<PAGE> 1
As filed with the Securities and Exchange Commission on April 30, 1999
Registration No. 333-68109
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. ___ [ ]
POST-EFFECTIVE AMENDMENT NO. 1 [X]
(Check appropriate box or boxes)
----------------
AIM INVESTMENT FUNDS
(Exact name of Registrant as Specified in Charter)
11 GREENWAY PLAZA, SUITE 100, HOUSTON, TX 77046
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 626-1919
COPY TO:
Jeffrey H. Kupor, 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.,
(Name and Address of Agent for 2nd Floor
Service) Washington, D.C. 20036
It is proposed that this filing will become effective:
[X] Immediately upon filing pursuant to paragraph (b) of Rule 485.
[ ] On pursuant to paragraph (b) of Rule 485.
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485.
[ ] On pursuant to paragraph (a)(1) of Rule 485.
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485.
[ ] On pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE> 2
AIM INVESTMENT FUNDS
CONTENTS OF REGISTRATION STATEMENT
This registration statement consists of the following papers and documents:
o Cover Sheet
o Contents of Registration Statement
o AIM Emerging Markets Fund
Part A - Prospectus*
Part B - Statement of Additional Information**
o Part C - Other Information
o Signature Page
o Exhibits
* Previously filed in Registrant's Registration Statement on Form N-14, SEC
File No. 333-68109, on November 30, 1998.
** Previously filed in Registrant's Registration Statement on Form N-14, SEC
File No. 333-68109, on November 30, 1998, and amended in Pre-Effective
Amendment No. 1 to the Registrant's Registration Statement on Form N-14,
SEC File No. 333-68109, on December 15, 1998.
<PAGE> 3
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION.
STATE THE GENERAL EFFECT OF ANY CONTRACT, ARRANGEMENTS OR STATUTE UNDER
WHICH ANY DIRECTOR, OFFICER, UNDERWRITER OR AFFILIATED PERSON OF THE REGISTRANT
IS INSURED OR INDEMNIFIED IN ANY MANNER AGAINST ANY LIABILITY WHICH MAY BE
INCURRED IN SUCH CAPACITY, OTHER THAN INSURANCE PROVIDED BY ANY DIRECTOR,
OFFICER, AFFILIATED PERSON OR UNDERWRITER FOR THEIR OWN PROTECTION.
The Registrant's Agreement and Declaration of Trust dated May
7, 1998 provides, among other things, (1) that a Trustee
shall not be liable for any act, omission, or obligation of
the Registrant or any Trustee (except for liability to the
Registrant or its shareholders by reason of willful
misfeasance, bad faith, gross negligence, or reckless
disregard of the Trustee's duties); (2) that the Trustees and
Officers shall be indemnified by the Registrant to the
fullest extent permitted by the Delaware Business Trust Act
and other applicable law; and (3) that the shareholders and
former shareholders of the Registrant shall be held harmless
by the Registrant (or applicable portfolio or class) from
personal liability arising from their status as such, and
shall be indemnified by the Registrant (or applicable
portfolio or class) against all loss and expense arising from
such personal liability in accordance with the Registrant's
By-Laws and applicable law.
Section 9 of the Investment Management and Administration
Contract between the Registrant and the Advisor dated
May 29, 1998, provides that the Advisor shall not be liable,
and each series of the Registrant shall indemnify the Advisor
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 the Advisor in the
performance by the Advisor of its duties or from reckless
disregard by the Advisor of its obligations and duties under
the Investment Management and Administration Contract.
Section 8 of the Sub-Advisory and Sub-Administration Contract
between the Advisor and the Sub-advisor dated May 29, 1998,
provides that the Sub-advisor shall not be liable 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 Sub-Advisory and Sub-Administration Contract
relates except a loss resulting from willful misfeasance,
bad faith or gross negligence on the part of the Sub-advisor
in the performance by the Sub-advisor of its duties or
from reckless disregard by the Sub-advisor of its obligations
and duties under the Sub-Advisory and Sub-Administration Contract.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
(1) - Agreement and Declaration of Trust of the Registrant was filed as an Exhibit to Post-
Effective Amendment No. 55 to the Registration Statement on Form N-1A, filed August
26, 1998, and is hereby incorporated by reference.
(2) - Bylaws of the Registrant were filed as an exhibit to Post-Effective Amendment No. 55
to the Registration Statement on Form N-1A, filed August 26, 1998, and is hereby
incorporated by reference.
(3) - Voting Trust Agreements - None.
(4) - A copy of the form of Plan of Reorganization and Termination was attached as Appendix I
to the Prospectus contained in the Registration Statement on Form N-14, filed November 30,
1998, and is hereby incorporated by reference.
(5) - Provisions of instruments defining the rights of holders of Registrant's securities are
contained in the Declaration of Trust Articles II, VI, VII, VIII and IX and By-laws
Articles IV, V, VI, VII and VIII, which were filed as an Exhibit to Post-Effective
Amendment No. 55 to the Registration Statement on Form N-1A, filed August 26, 1998,
and are hereby incorporated by reference.
(6) (a) - Investment Management and Administration Contract between Registrant and A I M
Advisors, Inc. was filed as an exhibit to Post-Effective Amendment No. 55 to the
Registration Statement on Form N-1A, filed August 26, 1998, and is hereby incorporated
by reference.
(b) - Administration Contract between Registrant and A I M Advisors, Inc. was filed as an
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
exhibit to Post-Effective Amendment No. 55 to the Registration Statement on Form
N-1A, filed August 26, 1998, and is hereby incorporated by reference.
(c) - Sub-Administration Contract 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
to the Registration Statement on Form N-1A, filed August 26, 1998, and is hereby
incorporated by reference.
(d) - 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 to the Registration Statement on Form
N-1A, dated August 26, 1998, and is hereby incorporated by reference.
(e) - Fund Accounting and Pricing Agreement between Registrant and INVESCO (NY), INC. is
filed as an exhibit to Post-Effective Amendment No. 55 to the Registration
Statement on Form N-1A, filed August 26, 1998, and is hereby incorporated by
reference.
(7) (a) - Distribution Agreement 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 to the
Registration Statement on Form N-1A, filed August 26, 1998, and is hereby incorporated
by reference.
(b) - Distribution Agreement 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 to the
Registration Statement on Form N-1A, filed August 26, 1998, and is hereby
incorporated by reference.
(c) - Distribution Agreement 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
to the Registration Statement on Form N-1A, filed August 26, 1998, and is hereby
incorporated by reference.
(8) - Agreements Concerning Officers and Directors/Trustees Benefits - None.
(9) (a) - Custodian Agreement between Registrant and State Street Bank and Trust Company was
filed as an exhibit to Post-Effective Amendment No. 55 to the Registration Statement
on Form N-1A, filed August 26, 1998, and is hereby incorporated by reference.
(b) - Transfer Agency and Service Agreement between Registrant and A I M Fund Services,
Inc. was filed as an exhibit to Post-Effective Amendment No. 55 to the Registration
Statement on Form N-1A, filed August 26, 1998, and is hereby incorporated by
reference.
(c) - Remote Access and Related Services Agreement, dated as of December 23, 1994,
between the Registrant and First Data Investor Services Group, Inc. (formerly, The
Shareholder Services Group, Inc.) was filed as an exhibit to Post-Effective Amendment
No. 55 to the Registration Statement on Form N-1A, filed August 26, 1998, and is
hereby incorporated by reference.
(d) - Amendment No. 1, dated October 4, 1995, to the Remote Access and Related Services
Agreement, dated as of December 23, 1994, between Registrant and First Data
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
Investor Services Group, Inc. (formerly, The Shareholder Services Group, Inc.) was
filed as an exhibit to Post-Effective Amendment No. 55 to the Registration
Statement on Form N-1A, filed August 26, 1998, and is hereby incorporated by
reference.
(e) - Addendum No. 2, dated October 12, 1995, to the Remote Access and Related Services
Agreement, dated as of December 23, 1994, between Registrant and First Data
Investor Services Group, Inc. (formerly, The Shareholder Services Group, Inc.) was
filed as an exhibit to Post-Effective Amendment No. 55 to the Registration
Statement on Form N-1A, filed August 26, 1998, and is hereby incorporated by
reference.
(f) - Amendment No. 3, dated February 1, 1997, to the Remote Access and Related Services
Agreement, dated as of December 23, 1994, between Registrant and First Data
Investor Services Group, Inc. (formerly, The Shareholder Services Group, Inc.) was
filed as an exhibit to Post-Effective Amendment No. 55 to the Registration
Statement on Form N-1A, filed August 26, 1998, and is hereby incorporated by
reference.
(g) - Exhibit 1, effective as of August 4, 1997, to the Remote Access and Related
Services Agreement, dated as of December 23, 1994, between Registrant and First
Data Investor Services Group, Inc. (formerly, The Shareholder Services Group, Inc.)
was filed as an exhibit to Post-Effective Amendment No. 55 to the Registration
Statement on Form N-1A, filed August 26, 1998, and is hereby incorporated by
reference.
(h) - Preferred Registration Technology Escrow Agreement, dated September 10, 1997,
between Registrant and First Data Investor Services Group, Inc. (formerly, The
Shareholder Services Group, Inc.) was filed as an exhibit to Post-Effective Amendment
No. 55 to the Registration Statement on Form N-1A, filed August 26, 1998, and is
hereby incorporated by reference.
(10) (a) - Form of Distribution Plan adopted pursuant to Rule 12b-1 with respect to Class A shares
was filed as an Exhibit to Post-Effective Amendment No. 53 to the Registration
Statement on Form N-1A, dated May 29, 1998, and is hereby incorporated by reference.
(b) - Form of Distribution Plan adopted pursuant to Rule 12b-1 with respect to Class B
shares was filed as an Exhibit to Post-Effective Amendment No. 53 to the
Registration Statement on Form N-1A, dated May 29, 1998, and is hereby incorporated
by reference.
(c) - Rule 18f-3 Multiple Class Plan was filed as an Exhibit to Post-Effective Amendment
No. 55 to the Registration Statement on Form N-1A, dated August 26, 1998, and is
hereby incorporated by reference.
(11) (a) - Opinion and Consent of Kirkpatrick & Lockhart LLP as to the legality of the
securities being registered was filed electronically as an Exhibit to the Registration
Statement on Form N-14 on November 30, 1998, and is hereby incorporated by reference.
(b) - Opinion and Consent of Delaware Counsel was filed electronically as an exhibit to the
Registration Statement on Form N-14 on November 30, 1998, and is hereby incorporated
by reference.
(12) - Opinion and Consent of Kirkpatrick & Lockhart LLP supporting the tax matters and
consequences to shareholders discussed in the prospectus is filed herewith electronically.
(13) (a) - Selected Dealer Agreement was filed as an Exhibit to Post-Effective Amendment No.
53 to the Registration Statement on Form N-1A, dated May 29, 1998, and is hereby
incorporated by reference.
</TABLE>
<PAGE> 6
<TABLE>
<S> <C>
(b) - Bank Sales Contract was filed as an Exhibit to Post-Effective Amendment No. 53 to
the Registration Statement on Form N-1A, dated May 29, 1998, and is hereby
incorporated by reference.
(c) - Shareholder Service Agreement was filed as an Exhibit to Post-Effective Amendment
No. 53 to the Registration Statement on Form N-1A, dated May 29, 1998, and is
hereby incorporated by reference.
(d) - Bank Shareholder Service Agreement was filed as an Exhibit to Post-Effective
Amendment No. 53 to the Registration Statement on Form N-1A, dated May 29, 1998, and
is hereby incorporated by reference.
(e) - Service Agreement for Bank Trust Department and for Broker is filed as an exhibit
to Post-Effective Amendment No. 55 to the Registration Statement on Form N-1A,
filed August 26, 1998, and is hereby incorporated by reference.
(14) - Consent of PricewaterhouseCoopers LLP was filed electronically as an exhibit to
Pre-Effective Amendment No. 1 to the Registration Statement on Form N-14 on December 15,
1998, and is hereby incorporated by reference.
(15) - Financial Statements - None.
(16) - Powers of Attorney - None.
(17) (a) - Form of Proxy was filed electronically as an Exhibit to the Registration
Statement on Form N-14 on November 30, 1998, and is hereby incorporated by reference.
(b) - Prospectus of AIM Emerging Markets Fund was filed electronically as an Exhibit to the
Registration Statement on Form N-14 on November 30, 1998, and is hereby incorporated
by reference.
</TABLE>
ITEM 17. UNDERTAKINGS.
None.
<PAGE> 7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Post-Effective Amendment to the
Registration Statement on Form N-14 to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Houston, and the State
of Texas, on the 30 day of April, 1999.
AIM INVESTMENT FUNDS
Registrant
By: /s/ ROBERT H. GRAHAM
--------------------------------
Robert H. Graham
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement on Form N-14 has been
signed below by the following persons in the capacities indicated on the 30
day of April, 1999.
/s/ ROBERT H. GRAHAM
- ----------------------------------
Robert H. Graham President, Trustee and
Chairman of the Board
(Principal Executive Officer)
/s/ DANA R. SUTTON
- ----------------------------------
Dana R. Sutton Vice President and Treasurer
(Chief Accounting Officer)
/s/ C. DEREK ANDERSON
- ----------------------------------
C. Derek Anderson Trustee
/s/ ARTHUR C. PATTERSON
- ----------------------------------
Arthur C. Patterson Trustee
/s/ FRANK S. BAYLEY
- ----------------------------------
Frank S. Bayley Trustee
/s/ RUTH H. QUIGLEY
- ----------------------------------
Ruth H. Quigley Trustee
<PAGE> 8
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
12 Opinion and Consent of Kirkpatrick & Lockhart LLP supporting
the tax matters and consequences to shareholders.
<PAGE> 1
EXHIBIT 12
[KIRKPATRICK & LOCKHART LLP LETTERHEAD]
February 12, 1999
AIM Investment Funds
11 Greenway Plaza, Suite 100
Houston, TX 77046
Ladies and Gentlemen:
AIM Investment Funds (formerly G.T. Investment Funds, Inc.) ("Trust"),
on behalf of AIM Emerging Markets Fund ("Target") and AIM Developing Markets
Fund ("Acquiring Fund"), each a segregated portfolio of assets ("series") of
Trust,(1) has requested our opinion as to certain federal income tax
consequences of the proposed acquisition of Target by Acquiring Fund pursuant to
a Plan of Reorganization and Termination adopted by Trust effective as of
November 30, 1998 ("Plan"). Specifically, Trust has requested our opinion:
(1) that Target's transfer of its assets to Acquiring Fund in
exchange solely for voting shares of beneficial interest in Acquiring
Fund ("Acquiring Fund Shares") and the assumption by Acquiring Fund of
Target's liabilities, followed by the distribution of those shares by
Target pro rata to its shareholders of record determined as of the
Effective Time (as herein defined) ("Shareholders"), constructively in
exchange for their shares of beneficial interest in Target ("Target
Shares") (such transactions sometimes being referred to herein
collectively as the "Reorganization"), will qualify as a
"reorganization" within the meaning of section 368(a)(1)(D)(2) and that
each Fund will be a "party to a reorganization" within the meaning of
section 368(b),
(2) that neither the Funds nor the Shareholders will recognize
any gain or loss on the Reorganization, and
(3) regarding the basis and holding period after the
Reorganization of the transferred assets and the Acquiring Fund Shares
issued pursuant thereto.
In rendering this opinion, we have examined (1) the Funds' currently
effective prospectuses and statements of additional information ("SAIs"), (2)
the Plan, (3) the prospectus/proxy statement
- ----------------
(1) Target and Acquiring Fund are sometimes referred to herein individually as
a "Fund" and collectively as the "Funds."
(2) All section references are to the Internal Revenue Code of 1986, as amended
("Code"), unless otherwise noted, and all "Treas. Reg. Section" references are
to the regulations under the Code ("Regulations").
<PAGE> 2
[KIRKPATRICK & LOCKHART LLP LETTERHEAD]
AIM Investment Funds
February 12, 1999
Page 2
dated December 28, 1998, that was furnished in connection with the solicitation
of proxies by Trust's board of trustees for use at a special meeting of Target
shareholders held on February 10, 1999 ("Proxy Statement"), and (4) other
documents we have deemed necessary or appropriate for the purposes hereof. As to
various matters of fact material to this opinion, we have relied, exclusively
and without independent verification, on statements of responsible officers of
Trust and the representations described below and made in the Plan (as provided
in paragraph 5.6 thereof) (collectively "Representations").
FACTS
Trust is a business trust organized under the Delaware Business Trust
Act (Del. Code Ann. title 12, Section 3801 et seq. (1977)) ("Delaware Act")
pursuant to an Agreement and Declaration of Trust dated May 7, 1998
("Declaration of Trust"); each Fund is a series thereof. Trust is registered
with the Securities and Exchange Commission ("SEC") as an open-end management
investment company under the Investment Company Act of 1940, as amended ("1940
Act") ("Open-End Investment Company"). The Target Shares are divided into three
classes, designated Class A, Class B, and Advisor Class shares ("Class A Target
Shares," "Class B Target Shares," and "Advisor Class Target Shares,"
respectively). The Acquiring Fund Shares are divided into three classes, also
designated Class A, Class B, and Advisor Class shares ("Class A Acquiring Fund
Shares," "Class B Acquiring Fund Shares," and "Advisor Class Acquiring Fund
Shares," respectively), substantially identical to the classes of Target Shares.
The Reorganization, together with all related acts necessary to
consummate it, will take place on February 12, 1999, or on such later date as
the conditions thereto are satisfied ("Closing Date"). At or immediately before
5:00 p.m., Central time, on the Closing Date ("Effective Time"), Target will
declare and pay to its shareholders a dividend and/or other distribution in an
amount large enough so that it will have distributed substantially all (and in
any event not less than 90%) of its investment company taxable income (computed
without regard to any deduction for dividends paid) and substantially all of its
realized net capital gain, if any, for the current taxable year through the
Effective Time.
The Funds' investment objectives and policies, which are substantially
similar, are described in the Proxy Statement and their respective prospectuses
and SAIs. The Funds also have the same investment adviser, sub-adviser (and
Target's two portfolio managers are two of Acquiring Fund's three portfolio
managers), transfer agent, custodian, and distributor.
In considering the Reorganization, Trust's board of directors ("board")
made an extensive inquiry into a number of factors (which are described in the
Proxy Statement, together with a discussion of the reasons for the
Reorganization). Pursuant thereto, the board approved the Plan, subject to
approval of Target's shareholders. In doing so, the board, including a majority
of its members who are not "interested persons" (as that term is defined in the
1940 Act) thereof, determined that the Reorganization is in Target's best
interests and that Target's shareholders' interests will not be diluted as a
result of the Reorganization.
<PAGE> 3
[KIRKPATRICK & LOCKHART LLP LETTERHEAD]
AIM Investment Funds
February 12, 1999
Page 3
The Plan, which specifies that it is intended to be, and is adopted as,
a plan of reorganization within the meaning of Treas. Reg. Section 1.368-2(g),
provides in relevant part for the following:
(1) The acquisition by Acquiring Fund of all cash, cash
equivalents, securities, receivables (including dividend and interest
receivables), claims and rights of action, rights to register shares
under applicable securities laws, books and records, deferred and
prepaid expenses shown as assets on Target's books, and other property
owned by Target at the close of regular trading on the New York Stock
Exchange, or such other time as Trust may determine, on the Closing
Date ("Valuation Time") (collectively "Assets"), in exchange solely for
(a) the number of full and fractional (to the third
decimal place) (i) Class A Acquiring Fund Shares determined by
dividing the total value of the Assets less the amount of the
Liabilities (as defined below) as of the Valuation Time
("Target's Net Value") attributable to the Class A Acquired
Fund Shares by the net asset value ("NAV") per Class A
Acquiring Fund Share as of that time, (ii) Class B Acquiring
Fund Shares determined by dividing Target's Net Value
attributable to the Class B Acquired Fund Shares by the NAV
per Class B Acquiring Fund Share as of the Valuation Time, and
(iii) Advisor Class Acquiring Fund Shares determined by
dividing Target's Net Value attributable to the Advisor Class
Acquired Fund Shares by the NAV per Advisor Class Acquiring
Fund Share as of the Valuation Time, and
(b) Acquiring Fund's assumption of all of Target's
liabilities, debts, obligations, and duties of whatever kind
or nature, whether absolute, accrued, contingent, or
otherwise, whether or not arising in the ordinary course of
business, whether or not determinable at the Valuation Time,
and whether or not specifically referred to in the Plan
(collectively "Liabilities"), subject to Target's agreement to
use its reasonable best efforts to discharge all of its known
Liabilities, so far as may be possible, prior to the Closing
Date,
(2) The constructive distribution of such Acquiring Fund
Shares to the Shareholders, by class, and
(3) The termination of Target as a designated series of Trust
as soon as reasonably practicable, but no later than six months, after
the Closing Date.
On completion of the distribution described in (2), all outstanding Target
Shares will be cancelled on Trust's books.
Section 9.1 of the Declaration of Trust provides that "[i]t is intended
that the Trust, or each [series] if there is more than one [series], be
classified for income tax purposes as an association taxable as a corporation,
and the Trustees shall do all things that they . . . determine are necessary to
achieve
<PAGE> 4
[KIRKPATRICK & LOCKHART LLP LETTERHEAD]
AIM Investment Funds
February 12, 1999
Page 4
that objective, including (if they so determine) electing such classification on
Internal Revenue Form 8832."
REPRESENTATIONS
Trust has represented and warranted to us as follows:
(1) The aggregate fair market value of the Acquiring Fund
Shares of each class to be received by the Shareholders will be
approximately equal to the aggregate fair market value of the Target
Shares of the corresponding class constructively surrendered in
exchange therefor;
(2) There is no plan or intention of Shareholders who own 5%
or more of the Target Shares, and to the best of Trust's knowledge the
remaining Shareholders have no present plan or intention, of selling,
exchanging, redeeming, or otherwise disposing of a number of the
Acquiring Fund Shares to be received by them in connection with the
Reorganization that would reduce the Shareholders' ownership of issued
and outstanding Acquiring Fund Shares to a number of shares having a
value, as of the Closing Date, of less than 50% of the value of all the
formerly outstanding Target Shares as of the same date. Shares of
either Fund held by the Shareholders and otherwise sold, redeemed, or
disposed of before or after the Reorganization will be considered in
making this representation, except for shares that have been, or will
be, redeemed by either Fund in the ordinary course of its business as a
series of an Open-End Investment Company;
(3) Pursuant to the Reorganization, Target will transfer to
Acquiring Fund, and Acquiring Fund will acquire, at least 90% of the
fair market value of the net assets, and at least 70% of the fair
market value of the gross assets, held by Target immediately before the
Reorganization. For the purposes of this calculation, any amounts used
by Target to pay its Reorganization expenses and redemptions and
distributions made by it immediately before the Reorganization (except
for (a) distributions made to conform to its policy of distributing all
or substantially all of its income and gains to avoid the obligation to
pay federal income tax and/or the excise tax under section 4982 and (b)
redemptions not made as part of the Reorganization) will be included as
assets thereof held immediately before the Reorganization;
(4) Each Fund is a "fund" as defined in section 851(g)(2);
each Fund qualified for treatment as a regulated investment company
under Subchapter M of the Code ("RIC") for each past taxable year since
it commenced operations and will continue to meet all the requirements
for such qualification for its current taxable year; and each Fund has
no earnings and profits accumulated in any taxable year in which the
provisions of Subchapter M did not apply to it;
(5) At the time of the Reorganization, Target shall not have
outstanding any warrants, options, convertible securities, or any other
type of right pursuant to which any person could acquire Target Shares,
except for the right of investors to acquire Target Shares at NAV in
the ordinary course of its business as a series of an Open-End
Investment Company;
<PAGE> 5
[KIRKPATRICK & LOCKHART LLP LETTERHEAD]
AIM Investment Funds
February 12, 1999
Page 5
(6) From the date it commenced operations and ending on the
Closing Date, Target will have conducted its "historic business"
(within the meaning of Treas. Reg. Section 1.368-1(d)(2)) in a
substantially unchanged manner; and in anticipation of the
Reorganization, Target will not dispose of Assets that, in the
aggregate, will result in less than 50% of its "historic business
assets" (within the meaning of Treas. Reg. Section 1.368-1(d)(3)) being
transferred to Acquiring Fund. Following the Reorganization, Acquiring
Fund will continue that historic business or use a significant portion
of such historic business assets in a business; and Acquiring Fund has
no plan or intention to sell or otherwise dispose of any of the Assets,
other than in the ordinary course of its business and to the extent
necessary to maintain its status as a RIC;
(7) Neither Fund is under the jurisdiction of a court in a
proceeding under Title 11 of the United States Code or similar case
within the meaning of section 368(a)(3)(A);
(8) Not more than 25% of the value of the total Assets
(excluding cash, cash equivalents, and U.S. government securities) is
invested in the stock and securities of any one issuer, and not more
than 50% of the value of such Assets is invested in the stock and
securities of five or fewer issuers; and immediately after the
Reorganization, (a) not more than 25% of the value of Acquiring Fund's
total assets (excluding cash, cash items, and U.S. government
securities) will be invested in the stock and securities of any one
issuer and (b) not more than 50% of the value of such assets will be
invested in the stock and securities of five or fewer issuers;
(9) The Liabilities were incurred by Target in the ordinary
course of business;
(10) The Shareholders will pay their own expenses, if any,
incurred in connection with the Reorganization;
(11) Acquiring Fund does not directly or indirectly own, nor
will it have owned at any time during the five-year period ending on
the Closing Date, directly or indirectly, any shares of Target;
(12) Acquiring Fund has no plan or intention (a) to issue
additional shares of beneficial interest therein following the
Reorganization, except for shares issued in the ordinary course of its
business as a series of an Open-End Investment Company, or (b) to
reacquire any of the Acquiring Fund Shares issued in the
Reorganization, except to the extent that Acquiring Fund is required by
the 1940 Act to redeem any of its shares presented for redemption at
NAV in the ordinary course of that business;
(13) No consideration other than the Acquiring Fund Shares
(and Acquiring Fund's assumption of the Liabilities) will be issued in
exchange for the Assets in connection with the Reorganization;
(14) There is no plan or intention for Acquiring Fund to be
dissolved or merged into another business trust or a corporation or any
"fund" thereof (within the meaning of section 851(g)(2)) following the
Reorganization;
<PAGE> 6
[KIRKPATRICK & LOCKHART LLP LETTERHEAD]
AIM Investment Funds
February 12, 1999
Page 6
(15) There is no intercompany indebtedness between the Funds
that was issued or acquired, or will be settled, at a discount;
(16) The fair market value on a going concern basis of the
Assets will equal or exceed the sum of the Liabilities to be assumed by
Acquiring Fund plus the Liabilities to which the Assets are subject;
and
(17) Immediately after the Reorganization, the Shareholders
will be in "control" of Acquiring Fund within the meaning of section
304(c).
OPINION
Based solely on the facts set forth above, and conditioned on the
Representations being true at the Effective Time and the Reorganization being
consummated in accordance with the Plan, our opinion (as explained more fully in
the next section of this letter) is as follows:
(1) Target's transfer of the Assets to Acquiring Fund in
exchange solely for Acquiring Fund Shares and Acquiring Fund's
assumption of the Liabilities, followed by Target's distribution of
those shares pro rata to the Shareholders constructively in exchange
for their Target Shares, will qualify as a reorganization within the
meaning of section 368(a)(1)(D), and each Fund will be "a party to a
reorganization" within the meaning of section 368(b);
(2) Target will recognize no gain or loss on its transfer of
the Assets to Acquiring Fund in exchange solely for Acquiring Fund
Shares and Acquiring Fund's assumption of the Liabilities or on the
subsequent distribution of those shares to the Shareholders in
constructive exchange for their Target Shares;
(3) Acquiring Fund will recognize no gain or loss on its
receipt of the Assets from Target in exchange for Acquiring Fund Shares
and its assumption of the Liabilities;
(4) Acquiring Fund's basis for the Assets will be the same as
Target's basis therefor immediately before the Reorganization, and
Acquiring Fund's holding period for the Assets will include Target's
holding period therefor;
(5) A Shareholder will recognize no gain or loss on the
constructive exchange of all its Target Shares solely for Acquiring
Fund Shares pursuant to the Reorganization; and
(6) A Shareholder's basis for the Acquiring Fund Shares to be
received by it in the Reorganization will be the same as the basis for
its Target Shares to be constructively surrendered in exchange for
those Acquiring Fund Shares, and its holding period for those Acquiring
Fund Shares will include its holding period for those Target Shares,
provided they are held as capital assets by the Shareholder on the
Closing Date.
The foregoing opinion (1) is based on, and is conditioned on the
continued applicability of, the provisions of the Code and the Regulations,
judicial decisions, and rulings and other pronouncements
<PAGE> 7
[KIRKPATRICK & LOCKHART LLP LETTERHEAD]
AIM Investment Funds
February 12, 1999
Page 7
of the Internal Revenue Service ("Service") in existence on the date hereof and
(2) is applicable only to the extent each Fund is solvent. We express no opinion
about the tax treatment of the transactions described herein if either Fund is
insolvent.
ANALYSIS
I. The Reorganization Will Qualify as a Reorganization under Section
368(a)(1)(D), and Each Fund Will Be a Party to a Reorganization.
A. Each Fund Is a Separate Corporation.
A reorganization under section 368(a)(1)(D) (a "D Reorganization")
involves a transfer by a corporation of all or a part of its assets to another
corporation if immediately after the transfer the transferor, or one or more of
its shareholders (including persons who were shareholders immediately before the
transfer), or any combination thereof, is in control of the transferee
corporation; but only if, pursuant to the plan of reorganization, stock or
securities of the transferee corporation are distributed in a transaction that
qualifies under sections 354, 355, or 356.(3) For a transaction to qualify as a
D Reorganization, therefore, both entities involved therein must be corporations
(or associations taxable as corporations). Trust, however, is a business trust,
not a corporation, and each Fund is a separate series thereof.
Treasury Regulation section 301.7701-4(b) provides that certain
arrangements known as trusts (because legal title is conveyed to trustees for
the benefit of beneficiaries) will not be classified as trusts for purposes of
the Code because they are not simply arrangements to protect or conserve the
property for the beneficiaries. That section of the Regulations states that
these "business or commercial trusts" generally are created by the beneficiaries
simply as devices to carry on profit-making businesses that normally would have
been carried on through business organizations classified as corporations or
partnerships under the Code and concludes that the fact that any organization is
technically cast in the trust form will not change its real character if it "is
more properly classified as a business entity under [Treas. Reg.] Section
301.7701-2."(4) Furthermore, pursuant to Treas. Reg. Section 301.7701-4(c)(1),
"[a]n `investment' trust will not be classified as a
- ----------------
(3) For purposes of section 368(a)(1)(D), in the case of a transaction such as
the Reorganization, the term "control" means ownership of stock possessing at
least 50% of the total combined voting power of all classes of stock entitled to
vote or at least 50% of the total value of shares of all classes of stock. See
Sections 368(a)(2)(H)(i) and 304(c).
(4) On December 10, 1996, the Service adopted Regulations for classifying
business organizations (Treas. Reg. Sections 301.7701-1 through -3 and parts of
- -4, the so-called "check-the-box Regulations") to replace the provisions in the
then-existing Regulations that "have become increasingly formalistic. [The
check-the-box Regulations replace] those rules with a much simpler approach that
generally is elective." T.D. 8697, 1997-2 I.R.B. 11. Treasury Regulation section
301.7701-2(a) provides that "a business entity is any entity recognized for
federal tax purposes...that is not properly classified as a trust under [Treas.
Reg.] Section 301.7701-4 or otherwise subject to special treatment under the
...Code." Trust is not subject to any such special treatment.
<PAGE> 8
[KIRKPATRICK & LOCKHART LLP LETTERHEAD]
AIM Investment Funds
February 12, 1999
Page 8
trust if there is a power under the trust agreement to vary the investment of
the certificate holders. See Commissioner v. North American Bond Trust, 122 F.2d
545 (2d Cir. 1941), cert. denied, 314 U.S. 701 (1942)."
Based on these criteria, Trust does not qualify as a trust for federal
income tax purposes. Trust is not simply an arrangement to protect or conserve
property for the beneficiaries but is designed to carry on a profit-making
business. Furthermore, while Trust is an "investment trust," there is a power
under the Declaration of Trust to vary its shareholders' investment therein.
Trust does not have a fixed pool of assets -- Acquired Fund (as well as each
other series thereof) has been a managed portfolio of securities, and its
investment adviser and sub-adviser have had the authority to buy and sell
securities for it. Trust is not simply an arrangement to protect or conserve
property for the beneficiaries, but it is designed to carry on a profit-making
business. Accordingly, we believe that Trust will not be classified as a trust,
and instead will be classified as a business entity, for federal income tax
purposes.
Treasury Regulation Section 301.7701-2(a) provides that "[a] business
entity with two or more members is classified for federal income tax purposes as
either a corporation or a partnership." The term "corporation" is defined for
those purposes (in Treas. Reg. Section 301.7701-2(b)) to include corporations
denominated as such under the federal or state statute pursuant to which they
were organized and certain other entities. Any business entity that is not
classified as a corporation under that Regulation (an "eligible entity") and has
at least two members can elect to be classified as either an association (and
thus a corporation) or a partnership. Treas. Reg. Section 301.7701-3(a). The
default classification for a multi-member domestic eligible entity is a
partnership. See Treas. Reg. Section 301.7701-3(b)(1)(i) ("unless the entity
elects otherwise, a domestic eligible entity is a partnership if it has two or
more members"). Thus, unless Trust elects otherwise, it will be classified as a
partnership for federal income tax purposes.(5) Section 9.1 of the Declaration
of Trust, however, states the intention that "the Trust, or each [series] if
there is more than one [series], be classified for income tax purposes as an
association taxable as a corporation" and directs the trustees to do everything
they deem necessary to achieve that objective, including electing such
classification on Internal Revenue Form 8832 (Entity Classification Election).
Accordingly, assuming that Trust implements that intention, including filing
such form if necessary,(6) we believe that Trust will be classified as a
corporation for federal income tax purposes.
Trust as such, however, is not participating in the Reorganization, but
rather two separate series thereof (the Funds) are the participants. Ordinarily,
a transaction involving segregated pools of assets (such as the Funds) could not
qualify as a reorganization, because the pools would not be
- ----------------
(5) It is interesting to note that under the law that existed before the
check-the-box Regulations, the word "association" had been held to include a
Massachusetts business trust (see Hecht v. Malley, 265 U.S. 144 (1924)), which
for these purposes has similar characteristics to a Delaware business trust,
such as Trust.
(6) Absent filing such form, Trust could nevertheless achieve the intended
result because if it were classified as a partnership rather than as a
corporation, then it would be a "publicly traded partnership" under section
7704, which is "treated as a corporation" for federal tax purposes.
<PAGE> 9
[KIRKPATRICK & LOCKHART LLP LETTERHEAD]
AIM Investment Funds
February 12, 1999
Page 9
corporations. Under section 851(g), however, each Fund is treated as a separate
corporation for all purposes of the Code save the definitional requirement of
section 851(a) (which is satisfied by Trust). Also see section 3806(b)(2) of the
Delaware Act (implying the separateness of the series of a Delaware business
trust). Accordingly, we believe that each Fund will be a separate corporation,
and their shares will be treated as shares of corporate stock, for purposes of
section 368(a)(1)(D).
B. Transfer of "Substantially All" of the Properties.
Section 354(b)(1)(A) provides that, for an exchange pursuant to a plan
of a D Reorganization to receive tax-free treatment under section 354 (see V
below), the transferee corporation must acquire "substantially all" of the
assets of the transferor. For purposes of issuing private letter rulings, the
Service considers the transfer of at least 70% of the transferor's gross assets,
and at least 90% of its net assets, held immediately before the reorganization
to satisfy the "substantially all" requirement. Rev. Proc. 77-37, 1977-2 C.B.
568. We believe the Plan constitutes a "plan of reorganization" within the
meaning of Treas. Reg. Section 1.368-2(g); and the Reorganization will involve
such a transfer. Accordingly, we believe that the Reorganization will involve
the transfer to Acquiring Fund of substantially all of Target's properties.
C. Requirements of Continuity.(7)
Treasury Regulation section 1.368-1(b) sets forth two prerequisites to
a valid reorganization: (1) a continuity of the business enterprise through the
issuing corporation -- defined in the Regulation as "the acquiring corporation
(as that term is used in section 368(a))," with an exception not relevant here
- -- under the modified corporate form as described in Treas. Reg. Section
1.368-1(d) ("continuity of business enterprise") and (2) a continuity of
interest as described in Treas. Reg. Section 1.368-1(e) ("continuity of
interest").
1. Continuity of Business Enterprise.
To satisfy the continuity of business enterprise requirement of Treas.
Reg. Section 1.368-1(d)(1), the issuing corporation must either (i) continue the
target corporation's historic business ("business continuity") or (ii) use a
significant portion of the target corporation's assets in a business ("asset
continuity").
While there is no authority that deals directly with the requirement of
continuity of business enterprise in the context of a transaction such as the
Reorganization, Rev. Rul. 87-76, 1987-2 C.B. 84, deals with a somewhat similar
situation. In that ruling, P was a RIC that invested exclusively in municipal
securities. P acquired the assets of T in exchange for P common stock in a
transaction that
- ----------------
(7) On January 23, 1998, the Service released final Regulations dealing with
both continuity requirements described below and temporary Regulations dealing
with the continuity of interest requirement (collectively, "Continuity
Regulations"). The Continuity Regulations generally apply to transactions
occurring after January 28, 1998, with an exception not relevant here.
Accordingly, the references below to Treas. Reg. Sections 1.368-1(b), (d), and
(e) are to those sections as adopted by the Continuity Regulations.
<PAGE> 10
[KIRKPATRICK & LOCKHART LLP LETTERHEAD]
AIM Investment Funds
February 12, 1999
Page 10
was intended to qualify as a reorganization under Section 368(a)(1)(C) (the
acquisition by one corporation, in exchange solely for voting stock, of
substantially all the properties of another corporation), which also is subject
to the continuity of business enterprise requirement. Prior to the exchange, T
sold its entire portfolio of corporate securities and purchased a portfolio of
municipal securities. The Service held that this transaction did not qualify as
a reorganization for the following reasons: (1) because T had sold its historic
assets prior to the exchange, there was no asset continuity; and (2) the failure
of P to engage in the business of investing in corporate securities after the
exchange caused the transaction to lack business continuity as well.
The Funds' investment objectives and policies are substantially
similar, and they have the same investment adviser and sub-adviser (and, to a
large extent, the same portfolio managers). Moreover, following the
Reorganization, Acquiring Fund will continue Target's "historic business" or use
a significant portion of Target's "historic business assets" (as those terms are
defined in Treas. Reg. Section 1.368-1(d)(2) and (3), respectively) in a
business; and Acquiring Fund has no plan or intention to sell or otherwise
dispose of any of the Assets, other than in the ordinary course of its business
and to the extent necessary to maintain its status as a RIC. Accordingly, there
will be business continuity and/or asset continuity.
For all the foregoing reasons, we believe that the Reorganization will
meet the continuity of business enterprise requirement.(8)
2. Continuity of Interest.
Treasury Regulation section 1.368-1(e)(1)(i) provides that
"[c]ontinuity of interest requires that in substance a substantial part of the
value of the proprietary interests in the target corporation be preserved in the
reorganization. A proprietary interest in the target corporation is preserved
if, in a potential reorganization, it is exchanged for a proprietary interest in
the issuing corporation . . . ." That Regulation goes on to provide that
"[h]owever, a proprietary interest in the target corporation is not preserved
if, in connection with the potential reorganization, . . . stock of the issuing
corporation furnished in exchange for a proprietary interest in the target
corporation in the potential reorganization is redeemed. All facts and
circumstances must be considered in determining whether, in substance, a
proprietary interest in the target corporation is preserved."
The Fifth Circuit has ruled that a redemption of 48% of the stock of a
transferor corporation was not a sufficient shift in proprietary interest to
disqualify a transaction as a reorganization under section 368(a)(1)(F) ("a mere
change in identity, form, or place or organization") ("F Reorganization"), even
though only 52% of the transferor's shareholders would hold all the stock in the
transferee. Reef Corp. v. Commissioner, 368 F.2d 125 (5th Cir. 1966), cert.
denied, 386 U.S. 1018 (1967); see also Aetna Casualty and Surety Co. v. U.S.,
568 F.2d 811, 822-23 (2d Cir. 1976) (redemption of a 38.39% minority interest
did not prevent a
- ----------------
(8) See Priv. Ltr. Rul. 9749013 (Sept. 5, 1997) (acquisition of one closed-end
investment company by another).
<PAGE> 11
[KIRKPATRICK & LOCKHART LLP LETTERHEAD]
AIM Investment Funds
February 12, 1999
Page 11
transaction from qualifying as an F Reorganization). For purposes of issuing
private letter rulings, the Service considers the continuity of interest
requirement satisfied if ownership in an acquiring corporation on the part of a
transferor corporation's former shareholders is equal in value to at least 50%
of the value of all the formerly outstanding shares of the transferor
corporation. Rev. Proc. 77-37, 1977-2 C.B. 568; but see Rev. Rul. 56-345, 1956-2
C.B. 206 (continuity of interest was held to exist in a reorganization of two
RICs where immediately after the reorganization 26% of the shares were redeemed
in order to allow investment in a third RIC); Rev. Rul. 61-156, 1961-2 C.B. 62
(a transaction qualified as an F Reorganization even though the transferor's
shareholders acquired only 45% of the transferee's stock, while the remaining
55% of that stock was issued to new shareholders in a public underwriting
immediately after the transfer). Although shares of both the target and
acquiring funds held by the target's shareholders that are disposed of before or
after the transaction will be considered in determining satisfaction of the 50%
standard, the Service has issued private letter rulings that excepted from that
determination "shares which are required to be redeemed at the demand of
shareholders by . . . Target or by Acquiring in the ordinary course of their
businesses as open-end investment companies (or series thereof) pursuant to
Section 22(e) of the 1940 Act." Priv. Ltr. Ruls. 9823018 (Mar. 5, 1998) and
9822053 (Mar. 3, 1998).(9)
No minimum holding period for shares of an acquiring corporation is
imposed under the Code on the acquired corporation's shareholders. Rev. Rul.
66-23, 1966-1 C.B. 67, provides generally that "unrestricted rights of ownership
for a period of time sufficient to warrant the conclusion that such ownership is
definite and substantial" will suffice and that "ordinarily, the Service will
treat five years of unrestricted . . . ownership as a sufficient period" for
continuity of interest purposes. A preconceived plan or arrangement by or among
an acquired corporation's shareholders to dispose of more than 50% of an
acquiring corporation's shares could be problematic. Shareholders with no such
preconceived plan or arrangement, however, are basically free to sell any part
of the shares received by them in the reorganization without fear of breaking
continuity of interest, because the subsequent sale will be treated as an
independent transaction from the reorganization.
There is no plan or intention of Shareholders who own 5% or more of the
Target Shares, and to the best of Trust's knowledge the remaining Shareholders
have no present plan or intention, to sell, exchange, redeem, or otherwise
dispose of a number of the Acquiring Fund Shares to be received by them in
connection with the Reorganization that would reduce the Shareholders' ownership
of issued and outstanding Acquiring Fund Shares to a number of shares having a
value, as of the Closing Date, of less than 50% of the value of all the formerly
outstanding Target Shares as of the same date. (For these purposes, Shares of
either Fund held by the Shareholders and otherwise sold, redeemed, or disposed
of before or after the Reorganization will be considered, except for shares that
have been, or will be, redeemed by either Fund in the ordinary course of its
business as a series of an Open-End Investment Company.) Although Acquiring
Fund's shares will be offered for sale to the public on an ongoing basis after
the Reorganization, sales of those shares will arise out of a public offering
- ----------------
(9) Although, under section 6110(j)(3), a private letter ruling may not be cited
as precedent, tax practitioners look to such rulings as generally indicative of
the Service's views on the proper interpretation of the Code and the
Regulations. Cf. Rowan Companies, Inc. v. Commissioner, 452 U.S. 247 (1981).
<PAGE> 12
[KIRKPATRICK & LOCKHART LLP LETTERHEAD]
AIM Investment Funds
February 12, 1999
Page 12
separate and unrelated to the Reorganization and not as a result thereof. See
Reef Corp. v. Commissioner, 368 F.2d at 134; Rev. Rul. 61-156, supra. Similarly,
Shareholders may redeem Acquiring Fund Shares pursuant to their rights as
shareholders of a series of an Open-End Investment Company (see Priv. Ltr. Ruls.
9823018 and 9822053, supra, and 8816064 (Jan. 28, 1988)); those redemptions will
result from the exercise of those rights in the course of Acquiring Fund's
business as an open-end series and not from the D Reorganization as such.
Accordingly, we believe that the Reorganization will meet the
continuity of interest requirement of Treas. Reg. Section 1.368-1(b).
D. Control and Distribution by Target.
As noted above, a corporation's transfer of assets to another
corporation will qualify as a D Reorganization only if (1) immediately
thereafter the transferor, or one or more of its shareholders (including persons
who were shareholders immediately before the transfer), or any combination
thereof, is in control of the transferee and (2) pursuant to the plan, stock or
securities of the transferee are distributed in a transaction that qualifies
under section 354, among others (and, pursuant to section 354(b)(1)(B), all such
stock or securities, as well as the transferor's other properties, are
distributed pursuant to the plan). For purposes of clause (1), as applicable
here (see sections 368(a)(2)(H)(i) and 304(c)(1)), "control" is defined as the
ownership of stock possessing at least 50% of the total combined voting power of
all classes of stock entitled to vote or at least 50% of the total value of
shares of all classes of stock; the Shareholders will be in control (as so
defined) of Acquiring Fund immediately after the Reorganization. With respect to
clause (2), under the Plan -- which, as noted above, we believe constitutes a
plan of reorganization -- Target will distribute all the Acquiring Fund Shares
to the Shareholders in constructive exchange for their Target Shares. As noted
in V. below, we believe that that distribution will qualify under section
354(a). Accordingly, we believe that the control and distribution requirements
will be satisfied.
E. Business Purpose.
All reorganizations must meet the judicially imposed requirements of
the "business purpose doctrine," which was established in Gregory v. Helvering,
293 U.S. 465 (1935), and is now set forth in Treas. Reg. Sections 1.368-1(b),
- -1(c), and -2(g) (the last of which provides that, to qualify as a
reorganization, a transaction must be "undertaken for reasons germane to the
continuance of the business of a corporation a party to the reorganization").
Under that doctrine, a transaction must have a bona fide business purpose (and
not a purpose to avoid federal income tax) to qualify as a valid reorganization.
The substantial business purposes of the Reorganization are described in the
Proxy Statement. Accordingly, we believe that the Reorganization is being
undertaken for bona fide business purposes (and not a purpose to avoid federal
income tax) and therefore meets the requirements of the business purpose
doctrine.
F. Satisfaction of Section 368(a)(2)(F).
Under section 368(a)(2)(F), if two or more parties to a transaction
described in section 368(a)(1) (with an exception not relevant here) were
"investment companies" immediately before the
<PAGE> 13
[KIRKPATRICK & LOCKHART LLP LETTERHEAD]
AIM Investment Funds
February 12, 1999
Page 13
transaction, then the transaction shall not be considered a reorganization with
respect to any such investment company and its shareholders unless, among other
things, the investment company is a RIC or --
(1) not more than 25% of the value of its total assets is invested
in the stock and securities of any one issuer and
(2) not more than 50% of the value of its total assets is invested
in the stock and securities of five or fewer issuers.
Each Fund will meet the requirements for qualification and treatment as a RIC
for its respective current taxable year and will satisfy the foregoing
percentage tests. Accordingly, we believe that section 368(a)(2)(F) will not
cause the Reorganization to fail to qualify as a D Reorganization with respect
to either Fund.
For all the foregoing reasons, we believe that the Reorganization will
qualify as a reorganization within the meaning of section 368(a)(1)(D).
G. Each Fund Will Be a Party to a Reorganization.
Section 368(b)(2) and Treas. Reg. Section 1.368-2(f) provide that if
one corporation transfers substantially all of its properties to a second
corporation in exchange for all or a part of the voting stock of the second
corporation, then both corporations are parties to a reorganization. Target is
transferring all its properties to Acquiring Fund in exchange for Acquiring Fund
Shares (and Acquiring Fund's assumption of the Liabilities). Accordingly, we
believe that each Fund will be "a party to a reorganization."
II. Target Will Recognize No Gain or Loss.
Under sections 361(a) and (c), no gain or loss shall be recognized to a
corporation that is a party to a reorganization if, pursuant to the plan of
reorganization, (1) it exchanges property solely for stock or securities in
another corporate party to the reorganization and (2) distributes that stock or
securities to its shareholders. (As noted above, such a distribution is required
for qualification as a D Reorganization.) Section 361(c)(4) provides that
sections 311 and 336 (which require recognition of gain on certain distributions
of appreciated property) shall not apply to such a distribution.
Section 357(a) provides in pertinent part that, except as provided in
section 357(b), if a taxpayer receives property that would be permitted to be
received under section 361 without recognition of gain if it were the sole
consideration and, as part of the consideration, another party to the exchange
assumes a liability of the taxpayer or acquires from the taxpayer property
subject to a liability, then that assumption or acquisition shall not be treated
as money or other property and shall not prevent the exchange from being within
section 361. Section 357(b) applies where the principal purpose of the
assumption or acquisition was a tax avoidance purpose or not a bona fide
business purpose.
<PAGE> 14
[KIRKPATRICK & LOCKHART LLP LETTERHEAD]
AIM Investment Funds
February 12, 1999
Page 14
As noted above, it is our opinion that the Reorganization will qualify
as a D Reorganization, each Fund will be a party to a reorganization, and the
Plan constitutes a plan of reorganization. Target will exchange the Assets
solely for Acquiring Fund Shares and Acquiring Fund's assumption of the
Liabilities and will be terminated pursuant to the Plan, distributing those
shares to its shareholders in constructive exchange for their Target Shares. As
also noted above, we believe that the Reorganization is being undertaken for
bona fide business purposes (and not a purpose to avoid federal income tax); we
also do not believe that the principal purpose of Acquiring Fund's assumption of
the Liabilities is avoidance of federal income tax on the proposed transaction.
Accordingly, we believe that Target will recognize no gain or loss on the
Reorganization.10
III. Acquiring Fund Will Recognize No Gain or Loss.
Section 1032(a) provides that no gain or loss shall be recognized to a
corporation on the receipt by it of money or other property in exchange for its
stock. Acquiring Fund will issue Acquiring Fund Shares to Target in exchange for
the Assets, which consist of money and securities. Accordingly, we believe that
Acquiring Fund will recognize no gain or loss on the Reorganization.
IV. Acquiring Fund's Basis for the Assets Will Be a Carryover Basis, and
Its Holding Period Will Include Target's Holding Period.
Section 362(b) provides, in pertinent part, that the basis of property
acquired by a corporation in connection with a reorganization to which section
368 applies shall be the same as it would be in the hands of the transferor,
increased by the amount of gain recognized to the transferor on the transfer (a
"carryover basis"). As noted above, it is our opinion that the Reorganization
will qualify as such a reorganization and Target will recognize no gain on the
Reorganization. Accordingly, we believe that Acquiring Fund's basis for the
Assets will be the same as Target's basis therefor immediately before the
Reorganization.
Section 1223(2) provides in general that the period for which a
taxpayer has held acquired property that has a carryover basis shall include the
period for which the property was held by the transferor. As noted above, it is
our opinion that Acquiring Fund's basis for the Assets will be a carryover
basis. Accordingly, we believe that Acquiring Fund's holding period for the
Assets will include Target's holding period therefor.
V. A Shareholder Will Recognize No Gain or Loss.
Under section 354(a)(1), no gain or loss shall be recognized if stock
in a corporation that is a party to a reorganization is exchanged pursuant to a
plan of reorganization solely for stock in
- ----------------
(10) Notwithstanding anything herein to the contrary, we express no opinion as
to the effect of the Reorganization on either Fund or any Shareholder with
respect to any asset as to which any unrealized gain or loss is required to be
recognized for federal income tax purposes at the end of a taxable year (or on
the termination or transfer thereof) under a mark-to-market system of
accounting.
<PAGE> 15
[KIRKPATRICK & LOCKHART LLP LETTERHEAD]
AIM Investment Funds
February 12, 1999
Page 15
that corporation or another corporate party to the reorganization. Pursuant to
the Plan, the Shareholders will receive solely Acquiring Fund Shares for their
Target Shares. As noted above, it is our opinion that the Reorganization will
qualify as a D Reorganization, each Fund will be a party to a reorganization,
and the Plan constitutes a plan of reorganization. Although section 354(a)(1)
requires that the transferor corporation's shareholders exchange their shares
therein for shares of the acquiring corporation, the courts and the Service have
recognized that the Code does not require taxpayers to perform useless gestures
to come within the statutory provisions. See, e.g., Eastern Color Printing Co.,
63 T.C. 27, 36 (1974); Davant v. Commissioner, 366 F.2d 874 (5th Cir. 1966).
Therefore, although Shareholders will not actually surrender Target Share
certificates in exchange for Acquiring Fund Shares, their Target Shares will be
canceled on the issuance of Acquiring Fund Shares to them (all of which will be
reflected on Trust's books) and will be treated as having been exchanged
therefor. See Rev. Rul. 81-3, 1981-1 C.B. 125; Rev. Rul. 79-257, 1979-2 C.B.
136. Accordingly, we believe that a Shareholder will recognize no gain or loss
on the constructive exchange of all its Target Shares solely for Acquiring Fund
Shares pursuant to the Reorganization.
VI. A Shareholder's Basis for Acquiring Fund Shares Will Be a Substituted
Basis, and its Holding Period therefor Will Include its Holding Period
for its Target Shares.
Section 358(a)(1) provides, in pertinent part, that in the case of an
exchange to which section 354 applies, the basis of the property permitted to be
received thereunder without the recognition of gain or loss shall be the same as
the basis of the property exchanged therefor, decreased by, among other things,
the fair market value of any other property and the amount of any money received
in the exchange and increased by the amount of any gain recognized on the
exchange by the shareholder (a "substituted basis"). As noted above, it is our
opinion that the Reorganization will qualify as a D Reorganization and, under
section 354, a Shareholder will recognize no gain or loss on the constructive
exchange of all its Target Shares solely for Acquiring Fund Shares in the
Reorganization. No property will be distributed to the Shareholders other than
Acquiring Fund Shares, and no money will be distributed to them pursuant to the
Reorganization. Accordingly, we believe that a Shareholder's basis for the
Acquiring Fund Shares it receives in the Reorganization will be the same as the
basis for its Target Shares to be constructively surrendered in exchange for
those Acquiring Fund Shares.
Section 1223(1) provides in general that the period for which a
taxpayer has held property received in an exchange that has a substituted basis
shall include the period for which the taxpayer held the property exchanged
therefor if the latter property was a capital asset (as defined in section 1221)
at the time of the exchange. As noted above, it is our opinion that a
Shareholder will have a substituted basis for the Acquiring Fund Shares it
receives in the Reorganization. Accordingly, we believe that a Shareholder's
holding period for the Acquiring Fund Shares it receives in the Reorganization
will include its holding period for the Target Shares constructively surrendered
in exchange therefor, provided those Target Shares were capital assets at the
Effective Time.
<PAGE> 16
[KIRKPATRICK & LOCKHART LLP LETTERHEAD]
AIM Investment Funds
February 12, 1999
Page 16
We hereby consent to the reference to our firm under the caption
"Additional Information about the Reorganization -- Federal Tax Considerations"
in the Proxy Statement.
Very truly yours,
KIRKPATRICK & LOCKHART LLP
By: /s/ Theodore L. Press
-------------------------------
Theodore L. Press
