend income (net of foreign withholding tax of $94,244).................................. $ 848,873
Interest income.............................................................................. 271,397
Securities lending income.................................................................... 28,903
-------------
Total investment income.................................................................... 1,149,173
-------------
Expenses:
Investment management and administration fees (Note 2)....................................... 912,175
Service and distribution expenses: (Note 2)
Class A..................................................................... $ 188,613
Class B..................................................................... 489,016 677,629
-------------
Transfer agent fees (Note 2)................................................................. 388,595
Professional fees............................................................................ 87,855
Registration and filing fees................................................................. 78,115
Printing and postage expenses................................................................ 73,580
Custodian fees............................................................................... 40,150
Fund accounting fees (Note 2)................................................................ 24,981
Trustees' fees and expenses (Note 2)......................................................... 20,100
Amortization of organization costs (Note 1).................................................. 10,300
Other expenses............................................................................... 38,194
-------------
Total expenses before reductions........................................................... 2,351,674
-------------
Expenses reimbursed by A I M Advisors, Inc. (Note 2)..................................... (244,561)
Expense reductions (Note 5).............................................................. (45,111)
-------------
Total net expenses......................................................................... 2,062,002
-------------
Net investment loss............................................................................ (912,829)
-------------
Net realized and unrealized loss on investments: (Note 1)
Net realized loss on investments.............................................. (21,765,337)
Net realized loss on foreign currency transactions............................ (113,638)
-------------
Net realized loss during the year.......................................................... (21,878,975)
Net change in unrealized depreciation on translation of assets and liabilities
in foreign currencies........................................................ 108,725
Net change in unrealized depreciation of investments.......................... (39,300,386)
-------------
Net unrealized depreciation during the year................................................ (39,191,661)
-------------
Net realized and unrealized loss on investments and foreign currencies......................... (61,070,636)
-------------
Net decrease in net assets resulting from operations........................................... $ (61,983,465)
-------------
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-75
<PAGE> 1176
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1998 1997
-------------- --------------
<S> <C> <C>
Increase (decrease) in net assets
Operations:
Net investment loss................... $ (912,829) $ (2,255,658)
Net realized gain (loss) on
investments and foreign currency
transactions......................... (21,878,975) 7,540,578
Net change in unrealized appreciation
(depreciation) on translation of
assets and liabilities in foreign
currencies........................... 108,725 (125,779)
Net change in unrealized appreciation
(depreciation) of investments........ (39,300,386) 18,607,939
-------------- --------------
Net increase (decrease) in net
assets resulting from operations... (61,983,465) 23,767,080
-------------- --------------
Class A:
Distributions to shareholders: (Note 1)
From net investment income............ (602,063) --
From net realized gain on
investments.......................... (1,584,312) (1,915,988)
Class B:
Distributions to shareholders: (Note 1)
From net investment income............ (769,604) --
From net realized gain on
investments.......................... (2,025,190) (2,369,395)
Advisor Class:
Distributions to shareholders: (Note 1)
From net investment income............ (57,919) --
From net realized gain on
investments.......................... (152,412) (134,145)
-------------- --------------
Total distributions................. (5,191,500) (4,419,528)
-------------- --------------
Capital share transactions: (Note 4)
Increase from capital shares sold and
reinvested........................... 204,985,048 377,334,346
Decrease from capital shares
repurchased.......................... (255,936,633) (336,987,548)
-------------- --------------
Net increase (decrease) from capital
share transactions................. (50,951,585) 40,346,798
-------------- --------------
Total increase (decrease) in net
assets................................. (118,126,550) 59,694,350
Net assets:
Beginning of year..................... 171,673,573 111,979,223
-------------- --------------
End of year *......................... $ 53,547,023 $ 171,673,573
-------------- --------------
-------------- --------------
* Includes accumulated net investment
loss of................................ $ -- $ --
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-76
<PAGE> 1177
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout the period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------
MAY 31, 1994
(COMMENCEMENT
YEAR ENDED OCTOBER 31, OF OPERATIONS) TO
----------------------------------------- OCTOBER 31,
1998 (d) 1997 (d) 1996 (d) 1995 1994
-------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 20.65 $ 17.43 $ 11.44 $ 12.41 $ 11.43
-------- -------- -------- -------- -----------------
Income from investment operations:
Net investment income (loss).......... (0.11) * (0.25) (0.24) 0.04* * 0.06* * *
Net realized and unrealized gain
(loss) on investments................ (8.91) 4.08 6.28 (0.98) 0.92
-------- -------- -------- -------- -----------------
Net increase (decrease) from investment
operations............................. (9.02) 3.83 6.04 (0.94) 0.98
-------- -------- -------- -------- -----------------
Distributions to shareholders:
From net investment income............ (0.19) -- (0.04) (0.03) --
From net realized gain on
investments.......................... (0.49) (0.61) (0.01) -- --
-------- -------- -------- -------- -----------------
Total distributions................. (0.68) (0.61) (0.05) (0.03) --
-------- -------- -------- -------- -----------------
Net asset value, end of period.......... $ 10.95 $ 20.65 $ 17.43 $ 11.44 $ 12.41
-------- -------- -------- -------- -----------------
-------- -------- -------- -------- -----------------
Total investment return (c)............. (45.02)% 22.64% 53.04% (7.58)% 8.57% (b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $19,463 $69,975 $48,729 $12,598 $14,797
Ratio of net investment income (loss) to
average net assets:
With expense reductions and/or
reimbursement (Notes 2 & 5).......... (0.75)% (1.41)% (1.55)% 0.41% 2.63% (a)
Without expense reductions and/or
reimbursement........................ (1.06)% (1.51)% (1.65)% (0.69)% 0.65% (a)
Ratio of expenses to average net assets:
With expense reductions and/or
reimbursement (Notes 2 & 5).......... 1.98% 2.03% 2.20% 2.37% 2.40% (a)
Without expense reductions and/or
reimbursement........................ 2.29% 2.13% 2.30% 3.47% 4.38% (a)
Portfolio turnover rate++............... 201% 321% 94% 87% 137%
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
* Before reimbursement the net investment loss per share would have been
increased by $0.04 for each class.
* * Before reimbursement the net investment income (loss) per share would
have been reduced (increased) by $0.14, $0.13, and $0.12 for Class A,
Class B, and Advisor Class, respectively.
* * * Before reimbursement the net investment income per share would have
been reduced by $0.04 for Class A and Class B.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates are calculated on the basis of the Portfolio
as a whole without distinguishing between the classes of shares
issued.
The accompanying notes are an integral part of the financial statements.
FS-77
<PAGE> 1178
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout the period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------------------
MAY 31, 1994
(COMMENCEMENT
YEAR ENDED OCTOBER 31, OF OPERATIONS) TO
----------------------------------------- OCTOBER 31,
1998 (d) 1997 (d) 1996 (d) 1995 1994
-------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 20.37 $ 17.29 $ 11.36 $ 12.38 $ 11.43
-------- -------- -------- -------- -----------------
Income from investment operations:
Net investment income (loss).......... (0.18) * (0.33) (0.31) (0.02) * * 0.03* * *
Net realized and unrealized gain
(loss) on investments................ (8.76) 4.02 6.25 (0.98) 0.92
-------- -------- -------- -------- -----------------
Net increase (decrease) from investment
operations............................. (8.94) 3.69 5.94 (1.00) 0.95
-------- -------- -------- -------- -----------------
Distributions to shareholders:
From net investment income............ (0.19) -- -- (0.02) --
From net realized gain on
investments.......................... (0.49) (0.61) (0.01) -- --
-------- -------- -------- -------- -----------------
Total distributions................. (0.68) (0.61) (0.01) (0.02) --
-------- -------- -------- -------- -----------------
Net asset value, end of period.......... $ 10.75 $ 20.37 $ 17.29 $ 11.36 $ 12.38
-------- -------- -------- -------- -----------------
-------- -------- -------- -------- -----------------
Total investment return (c)............. (45.25)% 21.99% 52.39% (8.05)% 8.31% (b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $28,996 $86,812 $57,749 $13,978 $13,404
Ratio of net investment income (loss) to
average net assets:
With expense reductions and/or
reimbursement (Notes 2 & 5).......... (1.25)% (1.91)% (2.05)% (0.09)% 2.13% (a)
Without expense reductions and/or
reimbursement........................ (1.56)% (2.01)% (2.15)% (1.19)% 0.15% (a)
Ratio of expenses to average net assets:
With expense reductions and/or
reimbursement (Notes 2 & 5).......... 2.48% 2.53% 2.70% 2.87% 2.90% (a)
Without expense reductions and/or
reimbursement........................ 2.79% 2.63% 2.80% 3.97% 4.88% (a)
Portfolio turnover rate++............... 201% 321% 94% 87% 137%
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
* Before reimbursement the net investment loss per share would have been
increased by $0.04 for each class.
* * Before reimbursement the net investment income (loss) per share would
have been reduced (increased) by $0.14, $0.13, and $0.12 for Class A,
Class B, and Advisor Class, respectively.
* * * Before reimbursement the net investment income per share would have
been reduced by $0.04 for Class A and Class B.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates are calculated on the basis of the Portfolio
as a whole without distinguishing between the classes of shares
issued.
The accompanying notes are an integral part of the financial statements.
FS-78
<PAGE> 1179
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout the period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
ADVISOR CLASS+
-----------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------- JUNE 1, 1995 TO
1998 (d) 1997 (d) 1996 (d) OCTOBER 31, 1995
---------- ---------- ----------- ----------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 20.80 $ 17.47 $ 11.47 $ 11.45
---------- ---------- ----------- --------
Income from investment operations:
Net investment income (loss).......... (0.03) * (0.14) (0.17) 0.11* *
Net realized and unrealized gain
(loss) on investments................ (9.01) 4.08 6.28 (0.09)
---------- ---------- ----------- --------
Net increase (decrease) from investment
operations............................. (9.04) 3.94 6.11 0.02
---------- ---------- ----------- --------
Distributions to shareholders:
From net investment income............ (0.19) -- (0.10) --
From net realized gain on
investments.......................... (0.49) (0.61) (0.01) --
---------- ---------- ----------- --------
Total distributions................. (0.68) (0.61) (0.11) --
---------- ---------- ----------- --------
Net asset value, end of period.......... $ 11.08 $ 20.80 $ 17.47 $ 11.47
---------- ---------- ----------- --------
---------- ---------- ----------- --------
Total investment return (c)............. (44.79)% 23.23% 53.76% 0.17 % (b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 5,089 $ 14,886 $ 5,502 $ 95
Ratio of net investment income (loss) to
average net assets:
With expense reductions and/or
reimbursement (Notes 2 & 5).......... (0.25)% (0.91)% (1.05)% 0.91 % (a)
Without expense reductions and/or
reimbursement........................ (0.56)% (1.01)% (1.15)% (0.19)% (a)
Ratio of expenses to average net assets:
With expense reductions and/or
reimbursement (Notes 2 & 5).......... 1.48% 1.53% 1.70% 1.87 % (a)
Without expense reductions and/or
reimbursement........................ 1.79% 1.63% 1.80% 2.97 % (a)
Portfolio turnover rate++............... 201% 321% 94% 87 %
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
* Before reimbursement the net investment loss per share would have been
increased by $0.04 for each class.
* * Before reimbursement the net investment income (loss) per share would
have been reduced (increased) by $0.14, $0.13, and $0.12 for Class A,
Class B, and Advisor Class, respectively.
* * * Before reimbursement the net investment income per share would have
been reduced by $0.04 for Class A and Class B.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates are calculated on the basis of the Portfolio
as a whole without distinguishing between the classes of shares
issued.
The accompanying notes are an integral part of the financial statements.
FS-79
<PAGE> 1180
NOTES TO
FINANCIAL STATEMENTS
October 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (SEE ALSO NOTE 2)
AIM Global Resources Fund (the "Fund"), formerly GT Global Natural Resources
Fund, is a separate series of AIM Investment Funds (the "Trust"), formerly G.T.
Investment Funds, Inc. The Trust is organized as a Delaware business trust and
is registered under the Investment Company Act of 1940, as amended ("1940 Act"),
as an open-end management investment company. The Trust has thirteen series of
shares in operation, each series corresponding to a distinct portfolio of
investments.
The Fund invests substantially all of its investable assets in Global Resources
Portfolio, (the "Portfolio"). The Portfolio is organized as a subtrust of Global
Investment Portfolio, a Delaware business trust and is registered under the 1940
Act as an open-end management investment company.
The Portfolio has investment objectives, policies, and limitations substantially
identical to those of its corresponding Fund. Therefore, the financial
statements of the Fund and Portfolio have been presented on a consolidated
basis, and represent all activities of both the Fund and Portfolio. Through
October 31, 1998, all of the shares of beneficial interest of the Portfolio were
owned by either the Fund or A I M Advisors, Inc. (the "Manager"), which has a
nominal ($100) investment in the Portfolio.
The Fund offers Class A, Class B, and Advisor Class shares, each of which has
equal rights as to assets and voting privileges except that Class A and Class B
each has exclusive voting rights with respect to its distribution plan.
Investment income, realized and unrealized capital gains and losses, and the
common expenses of the Fund are allocated on a pro rata basis to each class
based on the relative net assets of each class to the total net assets of the
Fund. Each class of shares differs in its respective service and distribution
expenses, and may differ in its transfer agent, registration, and certain other
class-specific fees and expenses.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies in conformity with generally accepted accounting
principles consistently followed by the Fund in the preparation of the financial
statements.
(A) PORTFOLIO VALUATION
The Fund calculates the net asset value of and completes orders to purchase,
exchange or repurchase Fund shares on each business day, with the exception of
those days on which the New York Stock Exchange is closed.
Equity securities are valued at the last sale price on the exchange on which
such securities are traded, or on the principal over-the-counter market on which
such securities are traded, as of the close of business on the day the
securities are being valued, or, lacking any sales, at the last available bid
price. In cases where securities are traded on more than one exchange, the
securities are valued on the exchange determined by the Manager to be the
primary market.
Fixed income investments are valued at the mean of representative quoted bid and
ask prices for such investments or, if such prices are not available, at prices
for investments of comparative maturity, quality and type; however, when the
Manager deems it appropriate, prices obtained for the day of valuation from a
bond pricing service will be used. Short-term investments are valued at
amortized cost adjusted for foreign exchange translation and market fluctuation,
if any.
Investments for which market quotations are not readily available (including
restricted securities which are subject to limitations on their sale) are valued
at fair value as determined in good faith by or under the direction of the
Trust's Board of Trustees.
Portfolio securities which are primarily traded on foreign exchanges are
generally valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S. dollars at
the current exchange rates, except that when an occurrence subsequent to the
time a value was so established is likely to have materially changed such value,
then the fair value of those securities will be determined by consideration of
other factors by or under the direction of the Trust's Board of Trustees.
(B) FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund and Portfolio are maintained in U.S. dollars.
The market values of foreign securities, currency holdings, and other assets and
liabilities are recorded in the books and records of the Portfolio after
translation to U.S. dollars based on the exchange rates on that day. The cost of
each security is determined using historical exchange rates. Income and
withholding taxes are translated at prevailing exchange rates when earned or
incurred.
The Portfolio does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, forward foreign currency contracts, sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Portfolio's books and the U.S. dollar equivalent of the amounts actually
received or paid. Net unrealized foreign exchange gains or losses arise from
changes in the value of assets and liabilities other than investments in
securities at year end, resulting from changes in exchange rates.
FS-80
<PAGE> 1181
(C) REPURCHASE AGREEMENTS
With respect to repurchase agreements entered into by the Portfolio, it is the
Portfolio's policy to always receive, as collateral, United States government
securities or other high quality debt securities of which the value, including
accrued interest, is at least equal to the amount to be repaid to the Portfolio
under each agreement at its maturity.
(D) FORWARD FOREIGN CURRENCY CONTRACTS
A forward foreign currency contract ("Forward Contract") is an agreement between
two parties to buy and sell a currency at a set price on a future date. The
market value of the Forward Contract fluctuates with changes in currency
exchange rates. The Forward Contract is marked-to-market daily and the change in
market value is recorded by the Portfolio as an unrealized gain or loss. When
the Forward Contract is closed, the Portfolio records a realized gain or loss
equal to the difference between the value at the time it was opened and the
value at the time it was closed. Forward Contracts involve market risk in excess
of the amount shown in the Portfolio's "Statement of Assets and Liabilities".
The Portfolio could be exposed to risk if a counter party is unable to meet the
terms of the contract or if the value of the currency changes unfavorably. The
Portfolio may enter into Forward Contracts in connection with planned purchases
or sales of securities, or to hedge against adverse fluctuations in exchange
rates between currencies.
(E) OPTION ACCOUNTING PRINCIPLES
When the Portfolio writes a call or put option, an amount equal to the premium
received is included in the Portfolio's "Statement of Assets and Liabilities" as
an asset and an equivalent liability. The amount of the liability is
subsequently marked-to-market to reflect the current market value of the option.
The current market value of an option listed on a traded exchange is valued at
its last bid price, or, in the case of an over-the-counter option, is valued at
the average of the last bid prices obtained from brokers, unless a quotation
from only one broker is available, in which case only that broker's price will
be used. If an option expires on its stipulated expiration date or if the
Portfolio enters into a closing purchase transaction, a gain or loss is realized
without regard to any unrealized gain or loss on the underlying security and the
liability related to such option is extinguished. If a written call option is
exercised, a gain or loss is realized from the sale of the underlying security
and the proceeds of the sale are increased by the premium originally received.
If a written put option is exercised, the cost of the underlying security
purchased would be decreased by the premium originally received. The Portfolio
can write options only on a covered basis, which, for a call, requires that the
Portfolio hold the underlying security and, for a put, requires the Portfolio to
set aside cash, U.S. government securities or other liquid securities in an
amount not less than the exercise price, or otherwise provide adequate cover at
all times while the put option is outstanding. The Portfolio may use options to
manage its exposure to the stock market and to fluctuations in currency values
or interest rates.
The premium paid by the Portfolio for the purchase of a call or put option is
included in the Portfolio's "Statement of Assets and Liabilities" as an
investment and subsequently "marked-to-market" to reflect the current market
value of the option. If an option which the Portfolio has purchased expires on
the stipulated expiration date, the Portfolio realizes a loss in the amount of
the cost of the option. If the Portfolio enters into a closing sale transaction,
the Portfolio realizes a gain or loss, depending on whether proceeds from the
closing sale transaction are greater or less than the cost of the option. If the
Portfolio exercises a call option, the cost of the securities acquired by
exercising the call is increased by the premium paid to buy the call. If the
Portfolio exercises a put option, it realizes a gain or loss from the sale of
the underlying security, and the proceeds from such sale are decreased by the
premium originally paid.
The risk associated with purchasing options is limited to the premium originally
paid. The risk in writing a call option is that the Portfolio may forego the
opportunity of profit if the market value of the underlying security or index
increases and the option is exercised. The risk in writing a put option is that
the Portfolio may incur a loss if the market value of the underlying security or
index decreases and the option is exercised. In addition, there is the risk the
Portfolio may not be able to enter into a closing transaction because of an
illiquid secondary market.
(F) FUTURES CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
security at a set price on a future date. Upon entering into such a contract the
Portfolio is required to pledge to the broker an amount of cash or securities
equal to the minimum "initial margin" requirements of the exchange on which the
contract is traded. Pursuant to the contract, the Portfolio agrees to receive
from or pay to the broker an amount of cash equal to the daily fluctuation in
value of the contract. Such receipts or payments are known as "variation margin"
and are recorded by the Portfolio as unrealized gains or losses. When the
contract is closed, the Portfolio records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed. The potential risk to the Portfolio is that the
change in value of the underlying securities may not correlate to the change in
value of the contracts. The Portfolio may use futures contracts to manage its
exposure to the stock market and to fluctuations in currency values or interest
rates.
(G) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). The cost of securities sold is determined on a first-in,
first-out-basis, unless otherwise specified. Dividends are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. Where a high
level of uncertainty exists as to its collection, income is recorded net of all
withholding tax with any rebate recorded when received. The Portfolio may trade
securities on other than normal settlement terms. This may increase the risk if
the other party to the transaction fails to deliver and causes the Portfolio to
subsequently invest at less advantageous prices.
(H) PORTFOLIO SECURITIES LOANED
At October 31, 1998, stocks with an aggregate value of $6,432,456 were on loan
to brokers. The loans were secured by cash collateral of $6,546,297 received by
the Portfolio. For the year ended October 31, 1998, the Fund received fees of
$28,903.
FS-81
<PAGE> 1182
For international securities, cash collateral is received by the Portfolio
against loaned securities in an amount at least equal to 105% of the market
value of the loaned securities at the inception of each loan. This collateral
must be maintained at not less than 103% of the market value of the loaned
securities during the period of the loan. For domestic securities, cash
collateral is received by the Portfolio against loaned securities in the amount
at least equal to 102% of the market value of the loaned securities at the
inception of each loan. This collateral must be maintained at not less than 100%
of the market value of the loaned securities during the period of the loan. The
cash collateral is invested in a securities lending trust which consists of a
portfolio of high quality short duration securities whose average effective
duration is restricted to 120 days or less.
(I) TAXES
It is the intended policy of the Fund to meet the requirements for qualification
as a "regulated investment company" under the Internal Revenue Code of 1986, as
amended ("Code"). It is also the intention of the Fund to make distributions
sufficient to avoid imposition of any excise tax under Section 4982 of the Code.
Therefore, no provision has been made for Federal taxes on income, capital
gains, unrealized appreciation of securities held, or excise tax on income and
capital gains. The Fund currently has a capital loss carryforward of $21,789,846
which expires in 2006.
(J) DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded by the Fund on the ex-date. Income
and capital gain distributions are determined in accordance with Federal income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Portfolio and timing differences.
(K) DEFERRED ORGANIZATIONAL EXPENSES
Expenses incurred by the Fund in connection with its organization, its initial
registration with the Securities and Exchange Commission and with various states
and the initial public offering of its shares aggregated $51,500. These expenses
are being amortized on a straightline basis over a five-year period.
(L) FOREIGN SECURITIES
There are certain additional considerations and risks associated with investing
in foreign securities and currency transactions that are not inherent in
investments of domestic origin. The Portfolio's investment in emerging market
countries may involve greater risks than investments in more developed markets
and the price of such investments may be volatile. These risks of investing in
foreign and emerging markets may include foreign currency exchange rate
fluctuations, perceived credit risk, adverse political and economic developments
and possible adverse foreign government intervention.
In addition, the Portfolio's policy of concentrating its investments in
companies in the natural resources industry subject the Portfolio to greater
risk than a fund that is more diversified.
(M) INDEXED SECURITIES
The Portfolio may invest in indexed securities whose value is linked either
directly or indirectly to changes in foreign currencies, interest rates,
equities, indices, or other reference instruments. Indexed securities may be
more volatile than the reference instrument itself, but any loss is limited to
the amount of the original investment.
(N) RESTRICTED SECURITIES
The Portfolio is permitted to invest in privately placed restricted securities.
These securities may be resold in transactions exempt from registration or to
the public if the securities are registered. Disposal of these securities may
involve time-consuming negotiations and expense, and prompt sale at an
acceptable price may be difficult. At the end of the year, restricted
securities, if any, (excluding 144A issues), are shown at the end of the Fund's
Portfolio of Investments.
(O) LINE OF CREDIT
The Fund, along with certain other funds advised and/or administered by the
Manager, has a line of credit with each of BankBoston and State Street Bank and
Trust Company. The arrangements with the banks allow the Fund and certain other
Funds to borrow, on a first come, first serve basis, an aggregate maximum amount
of $250,000,000. The Fund is limited to borrowing up to 33 1/3% of the value of
the Fund's total assets. On October 31, 1998, the Fund had no loan outstanding.
For the year ended October 31, 1998, the weighted average outstanding daily
balance of bank loans (based on the number of days the loans were outstanding)
was $1,955,914, with a weighted average interest rate of 6.28%. Interest expense
for the year ended October 31, 1998 was $27,626 and is included in "Other
Expenses" on the Statement of Operations.
2. RELATED PARTIES
A I M Advisors, Inc. (the "Manager"), an indirect wholly-owned subsidiary of
AMVESCAP PLC, is the Fund's and Portfolio's investment manager and
administrator. As of the close of business on May 29, 1998, Liechtenstein Global
Trust AG ("LGT"), the former indirect parent organization of Chancellor LGT
Asset Management, Inc. ("Chancellor LGT") consummated a purchase agreement with
AMVESCAP PLC pursuant to which AMVESCAP PLC acquired LGT's Asset Management
Division, which included Chancellor LGT and certain other affiliates. A I M
Distributors, Inc. ("AIM Distributors"), a wholly-owned subsidiary of the
Manager, became the Fund's distributor as of the close of business on May 29,
1998. The Trust was reorganized from a Maryland corporation into a Delaware
business trust, and the Portfolio was reorganized from a New York common law
trust into a Delaware business trust on September 8, 1998. Finally, as of the
close of business on September 4, 1998, A I M Fund Services, Inc. ("AFS"), an
affiliate of the Manager and AIM Distributors, replaced GT Global Investor
Services, Inc. ("GT Services") as the transfer agent of the Fund.
The Fund pays the Manager administration fees at the annualized rate of 0.25% of
such Fund's average daily net assets. The Portfolio pays investment management
and administration fees to the Manager at the annualized rate of 0.725% on the
first $500 million of average daily net assets of the Portfolio; 0.70% on the
next $500 million; 0.675% on the next $500 million; and 0.65% on amounts
thereafter. These fees are computed daily and paid monthly.
AIM Distributors, an affiliate of the Manager, serves as the Fund's distributor.
For the period ended May 29, 1998, GT Global, Inc. ("GT
FS-82
<PAGE> 1183
Global") served as the Fund's distributor. The Fund offers Class A, Class B, and
Advisor Class shares for purchase.
Class A shares are subject to initial sales charges imposed at the time of
purchase, in accordance with the schedule included in the Fund's current
prospectus. AIM Distributors collects the sales charges imposed on sales of
Class A shares, and reallows a portion of such charges to dealers through which
the sales are made. For the year ended October 31, 1998, AIM Distributors and GT
Global retained sales charges of $3,733 and $12,704, respectively. Purchases of
Class A shares exceeding $1,000,000 may be subject to a contingent deferred
sales charge ("CDSC") upon redemption, in accordance with the Fund's current
prospectus. AIM Distributors and GT Global collected CDSCs for the year ended
October 31, 1998 of $0 and $1,704, respectively. AIM Distributors also makes
ongoing shareholder servicing and trail commission payments to dealers whose
clients hold Class A shares.
Class B shares are not subject to initial sales charges. When Class B shares are
sold, AIM Distributors, from its own resources, pays commissions to dealers
through which the sales are made. Certain redemptions of Class B shares made
within six years of purchase are subject to CDSCs, in accordance with the Fund's
current prospectus. For the year ended October 31, 1998, AIM Distributors and GT
Global collected CDSCs in the amount of $130,737 and $225,161, respectively. In
addition, AIM Distributors makes ongoing shareholder servicing and trail
commission payments to dealers whose clients hold Class B shares.
For the period ended May 29, 1998, pursuant to the then effective separate
distribution plans adopted under the 1940 Act Rule 12b-1 by the Trust's Board of
Trustees with respect to the Fund's Class A shares ("Class A Plan") and Class B
shares ("Class B Plan"), the Fund reimbursed GT Global for a portion of its
shareholder servicing and distribution expenses. Under the Class A Plan, the
Fund was permitted to pay GT Global a service fee at the annualized rate of up
to 0.25% of the average daily net assets of the Fund's Class A shares for GT
Global's expenditures incurred in servicing and maintaining shareholder
accounts, and was permitted to pay GT Global a distribution fee at the
annualized rate of up to 0.50% of the average daily net assets of the Fund's
Class A shares, less any amounts paid by the Fund as the aforementioned service
fee, for GT Global's expenditures incurred in providing services as distributor.
All expenses for which GT Global was reimbursed under the Class A Plan would
have been incurred within one year of such reimbursement.
For the period ended May 29, 1998, pursuant to the Class B Plan, the Fund was
permitted to pay GT Global a service fee at the annualized rate of up to 0.25%
of the average daily net assets of the Fund's Class B shares for GT Global's
expenditures incurred in servicing and maintaining shareholder accounts, and was
permitted to pay GT Global a distribution fee at the annualized rate of up to
0.75% of the average daily net assets of the Fund's Class B shares for GT
Global's expenditures incurred in providing services as distributor. Expenses
incurred under the Class B Plan in excess of 1.00% annually were permitted to be
carried forward for reimbursement in subsequent years as long as that Plan
continued in effect.
Effective as of the close of business May 29, 1998, pursuant to Rule 12b-1 under
the 1940 Act, the Trust's Board of Trustees adopted a Master Distribution Plan
applicable to the Fund's Class A shares ("Class A Plan") and Class B shares
("Class B Plan"), pursuant to which the Fund compensates AIM Distributors for
the purpose of financing any activity that is intended to result in the sale of
Class A or Class B shares of the Fund. Under the Class A Plan, the Fund
compensates AIM Distributors at the annualized rate of 0.50% of the average
daily net assets of the Fund's Class A shares. Under the Class B Plan, the Fund
compensates AIM Distributors at an annualized rate of 1.00% of the average daily
net assets of the Fund's Class B shares.
The Class A Plan and the Class B Plan (together, the "Plans") are designed to
compensate AIM Distributors for certain promotional and other sales-related
costs, and to implement a dealer incentive program that provides for periodic
payments to selected dealers who furnish continuing personal shareholder
services to their customers who purchase and own Class A and Class B shares of
the Fund. Payments also can be directed by AIM Distributors to Financial
Institutions who have entered into service agreements with respect to Class A
and Class B shares of the Fund and who provide continuing personal services to
their customers who own Class A and Class B shares of the Fund. The service fees
payable to selected Financial 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 that were purchased on or after a
prescribed date set forth in the Plans.
The Manager and AIM Distributors voluntarily have undertaken to limit the Fund's
expenses (exclusive of brokerage commissions, taxes, interest, and extraordinary
expense) to the maximum annual rate of 2.00%, 2.50%, and 1.50% of the average
daily net assets of the Fund's Class A, Class B, and Advisor Class shares,
respectively. If necessary, this limitation will be effected by waivers by the
Manager of investment management and administration fees, waivers by AIM
Distributors of payments under the Class A Plan and/or Class B Plan and/or
reimbursements by the Manager or AIM Distributors of portions of the Fund's
other operating expenses.
Effective as of the close of business September 4, 1998, the Fund, pursuant to a
transfer agency and service agreement, has agreed to pay A I M Fund Services,
Inc. ("AFS") an annualized fee of $24.85 per shareholder accounts that are open
during any monthly period (this fee includes all out-of-pocket expenses), and an
annualized fee of $0.70 per shareholder account that is closed during any
monthly period. Both fees shall be billed by AFS monthly in arrears on a
prorated basis of 1/12 of the annualized fee for all such accounts.
For the period November 1, 1997 to September 4, 1998, GT Services, an affiliate
of the Manager and AIM Distributors, was the transfer agent of the Fund. For
performing shareholder servicing, reporting, and general transfer agent
services, GT Services received an annual maintenance fee of $17.50 per account,
a new account fee of $4.00 per account, a per transaction fee of $1.75 for all
transactions other than exchanges and a per exchange fee of $2.25. GT Services
also was reimbursed by the Fund for its out-of-pocket expenses for such items as
postage, forms, telephone charges, stationery and office supplies.
FS-83
<PAGE> 1184
The Manager is the pricing and accounting agent for the Fund and Portfolio. The
monthly fee for these services to the Manager is a percentage, not to exceed
0.03% annually, of a Fund's average daily net assets. The annual fee rate is
derived 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% to 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.
The Trust pays each Trustee who is not an employee, officer or director of the
Manager, or any other affiliated company, $5,000 per year plus $300 for each
meeting of the board or any committee thereof attended by the Trustee.
3. PURCHASES AND SALES OF SECURITIES
For the year ended October 31, 1998, purchases and sales of investment
securities by the Portfolio, other than U.S. government obligations and
short-term investments, aggregated $171,815,753 and $229,084,684, respectively.
For the year ended October 31, 1998, purchases and sales of U.S. government
obligations aggregated $9,032,740 and $9,264,039, respectively.
4. CAPITAL SHARES
At October 31, 1998, there were 6,000,000,000 shares of the Trust's common stock
authorized, at $0.0001 par value. Of this amount, 400,000,000 were classified as
shares of the AIM Global Telecommunications Fund; 400,000,000 were classified as
shares of AIM Global Government Income Fund; 200,000,000 were classified as
shares of AIM Global Health Care Fund; 200,000,000 were classified as shares of
AIM Strategic Income Fund; 200,000,000 were classified as shares of AIM
Developing Markets Fund; 200,000,000 were classified as shares of GT Global
Currency Fund (inactive); 200,000,000 were classified as shares of AIM Global
Growth & Income Fund; 200,000,000 were classified as shares of GT Global Small
Companies Fund (inactive); 200,000,000 were classified as shares of AIM Latin
American Growth Fund; 200,000,000 were classified as shares of AIM Emerging
Markets Fund; 200,000,000 were classified as shares of AIM Emerging Markets Debt
Fund; 200,000,000 were classified as shares of AIM Global Financial Services
Fund; 200,000,000 were classified as shares of AIM Global Resources Fund;
200,000,000 were classified as shares of AIM Global Infrastructure Fund;
200,000,000 were classified as shares of AIM Global Consumer Products and
Services Fund. The shares of each of the foregoing series of the Trust's were
divided equally into two classes, designated Class A and Class B common stock.
With respect to the issuance of Advisor Class shares, 100,000,000 shares were
classified as shares of each of the fifteen series of the Trust's and designated
as Advisor Class common stock. 1,100,000,000 shares remain unclassified.
Transactions in capital shares of the Fund were as follows:
CAPITAL SHARE TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997
--------------------------- ---------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Shares sold...................................................... 11,040,421 $ 157,454,416 14,008,426 $ 250,536,207
Shares issued in connection with reinvestment of distributions... 107,234 1,988,098 97,424 1,671,792
------------ ------------- ------------ -------------
11,147,655 159,442,514 14,105,850 252,207,999
Shares repurchased............................................... (12,759,254) (183,076,072) (13,512,928) (239,425,288)
------------ ------------- ------------ -------------
Net increase (decrease).......................................... (1,611,599) $ (23,633,558) 592,922 $ 12,782,711
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
<CAPTION>
CLASS B
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold...................................................... 1,539,841 $ 23,469,862 5,227,207 $ 91,103,073
Shares issued in connection with reinvestment of distributions... 132,618 2,421,607 120,229 2,044,194
------------ ------------- ------------ -------------
1,672,459 25,891,469 5,347,436 93,147,267
Shares repurchased............................................... (3,237,031) (47,877,579) (4,425,914) (75,084,090)
------------ ------------- ------------ -------------
Net increase (decrease).......................................... (1,564,572) $ (21,986,110) 921,522 $ 18,063,177
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
<CAPTION>
ADVISOR CLASS
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold...................................................... 1,211,598 $ 19,441,802 1,573,656 $ 31,848,691
Shares issued in connection with reinvestment of distributions... 11,203 209,263 7,576 130,389
------------ ------------- ------------ -------------
1,222,801 19,651,065 1,581,232 31,979,080
Shares repurchased............................................... (1,479,078) (24,982,982) (1,180,622) (22,478,170)
------------ ------------- ------------ -------------
Net increase (decrease).......................................... (256,277) $ (5,331,917) 400,610 $ 9,500,910
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
</TABLE>
FS-84
<PAGE> 1185
5. EXPENSE REDUCTIONS
The Manager has directed certain portfolio trades to brokers who then paid a
portion of the Portfolio's expenses. For the year ended October 31, 1998, the
Portfolio's expenses were reduced by $45,111 under these arrangements.
6. PROXY RESULTS (UNAUDITED)
The Special Meeting of Shareholders of the G.T. Investment Funds, Inc., now
known as AIM Investment Funds (the "Trust"), was held on May 20, 1998 at the
Trust's offices, 50 California Street, 26th Floor, San Francisco, California.
The meeting was held for the following purposes:
(1) To elect Trustees as follows: C. Derek Anderson, Frank S. Bayley, William J.
Guilfoyle, Arthur C. Patterson, Ruth H. Quigley.
(2) To approve a new Investment Management and Administration Contract and
Sub-Advisory and Sub-Administration Contract with respect to each series of
the Trust (each, a "Fund," and collectively, the "Funds").
(3) To approve replacement Rule 12b-1 plans of distribution with respect to
Class A and B Shares of the Fund.
(4) To approve changes to the fundamental investment restrictions of the Fund.
(5) To approve an agreement and plan of conversion and termination for the
Trust.
(6) To approve the conversion of the portfolios in which certain Funds invest to
Delaware business trusts.
(7) To ratify the selection of Coopers & Lybrand L.L.P., now known as
PricewaterhouseCoopers LLP, as the Trust's independent public accountants.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
VOTES WITHHELD/
TRUSTEE/MATTER VOTES FOR AGAINST ABSTENTIONS
------------------------------------------------------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
(1) C. Derek Anderson........................................... 191,685,088 N/A 13,123,292
Frank S. Bayley............................................. 191,766,811 N/A 13,041,568
William J. Guilfoyle........................................ 191,828,959 N/A 12,979,420
Arthur C. Patterson......................................... 191,845,270 N/A 12,963,109
Ruth H. Quigley............................................. 191,869,887 N/A 12,938,492
(2)(a) Approval of investment management and administration
contract................................................... 2,628,774 84,005 1,096,053*
(2)(b) Approval of sub-advisory and sub-administration contract.... 2,609,716 93,910 1,105,207*
(3) Approval of replacement Rule 12b-1 plans of distribution
CLASS A SHARES.............................................. 1,848,382 49,482 141,232
CLASS B SHARES.............................................. 1,142,152 54,567 142,678
(4)(a) Modification of Fundamental Restriction on Portfolio
Diversification............................................ 2,588,203 110,874 1,109,756*
(4)(b) Modification of Fundamental Restriction on Issuing Senior
Securities and Borrowing Money............................. 2,558,203 110,874 1,109,756*
(4)(c) Modification of Fundamental Restriction on Making Loans..... 2,588,203 110,874 1,109,756*
(4)(d) Modification of Fundamental Restriction on Underwriting
Securities................................................. 2,588,170 110,907 1,109,756*
(4)(e) Modification of Fundamental Restriction on Real Estate
Investment................................................. 2,587,733 111,344 1,109,756*
(4)(f) Modification of Fundamental Restriction on Investing in
Commodities................................................ 2,588,203 110,874 1,109,756*
(4)(g) Elimination of Fundamental Restriction on Margin
Transactions............................................... 2,588,170 110,907 1,109,756*
(4)(h) Elimination of Fundamental Restriction on Pledging Assets... 2,588,170 110,907 1,109,756*
(4)(i) Elimination of Fundamental Restriction on Investments in
Oil, Gas and Mineral Leases and Programs................... 2,588,203 110,874 1,109,756*
(5) Approval of an agreement and plan of conversion and
termination with respect to the Trust...................... 190,027,469 6,362,084 94,055,040*
(6) Approval of the conversion of the portfolios in which
certain Funds invest....................................... 2,615,848 80,623 1,112,362*
(7) Ratification of the selection of Coopers and Lybrand L.L.P.,
now known as PricewaterhouseCoopers LLP, as the Trust's
independent public accountants............................. 191,358,779 2,114,168 11,333,063
</TABLE>
- ------------------------
* Includes Broker Non-Votes
- ------------------------
FEDERAL TAX INFORMATION (UNAUDITED):
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$3,761,914 as capital gain dividends for the fiscal year ended October 31, 1998.
FS-85
<PAGE> 1186
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders of AIM Global Telecommunications Fund (formerly GT Global
Telecommunications Fund) and Board of Trustees of AIM Investment Funds (formerly
G.T. Investment Funds, Inc.):
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Global Telecommunications
Fund at October 31, 1998, and the results of its operations, the changes in its
net assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
------------------------------
PRICEWATERHOUSECOOPERS LLP
BOSTON, MASSACHUSETTS
DECEMBER 18, 1998
FS-86
<PAGE> 1187
PORTFOLIO OF INVESTMENTS
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- ----------------------------------------------------------- -------- ----------- -------------- -------------
<S> <C> <C> <C> <C>
Telephone Networks (32.9%)
Telecom Italia S.p.A.: .................................. ITLY -- -- 4.2
Di Risp ............................................... -- 9,326,517 $ 47,241,821 --
Common ................................................ -- 1,263,333 9,136,412 --
MCI WorldCom, Inc.-/- ................................... US 976,718 53,963,670 4.0
GTE Corp. ............................................... US 675,000 39,614,063 3.0
NTL, Inc.-/- {\/} ....................................... UK 755,418 36,212,826 2.7
Telefonica de Espana .................................... SPN 787,666 35,576,704 2.7
SPT Telecom-/- .......................................... CZCH 1,948,398 29,501,433 2.2
Nippon Telegraph & Telephone Corp. ...................... JPN 3,400 26,648,333 2.0
Swisscom AG-/- .......................................... SWTZ 61,203 20,738,356 1.6
Deutsche Telekom AG ..................................... GER 644,000 17,556,208 1.3
Helsingin Puhelin Oyj (Helsinki Telephone Corp.) ........ FIN 307,001 16,849,215 1.3
BCE, Inc. ............................................... CAN 463,025 15,699,324 1.2
Carso Global Telecom "A1" ............................... MEX 5,654,982 15,392,656 1.2
Koninklijke KPN N.V. .................................... NETH 348,000 13,526,502 1.0
British Telecommunications PLC .......................... UK 1,005,000 12,980,760 1.0
France Telecom S.A. ..................................... FR 175,000 12,210,328 0.9
Magyar Tavkozlesi Rt. - ADR{\/} ......................... HGRY 448,350 12,049,406 0.9
Esat Telecom Group PLC - ADR-/- {\/} .................... IRE 335,300 10,142,825 0.8
Telecom Corporation of New Zealand Ltd. - Installment
Receipts ............................................... NZ 3,495,700 6,807,883 0.5
Equant N.V.-/- {\/} ..................................... NETH 54,700 2,393,125 0.2
Russian Telecommunications Development Corp.: ........... RUS -- -- 0.2
Non-Voting(.) -/- {\/} (::) ........................... -- 453,000 1,114,380 --
Voting(.) -/- {\/} (::) ............................... -- 331,000 814,260 --
--------------
436,170,490
--------------
Wireless Communications (20.1%)
Mannesmann AG ........................................... GER 436,000 42,938,795 3.2
Millicom International Cellular S.A.-/- {\/} {::} ....... LUX 1,035,000 34,543,125 2.6
Vodafone Group PLC ...................................... UK 1,882,000 25,189,895 1.9
Nextel Communications, Inc. "A"-/- ...................... US 1,190,700 21,581,438 1.6
Orange PLC-/- ........................................... UK 2,160,800 20,082,389 1.5
NTT Mobile Communications ............................... JPN 434 15,702,475 1.2
Western Wireless Corp. "A"-/- ........................... US 750,300 15,193,575 1.1
Smartone Telecommunications ............................. HK 5,048,000 14,339,983 1.1
WinStar Communications, Inc.-/- ......................... US 502,500 13,567,500 1.0
Securicor PLC ........................................... UK 1,550,007 11,462,324 0.9
Grupo Iusacell S.A. "L" - ADR-/- {\/} ................... MEX 1,663,700 11,437,938 0.9
Netcom ASA-/- ........................................... NOR 295,732 9,084,604 0.7
AirTouch Communications, Inc.-/- ........................ US 158,800 8,892,800 0.7
Advanced Info. Service - Foreign ........................ THAI 993,150 7,304,563 0.5
ICO Global Communications (Holdings) Ltd. ............... US 620,200 5,039,125 0.4
Bell Canada International, Inc.-/- ...................... CAN 393,800 4,110,327 0.3
Clearnet Communications, Inc. "A"-/- {\/} ............... CAN 451,200 3,299,400 0.2
STET Hellas Telecommunications S.A. - ADR-/- {\/} ....... GREC 108,650 2,852,063 0.2
Microcell Telecommunications, Inc. "B"-/- {\/} .......... CAN 296,400 1,537,575 0.1
Telesp Celular Participacoes S.A.-/- .................... BRZL 51,800,000 168,932 --
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-87
<PAGE> 1188
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- ----------------------------------------------------------- -------- ----------- -------------- -------------
<S> <C> <C> <C> <C>
Wireless Communications (Continued)
Tele Sudeste Celular Participacoes S.A.-/- .............. BRZL 51,800,000 $ 99,883 --
Tele Celular Sul Participacoes S.A.-/- .................. BRZL 51,800,000 33,005 --
Tele Centro Oeste Celular Participacoes S.A.-/- ......... BRZL 51,800,000 32,570 --
Telemig Celular Participacoes S.A.-/- ................... BRZL 51,800,000 31,702 --
Tele Nordeste Celular Participacoes S.A.-/- ............. BRZL 51,800,000 19,542 --
Tele Leste Celular Participacoes S.A.-/- ................ BRZL 51,800,000 16,068 --
Tele Norte Celular Participacoes S.A.-/- ................ BRZL 51,800,000 10,423 --
Telecommunicacoes Brasileiras S.A. (Telebras).-/- ....... BRZL 51,800,000 5,211 --
--------------
268,577,230
--------------
Telecom Equipment (10.6%)
Nokia Oyj "A" ........................................... FIN 533,320 48,642,599 3.6
ECI Telecommunications Ltd.{\/} ......................... ISRL 1,213,000 40,180,625 3.0
Tekelec-/- .............................................. US 1,297,800 23,279,288 1.7
Tellabs, Inc.-/- ........................................ US 290,000 15,950,000 1.2
ANTEC Corp.-/- .......................................... US 605,900 10,073,088 0.8
Orckit Communications Ltd.-/- {\/} ...................... ISRL 225,000 2,896,875 0.2
Netas Northern Electric Telekomunikayson AS: ............ TRKY -- -- 0.1
Tradeable Receipts-/- ................................. -- 74,844,000 1,664,182 --
Common-/- ............................................. -- 17,358,300 385,968 --
--------------
143,072,625
--------------
Telephone - Regional/Local (8.7%)
SBC Communications ...................................... US 1,193,834 55,289,437 4.1
Bell Atlantic Corp. ..................................... US 350,000 18,593,750 1.4
ICG Communications, Inc.-/- ............................. US 706,200 14,609,513 1.1
Intermedia Communications of Florida, Inc.-/- ........... US 681,100 12,600,350 0.9
BellSouth Corporation ................................... US 115,000 9,178,438 0.7
MetroNet Communications Corp. "B"-/- {\/} ............... CAN 146,200 3,362,600 0.3
Telesp Participacoes S.A.-/- ............................ BRZL 51,800,000 929,343 0.1
ING Barings Russian Regional Telecommunications Basket
Bridge Certificates-/- {=} {\/} ........................ RUS 1,749 802,039 0.1
Tele Norte Leste Participacoes S.A.-/- .................. BRZL 51,800,000 290,962 --
Tele Centro Sul Participacoes S.A.-/- ................... BRZL 51,800,000 238,850 --
--------------
115,895,282
--------------
Cable Television (4.5%)
Comcast Corp. "A" ....................................... US 604,300 29,837,313 2.2
Tele-Communications, Inc. "A"-/- ........................ US 604,100 25,447,713 1.9
United International Holdings, Inc. "A"-/- .............. US 365,800 4,755,400 0.4
--------------
60,040,426
--------------
Multi-Industry (2.9%)
Vivendi ................................................. FR 168,500 38,501,630 2.9
--------------
Telecom - Other (2.8%)
Cable & Wireless Communications PLC-/- .................. UK 5,009,945 37,719,178 2.8
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-88
<PAGE> 1189
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- ----------------------------------------------------------- -------- ----------- -------------- -------------
<S> <C> <C> <C> <C>
Broadcasting & Publishing (2.7%)
Time Warner, Inc. ....................................... US 200,000 $ 18,562,500 1.4
EchoStar Communications Corp. "A"-/- {::} ............... US 609,200 16,448,400 1.2
Sistem Televisyen Malaysia Bhd. ......................... MAL 3,573,000 713,033 0.1
--------------
35,723,933
--------------
Telecom Technology (1.2%)
Uniphase Corp.-/- ....................................... US 284,800 14,097,600 1.1
Three-Five Systems, Inc.-/- {::} ........................ US 164,900 1,442,875 0.1
--------------
15,540,475
--------------
Networking (0.8%)
3Com Corp.-/- ........................................... US 315,000 11,359,688 0.8
--------------
Computers & Peripherals (0.6%)
NEC Corp. ............................................... JPN 1,000,000 7,416,638 0.6
--------------
Telephone - Long Distance (0.3%)
Global Crossing Ltd.-/- ................................. US 142,500 4,096,875 0.3
Embratel Participacoes S.A.-/- .......................... BRZL 51,800,000 399,531 --
--------------
4,496,406
-------------- -----
TOTAL EQUITY INVESTMENTS (cost $911,835,870) .............. 1,174,514,001 88.1
-------------- -----
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- ----------------------------------------------------------- -------- ----------- -------------- -------------
<S> <C> <C> <C> <C>
Government & Government Agency Obligations (4.3%)
United States (4.3%)
United States Strip Principal due 8/15/20 (cost
$60,068,002) ......................................... USD 199,000,000 57,556,300 4.3
-------------- -----
<CAPTION>
NO. OF VALUE % OF NET
WARRANTS COUNTRY WARRANTS (NOTE 1) ASSETS
- ----------------------------------------------------------- -------- ----------- -------------- -------------
<S> <C> <C> <C> <C>
American Satellite Network Warrants, expire 1/1/99 (cost
$0)(.) (::) ............................................ US 65,825 -- --
-------------- -----
WIRELESS COMMUNICATIONS
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-89
<PAGE> 1190
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
REPURCHASE AGREEMENTS (NOTE 1) ASSETS
- ----------------------------------------------------------- -------------- -------------
<S> <C> <C> <C> <C>
Dated October 30, 1998, with State Street Bank & Trust
Co.,
due November 2, 1998, for an effective yield of 5.3%,
collateralized by $47,040,000 U.S Treasury Notes,
6.375% due 8/15/02 (market value of collateral is
$51,003,590, including accrued interest). ............ $ 50,000,000 3.7
Dated October 30, 1998, with State Street Bank & Trust
Co.,
due November 2, 1998, for an effective yield of 5.3%,
collateralized by $24,860,000 U.S. Treasury Notes,
5.375% due 1/31/00 (market value of collateral is
$25,505,067, including accrued interest). ............ 25,000,000 1.9
Dated October 30, 1998, with State Street Bank & Trust
Co.,
due November 2, 1998, for an effective yield of 5.3%,
collateralized by $19,640,000 U.S. Treasury Notes,
5.25% due 1/31/01 (market value of collateral is
$20,315,400, including accrued interest). ............ 19,915,000 1.5
-------------- -----
TOTAL REPURCHASE AGREEMENTS (cost $94,915,000) ............ 94,915,000 7.1
-------------- -----
TOTAL INVESTMENTS (cost $1,066,818,872) * ................ 1,326,985,301 99.5
Other Assets and Liabilities .............................. 6,390,559 0.5
-------------- -----
NET ASSETS ................................................ $1,333,375,860 100.0
-------------- -----
-------------- -----
</TABLE>
- --------------
{\/} U.S. currency denominated.
-/- Non-income producing security.
{=} Issued by ING Barings, the value of which is linked to the
underlying value of a basket of shares issued by Russian regional
telephone companies.
(::) Valued in good faith at fair value using procedures approved by the
Board of Trustees (See Note 1 of Notes to Financial Statements).
{::} See Note 6 of Notes to Financial Statements.
(.) Restricted Securities: At October 31, 1998 the Fund owned the
following restricted securities constituting less than .2% of net
assets which may not be publicly sold without registration under
the Securities Act of 1933 (Note 1). Additional information on the
securities is as follows:
<TABLE>
<CAPTION>
VALUE
ACQUISITION PER SHARE
DESCRIPTION DATE SHARES COST (NOTE 1)
- ------------------------------------------------------------ ----------- ------- ---------- ---------
<S> <C> <C> <C> <C>
American Satellite Network Warrants, expire 1/1/99.......... 12/31/93 65,825 -- --
Russian Telecommunications Development Corp.:
Non-voting................................................ 12/22/93 453,000 $4,530,000 $2.46
Voting.................................................... 12/22/93 331,000 3,310,000 2.46
</TABLE>
* For Federal income tax purposes, cost is $1,071,126,276 and
appreciation (depreciation) is as follows:
<TABLE>
<S> <C>
Unrealized appreciation: $ 331,853,916
Unrealized depreciation: (75,994,891)
-------------
Net unrealized appreciation: $ 255,859,025
-------------
-------------
</TABLE>
Abbreviation:
ADR--American Depositary Receipt
The accompanying notes are an integral part of the financial statements.
FS-90
<PAGE> 1191
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1998
- --------------------------------------------------------------------------------
The Fund's Portfolio of Investments at October 31, 1998, was concentrated in the
following countries:
<TABLE>
<CAPTION>
PERCENTAGE OF NET ASSETS {D}
-------------------------------------------
FIXED INCOME SHORT-TERM
COUNTRY (COUNTRY CODE/CURRENCY CODE) EQUITY & WARRANTS & OTHER TOTAL
- -------------------------------------- ------ ------------- ---------- -----
<S> <C> <C> <C> <C>
Brazil (BRZL/BRL) .................... 0.1 0.1
Canada (CAN/CAD) ..................... 2.1 2.1
Czech Republic (CZCH/CSK) ............ 2.2 2.2
Finland (FIN/FIM) .................... 4.9 4.9
France (FR/FRF) ...................... 3.8 3.8
Germany (GER/DEM) .................... 4.5 4.5
Greece (GREC/GRD) .................... 0.2 0.2
Hong Kong (HK/HKD) ................... 1.1 1.1
Hungary (HGRY/HUF) ................... 0.9 0.9
Ireland (IRE/IEP) .................... 0.8 0.8
Israel (ISRL/ILS) .................... 3.2 3.2
Italy (ITLY/ITL) ..................... 4.2 4.2
Japan (JPN/JPY) ...................... 3.8 3.8
Luxembourg (LUX/LUF) ................. 2.6 2.6
Malaysia (MAL/MYR) ................... 0.1 0.1
Mexico (MEX/MXN) ..................... 2.1 2.1
Netherlands (NETH/NLG) ............... 1.2 1.2
New Zealand (NZ/NZD) ................. 0.5 0.5
Norway (NOR/NOK) ..................... 0.7 0.7
Russia (RUS/SUR) ..................... 0.3 0.3
Spain (SPN/ESP) ...................... 2.7 2.7
Switzerland (SWTZ/CHF) ............... 1.6 1.6
Thailand (THAI/THB) .................. 0.5 0.5
Turkey (TRKY/TRL) .................... 0.1 0.1
United Kingdom (UK/GBP) .............. 10.8 10.8
United States (US/USD) ............... 33.1 4.3 7.6 45.0
------ --- --- -----
Total ............................... 88.1 4.3 7.6 100.0
------ --- --- -----
------ --- --- -----
</TABLE>
- --------------
{d} Percentages indicated are based on net assets of $1,333,375,860.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS OUTSTANDING
OCTOBER 31, 1998
<TABLE>
<CAPTION>
MARKET VALUE UNREALIZED
(U.S. CONTRACT DELIVERY APPRECIATION
CONTRACTS TO SELL: DOLLARS) PRICE DATE (DEPRECIATION)
- ---------------------------------------- ------------- ----------- -------- ---------------
<S> <C> <C> <C> <C>
British Pounds.......................... 41,628,230 0.60131 11/30/98 $ (51,980)
Italian Liras........................... 25,888,897 1601.49000 12/21/98 586,448
Japanese Yen............................ 9,023,719 134.95500 11/12/98 (1,243,348)
Japanese Yen............................ 8,164,318 130.86250 11/12/98 (904,789)
Japanese Yen............................ 7,304,916 118.69000 11/12/98 (143,403)
Japanese Yen............................ 2,148,504 134.52000 11/12/98 (290,045)
------------- ---------------
Total Contracts to Sell (Receivable
amount $92,111,467).................. 94,158,584 (2,047,117)
------------- ---------------
THE VALUE OF CONTRACTS TO SELL AS A
PERCENTAGE OF NET ASSETS IS 7.06%.
Total Open Forward Foreign Currency
Contracts............................ $ (2,047,117)
---------------
---------------
</TABLE>
- ----------------
See Note 1 to the financial statements.
The accompanying notes are an integral part of the financial statements.
FS-91
<PAGE> 1192
STATEMENT OF ASSETS
AND LIABILITIES
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at value (cost $1,066,818,872) (Note 1)........................ $1,326,985,301
U.S. currency................................................................ $ 638
Foreign currencies (cost $12,115,289)........................................ 12,098,850 12,099,488
-----------
Receivable for securities sold............................................................ 4,998,458
Receivable for Fund shares sold........................................................... 1,108,983
Dividends and dividend withholding tax reclaims receivable................................ 928,347
Interest receivable....................................................................... 27,947
--------------
Total assets............................................................................ 1,346,148,524
--------------
Liabilities:
Payable for Fund shares repurchased....................................................... 5,144,176
Payable for open forward foreign currency contracts, net (Note 1)......................... 2,047,117
Payable for service and distribution expenses (Note 2).................................... 1,857,913
Payable for transfer agent fees (Note 2).................................................. 1,354,901
Payable for investment management and administration fees (Note 2)........................ 992,645
Payable for forward foreign currency contracts -- closed (Note 1)......................... 689,048
Payable for custodian fees................................................................ 287,512
Payable for printing and postage expenses................................................. 168,175
Payable for registration and filing fees.................................................. 60,980
Payable for professional fees............................................................. 57,782
Payable for fund accounting fees (Note 2)................................................. 31,491
Payable for Trustees' fees and expenses (Note 2).......................................... 23,244
Other accrued expenses.................................................................... 57,680
--------------
Total liabilities....................................................................... 12,772,664
--------------
Net assets.................................................................................. $1,333,375,860
--------------
--------------
Class A:
Net asset value and redemption price per share ($713,903,569 DIVIDED BY 43,840,500 shares
outstanding)............................................................................... $ 16.28
--------------
--------------
Maximum offering price per share (100/95.25 of $16.28) *.................................... $ 17.09
--------------
--------------
Class B:+
Net asset value and offering price per share ($614,715,460 DIVIDED BY 39,008,010 shares
outstanding)............................................................................... $ 15.76
--------------
--------------
Advisor Class:
Net asset value, offering price per share, and redemption price per share ($4,756,831
DIVIDED BY 286,313 shares outstanding)..................................................... $ 16.61
--------------
--------------
Net assets consist of:
Paid in capital (Note 4).................................................................. $1,003,778,129
Undistributed net investment income....................................................... 5,534
Accumulated net realized gain on investments and foreign currency transactions............ 71,483,704
Net unrealized depreciation on translation of assets and liabilities in foreign
currencies............................................................................... (2,057,936)
Net unrealized appreciation of investments................................................ 260,166,429
--------------
Total -- representing net assets applicable to capital shares outstanding................... $1,333,375,860
--------------
--------------
<FN>
- --------------
* On sales of $50,000 or more, the offering price is reduced.
+ Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-92
<PAGE> 1193
STATEMENT OF OPERATIONS
Year ended October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment income: (Note 1)
Dividend income (net of foreign withholding tax of $859,719)............................... $ 9,991,960
Interest income............................................................................ 3,702,326
Securities lending income.................................................................. 1,645,390
------------
Total investment income.................................................................. 15,339,676
------------
Expenses:
Investment management and administration fees (Note 2)..................................... 15,344,878
Service and distribution expenses:(Note 2)
Class A.................................................................... $ 4,293,131
Class B.................................................................... 7,582,290 11,875,421
------------
Transfer agent fees (Note 2)............................................................... 4,714,560
Printing and postage expenses.............................................................. 761,235
Custodian fees............................................................................. 641,305
Fund accounting fees (Note 2).............................................................. 437,627
Professional fees.......................................................................... 207,125
Registration and filing fees............................................................... 106,215
Trustees' fees and expenses (Note 2)....................................................... 34,900
Other expenses............................................................................. 113,524
------------
Total expenses before reductions......................................................... 34,236,790
------------
Expense reductions (Note 5)............................................................ (109,953)
------------
Total net expenses....................................................................... 34,126,837
------------
Net investment loss.......................................................................... (18,787,161)
------------
Net realized and unrealized gain (loss) on investments and foreign currencies:
(Note 1)
Net realized gain on investments............................................. 71,036,101
Net realized gain on foreign currency transactions........................... 112,098
------------
Net realized gain during the year........................................................ 71,148,199
Net change in unrealized depreciation on translation of assets and
liabilities in foreign currencies........................................... 689,850
Net change in unrealized appreciation of investments......................... (65,785,548)
------------
Net unrealized depreciation during the year.............................................. (65,095,698)
------------
Net realized and unrealized gain on investments and foreign currencies....................... 6,052,501
------------
Net decrease in net assets resulting from operations......................................... $(12,734,660)
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-93
<PAGE> 1194
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997
---------------- ----------------
<S> <C> <C>
Increase/(decrease) in net assets
Operations:
Net investment loss...................................................... $ (18,787,161) $ (23,856,621)
Net realized gain on investments and foreign currency transactions....... 71,148,199 120,426,746
Net change in unrealized appreciation (depreciation) on translation of
assets and liabilities in foreign currencies............................ 689,850 (7,132,389)
Net change in unrealized appreciation (depreciation) of investments...... (65,785,548) 217,773,979
---------------- ----------------
Net increase (decrease) in net assets resulting from operations........ (12,734,660) 307,211,715
---------------- ----------------
Class A:
Distributions to shareholders: (Note 1)
From net realized gain on investments.................................... (59,979,418) (95,676,425)
Class B:
Distributions to shareholders: (Note 1)
From net realized gain on investments.................................... (54,057,223) (83,596,023)
Advisor Class:
Distributions to shareholders: (Note 1)
From net realized gain on investments.................................... (239,075) (176,806)
---------------- ----------------
Total distributions.................................................... (114,275,716) (179,449,254)
---------------- ----------------
Capital share transactions: (Note 4)
Increase from capital shares sold and reinvested......................... 2,274,548,973 1,783,734,946
Decrease from capital shares repurchased................................. (2,535,281,796) (2,403,405,013)
---------------- ----------------
Net decrease from capital share transactions........................... (260,732,823) (619,670,067)
---------------- ----------------
Total decrease in net assets............................................... (387,743,199) (491,907,606)
Net assets:
Beginning of year........................................................ 1,721,119,059 2,213,026,665
---------------- ----------------
End of year *............................................................ $ 1,333,375,860 $ 1,721,119,059
---------------- ----------------
---------------- ----------------
* Includes undistributed net investment income of:........................ $ 5,534 $ 5,534
---------------- ----------------
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-94
<PAGE> 1195
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1998 (d) 1997 (d) 1996 (d) 1995 1994 (d)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 18.04 $ 16.69 $ 16.42 $ 17.80 $ 16.92
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income (loss).......... (0.17) (0.17) (0.13) (0.09) (0.01)
Net realized and unrealized gain
(loss) on investments................ (0.39) 2.93 1.22 (0.43) 1.17
---------- ---------- ---------- ---------- ----------
Net increase (decrease) from
investment operations.............. (0.56) 2.76 1.09 (0.52) 1.16
---------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income............ -- -- -- -- (0.01)
From net realized gain on
investments.......................... (1.20) (1.41) (0.82) (0.86) (0.27)
---------- ---------- ---------- ---------- ----------
Total distributions..................... (1.20) (1.41) (0.82) (0.86) (0.28)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 16.28 $ 18.04 $ 16.69 $ 16.42 $ 17.80
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return (c)............. (3.16)% 17.70% 7.00% (2.88)% 7.02%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 713,904 $ 910,801 $1,204,428 $1,353,722 $1,644,402
Ratio of net investment income (loss) to
average net assets:
With expense reductions (Notes 5)..... (0.92)% (1.01)% (0.84)% (0.49)% (0.02)%
Without expense reductions............ (0.93)% (1.06)% (0.89)% (0.55)% N/A
Ratio of expenses to average net assets:
With expense reductions (Notes 5)..... 1.87% 1.79% 1.74% 1.77% 1.80%
Without expense reductions............ 1.88% 1.84% 1.79% 1.83% N/A
Portfolio turnover rate++............... 75% 35% 37% 62% 57%
</TABLE>
- ----------------
(a) Annualized
(b) Not Annualized
(c) Total investment return does not include sales charge.
(d) These selected per share data were calculated based upon the average
shares outstanding during the period.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates are calculated on the basis of the Fund as a
whole without distinguishing between the classes of shares issued.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-95
<PAGE> 1196
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1998 (d) 1997 (d) 1996 (d) 1995 1994 (d)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 17.58 $ 16.37 $ 16.20 $ 17.66 $ 16.87
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income (loss).......... (0.25) (0.25) (0.23) (0.17) (0.10)
Net realized and unrealized gain
(loss) on investments................ (0.37) 2.87 1.22 (0.43) 1.17
---------- ---------- ---------- ---------- ----------
Net increase (decrease) from
investment operations.............. (0.62) 2.62 0.99 (0.60) 1.07
---------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income............ -- -- -- -- (0.01)
From net realized gain on
investments.......................... (1.20) (1.41) (0.82) (0.86) (0.27)
---------- ---------- ---------- ---------- ----------
Total distributions..................... (1.20) (1.41) (0.82) (0.86) (0.28)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 15.76 $ 17.58 $ 16.37 $ 16.20 $ 17.66
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return (c)............. (3.67)% 17.15% 6.46% (3.37)% 6.50%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 614,715 $ 805,535 $1,007,654 $1,111,520 $1,184,081
Ratio of net investment income (loss) to
average net assets:
With expense reductions (Notes 5)..... (1.42)% (1.51)% (1.34)% (0.99)% (0.52)%
Without expense reductions............ (1.43)% (1.56)% (1.39)% (1.05)% N/A
Ratio of expenses to average net assets:
With expense reductions (Notes 5)..... 2.37% 2.29% 2.24% 2.27% 2.30%
Without expense reductions............ 2.38% 2.34% 2.29% 2.33% N/A
Portfolio turnover rate++............... 75% 35% 37% 62% 57%
</TABLE>
- ----------------
(a) Annualized
(b) Not Annualized
(c) Total investment return does not include sales charge.
(d) These selected per share data were calculated based upon the average
shares outstanding during the period.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates are calculated on the basis of the Fund as a
whole without distinguishing between the classes of shares issued.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-96
<PAGE> 1197
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
ADVISOR CLASS+
-----------------------------------------------------
YEAR ENDED OCTOBER 31, JUNE 1, 1995
----------------------------------- TO
1998 (d) 1997 (d) 1996 (d) OCTOBER 31, 1995
---------- ---------- ----------- ----------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 18.28 $ 16.81 $ 16.46 $ 15.24
---------- ---------- ----------- --------
Income from investment operations:
Net investment income (loss).......... (0.08) (0.09) (0.05) --
Net realized and unrealized gain
(loss) on investments................ (0.39) 2.97 1.22 1.22
---------- ---------- ----------- --------
Net increase (decrease) from
investment operations.............. (0.47) 2.88 1.17 1.22
---------- ---------- ----------- --------
Distributions to shareholders:
From net investment income............ -- -- -- --
From net realized gain on
investments.......................... (1.20) (1.41) (0.82) --
---------- ---------- ----------- --------
Total distributions..................... (1.20) (1.41) (0.82) --
---------- ---------- ----------- --------
Net asset value, end of period.......... $ 16.61 $ 18.28 $ 16.81 $ 16.46
---------- ---------- ----------- --------
---------- ---------- ----------- --------
Total investment return (c)............. (2.59)% 18.33% 7.49% 7.94 % (b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 4,757 $ 4,783 $ 945 $ 681
Ratio of net investment income (loss) to
average net assets:
With expense reductions (Notes 5)..... (0.42)% (0.51)% (0.34)% 0.01 % (a)
Without expense reductions............ (0.43)% (0.56)% (0.39)% (0.05)% (a)
Ratio of expenses to average net assets:
With expense reductions (Notes 5)..... 1.37% 1.29% 1.24% 1.27 % (a)
Without expense reductions............ 1.38% 1.34% 1.29% 1.33 % (a)
Portfolio turnover rate++............... 75% 35% 37% 62 %
</TABLE>
- ----------------
(a) Annualized
(b) Not Annualized
(c) Total investment return does not include sales charge.
(d) These selected per share data were calculated based upon the average
shares outstanding during the period.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates are calculated on the basis of the Fund as a
whole without distinguishing between the classes of shares issued.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-97
<PAGE> 1198
NOTES TO
FINANCIAL STATEMENTS
October 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (SEE ALSO NOTE 2)
AIM Global Telecommunications Fund (the "Fund"), formerly, GT Global
Telecommunications Fund, is a separate series of AIM Investment Funds (the
"Trust"), formerly G.T. Investment Funds, Inc. The Trust is organized as a
Delaware business trust and is registered under the Investment Company Act of
1940, as amended ("1940 Act"), as an open-end management investment company. The
Trust has thirteen series of shares in operation, each series corresponding to a
distinct portfolio of investments.
The Fund offers Class A, Class B, and Advisor Class shares, each of which has
equal rights as to assets and voting privileges except that Class A and Class B
each has exclusive voting rights with respect to its distribution plan.
Investment income, realized and unrealized capital gains and losses, and the
common expenses of the Fund are allocated on a pro rata basis to each class
based on the relative net assets of each class to the total net assets of the
Fund. Each class of shares differs in its respective service and distribution
expenses, and may differ in its transfer agent, registration, and certain other
class-specific fees and expenses.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies in conformity with generally accepted accounting
principles consistently followed by the Fund in the preparation of the financial
statements.
(A) PORTFOLIO VALUATION
The Fund calculates the net asset value of and completes orders to purchase,
exchange or repurchase Fund shares on each business day, with the exception of
those days on which the New York Stock Exchange is closed.
Equity securities are valued at the last sale price on the exchange on which
such securities are traded, or on the principal over-the-counter market on which
such securities are traded, as of the close of business on the day the
securities are being valued, or, lacking any sales, at the last available bid
price. In cases where securities are traded on more than one exchange, the
securities are valued on the exchange determined by A I M Advisors, Inc. (the
"Manager") to be the primary market.
Fixed income investments are valued at the mean of representative quoted bid and
ask prices for such investments or, if such prices are not available, at prices
for investments of comparative maturity, quality and type; however, when the
Manager deems it appropriate, prices obtained for the day of valuation from a
bond pricing service will be used. Short-term investments are valued at
amortized cost adjusted for foreign exchange translation and market fluctuation,
if any.
Investments for which market quotations are not readily available (including
restricted securities which are subject to limitations on their sale) are valued
at fair value as determined in good faith by or under the direction of the
Trust's Board of Trustees.
Portfolio securities which are primarily traded on foreign exchanges are
generally valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S. dollars at
the current exchange rates, except that when an occurrence subsequent to the
time a value was so established is likely to have materially changed such value,
then the fair value of those securities will be determined by consideration of
other factors by or under the direction of the Trust's Board of Trustees.
(B) FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings, and other assets and
liabilities are recorded in the books and records of the Fund after translation
to U.S. dollars based on the exchange rates on that day. The cost of each
security is determined using historical exchange rates. Income and withholding
taxes are translated at prevailing exchange rates when earned or incurred.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, forward foreign currency contracts, sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains or losses arise from changes in the
value of assets and liabilities other than investments in securities at year
end, resulting from changes in exchange rates.
(C) REPURCHASE AGREEMENTS
With respect to repurchase agreements entered into by the Fund, it is the Fund's
policy to always receive, as collateral, United States government securities or
other high quality debt securities of which the value, including accrued
interest, is at least equal to the amount to be repaid to the Fund under each
agreement at its maturity.
(D) FORWARD FOREIGN CURRENCY CONTRACTS
A forward foreign currency contract ("Forward Contract") is an agreement between
two parties to buy and sell a currency at a set price on a future date. The
market value of the Forward Contract
FS-98
<PAGE> 1199
fluctuates with changes in currency exchange rates. The Forward Contract is
marked-to-market daily and the change in market value is recorded by the Fund as
an unrealized gain or loss. When the Forward Contract is closed, the Fund
records a realized gain or loss equal to the difference between the value at the
time it was opened and the value at the time it was closed. Forward Contracts
involve market risk in excess of the amount shown in the Fund's "Statement of
Assets and Liabilities". The Fund could be exposed to risk if a counter party is
unable to meet the terms of the contract or if the value of the currency changes
unfavorably. The Fund may enter into Forward Contracts in connection with
planned purchases or sales of securities, or to hedge against adverse
fluctuations in exchange rates between currencies.
(E) OPTION ACCOUNTING PRINCIPLES
When the Fund writes a call or put option, an amount equal to the premium
received is included in the Fund's "Statement of Assets and Liabilities" as an
asset and an equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option. The current
market value of an option listed on a traded exchange is valued at its last bid
price, or, in the case of an over-the-counter option, is valued at the average
of the last bid prices obtained from brokers, unless a quotation from only one
broker is available, in which case only that broker's price will be used. If an
option expires on its stipulated expiration date or if the Fund enters into a
closing purchase transaction, a gain or loss is realized without regard to any
unrealized gain or loss on the underlying security and the liability related to
such option is extinguished. If a written call option is exercised, a gain or
loss is realized from the sale of the underlying security and the proceeds of
the sale are increased by the premium originally received. If a written put
option is exercised, the cost of the underlying security purchased would be
decreased by the premium originally received. The Fund can write options only on
a covered basis, which, for a call, requires that the Fund hold the underlying
security and, for a put, requires the Fund to set aside cash, U.S. government
securities or other liquid securities in an amount not less than the exercise
price, or otherwise provide adequate cover at all times while the put option is
outstanding. The Fund may use options to manage its exposure to the stock market
and to fluctuations in currency values or interest rates.
The premium paid by the Fund for the purchase of a call or put option is
included in the Fund's "Statement of Assets and Liabilities" as an investment
and subsequently "marked-to-market" to reflect the current market value of the
option. If an option which the Fund has purchased expires on the stipulated
expiration date, the Fund realizes a loss in the amount of the cost of the
option. If the Fund enters into a closing sale transaction, the Fund realizes a
gain or loss, depending on whether proceeds from the closing sale transaction
are greater or less than the cost of the option. If the Fund exercises a call
option, the cost of the securities acquired by exercising the call is increased
by the premium paid to buy the call. If the Fund exercises a put option, it
realizes a gain or loss from the sale of the underlying security, and the
proceeds from such sale are decreased by the premium originally paid.
The risk associated with purchasing options is limited to the premium originally
paid. The risk in writing a call option is that the Fund may forego the
opportunity of profit if the market value of the underlying security or index
increases and the option is exercised. The risk in writing a put option is that
the Fund may incur a loss if the market value of the underlying security or
index decreases and the option is exercised. In addition, there is the risk the
Fund may not be able to enter into a closing transaction because of an illiquid
secondary market.
(F) FUTURES CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
security at a set price on a future date. Upon entering into such a contract the
Fund is required to pledge to the broker an amount of cash or securities equal
to the minimum "initial margin" requirements of the exchange on which the
contract is traded. Pursuant to the contract, the Fund agrees to receive from or
pay to the broker an amount of cash equal to the daily fluctuation in value of
the contract. Such receipts or payments are known as "variation margin" and are
recorded by the Fund as unrealized gains or losses. When the contract is closed,
the Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the time it was
closed. The potential risk to the Fund is that the change in value of the
underlying securities may not correlate to the change in value of the contracts.
The Fund may use futures contracts to manage its exposure to the stock market
and to fluctuations in currency values or interest rates.
(G) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). The cost of securities sold is determined on a first-in,
first-out-basis, unless otherwise specified. Dividends are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. Where a high
level of uncertainty exists as to its collection, income is recorded net of all
withholding tax with any rebate recorded when received. The Fund may trade
securities on other than normal settlement terms. This may increase the risk if
the other party to the transaction fails to deliver and causes the Fund to
subsequently invest at less advantageous prices.
(H) PORTFOLIO SECURITIES LOANED
At October 31, 1998, stocks with an aggregate value of $131,247,071 were on loan
to brokers. The loans were secured by cash collateral of $135,796,495 received
by the Fund. For the year ended October 31, 1998, the Fund received fees of
$1,645,390.
For international securities, cash collateral is received by the Fund against
loaned securities in an amount at least equal to 105% of the market value of the
loaned securities at the inception of each loan. This collateral must be
maintained at not less than 103% of the market value of the loaned securities
during the period of the loan. For domestic securities, cash collateral is
received by the Fund against loaned securities in the amount at least equal to
102% of the market value of the loaned securities at the inception of each loan.
This collateral must be maintained at not less than 100% of the market value of
the loaned securities during the period of the loan. The cash
FS-99
<PAGE> 1200
collateral is invested in a securities lending trust which consists of a
portfolio of high quality short duration securities whose average effective
duration is restricted to 120 days or less.
(I) TAXES
It is the intended policy of the Fund to meet the requirements for qualification
as a "regulated investment company" under the Internal Revenue Code of 1986, as
amended ("Code"). It is also the intention of the Fund to make distributions
sufficient to avoid imposition of any excise tax under Section 4982 of the Code.
Therefore, no provision has been made for Federal taxes on income, capital
gains, unrealized appreciation of securities held, or excise tax on income and
capital gains.
(J) DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded by the Fund on the ex-date. Income
and capital gain distributions are determined in accordance with Federal income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Fund and timing differences.
(K) FOREIGN SECURITIES
There are certain additional considerations and risks associated with investing
in foreign securities and currency transactions that are not inherent in
investments of domestic origin. The Fund's investment in emerging market
countries may involve greater risks than investments in more developed markets
and the price of such investments may be volatile. These risks of investing in
foreign and emerging markets may include foreign currency exchange rate
fluctuations, perceived credit risk, adverse political and economic developments
and possible adverse foreign government intervention.
In addition, the Fund's policy of concentrating its investments in companies in
the telecommunications industry subject the Fund to greater risk than a fund
that is more diversified.
(L) INDEXED SECURITIES
The Fund may invest in indexed securities whose value is linked either directly
or indirectly to changes in foreign currencies, interest rates, equities,
indices, or other reference instruments. Indexed securities may be more volatile
than the reference instrument itself, but any loss is limited to the amount of
the original investment.
(M) RESTRICTED SECURITIES
The Fund is permitted to invest in privately placed restricted securities. These
securities may be resold in transactions exempt from registration or to the
public if the securities are registered. Disposal of these securities may
involve time-consuming negotiations and expense, and prompt sale at an
acceptable price may be difficult. At the end of the year, restricted
securities, if any, (excluding 144A issues), are shown at the end of the Fund's
Portfolio of Investments.
(N) LINE OF CREDIT
The Fund, along with certain other funds advised and/or administered by the
Manager, has a line of credit with each of BankBoston and State Street Bank and
Trust Company. The arrangements with the banks allow the Fund and certain other
Funds to borrow, on a first come, first serve basis, an aggregate maximum amount
of $250,000,000. The Fund is limited to borrowing up to 33 1/3% of the value of
the Fund's total assets. At October 31, 1998, the Fund had no loans outstanding.
For the year ended October 31, 1998, the weighted average outstanding daily
balance of bank loans (based on the number of days the loans were outstanding)
was $11,141,844, with a weighted average interest rate of 6.30%. Interest
expense for the year ended October 31, 1998 was $62,397 and is included in
"Other Expenses" on the Statement of Operations.
2. RELATED PARTIES
A I M Advisors, Inc. (the "Manager"), an indirect wholly-owned subsidiary of
AMVESCAP PLC, is the Fund's investment manager and administrator. As of the
close of business on May 29, 1998, Liechtenstein Global Trust AG ("LGT"), the
former indirect parent organization of Chancellor LGT Asset Management, Inc.
("Chancellor LGT") consummated a purchase agreement with AMVESCAP PLC pursuant
to which AMVESCAP PLC acquired LGT's Asset Management Division, which included
Chancellor LGT and certain other affiliates. A I M Distributors, Inc. ("AIM
Distributors"), a wholly-owned subsidiary of the Manager, is the Fund's
distributor as of the close of business on May 29, 1998. The Trust was
reorganized from a Maryland corporation into a Delaware business trust on
September 8, 1998. Finally, as of the close of business on September 4, 1998,
A I M Fund Services, Inc. ("AFS"), an affiliate of the Manager and AIM
Distributors, replaced GT Global Investor Services, Inc. ("GT Services") as the
transfer agent of the Fund.
The Fund pays investment management and administration fees to the Manager at
the annualized rate of 0.975% on the first $500 million of average daily net
assets of the Fund; 0.95% on the next $500 million; 0.925% on the next $500
million; and 0.90% on amounts thereafter. These fees are computed daily and paid
monthly.
AIM Distributors, an affiliate of the Manager, serves as the Fund's distributor.
For the period ended May 29, 1998, GT Global, Inc. ("GT Global") served as the
Fund's distributor. The Fund offers Class A, Class B, and Advisor Class shares
for purchase.
Class A shares are subject to initial sales charges imposed at the time of
purchase, in accordance with the schedule included in the Fund's current
prospectus. AIM Distributors collects the sales charges imposed on sales of
Class A shares, and reallows a portion of such charges to dealers through which
the sales are made. For the year ended October 31, 1998. AIM Distributors and GT
Global retained sales charges of $36,792 and $44,312, respectively. Purchases of
Class A shares exceeding $1,000,000 may be subject to a contingent deferred
sales charge ("CDSC") upon redemption, in accordance with the Fund's current
prospectus. AIM Distributors and GT Global collected CDSCs for the year ended
October 31, 1998 of $1,565 and $28,868, respectively. AIM Distributors also
makes ongoing shareholder servicing and trail commission payments to dealers
whose clients hold Class A shares.
FS-100
<PAGE> 1201
Class B shares are not subject to initial sales charges. When Class B shares are
sold, AIM Distributors, from its own resources, pays commissions to dealers
through which the sales are made. Certain redemptions of Class B shares made
within six years of purchase are subject to CDSCs, in accordance with the Fund's
current prospectus. For the year ended October 31, 1998, AIM Distributors and GT
Global collected CDSCs in the amount of $896,639 and $2,022,934, respectively.
In addition, AIM Distributors makes ongoing shareholder servicing and trail
commission payments to dealers whose clients hold Class B shares.
For the period ended May 29, 1998, pursuant to the then effective separate
distribution plans adopted under the 1940 Act Rule 12b-1 by the Trust's Board of
Trustees with respect to the Fund's Class A shares ("Class A Plan") and Class B
shares ("Class B Plan"), the Fund reimbursed GT Global for a portion of its
shareholder servicing and distribution expenses. Under the Class A Plan, the
Fund was permitted to pay GT Global a service fee at the annualized rate of up
to 0.25% of the average daily net assets of the Fund's Class A shares for GT
Global's expenditures incurred in servicing and maintaining shareholder
accounts, and was permitted to pay GT Global a distribution fee at the
annualized rate of up to 0.50% of the average daily net assets of the Fund's
Class A shares, less any amounts paid by the Fund as the aforementioned service
fee, for GT Global's expenditures incurred in providing services as distributor.
All expenses for which GT Global was reimbursed under the Class A Plan would
have been incurred within one year of such reimbursement.
For the period ended May 29, 1998, pursuant to the Class B Plan, the Fund was
permitted to pay GT Global a service fee at the annualized rate of up to 0.25%
of the average daily net assets of the Fund's Class B shares for GT Global's
expenditures incurred in servicing and maintaining shareholder accounts, and was
permitted to pay GT Global a distribution fee at the annualized rate of up to
0.75% of the average daily net assets of the Fund's Class B shares for GT
Global's expenditures incurred in providing services as distributor. Expenses
incurred under the Class B Plan in excess of 1.00% annually were permitted to be
carried forward for reimbursement in subsequent years as long as that Plan
continued in effect.
Effective as of the close of business May 29, 1998, pursuant to Rule 12b-1 under
the 1940 Act, the Trust's Board of Trustees adopted a Master Distribution Plan
applicable to the Fund's Class A shares ("Class A Plan") and Class B shares
("Class B Plan"), pursuant to which the Fund compensates AIM Distributors for
the purpose of financing any activity that is intended to result in the sale of
Class A or Class B shares of the Fund. Under the Class A Plan, the Fund
compensates AIM Distributors at the annualized rate of 0.50% of the average
daily net assets of the Fund's Class A shares. Under the Class B Plan, the Fund
compensates AIM Distributors at an annualized rate of 1.00% of the average daily
net assets of the Fund's Class B shares.
The Class A Plan and the Class B Plan (together, the "Plans") are designed to
compensate AIM Distributors for certain promotional and other sales-related
costs, and to implement a dealer incentive program that provides for periodic
payments to selected dealers who furnish continuing personal shareholder
services to their customers who purchase and own Class A and Class B shares of
the Fund. Payments also can be directed by AIM Distributors to financial
institutions who have entered into service agreements with respect to Class A
and Class B shares of the Fund and who provide continuing personal services to
their customers who own Class A and Class B shares of the Fund. The service fees
payable to selected financial 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 that were purchased on or after a
prescribed date set forth in the Plans.
The Manager and AIM Distributors voluntarily have undertaken to limit the Fund's
expenses (exclusive of brokerage commissions, taxes, interest, and extraordinary
expense) to the maximum annual rate of 2.00%, 2.50%, and 1.50% of the average
daily net assets of the Fund's Class A, Class B, and Advisor Class shares,
respectively. If necessary, this limitation will be effected by waivers by the
Manager of investment management and administration fees, waivers by AIM
Distributors of payments under the Class A Plan and/or Class B Plan and/or
reimbursements by the Manager or AIM Distributors of portions of the Fund's
other operating expenses.
Effective as of the close of business September 4, 1998, the Fund, pursuant to a
transfer agency and service agreement, has agreed to pay A I M Fund Services,
Inc. ("AFS") an annualized fee of $24.85 per shareholder accounts that are open
during any monthly period (this fee includes all out-of-pocket expenses), and an
annualized fee of $0.70 per shareholder account that is closed during any
monthly period. Both fees shall be billed by AFS monthly in arrears on a
prorated basis of 1/12 of the annualized fee for all such accounts.
For the period November 1, 1997 to September 4, 1998, GT Services, an affiliate
of the Manager and AIM Distributors, was the transfer agent of the Fund. For
performing shareholder servicing, reporting, and general transfer agent
services, GT Services received an annual maintenance fee of $17.50 per account,
a new account fee of $4.00 per account, a per transaction fee of $1.75 for all
transactions other than exchanges and a per exchange fee of $2.25. GT Services
also was reimbursed by the Fund for its out-of-pocket expenses for such items as
postage, forms, telephone charges, stationery and office supplies.
The Manager is the pricing and accounting agent for the Fund. The monthly fee
for these services paid to the Manager is a percentage, not to exceed 0.03%
annually, of a Fund's average daily net assets. The annual fee rate is derived
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% to 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.
FS-101
<PAGE> 1202
The Trust pays each Trustee who is not an employee, officer or director of the
Manager, or any other affiliated company, $5,000 per year plus $300 for each
meeting of the board or any committee thereof attended by the Trustee.
3. PURCHASES AND SALES OF SECURITIES
For the year ended October 31, 1998, purchases and sales of investment
securities by the Fund, other than U.S. government obligations and short-term
investments, aggregated $948,232,105 and $1,382,868,876, respectively. For the
year ended October 31, 1998, purchases and sales of U.S. government obligations
aggregated $59,707,960 and $0, respectively.
4. CAPITAL SHARES
At October 31, 1998, there were 6,000,000,000 shares of the Trust's common stock
authorized, at $0.0001 par value. Of this amount, 400,000,000 were classified as
shares of the AIM Global Telecommunications Fund; 400,000,000 were classified as
shares of AIM Global Government Income Fund; 200,000,000 were classified as
shares of AIM Global Health Care Fund; 200,000,000 were classified as shares of
AIM Strategic Income Fund; 200,000,000 were classified as shares of AIM
Developing Markets Fund; 200,000,000 were classified as shares of GT Global
Currency Fund (inactive); 200,000,000 were classified as shares of AIM Global
Growth & Income Fund; 200,000,000 were classified as shares of GT Global Small
Companies Fund (inactive); 200,000,000 were classified as shares of AIM Latin
American Growth Fund; 200,000,000 were classified as shares of AIM Emerging
Markets Fund; 200,000,000 were classified as shares of AIM Emerging Markets Debt
Fund; 200,000,000 were classified as shares of AIM Global Financial Services
Fund; 200,000,000 were classified as shares of AIM Global Resources Fund;
200,000,000 were classified as shares of AIM Global Infrastructure Fund;
200,000,000 were classified as shares of AIM Global Consumer Products and
Services Fund. The shares of each of the foregoing series of the Trust's were
divided equally into two classes, designated Class A and Class B common stock.
With respect to the issuance of Advisor Class shares, 100,000,000 shares were
classified as shares of each of the fifteen series of the Trust's and designated
as Advisor Class common stock. 1,100,000,000 shares remain unclassified.
Transactions in capital shares of the Fund were as follows:
CAPITAL SHARE TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997
------------------------------ -----------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------ ------------- --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Shares sold................................................. 108,008,301 $ 1,941,688,002 86,491,272 $ 1,449,735,933
Shares issued in connection with reinvestment of
distributions............................................. 3,004,072 49,839,899 4,872,560 77,134,577
------------- --------------- ------------ ---------------
111,012,373 1,991,527,901 91,363,832 1,526,870,510
Shares repurchased.......................................... (117,654,141) (2,131,610,935) (113,032,156) (1,893,258,359)
------------- --------------- ------------ ---------------
Net decrease................................................ (6,641,768) $ (140,083,034) (21,668,324) $ (366,387,849)
------------- --------------- ------------ ---------------
------------- --------------- ------------ ---------------
<CAPTION>
CLASS B
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold................................................. 10,070,976 $ 179,810,719 9,249,969 $ 152,245,081
Shares issued in connection with reinvestment of
distributions............................................. 2,786,131 44,943,256 4,413,826 68,371,781
------------- --------------- ------------ ---------------
12,857,107 224,753,975 13,663,795 220,616,862
Shares repurchased.......................................... (19,680,426) (345,310,805) (29,383,147) (477,593,385)
------------- --------------- ------------ ---------------
Net decrease................................................ (6,823,319) $ (120,556,830) (15,719,352) $ (256,976,523)
------------- --------------- ------------ ---------------
------------- --------------- ------------ ---------------
<CAPTION>
ADVISOR CLASS
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold................................................. 3,217,206 $ 58,029,142 2,029,510 $ 36,070,768
Shares issued in connection with reinvestment of
distributions............................................. 14,131 237,955 11,071 176,806
------------- --------------- ------------ ---------------
3,231,337 58,267,097 2,040,581 36,247,574
Shares repurchased.......................................... (3,206,646) (58,360,056) (1,835,151) (32,553,269)
------------- --------------- ------------ ---------------
Net increase (decrease)..................................... 24,691 $ (92,959) 205,430 $ 3,694,305
------------- --------------- ------------ ---------------
------------- --------------- ------------ ---------------
</TABLE>
FS-102
<PAGE> 1203
5. EXPENSE REDUCTIONS
The Manager has directed certain portfolio trades to brokers who then paid a
portion of the Fund's expenses. For the year ended October 31, 1998, the Fund's
expenses were reduced by $109,953 under these arrangements.
6. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
Investments of 5% or more of an issuer's outstanding voting securities by the
Fund are defined in the Investment Company Act of 1940 as an affiliated company.
At October 31, 1998 the Fund owned no investments in affiliated companies.
Transactions with affiliated companies for the year are as follows:
<TABLE>
<CAPTION>
NET REALIZED
PURCHASES COST SALES PROCEEDS GAIN (LOSS) DIVIDEND INCOME
-------------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Champion Technology Holdings Ltd.................. $ 3,417,731 $ 3,098,253 $ (13,662,219) $ 55,192
Echostar Communications Corp. "A"................. -- -- -- --
Millicom International Cellular S.A............... 5,887,008 6,681,341 2,990,814 --
Orbital Sciences Corp............................. -- 49,451,312 19,414,579 --
Three-Five Systems, Inc........................... -- 3,600,294 (6,737,052) --
</TABLE>
7. PROXY RESULTS (UNAUDITED)
The Special Meeting of Shareholders of the G.T. Investment Funds, Inc. now known
as AIM Investment Funds (the "Trust") was held on May 20, 1998 at the Trust's
offices, 50 California Street, 26th Floor, San Francisco, California. The
meeting was held for the following purposes:
(1) To elect Trustees as follows: C. Derek Anderson, Frank S. Bayley, William
J. Guilfoyle, Arthur C. Patterson, Ruth H. Quigley.
(2) To approve a new Investment Management and Administration Contract and
Sub-Advisory and Sub-Administration Contract with respect to each series of
the Trust (each, a "Fund," and collectively, the "Funds").
(3) To approve replacement Rule 12b-1 plans of distribution with respect to
Class A and B Shares of the Fund.
(4) To approve changes to the fundamental investment restrictions of the Fund.
(5) To approve an agreement and plan of conversion and termination for the
Trust.
(6) To ratify the selection of Coopers & Lybrand, now known as
PricewaterhouseCoopers LLP, as the Trust's independent public accountants.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
TRUSTEE/MATTER
----------------------------------------------------------------------------------------------------------------
<S> <C>
(1) C. Derek Anderson...............................................................................................
Frank S. Bayley.................................................................................................
William J. Guilfoyle............................................................................................
Arthur C. Patterson.............................................................................................
Ruth H. Quigley.................................................................................................
(2)(a) Approval of investment management and administration contract...................................................
(2)(b) Approval of sub-advisory and sub-administration contract........................................................
(3) Approval of replacement Rule 12b-1 plans of distribution
CLASS A SHARES..................................................................................................
CLASS B SHARES..................................................................................................
(4)(a) Modification of Fundamental Restriction on Portfolio Diversification............................................
(4)(b) Modification of Fundamental Restriction on Issuing Senior Securities and Borrowing Money........................
(4)(c) Modification of Fundamental Restriction on Making Loans.........................................................
(4)(d) Modification of Fundamental Restriction on Underwriting Securities..............................................
(4)(e) Modification of Fundamental Restriction on Real Estate Investments..............................................
(4)(f) Modification of Fundamental Restriction on Investing in Commodities.............................................
(4)(g) Elimination of Fundamental Restriction on Margin Transactions...................................................
(4)(h) Elimination of Fundamental Restriction on Pledging Assets.......................................................
(4)(i) Elimination of Fundamental Restriction on Investment in Oil, Gas and Mineral Leases and Programs................
(4)(j) Approval of New Fundamental Investment Policy Regarding Investment of All of Each Fund's Assets in an Open-End
Fund..........................................................................................................
(5) Approval of an agreement and plan of conversion and termination with respect to the Trust.......................
(6) Ratification of the selection of Coopers and Lybrand, now known as PricewaterhouseCoopers LLP, as the Trust's
Independent Public Accountants................................................................................
<CAPTION>
VOTES WITHHELD/
VOTES FOR AGAINST ABSTENTIONS
--------------- ------------ --------------
<S> <C> <C> <C>
(1) 191,685,088 N/A 13,123,292
191,766,811 N/A 13,041,568
191,828,959 N/A 12,979,420
191,845,270 N/A 12,963,109
191,869,887 N/A 12,938,492
(2)(a) 34,387,274 1,226,472 12,894,821*
(2)(b) 34,024,097 1,418,923 13,065,547*
(3)
22,543,757 917,090 2,176,036
20,212,179 746,999 1,830,786
(4)(a) 33,672,510 1,600,402 13,235,655*
(4)(b) 33,673,644 1,599,268 13,235,655*
(4)(c) 33,674,165 1,598,747 13,235,655*
(4)(d) 33,675,313 1,597,599 13,235,655*
(4)(e) 33,673,936 1,598,976 13,235,655*
(4)(f) 33,667,659 1,605,253 13,235,655*
(4)(g) 33,660,368 1,612,544 13,235,655*
(4)(h) 33,669,714 1,603,198 13,235,655*
(4)(i) 33,675,877 1,597,035 13,235,655*
(4)(j)
33,663,325 1,609,587 13,235,655*
(5) 190,027,469 6,362,084 94,055,040*
(6)
191,358,779 2,114,168 11,333,063
</TABLE>
- --------------
* Includes Broker Non-Votes
FS-103
<PAGE> 1204
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, dated May 7, 1998, 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, dated August 12, 1998, was filed
as an Exhibit to Post-Effective Amendment No. 56, on December 30, 1998 and is hereby
incorporated by reference.
(3) - Second Amendment to Agreement and Declaration of Trust of Registrant, dated December 10, 1998, is filed
herewith electronically.
(b) (1) - 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.
(b) (2) - Amendment No. 1 to the By-Laws of Registrant is filed herewith electronically.
(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.
</TABLE>
C-1
<PAGE> 1205
<TABLE>
<S> <C> <C> <C>
- (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.
(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.
(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.
(9) Form of Sub-Advisory Contract between A I M Advisors, Inc.
and INVESCO (NY), Inc. with respect to Registrant is filed herewith
electronically.
(10) Form of Sub-Advisory Contract between A I M Advisors, Inc.
and INVESCO Asset Management Limited with respect to Registrant is filed
herewith electronically.
(11) Form of Sub-Advisory Contract between A I M Advisors, Inc.
and INVESCO Asset Management Limited with respect to Emerging Markets Debt
Portfolio is filed herewith electronically.
(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.
</TABLE>
C-2
<PAGE> 1206
<TABLE>
<S> <C> <C> <C>
(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.
(g) (1) - Custodian Contract, dated April 27, 1988, between Registrant and State Street Bank
and Trust Company was filed as an Exhibit to Post-Effective Amendment No. 56, on
December 30, 1998 and is hereby incorporated by reference.
(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 was filed as
an Exhibit to Post-Effective Amendment No. 56, on December 30, 1998 and is hereby
incorporated by reference.
(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 was
filed as an Exhibit to Post-Effective Amendment No. 56, on December 30, 1998 and
is hereby incorporated by reference.
(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 was
filed as an Exhibit to Post-Effective Amendment No. 56, on December 30, 1998 and
is hereby incorporated by reference.
(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 was
filed as an Exhibit to Post-Effective Amendment No. 56, on December 30, 1998 and
is hereby incorporated by reference.
(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 was filed as
an Exhibit to Post-Effective Amendment No. 56, on December 30, 1998 and is hereby
incorporated by reference.
(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 was filed as
an Exhibit to Post-Effective Amendment No. 56, on December 30, 1998 and is hereby
incorporated by reference.
(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 was
filed as an Exhibit to Post-Effective Amendment No. 56, on December 30, 1998 and
is hereby incorporated by reference.
(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 was filed as
an Exhibit to Post-Effective Amendment No. 56, on December 30, 1998 and is hereby
incorporated by reference.
(10) - Amendment to Custodian Contract, dated August 17, 1994, was filed as an Exhibit to
Post-Effective Amendment No. 56, on December 30, 1998 and is hereby incorporated
by reference.
(11) - Amendment to Custodian Contract, dated June 20, 1995, was filed as an Exhibit to
Post-Effective Amendment No. 56, on December 30, 1998 and is hereby incorporated
by reference.
</TABLE>
C-3
<PAGE> 1207
<TABLE>
<S> <C> <C> <C>
(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 was
filed as an Exhibit to Post-Effective Amendment No. 56, on December 30, 1998 and
is hereby incorporated by reference.
(13) - Notice of Registrant's reorganization, dated September 22, 1998, to Custodian was
filed as an Exhibit to Post-Effective Amendment No. 56, on December 30, 1998 and
is hereby incorporated by reference.
(14) - Amendment to Custodian Contract, dated January 26, 1999, 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. was filed as an Exhibit to Post-Effective Amendment
No. 56, on December 30, 1998 and is hereby incorporated by reference.
- (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.
- (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 and
is hereby incorporated by reference.
- (vii) Amendment No. 4, dated June 30, 1998, to the Remote Access and Related Services
Agreement, dated December 23, 1994, and is hereby incorporated by reference.
- (viii) Amendment No. 5, dated July 1, 1998, to the Remote Access and Related Services
Agreement, dated December 23, 1994, and is hereby incorporated by reference.
(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.
(4) - Fund Accounting and Pricing Agent Agreement between Registrant and A I M Advisors,
Inc. is filed herewith electronically.
(i) (1) - 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 were filed as an Exhibit to Post-Effective
Amendment No. 56, on December 30, 1998 and is hereby incorporated by reference.
(j) - Consent of PricewaterhouseCoopers LLP.
</TABLE>
C-4
<PAGE> 1208
<TABLE>
<S> <C>
(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 was filed as an Exhibit to Post-Effective
Amendment No. 56, on December 30, 1998.
- (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 was filed as an Exhibit to Post-Effective Amendment No. 56, on
December 30, 1998 and is hereby incorporated by reference.
(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.
(n) - Financial Data Schedules are filed herewith electronically.
(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
C-5
<PAGE> 1209
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, as amended, 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.
A I M Advisors, Inc. ("AIM"), the Registrant and other investment
companies managed by AIM their respective officers, trustees, directors
and employees (the "Insured Parties") are insured under a joint Mutual
Fund and Investment Advisory Professional and Directors and Officers
Liability Policy, issued by ICI Mutual Insurance Company, with a
$35,000,000 limit of liability.
Section 9 of the Investment Management and Administration Contract
between the Registrant and AIM provides that AIM shall not be liable,
and each series of the Registrant shall indemnify AIM and its directors,
officers and employees, for any costs or liabilities arising from any
error of judgment or mistake of law or any loss suffered by any series
of the Registrant or the Registrant in connection with the matters to
which the Investment Management and Administration Contract relates
except a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of AIM in the performance by AIM of its duties or
from reckless disregard by AIM of its obligations and duties under the
Investment Management and Administration Contract.
Section 7 of the Sub-Advisory Contract between AIM and INVESCO (NY),
Inc. and Section 7 of the Sub-Advisory Contract between AIM and INVESCO
Asset Management Limited (collectively, the "Sub-Advisory Contracts")
provide that the Sub-advisors shall not be liable for any costs or
liabilities arising from any error of judgment or mistake or law or any
loss suffered by any series of the Registrant or the Registrant in
connection with the matters to which the Sub-Advisory Contracts relate
except a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Sub-advisors in the performance by the
Sub-advisors of their duties or from reckless disregard by the
Sub-advisors of their obligations and duties under the Sub-Advisory
Contracts.
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., INVESCO (NY), Inc. and
INVESCO Asset Management Limited is included in Schedule A and Schedule
D of Part I of each entity's Form ADV (File No. 801-12313, File No.
801-10254 and File No. 8-50197, respectively), filed with the Securities
and Exchange Commission, which are incorporated herein by reference
thereto.
C-6
<PAGE> 1210
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 Portfolios
AIM Investment Securities Funds (Retail Classes)
AIM Series Trust
AIM Special Opportunities Funds
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 Trustees None
Michael J. Cemo President & Trustee None
Gary T. Crum Trustee Vice President
Robert H. Graham Senior Vice President & Trustee Chairman & President
William G. Littlepage Senior Vice President & Trustee None
James L. Salners Executive Vice President None
John Caldwell Senior Vice President None
Marilyn M. Miller Senior Vice President None
Gordon J. Sprague Senior Vice President None
Michael C. Vessels Senior Vice President None
Gene L. Needles Senior Vice President None
B.J. Thompson First Vice President None
James R. Anderson Vice President None
Mary K. Coleman Vice President None
Mary A. Corcoran Vice President None
Melville B. Cox Vice President & Chief Vice President
Compliance Officer
</TABLE>
- ----------
* 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173
C-7
<PAGE> 1211
<TABLE>
<CAPTION>
Name and Principal Position and Offices Position and Offices
Business Address* with Underwriter with Fund
- ----------------- ---------------- ---------
<S> <C> <C>
Sidney M. Dilgren Vice President None
Tony D. Green Vice President None
Dawn M. Hawley Vice President & Treasurer 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
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
Mary E. Gentempo Assistant Vice President None
Kathryn A. Jordan Assistant Vice President None
Mary C. Mangham Assistant Vice President None
Kim T. McAuliffe Assistant Vice President None
Ivy B. McLemore Assistant Vice President None
David B. O'Neil Assistant Vice President None
Rebecca Starling-Klatt Assistant Vice President None
Nicholas D. White Assistant Vice President None
Norman W. Woodson Assistant Vice President None
</TABLE>
- ----------
* 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173
C-8
<PAGE> 1212
<TABLE>
<CAPTION>
<S> <C> <C>
Nancy L. Martin Assistant General Counsel Assistant Secretary
& Assistant Secretary
Samuel D. Sirko Assistant General Counsel Secretary
& Assistant Secretary
P. Michelle Grace Assistant Secretary None
Lisa A. Moss Assistant Secretary None
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-9
<PAGE> 1213
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of the Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and 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 22nd day of
February, 1999.
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 February 22, 1999
(Robert H. Graham) (Principal Executive Officer)
/s/ C. DEREK ANDERSON
--------------------------------- Trustee February 22, 1999
(C. Derek Anderson)
/s/ FRANK S. BAYLEY
--------------------------------- Trustee February 22, 1999
(Frank S. Bayley)
/s/ ARTHUR C. PATTERSON
--------------------------------- Trustee February 22, 1999
(Arthur C. Patterson)
/s/ RUTH H. QUIGLEY
--------------------------------- Trustee February 22, 1999
(Ruth H. Quigley)
/s/ KENNETH W. CHANCEY Vice President &
--------------------------------- Principal Financial February 22, 1999
(Kenneth W. Chancey) and Accounting Officer
</TABLE>
<PAGE> 1214
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 22nd day of February, 1999.
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 February 22, 1999
(Robert H. Graham) (Principal Executive Officer)
/s/ C. DEREK ANDERSON
--------------------------------- Trustee February 22, 1999
(C. Derek Anderson)
/s/ FRANK S. BAYLEY
--------------------------------- Trustee February 22, 1999
(Frank S. Bayley)
/s/ ARTHUR C. PATTERSON
--------------------------------- Trustee February 22, 1999
(Arthur C. Patterson)
/s/ RUTH H. QUIGLEY
--------------------------------- Trustee February 22, 1999
(Ruth H. Quigley)
/s/ KENNETH W. CHANCEY Vice President &
--------------------------------- Principal Financial February 22, 1999
(Kenneth W. Chancey) and Accounting Officer
</TABLE>
<PAGE> 1215
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 22nd day of February, 1999.
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 February 22, 1999
(Robert H. Graham) (Principal Executive Officer)
/s/ C. DEREK ANDERSON
--------------------------------- Trustee February 22, 1999
(C. Derek Anderson)
/s/ FRANK S. BAYLEY
--------------------------------- Trustee February 22, 1999
(Frank S. Bayley)
/s/ ARTHUR C. PATTERSON
--------------------------------- Trustee February 22, 1999
(Arthur C. Patterson)
/s/ RUTH H. QUIGLEY
--------------------------------- Trustee February 22, 1999
(Ruth H. Quigley)
/s/ KENNETH W. CHANCEY Vice President &
--------------------------------- Principal Financial February 22, 1999
(Kenneth W. Chancey) and Accounting Officer
</TABLE>
<PAGE> 1216
INDEX TO EXHIBITS
AIM INVESTMENT FUNDS
<TABLE>
<CAPTION>
Exhibit Number
- --------------
<S> <C>
(a)(3) Form of Second Amendment to Agreement and Declaration of Trust of Registrant
(b)(2) Amendment No. 1 to By-Laws of Registrant
(d)(9) Form of Sub-Advisory Contract between A I M Advisors, Inc. and INVESCO (NY),
Inc. with respect to Registrant
(d)(10) Form of Sub-Advisory Contract between A I M Advisors, Inc. and INVESCO Asset
Management Limited with respect to Registrant
(d)(11) Form of Sub-Advisory Contract between A I M Advisors, Inc. and INVESCO Asset
Management Limited with respect to Emerging Markets Debt Portfolio
(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)(14) Amendment to Custodian Contract between Registrant and State Street Bank and Trust Company
(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)(4) Fund Accounting and Pricing Agent Agreement between Registrant and A I M Advisors, Inc.
(i)(1) Consent of Kirkpatrick & Lockhart LLP
(j) Consent of PricewaterhouseCoopers LLP
(m)(1)(ii) Form of Master Distribution Plan, pursuant to Rule 12b-1 with respect to Class A and C 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
(n) Financial Data Schedules
</TABLE>
<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 10th day of December,
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 10th day of December,
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: December 10, 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 this Amendment to Agreement and Declaration of Trust
of AIM Investment Funds as of the day and year first above written.
/s/ C. DEREK ANDERSON /s/ FRANK S. BAYLEY
- -------------------------- -----------------------------
C. Derek Anderson, Trustee Frank S. Bayley, Trustee
/s/ ROBERT H. GRAHAM /s/ ARTHUR C. PATTERSON
- -------------------------- -----------------------------
Robert H. Graham, Trustee Arthur C. Patterson, Trustee
/s/ RUTH H. QUIGLEY
- --------------------------
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 (b)(2)
AMENDMENT NO. 1
TO
BYLAWS
OF
AIM INVESTMENT FUNDS
EFFECTIVE: DECEMBER 10, 1998
Article IV, Section 1 of the ByLaws of AIM Investment Funds (the
"Trust") is amended by replacing the third and fourth sentences
thereof with the following sentence:
At all meetings of the shareholders, every shareholder of
record entitled to vote thereat shall be entitled to vote
either in person or by proxy, which term shall include
proxies provided through written, electronic, telephonic,
computerized, facsimile, telecommunications, telex or oral
communication or by any other form of communication, each
pursuant to such voting procedures and through such
systems as are authorized by the Trustees or one or more
executive officers of the Trust.
<PAGE> 1
EXHIBIT (d)(9)
AIM INVESTMENT FUNDS
SUB-ADVISORY CONTRACT
BETWEEN
A I M ADVISORS, INC.
AND
INVESCO (NY), INC.
Contract made as of December 14, 1998, between A I M Advisors, Inc., a
Delaware corporation ("Adviser"), and INVESCO (NY), Inc., a California
corporation ("Sub-Adviser").
WHEREAS Adviser has entered into an Investment Management and
Administration Contract with AIM Investment Funds ("Company"), an open-end
management investment company registered under the Investment Company Act of
1940, as amended ("1940 Act"), with respect AIM Strategic Income Fund (the
"Fund"), such Fund being a series of the Company's shares of beneficial
interest; and
WHEREAS Adviser desires to retain Sub-Adviser as sub-adviser to furnish
certain advisory services to the Fund, and Sub-Adviser is willing to furnish
such services;
NOW THEREFORE, in consideration of the promises and the mutual
covenants herein contained, it is agreed between the parties hereto as follows:
1. Appointment. Adviser hereby appoints Sub-Adviser as sub-adviser of the Fund
for the period and on the terms set forth in this Contract. Sub-Adviser accepts
such appointment and agrees to render the services herein set forth, for the
compensation herein provided.
2. Duties as Sub-Adviser.
(a) Subject to the supervision of the Company's Board of Trustees
("Board") and Adviser, the Sub-Adviser will provide a continuous investment
program for the Fund, including investment research and management, with respect
to all securities and investments and cash equivalents of the Fund. The
Sub-Adviser will determine from time to time what securities and other
investments will be purchased, retained or sold by the Fund, and the brokers and
dealers through whom trades will be executed.
(b) The Sub-Adviser agrees that, in placing orders with brokers and
dealers, it will attempt to obtain the best net result in terms of price and
execution. Consistent with this obligation, the Sub-Adviser may, in its
discretion, purchase and sell portfolio securities from and to brokers and
dealers who sell shares of the Fund or provide the Fund, Adviser's other
clients, or Sub-Adviser's other clients with research, analysis, advice and
similar services. The Sub-Adviser may pay to brokers and dealers, in return for
such research and analysis, a higher commission or spread than may be charged by
other brokers and dealers, subject to the Sub-Adviser determining in good faith
that such commission or spread is reasonable in terms either of the particular
transaction or of the overall responsibility of the
1
<PAGE> 2
Adviser and the Sub-Adviser to the Fund and their other clients and that the
total commissions or spreads paid by the Fund will be reasonable in relation to
the benefits to the Fund over the long term. In no instance will portfolio
securities be purchased from or sold to the Sub-Adviser, or any affiliated
person thereof, except in accordance with the federal securities laws and the
rules and regulations thereunder and any exemptive orders currently in effect.
Whenever the Sub-Adviser simultaneously places orders to purchase or sell the
same security on behalf of the Fund and one or more other accounts advised by
the Sub-Adviser, such orders will be allocated as to price and amount among all
such accounts in a manner believed to be equitable to each account.
(c) The Sub-Adviser will maintain all books and records with respect to
the securities transactions of the Fund, and will furnish the Board and Adviser
with such periodic and special reports as the Board or Adviser reasonably may
request. In compliance with the requirements of Rule 31a-3 under the 1940 Act,
the Sub-Adviser hereby agrees that all records which it maintains for the
Company are the property of the Company, agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act any records which it maintains for
the Company and which are required to be maintained by Rule 31a-1 under the 1940
Act, and further agrees to surrender promptly to the Company any records which
it maintains for the Company upon request by the Company.
3. Further Duties. In all matters relating to the performance of this Contract,
Sub-Adviser will act in conformity with the Agreement and Declaration of Trust,
By-Laws and Registration Statement of the Company and with the instructions and
directions of the Board and will comply with the requirements of the 1940 Act,
the rules thereunder, and all other applicable federal and state laws and
regulations.
4. Services Not Exclusive. The services furnished by Sub-Adviser hereunder are
not to be deemed exclusive and Sub-Adviser shall be free to furnish similar
services to others so long as its services under this Contract are not impaired
thereby. Nothing in this Contract shall limit or restrict the right of any
director, officer or employee of Sub-Adviser, who may also be a Trustee, officer
or employee of the Company, to engage in any other business or to devote his or
her time and attention in part to the management or other aspects of any other
business, whether of a similar nature or a dissimilar nature.
5. Expenses.
(a) During the term of this Contract, the Fund will bear all expenses,
not specifically assumed by Adviser and Sub-Adviser, incurred in its operations
and the offering of its shares.
(b) Expenses borne by the Fund will include but not be limited to the
following: (i) all direct charges relating to the purchase and sale of portfolio
securities, including the cost (including brokerage commissions, if any) of
securities purchased or sold by the Fund and any losses incurred in connection
therewith; (ii) fees payable to and expenses incurred on behalf of the Fund by
Sub-Adviser under this Contract; (iii) investment consulting fees
2
<PAGE> 3
and related costs; (iv) expenses of organizing the Company and the Fund; (v)
expenses of preparing and filing reports and other documents with governmental
and regulatory agencies; (vi) filing fees and expenses relating to the
registration and qualification of the Fund's shares and the Company under
federal and/or state securities laws and maintaining such registrations and
qualifications; (vii) costs incurred in connection with the issuance, sale or
repurchase of the Fund's shares of beneficial interest; (viii) fees and salaries
payable to the Company's Trustees who are not parties to this Contract or
interested persons of any such party ("Independent Trustees"); (ix) all expenses
incurred in connection with the Independent Trustees' services, including travel
expenses; (x) taxes (including any income or franchise taxes) and governmental
fees; (xi) costs of any liability, uncollectible items of deposit and other
insurance and fidelity bonds; (xii) any costs, expenses or losses arising out of
a liability of or claim for damages or other relief asserted against the Company
or the Fund for violation of any law; (xiii) interest charges; (xiv) legal,
accounting and auditing expenses, including legal fees of special counsel for
the Independent Trustees; (xv) charges of custodians, transfer agents, pricing
agents and other agents; (xvi) expenses of disbursing dividends and
distributions; (xvii) costs of preparing share certificates; (xviii) expenses of
setting in type, printing and mailing prospectuses and supplements thereto,
statements of additional information, reports, notices and proxy materials for
existing shareholders; (xix) any extraordinary expenses (including fees and
disbursements of counsel, costs of actions, suits or proceedings to which the
Company is a party and the expenses the Company may incur as a result of its
legal obligation to provide indemnification to its officers, Trustees, employees
and agents) incurred by the Company; (xx) fees, voluntary assessments and other
expenses incurred in connection with membership in investment company
organizations; (xxi) costs of mailing and tabulating proxies and costs of
meetings of shareholders, the Board and any committees thereof; (xxii) the cost
of investment company literature and other publications provided by the Company
to its Trustees and officers; and (xxiii) costs of mailing, stationery and
communications equipment.
(c) The payment or assumption by Sub-Adviser of any expense of the
Company or the Fund that Sub-Adviser is not required by this Contract to pay or
assume shall not obligate Sub-Adviser to pay or assume the same or any similar
expense of the Company or the Fund on any subsequent occasion.
6. Compensation.
(a) For the services provided to the Fund under this Contract, Adviser
will pay Sub-Adviser a fee, computed weekly and paid monthly, as set forth in
Appendix A hereto.
(b) For the services provided under this Contract to the Fund as
hereafter may be established, Adviser will pay to Sub-Adviser a fee in an amount
to be agreed upon in a written Appendix to this Contract executed by Adviser and
by Sub-Adviser.
(c) The fee shall be computed weekly and paid monthly to Sub-Adviser on
or before the last business day of the next succeeding calendar month.
3
<PAGE> 4
(d) If this Contract becomes effective or terminates before the end of
any month, the fee for the period from the effective date to the end of the
month or from the beginning of such month to the date of termination, as the
case may be, shall be prorated according to the proportion which such period
bears to the full month in which such effectiveness or termination occurs.
7. Limitation of Liability of Sub-Adviser and Indemnification. Sub-Adviser shall
not be liable for any costs or liabilities arising from any error of judgment or
mistake of law or any loss suffered by the Fund or the Company in connection
with the matters to which this Contract relates except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of Sub-Adviser in
the performance by Sub-Adviser of its duties or from reckless disregard by
Sub-Adviser of its obligations and duties under this Contract. Any person, even
though also an officer, partner, employee, or agent of Sub-Adviser, who may be
or become a Trustee, officer, employee or agent of the Company, shall be deemed,
when rendering services to the Fund or the Company or acting with respect to any
business of the Fund or the Company to be rendering such service to or acting
solely for the Fund or the Company and not as an officer, partner, employee, or
agent or one under the control or direction of Sub-Adviser even though paid by
it.
8. Duration and Termination.
(a) This Contract shall become effective upon the date hereabove
written, provided that this Contract shall not take effect with respect to the
Fund unless it has first been approved (i) by a vote of a majority of the
Independent Trustees, cast in person at a meeting called for the purpose of
voting on such approval, and (ii) by vote of a majority of the Fund's
outstanding voting securities, when required by the 1940 Act.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for two years from the above written date. Thereafter, if not
terminated, with respect to the Fund, this Contract shall continue automatically
for successive periods not to exceed twelve months each, provided that such
continuance is specifically approved at least annually (i) by a vote of a
majority of the Independent Trustees, cast in person at a meeting called for the
purpose of voting on such approval, and (ii) by the Board or by vote of a
majority of the outstanding voting securities of the Fund.
(c) Notwithstanding the foregoing, with respect to any Fund this
Contract may be terminated at any time, without the payment of any penalty, by
vote of the Board or by a vote of a majority of the outstanding voting
securities of the Fund on sixty days' written notice to Sub-Adviser or by
Sub-Adviser at any time, without the payment of any penalty, on sixty days'
written notice to the Company. This Contract will automatically terminate in the
event of its assignment.
9. Amendment. No provision of this Contract may be changed, waived, discharged
or terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought, and no amendment
4
<PAGE> 5
of this Contract shall be effective until approved by vote of a majority of the
Fund's outstanding voting securities, when required by the 1940 Act.
10. Governing Law. This Contract shall be construed in accordance with the laws
of the State of Delaware (without regard to Delaware conflict or choice of law
provisions) and the 1940 Act. To the extent that the applicable laws of the
State of Delaware conflict with the applicable provisions of the 1940 Act, the
latter shall control.
11. Miscellaneous. The captions in this Contract are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect. If any provision of this
Contract shall be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Contract shall not be affected thereby. This
Contract shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors. As used in this Contract, the terms
"majority of the outstanding voting securities," "interested person,"
"assignment," "broker," "dealer," "investment adviser," "national securities
exchange," "net assets," "prospectus," "sale," "sell" and "security" shall have
the same meaning as such terms have in the 1940 Act, subject to such exemption
as may be granted by the Securities and Exchange Commission by any rule,
regulation or order. Where the effect of a requirement of the 1940 Act reflected
in any provision of this Contract is made less restrictive by a rule, regulation
or order of the Securities and Exchange Commission, whether of special or
general application, such provision shall be deemed to incorporate the effect of
such rule, regulation or order.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated as of the day and year first above
written.
Attest: A I M ADVISORS, INC.
---------------------------- By:
---------------------------------
Name: Robert H. Graham
Title: President
Attest: INVESCO (NY), INC.
---------------------------- By:
---------------------------------
Name:
Title:
6
<PAGE> 7
APPENDIX A
TO
AIM INVESTMENT FUNDS
SUB-ADVISORY CONTRACT
BETWEEN
A I M ADVISORS, INC.
AND
INVESCO (NY), INC.
AIM STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
NET ASSETS ANNUAL RATE
- ---------- -----------
<S> <C>
First $ 500 million......................................................................... 0.29%
Next $ 1 billion............................................................................ 0.28%
Next $ 1 billion............................................................................ 0.27%
On amounts thereafter....................................................................... 0.26%
</TABLE>
7
<PAGE> 1
EXHIBIT (d)(10)
AIM INVESTMENT FUNDS
SUB-ADVISORY CONTRACT
BETWEEN
A I M ADVISORS, INC.
AND
INVESCO ASSET MANAGEMENT LIMITED
Contract made as of December 14, 1998, between A I M Advisors, Inc., a
Delaware corporation ("Adviser"), and INVESCO Asset Management Limited, a
company organized under the laws of England and Wales ("Sub-Adviser").
WHEREAS Adviser has entered into an Investment Management and
Administration Contract with AIM Investment Funds ("Company"), an open-end
management investment company registered under the Investment Company Act of
1940, as amended ("1940 Act"), with respect to AIM Latin American Growth Fund,
AIM Emerging Markets Fund, AIM Global Growth & Income Fund, AIM Global
Government Income Fund and AIM Developing Markets Fund, each Fund being a series
of the Company's shares of beneficial interest; and
WHEREAS Adviser desires to retain Sub-Adviser as sub-adviser to furnish
certain advisory and administrative services to the Funds, and Sub-Adviser is
willing to furnish such services;
NOW THEREFORE, in consideration of the promises and the mutual
covenants herein contained, it is agreed between the parties hereto as follows:
1. Appointment. Adviser hereby appoints Sub-Adviser as sub-adviser of each Fund
for the period and on the terms set forth in this Contract. Sub-Adviser accepts
such appointment and agrees to render the services herein set forth, for the
compensation herein provided.
2. Duties as Sub-Adviser.
(a) Subject to the supervision of the Company's Board of Trustees
("Board") and Adviser, the Sub-Adviser will provide a continuous investment
program for each Fund, including investment research and management, with
respect to all securities and investments and cash equivalents of the Fund. The
Sub-Adviser will determine from time to time what securities and other
investments will be purchased, retained or sold by each Fund, and the brokers
and dealers through whom trades will be executed.
(b) The Sub-Adviser agrees that, in placing orders with brokers and
dealers, it will attempt to obtain the best net result in terms of price and
execution. Consistent with this obligation, the Sub-Adviser may, in its
discretion, purchase and sell portfolio securities from and to brokers and
dealers who sell shares of the Funds or provide the Funds, Adviser's other
clients, or Sub-Adviser's other clients with research, analysis, advice and
similar services. The Sub-Adviser may pay to brokers and dealers, in return for
such
1
<PAGE> 2
research and analysis, a higher commission or spread than may be charged by
other brokers and dealers, subject to the Sub-Adviser determining in good faith
that such commission or spread is reasonable in terms either of the particular
transaction or of the overall responsibility of the Adviser and the Sub-Adviser
to the Funds and their other clients and that the total commissions or spreads
paid by each Fund will be reasonable in relation to the benefits to the Fund
over the long term. In no instance will portfolio securities be purchased from
or sold to the Sub-Adviser, or any affiliated person thereof, except in
accordance with the federal securities laws and the rules and regulations
thereunder and any exemptive orders currently in effect. Whenever the
Sub-Adviser simultaneously places orders to purchase or sell the same security
on behalf of a Fund and one or more other accounts advised by the Sub-Adviser,
such orders will be allocated as to price and amount among all such accounts in
a manner believed to be equitable to each account.
(c) The Sub-Adviser will maintain all books and records with respect to
the securities transactions of the Funds, and will furnish the Board and Adviser
with such periodic and special reports as the Board or Adviser reasonably may
request. In compliance with the requirements of Rule 31a-3 under the 1940 Act,
the Sub-Adviser hereby agrees that all records which it maintains for the
Company are the property of the Company, agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act any records which it maintains for
the Company and which are required to be maintained by Rule 31a-1 under the 1940
Act, and further agrees to surrender promptly to the Company any records which
it maintains for the Company upon request by the Company.
3. Further Duties. In all matters relating to the performance of this Contract,
Sub-Adviser will act in conformity with the Agreement and Declaration of Trust,
By-Laws and Registration Statement of the Company and with the instructions and
directions of the Board and will comply with the requirements of the 1940 Act,
the rules thereunder, and all other applicable federal and state laws and
regulations.
4. Services Not Exclusive. The services furnished by Sub-Adviser hereunder are
not to be deemed exclusive and Sub-Adviser shall be free to furnish similar
services to others so long as its services under this Contract are not impaired
thereby. Nothing in this Contract shall limit or restrict the right of any
director, officer or employee of Sub-Adviser, who may also be a Trustee, officer
or employee of the Company, to engage in any other business or to devote his or
her time and attention in part to the management or other aspects of any other
business, whether of a similar nature or a dissimilar nature.
5. Expenses.
(a) During the term of this Contract, each Fund will bear all expenses,
not specifically assumed by Adviser and Sub-Adviser, incurred in its operations
and the offering of its shares.
(b) Expenses borne by each Fund will include but not be limited to the
following: (i) all direct charges relating to the purchase and sale of portfolio
securities,
2
<PAGE> 3
including the cost (including brokerage commissions, if any) of securities
purchased or sold by the Fund and any losses incurred in connection therewith;
(ii) fees payable to and expenses incurred on behalf of the Fund by Sub-Adviser
under this Contract; (iii) investment consulting fees and related costs; (iv)
expenses of organizing the Company and the Fund; (v) expenses of preparing and
filing reports and other documents with governmental and regulatory agencies;
(vi) filing fees and expenses relating to the registration and qualification of
the Fund's shares and the Company under federal and/or state securities laws and
maintaining such registrations and qualifications; (vii) costs incurred in
connection with the issuance, sale or repurchase of the Fund's shares of
beneficial interest; (viii) fees and salaries payable to the Company's Trustees
who are not parties to this Contract or interested persons of any such party
("Independent Trustees"); (ix) all expenses incurred in connection with the
Independent Trustees' services, including travel expenses; (x) taxes (including
any income or franchise taxes) and governmental fees; (xi) costs of any
liability, uncollectible items of deposit and other insurance and fidelity
bonds; (xii) any costs, expenses or losses arising out of a liability of or
claim for damages or other relief asserted against the Company or the Fund for
violation of any law; (xiii) interest charges; (xiv) legal, accounting and
auditing expenses, including legal fees of special counsel for the Independent
Trustees; (xv) charges of custodians, transfer agents, pricing agents and other
agents; (xvi) expenses of disbursing dividends and distributions; (xvii) costs
of preparing share certificates; (xviii) expenses of setting in type, printing
and mailing prospectuses and supplements thereto, statements of additional
information, reports, notices and proxy materials for existing shareholders;
(xix) any extraordinary expenses (including fees and disbursements of counsel,
costs of actions, suits or proceedings to which the Company is a party and the
expenses the Company may incur as a result of its legal obligation to provide
indemnification to its officers, Trustees, employees and agents) incurred by the
Company; (xx) fees, voluntary assessments and other expenses incurred in
connection with membership in investment company organizations; (xxi) costs of
mailing and tabulating proxies and costs of meetings of shareholders, the Board
and any committees thereof; (xxii) the cost of investment company literature and
other publications provided by the Company to its Trustees and officers; and
(xxiii) costs of mailing, stationery and communications equipment.
(c) The payment or assumption by Sub-Adviser of any expense of the
Company or any Fund that Sub-Adviser is not required by this Contract to pay or
assume shall not obligate Sub-Adviser to pay or assume the same or any similar
expense of the Company or any Fund on any subsequent occasion.
6. Compensation.
(a) For the services provided to a Fund under this Contract, Adviser
will pay Sub-Adviser a fee, computed weekly and paid monthly, as set forth in
Appendix A hereto.
(b) For the services provided under this Contract to each Fund as
hereafter may be established, Adviser will pay to Sub-Adviser a fee in an amount
to be agreed upon in a written Appendix to this Contract executed by Adviser and
by Sub-Adviser.
3
<PAGE> 4
(c) The fee shall be computed weekly and paid monthly to Sub-Adviser on
or before the last business day of the next succeeding calendar month.
(d) If this Contract becomes effective or terminates before the end of
any month, the fee for the period from the effective date to the end of the
month or from the beginning of such month to the date of termination, as the
case may be, shall be prorated according to the proportion which such period
bears to the full month in which such effectiveness or termination occurs.
7. Limitation of Liability of Sub-Adviser and Indemnification. Sub-Adviser shall
not be liable for any costs or liabilities arising from any error of judgment or
mistake of law or any loss suffered by the Fund or the Company in connection
with the matters to which this Contract relates except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of Sub-Adviser in
the performance by Sub-Adviser of its duties or from reckless disregard by
Sub-Adviser of its obligations and duties under this Contract. Any person, even
though also an officer, partner, employee, or agent of Sub-Adviser, who may be
or become a Trustee, officer, employee or agent of the Company, shall be deemed,
when rendering services to a Fund or the Company or acting with respect to any
business of a Fund or the Company to be rendering such service to or acting
solely for the Fund or the Company and not as an officer, partner, employee, or
agent or one under the control or direction of Sub-Adviser even though paid by
it.
8. Duration and Termination.
(a) This Contract shall become effective upon the date hereabove
written, provided that this Contract shall not take effect with respect to any
Fund unless it has first been approved (i) by a vote of a majority of the
Independent Trustees, cast in person at a meeting called for the purpose of
voting on such approval, and (ii) by vote of a majority of that Fund's
outstanding voting securities, when required by the 1940 Act.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for two years from the above written date. Thereafter, if not
terminated, with respect to each Fund, this Contract shall continue
automatically for successive periods not to exceed twelve months each, provided
that such continuance is specifically approved at least annually (i) by a vote
of a majority of the Independent Trustees, cast in person at a meeting called
for the purpose of voting on such approval, and (ii) by the Board or by vote of
a majority of the outstanding voting securities of that Fund.
(c) Notwithstanding the foregoing, with respect to any Fund this
Contract may be terminated at any time, without the payment of any penalty, by
vote of the Board or by a vote of a majority of the outstanding voting
securities of the Fund on sixty days' written notice to Sub-Adviser or by
Sub-Adviser at any time, without the payment of any penalty, on sixty days'
written notice to the Company. Termination of this Contract with respect to
4
<PAGE> 5
one Fund shall not affect the continued effectiveness of this Contract with
respect to any other Fund. This Contract will automatically terminate in the
event of its assignment.
9. Amendment. No provision of this Contract may be changed, waived, discharged
or terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought, and no amendment of this Contract shall be effective until approved by
vote of a majority of the Fund's outstanding voting securities, when required by
the 1940 Act.
10. Governing Law. This Contract shall be construed in accordance with the laws
of the State of Delaware (without regard to Delaware conflict or choice of law
provisions) and the 1940 Act. To the extent that the applicable laws of the
State of Delaware conflict with the applicable provisions of the 1940 Act, the
latter shall control.
11. Miscellaneous. The captions in this Contract are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect. If any provision of this
Contract shall be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Contract shall not be affected thereby. This
Contract shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors. As used in this Contract, the terms
"majority of the outstanding voting securities," "interested person,"
"assignment," "broker," "dealer," "investment adviser," "national securities
exchange," "net assets," "prospectus," "sale," "sell" and "security" shall have
the same meaning as such terms have in the 1940 Act, subject to such exemption
as may be granted by the Securities and Exchange Commission by any rule,
regulation or order. Where the effect of a requirement of the 1940 Act reflected
in any provision of this Contract is made less restrictive by a rule, regulation
or order of the Securities and Exchange Commission, whether of special or
general application, such provision shall be deemed to incorporate the effect of
such rule, regulation or order.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated as of the day and year first above
written.
Attest: A I M ADVISORS, INC.
---------------------------- By:
---------------------------------
Name: Robert H. Graham
Title: President
Attest: INVESCO ASSET MANAGEMENT LIMITED
---------------------------- By:
---------------------------------
Name:
Title:
6
<PAGE> 7
APPENDIX A
TO
AIM INVESTMENT FUNDS
SUB-ADVISORY CONTRACT
BETWEEN
A I M ADVISORS, INC.
AND
INVESCO ASSET MANAGEMENT LIMITED
AIM LATIN AMERICAN GROWTH FUND, AIM EMERGING MARKETS FUND, AIM GLOBAL
GROWTH & INCOME FUND, AIM DEVELOPING MARKETS FUND
<TABLE>
<CAPTION>
NET ASSETS ANNUAL RATE
- ---------- -----------
<S> <C>
First $ 500 million..................................................................... 0.39%
Next $ 500 million...................................................................... 0.38%
Next $ 500 million...................................................................... 0.37%
On amounts thereafter................................................................... 0.36%
</TABLE>
AIM GLOBAL GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
NET ASSETS ANNUAL RATE
- ---------- -----------
<S> <C>
First $ 500 million..................................................................... 0.29%
Next $ 1 billion........................................................................ 0.28%
Next $ 1 billion........................................................................ 0.27%
On amounts thereafter................................................................... 0.26%
</TABLE>
7
<PAGE> 1
EXHIBIT (d)(11)
EMERGING MARKETS DEBT PORTFOLIO
SUB-ADVISORY CONTRACT
BETWEEN
A I M ADVISORS, INC.
AND
INVESCO ASSET MANAGEMENT LIMITED
Contract made as of December 14, 1998, between A I M Advisors, Inc., a
Delaware corporation ("Adviser"), and INVESCO Asset Management Limited, a
company organized under the laws of England and Wales ("Sub-Adviser").
WHEREAS Adviser has entered into an Investment Management and
Administration Contract with Emerging Markets Debt Portfolio ("Company"), an
open-end management investment company registered under the Investment Company
Act of 1940, as amended ("1940 Act"); and
WHEREAS Adviser desires to retain Sub-Adviser as sub-adviser to furnish
certain advisory services to the Company, and Sub-Adviser is willing to furnish
such services;
NOW THEREFORE, in consideration of the promises and the mutual
covenants herein contained, it is agreed between the parties hereto as follows:
1. Appointment. Adviser hereby appoints Sub-Adviser as sub-adviser of the
Company for the period and on the terms set forth in this Contract. Sub-Adviser
accepts such appointment and agrees to render the services herein set forth, for
the compensation herein provided.
2. Duties as Sub-Adviser.
(a) Subject to the supervision of the Company's Board of Trustees
("Board") and Adviser, the Sub-Adviser will provide a continuous investment
program for the Company, including investment research and management, with
respect to all securities and investments and cash equivalents of the Company.
The Sub-Adviser will determine from time to time what securities and other
investments will be purchased, retained or sold by the Company, and the brokers
and dealers through whom trades will be executed.
(b) The Sub-Adviser agrees that, in placing orders with brokers and
dealers, it will attempt to obtain the best net result in terms of price and
execution. Consistent with this obligation, the Sub-Adviser may, in its
discretion, purchase and sell portfolio securities from and to brokers and
dealers who sell shares of the Company or provide the Company,
1
<PAGE> 2
Adviser's other clients, or Sub-Adviser's other clients with research, analysis,
advice and similar services. The Sub-Adviser may pay to brokers and dealers, in
return for such research and analysis, a higher commission or spread than may be
charged by other brokers and dealers, subject to the Sub-Adviser determining in
good faith that such commission or spread is reasonable in terms either of the
particular transaction or of the overall responsibility of the Adviser and the
Sub-Adviser to the Company and their other clients and that the total
commissions or spreads paid by the Company will be reasonable in relation to the
benefits to the Company over the long term. In no instance will portfolio
securities be purchased from or sold to the Sub-Adviser, or any affiliated
person thereof, except in accordance with the federal securities laws and the
rules and regulations thereunder and any exemptive orders currently in effect.
Whenever the Sub-Adviser simultaneously places orders to purchase or sell the
same security on behalf of the Company and one or more other accounts advised by
the Sub-Adviser, such orders will be allocated as to price and amount among all
such accounts in a manner believed to be equitable to each account.
(c) The Sub-Adviser will maintain all books and records with respect to
the securities transactions of the Company, and will furnish the Board and
Adviser with such periodic and special reports as the Board or Adviser
reasonably may request. In compliance with the requirements of Rule 31a-3 under
the 1940 Act, the Sub-Adviser hereby agrees that all records which it maintains
for the Company are the property of the Company, agrees to preserve for the
periods prescribed by Rule 31a-2 under the 1940 Act any records which it
maintains for the Company and which are required to be maintained by Rule 31a-1
under the 1940 Act, and further agrees to surrender promptly to the Company any
records which it maintains for the Company upon request by the Company.
3. Further Duties. In all matters relating to the performance of this Contract,
Sub-Adviser will act in conformity with the Agreement and Declaration of Trust,
By-Laws and Registration Statement of the Company and with the instructions and
directions of the Board and will comply with the requirements of the 1940 Act,
the rules thereunder, and all other applicable federal and state laws and
regulations.
4. Services Not Exclusive. The services furnished by Sub-Adviser hereunder are
not to be deemed exclusive and Sub-Adviser shall be free to furnish similar
services to others so long as its services under this Contract are not impaired
thereby. Nothing in this Contract shall limit or restrict the right of any
director, officer or employee of Sub-Adviser, who may also be a Trustee, officer
or employee of the Company, to engage in any other business or to devote his or
her time and attention in part to the management or other aspects of any other
business, whether of a similar nature or a dissimilar nature.
5. Expenses.
(a) During the term of this Contract, the Company will bear all
expenses, not specifically assumed by Sub-Adviser, incurred in its operations.
2
<PAGE> 3
(b) Expenses borne by the Company will include but not be limited to
the following: (i) all direct charges relating to the purchase and sale of
portfolio securities, including the cost (including brokerage commissions, if
any) of securities purchased or sold by the Company and any losses incurred in
connection therewith; (ii) fees payable to and expenses incurred on behalf of
the Company by Sub-Adviser under this Contract; (iii) investment consulting fees
and related costs; (iv) expenses of organizing the Company; (v) expenses of
preparing and filing reports and other documents with governmental and
regulatory agencies; (vi) filing fees and expenses relating to the registration
and qualification of the Company's shares and the Company under federal and/or
state securities laws and maintaining such registrations and qualifications;
(vii) costs incurred in connection with the issuance, sale or repurchase of the
Company's shares of beneficial interest; (viii) fees and salaries payable to the
Company's Trustees who are not parties to this Contract or interested persons of
any such party ("Independent Trustees"); (ix) all expenses incurred in
connection with the Independent Trustees' services, including travel expenses;
(x) taxes (including any income or franchise taxes) and governmental fees; (xi)
costs of any liability, uncollectible items of deposit and other insurance and
fidelity bonds; (xii) any costs, expenses or losses arising out of a liability
of or claim for damages or other relief asserted against the Company for
violation of any law; (xiii) interest charges; (xiv) legal, accounting and
auditing expenses, including legal fees of special counsel for the Independent
Trustees; (xv) charges of custodians, transfer agents, pricing agents and other
agents; (xvi) expenses of disbursing dividends and distributions; (xvii)
expenses of setting in type, printing and mailing reports, notices and proxy
materials for existing shareholders; (xviii) any extraordinary expenses
(including fees and disbursements of counsel, costs of actions, suits or
proceedings to which the Company is a party and the expenses the Company may
incur as a result of its legal obligation to provide indemnification to its
officers, Trustees, employees and agents) incurred by the Company; (xix) fees,
voluntary assessments and other expenses incurred in connection with membership
in investment company organizations; (xx) costs of mailing and tabulating
proxies and costs of meetings of shareholders, the Board and any committees
thereof; (xxi) the cost of investment company literature and other publications
provided by the Company to its Trustees and officers; and (xxii) costs of
mailing, stationery and communications equipment.
(c) The payment or assumption by Sub-Adviser of any expense of the
Company that Sub-Adviser is not required by this Contract to pay or assume shall
not obligate Sub-Adviser to pay or assume the same or any similar expense of the
Company on any subsequent occasion.
6. Compensation.
(a) For the services provided to the Company under this Contract,
Adviser will pay Sub-Adviser a fee, computed weekly and paid monthly, as set
forth in Appendix A hereto. Adviser will also pay Sub-Adviser a fee equal to
0.8% of the Company's total investment income calculated in accordance with
generally accepted accounting principles, adjusted daily for currency
revaluations, on a marked to market basis, of the Company's assets; provided,
however, that during any fiscal year this amount shall not exceed 0.8% of
3
<PAGE> 4
the Company's total investment income calculated in accordance with generally
accepted accounting principles.
(b) The fee shall be computed weekly and paid monthly to Sub-Adviser on
or before the last business day of the next succeeding calendar month.
(c) If this Contract becomes effective or terminates before the end of
any month, the fee for the period from the effective date to the end of the
month or from the beginning of such month to the date of termination, as the
case may be, shall be prorated according to the proportion which such period
bears to the full month in which such effectiveness or termination occurs.
7. Limitation of Liability of Sub-Adviser and Indemnification. Sub-Adviser shall
not be liable for any costs or liabilities arising from any error of judgment or
mistake of law or any loss suffered by the Company in connection with the
matters to which this Contract relates except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of Sub-Adviser in the
performance by Sub-Adviser of its duties or from reckless disregard by
Sub-Adviser of its obligations and duties under this Contract. Any person, even
though also an officer, partner, employee, or agent of Sub-Adviser, who may be
or become a Trustee, officer, employee or agent of the Company, shall be deemed,
when rendering services to the Company or acting with respect to any business of
the Company to be rendering such service to or acting solely for the Company and
not as an officer, partner, employee, or agent or one under the control or
direction of Sub-Adviser even though paid by it.
8. Duration and Termination.
(a) This Contract shall become effective upon the date hereabove
written, provided that this Contract shall not take effect unless it has first
been approved (i) by a vote of a majority of the Independent Trustees, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by vote of a majority of the Company's outstanding voting securities, when
required by the 1940 Act.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for two years from the above written date. Thereafter, if not
terminated this Contract shall continue automatically for successive periods not
to exceed twelve months each, provided that such continuance is specifically
approved at least annually (i) by a vote of a majority of the Independent
Trustees, cast in person at a meeting called for the purpose of voting on such
approval, and (ii) by the Board or by vote of a majority of the outstanding
voting securities of the Company.
(c) Notwithstanding the foregoing, this Contract may be terminated at
any time, without the payment of any penalty, by vote of the Board or by a vote
of a majority of the outstanding voting securities of the Company on sixty days'
written notice to Sub-Adviser or by Sub-Adviser at any time, without the payment
of any penalty, on sixty days' written
4
<PAGE> 5
notice to the Company. This Contract will automatically terminate in the event
of its assignment.
9. Amendment. No provision of this Contract may be changed, waived, discharged
or terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought, and no amendment of this Contract shall be effective until approved by
vote of a majority of the Company's outstanding voting securities, when required
by the 1940 Act.
10. Governing Law. This Contract shall be construed in accordance with the laws
of the State of Delaware (without regard to Delaware conflict or choice of law
provisions) and the 1940 Act. To the extent that the applicable laws of the
State of Delaware conflict with the applicable provisions of the 1940 Act, the
latter shall control.
11. Miscellaneous. The captions in this Contract are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect. If any provision of this
Contract shall be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Contract shall not be affected thereby. This
Contract shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors. As used in this Contract, the terms
"majority of the outstanding voting securities," "interested person,"
"assignment," "broker," "dealer," "investment adviser," "national securities
exchange," "net assets," "prospectus," "sale," "sell" and "security" shall have
the same meaning as such terms have in the 1940 Act, subject to such exemption
as may be granted by the Securities and Exchange Commission by any rule,
regulation or order. Where the effect of a requirement of the 1940 Act reflected
in any provision of this Contract is made less restrictive by a rule, regulation
or order of the Securities and Exchange Commission, whether of special or
general application, such provision shall be deemed to incorporate the effect of
such rule, regulation or order.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated as of the day and year first above
written.
A I M ADVISORS, INC.
Attest: By:
---------------------------- ---------------------------------
Name: Robert H. Graham
Title: President
INVESCO ASSET MANAGEMENT LIMITED
Attest: By:
---------------------------- ---------------------------------
Name:
Title:
6
<PAGE> 7
APPENDIX A
TO
SUB-ADVISORY CONTRACT
EMERGING MARKETS DEBT PORTFOLIO
0.8% of the Company's total investment income, plus
<TABLE>
<CAPTION>
NET ASSETS ANNUAL RATE
- ---------- -----------
<S> <C>
First $ 500 million..................................................................... 0.29%
Next $ 1 billion........................................................................ 0.28%
Next $ 1 billion........................................................................ 0.27%
On amounts thereafter................................................................... 0.26%
</TABLE>
7
<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 ______________, 1999, by and
between AIM INVESTMENT FUNDS, a Delaware business trust (the "Company"), with
respect to each of the Class A and Class C shares (the "Class A and C Shares")
of each series of shares of beneficial interest 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 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
CLASS C SHARES
AIM Developing 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
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)(14)
AMENDMENT TO CUSTODIAN CONTRACT
This Amendment to the Custodian Contract is made as of January 26, 1999
by and between AIM Investment Funds (formerly G.T. Investment Funds, Inc., the
"Fund") and State Street Bank and Trust Company (the "Custodian"). Capitalized
terms used in this Amendment without definition shall have the respective
meanings ascribed to such terms in the Custodian Contract referred to below.
WHEREAS, the Fund and the Custodian entered into a Custodian Contract
dated as of April 27, 1988 (as amended and in effect from time to time, the
"Contract"); and
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 the Fund has made AIM Global Government Income
Fund, AIM Strategic Income Fund, AIM Emerging Markets Debt Fund, AIM Global
Growth & Income Fund, AIM Emerging Markets Fund, AIM Developing Markets Fund,
AIM Latin American Growth Fund, AIM Global Financial Services Fund, AIM Global
Health Care Fund, AIM Global Telecommunications Fund, AIM Global Consumer
Products and Services Fund, AIM Global Infrastructure Fund, and AIM Global
Resources Fund subject to the Contract (each such series, together with all
other series subsequently established by the Fund and made subject to the
Contract in accordance with the terms thereof, shall be referred to as a
"Portfolio", and, collectively, the "Portfolios"); and
WHEREAS, the Fund and the Custodian desire to amend certain provisions
of the Contract to reflect revisions to Rule 17f-5 ("Rule 17f-5") promulgated
under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Fund and the Custodian desire to amend and restate certain
other provisions of the Contract relating to the terms and conditions of the
custody of assets of each of the Portfolios held outside of the United States.
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter contained, the parties hereby agree to
amend the Contract, pursuant to the terms thereof, as follows:
I. Article 3 of the Contract is hereby deleted, and Articles 4 through 19 of
the Contract are hereby amended, as of the effective date of this
Amendment, by renumbering same as Articles 5 through 20, respectively.
II. New Articles 3 and 4 of the Contract are hereby added, as of the
effective date of this Amendment, as set forth below.
<PAGE> 2
3. THE CUSTODIAN AS FOREIGN CUSTODY MANAGER.
3.1. DEFINITIONS.
Capitalized terms in this Article 3 of the Contract shall have the following
meanings:
"Country Risk" means all factors reasonably related to the systemic risk of
holding Foreign Assets in a particular country including, but not limited to,
such country's political environment; economic and financial infrastructure
(including any Mandatory Securities Depositories operating in the country);
prevailing or developing custody and settlement practices; laws and regulations
applicable to the safekeeping and recovery of Foreign Assets held in custody in
that country; and factors comprising the "prevailing country risk", including
the effects of foreign law on the safekeeping of Portfolio assets, the
likelihood of expropriation, nationalization, freezing, or confiscation of a
Portfolio's assets and any reasonably foreseeable difficulties in repatriating a
Portfolio's assets.
"Eligible Foreign Custodian" has the meaning set forth in section (a)(1) of Rule
17f-5, including a majority-owned or indirect subsidiary of a U.S. Bank (as
defined in Rule 17f-5), a bank holding company meeting the requirements of an
Eligible Foreign Custodian (as set forth in Rule 17f-5 or by other appropriate
action of the SEC, or a foreign branch of a Bank (as defined in Section 2(a)(5)
of the 1940 Act) meeting the requirements of a custodian under Section 17(f) of
the 1940 Act, except that the term does not include Mandatory Securities
Depositories.
"Foreign Assets" means any of the Portfolio's investments (including foreign
currencies) for which the primary market is outside the United States, currency
contracts that are settled outside the United States and such cash and cash
equivalents as are reasonably necessary to effect the Portfolio's transactions
in such investments.
"Foreign Custody Manager" has the meaning set forth in section (a)(2) of Rule
17f-5.
"Mandatory Securities Depository" means a foreign securities depository or
clearing agency that, either as a legal or practical matter, must be used if the
Fund determines to place Foreign Assets in a country outside the United States
(i) because required by law or regulation; (ii) because securities cannot be
withdrawn from such foreign securities depository or clearing agency; or (iii)
because maintaining or effecting trades in securities outside the foreign
securities depository or clearing agency is not consistent with prevailing or
developing custodial or market practices.
3.2. DELEGATION TO THE CUSTODIAN AS FOREIGN CUSTODY MANAGER.
The Fund, by resolution adopted by its Board of Trustees (the "Board"), hereby
delegates to the Custodian, subject to Section (b) of Rule 17f-5, the
responsibilities set forth in this Article 3 with respect to Foreign Assets held
outside the United States, and the Custodian hereby accepts such delegation, as
Foreign Custody Manager of each Portfolio.
3.3. COUNTRIES COVERED.
<PAGE> 3
The Foreign Custody Manager shall be responsible for performing the delegated
responsibilities defined below only with respect to (a) the countries listed on
Schedule A hereto as approved by the Board, which list of Board-approved
countries may be amended from time to time by the Fund with the agreement of the
Foreign Custody Manager, and (b) the custody arrangements set forth on such
Schedule A. The Foreign Custody Manager shall list on Schedule A the Eligible
Foreign Custodians selected by the Foreign Custody Manager to maintain the
assets of each Portfolio, which list of Eligible Foreign Custodians may be
amended from time to time in the sole discretion of the Foreign Custody Manager.
Mandatory Securities Depositories are listed on Schedule B to this Contract,
which Schedule B may be amended from time to time by the Foreign Custody
Manager. The Foreign Custody Manager will provide amended versions of Schedules
A and B in accordance with Section 3.7 of this Article 3.
Upon the receipt by the Foreign Custody Manager of Proper Instructions to open
an account, or to place or maintain Foreign Assets, in a country listed on
Schedule A, and the fulfillment by the Fund of the account opening requirements
for such country (if any), the Foreign Custody Manager shall be deemed to have
been appointed by the Board as Foreign Custody Manager with respect to that
country and to have accepted the delegation. Execution of this Amendment by the
Fund shall be deemed to be a Proper Instruction to open an account, or to place
or maintain Foreign Assets, in each Board-approved country listed on Schedule A
in which the Custodian has previously placed or currently maintains Foreign
Assets pursuant to the terms of the Contract. Following the receipt of Proper
Instructions directing the Foreign Custody Manager to close the account of a
Portfolio with the Eligible Foreign Custodian selected by the Foreign Custody
Manager in a designated country, the delegation by the Board to the Custodian as
Foreign Custody Manager for that country shall be deemed to have been withdrawn
and the Custodian shall immediately cease to be the Foreign Custody Manager of
the Portfolio with respect to that country.
The Foreign Custody Manager may withdraw its acceptance of delegated
responsibilities with, respect to a designated country upon written notice to
the Fund. Thirty days (or such longer period as to which the parties agree in
writing) after receipt of any such notice by the Fund, the Custodian shall have
no further responsibility as Foreign Custody Manager to a Portfolio with respect
to the country as to which the Custodian's acceptance of delegation is
withdrawn.
3.4. SCOPE OF DELEGATED RESPONSIBILITIES.
3.4.1. SELECTION OF ELIGIBLE FOREIGN CUSTODIANS.
Subject to the provisions of this Article 3, the Foreign Custody Manager may
place and maintain the Foreign Assets in the care of the Eligible Foreign
Custodians selected by the Foreign Custody Manager in each country listed as
"approved" on Schedule A, as such Schedule is amended from time to time.
In performing its delegated responsibilities as Foreign Custody Manager to place
or maintain the Foreign Assets with an Eligible Foreign Custodian, the Foreign
Custody
<PAGE> 4
Manager shall determine that the Foreign Assets will be subject to reasonable
care, based on the standards applicable to custodians in the country in which
the Foreign Assets will be held by that Eligible Foreign Custodian, after
considering all factors relevant to the safekeeping of such assets, including,
without limitation, the factors specified in Rule 17f-5(c)(1).
3.4.2. CONTRACTS WITH ELIGIBLE FOREIGN CUSTODIANS.
The Foreign Custody Manager shall determine that the contract (or the rules or
established practices or procedures in the case of an Eligible Foreign Custodian
that is a foreign securities depository or clearing agency) governing the
foreign custody arrangements with each Eligible Foreign Custodian selected by
the Foreign Custody Manager will satisfy the requirements of Rule 17f-5(c)(2).
3.4.3. MONITORING.
In each case in which the Foreign Custody Manager maintains Foreign Assets with
an Eligible Foreign Custodian, selected by the Foreign Custody Manager, the
Foreign Custody Manager shall maintain a system to monitor (i) the
appropriateness of maintaining the Foreign Assets with such Eligible Foreign
Custodian, and (ii) the contract governing the custody arrangements established
by the Foreign Custody Manager with the Eligible Foreign Custodian (or the rules
or established practices and procedures in the case of an Eligible Foreign
Custodian selected by the Foreign Custody Manager which is a foreign securities
depository or clearing agency that is not a Mandatory Securities Depository).
The Foreign Custody Manager shall provide the Board with information at least
annually as to the factors used in such monitoring system. In the event the
Foreign Custody Manager determines that the custody arrangements with an
Eligible Foreign Custodian that it has selected are no longer appropriate, the
Foreign Custody Manager shall promptly transfer the Fund's Foreign Assets to
another Eligible Foreign Custodian in the market and shall notify the Board in
accordance with Section 3.7 hereunder.
3.5 GUIDELINES FOR THE EXERCISE OF DELEGATED AUTHORITY.
For purposes of this Article 3, the Board shall be deemed to have considered and
determined to accept such Country Risk as is incurred by placing and maintaining
the Foreign Assets in each country for which the Custodian is serving as Foreign
Custody Manager of a Portfolio, and the Board shall be deemed to be monitoring
on a continuing basis such Country Risk to the extent that the Board considers
necessary or appropriate.
Notwithstanding any provision of this Contract to the contrary, the Fund on
behalf of the Portfolios and the Custodian expressly acknowledge and agree that
the Foreign Custody Manager shall not be delegated any responsibilities under
this Article 3 with respect to Mandatory Securities Depositories, and that the
determination by or on behalf of the Board to place the Foreign Assets in a
particular country shall be deemed to include the determination to place such
Foreign Assets eligible for any Mandatory Securities
<PAGE> 5
Depository with such Mandatory Securities Depository, whether the Mandatory
Securities Depository exists at the time the Foreign Assets are acquired, or
after the acquisition thereof.
3.6. STANDARD OF CARE AS FOREIGN CUSTODY MANAGER OF A PORTFOLIO.
In performing the responsibilities delegated to it, the Foreign Custody Manager
shall exercise reasonable care, prudence and diligence such as a person having
responsibility for the safekeeping of assets of management investment companies
registered under the 1940 Act would exercise.
3.7. REPORTING REQUIREMENTS.
The Foreign Custody Manager shall report at least quarterly on the Foreign
Assets held with each Eligible Foreign Custodian and in connection therewith if
applicable, provide to the Board amended Schedules A or B at the end of the
calendar quarter in which an amendment to either Schedule has occurred. The
Foreign Custody Manager will make written reports notifying the Board of any
other material change in the foreign custody arrangements of the Portfolios
described in this Article 3 promptly after the occurrence of the material
change.
3.8. REPRESENTATIONS WITH RESPECT TO RULE 17f-5.
The Foreign Custody Manager represents to the Fund that it is a U.S. Bank as
defined in section (a)(7) of Rule 17f-5.
The Fund represents to the Custodian that the Board has determined that it is
reasonable for the Board to rely on the Custodian to perform the
responsibilities delegated pursuant to this Contract to the Custodian as the
Foreign Custody Manager of each Portfolio.
3.9. EFFECTIVE DATE AND TERMINATION OF THE CUSTODIAN AS FOREIGN CUSTODY
MANAGER.
The Board's delegation to the Custodian as Foreign Custody Manager of a
Portfolio shall be effective as of the date hereof and shall remain in effect
until terminated at any time, without penalty, by written notice from the
terminating party to the non-terminating party. Termination will become
effective thirty days after receipt by the non-terminating party of such notice.
The provisions of Section 3.3 hereof shall govern the delegation to and
termination of the Custodian as Foreign Custody Manager of the Fund with respect
to designated countries.
3.10 FUTURE NEGOTIATIONS.
If at any time prior to termination of this Amendment the Custodian as a matter
of standard business practice, accepts delegation as Foreign Custody Manager for
its U.S. mutual fund clients on terms materially different than set forth in
this Amendment, the Custodian hereby agrees to negotiate with the fund in good
faith with respect thereto.
<PAGE> 6
4. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE PORTFOLIOS HELD
OUTSIDE THE UNITED STATES.
4.1 DEFINITIONS.
Terms used in this Article 4 and not defined below shall have the meanings
ascribed them in the Contract or in this Amendment:
"Foreign Securities System" means either a clearing agency or a securities
depository which is listed on Schedule A hereto or a Mandatory Securities
Depository.
"Foreign Sub-Custodian" means a foreign banking institution serving as an
Eligible Foreign Custodian.
4.2. HOLDING SECURITIES.
The Custodian shall identify on its books as belonging to the Portfolios the
foreign securities held by each Foreign Sub-Custodian or Foreign Securities
System. The Custodian may hold foreign securities for all of its customers,
including the Portfolios, with any Foreign Sub-Custodian in an 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 foreign
securities of the Portfolios which are maintained in such account shall identify
those securities as belonging to the Portfolios and (ii), to the extent
permitted and customary in the market in which the account is maintained, the
Custodian shall require that securities so held by the Foreign Sub-Custodian be
held separately from any assets of such Foreign Sub-Custodian or of other
customers of such Foreign Sub-Custodian.
4.3. FOREIGN SECURITIES SYSTEMS.
Foreign securities shall be maintained in a Foreign Securities System in a
designated country only through arrangements implemented by the Foreign
Sub-Custodian in such country pursuant to the terms of this Contract.
4.4. TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT.
4.4.1. DELIVERY OF FOREIGN ASSETS.
The Custodian or a Foreign Sub-Custodian shall release and deliver foreign
securities of a Portfolio held by such Foreign Sub-Custodian, or in a Foreign
Securities System account, only upon receipt of Proper Instructions, which may
be continuing instructions when deemed appropriate by the parties, and only in
the following cases:
(i) upon sale of such foreign securities for the Portfolio in
accordance with reasonable market practice in the country where
such Foreign Assets are held or traded, including, without
limitation: (A) delivery against
<PAGE> 7
expectation of receiving later payment; or (B), in the case of a
sale effected through a Foreign Securities System, in accordance
with the rules governing the operation of the Foreign Securities
System;
(ii) in connection with any repurchase agreement related to foreign
securities;
(iii) to the depository agent in connection with tender or other
similar offers for foreign securities of the Portfolio;
(iv) to the issuer thereof or its agent when such foreign securities
are called, redeemed, retired or otherwise become payable;
(v) to the issuer thereof, or its agent, for transfer into the name
of the Custodian (or the name of the respective Foreign
Sub-Custodian or of any nominee of the Custodian (or such
Foreign Sub-Custodian)) or for exchange for a different number
of bonds, certificates or other evidence representing the same
aggregate face amount or number of units;
(vi) to brokers, clearing banks or other clearing agents for
examination or trade execution in accordance with reasonable
market practices in the country where such securities are held
or traded; provided that in any such case the Sub-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 Sub-Custodian's
own negligence or willful misconduct;
(vii) 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;
(viii) in the case of warrants, rights or similar foreign securities,
the surrender thereof in the exercise of such warrants, rights
or similar securities or the surrender of interim receipts or
temporary securities for definitive securities;
(ix) for delivery as security in connection with any borrowing by the
Fund requiring a pledge of assets by the Portfolio;
(x) in connection with trading in options and futures contracts,
including delivery as original margin and variation margin;
(xi) in connection with the lending of foreign securities; and
(xii) for any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions, a copy of a resolution
of the Board or of an Executive Committee of the Board so
authorized by the Board, signed by
<PAGE> 8
an officer of the Fund and certified by its Secretary or an
Assistant Secretary that the resolution was duly adopted and is
in full force and effect (a "Certified Resolution"), specifying
the Foreign Assets 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 Foreign Assets shall be made.
4.4.2. PAYMENT OF PORTFOLIO MONIES.
Upon receipt of Proper Instructions, which may be continuing instructions when
deemed appropriate by the parties, the Custodian shall pay out, or direct the
respective Foreign Sub-Custodian or the respective Foreign Securities System to
pay out, moneys of a Portfolio in the following cases only:
(i) upon the purchase of foreign securities for the Portfolio,
unless otherwise directed by Proper Instructions, in accordance
with reasonable market settlement practice in the country where
such foreign securities are held or traded, including, without
limitation: (A) delivering money to the seller thereof or to a
dealer therefor (or an agent for such seller or dealer) against
expectation of receiving later delivery of such foreign
securities; or (B) in the case of a purchase effected through a
Foreign Securities System, in accordance with the rules
governing the operation of such Foreign Securities System;
(ii) in connection with the conversion, exchange or surrender of
foreign securities of the Portfolio;
(iii) for the payment of any expense or liability of the Portfolio
including but not limited to the following payments: interest,
taxes, investment advisory fees, transfer agency fees, fees
under this Contract, legal fees, accounting fees, and other
operating expenses;
(iv) for the purchase or sale of foreign exchange or foreign exchange
contracts for the Portfolio, including transactions executed
with or through the Custodian or its Foreign Sub-Custodians;
(v) in connection with trading in options and futures contracts,
including delivery as original margin and variation margin,
(vii) in connection with the borrowing or lending of foreign
securities; and
(viii) for any other proper purpose, but only upon receipt of, in
addition to Proper Instructions, a Certified Resolution
specifying the amount of such payment, 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.
<PAGE> 9
4.4.3. MARKET CONDITIONS; MARKET INFORMATION.
Notwithstanding any provision of this Contract to the contrary, settlement and
payment for Foreign Assets received for the account of a Portfolio and delivery
of Foreign Assets maintained for the account of a Portfolio may be effected in
accordance with the customary established securities trading or processing
practices and procedures in the country or market in which the transaction
occurs generally accepted by Institutional Clients, including, without
limitation, delivering Foreign Assets 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 Foreign Assets from such
purchaser or dealer, For purposes of this Contract, "Institutional Clients"
means U.S. registered investment companies or major U.S. based commercial banks,
insurance companies, pension funds or substantially similar institutions which,
as a part of their ordinary business operations, purchase or sell securities and
make use of global custody services.
The Custodian shall provide to the Board the information with respect to custody
and settlement practices in countries in which the Custodian employs a Foreign
Sub-Custodian, including without limitation information relating to Foreign
Securities Systems, described on Schedule C hereto at the time or times set
forth on such Schedule. The Custodian may revise Schedule C from time to time,
provided that no such revision shall result in the Board being provided with
substantively less information than had been previously provided hereunder and,
provided further, that the Custodian shall in any event provide to the Board and
to A I M Advisors, Inc. annually the following information and opinions with
respect to the Board-approved countries listed on Schedule A:
(i) legal opinions relating to whether local law restricts with
respect to U.S. registered mutual funds (a) access of a fund's
independent public accountants to books and records of a Foreign
Sub-Custodian or Foreign Securities System, (b) a fund's ability
to recover in the event of bankruptcy or insolvency of a Foreign
Sub-Custodian or Foreign Securities System, (c) a fund's ability
to recover in the event of a loss by a Foreign Sub-Custodian or
Foreign Securities System, and (d) the ability of a foreign
investor to convert cash and cash equivalents to U.S. dollars;
(ii) summary of information regarding Foreign Securities Systems; and
(iii) country profile information containing market practice for (a)
delivery versus payment, (b) settlement method, (c) currency
restrictions, (d) buy-in practices, (e) foreign ownership
limits, and (f) unique market arrangements.
<PAGE> 10
4.5. REGISTRATION OF FOREIGN SECURITIES.
The foreign securities maintained in the custody of a Foreign Custodian (other
than bearer securities) shall be registered in the name of the Fund (on behalf
of the applicable Portfolio) or in the name of the Custodian or in the name of
any Foreign Sub-Custodian or in the name of any nominee of the foregoing, and
the Fund agrees to hold any such nominee harmless from any liability as a holder
of record of such foreign securities, except to the extent that the Fund incurs
loss or damage due to failure of such nominee to meet its standard of care as
set forth in the Contract. The Custodian or a Foreign Sub-Custodian shall not be
obligated to accept securities on behalf of the Fund (on behalf of the
applicable Portfolio) under the terms of this Contract unless the form of such
securities and the manner in which they are delivered are in accordance with
reasonable market practice.
4.6. BANK ACCOUNTS.
The Custodian shall identify on its books as belonging to a Portfolio cash
(including cash denominated in foreign currencies) deposited with the Custodian.
Where the Custodian is unable to maintain, or market practice does not
facilitate the maintenance of, cash on the books of the Custodian, a bank
account or bank accounts opened and maintained outside the United States on
behalf of a Portfolio with a Foreign Sub-Custodian shall be subject only to
draft or order by the Custodian or such Foreign Sub-Custodian, acting pursuant
to the terms of this Contract to hold cash received by or from or for the
account of the Portfolio.
4.7. COLLECTION OF INCOME.
The Custodian shall use reasonable commercial efforts to collect all dividends,
income and other payments with respect to the Foreign Assets held hereunder to
which a Portfolio shall be entitled and shall credit such income, as collected,
to the Portfolio. In the event the Custodian or a Foreign Sub-Custodian must
use measures beyond those which are customary in a particular country to collect
such payments, the Fund and the Custodian shall consult as to such measures and
as to the compensation and expenses of the Custodian attendant thereto.
4.8. SHAREHOLDER RIGHTS.
With respect to the foreign securities held under this Article 4, the Custodian
will use commercially reasonable efforts to facilitate the exercise by the Fund
on behalf of the Portfolios of voting and other shareholder rights, subject
always to the laws, regulations and practical constraints that may obtain in the
country where such securities are issued. The Fund acknowledges that local
conditions, including lack of regulation, onerous procedural obligations, lack
of notice and other factors may have the effect of severely limiting the ability
of the Fund to exercise shareholder rights.
<PAGE> 11
4.9. COMMUNICATIONS RELATING TO FOREIGN SECURITIES.
The Custodian shall transmit promptly to the Fund written information
(including, without limitation, pendency of calls and maturities of foreign
securities and expirations of rights in connection therewith) received by the
Custodian via the Foreign Sub-Custodians from issuers of the foreign securities
being held for the account of a Portfolio. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Fund written information so
received by the Custodian from issuers of the foreign securities whose tender or
exchange is sought or from the party (or its agents) making the tender or
exchange offer. Subject to the standard of care to which the Custodian is held
under this Contract, the Custodian shall not be liable for any untimely exercise
of any tender, exchange or other right or power in connection with foreign
securities or other property of the Portfolio at any time held by it unless (i)
the Custodian or the respective Foreign Sub-Custodian is in actual possession of
such foreign securities or property and (ii) the Custodian receives Proper
Instructions with regard to the exercise of any such right or power, and both
(i) and (ii) occur at least two New York business days prior to the date on
which the Custodian is to take action to exercise such right or power.
4.10. LIABILITY OF FOREIGN SUB-CUSTODIANS AND FOREIGN SECURITIES SYSTEMS.
Each agreement pursuant to which the Custodian employs a Foreign Sub-Custodian
shall, to the extent possible consistent with prevailing market practice,
require the Foreign Sub-Custodian to exercise reasonable care in the performance
of its duties and to indemnify, and hold harmless, the Custodian from and
against any loss, damage, cost, expense, liability or claim arising out of or in
connection with such Foreign Sub-Custodian's performance of such obligations. At
the election of the Fund, the Fund shall be entitled to be subrogated to the
rights of the Custodian with respect to any claims against a Foreign
Sub-Custodian as a consequence of any such loss, damage, cost, expense,
liability or claim if and to the extent that the Fund and any applicable
Portfolio has not been made whole for any such loss, damage, cost, expense,
liability or claim.
4.11. TAX LAW.
The Custodian shall have no responsibility or liability for any obligations now
or hereafter imposed on the Fund or the Custodian as custodian of the Portfolios
by the tax law of the United States or of any state or political subdivision
thereof. With respect to jurisdictions other than the United States, the sole
responsibility of the Custodian with regard to the tax law of any such
jurisdiction shall be to use reasonable efforts to (a) notify the Fund of the
obligations imposed on the Fund with respect to the Portfolios or the Custodian
as custodian of such Portfolios by the tax law of such jurisdictions, including
responsibility for withholding and other taxes, assessment or other governmental
charges, certifications and government reporting and (b) perform such
ministerial steps as are required to collect any tax refund, to ascertain the
appropriate rate of tax withholding and to provide such documents as may be
required to enable each Fund to receive appropriate tax treatment under
applicable tax laws and any applicable treaty provisions. The Custodian, in
performance of its duties under this Section, shall be entitled to treat each
Fund as a Delaware business trust which is "registered investment
<PAGE> 12
company" under the laws of the United States, and it shall be the duty of each
Fund to inform the Custodian of any change in the organization, domicile or, to
the extent within the knowledge of the Fund, other relevant facts concerning tax
treatment of the Fund and further to inform the Custodian if the Fund is or
becomes the beneficiary of any special ruling or treatment not applicable to the
general nationality and category of entity of which the Fund is a part under
general laws and treaty provisions. The Custodian shall be entitled to rely on
any information supplied by the Fund. The Custodian may engage reasonable
professional advisors disclosed to the Fund by the Custodian, which may include
attorneys, accountants or financial institutions in the regular business of
investment administration and may rely upon advice received therefrom.
4.12. LIABILITY OF CUSTODIAN.
Except as may arise from the Custodian's own negligence or willful misconduct or
the negligence or willful misconduct of a Sub-Custodian, the Custodian shall be
without liability to the Fund for any loss, liability, claim or expense
resulting from or caused by Country Risk (as such term is defined in Article 3
hereof), regardless of whether assets are maintained in the custody of a Foreign
Sub-Custodian or a Foreign Securities Depository, the Custodian shall be without
liability for any loss, damage, cost, expense, liability or claim resulting from
nationalization, expropriation, currency restrictions, or acts of war or
terrorism, or any other similar loss beyond the reasonable control of the
Custodian or the Sub-Custodian.
The Custodian shall be liable to the Fund on account of any actions or omissions
of any Foreign Sub-Custodian to the same extent as such Foreign Sub-Custodian
shall be liable to the Custodian.
4.13 USE OF TERM "FUND"; ASSETS AND LIABILITIES
All references in this Article 4 or in Article 3 of this Agreement to "Fund"
shall mean the Fund, or a Portfolio of the Fund, as the context requires or as
applicable.
The Custodian shall maintain separate and distinct records for each Portfolio
and the assets allocated solely with such Portfolio shall be held and accounted
for separately from the assets of the Fund associated solely with any other
Portfolio. The debts, liabilities, obligations and expenses incurred, contracted
for or otherwise existing with respect to a particular Portfolio shall be
enforceable against the assets of such Portfolio only, and not against the
assets of the Fund generally or the assets of any other Portfolio.
III. Except as specifically superseded or modified herein, the terms and
provisions of the Contract shall continue to apply with full force and effect.
In the event of any conflict between the terms of the Contract prior to this
Amendment and this Amendment, the terms of this Amendment shall prevail. If the
Custodian is delegated the responsibilities of Foreign Custody Manager pursuant
to the terms of Article 3 hereof, in the event of any conflict between the
provisions of Articles 3 and 4 hereof, the provisions of Article 3 shall
prevail.
<PAGE> 13
IN WITNESS WHEREOF each of the parties has caused this Amendment to be
executed in its name and behalf by its duly authorized representative as of the
date first above written.
WITNESSED BY: STATE STREET BANK AND TRUST COMPANY
/s/ MARC L. PARSONS By: /s/ RONALD E. LOGUE
- ----------------------------------- --------------------------------------
Marc L. Parsons Name: Ronald E. Logue
Associate Counsel Title: Executive Vice President
WITNESSED BY: AIM INVESTMENT FUNDS
/s/ SAMUEL D. SIRKO
- -----------------------------------
Name: Samuel D. Sirko BY: /s/ CAROL F. RELIHAN
Title: Assistant Secretary --------------------------------------
Name: Carol F. Relihan
Title: Vice President
<PAGE> 14
SCHEDULE A
STATE STREET
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
<TABLE>
<CAPTION>
COUNTRY SUBCUSTODIAN NON-MANDATORY DEPOSITORIES
<S> <C> <C>
Argentina Citibank, N.A. --
Australia Westpac Banking Corporation --
Austria Erste Bank der Oesterreichischen --
Sparkassen AG
Bahrain British Bank of the Middle East --
(as delegate of The Hongkong and
Shanghai Banking Corporation Limited)
Bangladesh Standard Chartered Bank --
Belgium Generale de Banque --
Bermuda The Bank of Bermuda Limited --
Bolivia Banco Boliviano Americano S.A. --
Botswana Barclays Bank of Botswana Limited --
Brazil Citibank. N.A. --
Bulgaria ING Bank N.V. --
Canada Canada Trustco Mortgage Company --
Chile Citibank, N.A. Deposito Central de Valores S.A.
People's Republic The Hongkong and Shanghai --
of China Banking Corporation Limited,
Shanghai and Shenzhen branches
Colombia Cititrust Colombia S.A. --
Sociedad Fiduciaria
</TABLE>
12/31/98 1
<PAGE> 15
SCHEDULE A
STATE STREET
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
<TABLE>
<CAPTION>
COUNTRY SUBCUSTODIAN NON-MANDATORY DEPOSITORIES
<S> <C> <C>
Costa Rica Banco BCT S.A. --
Croatia Privredna Banka Zagreb d.d --
CYPRUS Barclays Bank Plc. --
Cyprus Offshore Banking Unit
Czech Republic Ceskoslovenska Obchodni --
Banka, A.S.
Denmark Den Danske Bank
Ecuador Citibank, N.A. --
Egypt National Bank of Egypt --
Estonia Hansabank --
Finland Merita Bank Limited --
France Banque Paribas --
Germany Dresdner Bank AG --
Ghana Barclays Bank of Ghana Limited --
Greece National Bank of Greece S.A. The Bank of Greece,
System for Monitoring Transactions in
Securities in Book-Entry Form
Hong Kong Standard Chartered Bank --
Hungary Citibank Budapest Rt. --
</TABLE>
12/31/98 2
<PAGE> 16
SCHEDULE A
STATE STREET
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
<TABLE>
<CAPTION>
COUNTRY SUBCUSTODIAN NON-MANDATORY DEPOSITORIES
<S> <C> <C>
Iceland Icebank Ltd. --
India Deutsche Bank AG --
The Hongkong and Shanghai
Banking Corporation Limited
Indonesia Standard Chartered Bank --
Ireland Bank OF Ireland --
Israel Bank Hapoalim B.M. --
Italy Banque Paribas --
Ivory Coast Societe Generale de Banques --
en Cote d'Ivoire
Jamaica Scotiabank Jamaica Trust and Merchant --
Bank Ltd.
Japan The Daiwa Bank, Limited Japan Securities Depository
Center
The Fuji Bank, Limited
Jordan British Bank of the Middle East --
(as delegate of The Hongkong and
Shanghai Banking Corporation Limited)
Kenya Barclays Bank of Kenya Limited --
Republic of Korea The Hongkong and Shanghai Banking
Corporation Limited
Latvia JSC Hansabank-Latvija --
</TABLE>
12/31/98 3
<PAGE> 17
SCHEDULE A
STATE STREET
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
<TABLE>
<CAPTION>
COUNTRY SUBCUSTODIAN NON-MANDATORY DEPOSITORIES
<S> <C> <C>
Lebanon British Bank of the Middle East
(as delegate of The Hongkong and
Shanghai Banking Corporation Limited)
Lithuania Vilniaus Bankas AB --
Malaysia Standard Chartered Bank --
Malaysia Berhad
Mauritius The Hongkong and Shanghai --
Banking Corporation Limited
Mexico Citibank Mexico, S.A. --
Morocco Banque Commerciale du Maroc --
Namibia (via) Standard Bank of South Africa --
The Netherlands MeesPierson N.V. --
New Zealand ANZ Banking Group --
(New Zealand) Limited
Norway Christiania Bank og Kreditkasse --
Oman British Bank of the Middle East --
(as delegate of The Hongkong and
Shanghai Banking Corporation Limited)
Pakistan Deutsche Bank AG --
Peru Citibank, N.A. --
Philippines Standard Chartered Bank --
</TABLE>
12/31/98 4
<PAGE> 18
SCHEDULE A
STATE STREET
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
<TABLE>
<CAPTION>
COUNTRY SUBCUSTODIAN NON-MANDATORY DEPOSITORIES
<S> <C> <C>
POLAND Citibank (Poland) S.A. --
Bank Polska Kasa Opieki S.A.
Portugal Banco Comercial Portugues --
Romania ING Bank N.V. --
Russia Credit Suisse First Boston AO, Moscow --
(as delegate of Credit Suisse
First Boston, Zurich)
Singapore The Development Bank --
of Singapore Limited
Slovak Republic Ceskoslovenska Obchodna --
Banka, A.S.
Slovenia Bank Austria d.d. Ljubljana --
South Africa Standard Bank of South Africa Limited --
Spain Banco Santander, S.A. --
Sri Lanka The Hongkong and Shanghai --
Banking Corporation Limited
Swaziland Standard Bank Swaziland Limited --
Sweden Skandinaviska Enskilda Banken --
Switzerland UBS AG --
Taiwan - R.O.C. Central Trust of China --
Thailand Standard Chartered Bank --
</TABLE>
12/31/98 5
<PAGE> 19
SCHEDULE A
STATE STREET
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
<TABLE>
<CAPTION>
COUNTRY SUBCUSTODIAN NON-MANDATORY DEPOSITORIES
<S> <C> <C>
Trinidad & Tobago Republic Bank Limited --
Tunisia Banque Internationale Arabe de Tunisie --
Turkey Citibank, N.A. --
Ottoman Bank
Ukraine ING Bank, Ukraine --
United Kingdom State Street Bank and Trust Company, --
London Branch
Uruguay Citibank, N.A. --
Venezuela Citibank, N.A. --
Zambia Barclays Bank of Zambia Limited --
Zimbabwe Barclays Bank of Zimbabwe Limited --
</TABLE>
Euroclear (The Euroclear System)/State Street London Limited
CEDEL, S.A. (Cedel Bank, societe anonyme)/State Street London Limited
INTERSETTLE (for EASDAQ Securities)
12/31/98 6
<PAGE> 20
SCHEDULE B
STATE STREET
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
<TABLE>
<CAPTION>
COUNTRY MANDATORY DEPOSITORIES
<S> <C>
Argentina Caja de Valores S.A.
Australia Austraclear Limited
Reserve Bank Information and
Transfer System
Oesterreichische Kontrollbank Ag
(Wertpapiersammelbank Division)
Austria
Caisse Interprofessionnelle de Depot et
de Virement de Titres S.A.
Belgium Banque Nationale De Belgique
Brazil Companhia Brasileira de Liquidacao e
Custodia (CBLC)
Bolsa de Valores de Rio de Janeiro
All SSB clients presently use CBLC
Central de Custodia e de Liquidacao Financeira
de Titulos
Bulgaria Central Depository AD
Bulgarian National Bank
Canada The Canadian Depository
for Securities Limited
People's Republic Shanghai Securities Central Clearing and
Of China Registration Corporation
Shenzhen Securities Central Clearing
Co., Ltd.
Costa Rica Central de Valores S.A. (CEVAL)
</TABLE>
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
11/20/98 1
<PAGE> 21
SCHEDULE B
STATE STREET
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
<TABLE>
<CAPTION>
COUNTRY MANDATORY DEPOSITORIES
<S> <C>
Croatia Ministry of Finance
National Bank of Croatia
Czech Republic Stredisko cennych papiru
Czech National Bank
Denmark Vaerdipapircentralen (the Danish
Securities Center)
Egypt Misr Company for Clearing, Settlement,
and Central Depository
Estonia Eesti Vaatpaberite Keskdepositoorium
Finland The Finnish Central Securities
Depository
France Societe Interprofessionnelle
pour la Compensation des
Valeurs Mobiliees (SICOVAM)
Germany Deutsche Borse Clearing AG
Greece The Central Securities Depository
(Apothetirion Titlon AE)
Hong Kong The Central Clearing and
Settlement System
Central Money Markets Unit
Hungary The Central Depository and Clearing
House (Budapest) Ltd. (KELER)
[Mandatory for Gov't Bonds only;
SSB does not use for other securities]
India The National Securities Depository Limited
</TABLE>
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
11/20/98 2
<PAGE> 22
SCHEDULE B
STATE STREET
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
<TABLE>
<CAPTION>
COUNTRY MANDATORY DEPOSITORIES
<S> <C>
Indonesia Bank Indonesia
Ireland Central Bank of Ireland
Securities Settlement Office
Israel The Tel Aviv Stock Exchange Clearing
House Ltd.
Bank of Israel
Italy Monte Titoli S.p.A.
Banca d'Italia
Ivory Coast Depositaire Central - Banque de Reglement
Jamaica The Jamaican Central Securities Depository
Japan Bank of Japan Net System
Kenya Central Bank of Kenya
Republic of Korea Korea Securities Depository Corporation
Latvia The Latvian Central Depository
Lebanon The Custodian and Clearing Center of
Financial Instruments for Lebanon
and the Middle East (MIDCLEAR) S.A.L.
The Central Bank of Lebanon
</TABLE>
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
11/20/98 3
<PAGE> 23
SCHEDULE B
STATE STREET
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
<TABLE>
<CAPTION>
COUNTRY MANDATORY DEPOSITORIES
<S> <C>
Lithuania The Central Securities Depository of Lithuania
Malaysia The Malaysian Central Depository Sdn. Bhd.
Bank Negara. Malaysia,
Scripless Securities Trading and Safekeeping
System
Mauritius The Central Depository & Settlement
Co. Ltd.
Mexico S.D. INDEVAL, S.A. de C.V.
(Instituto para el Deposito de Valores)
Morocco Maroclear
The Netherlands Nederlands Centraal Instituut voor
Giraal Effectenverkeer B.V. (NECIGEF)
De Nederlandsche Bank N.V.
New Zealand New Zealand Central Securities
Depository Limited
Norway Verdipapirsentralen (the Norwegian
Registry of Securities)
Oman Muscat Securities Market
Pakistan Central Depository Company of Pakistan Limited
PERU Caja de Valores y Liquidaciones S.A.
(CAVALI)
</TABLE>
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
11/20/98 4
<PAGE> 24
SCHEDULE B
STATE STREET
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
<TABLE>
<CAPTION>
COUNTRY MANDATORY DEPOSITORIES
<S> <C>
Philippines The Philippines Central Depository, Inc.
The Registry of Scripless Securities
(ROSS) of the Bureau of the Treasury
Poland The National Depository of Securities
(Krajowy Depozyt Papierow Wartosciowych)
Central Treasury Bills Registrar
Portugal Central de Valores; Mobiliarios (Central)
Romania National Securities Clearing, Settlement and
Depository Co.
Bucharest Stock Exchange Registry Division
Singapore The Central Depository (Pte)
Limited
Monetary Authority of Singapore
Slovak Republic Stredisko Cennych Papierov
National Bank of Slovakia
Slovenia Klrinsko Depotna Druzba d.d.
South Africa The Central Depository Limited
Spain Servicio de Compensacion y
Liquidacion de Valores, S.A.
Banco de Espana,
Central de Anotaciones en Cuenta
</TABLE>
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
11/20/98 5
<PAGE> 25
SCHEDULE B
STATE STREET
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
<TABLE>
<CAPTION>
COUNTRY MANDATORY DEPOSITORIES
<S> <C>
Sri Lanka Central Depository System
(Pvt) Limited
Sweden Vardepapperscentralen AB
(the Swedish Central Securities Depository)
Switzerland Schweizerische Effekten - Giro AG
Taiwan - R.O.C. The Taiwan Securities Central
Depository Co., Ltd.
Thailand Thailand Securities Depository
Company Limited
Tunisia Societe Tunisienne Interprofessionelle de
Compensation et de Depot de
Valeurs Mobilieres
Central Bank of Tunisia
Tunisian Treasury
Turkey Takas ve Saklama Bankasi A.S.
(TAKASBANK)
Central Bank of Turkey
Ukraine The National Bank of Ukraine
United Kingdom The Bank of England,
The Central Gilts Office and
The Central Moneymarkets Office
Uruguay Central Bank of Uruguay
</TABLE>
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
11/20/98 6
<PAGE> 26
SCHEDULE B
STATE STREET
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
<TABLE>
<CAPTION>
COUNTRY MANDATORY DEPOSITORIES
<S> <C>
Venezuela Central Bank of Venezuela
Zambia Lusaka Central Depository Limited
Bank of Zambia
</TABLE>
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
11/20/98 7
<PAGE> 27
SCHEDULE C
MARKET INFORMATION
<TABLE>
<CAPTION>
PUBLICATION/TYPE OF INFORMATION BRIEF DESCRIPTION
- ------------------------------- -----------------
(Frequency)
<S> <C>
The Guide to Custody in World Markets An overview of safekeeping and settlement practices and
- ------------------------------------- procedures in each market in which State Street Bank and
(annually) Trust Company offers custodial services.
Global Custody Network Review Information relating to the operating history and structure of
- ----------------------------- depositories and Sub-Custodians located in the markets in
(annually) which State Street Bank and Trust Company offers custodial
services, including transnational depositories.
Global Legal Survey With respect to each market in which State Street Bank and
- ------------------- Trust Company offers custodial services, opinions relating to
(annually) whether local law restricts (i) access of a fund's independent
public accountants to books and records of a Foreign Sub-
Custodian or Foreign Securities System, (ii) the Fund's ability
to recover in the event of bankruptcy or insolvency of a
Foreign Sub-Custodian or Foreign Securities System, (iii) the
Fund's ability to recover in the event of a loss by a Foreign
Sub-Custodian or Foreign Securities System, and (iv) the
ability of a foreign investor to convert cash and cash
equivalents to U.S. dollars.
Subcustodian Agreements Copies of the subcustodian contracts State Street Bank and
- ----------------------- Trust Company has entered into with each subcustodian in the
(annually) markets in which State Street Bank and Trust Company offers
subcustody services to its US mutual fund clients.
Network Bulletins (weekly): Developments of interest to investors in the markets in which
State Street Bank and Trust Company offers custodial services.
Foreign Custody Advisories (as
necessary): With respect to markets in which State Street Bank and Trust
Company offers custodial services which exhibit special
custody risks, developments which may impact State Street's
ability to deliver expected levels of service.
</TABLE>
<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: , 1999
--------------------------
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)(4)
FUND ACCOUNTING AND PRICING AGENT AGREEMENT
This Fund Accounting and Pricing Agent Agreement (the "Agreement") is
made as of June 1, 1998, by and between AIM Investment Funds, Inc. (the
"Company") and A I M Advisors, Inc. ("AIM").
WHEREAS, the Company is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment company;
WHEREAS, the Company currently operates thirteen separate mutual funds,
each organized as a separate and distinct series of the Company's shares (such
existing funds and such funds as may hereafter be established being referred to
in this Agreement as the "Funds" and singly as a "Fund");
WHEREAS, the Company is part of a complex of investment companies that
are advised and administered by AIM, and such complex is currently comprised of
the following investment companies: AIM Growth Series, AIM Investment Funds,
Inc., AIM Investment Portfolios, Inc., AIM Series Trust, GT Global Variable
Investment Series and GT Global Variable Investment Trust (the "AIM Funds");
WHEREAS, the Company desires to retain AIM to act as its accounting and
pricing agent, and AIM is willing to act in such capacities.
NOW, THEREFORE, in consideration of the foregoing and the terms and
conditions hereinafter set forth, the Company and AIM hereby agree as follows:
SECTION 1. APPOINTMENT. The Company hereby appoints AIM to act as the accounting
and pricing agent for each Fund for the period and on the terms and conditions
set forth in this Agreement. AIM hereby accepts such appointment and agrees to
render the services set forth for the compensation herein provided.
SECTION 2. DEFINITIONS. As used in this Agreement and in addition to the terms
defined elsewhere herein, the following terms shall have the meanings assigned
to them in this Section:
(a) "Authorized Person" means any officer of the Company and any other
person, whether or not any such person is an officer or employee of the Company,
duly authorized by the Board of Directors/Trustees (the "Board"), the President
or any Vice President of the Fund to give Oral and/or Written Instructions on
behalf of the Company or any Fund.
(b) "Commission" means the Securities and Exchange Commission.
(c) "Custodian" means the custodian or custodians employed by the
Company to maintain custody of the Funds' assets.
<PAGE> 2
(d) "Governing Documents" means the Agreement and Declaration of Trust,
Articles of Incorporation, By-Laws and/or other applicable charter documents of
the Company, all as they may be amended from time to time.
(e) "Oral Instruction" means oral instructions actually received by AIM
from an Authorized Person or from a person reasonably believed by AIM to be an
Authorized Person, provided that, any Oral Instruction shall be promptly
confirmed by Written Instructions.
(f) "Prospectus" means the current prospectus and statement of
additional information of a Fund, taken together.
(g) "Shares" means shares of beneficial interest of any of the Funds.
(h) "Shareholder" means any owner of Shares.
(i) "Written Instructions" means written instructions delivered by
hand, mail, tested telegram or telex, cable or facsimile sending device received
by AIM and signed by an Authorized Person.
SECTION 3. COMPLIANCE WITH LAWS, ETC. In performing its responsibilities
hereunder, AIM shall comply with all terms and provisions of the Governing
Documents, the Prospectus and all applicable state and federal laws including,
without limitation, the 1940 Act and the rules and regulations promulgated by
the Commission thereunder.
SECTION 4. SERVICES. In consideration of the compensation payable hereunder and
subject to the supervision and control of the Company's Boards, AIM shall
provide the following services to the Funds:
(a) PRICING AGENT. As pricing agent, AIM shall:
(1) Obtain security market quotes from services approved by
AIM or, if such quotes are unavailable, from such sources as may be designated
in procedures adopted by AIM and approved by the Company's Board, and, in either
case, calculate the market value of the Funds' investments; and
(2) Value the assets of the Funds and compute the net asset
value per Share of the Funds at such dates and times and in the manner specified
in the then currently effective Prospectus and transmit to the Funds' portfolio
manager.
(b) ACCOUNTING AGENT. As fund accounting agent, AIM shall:
(1) Calculate the net income of each Fund;
(2) Calculate capital gains or losses for each Fund from the
sale or disposition of assets, if any;
2
<PAGE> 3
(3) Maintain the general ledger and other accounts, books and
financial records of the Company, as required under Section 31(a) of the 1940
Act and the rules promulgated by the Commission thereunder in connection with
the services provided by AIM;
(4) Perform the following functions on a daily basis:
(A) journalize each Fund's investment, capital share and
income and expense activities;
(B) reconcile cash and investment balances of each Fund
with the Custodian and provide the Funds' portfolio
manager(s) with the beginning cash balance available for
investment purposes and update the cash availability
throughout the day as necessary;
(C) verify investment buy/sell trade tickets received from
a Fund's portfolio manager(s) and transmit trades to a
Fund's Custodian for proper settlement;
(D) maintain individual ledgers for investment securities;
(E) maintain historical tax lots for investment
securities;
(F) calculate various contractual expenses (e.g., advisory
and custody fees);
(G) post to and prepare the Funds' statements of assets
and liabilities and statements of operations; and
(H) monitor expense accruals and notify an Authorized
Person of any proposed adjustments;
(5) Receive and act upon notices, Oral and Written
Instructions, certificates, instruments or other communications from a Fund's
shareholder servicing and transfer agent;
(6) Assist in the preparation of financial statements
semiannually which will include the following items:
(A) schedule of investments;
(B) statement of assets and liabilities;
(C) statement of operations; and
(D) changes in net assets;
3
<PAGE> 4
(7) Prepare monthly security transaction listings;
(8) Prepare quarterly broker security transactions summaries;
and
(9) At the reasonable request of the Company, assist in the
preparation of various reports or other financial documents required by federal,
state and other appropriate laws and regulations.
SECTION 5. COMPENSATION. As compensation for the services rendered by AIM
hereunder during the term of the Agreement, each Fund shall pay to AIM monthly
such fees as shall be agreed to from time to time by the Company and AIM, in
writing and attached hereto as Schedule A. In addition, as may be agreed to from
time to time in writing by the Company and AIM, each Fund shall reimburse AIM
for certain expenses that it incurs in rendering services with respect to that
Fund under this Agreement.
SECTION 6. RELIANCE BY AIM ON INSTRUCTIONS. Unless otherwise provided in this
Agreement, AIM shall act only upon Oral or Written Instructions. AIM shall be
entitled to rely upon any such Instructions actually received by it under this
Agreement. The Company agrees that AIM shall incur no liability to the Company
or any of the Funds in acting upon Oral or Written Instructions given to AIM
hereunder, provided that, such Instructions reasonably appear to have been
received from an Authorized Person.
SECTION 7. COOPERATION WITH AGENTS OF THE COMPANY. AIM shall cooperate with the
Company's agents and employees, including, without limitation, their independent
accountants, and shall take all reasonable action in the performance of its
obligations under this Agreement to assure that all necessary information is
made available to such agents to the extent necessary in the performance of
their duties to the Company.
SECTION 8. CONFIDENTIALITY. AIM, on behalf of itself and its employees, agrees
to treat confidentially all records and other information relating to the
Company and the Funds except when requested to divulge such information by duly
constituted authorities provided that notification and prior approval is
obtained from the Company, which approval shall not be unreasonably withheld and
may not be withheld if AIM, in its judgment, may be subject to civil or criminal
contempt proceedings for failure to comply.
SECTION 9. STANDARD OF CARE. In the performance of its responsibilities
hereunder, AIM shall exercise care and diligence in the performance of its
duties and act in good faith and use its best efforts to ensure the accuracy and
completeness of all services under this Agreement. In performing services
hereunder, AIM:
(a) shall be under no duty to take any action on behalf of the Company
or the Funds except as specifically set forth herein or as may be specifically
agreed to by AIM in writing, and in computing the net asset value per Share of a
Fund, AIM may rely upon any information furnished to it including, without
limitation, information (1) as to the accrual of liabilities of a Fund and as to
liabilities of a Fund not appearing on the books of account kept by AIM, (2) as
to the existence, status and proper treatment of reserves, if any, authorized by
a Fund, (3) as to the
4
<PAGE> 5
sources of quotations to be used in computing net asset value, (4) as to the
fair value to be assigned to any securities or other property for which price
quotations are not readily available and (5) as to the sources of information
with respect to "corporate actions" affecting portfolio securities of a Fund
(information as to "corporate actions" shall include information as to
dividends, distributions, interest payments, prepayments, stock splits, stock
dividends, rights offerings, conversions, exchanges, recapitalizations, mergers,
redemptions, calls, maturity dates and similar actions, including ex-dividend
and record dates and the amounts and terms thereof);
(b) shall be responsible and liable for all losses, damages and costs
(including reasonable attorneys' fees) incurred by the Company or any Fund which
is due to or caused by AIM's negligence in the performance of its duties under
this Agreement or for AIM's negligent failure to perform such duties as are
specifically assumed by AIM in this Agreement, provided that, to the extent that
duties, obligations and responsibilities are not expressly set forth in this
Agreement, AIM shall not be liable for any act or omission that does not
constitute willful misfeasance, bad faith or negligence on the part of AIM or
reckless disregard by AIM of such duties, obligations and responsibilities; and
(c) without limiting the generality of the foregoing, AIM shall not, in
connection with AIM's duties under this Agreement, be under any duty or
obligation to inquire into and shall not be liable for or in respect of:
(1) the validity or invalidity or authority or lack of
authority of any Oral or Written Instruction, notice or other instrument which
conforms to the applicable requirements of this Agreement, if any, and that AIM
reasonably believes to be genuine; and
(2) delays or errors or loss of data occurring by reason of
circumstances beyond AIM's control including, without limitation, acts of civil
or military authorities, national emergencies, labor difficulties, fire,
mechanical breakdown, denial of access, earthquake, flood or catastrophe, acts
of God, insurrection, war, riots, or failure of the mails, transportation,
communication or power supply.
Notwithstanding any other provisions of this Agreement, the following provisions
shall apply with respect to AIM's computation of a Fund's net asset value: AIM
shall be held to the exercise of reasonable care in computing and determining
net asset value as provided in Section 4(a), above, but shall not be held
accountable or liable for any losses, damages or expenses of a Fund or any
Shareholder or former Shareholder may incur arising from or based upon errors or
delays in the determination of such net asset value unless such error or delay
was due to AIM's negligence or willful misfeasance in the computation and
determination of such net asset value. The parties hereto acknowledge, however,
that AIM causing an error or delay in the determination of net asset value may,
but does not in an of itself, constitute negligence or willful misfeasance. In
no event shall AIM be liable or responsible to the Company or a Fund or any
other party for any error or delay which continued or was undetected after the
date of an audit of the Company or any Fund performed by the certified public
accountants employed by the Company if, in the exercise of reasonable care in
accordance with generally accepted accounting principles, such accountants
should have become aware of such error or delay in the course of performing such
audit. AIM's liability for any such negligence or willful misfeasance which
5
<PAGE> 6
results in an error in determination of such net asset value be limited to the
direct out-of-pocket loss a Fund and/or any Shareholder or former Shareholder
shall actually incur.
Without limiting the generality of the foregoing, AIM shall not be held
accountable or liable to a Fund, a Shareholder or former Shareholder or any
other person for any delays or losses, damages or expenses any of them may
suffer or incur resulting from (1) AIM's failure to receive timely and suitable
notification concerning quotations, corporate actions or similar matters
relating to or affecting portfolio securities of a Fund or (2) any errors in the
computation of a net asset value based upon or arising out of quotations or
information as to corporate actions if received by AIM from a source that AIM
was authorized to rely upon. Nevertheless, AIM will use its best judgment in
determining whether to verify through other sources any information that it has
received as to quotations or corporate actions if AIM has reason to believe that
any such information is incorrect.
SECTION 10. RECEIPT OF ADVICE. If AIM is in doubt as to any action to be taken
or omitted by it, AIM may request, and shall be entitled to rely upon,
directions and advice from the Company, including Oral or Written Instructions
where appropriate, or from counsel of its own choosing (who may also be counsel
for the Company or any Fund), with respect to any question of law. In case of
conflict between directions, advice or Oral and Written Instructions received by
AIM pursuant to this Section, AIM shall be entitled to rely on and follow the
advice received from counsel as described above. AIM shall be protected in any
action or in action that it takes in reliance on any directions, advice or Oral
or Written Instructions received pursuant to this Section that AIM, after the
receipt of the same, in good faith believes to be consistent with such
directions, advice or Oral or Written Instructions, as the case may be.
Notwithstanding the foregoing, nothing in this Section shall be construed as
imposing on AIM any obligation to seek such directions, advice or Oral or
Written Instruction, or to act in accordance with them when received, unless the
same is a condition to AIM's properly taking or omitting to take such action
under the terms of this Agreement.
SECTION 11. INDEMNIFICATION OF AIM. The Company agrees to indemnify and hold
harmless AIM and its officers, directors, employees, nominees and
subcontractors, if any, from all taxes, charges, expenses, assessments, claims
and liabilities, including, without limitation, liabilities arising under the
1940 Act, the Securities Act of 1933, as amended, the Securities Exchange Act of
1934, as amended, the Commodities Exchange Act and any state or foreign
securities or blue sky laws, and expenses, including, without limitation,
reasonable attorneys' fees and disbursements, arising directly or indirectly
from any action or thing that AIM takes or omits to take or do:
(a) at the request or on the direction of or in reliance upon the
advice of the Company;
(b) upon Oral or Written Instructions; or
(c) in the performance by AIM of its responsibilities under this
Agreement;
provided that, AIM shall not be indemnified against any liability to the Company
or the Funds, or
6
<PAGE> 7
any expenses incident thereto, arising out of AIM's own willful misfeasance, bad
faith or negligence or reckless disregard of its duties in connection with the
performance of its duties and obligations specifically described in this
Agreement.
SECTION 12. INDEMNIFICATION OF THE COMPANY. AIM agrees to indemnify and hold
harmless the Company and its officers, trustees, directors and employees, from
all taxes, charges, expenses, assessments, claims and liabilities, including,
without limitation, liabilities arising under the 1940 Act, the Securities Act
of 1933, as amended, the Securities Exchange Act of 1934, as amended, the
Commodities Exchange Act and any state or foreign securities or blue sky laws,
and expenses, including, without limitation, reasonable attorneys' fees and
disbursements, arising directly or indirectly from any action or omission of AIM
that does not meet the standard of care to which AIM is subject under Section 9,
above.
SECTION 13. LIMITATION OF LIABILITY OF SHAREHOLDERS AND TRUSTEES OF THE COMPANY.
It is expressly agreed that the obligations of the Company hereunder shall not
be binding upon any of the shareholders, trustees, directors, officers,
nominees, agents or employees of the Company personally, but shall only bind the
assets and property of the applicable Funds, as provided in the Governing
Documents. The execution and delivery of this Agreement has been authorized by
the Board of the Company, and this Agreement has been executed and delivered by
an authorized officer of the Company acting as such, and neither such
authorization by the Board nor such execution and delivery by such officer shall
be deemed to have been made by any of them individually or to impose any
liability on any of them personally, but shall bind only the assets and property
of the applicable Fund as provided in the Governing Documents.
SECTION 14. DURATION AND TERMINATION. This Agreement shall continue with respect
to the Company and each Fund until termination with respect to the Company, or
with respect to one or more Funds, is effected by the Company or AIM upon sixty
days' prior written notice to the other. In the event of the "assignment" of
this Agreement within the meaning of the 1940 Act, this Agreement shall
terminate automatically.
SECTION 15. NOTICES. All notices and other communications hereunder, including
Written Instructions, shall be in writing or by confirming telegram, cable,
telex or facsimile sending device. Notices with respect to a party shall be
directed to such address as may from time to time be designated by that party to
the other.
SECTION 16. FURTHER ACTIONS. The Company and AIM agree to perform such further
acts and to execute such further documents as may be necessary or appropriate to
effect the purposes of this Agreement.
SECTION 17. AMENDMENTS. This Agreement, or any part thereof, may be amended only
by an instrument in writing signed by the Company and AIM.
SECTION 18. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together constitute one and the same instrument.
7
<PAGE> 8
SECTION 19. MISCELLANEOUS. This Agreement embodies the entire agreement and
understanding between the Company and AIM and supersedes all prior agreements
and understandings relating to the subject matter hereof, provided that the
Company and AIM may embody in one or more separate documents their agreement or
agreements with respect to such matters that this Agreement provides may be
later agreed to by and between the Company and AIM from time to time. The
captions in this Agreement are included for convenience of reference only and in
no way define or delimit any of the provisions hereof or otherwise affect their
construction or effect. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware. If any provision of this
Agreement shall be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby. This
Agreement shall be binding upon and shall inure to the benefit of the Company
and AIM and their respective successors.
8
<PAGE> 9
IN WITNESS WHEREOF, the Company and AIM have caused this
Agreement to be executed by their officers designated below as of this day,
month and year first above written.
AIM INVESTMENT FUNDS, INC.
By: /s/ ROBERT H. GRAHAM
--------------------------------------
Robert H. Graham
President
Attest: /s/ SAMUEL D. SIRKO
--------------------------------------
Samuel D. Sirko
Assistant Secretary
A I M ADVISORS, INC.
By: /s/ CAROL F. RELIHAN
--------------------------------------
Carol F. Relihan
Senior Vice President, General Counsel
and Secretary
Attest: /s/ SAMUEL D. SIRKO
--------------------------------------
Samuel D. Sirko
Assistant Secretary
9
<PAGE> 10
SCHEDULE A
TO
FUND ACCOUNTING
AND
PRICING AGENT AGREEMENT
FOR
AIM INVESTMENT FUNDS, INC.
FUND ACCOUNTING AND PRICING AGENT FEES
Each Fund shall pay a Fee to AIM determined as a percentage of the
Fund's net assets. The annualized rate at which the fee is paid (the Fee Rate)
and the Fee shall be calculated as set forth below:
o An Asset Multiplier is determined by multiplying 0.0003 times the first $5
billion in average net assets of the AIM Funds plus 0.0002 times such net
assets over $5 billion.
o The Fee Rate is determined by dividing the Asset Multiplier by the net
assets of the AIM Funds.
o The Monthly Fee is determined then by multiplying the average daily Fee Rate
by the number of days in the month and by the Fund's average daily net
assets then dividing by 365/or 366, as appropriate.
Example: For Fund X having $100 million in average net assets during December
1997, in which the AIM Funds have average net assets of $8 billion:
Asset Multiplier = (0.0003) ($5 billion) + (0.0002) ($3 billion) = $2.1
million
Fee Rate = $2.1 million = 0.0002625
------------
$8 billion
Monthly Fee = ( 31 ) (0.0002625) ($100 million) = $2,229.45
-------
( 365 )
<PAGE> 1
EXHIBIT (i)(1)
KIRKPATRICK & LOCKHART LLP
1800 MASSACHUSETTS AVENUE, N.W.
2ND FLOOR
WASHINGTON, D.C. 20036-1800
TELEPHONE (202) 778-9000
FACSIMILE (202) 778-9100
www.kl.com
February 19, 1999
AIM Investment Funds
11 Greenway Plaza, Suite 100
Houston, Texas 77046
Ladies and Gentlemen:
We hereby consent to the reference to our firm in the statements of
additional information that are being filed as part of Post-Effective Amendment
No. 57 to the registration statement of AIM Investment Funds on Form N-1A (File
No. 811-05426).
Very truly yours,
KIRKPATRICK & LOCKHART LLP
By: /s/ R. Darrell Mounts
--------------------------------
R. Darrell Mounts
<PAGE> 1
EXHIBIT (j)
[PRICEWATERHOUSECOOPERS LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Trustees of AIM Investment Funds:
RE: AIM Global Government Income Fund
AIM Emerging Markets Debt Fund
AIM Strategic Income 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 Developing Markets Fund
AIM Latin American Growth Fund
AIM Global Growth & Income Fund
(hereinafter referred to as "the Funds")
We consent to the inclusion in Post-Effective Amendment No. 57 to the
Registration Statement on Form N-1A, under the Securities Act of 1933, as
amended of AIM Investment Funds: (the "Funds"), of our reports dated December
18, 1998 (December 11, 1998 with respect to the AIM Developing Markets Fund),
on our audits of the financial statements and financial highlights of the
Funds, which reports are included in the Annual Report to Shareholders for the
periods stated therein, which is also included in this Registration Statement.
We also consent to the references to our Firm under the captions "Financial
Highlights" in the prospectus and "Independent Accountants" in the Statement of
Additional information.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 18, 1999
<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, as amended
(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 Developing Markets Fund 0.25% 0.25% 0.50%
AIM Emerging Markets Fund 0.25% 0.25% 0.50%
AIM Emerging Markets Debt Fund 0.10% 0.25% 0.35%
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 Government Income Fund 0.10% 0.25% 0.35%
AIM Global Growth & Income Fund 0.10% 0.25% 0.35%
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 Latin American Growth Fund 0.25% 0.25% 0.50%
AIM Strategic Income Fund 0.10% 0.25% 0.35%
Class C Shares
AIM Developing Markets Fund 0.75% 0.25% 1.00%
AIM Emerging Markets Debt Fund 0.75% 0.25% 1.00%
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 Government Income Fund 0.75% 0.25% 1.00%
AIM Global Growth & Income 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 Strategic Income 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)(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.
01/99
<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
01/99
<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
01/99
<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 Aggressive Growth Fund B Shares 0.25 March 1, 1999
AIM Aggressive Growth Fund C Shares 1.00** March 1, 1999
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>
01/99
<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 Large Cap Growth Fund A Shares 0.25 March 1, 1999
AIM Large Cap Growth Fund B Shares 0.25 March 1, 1999
AIM Large Cap Growth Fund C Shares 1.00** March 1, 1999
AIM Limited Maturity Treasury Fund A Shares 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>
01/99
<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 Basic Value Fund C Shares 1.00**
AIM Developing Markets Fund A Shares 0.25 May 29, 1998
AIM Developing Markets Fund B Shares 0.25 May 29, 1998
AIM Developing Markets Fund C Shares 1.00** March 1, 1999
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 Consumer Products and
Services Fund C Shares 1.00** March 1, 1999
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 Financial Services Fund C Shares 1.00** March 1, 1999
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 Government Income Fund C Shares 1.00** March 1, 1999
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 Growth & Income Fund C Shares 1.00** March 1, 1999
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 Global Health Care Fund C Shares 1.00** March 1, 1999
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 Emerging Markets Debt Fund C Shares 1.00** March 1, 1999
AIM Global Infrastructure Fund A Shares 0.40** May 29, 1998
AIM Global Infrastructure Fund B Shares 0.25 May 29, 1998
AIM Global Infrastructure Fund C Shares 1.00** March 1, 1999
AIM Global Resources Fund A Shares 0.40** May 29, 1998
</TABLE>
01/99
<PAGE> 7
<TABLE>
<S> <C> <C>
AIM Global Resources Fund B Shares 0.25 May 29, 1998
AIM Global Resources Fund C Shares 1.00** March 1, 1999
AIM Global Telecommunications Fund A Shares 0.40** May 29, 1998
AIM Global Telecommunications Fund B Shares 0.25 May 29, 1998
AIM Global Telecommunications Fund C Shares 1.00** March 1, 1999
<CAPTION>
Fund Fee Rate* Plan Calculation Date
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
AIM International Growth Fund C Shares 1.00**
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 Latin American Growth Fund C Shares 1.00**
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 Strategic Income Fund C Shares 1.00**
</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.
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.)
01/99
<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.
01/99
<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
01/99
<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.
01/99
<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
01/99
<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 Aggressive Growth Fund B Shares 0.25 March 1, 1999
AIM Aggressive Growth Fund C Shares 1.00** March 1, 1999
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>
01/99
<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 Large Cap Growth Fund A Shares 0.25 March 1, 1999
AIM Large Cap Growth Fund B Shares 0.25 March 1, 1999
AIM Large Cap Growth Fund C Shares 1.00** March 1, 1999
AIM Limited Maturity Treasury Fund A Shares 0.15 December 2, 1987
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>
01/99
<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 Developing Markets Fund C Shares 1.00** March 1, 1999
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>
01/99
<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 Financial Services Fund C Shares 1.00** March 1, 1999
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 Government Income Fund C Shares 1.00** March 1, 1999
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 Growth & Income Fund C Shares 1.00** March 1, 1999
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 Global Health Care Fund C Shares 1.00** March 1, 1999
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 Emerging Markets Debt Fund C Shares 1.00** March 1, 1999
AIM Global Infrastructure Fund A Shares 0.40** May 29, 1998
AIM Global Infrastructure Fund B Shares 0.25 May 29, 1998
AIM Global Infrastructure Fund C Shares 1.00** March 1, 1999
AIM Global Resources Fund A Shares 0.40** May 29, 1998
AIM Global Resources Fund B Shares 0.25 May 29, 1998
AIM Global Resources Fund C Shares 1.00** March 1, 1999
AIM Global Telecommunications Fund A Shares 0.40** May 29, 1998
AIM Global Telecommunications Fund B Shares 0.25 May 29, 1998
AIM Global Telecommunications Fund C Shares 1.00** March 1, 1999
AIM Japan Growth Fund A Shares 0.25 May 29, 1998
AIM Japan Growth Fund B Shares 0.25 May 29, 1998
AIM Japan Growth Fund C Shares 1.00**
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 Strategic Income Fund C Shares 1.00**
</TABLE>
*Frequency of Payments:
01/99
<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.
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.
01/99
<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 Growth Fund .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.)
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS LEGEND CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FUND'S
ANNUAL FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000826644
<NAME> AIM INVESTMENT FUNDS
<SERIES>
<NUMBER> 131
<NAME> AIM DEVELOPING MARKETS FUND - CLASS A
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 117237
<INVESTMENTS-AT-VALUE> 90220
<RECEIVABLES> 1602
<ASSETS-OTHER> 739
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 92561
<PAYABLE-FOR-SECURITIES> 3824
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1037
<TOTAL-LIABILITIES> 4861
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 250014
<SHARES-COMMON-STOCK> 11616
<SHARES-COMMON-PRIOR> 36417
<ACCUMULATED-NII-CURRENT> 1106
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (136393)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (27027)
<NET-ASSETS> 87700
<DIVIDEND-INCOME> 5875
<INTEREST-INCOME> 4213
<OTHER-INCOME> 241
<EXPENSES-NET> 3460
<NET-INVESTMENT-INCOME> 6869
<REALIZED-GAINS-CURRENT> (83359)
<APPREC-INCREASE-CURRENT> 13741
<NET-CHANGE-FROM-OPS> (62749)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (11841)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 487
<NUMBER-OF-SHARES-REDEEMED> (25963)
<SHARES-REINVESTED> 676
<NET-CHANGE-IN-ASSETS> (369679)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1741
<INTEREST-EXPENSE> 360
<GROSS-EXPENSE> 4193
<AVERAGE-NET-ASSETS> 191525
<PER-SHARE-NAV-BEGIN> 12.56
<PER-SHARE-NII> 0.67
<PER-SHARE-GAIN-APPREC> (5.10)
<PER-SHARE-DIVIDEND> (0.60)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 7.53
<EXPENSE-RATIO> 1.73
<AVG-DEBT-OUTSTANDING> 4842
<AVG-DEBT-PER-SHARE> 0.28
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS LEGEND CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FUND'S
ANNUAL FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000826644
<NAME> AIM INVESTMENT FUNDS
<SERIES>
<NUMBER> 132
<NAME> AIM DEVELOPING MARKETS FUND - CLASS B
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 117237
<INVESTMENTS-AT-VALUE> 90220
<RECEIVABLES> 1602
<ASSETS-OTHER> 739
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 92561
<PAYABLE-FOR-SECURITIES> 3824
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1037
<TOTAL-LIABILITIES> 4861
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 250014
<SHARES-COMMON-STOCK> 21
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1106
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (136393)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (27027)
<NET-ASSETS> 87700
<DIVIDEND-INCOME> 5875
<INTEREST-INCOME> 4213
<OTHER-INCOME> 241
<EXPENSES-NET> 3460
<NET-INVESTMENT-INCOME> 6869
<REALIZED-GAINS-CURRENT> (83359)
<APPREC-INCREASE-CURRENT> 13741
<NET-CHANGE-FROM-OPS> (62749)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 31
<NUMBER-OF-SHARES-REDEEMED> (10)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (369679)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
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<INTEREST-EXPENSE> 360
<GROSS-EXPENSE> 4193
<AVERAGE-NET-ASSETS> 191525
<PER-SHARE-NAV-BEGIN> 12.56
<PER-SHARE-NII> 0.59
<PER-SHARE-GAIN-APPREC> (5.07)
<PER-SHARE-DIVIDEND> (0.59)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 7.49
<EXPENSE-RATIO> 2.48
<AVG-DEBT-OUTSTANDING> 4842
<AVG-DEBT-PER-SHARE> 0.28
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS LEGEND CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FUND'S
ANNUAL FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000826644
<NAME> AIM INVESTMENT FUNDS
<SERIES>
<NUMBER> 133
<NAME> AIM DEVELOPING MARKETS FUND - ADVISOR CLASS
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 117237
<INVESTMENTS-AT-VALUE> 90220
<RECEIVABLES> 1602
<ASSETS-OTHER> 739
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 92561
<PAYABLE-FOR-SECURITIES> 3824
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1037
<TOTAL-LIABILITIES> 4861
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 250014
<SHARES-COMMON-STOCK> 4
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1106
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (136393)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (27027)
<NET-ASSETS> 87700
<DIVIDEND-INCOME> 5875
<INTEREST-INCOME> 4213
<OTHER-INCOME> 241
<EXPENSES-NET> 3460
<NET-INVESTMENT-INCOME> 6869
<REALIZED-GAINS-CURRENT> (83359)
<APPREC-INCREASE-CURRENT> 13741
<NET-CHANGE-FROM-OPS> (62749)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (0)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5
<NUMBER-OF-SHARES-REDEEMED> (1)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (369679)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1741
<INTEREST-EXPENSE> 360
<GROSS-EXPENSE> 4193
<AVERAGE-NET-ASSETS> 191525
<PER-SHARE-NAV-BEGIN> 12.56
<PER-SHARE-NII> 0.68
<PER-SHARE-GAIN-APPREC> (5.09)
<PER-SHARE-DIVIDEND> (0.60)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 7.55
<EXPENSE-RATIO> 1.48
<AVG-DEBT-OUTSTANDING> 4842
<AVG-DEBT-PER-SHARE> 0.28
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS LEGEND CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FUND'S
ANNUAL FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000826644
<NAME> AIM INVESTMENT FUNDS
<SERIES>
<NUMBER> 081
<NAME> AIM EMERGING MARKETS DEBT FUND - CLASS A
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 226999
<INVESTMENTS-AT-VALUE> 181299
<RECEIVABLES> 1421
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 182720
<PAYABLE-FOR-SECURITIES> 0
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<OTHER-ITEMS-LIABILITIES> 2397
<TOTAL-LIABILITIES> 2397
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 293942
<SHARES-COMMON-STOCK> 8818
<SHARES-COMMON-PRIOR> 8610
<ACCUMULATED-NII-CURRENT> (478)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (67442)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (45700)
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<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 39015
<OTHER-INCOME> 957
<EXPENSES-NET> 6590
<NET-INVESTMENT-INCOME> 33382
<REALIZED-GAINS-CURRENT> (69502)
<APPREC-INCREASE-CURRENT> (49143)
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<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (13082)
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<SHARES-REINVESTED> 2191
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<ACCUMULATED-GAINS-PRIOR> 0
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<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 768
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<GROSS-EXPENSE> 6590
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<PER-SHARE-NAV-BEGIN> 15.56
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS LEGEND CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FUND'S
ANNUAL FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000826644
<NAME> AIM INVESTMENT FUNDS
<SERIES>
<NUMBER> 082
<NAME> AIM EMERGING MARKETS DEBT FUND - CLASS B
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
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<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 182720
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2397
<TOTAL-LIABILITIES> 2397
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 293942
<SHARES-COMMON-STOCK> 13918
<SHARES-COMMON-PRIOR> 14676
<ACCUMULATED-NII-CURRENT> (478)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (67442)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (45700)
<NET-ASSETS> 180323
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 39015
<OTHER-INCOME> 957
<EXPENSES-NET> 6590
<NET-INVESTMENT-INCOME> 33382
<REALIZED-GAINS-CURRENT> (69502)
<APPREC-INCREASE-CURRENT> (49143)
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<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (20739)
<DISTRIBUTIONS-OF-GAINS> (40998)
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<NUMBER-OF-SHARES-REDEEMED> (9736)
<SHARES-REINVESTED> 3020
<NET-CHANGE-IN-ASSETS> (185469)
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<AVG-DEBT-PER-SHARE> 0.05
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS LEGEND CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FUND'S
ANNUAL FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000826644
<NAME> AIM INVESTMENT FUNDS
<SERIES>
<NUMBER> 083
<NAME> AIM EMERGING MARKETS DEBT FUND - ADVISOR CLASS
<MULTIPLIER> 1000
<S> <C>
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<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 293942
<SHARES-COMMON-STOCK> 204
<SHARES-COMMON-PRIOR> 240
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<ACCUM-APPREC-OR-DEPREC> (45700)
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<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 39015
<OTHER-INCOME> 957
<EXPENSES-NET> 6590
<NET-INVESTMENT-INCOME> 33382
<REALIZED-GAINS-CURRENT> (69502)
<APPREC-INCREASE-CURRENT> (49143)
<NET-CHANGE-FROM-OPS> (85263)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (342)
<DISTRIBUTIONS-OF-GAINS> (626)
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<NUMBER-OF-SHARES-REDEEMED> (603)
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<NET-CHANGE-IN-ASSETS> (185469)
<ACCUMULATED-NII-PRIOR> 0
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<GROSS-EXPENSE> 6590
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<PER-SHARE-NAV-BEGIN> 15.52
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<AVG-DEBT-PER-SHARE> 0.05
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS LEGEND CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FUND'S
ANNUAL FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000826644
<NAME> AIM INVESTMENT FUNDS
<SERIES>
<NUMBER> 121
<NAME> AIM GLOBAL CONSUMER PRODUCTS AND SERVICES FUND - CLASS A
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
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<PERIOD-END> OCT-31-1998
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<SENIOR-EQUITY> 0
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<SHARES-COMMON-PRIOR> 2823
<ACCUMULATED-NII-CURRENT> (1905)
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 19326
<NET-ASSETS> 166016
<DIVIDEND-INCOME> 1264
<INTEREST-INCOME> 728
<OTHER-INCOME> 61
<EXPENSES-NET> 3958
<NET-INVESTMENT-INCOME> (1905)
<REALIZED-GAINS-CURRENT> 4655
<APPREC-INCREASE-CURRENT> 10773
<NET-CHANGE-FROM-OPS> 13523
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (5575)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1526
<NUMBER-OF-SHARES-REDEEMED> (1879)
<SHARES-REINVESTED> 233
<NET-CHANGE-IN-ASSETS> 3354
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THIS LEGEND CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FUND'S
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THIS LEGEND CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FUND'S
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THIS LEGEND CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FUND'S
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THIS LEGEND CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FUND'S
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THIS LEGEND CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FUND'S
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THIS LEGEND CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FUND'S
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TO SUCH FINANCIAL STATEMENTS.
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<CIK> 0000826644
<NAME> AIM INVESTMENT FUNDS
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THIS LEGEND CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FUND'S
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THIS LEGEND CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FUND'S
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THIS LEGEND CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FUND'S
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<CIK> 0000826644
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THIS LEGEND CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FUND'S
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