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[AIM LOGO APPEARS HERE] THE AIM FAMILY OF FUNDS--Registered Trademark--
APPLICATION INSIDE
AIM Investment Securities Funds
RETAIL CLASS OF AIM LIMITED MATURITY
TREASURY FUND
PROSPECTUS
NOVEMBER 18, 1998
AIM INVESTMENT SECURITIES FUNDS (the "Trust") is an open-end, series, management
investment company. Pursuant to this Prospectus, the Trust offers shares of
beneficial interest in one portfolio:
AIM LIMITED MATURITY TREASURY FUND (the "Fund") is a portfolio whose
investment objective is to seek liquidity with minimum fluctuation of
principal value, and, consistent with this objective, the highest total
return achievable. The Fund seeks to achieve this objective by investing in
an actively managed portfolio of U.S. Treasury notes and other direct
obligations of the U.S. Treasury.
THERE CAN BE NO ASSURANCE THAT THE FUND WILL ACHIEVE ITS OBJECTIVES. THE NET
ASSET VALUE OF THE FUND VARIES DEPENDING ON THE MARKET VALUE OF ITS ASSETS. THE
FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
ANY BANK, AND THE FUND'S SHARES ARE NOT FEDERALLY INSURED OR GUARANTEED BY THE
U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER AGENCY. SHARES OF THE FUND INVOLVE INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This Prospectus sets forth basic information about the Fund that prospective
investors should know before investing. It should be read and retained for
future reference. A Statement of Additional Information, dated November 18,
1998, has been filed with the United States Securities and Exchange Commission
(the "SEC") and is incorporated herein by reference. The Statement of Additional
Information is available without charge upon written request to the Trust at
P.O. Box 4739, Houston, TX 77210-4739 or by calling (800) 347-4246. The SEC
maintains a Web site at http://www.sec.gov that contains the Statement of
Additional Information, material incorporated by reference, and other
information regarding the Fund. Additional information about the Fund may also
be obtained on the Web at http://www.aimfunds.com.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
SUMMARY............................... 2
THE FUND.............................. 4
Table of Fees and Expenses.......... 4
Financial Highlights................ 5
Performance......................... 6
Investment Program.................. 6
Management.......................... 8
Organization of the Trust........... 9
INVESTOR'S GUIDE TO THE AIM FAMILY OF
FUNDS--Registered Trademark--....... A-1
Introduction to The AIM Family of
Funds............................ A-1
How to Purchase Shares.............. A-1
Terms and Conditions of Purchase of
the AIM Funds.................... A-2
Special Plans....................... A-10
Exchange Privilege.................. A-12
How to Redeem Shares................ A-14
Determination of Net Asset Value.... A-19
Dividends, Distributions and Tax
Matters.......................... A-19
General Information................. A-23
APPLICATION INSTRUCTIONS.............. B-1
</TABLE>
SUMMARY
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THE FUND. AIM Investment Securities Funds (the "Trust") is a Delaware
business trust organized as an open-end, series, management investment company.
Currently, the Trust offers two investment portfolios: AIM LIMITED MATURITY
TREASURY FUND (the "Fund") and AIM HIGH YIELD FUND II. The Fund consists of two
classes: a retail class (the Class A shares) and the Institutional Class. This
Prospectus relates solely to the Class A shares of the Fund.
Shares of the Institutional Class of the Fund are offered to investors
pursuant to a separate prospectus. Class A shares and the Institutional Class
may have different fees and expenses, which may affect performance. To obtain
information about the Institutional Class, please call (800) 659-1005.
The investment objective of the Fund is to seek liquidity with minimum
fluctuation in principal value and, consistent with this investment objective,
the highest total return achievable. To achieve its objective, the Fund will
invest in U.S. Treasury notes and other direct obligations of the U.S. Treasury
and may (but does not currently intend to) engage in repurchase agreement
transactions with respect to such obligations. THERE IS NO ASSURANCE THAT THE
INVESTMENT OBJECTIVES OF THE FUND WILL BE ACHIEVED. For more complete
information on the Fund's investment objective and policies, see "Investment
Program."
THE ADVISOR. A I M Advisors, Inc. ("AIM") serves as the Fund's investment
advisor pursuant to a Master Investment Advisory Agreement (the "Advisory
Agreement"). AIM, together with its subsidiaries, manages or advises
approximately 90 investment company portfolios encompassing a broad range of
investment objectives. Under the terms of the Advisory Agreement AIM supervises
all aspects of the Fund's operations and provides investment advisory services
to the Fund. As compensation for these services, AIM receives a fee based on the
Fund's average daily net assets. Under a Master Administrative Services
Agreement, AIM may be reimbursed by the Fund for its costs in performing, or
arranging for the performance of, certain accounting, shareholder servicing and
other administrative services for the Fund. Under a Transfer Agency and Service
Agreement, A I M Fund Services, Inc. ("AFS"), AIM's wholly owned subsidiary and
a registered transfer agent, receives a per account fee for its provision of
transfer agency, dividend distribution and disbursement, and shareholder
services to the Fund. See "Management."
PURCHASING SHARES. Class A shares are offered by this Prospectus at the net
asset value of the Fund plus a maximum sales charge of 1.00% of the public
offering price, which sales charge is reduced on purchases of $100,000 or more.
Initial investments in the Class A shares generally must be at least $500, and
subsequent investments must be at least $50. The distributor of the Class A
shares is A I M Distributors, Inc. ("AIM Distributors"), P.O. Box 4739, Houston,
Texas 77210-4739. See "How to Purchase Shares" and "Special Plans."
EXCHANGE PRIVILEGE. The Fund is one of several mutual funds distributed by
AIM Distributors (collectively, "The AIM Family of Funds"). Class A shares may
be exchanged for shares of any other funds in The AIM Family of Funds in the
manner and subject to the policies and charges set forth herein. See "Exchange
Privilege."
REDEEMING SHARES. Shareholders may redeem all or a portion of their shares
at their net asset value, generally without charge. See "How to Redeem Shares."
If the value of a shareholder's account is less than $500, the Trust may cause
the shares in the account to be redeemed at their net asset value.
DISTRIBUTIONS. The Fund currently declares dividends from net investment
income on a daily basis and pays such dividends on a monthly basis.
Distributions by the Fund from short-term capital gains and long-term capital
gains, if any, generally are paid annually. Dividends and distributions of the
Fund may be reinvested at their net asset value (without payment of a sales
charge) in the
2
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Fund's shares or, subject to certain conditions, in shares of another fund in
The AIM Family of Funds. See "Dividends, Distributions and Tax Matters" and
"Special Plans."
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,
Invest With Discipline, La Familia AIM de Fondos and La Familia AIM de Fondos
and Design are registered service marks and AIM Bank Connection is a service
mark of A I M Management Group Inc.
3
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THE FUND
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TABLE OF FEES AND EXPENSES
The following table is designed to help an investor in the Class A shares
of the Fund understand the various costs that the investor will bear, both
directly and indirectly. The fees and expenses set forth in this table are based
on the average net assets of the Class A shares of the Fund for the fiscal year
ended July 31, 1998. The rules and regulations of the SEC require that the
maximum sales charge be reflected in the table, even though certain investors
may qualify for reduced sales charges. See "How to Purchase Shares."
<TABLE>
<CAPTION>
CLASS A
SHARES
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<S> <C>
Shareholder Transaction Expenses
Maximum sales load imposed on purchase of shares (as a %
of offering price)..................................... 1.00%
Maximum sales load on reinvested dividends and
distributions (as a % of offering price)............... None
Deferred sales load (as a % of original purchase price or
redemption proceeds, as applicable).................... None
Redemption fee (as a % of amount redeemed, as
applicable)............................................ None
Exchange fee.............................................. None
Annual Operating Expenses (as a % of average net assets)
Management fees........................................... 0.20%
Rule 12b-1 Fees*.......................................... 0.15%
Other expenses............................................ 0.19%
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Total operating expenses............................... 0.54%
====
</TABLE>
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* It is possible that as a result of Rule 12b-1 fees, long-term shareholders may
pay more than the economic equivalent of the maximum front-end sales charges
permitted under rules of the National Association of Securities Dealers, Inc.
Given the Rule 12b-1 fee of the Class A shares, however, it is estimated that
it would take a substantial number of years for a shareholder to exceed such
maximum front-end sales charges.
EXAMPLES. An investor in the Fund would pay the following expenses on a $1,000
investment in the Class A shares of the Fund, assuming (1) a 5% annual return
and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
CLASS A
SHARES
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<S> <C>
1 year..................................................... $15
3 years.................................................... $27
5 years.................................................... $40
10 years.................................................... $77
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED TO BE REPRESENTATIVE OF THE
CLASS A SHARES OF THE FUND'S ACTUAL OR FUTURE EXPENSES, WHICH MAY BE GREATER OR
LESS THAN THOSE SHOWN. IN ADDITION, WHILE THE EXAMPLES ASSUME A 5% ANNUAL
RETURN, THE ACTUAL PERFORMANCE OF THE CLASS A SHARES WILL VARY AND MAY RESULT IN
AN ACTUAL RETURN THAT IS GREATER OR LESS THAN 5%. THE EXAMPLES ASSUME
REINVESTMENT OF ALL DIVIDENDS AND DISTRIBUTIONS AND THAT THE PERCENTAGE AMOUNTS
FOR TOTAL FUND OPERATING EXPENSES REMAIN THE SAME FOR EACH YEAR.
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FINANCIAL HIGHLIGHTS
Shown below are the financial highlights during each of the fiscal years
ended July 31, 1998, 1997, 1996 and 1995, the eleven months ended July 31, 1994,
each of the years in the five-year period ended August 31, 1993. All data have
been audited by KPMG Peat Marwick LLP, independent auditors, whose report on the
financial statements and notes appears in the Statement of Additional
Information.
<TABLE>
<CAPTION>
JULY 31, AUGUST 31,
-------------------------------------------------------- --------------------------------
1998 1997 1996 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period................. $ 10.07 $ 9.97 $ 10.03 $ 9.96 $ 10.24 $ 10.21 $ 10.01 $ 9.79
Income from investment
operations:
Net investment income..... 0.53 0.54 0.55 0.54 0.35 0.42 0.58 0.72
Net gains (losses) on
securities (both realized
and unrealized).......... -- 0.10 (0.06) 0.07 (0.20) 0.05 0.29 0.22
-------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations.......... 0.53 0.64 0.49 0.61 0.15 0.47 0.87 0.94
-------- -------- -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net
investment income....... (0.53) (0.54) (0.55) (0.54) (0.35) (0.42) (0.58) (0.72)
Distributions from net
realized capital gains.. -- -- -- -- (0.08) (0.02) (0.09) --
-------- -------- -------- -------- -------- -------- -------- --------
Total distributions... (0.53) (0.54) (0.55) (0.54) (0.43) (0.44) (0.67) (0.72)
-------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of
period.................... $ 10.07 $ 10.07 $ 9.97 $ 10.03 $ 9.96 $ 10.24 $ 10.21 $ 10.01
======== ======== ======== ======== ======== ======== ======== ========
Total return(a)............ 5.42% 6.55% 4.98% 6.36% 1.52% 4.65% 8.93% 9.95%
======== ======== ======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period
(000s omitted).......... $345,355 $389,812 $359,048 $274,480 $329,942 $348,937 $260,454 $131,880
======== ======== ======== ======== ======== ======== ======== ========
Ratio of expenses to
average net assets...... 0.54%(b) 0.54% 0.54% 0.51% 0.47%(c) 0.46% 0.48% 0.54%
======== ======== ======== ======== ======== ======== ======== ========
Ratio of net investment
income to average net
assets.................. 5.29%(b) 5.35% 5.45% 5.44% 3.75%(c) 4.07% 5.60% 7.25%
======== ======== ======== ======== ======== ======== ======== ========
Portfolio turnover rate... 133% 130% 117% 120% 120% 123% 120% 215%
======== ======== ======== ======== ======== ======== ======== ========
Borrowings for the period:
Amount of debt outstanding
at end of period (000s
omitted)................ -- -- -- -- -- -- -- --
Average amount of debt
outstanding during the
period (000s omitted)(f) -- -- -- -- -- -- -- --
Average number of shares
outstanding during the
period (000s omitted)(f) 37,552 36,600 32,350 28,337 34,101 30,416 18,378 10,559
Average amount of debt per
share during the period. -- -- -- -- -- -- -- --
<CAPTION>
AUGUST 31,
------------------
1990 1989
------- -------
<S> <C> <C>
Net asset value, beginning
of period................. $ 9.78 $ 9.80
Income from investment
operations:
Net investment income..... 0.77 0.84
Net gains (losses) on
securities (both realized
and unrealized).......... 0.01 (0.02)
------- -------
Total from investment
operations.......... 0.78 0.82
------- -------
Less distributions:
Dividends from net
investment income....... (0.77) (0.84)
Distributions from net
realized capital gains.. -- --
------- -------
Total distributions... (0.77) (0.84)
------- -------
Net asset value, end of
period.................... $ 9.79 $ 9.78
======= =======
Total return(a)............ 8.32% 8.71%
======= =======
Ratios/supplemental data:
Net assets, end of period
(000s omitted).......... $79,871 $70,781
======= =======
Ratio of expenses to
average net assets...... 0.50%(d) 0.45%(e)
======= =======
Ratio of net investment
income to average net
assets.................. 7.90%(d) 8.59%(e)
======= =======
Portfolio turnover rate... 192% 220%
======= =======
Borrowings for the period:
Amount of debt outstanding
at end of period (000s
omitted)................ -- $ 9,943
Average amount of debt
outstanding during the
period (000s omitted)(f) $ 5,101 $14,301
Average number of shares
outstanding during the
period (000s omitted)(f) 7,389 7,295
Average amount of debt per
share during the period. $ 0.69 $ 1.96
</TABLE>
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(a) Does not deduct sales charges and for periods of less than one year, total
return is not annualized.
(b) Ratios are based on average net assets of $378,032,807.
(c) Annualized.
(d) After waiver of advisory fees.
(e) After waiver of advisory fees and expense reimbursements.
(f) Averages computed on a daily basis.
5
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PERFORMANCE
The Fund's performance may be quoted in advertising in terms of yield or
total return. Both types of performance are based on historical results and are
not intended to indicate future performance. All advertisements of the Fund will
disclose the maximum sales charge imposed on purchases of the Fund's shares. If
any advertised performance data does not reflect the maximum sales charge, 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 yield is a way of showing the rate of income the Fund earns on its
investments as a percentage of the share price. In order to calculate yield, a
Fund takes the interest income earned from its portfolio of investments for a
30-day period (net of expenses), divides such interest by the number of the
Fund's shares, and expresses the result as an annualized percentage rate based
on the Fund's offering price (including the 1.00% maximum sales charge) at the
end of the 30-day period. Yields are calculated according to accounting methods
that are standardized for all stock and bond funds. Because yield accounting
methods differ from the methods used for other accounting purposes, a Fund's
yield may not equal the income paid to an investor's account or the income
reported in the Fund's financial statements.
A Fund may also quote its distribution rate, which is calculated by
dividing dividends declared during a specified period by the Fund's maximum
offering price at the end of the period and annualizing the result.
A Fund's total return shows its overall change in value, including changes
in share price assuming all of 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 annually compounded 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, a 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 may waive all or a portion of
its advisory fees and/or assume certain expenses of the Fund. Such a practice
will have the effect of increasing the Fund's yield and total return. The
performance of the Fund will vary from time to time and past results are not
necessarily representative 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 the operating expenses of the Fund and general
market conditions.
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INVESTMENT PROGRAM
INVESTMENT OBJECTIVE. The investment objective of the Fund is to seek
liquidity with minimum fluctuation in principal value, and, consistent with this
objective, the highest total return achievable. There can be no assurance that
the Fund will achieve its investment objective. The Fund's investment objective
is a fundamental policy, which may be changed only by the affirmative vote of
the holders of a majority of the outstanding shares of beneficial interest of
the Fund.
INVESTMENT POLICIES. The Fund will attempt to achieve its objective by
investing in an actively managed portfolio of U.S. Treasury notes and other
direct obligations of the U.S. Treasury.
The Fund will attempt to enhance its total return through capital
appreciation when market factors, such as economic and market conditions and the
prospects for interest rate changes, indicate that capital appreciation may be
available without significant risk to principal. The Fund will only purchase
securities whose maturities do not exceed three (3) years. The Fund's policy of
investing in securities with remaining maturities of three (3) years or less
will result in high portfolio turnover. Under normal circumstances, the average
portfolio maturity of the Fund will range between one-and-one-half (1 1/2) and
two (2) years. Since brokerage commissions are not normally paid on investments
of the type made by the Fund, the high turnover rate should not adversely affect
the net income of the Fund.
U.S. TREASURY SECURITIES. The Fund may invest in U.S. Treasury obligations,
which are direct obligations of the U.S. Treasury and which differ only in their
interest rates, maturities, and times of issuance, including U.S. Treasury
bills, U.S. Treasury notes and U.S. Treasury bonds.
LOANS OF PORTFOLIO SECURITIES. The Fund may from time to time loan
securities from its portfolio to brokers, dealers and financial institutions and
receive collateral in cash or U.S. Treasury obligations which will be maintained
at all times in an amount equal to at least 100% of the current market value of
the loaned securities; provided, however, that such loans are made according to
the guidelines of the SEC and the Trust's Board of Trustees. The Fund will be
entitled to the interest paid upon investment of the cash collateral in its
permitted investments or to the payment of a premium or fee for the loan. The
Fund may at any time call such loans
6
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and obtain the securities loaned. However, if the borrower of the securities
should default on its obligation to return the securities borrowed, the value of
the collateral may be insufficient to permit the Fund to reestablish its
position by making a comparable investment due to changes in market conditions.
The Fund may pay reasonable fees to persons unaffiliated with the Fund in
connection with the arranging of such loans. The Fund will only engage in
securities lending transactions with broker-dealers registered with the SEC, or
with federally-supervised banks or savings and loan associations.
WHEN-ISSUED OR DELAYED DELIVERY TRADING. The Fund may purchase U.S.
Treasury obligations on a when-issued basis, and it may purchase or sell such
securities for delayed delivery. These transactions occur when securities are
purchased or sold by the Fund with payment and delivery to take place in the
future in order to secure what is considered an advantageous yield and price to
the Fund at the time of entering into the transaction. The value of the security
on the delivery date may be more or less than its purchase price. The Fund's
custodian bank will segregate cash or short-term U.S. Treasury obligations in an
aggregate amount equal to the amount of its commitments in connection with such
delayed delivery and when-issued purchase transactions. No delayed delivery or
when-issued commitments will be made if, as a result, more than 25% of the
Fund's net assets would be so committed.
BORROWING. Subject to its investment restrictions (see "Investment
Restrictions"), the Fund may borrow money from banks for temporary or emergency
purposes to meet redemption requests which might otherwise require the untimely
disposition of securities. The Fund may not borrow for the purpose of increasing
income. If there are unusually heavy redemptions because of changes in interest
rates or for any other reason, the Fund may have to sell a portion of its
investment portfolio at a time when it may be disadvantageous to do so. Selling
Fund securities under these circumstances may result in a lower net asset value
per share or decreased dividend income, or both. The Fund believes that, in the
event of abnormally heavy redemption requests, its borrowing provisions would
help to mitigate any such effects and could make the forced sale of its
portfolio securities less likely.
REVERSE REPURCHASE AGREEMENTS. A reverse repurchase agreement involves the
sale of securities held by the Fund, with an agreement that the Fund will
repurchase such securities at an agreed-upon price, date and interest payment.
It is the current operating policy of the Fund to enter into reverse repurchase
agreements (which are considered to be borrowings under the Investment Company
Act of 1940 (the "1940 Act")) only for temporary or emergency purposes and not
as a means to increase income, even though the Fund's investment restrictions
permit the Fund to engage in reverse repurchase agreements for income
enhancement. The Fund will enter into a reverse repurchase agreement only when
the interest income to be earned from the investment of the proceeds of the
transaction is greater than the interest expense of the transaction. During the
time a reverse repurchase agreement is outstanding, the Fund will maintain a
segregated custodial account containing U.S. Treasury obligations having a value
equal to the repurchase price under such reverse repurchase agreement. Any
investment gains made by the Fund with monies borrowed through reverse
repurchase agreements will cause the net asset value of the Fund's shares to
rise faster than would be the case if the Fund had no such borrowings. On the
other hand, if the investment performance resulting from the investment of
borrowings obtained through reverse repurchase agreements fails to cover the
cost of such borrowings to the Fund, the net asset value of the Fund will
decrease faster than would otherwise be the case.
ILLIQUID SECURITIES. The Fund will limit its investment in illiquid
securities to no more than 15% of its net assets, including repurchase
agreements with remaining maturities in excess of seven (7) days.
INVESTMENT IN OTHER INVESTMENT COMPANIES. The Fund is permitted to invest
in other investment companies to the extent permitted by the 1940 Act, and rules
and regulations thereunder, and, if applicable, exemptive orders granted by the
SEC.
The investment policies described above may be changed by the Board of
Trustees without the affirmative vote of a majority of the outstanding shares of
beneficial interest of the Fund.
INVESTMENT RESTRICTIONS. The Fund's investment program is subject to a
number of investment restrictions which reflect self-imposed standards as well
as federal regulatory limitations. These restrictions are designed to minimize
certain risks associated with investing in certain types of securities or
engaging in certain transactions. The most significant of these restrictions
provide that the Fund will not:
(1) purchase any security unless the security is a direct obligation
of the U.S. Treasury or is a repurchase agreement with respect to a direct
obligation of the U.S. Treasury;
(2) issue senior securities in the form of indebtedness, borrow money,
except from banks for temporary or emergency purposes, such as to meet
redemption requests (not for the purpose of increasing income), or borrow
through reverse repurchase agreements (which may be entered into for the
purpose of increasing income) if, as a result of any such borrowings, the
amount borrowed would exceed 33 1/3% of the value of the Fund's assets
(including the proceeds of such securities issued or money borrowed) less
its liabilities (not including the liabilities incurred in connection with
such issuance or borrowing);
(3) make loans of money other than (a) through the purchase of debt
securities in accordance with the Fund's investment program, and (b) by
entering into repurchase agreements; or
(4) lend any portfolio securities if the value of the securities
loaned by it would exceed an amount equal to one-third of its total assets.
The foregoing investment restrictions (as well as certain others set forth in
the Statement of Additional Information) are matters of fundamental policy which
may not be changed without the affirmative vote of the holders of a majority of
the outstanding shares of beneficial interest of the Fund.
7
<PAGE> 8
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MANAGEMENT
The overall management of the business and affairs of the Fund is vested in
the Trust's Board of Trustees. The Board of Trustees approves all significant
agreements between the Fund and persons or companies furnishing services to the
Fund, including the investment advisory agreement with AIM, the administrative
services agreement with AIM, the distribution agreement with AIM Distributors
regarding distribution of the Class A shares, the agreement with The Bank of New
York as custodian and the agreement with AFS as transfer agent for the Class A
shares of the Fund. The day-to-day operations of the Fund are delegated to the
Trust's officers and to AIM, subject always to the objectives and policies of
the Fund and to the general supervision of the Trust's Board of Trustees.
Information concerning the Board of Trustees may be found in the Statement of
Additional Information. Certain trustees and officers of the Trust are
affiliated with AIM and A I M Management Group Inc. ("AIM Management"), the
parent corporation of AIM. AIM is a wholly owned subsidiary of AIM Management, a
holding company engaged in the financial services business and is an indirect,
wholly owned subsidiary of AMVESCAP PLC. AMVESCAP PLC and its subsidiaries are
an independent investment management group engaged in institutional investment
management and retail mutual fund businesses in the United States, Europe and
the Pacific Region. Information concerning the Board of Trustees may be found in
the Statement of Additional Information.
For a discussion of AIM Management's and its subsidiaries' Year 2000
Compliance Project, see "General Information -- Year 2000 Compliance Project."
INVESTMENT ADVISOR. A I M Advisors, Inc., 11 Greenway Plaza, Suite 100,
Houston, Texas 77046, serves as the investment advisor to the Fund pursuant to a
Master Investment Advisory Agreement (the "Advisory Agreement"). AIM was
organized in 1976 and, together with its subsidiaries, manages or advises
approximately 90 investment company portfolios encompassing a broad range of
investment objectives.
Under the terms of the Advisory Agreement, AIM supervises all aspects of
the Fund's operations and provides investment advisory services to the Fund. The
Advisory Agreement also provides that, upon the request of the Board of
Trustees, AIM may perform or arrange for the performance of certain accounting,
shareholder servicing and other administrative services for the Fund which are
not required to be performed by AIM under the Advisory Agreement. AIM and the
Fund have entered into a Master Administrative Services Agreement, pursuant to
which AIM is entitled to receive from the Fund reimbursement of its costs or
such reasonable compensation as may be approved by the Board of Trustees.
Currently, AIM is reimbursed for the services of the Fund's principal financial
officer and his staff, and any expenses related to such services, as well as the
services of staff responding to various shareholder inquires. In addition, AFS,
a wholly owned subsidiary of AIM and registered transfer agent, receives a fee
pursuant to a Transfer Agency and Service Agreement for its provision of
transfer agency, dividend distribution and disbursement, and shareholder
services to the Fund.
For a discussion of AIM's brokerage allocation policies and practices, see
"Portfolio Transactions and Brokerage Allocation" in the Statement of Additional
Information. In accordance with policies established by the Board of Trustees,
AIM may take into account sales of shares of the Fund and other funds advised by
AIM in selecting broker-dealers to effect portfolio transactions on behalf the
Fund.
FEES AND EXPENSES. Pursuant to the Advisory Agreement, the Trust pays AIM a
fee with respect to the Fund calculated at the annual rate of 0.20% of the first
$500 million of the Fund's average daily net assets plus 0.175% of the Fund's
average daily net assets in excess of $500 million. For the year ended July 31,
1998, the Fund paid 0.20% of its average daily net assets to AIM for its
advisory services, and the Class A shares' total expenses of the same period,
stated as a percentage of average daily net assets of the Class A shares, was
0.54%.
For the year ended July 31, 1998, the Fund paid 0.01% of its average daily
net assets to AIM for reimbursement for administrative services.
FEE WAIVERS. In order to increase the yield to investors, AIM may from time
to time voluntarily waive or reduce its fee, while retaining its ability to be
reimbursed for such fee prior to the end of such fiscal year. Fee waivers or
reductions and waivers of expense reimbursements, other than those set forth in
the Advisory Agreement, may be rescinded at any time without notice to
investors.
PORTFOLIO MANAGEMENT. AIM uses a team approach and disciplined investment
strategy in providing investment advisory services to all its accounts,
including the Fund. AIM's investment staff consists of approximately 125
individuals. While individual members of AIM's investment staff are assigned
primary responsibility for the day-to-day management of each of AIM's accounts,
all accounts are reviewed on a regular basis by AIM's Investment Policy
Committee to ensure that they are being invested in accordance with the
accounts' and AIM's investment policies. The individuals on the investment team
who are primarily responsible for the day-to-day management of the Fund are
Scott W. Johnson, Karen Dunn Kelley and Marcel S. Theriot. Mr. Johnson is Vice
President of A I M Capital Management, Inc. ("AIM Capital"), a wholly owned
subsidiary of AIM, and has been responsible for the Fund since 1998. He has been
associated with AIM since 1994 and has been an investment professional since
1994. Prior to 1994 he attended Vanderbilt University. Ms. Kelley is Senior Vice
President of AIM Capital; Vice President of AIM and of the Trust; and has been
responsible for the Fund since 1992. Ms. Kelley has been associated with AIM
since 1989 and has a total of 15 years of experience as an investment
professional. Mr. Theriot is an investment officer of AIM Capital and has been
responsible for the Fund since 1998. He has been associated
8
<PAGE> 9
with AIM and/or its subsidiaries since 1994 and has been an investment
professional since 1994. Prior to 1994 he was a Service Marketing Representative
with Van Kampen American Capital Asset Management, Inc.
DISTRIBUTOR. The Trust has entered into a Master Distribution Agreement
relating to the Class A shares (the "Distribution Agreement") with AIM
Distributors, a registered broker-dealer and a wholly owned subsidiary of AIM,
to act as the distributor of the Class A shares. The address of AIM Distributors
is P.O. Box 4739, Houston, Texas 77210-4739. Certain trustees and officers of
the Trust are affiliated with AIM Distributors. The Distribution Agreement
provides AIM Distributors with the exclusive right to distribute the Class A
shares through affiliated broker-dealers and through other broker-dealers with
whom AIM Distributors has entered into selected dealer agreements.
DISTRIBUTION PLAN. The Trust has adopted a Master Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the 1940 Act with respect to the Class A
shares. Under the Plan the Fund, with respect to the Class A shares, will pay
compensation of 0.15% per annum of the average daily net assets of the Class A
shares to AIM Distributors for the purpose of financing any activity which is
primarily intended to result in the sale of the Class A shares. The Plan is
designed to compensate AIM Distributors for certain promotional and other
sales-related costs, and to implement an incentive program which provides for
periodic payments to selected dealers and financial institutions who furnish
continuing personal shareholder services to their customers who purchase and own
Class A shares.
Activities that may be financed under the Plan include, but are not limited
to, the following: preparation and distribution of advertising material and
sales literature, printing of prospectuses and statements of additional
information (and supplements thereto) and reports for other than existing
shareholders, supplemental payments made to dealers and other institutions such
as asset-based sales charges or as payments of service fees under shareholder
services arrangements and the cost of administering the Plan.
The Plan does not obligate the Class A shares to reimburse AIM Distributors
for the actual expenses AIM Distributors may incur in fulfilling its obligations
under the Plan. Thus, even if AIM Distributors' actual expenses exceed the fee
payable to AIM Distributors thereunder at any given time, the Class A shares
will not be obligated to pay more than that fee, but if AIM Distributors'
expenses are less than the fee it receives, AIM Distributors will retain the
full amount of the fee.
The Plan provides that it will continue in effect so long as it is
specifically approved at least annually by a majority of the Trust's entire
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 Plan or in any agreements
related to the Plan ("Qualified Trustees"), unless terminated by vote of a
majority of the Qualified Trustees, or by vote of the holders of a majority of
the outstanding Class A shares. The Plan may not be amended to increase
materially the limit upon distribution expenses described above unless approved
by shareholders of the Class A shares, as applicable, and no other material
amendment to the Plan may be made unless approved by a majority of the Board of
Trustees, including a majority of the Qualified Trustees. While the Plan is in
effect, the selection and nomination of Qualified Trustees will be at the
discretion of the Qualified Trustees.
Under the Plan, certain financial institutions which have entered into
service agreements and which sell the Class A shares on an agency basis, may
receive payments from the Class A shares pursuant to the Plan. AIM Distributors
does not act as principal, but rather as agent, for the Class A shares in making
such payments. The Class A shares will obtain a representation from such
financial institutions that they will either be licensed as dealers as required
under applicable state law; or that they will not engage in activities which
would constitute acting as a "dealer" as defined under applicable state law.
Payments pursuant to the Plan are subject to any applicable limitations
imposed by rules of the National Association of Securities Dealers, Inc. (the
"NASD"). The Plan conforms 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 Class A shares to
no more than 0.25% per annum of the average daily net assets of the Class A
shares attributable to the customers of such dealers of financial institutions.
The Plan also imposes a cap on the total amount of sales charges, including
asset-based sales charges, that may be paid by the Class A shares. The Plan
requires the officers of the Trust to provide the Board of Trustees at least
quarterly with a written report of the amounts expended pursuant to the Plan and
the purposes for which such expenditures were made. The Board of Trustees shall
review these reports in connection with their decisions with respect to the
Plan.
- --------------------------------------------------------------------------------
ORGANIZATION OF THE TRUST
The Trust is organized as a Delaware business trust pursuant to an Amended
and Restated Agreement and Declaration of Trust, dated November 5, 1998 (the
"Trust Agreement"). The Trust is an open-end, series, management investment
company, and may consist of one or more series portfolios as authorized from
time to time by the Board of Trustees. The Trust was originally organized as a
Maryland corporation on November 4, 1988. Pursuant to an Agreement and Plan of
Reorganization the Fund was reorganized on October 15, 1993 as a portfolio of
the Delaware business trust.
All shares of the Trust have equal rights with respect to voting, except
that (i) the holders of shares of all classes of a particular portfolio of the
Trust (a "Portfolio") voting together will have the exclusive right to vote on
matters (such as advisory fees) pertaining solely to that Portfolio, and (ii)
the holders of shares of a particular class will have the exclusive right to
vote on matters pertain-
9
<PAGE> 10
ing to distribution plans or shareholder service plans, if any such plans are
adopted, relating solely to such class. There are no preemptive or conversion
rights applicable to any of the Trust's shares. The Trust's shares, when issued,
will be fully paid and non-assessable.
The Class A shares and Institutional Class have different shareholders and
are allocated certain differing class expenses, such as distribution and/or
service fees related to their respective shares. The difference between the
expenses of the Class A shares and Institutional Class may affect performance.
To obtain information about the Institutional Class, please call Fund Management
Company ("FMC"), a registered broker-dealer and a wholly owned subsidiary of
AIM, at (800) 659-1005. FMC is the exclusive distributor of the Institutional
Class.
The Trust is not required to hold annual or regular meetings of
shareholders. Meetings of shareholders of a class will be held from time to time
to consider matters requiring a vote of such shareholders in accordance with the
requirements of the 1940 Act, state law or the provisions of the Trust
Agreement. It is not expected that shareholder meetings will be held annually.
The Trust Agreement provides that the trustees of the Trust shall hold
office during the existence of the Trust, except as follows: (a) any trustee may
resign or retire; (b) any trustee may be removed by a vote of at least
two-thirds of the outstanding shares of the Trust, or at any time by written
instrument signed by at least two-thirds of the trustees and specifying when
such removal becomes effective; or (c) any trustee who has died or become
incapacitated and is unable to serve may be removed by a written instrument
signed by a majority of the trustees.
LEGAL COUNSEL. The law firm of Ballard Spahr Andrews & Ingersoll, LLP,
Philadelphia, Pennsylvania, serves as counsel to the Trust and passes upon
certain legal matters for the Trust.
10
<PAGE> 11
THE TOLL-FREE NUMBER FOR ACCESS TO ROUTINE ACCOUNT INFORMATION AND TO
SHAREHOLDER ASSISTANCE IS
(800) 959-4246 (7:30 A.M. TO 6:00 P.M. CENTRAL TIME).
INVESTOR'S GUIDE
TO THE AIM FAMILY OF FUNDS--Registered Trademark--
- --------------------------------------------------------------------------------
INTRODUCTION TO THE AIM FAMILY OF FUNDS
THE AIM FAMILY OF FUNDS consists of the following mutual funds:
<TABLE>
<S> <C>
AIM ADVISOR FLEX FUND AIM GLOBAL RESOURCES FUND
AIM ADVISOR INTERNATIONAL VALUE FUND AIM GLOBAL TELECOMMUNICATIONS FUND
AIM ADVISOR LARGE CAP VALUE FUND AIM GLOBAL TRENDS FUND
AIM ADVISOR MULTIFLEX FUND AIM GLOBAL UTILITIES FUND
AIM ADVISOR REAL ESTATE FUND AIM HIGH INCOME MUNICIPAL FUND
AIM AGGRESSIVE GROWTH FUND AIM HIGH YIELD FUND
AIM ASIAN GROWTH FUND AIM HIGH YIELD FUND II
AIM BALANCED FUND AIM INCOME FUND
AIM BASIC VALUE FUND AIM INTERMEDIATE GOVERNMENT FUND
AIM BLUE CHIP FUND AIM INTERNATIONAL EQUITY FUND
AIM CAPITAL DEVELOPMENT FUND AIM INTERNATIONAL GROWTH FUND
AIM CHARTER FUND AIM JAPAN GROWTH FUND
AIM CONSTELLATION FUND AIM LATIN AMERICAN GROWTH FUND
AIM DEVELOPING MARKETS FUND AIM LIMITED MATURITY TREASURY FUND
AIM DOLLAR FUND(*) AIM MID CAP EQUITY FUND
AIM EMERGING MARKETS FUND AIM MONEY MARKET FUND(*)
AIM EMERGING MARKETS DEBT FUND AIM MUNICIPAL BOND FUND
AIM EUROPEAN DEVELOPMENT FUND AIM NEW PACIFIC GROWTH FUND
AIM EUROPE GROWTH FUND AIM SELECT GROWTH FUND
AIM GLOBAL AGGRESSIVE GROWTH FUND AIM SMALL CAP GROWTH FUND
AIM GLOBAL CONSUMER PRODUCTS AND AIM SMALL CAP OPPORTUNITIES FUND
SERVICES FUND AIM STRATEGIC INCOME FUND
AIM GLOBAL FINANCIAL SERVICES FUND AIM TAX-EXEMPT BOND FUND OF CONNECTICUT
AIM GLOBAL GOVERNMENT INCOME FUND AIM TAX-EXEMPT CASH FUND(*)
AIM GLOBAL GROWTH FUND AIM TAX-FREE INTERMEDIATE FUND
AIM GLOBAL GROWTH & INCOME FUND AIM VALUE FUND
AIM GLOBAL HEALTH CARE FUND AIM WEINGARTEN FUND
AIM GLOBAL INCOME FUND AIM WORLDWIDE GROWTH FUND
AIM GLOBAL INFRASTRUCTURE FUND
</TABLE>
(*) Class A shares of AIM TAX-EXEMPT CASH FUND and AIM DOLLAR FUND and AIM Cash
Reserve Shares of AIM MONEY MARKET FUND are offered to investors at net
asset value, without payment of a sales charge, as described below. Other
funds, including the Class A, Class B and Class C shares of AIM MONEY MARKET
FUND, are sold with an initial sales charge or subject to a contingent
deferred sales charge upon redemption, as described below.
IT IS IMPORTANT FOR SHAREHOLDERS CONSIDERING AN EXCHANGE TO CAREFULLY REVIEW
THE PROSPECTUS OF THE FUND WHOSE SHARES WILL BE ACQUIRED IN AN EXCHANGE. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL SHARES OF ANY FUND OTHER THAN
THE FUND(S) NAMED ON THE COVER PAGE OF THIS PROSPECTUS.
- --------------------------------------------------------------------------------
HOW TO PURCHASE SHARES
HOW TO OPEN AN ACCOUNT. In order to purchase shares of any of The AIM Family
of Funds ("AIM Funds"), an investor must submit a fully completed new Account
Application form directly to A I M Fund Services, Inc. ("AFS" or the "Transfer
Agent") or through any dealer authorized by A I M Distributors, Inc. ("AIM
Distributors") to sell shares of the AIM Funds.
Accounts submitted without a correct, certified taxpayer identification number
or, alternatively, a completed Internal Revenue Service ("IRS") Form W-8 (for
non-resident aliens) or Form W-9 (certifying exempt status) accompanying the
registration information will be subject to backup withholding. See the Account
Application for applicable IRS penalties. The minimum initial investment is
$500, except for accounts initially established through an Automatic Investment
Plan, which requires a special authorization form (see "Special Plans") and for
certain retirement accounts. The minimum initial investment for accounts
established with an Automatic Investment Plan is $50. The minimum initial
investment for an Individual Retirement Arrangement ("IRA") or Roth IRA is $250.
There are no minimum initial investment requirements applicable to
money-purchase/profit-sharing plans, 401(k) plans, Simplified Employee Pension
("SEP") accounts, Savings Incentive Match Plans for Employee IRA ("SIMPLE IRA")
accounts, 403(b) plans or 457 (state deferred compensation) plans (except that
the minimum initial investment for salary deferrals for such plans is $25 per
fund investment), or for investment of dividends and distributions of any of the
AIM Funds into any existing AIM
MCF-11/98
A-1
<PAGE> 12
Funds account. Notwithstanding the foregoing, the minimum initial investment
applicable to AIM SMALL CAP OPPORTUNITIES FUND is $10,000.
AFS' mailing address is:
A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739
For additional information or assistance, investors should call the Client
Services Department of AFS at:
(800) 959-4246
Shares of any AIM Funds not named on the cover of this Prospectus, as well as
Advisor Class shares of certain AIM Funds, are offered pursuant to separate
prospectuses. Copies of other prospectuses may be obtained by calling (800)
347-4246.
INITIAL AND SUBSEQUENT PURCHASES BY WIRE: To insure prompt credit to his
account, an investor or his dealer should call AFS' Client Services Department
at (800) 959-4246 prior to sending a wire to receive a reference number for the
wire. The following wire instructions should be used:
<TABLE>
<S> <C>
Beneficiary Bank ABA/Routing #: 113000609
Beneficiary Account Number: 00100366807
Beneficiary Account Name: A I M Fund Services, Inc.
RFB: Fund name, Reference Number (16 character limit)
OBI: Shareholder Name, Shareholder Account Number
(70 character limit)
</TABLE>
HOW TO PURCHASE ADDITIONAL SHARES. Additional shares may be purchased directly
through AIM Distributors or through any dealer who has entered into an agreement
with AIM Distributors. The minimum investment for subsequent purchases is $50.
The minimum employee salary deferral investment for participants in
money-purchase/profit sharing plans, 401(k), IRA/SEP, 403(b) or 457 plans is
$25. Notwithstanding the foregoing, the minimum subsequent purchases of shares
of AIM SMALL CAP OPPORTUNITIES FUND is $1,000. There are no such minimum
investment requirements for investment of dividends and distributions of any of
the AIM Funds into any other existing AIM Funds account.
BY MAIL: Investors must indicate their account number and the name of the Fund
being purchased. The remittance slip from a confirmation statement should be
used for this purpose, and sent to AFS.
BY AIM BANK CONNECTION(SM): To purchase additional shares by electronic funds
transfer, please contact the Client Services Department of AFS for details.
- --------------------------------------------------------------------------------
TERMS AND CONDITIONS OF PURCHASE OF THE AIM FUNDS
Shares of the AIM Funds, including Class A shares (the "Class A shares") of
AIM ADVISOR FLEX FUND, AIM ADVISOR INTERNATIONAL VALUE FUND, AIM ADVISOR LARGE
CAP VALUE FUND, AIM ADVISOR MULTIFLEX FUND, AIM ADVISOR REAL ESTATE FUND, AIM
AGGRESSIVE GROWTH FUND, AIM ASIAN GROWTH FUND, AIM BALANCED FUND, AIM BASIC
VALUE FUND, AIM BLUE CHIP FUND, AIM CAPITAL DEVELOPMENT FUND, AIM CHARTER FUND,
AIM CONSTELLATION FUND, AIM DEVELOPING MARKETS FUND, AIM DOLLAR FUND, AIM
EMERGING MARKETS FUND, AIM EMERGING MARKETS DEBT FUND, AIM EUROPEAN DEVELOPMENT
FUND, AIM EUROPE GROWTH 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 GROWTH &
INCOME 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 GLOBAL UTILITIES FUND, AIM HIGH INCOME
MUNICIPAL FUND, AIM HIGH YIELD FUND, AIM HIGH YIELD FUND II, AIM INCOME FUND,
AIM INTERMEDIATE GOVERNMENT FUND, AIM INTERNATIONAL EQUITY FUND, AIM
INTERNATIONAL GROWTH FUND, AIM JAPAN GROWTH FUND, AIM LATIN AMERICAN GROWTH
FUND, AIM LIMITED MATURITY TREASURY FUND, AIM MID CAP EQUITY FUND, AIM MONEY
MARKET FUND, AIM MUNICIPAL BOND FUND, AIM NEW PACIFIC GROWTH FUND, AIM SELECT
GROWTH FUND, AIM SMALL CAP GROWTH FUND, AIM SMALL CAP OPPORTUNITIES FUND, AIM
STRATEGIC INCOME FUND,AIM TAX-EXEMPT BOND FUND OF CONNECTICUT, AIM TAX-EXEMPT
CASH FUND, AIM TAX-FREE INTERMEDIATE FUND, AIM VALUE FUND, AIM WEINGARTEN FUND
and AIM WORLDWIDE GROWTH FUND, collectively (other than AIM AGGRESSIVE GROWTH
FUND, AIM LIMITED MATURITY TREASURY FUND, AIM TAX-EXEMPT BOND FUND OF
CONNECTICUT, AIM TAX-EXEMPT CASH FUND and AIM TAX-FREE INTERMEDIATE FUND), the
"Multiple Class Funds," may be purchased at their respective net asset value
plus a sales charge as indicated below, except that Class A shares of AIM DOLLAR
FUND and AIM TAX-EXEMPT CASH FUND and AIM Cash Reserve Shares of AIM MONEY
MARKET FUND are sold without a sales charge and Class B shares (the "Class B
shares") and Class C shares (the "Class C shares") of the Multiple Class Funds
which offer such classes are sold at net asset value subject to a contingent
deferred sales charge payable upon certain redemptions. Class B shares of AIM
DOLLAR FUND, however, may be acquired only by an exchange of shares of another
AIM Fund. These contingent deferred sales charges are described under the
caption "How to Redeem Shares -- Multiple Distribution System." Securities
dealers and other persons entitled
MCF-11/98
A-2
<PAGE> 13
to receive compensation for selling or servicing shares of a Multiple Class Fund
may receive different compensation for selling or servicing one particular class
of shares over another class in the same Multiple Class Fund. Factors an
investor should consider prior to purchasing Class A, Class B or Class C shares
(or, if applicable, AIM Cash Reserve Shares) of a Multiple Class Fund are
described below under "Special Information Relating to Multiple Class Funds."
For information on purchasing any of the AIM Funds and to receive a prospectus,
please call (800) 347-4246. As described below, the sales charge otherwise
applicable to a purchase of shares of a fund may be reduced if certain
conditions are met. In order to take advantage of a reduced sales charge, the
prospective investor or his dealer must advise AIM Distributors that the
conditions for obtaining a reduced sales charge have been met. Net asset value
is determined in the manner described under the caption "Determination of Net
Asset Value."
The following Multiple Class Funds sometimes are referred to herein as the
"AIM/GT Funds": AIM BASIC VALUE FUND, AIM DEVELOPING MARKETS FUND, AIM DOLLAR
FUND, AIM EMERGING MARKETS FUND, AIM EMERGING MARKETS DEBT FUND, AIM EUROPE
GROWTH 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 GLOBAL TRENDS
FUND, AIM INTERNATIONAL GROWTH FUND, AIM JAPAN GROWTH FUND, AIM LATIN AMERICAN
GROWTH FUND, AIM MID CAP EQUITY FUND, AIM NEW PACIFIC GROWTH FUND, AIM SMALL CAP
GROWTH FUND, AIM STRATEGIC INCOME FUND and AIM WORLDWIDE GROWTH FUND.
The following tables show the sales charge and dealer concession at various
investment levels for the AIM Funds.
SALES CHARGES AND DEALER CONCESSIONS
GROUP I. Certain AIM Funds are currently sold with a sales charge ranging from
5.50% to 2.00% of the offering price on purchases of less than $1,000,000. These
AIM Funds include Class A shares of each of AIM ADVISOR FLEX FUND, AIM ADVISOR
INTERNATIONAL VALUE FUND, AIM ADVISOR LARGE CAP VALUE FUND, AIM ADVISOR
MULTIFLEX FUND, AIM AGGRESSIVE GROWTH FUND, AIM ASIAN GROWTH FUND, AIM BASIC
VALUE FUND, AIM BLUE CHIP FUND, AIM CAPITAL DEVELOPMENT FUND, AIM CHARTER FUND,
AIM CONSTELLATION FUND, AIM EUROPEAN DEVELOPMENT FUND, AIM EUROPE GROWTH FUND,
AIM GLOBAL UTILITIES FUND, AIM GLOBAL GROWTH & INCOME FUND, AIM INTERNATIONAL
EQUITY FUND, AIM INTERNATIONAL GROWTH FUND, AIM JAPAN GROWTH FUND, AIM MID CAP
EQUITY FUND, AIM MONEY MARKET FUND, AIM NEW PACIFIC GROWTH FUND, AIM SELECT
GROWTH FUND, AIM SMALL CAP GROWTH FUND, AIM SMALL CAP OPPORTUNITIES FUND, AIM
VALUE FUND, AIM WEINGARTEN FUND and AIM WORLDWIDE GROWTH FUND.
<TABLE>
<CAPTION>
DEALER
CONCESSION
INVESTOR'S SALES CHARGE ----------
-------------------------- AS A
AS A AS A PERCENTAGE
PERCENTAGE PERCENTAGE OF THE
OF THE PUBLIC OF THE NET PUBLIC
AMOUNT OF INVESTMENT IN OFFERING AMOUNT OFFERING
SINGLE TRANSACTION(1) 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>
- ---------------
(1) AIM SMALL CAP OPPORTUNITIES FUND will not accept any single purchase in
excess of $250,000.
There is no sales charge on purchases of $1,000,000 or more; however, AIM
Distributors may pay a dealer concession and/or advance a service fee on such
transactions. See "All Groups of AIM Funds." PURCHASES OF $1,000,000 OR MORE ARE
AT NET ASSET VALUE, SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE OF 1% IF
SHARES ARE REDEEMED PRIOR TO 18 MONTHS FROM THE DATE SUCH SHARES WERE PURCHASED,
AS DESCRIBED UNDER THE CAPTION "HOW TO REDEEM SHARES -- CONTINGENT DEFERRED
SALES CHARGE PROGRAM FOR LARGE PURCHASES."
MCF-11/98
A-3
<PAGE> 14
GROUP II. Certain AIM Funds are currently sold with a sales charge ranging
from 4.75% to 2.00% of the offering price on purchases of less than $1,000,000.
These AIM Funds are: the Class A shares of each of AIM ADVISOR REAL ESTATE FUND,
AIM BALANCED FUND, AIM DEVELOPING MARKETS FUND, AIM EMERGING MARKETS FUND, AIM
EMERGING MARKETS DEBT FUND, AIM GLOBAL AGGRESSIVE GROWTH FUND, AIM GLOBAL
CONSUMER PRODUCTS AND SERVICES FUND, AIM GLOBAL FINANCIAL SERVICES FUND, AIM
GLOBAL GOVERNMENT INCOME FUND, AIM GLOBAL GROWTH FUND, AIM GLOBAL HEALTH CARE
FUND, AIM GLOBAL INCOME FUND, AIM GLOBAL INFRASTRUCTURE FUND, AIM GLOBAL
RESOURCES FUND, AIM GLOBAL TELECOMMUNICATIONS FUND, AIM GLOBAL TRENDS FUND, AIM
HIGH INCOME MUNICIPAL FUND, AIM HIGH YIELD FUND, AIM HIGH YIELD FUND II, AIM
INCOME FUND, AIM INTERMEDIATE GOVERNMENT FUND, AIM LATIN AMERICAN GROWTH 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>
There is no sales charge on purchases of $1,000,000 or more; however, AIM
Distributors may pay a dealer concession and/or advance a service fee on such
transactions. See "All Groups of AIM Funds." PURCHASES OF $1,000,000 OR MORE ARE
AT NET ASSET VALUE, SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE OF 1% IF
SHARES ARE REDEEMED PRIOR TO 18 MONTHS FROM THE DATE SUCH SHARES WERE PURCHASED,
AS DESCRIBED UNDER THE CAPTION "HOW TO REDEEM SHARES -- CONTINGENT DEFERRED
SALES CHARGE PROGRAM FOR LARGE PURCHASES."
GROUP III. Certain AIM Funds are currently sold with a sales charge ranging
from 1.00% to 0.50% of the offering price on purchases of less than $1,000,000.
These AIM Funds are the Class A shares of each of AIM LIMITED MATURITY TREASURY
FUND and AIM TAX-FREE INTERMEDIATE FUND.
<TABLE>
<CAPTION>
DEALER
CONCESSION
INVESTOR'S SALES CHARGE ----------
-------------------------- AS A
AS A AS A PERCENTAGE
PERCENTAGE PERCENTAGE OF THE
OF THE PUBLIC OF THE NET PUBLIC
AMOUNT OF INVESTMENT IN OFFERING AMOUNT OFFERING
SINGLE TRANSACTION PRICE INVESTED PRICE
----------------------- ------------- ---------- ----------
<S> <C> <C> <C>
Less than $ 100,000 1.00% 1.01% 0.75%
$100,000 but less than $ 250,000 0.75 0.76 0.50
$250,000 but less than $1,000,000 0.50 0.50 0.40
</TABLE>
There is no sales charge on purchases of $1,000,000 or more; however, AIM
Distributors may pay a dealer concession and/or advance a service fee on such
transactions.
ALL GROUPS OF AIM FUNDS. AIM Distributors may elect to re-allow the entire
initial sales charge to dealers for all sales with respect to which orders are
placed with AIM Distributors during a particular period. Dealers to whom
substantially the entire sales charge is re-allowed may be deemed to be
"underwriters" as that term is defined under the Securities Act of 1933.
In addition to amounts paid to dealers as a dealer concession out of the
initial sales charge paid by investors, AIM Distributors may, from time to time,
at its expense or as an expense for which it may be compensated under a
distribution plan, if applicable, pay a bonus or other consideration or
incentive to dealers who sell a minimum dollar amount of the shares of the AIM
Funds during a specified period of time. In some instances, these incentives may
be offered only to certain dealers who have sold or may sell significant amounts
of shares. At the option of the dealer, such incentives may take the form of
payment for travel expenses, including lodging, incurred in connection with
trips taken by qualifying registered representatives and their families to
places within or outside the United States. The total amount of such additional
bonus payments or other consideration shall not exceed 0.25% of the public
offering price of the shares sold. Any such bonus or incentive programs will not
change the price paid by investors for the purchase of the applicable AIM Fund's
shares or the amount that any particular AIM Fund will receive as proceeds from
such sales. Dealers may not use sales of the AIM Funds' shares to qualify for
any incentives to the extent that such incentives may be prohibited by the laws
of any state.
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AIM Distributors may make payments to dealers and institutions who are dealers
of record for purchases of $1 million of 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: 1.00% of the first $2 million of such
purchases, plus 0.80% of the next $1 million of such purchases, plus 0.50% of
the next $17 million of such purchases, plus 0.25% of amounts in excess of $20
million of such purchases. See "Contingent Deferred Sales Charge Program for
Large Purchases." AIM Distributors may make payments to dealers and institutions
who are dealers of record for purchases of $1 million or more of Class A shares
(or shares which normally involve payment of initial sales charges), and which
are sold at net asset value and are not subject to a contingent deferred sales
charge, in an amount up to 0.10% of such purchases of Class A shares of AIM
LIMITED MATURITY TREASURY FUND, and in an amount up to 0.25% of such purchases
of Class A shares of AIM TAX-FREE INTERMEDIATE FUND.
AIM Distributors may pay sales commissions to dealers and institutions who
sell Class B shares of the AIM Funds at the time of such sales. Payments with
respect to Class B shares will equal 4.00% of the purchase price of the Class B
shares sold by the dealer or institution, and will consist of a sales commission
equal to 3.75% of the purchase price of the Class B shares sold plus an advance
of the first year service fee of 0.25% with respect to such shares. The portion
of the payments to AIM Distributors under the Class B Plan which constitutes an
asset-based sales charge (0.75%) is intended in part to permit AIM Distributors
to recoup a portion of such sales commissions plus financing costs.
AIM Distributors may pay sales commissions to dealers and institutions who
sell Class C shares of the AIM Funds at the time of such sales. Payments with
respect to Class C shares will equal 1.00% of the purchase price of the Class C
shares sold by the dealer or institution, and will consist of a sales commission
of 0.75% of the purchase price of the Class C shares sold plus an advance of the
first year service fee of 0.25% with respect to such shares. AIM Distributors
will retain all payments received by it relating to Class C shares for the first
year after they are purchased. The portion of the payments to AIM Distributors
under the Class A and C Plan attributable to Class C shares which constitutes an
asset-based sales charge (0.75%) is intended in part to permit AIM Distributors
to recoup a portion of on-going sales commissions to dealers plus financing
costs, if any. After the first full year, AIM Distributors will make such
payments quarterly to dealers and institutions based on the average net asset
value of Class C shares which are attributable to shareholders for whom the
dealers and institutions are designated as dealers of record. These commissions
on Class C shares are not paid on sales to investors exempt from the CDSC,
including Class C 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.
TIMING OF PURCHASE ORDERS. Orders for the purchase of shares of an AIM Fund
(other than AIM MONEY MARKET FUND, as described below) received prior to the
close of regular trading on the New York Stock Exchange ("NYSE"), which is
generally 4:00 p.m. Eastern Time (and which is hereinafter referred to as "NYSE
Close"), on any business day of an AIM Fund will be confirmed at the price next
determined. Orders received after NYSE Close will be confirmed at the price
determined on the next business day of the AIM Fund. Certain financial
institutions (or their designees) may be authorized to accept purchase orders on
behalf of the AIM Funds. Orders received by authorized institutions (or their
designees) before NYSE Close will be deemed to have been received by an AIM Fund
on such day and will be effected that day, provided that such orders are
transmitted to the Transfer Agent prior to the time set for receipt of such
orders. It is the responsibility of the dealer/financial institution to ensure
that all orders are transmitted on a timely basis to the Transfer Agent. Any
loss resulting from the dealer/financial institution's failure to submit an
order within the prescribed time frame will be borne by that dealer/financial
institution. Please see "How to Purchase Shares -- Purchases by Wire" for
information on obtaining a reference number for wire orders, which will
facilitate the handling of such orders and ensure prompt credit to an investor's
account. A "business day" of an AIM Fund is any day on which the NYSE is open
for business. It is expected that the NYSE will be closed during the next twelve
months on Saturdays and Sundays and on the days on which New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day are observed by the NYSE.
An investor who uses a check to purchase shares will be credited with the full
number of shares purchased at the time of receipt of the purchase order, as
previously described. However, in the event of a redemption or exchange of such
shares, the investor may be required to wait up to ten business days before the
redemption proceeds are sent. This delay is necessary in order to ensure that
the check has cleared. If the check does not clear, or if any investment order
must be cancelled due to nonpayment, the investor will be responsible for any
resulting loss to an AIM Fund or to AIM Distributors.
SPECIAL INFORMATION RELATING TO MULTIPLE CLASS FUNDS. The Multiple Class Funds
currently offer two or more classes of shares through separate distribution
systems (the "Multiple Distribution System"). Although each class of shares of a
particular Multiple Class Fund represents an interest in the same portfolio of
investments, each class is subject to a different distribution structure and, as
a result, differing expenses. This Multiple Distribution System allows investors
to select the class that is best suited to the investor's needs and objectives.
In considering the options afforded by the Multiple Distribution System,
investors should consider both the applicable initial sales charge or contingent
deferred sales charge, as well as the ongoing expenses borne by each class of
shares and other relevant factors, such as whether his or her investment goals
are long-term or short-term.
MCF-11/98
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<PAGE> 16
CLASS A SHARES generally are sold subject to the initial sales charges
described above and are subject to the other fees and expenses described
herein. Class A shares of AIM MONEY MARKET FUND are designed to meet the
needs of an investor who wishes to establish a dollar cost averaging
program, pursuant to which Class A shares an investor owns may be exchanged
at net asset value for Class A shares of another Multiple Class Fund or
shares of another AIM Fund which is not a Multiple Class Fund, subject to
the terms and conditions described under the caption "Exchange
Privilege -- Terms and Conditions of Exchanges."
CLASS B SHARES are sold without an initial sales charge. Thus, the entire
purchase price of Class B shares is immediately invested in Class B shares.
Class B shares are subject, however, to Rule 12b-1 Plan payments of 1.00%
per annum on the average daily net assets of a Multiple Class Fund
attributable to Class B shares. See the discussion under the caption
"Management -- Distribution Plans." In addition, Class B shares redeemed
within six years from the date such shares were purchased are subject to a
contingent deferred sales charge ranging from 5% for redemptions made
within the first year to 1% for redemptions made within the sixth year. No
contingent deferred sales charge will be imposed if Class B shares are
redeemed after six years from the date such shares were purchased.
Redemptions of Class B shares and associated charges are further described
under the caption "How to Redeem Shares -- Multiple Distribution System."
Class B shares will automatically convert into Class A shares of the same
Multiple Class Fund (together with a pro rata portion of all Class B shares
acquired through the reinvestment of dividends and other distributions)
eight years from the end of the calendar month in which the purchase of
Class B shares was made. Class B shares of AIM GLOBAL TRENDS FUND that were
outstanding on May 29, 1998 and which are continuously held by the
shareholder, automatically convert to Class A shares of AIM GLOBAL TRENDS
FUND seven years from the end of the calendar month in which the purchase
of such Class B shares was made. If a shareholder exchanges Class B shares
of AIM GLOBAL TRENDS FUND that were outstanding on, and continuously held
since, May 29, 1998 for Class B shares of any other AIM Fund, such Class B
shares will be subject to the eight year conversion feature applicable to
Class B shares of all other AIM Funds. Following such conversion of their
Class B shares, investors will be relieved of the higher Rule 12b-1 Plan
payments associated with Class B shares. See "Management -- Distribution
Plans."
CLASS C SHARES are sold without an initial sales charge. Thus the entire
purchase price of Class C shares is immediately invested in Class C shares.
Class C shares are subject, however, to Rule 12b-1 Plan payments of 1.00%
per annum on the average daily net assets of a Multiple Class Fund
attributable to Class C shares. See the discussion under the caption
"Management -- Distribution Plans." In addition, Class C shares redeemed
within one year from the date such shares were purchased are subject to a
1.00% contingent deferred sales charge. No contingent deferred sales charge
will be imposed if Class C shares are redeemed after one year from the date
such shares were purchased. Redemptions of Class C shares and associated
charges are further described under the caption "How to Redeem
Shares -- Multiple Distribution System."
AIM Cash Reserve Shares of AIM MONEY MARKET FUND are sold without an
initial sales charge and are not subject to a contingent deferred sales
charge; however, they are subject to the other fees and expenses described
in the prospectus for AIM MONEY MARKET FUND.
TIMING OF PURCHASE, EXCHANGE AND REDEMPTION ORDERS (AIM MONEY MARKET FUND
ONLY). Orders for purchases, exchanges and redemptions of shares of AIM MONEY
MARKET FUND received prior to 12:00 noon Eastern Time or NYSE Close on any
business day of the Fund will be confirmed at the price next determined. Net
asset value is normally determined at 12:00 noon Eastern Time and NYSE Close on
each business day of AIM MONEY MARKET FUND.
SPECIAL INFORMATION RELATING TO AIM MONEY MARKET FUND, AIM TAX-EXEMPT CASH
FUND and AIM DOLLAR FUND (THE "MONEY MARKET FUNDS"). Because each Money Market
Fund uses the amortized cost method of valuing the securities it holds and
rounds its per share net asset value to the nearest whole cent, it is
anticipated that the net asset value of the shares of such funds will remain
constant at $1.00 per share. However, there is no assurance that each Money
Market Fund can maintain a $1.00 net asset value per share. In order to earn
dividends with respect to AIM MONEY MARKET FUND on the same day that a purchase
is made, purchase payments in the form of federal funds must be received by the
Transfer Agent before 12:00 noon Eastern Time on that day. Purchases made by
payments in any other form, or payments in the form of federal funds received
after such time but prior to NYSE Close, will begin to earn dividends on the
next business day following the date of purchase. The Money Market Funds
generally will not issue share certificates but will record investor holdings in
noncertificate form and regularly advise the shareholder of his ownership
position.
SHARE CERTIFICATES. Share certificates for all AIM Funds will be issued upon
written request by a shareholder to AIM Distributors or the Transfer Agent.
Otherwise, such shares will be held on the shareholder's behalf by the
applicable AIM Fund(s) and be recorded on the books of such fund(s). See
"Exchange Privilege -- Exchanges by Telephone" and "How to Redeem
Shares -- Redemptions by Telephone" for restrictions applicable to shares issued
in certificate form. Please note that certificates will not be issued for shares
held in prototype retirement plans.
MINIMUM ACCOUNT BALANCE. If (1) an account opened in a fund has been in effect
for at least one year and the shareholder has not made an additional purchase in
that account within the preceding six calendar months and (2) the value of such
account drops below $500 for three consecutive months as a result of redemptions
or exchanges, the fund has the right to redeem the account, after giving the
shareholder 60 days' prior written notice, unless the shareholder makes
additional investments within the notice period to
MCF-11/98
A-6
<PAGE> 17
bring the account value up to $500. If a fund determines that a shareholder has
provided incorrect information in opening an account with a fund or in the
course of conducting subsequent transactions with the fund related to such
account, the fund may, in its discretion, redeem the account and distribute the
proceeds of such redemption to the shareholder.
REDUCTIONS IN INITIAL SALES CHARGES
Reductions in the initial sales charges shown in the sales charge tables
(quantity discounts) apply to purchases of Class A 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 and AIM DOLLAR FUND, AIM Cash Reserve Shares of AIM
MONEY MARKET FUND and Class B and Class C shares of the Multiple Class Funds
will not be taken into account in determining whether a purchase qualifies for a
reduction in initial sales charges.
The term "purchaser" means:
- an individual and his or her spouse and children, including any trust
established exclusively for the benefit of any such person; or a pension,
profit-sharing, or other benefit plan established exclusively for the
benefit of any such person, such as an IRA, Roth IRA, a single-participant
money-purchase/profit-sharing plan or an individual participant in a 403(b)
plan (unless such 403(b) plan qualifies as the purchaser as defined below);
- a 403(b) plan, the employer/sponsor of which is an organization described
under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended
(the "Code"), provided that:
a. the employer/sponsor must submit contributions for all participating
employees in a single contribution transmittal (i.e., the funds will
not accept contributions submitted with respect to individual
participants);
b. each transmittal must be accompanied by a single check or wire
transfer; and
c. all new participants must be added to the 403(b) plan by submitting
an application on behalf of each new participant with the
contribution transmittal;
- a trustee or fiduciary purchasing for a single trust, estate or single
fiduciary account (including a pension, profit-sharing or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Code) and 457 plans, although more than one beneficiary or participant is
involved;
- a Simplified Employee Pension ("SEP"), Salary Reduction and other Elective
Simplified Employee Pension account ("SARSEP"), or Savings Incentive Match
Plans for Employees IRA ("SIMPLE IRA") where the employer has notified AIM
Distributors in writing that all of its related employee SEP, SARSEP or
SIMPLE IRA accounts should be linked;
- any other organized group of persons, whether incorporated or not, provided
the organization has been in existence for at least six months and has some
purpose other than the purchase at a discount of redeemable securities of a
registered investment company; or
- the discretionary advised accounts of A I M Advisors, Inc. ("AIM") or A I M
Capital Management, Inc. ("AIM Capital").
Investors or dealers seeking to qualify orders for a reduced initial sales
charge must identify such orders and, if necessary, support their qualification
for the reduced charge. AIM Distributors reserves the right to determine whether
any purchaser is entitled, by 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 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 DOLLAR FUND, AIM TAX-EXEMPT CASH FUND, and AIM Cash Reserve Shares
of AIM MONEY MARKET FUND and (ii) Class B and Class C shares of the Multiple
Class Funds) within the following 13 consecutive months. By marking the LOI
section on the account application and by signing the account application, the
purchaser indicates that he understands and agrees to the terms of the LOI and
is bound by the provisions described below.
Each purchase of fund shares normally subject to an initial sales charge made
during the 13-month period will be made at the public offering price applicable
to a single transaction of the total dollar amount indicated by the LOI, as
described under "Sales Charges and Dealer Concessions." It is the purchaser's
responsibility at the time of purchase to specify the account numbers that
should be considered in determining the appropriate sales charge. The offering
price may be further reduced as described under "Rights of Accumulation" if the
Transfer Agent is advised of all other accounts at the time of the investment.
Shares acquired through reinvestment of dividends and capital gain 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 in-
MCF-11/98
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<PAGE> 18
creased 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 with 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.
Any investor who purchased shares of the AIM/GT Funds pursuant to a LOI
entered into prior to June 1, 1998 may continue to make such purchases under the
terms of such LOI. See "How to Purchase and Redeem Shares" in the Statement of
Additional Information.
(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 DOLLAR FUND, AIM TAX-EXEMPT CASH FUND and AIM Cash Reserve Shares of AIM
MONEY MARKET FUND and (ii) Class B and Class C shares of the Multiple Class
Funds) at the time of the proposed purchase. Rights of accumulation are also
available to holders of the Connecticut General Guaranteed Account, established
for tax-qualified group annuities, for contracts purchased on or before June 30,
1992. To determine whether or not a reduced initial sales charge applies to a
proposed purchase, AIM Distributors takes into account not only the money which
is invested upon such proposed purchase, but also the value of all shares of the
AIM Funds (except for (i) Class A shares of AIM DOLLAR FUND, AIM TAX-EXEMPT CASH
FUND and AIM Cash Reserve Shares of AIM MONEY MARKET FUND and (ii) Class B and
Class C shares of the Multiple Class Funds) owned by such purchaser, calculated
at their then current public offering price. If a purchaser so qualifies for a
reduced sales charge, the reduced sales charge applies to the total amount of
money then being invested by such purchaser and not just to the portion that
exceeds the breakpoint above which a reduced sales charge applies. For example,
if a purchaser already owns qualifying shares of any AIM Fund with a value of
$20,000 and wishes to invest an additional $20,000 in a fund with a maximum
initial sales charge of 5.50%, the reduced initial sales charge of 5.25% will
apply to the full $20,000 purchase and not just to the $15,000 in excess of the
$25,000 breakpoint. To qualify for obtaining the discount applicable to a
particular purchase, the purchaser or his dealer must furnish AFS with a list of
the account numbers and the names in which such accounts of the purchaser are
registered at the time the purchase is made.
PURCHASES AT NET ASSET VALUE. Purchases of shares of any of the AIM Funds at
net asset value (without payment of an initial sales charge) may be made in
connection with: (a) the reinvestment of dividends and other distributions from
a fund (see "Dividends, Distributions and Tax Matters"); (b) exchanges of shares
of certain other funds (see "Exchange Privilege"); (c) use of the reinstatement
privilege (see "How to Redeem Shares"); or (d) a merger, consolidation or
acquisition of assets of a fund.
Shareholders of record of Class A shares of AIM WEINGARTEN FUND and AIM
CONSTELLATION FUND on September 8, 1986, and shareholders of record of Class A
shares of AIM CHARTER FUND on November 17, 1986, may purchase additional Class A
shares of the particular AIM Fund(s) whose shares they owned on such date, at
net asset value (without payment of a sales charge) for as long as they
continuously own Class A shares of such AIM Fund(s) having a market value of at
least $500. In addition, discretionary advised clients of any investment
advisors whose clients held Class A shares of AIM WEINGARTEN FUND or AIM
CONSTELLATION FUND on September 8, 1986, or who held Class A shares of AIM
CHARTER FUND on November 17, 1986, and have held such Class A shares at all
times subsequent to such date, may purchase Class A shares of the applicable AIM
Fund(s) at the net asset value of such shares.
The following persons may purchase Class A shares of the AIM Funds through AIM
Distributors without payment of an initial sales charge: (a) A I M Management
Group Inc. ("AIM Management") and its affiliated companies; (b) any current or
retired officer, director, trustee or employee, or any member of the immediate
family (including spouse, children, parents and parents of spouse) of any such
person, of AIM Management or its affiliates or of certain mutual funds which are
advised or managed by AIM; or any trust established exclusively for the benefit
of such persons; (c) any employee benefit plan established for employees of AIM
Management or its affiliates; (d) any current or retired officer, director,
trustee or employee, or any member of the immediate family (including spouse,
children, parents and parents of spouse) of any such person, or of CIGNA
Corporation or of any of its affiliated companies, or of First Data Investor
Services Group (formerly The Shareholder Services Group, Inc.); (e) any
investment company sponsored by
MCF-11/98
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<PAGE> 19
CIGNA Investments, Inc. or any of its affiliated companies for the benefit of
its directors' deferred compensation plans; (f) discretionary advised clients of
AIM or AIM Capital; (g) registered representatives and employees of dealers who
have entered into agreements with AIM Distributors (or financial institutions
that have arrangements with such dealers with respect to the sale of shares of
the AIM Funds) and any member of the immediate family (including spouse,
children, parents and parents of spouse) of any such person, provided that
purchases at net asset value are permitted by the policies of such person's
employer; (h) certain broker-dealers, investment advisers or bank trust
departments that provide asset allocation, similar specialized investment
services or investment company transaction services for their customers, that
charge a minimum annual fee for such services, and that have entered into an
agreement with AIM Distributors with respect to their use of the AIM Funds in
connection with such services; (i) any employee or any member of the immediate
family (including spouse, children, parents and parents of spouse) of any
employee, of Triformis Inc.; (j) shareholders of the AIM/GT Funds as of April
30, 1987 who since that date continually have owned shares of one or more of the
AIM/GT Funds; and (k) 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 AIM/GT Funds since that time.
In addition, shares of any AIM Fund (except AIM SMALL CAP OPPORTUNITIES FUND)
may be purchased at net asset value, without payment of a sales charge, by
pension, profit-sharing or other employee benefit plans created pursuant to a
plan qualified under Section 401 of the Code or plans under Section 457 of the
Code, or employee benefit plans created pursuant to Section 403(b) of the Code
and sponsored by nonprofit organizations defined under Section 501(c)(3) of the
Code. Such plans will qualify for purchases at net asset value provided that (1)
the total amount invested in the plan is at least $1,000,000, (2) the sponsor
signs a $1,000,000 LOI, (3) such shares are purchased by an employer-sponsored
plan with at least 100 eligible employees, or (4) all of the plan's transactions
are executed through a single financial institution or service organization who
has entered into an agreement with AIM Distributors with respect to their use of
the AIM Funds in connection with such accounts. Section 403(b) plans sponsored
by public educational institutions will not be eligible for net asset value
purchases based on the aggregate investment made by the plan or the number of
eligible employees. Participants in such plans will be eligible for reduced
sales charges based solely on the aggregate value of their individual
investments in the applicable AIM Fund. PLEASE NOTE THAT TAX-EXEMPT FUNDS ARE
NOT APPROPRIATE INVESTMENTS FOR SUCH PLANS. AIM Distributors may pay investment
dealers or other financial service firms for share purchases of the Load Funds
(as defined under the caption "Exchange Privilege") sold at net asset value to
an employee benefit plan in accordance with this paragraph as follows: 1% of the
first $2 million of such purchases, plus 0.80% of the next $1 million of such
purchases, plus 0.50% of the next $17 million of such purchases, plus 0.25% of
amounts in excess of $20 million of such purchases and up to 0.10% of the net
asset value of any Class A shares of AIM LIMITED MATURITY TREASURY FUND sold at
net asset value to an employee benefit plan in accordance with this paragraph.
Class A shares of AIM WEINGARTEN FUND and AIM CONSTELLATION FUND may be
deposited at net asset value, without payment of a sales charge, in G/SET series
unit investment trusts, whose portfolios consist exclusively of Class A shares
of AIM WEINGARTEN FUND or AIM CONSTELLATION FUND and stripped United States
Treasury issued notes or bonds bearing no current interest ("Treasury
Obligations"). Class A shares of such funds may also be purchased at net asset
value by other unit investment trusts approved by the Board of Directors of AIM
Equity Funds, Inc. Unit holders of such trusts may elect to invest cash
distributions from such trusts in Class A shares of AIM WEINGARTEN FUND or AIM
CONSTELLATION FUND at net asset value, including: (a) distributions of any
dividend income or other income received by such trusts; (b) distributions of
any net capital gains received in respect of Class A shares of AIM WEINGARTEN
FUND or AIM CONSTELLATION FUND and proceeds of the sales of Class A shares of
AIM WEINGARTEN FUND or AIM CONSTELLATION FUND used to redeem units of such
trusts; and (c) proceeds from the maturity of the Treasury Obligations at the
termination dates of such trusts. Prior to the termination dates of such trusts,
a unit holder may invest the proceeds from the redemption or repurchase of his
units in Class A shares of AIM WEINGARTEN FUND or AIM CONSTELLATION FUND at net
asset value, provided: (a) that the investment in Class A shares of AIM
WEINGARTEN FUND or AIM CONSTELLATION FUND is effected within 30 days of such
redemption or repurchase; and (b) that the unit holder or his dealer provides
AIM Distributors with a letter which: (i) identifies the name, address and
telephone number of the dealer who sold to the unit holder the units to be
redeemed or repurchased; and (ii) states that the investment in Class A shares
of AIM WEINGARTEN FUND or AIM CONSTELLATION FUND is being funded exclusively by
the proceeds from the redemption or repurchase of units of such trusts.
FOR ANY FUND NAMED ON THE COVER PAGE OF THIS PROSPECTUS, AIM DISTRIBUTORS AND
ITS AGENTS RESERVE THE RIGHT AT ANY TIME (1) TO WITHDRAW ALL OR ANY PART OF THE
OFFERING MADE BY THIS PROSPECTUS; (2) TO REJECT ANY PURCHASE OR EXCHANGE ORDER
OR TO CANCEL ANY PURCHASE DUE TO NONPAYMENT OF THE PURCHASE PRICE; (3) TO
INCREASE, WAIVE OR LOWER THE MINIMUM INVESTMENT REQUIREMENTS; OR (4) TO MODIFY
ANY OF THE TERMS OR CONDITIONS OF PURCHASE OF SHARES OF SUCH FUND. For any fund
named on the cover page, AIM Distributors and its agents will use their best
efforts to provide notice of any such actions through correspondence with
broker-dealers and existing shareholders, supplements to the AIM Funds'
prospectuses, or other appropriate means, and will provide sixty (60) days'
notice in the case of termination or material modification to the exchange
privilege discussed under the caption "Exchange Privilege."
MCF-11/98
A-9
<PAGE> 20
- --------------------------------------------------------------------------------
SPECIAL PLANS
Except as noted below, each AIM Fund provides the special plans described
below for the convenience of its shareholders. Once established, there is no
obligation to continue to invest through a plan, and a shareholder may terminate
a plan at any time.
Special plan applications and further information, including details of any
fees which are charged to a shareholder investing through a plan, may be
obtained by written request, directed to AFS at the address provided under "How
to Purchase Shares," or by calling the Client Services Department of AFS at
(800) 959-4246. IT IS RECOMMENDED THAT A SHAREHOLDER CONSIDERING ANY OF THE
PLANS DESCRIBED HEREIN CONSULT A TAX ADVISOR BEFORE COMMENCING PARTICIPATION IN
SUCH A PLAN.
SYSTEMATIC WITHDRAWAL PLAN. Under a Systematic Withdrawal Plan, a shareholder
who owns shares which are not subject to a contingent deferred sales charge, can
arrange for monthly, quarterly or annual amounts (but not less than $50) to be
drawn against the balance of his account in the designated AIM Fund.
Shareholders who own shares subject to a contingent deferred sales charge, can
only arrange for monthly or quarterly withdrawals under a Systematic Withdrawal
Plan. Payment of this amount can be made on any day of the month the shareholder
specifies, except the thirtieth or thirty-first day of each month in which a
payment is to be made. A minimum account balance of $5,000 is required to
establish a Systematic Withdrawal Plan, but there is no requirement thereafter
to maintain any minimum investment. With respect to shares subject to a
contingent deferred sales charge (all classes) no contingent deferred sales
charge will be imposed on withdrawals made under a Systematic Withdrawal Plan,
provided that the amounts withdrawn under such a plan do not exceed on an annual
basis 12% of the account value, on a per fund basis, at the time the shareholder
elects to participate in the Systematic Withdrawal Plan. Systematic Withdrawal
Plans with respect to shares subject to a contingent deferred sales charge that
exceed on an annual basis 12% of such account will be subject to a contingent
deferred sales charge on the amounts exceeding 12% of the account value at the
time the shareholder elects to participate in the Systematic Withdrawal Plan.
Under a Systematic Withdrawal Plan, all shares are to be held by the Transfer
Agent and all dividends and distributions are reinvested to shares of the
applicable AIM Fund by the Transfer Agent. To provide funds for payments made
under the Systematic Withdrawal Plan, the Transfer Agent redeems sufficient full
and fractional shares at their net asset value in effect at the time of each
such redemption.
Payments under a Systematic Withdrawal Plan constitute taxable events. Since
such payments are funded by the redemption of shares, they may result in a
return of capital and in capital gains or losses, rather than in ordinary
income. Because sales charges are imposed on additional purchases of shares
(other than Class B or Class C shares of the Multiple Class Funds, and AIM Cash
Reserve Shares of AIM MONEY MARKET FUND), it is disadvantageous to effect such
purchases while a Systematic Withdrawal Plan is in effect.
The Systematic Withdrawal Plan may be terminated at any time upon 10 days'
prior notice to AFS. Each AIM Fund bears its share of the cost of operating the
Systematic Withdrawal Plan. Each AIM Fund reserves the right to initiate a fee
for each withdrawal (not to exceed its cost), but there is no present intent to
do so.
AUTOMATIC INVESTMENT PLAN. Shareholders who wish to make regular systematic
investments may establish an Automatic Investment Plan. Under this plan
withdrawal is made on the shareholder's bank account in the amount specified by
the shareholder (minimum $50 per investment, per account) and on a day or
date(s) specified by the shareholder. The proceeds are invested in shares of the
designated AIM Fund at the applicable offering price determined on the date of
the withdrawal. An Automatic Investment Plan may be discontinued upon 10 days'
prior notice to the Transfer Agent or AIM Distributors.
AUTOMATIC DIVIDEND INVESTMENT PLAN. Shareholders may elect to have all
dividends and distributions declared by an AIM Fund paid in cash or invested at
net asset value, without payment of an initial sales charge, either in shares of
the same AIM Fund or invested in shares of another AIM Fund. For each of the
Multiple Class Funds, dividends and distributions attributable to Class A shares
may be reinvested in Class A shares of the same fund, in Class A shares of
another Multiple Class Fund or in shares of another AIM Fund which is not a
Multiple Class Fund; dividends and distributions attributable to Class B shares
may be reinvested in Class B shares of the same fund or in Class B shares of
another Multiple Class Fund; dividends and distributions attributable to Class C
shares may be reinvested in Class C shares of the same fund or in Class C shares
of another Multiple Class Fund; and dividends and distributions attributable to
AIM Cash Reserve Shares of AIM MONEY MARKET FUND may be reinvested in additional
shares of such fund, in Class A shares of another Multiple Class Fund or in
shares of another AIM Fund which is not a Multiple Class Fund. See "Dividends,
Distributions and Tax Matters -- Dividends and Distributions" for a description
of payment dates for these options. In order to qualify to have dividends and
distributions of one AIM Fund invested in shares of another AIM Fund, the
following conditions must be satisfied: (a) the shareholder must have an account
balance in the dividend paying fund of at least $5,000; (b) the account must be
held in the name of the shareholder (i.e., the account may not be held in
nominee name); and (c) the shareholder must have requested and completed an
authorization relating to the reinvestment of dividends into another AIM Fund.
An authorization may be given on the account application or on an authorization
form available from AIM Distributors. An AIM Fund will waive the $5,000 minimum
account value requirement if the shareholder has an account in the fund selected
to receive the dividends and distributions with a value of at least $500.
DOLLAR COST AVERAGING. Shareholders may elect to have a specified amount
automatically exchanged, either monthly or quarterly (on or about the 10th or
25th day of the applicable month), from one of their accounts into one or more
AIM Funds, subject to
MCF-11/98
A-10
<PAGE> 21
the terms and conditions described under the caption "Exchange
Privilege -- Terms and Conditions of Exchanges." The account from which
exchanges are to be made must have a value of at least $5,000 when a shareholder
elects to begin this program, and the exchange minimum is $50 per transaction.
All of the accounts that are part of this program must have identical
registrations. The net asset value of shares purchased under this program may
vary, and may be more or less advantageous than if shares were not exchanged
automatically. There is no charge for entering the Dollar Cost Averaging
program. Sale charges may apply, as described under the caption "Exchange
Privilege."
PROTOTYPE RETIREMENT PLANS. The AIM Funds (except for AIM HIGH INCOME
MUNICIPAL FUND, AIM MUNICIPAL BOND FUND, AIM TAX-FREE INTERMEDIATE FUND, AIM
TAX-EXEMPT CASH FUND and AIM TAX-EXEMPT BOND FUND OF CONNECTICUT) have made the
following prototype retirement plans available to corporations, individuals and
employees of non-profit organizations and public schools: combination
money-purchase/profit-sharing plans; 403(b) plans; IRA plans; Roth IRA plans;
SARSEP plans; SEP plans; and SIMPLE IRA plans (collectively, "retirement
accounts"). Information concerning these plans, including the custodian's fees
and the forms necessary to adopt such plans, can be obtained by calling or
writing the AIM Funds or AIM Distributors. Shares of the AIM Funds are also
available for investment through existing 401(k) plans (for both individuals and
employers) adopted under the Code. The plan custodian currently imposes an
annual $10 maintenance fee with respect to each retirement account for which it
serves as the custodian. This fee is generally charged in December. Each AIM
Fund and/or the custodian reserve the right to change this maintenance fee and
to initiate an establishment fee (not to exceed its cost).
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 AIM Funds. The Program
automatically rebalances holdings of AIM 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, AIM 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 AIM Funds in the shareholder's Personal Portfolio for shares of
the same class(es) of one or more other AIM Funds in the shareholder's Personal
Portfolio. See "Exchange Privilege." If shares of the AIM Fund(s) in a
shareholder's Personal Portfolio have appreciated during a rebalancing period,
the Program will result in shares of AIM Fund(s) that have appreciated most
during the period being exchanged for shares of AIM Fund(s) that have
appreciated least. SUCH EXCHANGES ARE NOT TAX-FREE AND MAY RESULT IN A
SHAREHOLDER'S REALIZING A GAIN OR LOSS, AS THE CASE MAY BE, FOR FEDERAL INCOME
TAX PURPOSES. See "Dividends, Distributions and Tax Matters -- Dividends and
Distributions." Participation in the Program does not assure that a shareholder
will profit from purchases under the Program nor does it prevent or lessen
losses in a declining market.
The Program will automatically rebalance the shareholder's Personal Portfolio
on the 28th day of the last month of the period chosen (or the immediately
preceding business day if the 28th is not a business day), subject to any
limitations below. The Program will not execute an exchange if the variance in a
shareholder's Personal Portfolio for a particular AIM 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 AIM 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 AIM 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. Shareholders participating in
the Program may also participate in the Right of Accumulation, LOI, and
Automatic Investment Plan. 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.
MCF-11/98
A-11
<PAGE> 22
- --------------------------------------------------------------------------------
EXCHANGE PRIVILEGE
TERMS AND CONDITIONS OF EXCHANGES. Shareholders of the AIM Funds may
participate in an exchange privilege as described below. The exchange privilege
is also available to holders of the Connecticut General Guaranteed Account,
established for tax-qualified group annuities, for contracts purchased on or
before June 30, 1992. AIM Distributors acts as distributor for the AIM Funds
which represent a range of different investment objectives and policies. As set
forth under the caption "Terms and Conditions of Purchase of the AIM
Funds -- Sales Charges and Dealer Concessions," shares of certain of the AIM
Funds, including the Class A shares of the Multiple Class Funds, listed below
and referred to herein as the "Load Funds," are sold at a public offering price
that includes a maximum sales charge of 5.50% or 4.75% of the public offering
price of such shares; Class A shares (or shares which normally involve the
payment of initial sales charges) of certain of the AIM Funds, listed below and
referred to herein as the "Lower Load Funds," are sold at a public offering
price that includes a maximum sales charge of 1.00% of the public offering price
of such shares; and Class A shares or shares of certain other funds, listed
below and referred to herein as the "No Load Funds," are sold at net asset
value, without payment of a sales charge.
<TABLE>
<S> <C> <C>
LOAD FUNDS: LOWER LOAD FUNDS:
AIM ADVISOR FLEX FUND -- AIM GLOBAL INCOME AIM LIMITED MATURITY TREASURY FUND
CLASS A FUND -- CLASS A -- CLASS A
AIM ADVISOR INTERNATIONAL AIM GLOBAL INFRASTRUCTURE AIM TAX-FREE INTERMEDIATE FUND
VALUE FUND -- CLASS A FUND -- CLASS A -- CLASS A
AIM ADVISOR LARGE CAP AIM GLOBAL RESOURCES NO LOAD FUNDS:
VALUE FUND -- CLASS A FUND -- CLASS A
AIM ADVISOR MULTIFLEX AIM GLOBAL TELECOMMUNICATIONS AIM MONEY MARKET FUND
FUND -- CLASS A FUND -- CLASS A -- AIM CASH RESERVE SHARES
AIM ADVISOR REAL ESTATE AIM GLOBAL TRENDS AIM TAX-EXEMPT CASH FUND -- CLASS A
FUND -- CLASS A FUND -- CLASS A AIM DOLLAR FUND -- CLASS A
AIM AGGRESSIVE GROWTH AIM GLOBAL UTILITIES
FUND -- CLASS A FUND -- CLASS A
AIM ASIAN GROWTH AIM HIGH INCOME MUNICIPAL
FUND -- CLASS A FUND -- CLASS A
AIM BALANCED FUND -- CLASS A AIM HIGH YIELD FUND -- CLASS A
AIM BASIC VALUE AIM HIGH YIELD FUND II -- CLASS A
FUND -- CLASS A AIM INCOME FUND -- CLASS A
AIM BLUE CHIP FUND -- CLASS A AIM INTERMEDIATE GOVERNMENT
AIM CAPITAL DEVELOPMENT FUND -- CLASS A
FUND -- CLASS A AIM INTERNATIONAL EQUITY
AIM CHARTER FUND -- CLASS A FUND -- CLASS A
AIM CONSTELLATION AIM INTERNATIONAL GROWTH
FUND -- CLASS A FUND -- CLASS A
AIM DEVELOPING MARKETS AIM JAPAN GROWTH FUND -- CLASS A
FUND -- CLASS A AIM LATIN AMERICAN GROWTH
AIM EMERGING MARKETS FUND -- CLASS A
FUND -- CLASS A AIM MID CAP EQUITY
AIM EMERGING MARKETS DEBT FUND -- CLASS A
FUND -- CLASS A AIM MONEY MARKET
AIM EUROPE GROWTH FUND -- CLASS A
FUND -- CLASS A AIM MUNICIPAL BOND
AIM EUROPEAN DEVELOPMENT FUND -- CLASS A
FUND -- CLASS A AIM NEW PACIFIC GROWTH
AIM GLOBAL AGGRESSIVE GROWTH FUND -- CLASS A
FUND -- CLASS A AIM SELECT GROWTH FUND -- CLASS A
AIM GLOBAL CONSUMER PRODUCTS AIM SMALL CAP GROWTH
AND SERVICES FUND -- CLASS A FUND -- CLASS A
AIM GLOBAL FINANCIAL SERVICES AIM SMALL CAP OPPORTUNITIES
FUND -- CLASS A FUND -- CLASS A
AIM GLOBAL GOVERNMENT INCOME AIM STRATEGIC INCOME
FUND -- CLASS A FUND -- CLASS A
AIM GLOBAL GROWTH AIM TAX-EXEMPT BOND FUND
FUND -- CLASS A OF CONNECTICUT -- CLASS A
AIM GLOBAL GROWTH & AIM VALUE FUND -- CLASS A
INCOME FUND -- CLASS A AIM WEINGARTEN FUND -- CLASS A
AIM GLOBAL HEALTH CARE AIM WORLDWIDE GROWTH
FUND -- CLASS A FUND -- CLASS A
</TABLE>
MCF-11/98
A-12
<PAGE> 23
Shares of any AIM Fund may be exchanged for shares of any other AIM Fund on
the terms described on the chart below, except that (i) Load Fund share
purchases of $1,000,000 or more which are subject to a contingent deferred sales
charge may not be exchanged for Lower Load Funds or for AIM TAX-EXEMPT CASH FUND
(and Class A shares of AIM DOLLAR FUND); (ii) LOWER LOAD FUND SHARE PURCHASES OF
$1,000,000 OR MORE AND AIM CASH RESERVE SHARES OF AIM MONEY MARKET FUND, AIM
TAX-EXEMPT CASH FUND AND AIM DOLLAR FUND PURCHASES MAY BE EXCHANGED FOR LOAD
FUND SHARES IN AMOUNTS OF $1,000,000 OR MORE WHICH WILL THEN BE SUBJECT TO A
CONTINGENT DEFERRED SALES CHARGE; HOWEVER, FOR PURPOSES OF CALCULATING THE
CONTINGENT DEFERRED SALES CHARGES ON THE LOAD FUND SHARES ACQUIRED, THE 18-MONTH
PERIOD SHALL BE COMPUTED FROM THE DATE OF SUCH EXCHANGE; (iii) Class A shares
may be exchanged for Class A shares; (iv) Class B shares may be exchanged only
for Class B shares; (v) Class C shares may only be exchanged for Class C shares;
and (vi) AIM Cash Reserve Shares of AIM MONEY MARKET FUND may not be exchanged
for Class A, Class B or Class C shares of AIM MONEY MARKET FUND. Class C shares
of AIM SMALL CAP OPPORTUNITIES FUND are currently not available.
DEPENDING UPON THE FUND FROM WHICH AND INTO WHICH AN EXCHANGE IS BEING MADE,
SHARES BEING ACQUIRED IN AN EXCHANGE MAY BE ACQUIRED AT THEIR OFFERING PRICE OR
AT THEIR NET ASSET VALUE (WITHOUT PAYMENT OF A SALES CHARGE) AS SET FORTH IN THE
TABLE BELOW FOR SHARES INITIALLY PURCHASED PRIOR TO MAY 1, 1994:
<TABLE>
<CAPTION>
MULTIPLE CLASS FUNDS:
LOWER LOAD NO LOAD ------------------------------
FROM: TO: LOAD FUNDS FUNDS FUNDS CLASS B CLASS C
----- -------------- ---------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Load Funds....... Net Asset Value Net Asset Value Net Asset Value Not Applicable Not Applicable
Lower Load Funds.. Net Asset Value Net Asset Value Net Asset Value Not Applicable Not Applicable
No Load Funds.... Offering Price if No Load shares Net Asset Value if No Net Asset Value Not Applicable Not Applicable
were directly purchased. Net Load shares were
Asset Value if No Load shares acquired upon exchange
were acquired upon exchange of of shares of any Load
shares of any Load Fund or any Fund or any Lower Load
Lower Load Fund. Fund; otherwise,
Offering Price.
Multiple Class
Funds:
Class B........ Not Applicable Not Applicable Not Applicable Net Asset Value Not Applicable
FOR SHARES INITIALLY PURCHASED ON OR AFTER MAY 1, 1994, THE FOREGOING TABLE IS REVISED AS FOLLOWS:
Load Funds....... Net Asset Value Net Asset Value Net Asset Value Not Applicable Not Applicable
Lower Load Funds.. Net Asset Value if shares were Net Asset Value Net Asset Value Not Applicable Not Applicable
acquired upon exchange of any
Load Fund. Otherwise, difference
in sales charge will apply.
No Load Funds.... Offering Price if No Load shares Net Asset Value if No Net Asset Value Not Applicable Not Applicable
were directly purchased. Net Load shares were
Asset Value if No Load shares acquired upon exchange
were acquired upon exchange of of shares of any Load
shares of any Load Fund. Fund or any Lower Load
Difference in sales charge will Fund; otherwise,
apply if No Load shares were Offering Price.
acquired upon exchange of Lower
Load Fund shares.
Multiple Class
Funds:
Class B........ Not Applicable Not Applicable Not Applicable Net Asset Value Not Applicable
Class C........ Not Applicable Not Applicable Not Applicable Not Applicable Net Asset Value
</TABLE>
An exchange is permitted only in the following circumstances: (a) if the funds
offer more than one class of shares, the exchange must be between the same class
of shares (e.g., Class A, Class B and Class C shares of a Multiple Class Fund
cannot be exchanged for each other) except that AIM Cash Reserve Shares of AIM
MONEY MARKET FUND may be exchanged for Class A shares of another Multiple Class
Fund; (b) the dollar amount of the exchange must be at least equal to the
minimum investment applicable to the shares of the fund acquired through such
exchange; (c) the shares of the fund acquired through exchange must be qualified
for sale in the state in which the shareholder resides; (d) the exchange must be
made between accounts having identical registrations and addresses; (e) the full
amount of the purchase price for the shares being exchanged must have already
been received by the fund; (f) the account from which shares have been exchanged
must be coded as having a certified taxpayer identification number on file or,
in the alternative, an appropriate IRS Form W-8 (certificate of foreign status)
or Form W-9 (certifying exempt status) must have been received by the fund; (g)
newly acquired shares (through either an initial or subsequent investment) are
held in an account for at least ten business days, and all other shares are held
in an account for at least one day, prior to the exchange; and (h) certificates
representing shares must be returned before shares can be exchanged. There is no
fee for exchanges among the AIM Funds.
MCF-11/98
A-13
<PAGE> 24
THE CURRENT PROSPECTUS OF EACH OF THE AIM FUNDS AND CURRENT INFORMATION
CONCERNING THE OPERATION OF THE EXCHANGE PRIVILEGE ARE AVAILABLE THROUGH AIM
DISTRIBUTORS OR THROUGH ANY DEALER WHO HAS EXECUTED AN APPLICABLE AGREEMENT WITH
AIM DISTRIBUTORS. BEFORE EXCHANGING SHARES, INVESTORS SHOULD REVIEW THE
PROSPECTUSES OF THE FUNDS WHOSE SHARES WILL BE ACQUIRED THROUGH EXCHANGE.
EXCHANGES OF SHARES ARE CONSIDERED TO BE SALES FOR FEDERAL AND STATE INCOME TAX
PURPOSES AND MAY RESULT IN A TAXABLE GAIN OR LOSS TO A SHAREHOLDER.
THE EXCHANGE PRIVILEGE IS NOT AN OPTION OR RIGHT TO PURCHASE SHARES BUT IS
PERMITTED UNDER THE RESPECTIVE POLICIES OF THE PARTICIPATING FUNDS, AND MAY BE
MODIFIED OR DISCONTINUED BY ANY OF SUCH FUNDS OR BY AIM DISTRIBUTORS AT ANY
TIME, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, WITHOUT NOTICE.
Shares of any AIM Fund (other than AIM MONEY MARKET FUND) to be exchanged are
redeemed at their net asset value as determined at NYSE Close on the day that an
exchange request in proper form (described below) is received. Exchange requests
received after NYSE Close will result in the redemption of shares at their net
asset value at NYSE Close on the next business day. See "Terms and Conditions of
Purchase of the AIM Funds -- Timing of Purchase, Exchange and Redemption Orders
(AIM MONEY MARKET FUND only)" for information regarding the timing of exchange
orders for AIM MONEY MARKET FUND. Normally, shares of an AIM Fund to be acquired
by exchange are purchased at their net asset value or applicable offering price,
as the case may be, determined on the date that such request is received, but
under unusual market conditions such purchases may be delayed for up to five
business days if it is determined that a fund would be materially disadvantaged
by an immediate transfer of the proceeds of the exchange. If a shareholder is
exchanging into a fund paying daily dividends (See "Dividends, Distributions and
Tax Matters -- Dividends and Distributions," below), and the release of the
exchange proceeds is delayed for the foregoing five-day period, such shareholder
will not begin to accrue dividends until the sixth business day after the
exchange. Shares purchased by check may not be exchanged until it is determined
that the check has cleared, which may take up to ten business days from the date
that the check is received. See "Terms and Conditions of Purchase of the AIM
Funds -- Timing of Purchase Orders."
In the event of unusual market conditions, AIM Distributors reserves the right
to reject any exchange request, if, in the judgment of AIM Distributors, the
number of requests or the total value of the shares that are the subject of the
exchange places a material burden on a fund. For example, the number of
exchanges by investment managers making market timing exchanges may be limited.
EXCHANGES BY MAIL. Investors exchanging their shares by mail should send a
written request to AFS. The request should contain the account registration and
account number, the dollar amount or number of shares to be exchanged, and the
names of the funds from which and into which the exchange is to be made. The
request should comply with all of the requirements for redemption by mail,
except those required for redemption of IRAs. See "How to Redeem Shares."
EXCHANGES BY TELEPHONE. Shareholders or their agents may request an exchange
by telephone. If a shareholder does not wish to allow telephone exchanges by any
person in his account, he should decline that option on the account application.
AIM Distributors has made arrangements with certain dealers and investment
advisory firms to accept telephone instructions to exchange shares between any
of the AIM Funds. AIM Distributors reserves the right to impose conditions on
dealers or investment advisors who make telephone exchanges of shares of the
funds, including the condition that any such dealer or investment advisor enter
into an agreement (which contains additional conditions with respect to
exchanges of shares) with AIM Distributors. To exchange shares by telephone, a
shareholder, dealer or investment advisor who has satisfied the foregoing
conditions must call AFS at (800) 959-4246. If a shareholder is unable to reach
AFS by telephone, he may also request exchanges by telegraph or use overnight
courier services to expedite exchanges by mail, which will be effective on the
business day received by the Transfer Agent as long as such request is received
prior to NYSE Close. The Transfer Agent and AIM Distributors will not be liable
for any loss, expense or cost arising out of any telephone exchange request that
they reasonably believe to be genuine, but may in certain cases be liable for
losses due to unauthorized or fraudulent transactions if they do not follow
reasonable procedures for verification of telephone transactions. Such
reasonable procedures may include recordings of telephone transactions
(maintained for six months), requests for confirmation of the shareholder's
Social Security Number and current address, and mailings of confirmations
promptly after the transaction.
EXCHANGES OF CLASS B AND CLASS C SHARES. A contingent deferred sales charge
will not be imposed in connection with exchanges among Class B or among Class C
shares. For purposes of determining a shareholder's holding period of Class B or
Class C shares in the calculation of the applicable contingent deferred sales
charge, the period of time during which Class B or Class C shares were held
prior to an exchange will be added to the holding period of the applicable Class
B or Class C shares acquired in an exchange.
- --------------------------------------------------------------------------------
HOW TO REDEEM SHARES
Shares of the AIM Funds may be redeemed directly through AIM Distributors or
through any dealer/financial institution who has entered into an agreement with
AIM Distributors. In addition to the obligation of the fund(s) named on the
cover page to redeem shares, AIM Distributors also repurchases shares. Although
a contingent deferred sales charge may be applicable to certain redemptions as
described below, there is no redemption fee imposed when shares are redeemed or
repurchased; however, dealers may charge service fees for handling repurchase
transactions.
MCF-11/98
A-14
<PAGE> 25
MULTIPLE DISTRIBUTION SYSTEM. Class B Shares. Class B shares purchased under
the Multiple Distribution System may be redeemed on any business day of a
Multiple Class Fund at the net asset value per share next determined following
receipt of the redemption order, as described under the caption "Timing and
Pricing of Redemption Orders," less the applicable contingent deferred sales
charge shown in the table below. No deferred sales charge will be imposed (i) on
redemptions of Class B shares following six years from the date such shares were
purchased, (ii) on Class B shares acquired through reinvestments of dividends
and distributions attributable to Class B shares or (iii) on amounts that
represent capital appreciation in the shareholder's account above the purchase
price of the Class B shares.
<TABLE>
<CAPTION>
YEARS CONTINGENT DEFERRED
SINCE SALES CHARGE AS
PURCHASE % OF DOLLAR AMOUNT
MADE SUBJECT TO CHARGE
-------- -------------------
<S> <C>
First...................................................... 5%
Second..................................................... 4%
Third...................................................... 3%
Fourth..................................................... 3%
Fifth...................................................... 2%
Sixth...................................................... 1%
Seventh and Following...................................... None
</TABLE>
In determining whether a contingent deferred sales charge is applicable, it
will be assumed that a redemption is made first, of any shares held in the
shareholder's account that are not subject to such charge; second, of shares
derived from reinvestment of dividends and other distributions; third, of shares
held for more than six years from the date such shares were purchased; and
fourth, of shares held less than six years from the date such shares were
purchased. The applicable sales charge will be applied against the lesser of the
current market value of shares redeemed or their original cost.
Class B shares that are acquired during a tender offer by AIM FLOATING RATE
FUND pursuant to an exchange will be subject, in lieu of the contingent deferred
sales charge described above, to a contingent deferred sales charge equivalent
to the early withdrawal charge on the shares of AIM FLOATING RATE FUND. For
purposes of computing such early withdrawal charge, the holding period of Class
B shares being redeemed will include the holding period of AIM FLOATING RATE
FUND shares prior to exchange.
Class C Shares. Class C shares purchased under the Multiple Distribution
System may be redeemed on any business day of a Multiple Class Fund at the net
asset value per share next determined following receipt of the redemption order,
as described under the caption "Timing and Pricing of Redemption Orders," less a
1% contingent deferred sales charge. No deferred sales charge will be imposed
(i) on redemptions of Class C shares following one year from the date such
shares were purchased; (ii) on Class C shares acquired through reinvestment of
dividends and distributions attributable to Class C shares; (iii) on amounts
that represent capital appreciation in the shareholder's account above the
purchase price of the Class C shares; (iv) on redemptions of additional
purchases of shares of AIM ADVISOR FLEX FUND, AIM ADVISOR INTERNATIONAL VALUE
FUND, AIM ADVISOR LARGE CAP VALUE FUND, AIM ADVISOR MULTIFLEX FUND, and AIM
ADVISOR REAL ESTATE FUND, by shareholders of record on April 30, 1995 of these
funds (shareholders whose broker/dealers maintain a single omnibus account with
the Transfer Agent on behalf of those shareholders, perform sub-accounting
functions with respect to those shareholders, and are unable to segregate
shareholders of record prior to April 30, 1995 from shareholders whose accounts
were opened after that date will be subject to a CDSC on all purchases made
after March 1, 1996).
Waivers. Contingent deferred sales charges on Class B and Class C shares will
be waived on redemptions (1) following the death or post-purchase disability, as
defined in Section 72(m)(7) of the Code, of a shareholder or a settlor of a
living trust (provided AIM Distributors is notified of such death or
post-purchase disability at the time of the redemption request and is provided
with satisfactory evidence of such death or post-purchase disability), (2) in
connection with certain distributions from IRAs, custodial accounts maintained
pursuant to Code Section 403(b), deferred compensation plans qualified under
Code Section 457 and plans qualified under Code Section 401 (collectively,
"Retirement Plans"), (3) pursuant to a Systematic Withdrawal Plan, provided that
amounts withdrawn under such plan do not exceed on an annual basis 12% of the
account value, on a per fund basis, of the shareholder's investment in Class B
or Class C shares at the time the shareholder elects to participate in the
Systematic Withdrawal Plan, (4) effected pursuant to the right of a Multiple
Class Fund to liquidate a shareholder's account if the aggregate net asset value
of shares held in the account is less than the designated minimum account size
described in the prospectus of such Multiple Class Fund, (5) effected by AIM of
its investment in Class B or Class C shares and (6) of Class C shares where such
investor's dealer of record, due to the nature of the investor's account,
notifies AIM Distributors prior to the time of investment that the dealer waives
the payment otherwise payable to the dealer described in the last paragraph
under the caption "Terms and Conditions of Purchase of the AIM Funds -- All
Groups of AIM Funds."
Waiver category (1) above applies only to redemptions of Class B or Class C
shares held at the time of death or initial determination of post-purchase
disability.
MCF-11/98
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<PAGE> 26
Waiver category (2) above applies only to redemptions resulting from:
(i) required minimum distributions to plan participants or
beneficiaries who are age 70 1/2 or older, and only with respect to that
portion of such distributions which does not exceed 12% annually of the
participant's or beneficiary's account value in a particular AIM Fund;
(ii) in-kind transfers of assets where the participant or beneficiary
notifies AIM Distributors of such transfer no later than the time such
transfer occurs;
(iii) tax-free rollovers or transfers of assets to another Retirement
Plan invested in Class B or Class C shares of one or more Multiple Class
Funds;
(iv) tax-free returns of excess contributions or returns of excess
deferral amounts; and
(v) distributions upon the death or disability (as defined in the
Code) of the participant or beneficiary.
CONTINGENT DEFERRED SALES CHARGE PROGRAM FOR LARGE PURCHASES. Except for
purchases of Class B and Class C shares of a Multiple Class Fund and purchases
of shares of the No Load Funds and Lower Load Funds, A CONTINGENT DEFERRED SALES
CHARGE OF 1% APPLIES TO PURCHASES OF $1,000,000 OR MORE THAT ARE REDEEMED WITHIN
18 MONTHS OF THE DATE OF PURCHASE. For a description of the AIM Funds
participating in the program, see "Terms and Conditions of Purchase of the AIM
Funds -- Sales Charges and Dealer Concessions." This charge will be 1% of the
lesser of the value of the shares redeemed (excluding reinvested dividends and
capital gains distributions) or the total original cost of such shares. In
determining whether a contingent deferred sales charge is payable, and the
amount of any such charge, shares not subject to the contingent deferred sales
charge are redeemed first (including shares purchased by reinvested dividends
and capital gains distributions and amounts representing increases from capital
appreciation), and then other shares are redeemed in the order of purchase. No
such charge will be imposed upon exchanges unless the shares acquired by
exchange are redeemed within 18 months of the date the shares were originally
purchased. For purposes of computing this 18-MONTH PERIOD, (i) shares of any
Load Fund or AIM Cash Reserve shares of AIM MONEY MARKET FUND or Class A shares
of AIM DOLLAR FUND which were acquired through an exchange of shares which
previously were subject to the 1% contingent deferred sales charge will be
credited with the period of time such exchanged shares were held, and (ii)
shares of any Load Fund which are subject to the 1% contingent deferred sales
charge and which were acquired through an exchange of shares of a Lower Load or
a No Load Fund which previously were not subject to the 1% contingent deferred
sales charge will not be credited with the period of time such exchanged shares
were held. The charge will be waived in the following circumstances: (l)
redemptions of shares by employee benefit plans ("Plans") qualified under
Sections 401 or 457 of the Code, or Plans created under Section 403(b) of the
Code and sponsored by nonprofit organizations as defined under Section 501(c)(3)
of the Code, where shares are being redeemed in connection with employee
terminations or withdrawals, and (a) the total amount invested in a Plan is at
least $1,000,000, (b) the sponsor of a Plan signs a letter of intent to invest
at least $1,000,000 in one or more of the AIM Funds, or (c) the shares being
redeemed were purchased by an employer-sponsored Plan with at least 100 eligible
employees; provided, however, that Plans created under Section 403(b) of the
Code which are sponsored by public educational institutions shall qualify under
(a), (b) or (c) above on the basis of the value of each Plan participant's
aggregate investment in the AIM Funds, and not on the aggregate investment made
by the Plan or on the number of eligible employees; (2) redemptions of shares
following the death or post-purchase disability, as defined in Section 72(m)(7)
of the Code, of a shareholder or a settlor of a living trust; (3) redemptions of
shares purchased at net asset value by private foundations or endowment funds
where the initial amount invested was at least $1,000,000; (4) redemptions of
shares purchased by an investor in amounts of $1,000,000 or more where such
investor's dealer of record, due to the nature of the investor's account,
notifies AIM Distributors prior to the time of investment that the dealer waives
the payments otherwise payable to the dealer as described in the third paragraph
under the caption "Terms and Conditions of Purchase of the AIM Funds -- All
Groups of AIM Funds;" and (5) pursuant to a Systematic Withdrawal Plan, provided
that amounts withdrawn under such plan do not exceed on an annual basis 12% of
the account value, on a per fund basis, of the shareholder's investment in Class
A shares at the time the shareholder elects to participate in the Systematic
Withdrawal Plan.
Shareholders who purchased $500,000 or more of Class A shares of the AIM/GT
Funds prior to June 1, 1998 are entitled to certain waivers of the contingent
deferred sales charge on those shares as described in the Statement of
Additional Information under "How to Purchase and Redeem Shares."
REDEMPTIONS BY MAIL. Redemption requests must be in writing and sent to the
Transfer Agent. Upon receipt of a redemption request in proper form, payment
will be made as soon as practicable, but in any event will normally be made
within seven days after receipt. However, in the event of a redemption of shares
purchased by check, the investor may be required to wait up to ten business days
before the redemption proceeds are sent. See "Terms and Conditions of Purchase
of the AIM Funds -- Timing of Purchase Orders."
Requests for redemption must include: (a) original signatures of each
registered owner exactly as the shares are registered; (b) the Fund and the
account number of shares to be redeemed; (c) share certificates, either properly
endorsed or accompanied by a duly executed stock power, for the shares to be
redeemed if such certificates have been issued and the shares are not in the
custody of the Transfer Agent; (d) signature guarantees, as described below; and
(e) any additional documents that may be required for redemption by
corporations, partnership, trusts or other entities. The burden is on the
shareholder to inquire as to whether any additional documentation is required.
Any request not in proper form may be rejected and in such case must be renewed
in writing.
MCF-11/98
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<PAGE> 27
In addition to these requirements, shareholders who have invested in a fund to
establish as IRA, should include the following information along with a written
request for either partial or full liquidation of fund shares; (a) a statement
as to whether or not the shareholder has attained age 59 1/2, and (b) a
statement as to whether or not the shareholder elects to have federal income tax
withheld from the proceeds of the liquidation.
REDEMPTIONS BY TELEPHONE. Shareholders may request a redemption by telephone.
If a shareholder does not wish to allow telephone redemptions by any person in
this account, he should decline that option on the account application. The
telephone redemption feature can be used only if: (a) the redemption proceeds
are to be mailed to the address of record or transferred electronically or wired
to the pre-authorized bank account; (b) there has been no change of address of
record on the account within the preceding 30 days; (c) the shares to be
redeemed are not in certificate form; (d) the person requesting the redemption
can provide proper identification information, and (e) the proceeds of the
redemption do not exceed $50,000. Accounts in AIM Distributors' prototype
retirement plans (such as IRA and IRA/SEP) or 403(b) plans are not eligible for
the telephone redemption option. AIM Distributors has made arrangements with
certain dealers and investment advisors to accept telephone instructions for the
redemption of shares. AIM Distributors reserves the right to impose conditions
on these dealers and investment advisors, including the condition that they
enter into agreements (which contain additional conditions with respect to the
redemption of shares) with AIM Distributors. The Transfer Agent and AIM
Distributors will not be liable for any loss, expense or cost arising out of any
telephone redemption request effected in accordance with the authorization set
forth in the appropriate form if they reasonably believe such request to be
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.
EXPEDITED REDEMPTIONS (AIM Cash Reserve shares of AIM MONEY MARKET FUND
only). If a redemption order is received prior to 11:30 a.m. Eastern Time, the
redemption will be effective on that day and AIM MONEY MARKET FUND will endeavor
to transmit payment on that same business day. If the redemption order is
received after 11:30 a.m. and prior to NYSE Close, the redemption will be made
at the next determined net asset value and payment will generally be transmitted
on the next business day.
REDEMPTIONS BY CHECK (AIM TAX-EXEMPT CASH FUND, AIM Cash Reserve Shares of AIM
MONEY MARKET FUND and Class A shares of AIM DOLLAR FUND). After completing the
appropriate authorization form, shareholders may use checks to effect
redemptions from AIM TAX-EXEMPT CASH FUND, AIM Cash Reserve Shares of AIM MONEY
MARKET FUND and Class A shares of AIM DOLLAR FUND. This privilege does not apply
to retirement accounts or qualified plans. Checks may be drawn in any amount of
$250 or more. Checks drawn against insufficient shares in the account, against
shares held less than ten business days, or in amounts of less than the
applicable minimum will be returned to the payee. The payee of the check may
cash or deposit it in the same way as an ordinary bank check. When a check is
presented on the Transfer Agent for payment, the Transfer Agent will cause a
sufficient number of shares of such fund to be redeemed to cover the amount of
the check. Shareholders are entitled to dividends on the shares redeemed through
the day on which the check is presented to the Transfer Agent for payment.
TIMING AND PRICING OF REDEMPTION ORDERS. Shares of the various AIM Funds
(other than AIM MONEY MARKET FUND) are redeemed at their net asset value next
computed after a request for redemption in proper form (including signature
guarantees and other required documentation for written redemptions) is received
by the Transfer Agent 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, except that shares that are subject to a contingent
deferred sales charge, may be subject to the imposition of deferred sales
charges that will be deducted from the redemption proceeds. See "Multiple
Distribution System" and "Contingent Deferred Sales Charge Program for Large
Purchases." Orders for the redemption of shares received in proper form prior to
NYSE Close on any business day of an AIM Fund will be confirmed at the price
determined as of the close of that day. Orders received after NYSE Close will be
confirmed at the price determined on the next business day of an AIM Fund.
Redemptions of shares of AIM MONEY MARKET FUND received prior to 12:00 noon or
NYSE Close on any business day of the Fund will be confirmed at the price next
determined. It is the responsibility of the dealer/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. See "Terms and Conditions of Purchase
of the AIM Funds -- Timing of Purchase Orders." A charge for special handling
(such as wiring of funds or expedited delivery services) may be made by the
Transfer Agent. The right of redemption may not be suspended or the date of
payment upon redemption postponed except under unusual circumstances such as
when trading on the NYSE is restricted or suspended. Payment of the proceeds of
redemptions relating to shares for which checks sent in payment have not yet
cleared will be delayed until it is determined that the check has cleared, which
may take up to ten business days from the date that the check is received.
MCF-11/98
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<PAGE> 28
SIGNATURE GUARANTEES. A signature guarantee is designed to protect the
investor, the AIM Funds, AIM Distributors, and their agents by verifying the
signature of each investor seeking to redeem, transfer, or exchange shares of an
AIM Fund. Examples of when signature guarantees are required are: (1)
redemptions by mail in excess of $50,000; (2) redemptions by mail if the
proceeds are to be paid to someone other than the name(s) in which the account
is registered; (3) written redemptions requesting proceeds to be sent to other
than the bank of record for the account; (4) redemptions requesting proceeds to
be sent to a new address or an address that has been changed within the past 30
days; (5) requests to transfer the registration of shares to another owner, (6)
telephone exchange and telephone redemption authorization forms; (7) changes in
previously designated wiring or electronic funds transfer instructions, and (8)
written redemptions or exchanges of shares previously reported as lost, whether
or not the redemption amount is under $50,000 or the proceeds are to be sent to
the address of record. These requirements may be waived or modified upon notice
to shareholders.
Acceptable guarantors include banks, broker-dealers, credit unions, national
securities exchanges, savings associations and any other organization, provided
that such institution or organization qualifies as an "eligible guarantor
institution" as that term in defined in rules adopted by the Securities and
Exchange Commission (the "SEC"), and further provided that such guarantor
institution is listed in one of the reference guides contained in the Transfer
Agent's current Signature Guarantee Standards and Procedures, such as certain
domestic banks, credit unions, securities dealers, or securities exchanges. The
Transfer Agent will also accept signatures with either: (1) a signature
guaranteed with a medallion stamp of the STAMP Program, or (2) a signature
guaranteed with a medallion stamp of the NYSE Medallion Signature Program,
provided that in either event, the amount of the transaction involved does not
exceed the surety coverage amount indicated on the medallion. For information
regarding whether a particular institution or organization qualifies as an
"eligible guarantor institution," an investor should contact the Client Services
Department of AFS.
REINSTATEMENT PRIVILEGE (CLASS A SHARES ONLY). Within 90 days of a redemption,
a shareholder may invest all or part of the redemption proceeds in Class A
shares of any AIM Fund at the net asset value next computed after receipt by the
Transfer Agent of the funds to be reinvested; provided, however, if the
redemption was made from Class A shares of either AIM LIMITED MATURITY TREASURY
FUND or AIM TAX-FREE INTERMEDIATE FUND, the reinvested proceeds will be subject
to the difference in sales charge between the shares redeemed and the shares the
proceeds are reinvested in. The shareholder must ask the Transfer Agent for such
privilege at the time of reinvestment. A realized gain on the redemption is
taxable, and reinvestment will not alter the taxes due on any capital gains,
except under the circumstances described below. If there has been a loss on the
redemption and shares of the same fund are repurchased, all of the loss may not
be tax deductible, depending on the timing and amount reinvested. Under the
Code, if the redemption proceeds of fund shares on which a sales charge was paid
are reinvested in shares of the same fund, or exchanged for shares of another
AIM Fund, at a reduced sales charge within 90 days of the payment of the sales
charge, the shareholder's basis in the fund shares redeemed may not include the
amount of the sales charge paid, thereby reducing the loss or increasing the
gain recognized from the redemption; however, the shareholder's basis in the
fund shares purchased will include the sales charge. Each AIM Fund may amend,
suspend or cease offering the privilege at any time as to shares redeemed after
the date of such amendment, suspension or cessation. This privilege may only be
exercised once each year by a shareholder with respect to each AIM Fund.
Shareholders who are assessed a contingent deferred sales charge in connection
with the redemption of Class A shares and who subsequently reinvest a portion or
all of the value of the redeemed shares in Class A shares of any AIM Fund within
90 days after such redemption may do so at net asset value if such privilege is
claimed at the time of reinvestment. Such reinvested proceeds will not be
subject to either a front-end sales charge at the time of reinvestment or an
additional contingent deferred sales charge upon subsequent redemption. In order
to exercise this reinvestment privilege, the shareholder must notify the
Transfer Agent of his or her intent to do so at the time of reinvestment. This
reinvestment privilege does not apply to Class B or Class C shares.
MCF-11/98
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<PAGE> 29
- --------------------------------------------------------------------------------
DETERMINATION OF NET ASSET VALUE
The net asset value per share (or share price) of each AIM Fund is determined
as of 4:00 p.m. Eastern Time (12:00 noon Eastern Time and NYSE Close with
respect to AIM MONEY MARKET FUND) on each "business day" of a fund as previously
defined. In the event the NYSE closes early (i.e. before 4:00 p.m. Eastern Time)
on a particular day, the net asset value of an AIM Fund's share will be
determined as of the close of the NYSE on such day. For purposes of determining
net asset value per share, futures and options contracts generally will be
valued 15 minutes after the close of trading of the NYSE. The net asset value
per share is calculated by subtracting a class' liabilities from its assets and
dividing the result by the total number of class shares outstanding. The
determination of net asset value per share is made in accordance with generally
accepted accounting principles. Among other items, liabilities include accrued
expenses and dividends payable, and total assets include portfolio securities
valued at their market value, as well as income accrued but not yet received.
Securities for which market quotations are not readily available are valued at
fair value as determined in good faith by or under the supervision of the fund's
officers and in accordance with methods which are specifically authorized by its
governing Board of Directors or Trustees. Short-term obligations with maturities
of 60 days or less, and the securities held by the Money Market Funds, are
valued at amortized cost as reflecting fair value. AIM HIGH INCOME MUNICIPAL
FUND, AIM MUNICIPAL BOND FUND, AIM TAX-EXEMPT BOND FUND OF CONNECTICUT and AIM
TAX-FREE INTERMEDIATE FUND value variable rate securities that have an
unconditional demand or put feature exercisable within seven days or less at
par, which reflects the market value of such securities.
Generally, trading in foreign securities, corporate bonds, U.S. Government
securities and money market instruments is substantially completed each day at
various times prior to the close of the NYSE. The values of such securities used
in computing the net asset value of an AIM Fund's shares are determined as of
such times. Foreign currency exchange rates are also generally determined prior
to the close of the NYSE. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times at which the
values of the securities are determined and the close of the NYSE which will not
be reflected in the computation of an AIM Fund's net asset value. If events
materially affecting the value of such securities occur during such period, then
these securities will be valued at their fair value as determined in good faith
by or under the supervision of the Board of Directors or Trustees of the
applicable AIM Fund. Securities listed primarily on foreign exchanges may trade
on days when the NYSE is closed (such as a Saturday). As a result, the net asset
value of a fund may be significantly affected by such trading on days when
shareholders cannot purchase or redeem shares of that fund.
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
DIVIDENDS AND DISTRIBUTIONS
Each AIM Fund generally pays dividends and distributions as set forth below:
<TABLE>
<CAPTION>
DISTRIBUTIONS DISTRIBUTIONS
OF NET OF NET
DIVIDENDS FROM REALIZED REALIZED
NET INVESTMENT SHORT-TERM LONG-TERM
FUND INCOME CAPITAL GAINS CAPITAL GAINS
---- -------------- ------------- -------------
<S> <C> <C> <C>
AIM ADVISOR FLEX FUND..................... declared and paid quarterly quarterly annually
AIM ADVISOR INTERNATIONAL VALUE FUND...... declared and paid annually annually annually
AIM ADVISOR LARGE CAP VALUE FUND.......... declared and paid quarterly quarterly annually
AIM ADVISOR MULTIFLEX FUND................ declared and paid quarterly quarterly annually
AIM ADVISOR REAL ESTATE FUND.............. declared and paid quarterly quarterly annually
AIM AGGRESSIVE GROWTH FUND................ declared and paid annually annually annually
AIM ASIAN GROWTH FUND..................... declared and paid annually annually annually
AIM BALANCED FUND......................... declared and paid quarterly annually annually
AIM BASIC VALUE FUND...................... declared and paid annually annually annually
AIM BLUE CHIP FUND........................ declared and paid annually annually annually
AIM CAPITAL DEVELOPMENT FUND.............. declared and paid annually annually annually
AIM CHARTER FUND.......................... declared and paid quarterly annually annually
AIM CONSTELLATION FUND.................... declared and paid annually annually annually
AIM DEVELOPING MARKETS FUND............... declared and paid annually annually annually
AIM DOLLAR FUND........................... declared daily; paid monthly annually annually
AIM EMERGING MARKETS FUND................. declared and paid annually annually annually
AIM EMERGING MARKETS DEBT FUND............ declared and paid monthly annually annually
AIM EUROPE GROWTH FUND.................... declared and paid annually annually annually
AIM EUROPEAN DEVELOPMENT FUND............. declared and paid annually annually annually
AIM GLOBAL AGGRESSIVE GROWTH FUND......... declared and paid annually annually annually
</TABLE>
MCF-11/98
A-19
<PAGE> 30
<TABLE>
<CAPTION>
DISTRIBUTIONS DISTRIBUTIONS
OF NET OF NET
DIVIDENDS FROM REALIZED REALIZED
NET INVESTMENT SHORT-TERM LONG-TERM
FUND INCOME CAPITAL GAINS CAPITAL GAINS
---- -------------- ------------- -------------
<S> <C> <C> <C>
AIM GLOBAL CONSUMER PRODUCTS AND SERVICES
FUND.................................... declared and paid annually annually annually
AIM GLOBAL FINANCIAL SERVICES FUND........ declared and paid annually annually annually
AIM GLOBAL GOVERNMENT INCOME FUND......... declared and paid monthly annually annually
AIM GLOBAL GROWTH FUND.................... declared and paid annually annually annually
AIM GLOBAL GROWTH & INCOME FUND........... declared and paid quarterly annually annually
AIM GLOBAL HEALTH CARE FUND............... declared and paid annually annually annually
AIM GLOBAL INCOME FUND.................... declared daily; paid monthly annually annually
AIM GLOBAL INFRASTRUCTURE FUND............ declared and paid annually annually annually
AIM GLOBAL RESOURCES FUND................. declared and paid annually annually annually
AIM GLOBAL TELECOMMUNICATIONS FUND........ declared and paid annually annually annually
AIM GLOBAL TRENDS FUND.................... declared and paid annually annually annually
AIM GLOBAL UTILITIES FUND................. declared daily; paid monthly annually annually
AIM HIGH INCOME MUNICIPAL FUND............ declared daily; paid monthly annually annually
AIM HIGH YIELD FUND....................... declared daily; paid monthly annually annually
AIM HIGH YIELD FUND II.................... declared daily; paid monthly annually annually
AIM INCOME FUND........................... declared daily; paid monthly annually annually
AIM INTERMEDIATE GOVERNMENT FUND.......... declared daily; paid monthly annually annually
AIM INTERNATIONAL EQUITY FUND............. declared and paid annually annually annually
AIM INTERNATIONAL GROWTH FUND............. declared and paid annually annually annually
AIM JAPAN GROWTH FUND..................... declared and paid annually annually annually
AIM LATIN AMERICAN GROWTH FUND............ declared and paid annually annually annually
AIM LIMITED MATURITY TREASURY FUND........ declared daily; paid monthly annually annually
AIM MID CAP EQUITY FUND................... declared and paid annually annually annually
AIM MONEY MARKET FUND..................... declared daily; paid monthly at least annually annually
AIM MUNICIPAL BOND FUND................... declared daily; paid monthly annually annually
AIM NEW PACIFIC GROWTH FUND............... declared and paid annually annually annually
AIM SELECT GROWTH FUND.................... declared and paid annually annually annually
AIM SMALL CAP GROWTH FUND................. declared and paid annually annually annually
AIM SMALL CAP OPPORTUNITIES FUND.......... declared and paid annually annually annually
AIM STRATEGIC INCOME FUND................. declared and paid monthly annually annually
AIM TAX-EXEMPT BOND FUND OF CONNECTICUT... declared daily; paid monthly annually annually
AIM TAX-EXEMPT CASH FUND.................. declared daily; paid monthly at least annually annually
AIM TAX-FREE INTERMEDIATE FUND............ declared daily; paid monthly annually annually
AIM VALUE FUND............................ declared and paid annually annually annually
AIM WEINGARTEN FUND....................... declared and paid annually annually annually
AIM WORLDWIDE GROWTH FUND................. declared and paid annually annually annually
</TABLE>
In determining the amount of capital gains, if any, available for
distribution, net capital gains are offset against available net capital losses,
if any, carried forward from previous fiscal periods. Each AIM 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 a class are reinvested in additional
shares of such class, absent an election by a shareholder to receive cash or to
have such dividends and distributions reinvested in like shares of another
Multiple Class Fund, to the extent permitted. For funds that do not declare a
dividend daily, such dividends and distributions will be reinvested at the net
asset value per share determined on the ex-dividend date. For funds that declare
a dividend daily, such dividends and distributions will be reinvested at the net
asset value per share determined on the payable date. Shareholders may elect, by
written notice to the Transfer Agent, to receive such distributions, or the
dividend portion thereof, in cash, or to invest such dividends and distributions
in shares of another fund in the AIM Funds; provided that (i) dividends and
distributions attributable to Class B shares may only be reinvested in Class B
shares, (ii) dividends and distributions attributable to Class C shares may only
be reinvested in Class C shares, (iii) dividends and distributions attributable
to Class A shares may not be reinvested in Class B or Class C shares, and (iv)
dividends and distributions attributable to the AIM Cash Reserve Shares of AIM
MONEY MARKET FUND may not be reinvested in the Class A shares of that Fund or in
any Class B or Class C shares. Investors who have not previously selected such a
reinvestment option on the account application form may contact the Transfer
Agent at any time to
MCF-11/98
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<PAGE> 31
obtain a form to authorize such reinvestments in another AIM Fund. Such
reinvestments into the AIM Funds are not subject to sales charges, and shares so
purchased are automatically credited to the account of the shareholder.
Dividends on Class B and Class C shares of an AIM Fund are expected to be
lower than dividends for Class A shares of that fund 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, as
discussed below.
TAX MATTERS
Each AIM Fund has qualified and intends to continue to qualify for treatment
as a regulated investment company under Subchapter M of the Code. As long as a
fund qualifies for this tax treatment, it is not subject to federal income tax
on net investment income, net capital gains and net gains from foreign currency
transactions, if any, that are distributed to its shareholders. Each fund, for
all federal tax purposes (including determining taxable income, distribution
requirements and other requirements of Subchapter M), is treated as a separate
corporation. Therefore, no fund may offset its gains against another fund's
losses, and each fund must individually comply with all of the provisions of the
Code that are applicable to its operations.
TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS -- GENERAL. Because each AIM Fund
intends to distribute to its shareholders substantially all of its net
investment income, net realized capital gains and net gains from foreign
currency transactions, if any, it is not expected that any such fund will be
required to pay any federal income tax on amounts that it has distributed. Each
AIM Fund also intends to meet the distribution requirements of the Code to avoid
imposition of the Excise Tax. Nevertheless, shareholders normally are subject to
federal income tax, and any applicable state and local income taxes, on the
dividends and distributions received by them from a fund whether in the form of
cash or additional fund shares, except for "exempt-interest dividends" paid by
AIM HIGH INCOME MUNICIPAL FUND, AIM MUNICIPAL BOND FUND, AIM TAX-EXEMPT BOND
FUND OF CONNECTICUT, AIM TAX-EXEMPT CASH FUND and AIM TAX-FREE INTERMEDIATE FUND
(the "Tax-Exempt Funds"), which are exempt from federal income tax. With respect
to tax-exempt shareholders, dividends and distributions from the AIM Funds are
not subject to federal income taxation to the extent permitted under the
applicable tax exemption.
Dividends from an AIM Fund's net investment income, net short-term capital
gain and net gains from certain foreign currency transactions are taxable to its
shareholders as ordinary income to the extent of its earnings and profits.
Distributions of net capital gain (i.e., the excess of net long-term capital
gain over net short-term capital loss) are taxable as long-term capital gains
(taxable at a maximum rate of 20%), regardless of the length of time the
shareholder held his shares. Recent legislation provides that a maximum tax rate
of 20% (10% for taxpayers in the 15% marginal tax bracket) will apply to gain
recognized after December 31, 1997 on capital assets held for more than one
year.
Dividends paid by a fund (but not other distributions) may qualify for the
federal 70% dividends received deduction for corporate shareholders to the
extent of the qualifying dividends received by the fund on domestic common or
preferred stock. It is not likely that dividends received from AIM ADVISOR
INTERNATIONAL VALUE FUND, AIM ADVISOR REAL ESTATE FUND, AIM ASIAN GROWTH FUND,
AIM DEVELOPING MARKETS FUND, AIM DOLLAR FUND, AIM EMERGING MARKETS FUND, AIM
EMERGING MARKETS DEBT FUND, AIM EUROPEAN DEVELOPMENT FUND, AIM EUROPE GROWTH
FUND, AIM GLOBAL AGGRESSIVE GROWTH FUND, AIM GLOBAL GOVERNMENT INCOME FUND, AIM
GLOBAL INCOME FUND, AIM GLOBAL TRENDS FUND, AIM HIGH YIELD FUND, AIM HIGH YIELD
FUND II, AIM INCOME FUND, AIM INTERMEDIATE GOVERNMENT FUND, AIM INTERNATIONAL
EQUITY FUND, AIM INTERNATIONAL GROWTH FUND, AIM JAPAN GROWTH FUND, AIM LATIN
AMERICAN GROWTH FUND, AIM LIMITED MATURITY TREASURY FUND, AIM MONEY MARKET FUND,
AIM NEW PACIFIC GROWTH FUND, AIM STRATEGIC INCOME FUND or any of the Tax-Exempt
Funds will qualify for this dividends received deduction.
Shortly after the end of each year, shareholders will receive information
regarding the amount and federal income tax treatment of all dividends and
distributions paid during the year. Certain dividends and distributions declared
in October, November or December of a calendar year are taxable to shareholders
as though received on December 31 of that year if paid to them during January of
the following calendar year. No gain or loss will be recognized by shareholders
upon the automatic conversion of Class B shares of a Multiple Class Fund into
Class A shares of such fund.
For each redemption of a fund's shares by a non-exempt shareholder, the fund
or the securities dealer effecting the transaction is required to file an
information return with the IRS.
MCF-11/98
A-21
<PAGE> 32
TO AVOID BEING SUBJECT TO FEDERAL INCOME TAX WITHHOLDING AT THE RATE OF 31% ON
TAXABLE DIVIDENDS, DISTRIBUTIONS AND REDEMPTION PAYMENTS, INDIVIDUALS AND
CERTAIN OTHER NON-CORPORATE SHAREHOLDERS OF A FUND MUST FURNISH THE FUND WITH
THEIR TAXPAYER IDENTIFICATION NUMBER AND CERTIFY UNDER PENALTIES OF PERJURY THAT
THE NUMBER PROVIDED IS CORRECT AND THAT THEY ARE NOT SUBJECT TO BACKUP
WITHHOLDING FOR ANY REASON.
Under the Code, nonresident alien individuals, foreign partnerships and
foreign corporations may be subject to federal income tax withholding at a 30%
rate on ordinary income dividends. Under applicable treaty law, residents of
treaty countries may qualify for a reduced rate of withholding or a withholding
exemption.
DIVIDENDS AND DISTRIBUTIONS MAY BE SUBJECT TO TREATMENT UNDER FOREIGN, STATE
OR LOCAL TAX LAWS THAT DIFFERS FROM THE FEDERAL INCOME TAX CONSEQUENCES
DISCUSSED HEREIN. ADDITIONAL INFORMATION ABOUT TAXES IS SET FORTH IN THE
STATEMENTS OF ADDITIONAL INFORMATION. INVESTORS SHOULD CONSULT THEIR TAX
ADVISORS BEFORE INVESTING.
TAX-EXEMPT FUNDS -- SPECIAL TAX INFORMATION. Shareholders will not be required
to include the "exempt-interest" portion of dividends paid by the Tax-Exempt
Funds in their gross income for federal income tax purposes. However,
shareholders will be required to report the receipt of exempt-interest dividends
and other tax-exempt interest on their federal income tax returns. Moreover,
exempt-interest dividends from the Tax-Exempt Funds may be subject to state
income taxes, may affect the amount of social security and railroad retirement
benefits subject to federal income tax, may affect the deductibility of interest
on certain indebtedness of a shareholder, and may have other collateral federal
income tax consequences. In addition, the Tax-Exempt Funds may invest in
Municipal Securities the interest on which will constitute an item of tax
preference and which therefore could give rise to a federal alternative minimum
tax liability for certain shareholders; each Tax-Exempt Fund may invest up to
20% of its net assets in such securities and other taxable securities. For
additional information concerning the alternative minimum tax and certain
collateral tax consequences of the receipt of exempt-interest dividends, see the
Statements of Additional Information applicable to the Tax-Exempt Funds.
The Tax-Exempt Funds may pay dividends to shareholders that are taxable, but
will endeavor to avoid investments that would result in taxable dividends. The
percentage of dividends that constitutes exempt-interest dividends, and the
percentage thereof (if any) that constitutes items of tax preference, will be
determined annually. These percentages may differ from the actual percentages
for any particular day.
To the extent that dividends are derived from taxable investments or net
realized short-term capital gains, they will constitute ordinary income for
federal income tax purposes, whether received in cash or additional fund shares.
Distributions of net capital gain will be taxable as long-term capital gains,
whether received in cash or additional fund shares and regardless of the length
of time a shareholder may have held his shares.
From time to time, proposals have been introduced before Congress that would
have the effect of reducing or eliminating the federal tax exemption on
Municipal Securities. If such a proposal were enacted, the ability of the
Tax-Exempt Funds to pay exempt-interest dividends might be adversely affected.
AIM BASIC VALUE FUND, AIM DOLLAR FUND, AIM GLOBAL GOVERNMENT INCOME FUND, AIM
GLOBAL GROWTH & INCOME FUND, AIM GLOBAL HIGH INCOME FUND, AIM INTERMEDIATE
GOVERNMENT FUND, AIM LIMITED MATURITY TREASURY FUND, AIM MID CAP EQUITY FUND,
AIM SMALL CAP GROWTH FUND, AIM STRATEGIC INCOME FUND -- SPECIAL TAX INFORMATION.
Certain states exempt from income taxes dividends paid by mutual funds
attributable to interest on U.S. Treasury and certain other U.S. government
obligations. Investors should consult with their own tax advisors concerning the
availability of such exemption.
AIM ADVISOR INTERNATIONAL VALUE FUND, AIM ASIAN GROWTH FUND, AIM DEVELOPING
MARKETS FUND, AIM EMERGING MARKETS FUND, AIM EUROPE GROWTH FUND, AIM EUROPEAN
DEVELOPMENT FUND, AIM GLOBAL AGGRESSIVE GROWTH FUND, AIM GLOBAL CONSUMER
PRODUCTS AND SERVICES FUND, AIM GLOBAL FINANCIAL SERVICES FUND, AIM GLOBAL
GROWTH FUND, AIM GLOBAL GROWTH & INCOME FUND, AIM GLOBAL HEALTH CARE FUND, AIM
GLOBAL INCOME FUND, AIM GLOBAL INFRASTRUCTURE FUND, AIM GLOBAL RESOURCES FUND,
AIM GLOBAL TELECOMMUNICATIONS FUND, AIM GLOBAL UTILITIES FUND, AIM INTERNATIONAL
EQUITY FUND, AIM INTERNATIONAL GROWTH FUND, AIM JAPAN GROWTH FUND, AIM LATIN
AMERICAN GROWTH FUND, AIM NEW PACIFIC GROWTH FUND, AIM WORLDWIDE GROWTH
FUND -- SPECIAL TAX INFORMATION. For taxable years in which it is eligible to do
so, each of these funds may elect to pass through to its shareholders credits
for foreign taxes paid. If a fund makes such an election, a shareholder who
receives a distribution (1) will be required to include in gross income his
proportionate share of foreign taxes allocable to the distribution and (2) may
claim a credit or deduction for such share for his taxable year in which the
distribution is received, subject to the general limitations imposed on the
allowance of foreign tax credits and deductions. Shareholders should also note
that certain gains or losses attributable to fluctuations in exchange rates or
foreign currency forward contracts may increase or decrease the amount of income
of the fund available for distribution to shareholders and should note that if,
for any fund, such losses exceed other income during a taxable year, the fund
would not be able to pay ordinary income dividends for that year.
MCF-11/98
A-22
<PAGE> 33
- --------------------------------------------------------------------------------
GENERAL INFORMATION
CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02110, serves as custodian for the
portfolio securities and cash of the AIM Funds other than AIM HIGH INCOME
MUNICIPAL FUND, AIM MUNICIPAL BOND FUND, AIM LIMITED MATURITY TREASURY FUND, AIM
TAX-EXEMPT BOND FUND OF CONNECTICUT, AIM TAX-EXEMPT CASH FUND and AIM TAX-FREE
INTERMEDIATE FUND, for which The Bank of New York, 90 Washington Street, 11th
Floor, New York, New York 10286, serves as custodian. Chase Bank of Texas, N.A.,
P.O. Box 2558, Houston, Texas 77252-8084, serves as Sub-Custodian for retail
purchases of the AIM Funds.
A I M Fund Services, Inc., P.O. Box 4739, Houston, Texas 77210-4739, a wholly
owned subsidiary of AIM, serves as each AIM Fund's transfer agent and dividend
payment agent.
SHAREHOLDER INQUIRIES. Shareholder inquiries concerning their accounts should
be directed to an A I M Fund Services, Inc. Client Services Representative by
calling (800) 959-4246. The Transfer Agent may impose certain copying charges
for requests for copies of shareholder account statements and other historical
account information older than the current year and the immediately preceding
year.
YEAR 2000 COMPLIANCE PROJECT. In providing services to the AIM Funds, AIM
Management and its subsidiaries rely on both internal software systems as well
as external software systems provided by third parties. Many software systems in
use today are unable to distinguish the year 2000 from the year 1900. This
defect if not cured will likely adversely affect the services that AIM
Management, its subsidiaries and other service providers to the AIM Funds
provide the AIM Funds and their shareholders.
To address this issue, AIM Management and its subsidiaries, together with
independent technology consultants, are undertaking a comprehensive Year 2000
Compliance Project (the "Project"). The Project consists of three phases, namely
(i) inventorying every software application in use at AIM Management and its
subsidiaries, as well as remote, third party software systems on which AIM
Management and its subsidiaries rely, (ii) identifying those applications that
may not function properly after December 31, 1999, and (iii) correcting and
subsequently testing those applications that may not function properly after
December 31, 1999. Phases (i) and (ii) are complete and Phase (iii) has
commenced. The Project is scheduled to be completed during the second quarter of
1999. Software applications acquired by AIM Management and its subsidiaries
after completion of the Project will be reviewed to confirm year 2000 compliance
upon installation. No assurance can be given that the Project will be successful
or that the AIM Funds will not otherwise be adversely affected by the year 2000
issue.
OTHER INFORMATION. This Prospectus sets forth basic information that investors
should know about the fund(s) named on the cover page prior to investing.
Recipients of this Prospectus will be provided with a copy of the annual report
of the fund(s) to which this Prospectus relates, upon request and without
charge. If several members of a household own shares of the same fund, only one
annual or semi-annual report will be mailed to that address. To receive
additional copies, please call (800) 347-4246, or write to A I M Distributors,
Inc., P.O. Box 4739, Houston, Texas 77210-4739. A Statement of Additional
Information has been filed with the SEC and is available upon request and
without charge, by writing or calling AIM Distributors. The SEC maintains a Web
site at http://www.sec.gov that contains the Statement of Additional
Information, material incorporated by reference, and other information regarding
the Fund. This Prospectus omits certain information contained in the
registration statement filed with the SEC. Copies of the registration statement,
including items omitted from this Prospectus, may be obtained from the SEC by
paying the charges prescribed under its rules and regulations.
MCF-11/98
A-23
<PAGE> 34
APPLICATION INSTRUCTIONS
SOCIAL SECURITY OR TAXPAYER ID NUMBER. Investors should make sure that the
social security number or taxpayer identification number (TIN) which appears in
Section 1 of the Application complies with the following guidelines:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Give Social Security GIVE TAXPAYER I.D.
ACCOUNT TYPE NUMBER OF: ACCOUNT TYPE NUMBER OF:
<S> <C> <C> <C>
Individual Individual Trust, Estate, Pension Trust, Estate, Pension
Plan Trust Plan Trust and not
personal TIN of fiduciary
Joint Individual First individual listed in the
"Account Registration" portion
of the Application
Unif. Gifts to Minor Corporation, Partnership, Corporation, Partnership,
Minors/Unif. Other Organization Other Organization
Transfers to Minors
Legal Guardian Ward, Minor or
Incompetent
Sole Proprietor Owner of Business Broker/Nominee Broker/Nominee
</TABLE>
- --------------------------------------------------------------------------------
Applications without a certified TIN will not be accepted unless the applicant
is a nonresident alien, foreign corporation or foreign partnership and has
attached a completed IRS Form W-8.
BACKUP WITHHOLDING. Each AIM Fund, and other payers, must, according to IRS
regulations, withhold 31% of redemption payments and reportable dividends
(whether paid or accrued) in the case of any shareholder who fails to provide
the Fund with a TIN and a certification that he is not subject to backup
withholding.
An investor is subject to backup withholding if:
(1) the investor fails to furnish a correct TIN to the Fund, or
(2) the IRS notifies the Fund that the investor furnished an incorrect TIN, or
(3) the investor is notified by the IRS that the investor is subject to backup
withholding because the investor failed to report all of the interest and
dividends on such investor's tax return (for reportable interest and
dividends only), or
(4) the investor fails to certify to the Fund that the investor is not subject
to backup withholding under (3) above (for reportable interest and
dividend accounts opened after 1983 only), or
(5) the investor does not certify his TIN. This applies only to reportable
interest, dividend, broker or barter exchange accounts opened after 1983,
or broker accounts considered inactive during 1983.
Except as explained in (5) above, other reportable payments are subject to
backup withholding only if (1) or (2) above applies.
Certain payees and payments are exempt from backup withholding and information
reporting and such entities should check the box "Exempt from Backup
Withholding" on the Application. A complete listing of such exempt entities
appears in the Instructions for the Requester of Form W-9 (which can be obtained
from the IRS) and includes, among others, the following:
- - a corporation
- - an organization exempt from tax under Section 501(a), an individual retirement
plan (IRA), or a custodial account under Section 403(b)(7)
- - the United States or any of its agencies or instrumentalities
- - a state, the District of Columbia, a possession of the United States, or any
of their political subdivisions or instrumentalities
- - a foreign government or any of its political subdivisions, agencies or
instrumentalities
- - an international organization or any of its agencies or instrumentalities
- - a foreign central bank of issue
- - a dealer in securities or commodities required to register in the U.S. or a
possession of the U.S.
- - a futures commission merchant registered with the Commodity Futures Trading
Commission
- - a real estate investment trust
- - an entity registered at all times during the tax year under the Investment
Company Act of 1940
- - a common trust fund operated by a bank under Section 584(a)
- - a financial institution
- - a middleman known in the investment community as a nominee or listed in the
most recent publication of the American Society of Corporate Secretaries,
Inc., Nominee List
- - a trust exempt from tax under Section 664 or described in Section 4947
Investors should contact the IRS if they have any questions concerning
entitlement to an exemption from backup withholding.
NOTE: Section references are to sections of the Code.
IRS PENALTIES -- Investors who do not supply the AIM Funds with a correct TIN
will be subject to a $50 penalty imposed by the IRS unless such failure is due
to reasonable cause and not willful neglect. If an investor falsifies
information on this form or makes any other false statement resulting in no
backup withholding on an account which should be subject to backup withholding,
such investor may be subject to a $500 penalty imposed by the IRS and to certain
criminal penalties including fines and/or imprisonment.
MCF-11/98
B-1
<PAGE> 35
NONRESIDENT ALIENS -- Nonresident alien individuals and foreign entities are
not subject to the backup withholding previously discussed, but must certify
their foreign status by attaching IRS Form W-8 to their application. Form W-8
remains in effect for three calendar years beginning with the calendar year in
which it is received by the Fund. Such shareholders may, however, be subject to
appropriate withholding as described in the Prospectus under "Dividends,
Distributions and Tax Matters."
SPECIAL INFORMATION REGARDING TELEPHONE EXCHANGE PRIVILEGE. By signing the new
Account Application form, an investor appoints the Transfer Agent as his true
and lawful attorney-in-fact to surrender for redemption any and all unissued
shares held by the Transfer Agent in the designated account(s), or in any other
account with any of the AIM Funds, present or future, which has the identical
registration as the designated account(s), with full power of substitution in
the premises. The Transfer Agent and AIM Distributors are thereby authorized and
directed to accept and act upon any telephone redemptions of shares held in any
of the account(s) listed, from any person who requests the redemption proceeds
to be applied to purchase shares in any one or more of the AIM Funds, provided
that such fund is available for sale and provided that the registration and
mailing address of the shares to be purchased are identical to the registration
of the shares being redeemed. An investor acknowledges by signing the form that
he understands and agrees that the Transfer Agent and AIM Distributors may not
be liable for any loss, expense or cost arising out of any telephone exchange
requests effected in accordance with the authorization set forth in these
instructions if they reasonably believe such request to be genuine, but may in
certain cases be liable for losses due to unauthorized or fraudulent
transactions. Procedures for verification of telephone transactions may include
recordings of telephone transactions (maintained for six months), requests for
confirmation of the shareholder's Social Security Number and current address,
and mailings of confirmations promptly after the transaction. The Transfer Agent
reserves the right to cease to act as attorney-in-fact subject to this
appointment, and AIM Distributors reserves the right to modify or terminate the
telephone exchange privilege at any time without notice. An investor may elect
not to have this privilege by marking the appropriate box on the application.
Then any exchanges must be effected in writing by the investor (see the
applicable Fund's prospectus under the caption "Exchange Privilege -- Exchanges
by Mail").
SPECIAL INFORMATION REGARDING TELEPHONE REDEMPTION PRIVILEGE. By signing the
new Account Application form, an investor appoints the Transfer Agent as his
true and lawful attorney-in-fact to surrender for redemption any and all
unissued shares held by the Transfer Agent in the designated account(s), present
or future, with full power of substitution in the premises. The Transfer Agent
and AIM Distributors are thereby authorized and directed to accept and act upon
any telephone redemptions of shares held in any of the account(s) listed, from
any person who requests the redemption. An investor acknowledges by signing the
form that he understands and agrees that the Transfer Agent and AIM Distributors
may not be liable for any loss, expense or cost arising out of any telephone
redemption requests effected in accordance with the authorization set forth in
these instructions if they reasonably believe such request to be genuine, but
may in certain cases be liable for losses due to unauthorized or fraudulent
transactions. Procedures for verification of telephone transactions may include
recordings of telephone transactions (maintained for six months), requests for
confirmation of the shareholder's Social Security Number and current address,
and mailings of confirmations promptly after the transactions. The Transfer
Agent reserves the right to cease to act as attorney-in-fact subject to this
appointment, and AIM Distributors reserves the right to modify or terminate the
telephone redemption privilege at any time without notice. An investor may elect
not to have this privilege by marking the appropriate box on the application.
Then any redemptions must be effected in writing by the investor (see the
applicable Fund's prospectus under the caption "How to Redeem
Shares -- Redemptions by Mail").
MCF-11/98
B-2
<PAGE> 36
[AIM LOGO APPEARS HERE] THE AIM FAMILY OF FUNDS--Registered Trademark--
Investment Advisor
A I M Advisors, Inc.
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
Transfer Agent
A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739
Custodian
The Bank of New York
90 Washington Street, 11th Floor
New York, NY 10286
Principal Underwriter
A I M Distributors, Inc.
P.O. Box 4739
Houston, TX 77210-4739
Independent Accountants
KPMG Peat Marwick LLP
700 Louisiana
Houston, TX 77002
For more complete information about any other fund in The AIM Family of Funds,
including charges and expenses, please call (800) 347-4246, or write to A I M
Distributors, Inc. and request a free prospectus. Please read the prospectus
carefully before you invest or send money.
LTD PRO-1
<PAGE> 37
STATEMENT OF
ADDITIONAL INFORMATION
AIM INVESTMENT SECURITIES FUNDS
----------
AIM HIGH YIELD FUND II
AND
CLASS A SHARES OF THE AIM LIMITED MATURITY TREASURY FUND
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 FOR THE
ABOVE-NAMED FUNDS, COPIES 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: NOVEMBER 18, 1998
RELATING TO PROSPECTUS OF AIM HIGH YIELD FUND II DATED: OCTOBER 1, 1998
AND PROSPECTUS OF CLASS A SHARES OF THE AIM LIMITED MATURITY TREASURY FUND
DATED: NOVEMBER 18, 1998
<PAGE> 38
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INTRODUCTION.......................................................................................................................1
GENERAL INFORMATION ABOUT THE TRUST................................................................................................1
The Trust and its Shares..................................................................................................1
PERFORMANCE INFORMATION............................................................................................................2
Yield Calculations........................................................................................................2
Total Return Calculations.................................................................................................2
Historical Portfolio Results..............................................................................................3
PORTFOLIO TRANSACTIONS.............................................................................................................4
General Brokerage Policy..................................................................................................4
Allocation of Portfolio Transactions......................................................................................5
Section 28(e) Standards...................................................................................................5
Portfolio Turnover........................................................................................................6
INVESTMENT OBJECTIVES AND POLICIES.................................................................................................6
High Yield and Limited Maturity...........................................................................................6
High Yield................................................................................................................7
INVESTMENT RESTRICTIONS...........................................................................................................12
Additional Investment Restrictions of the Funds..........................................................................14
Investing for Control....................................................................................................14
MANAGEMENT........................................................................................................................15
Trustees and Officers....................................................................................................15
Remuneration of Trustees.................................................................................................18
AIM Funds Retirement Plan for Eligible Directors/Trustees................................................................20
Deferred Compensation Agreements.........................................................................................20
Investment Advisory and Other Services...................................................................................21
Distribution Plans.......................................................................................................23
THE DISTRIBUTION AGREEMENTS.......................................................................................................25
HOW TO PURCHASE AND REDEEM SHARES.................................................................................................26
NET ASSET VALUE DETERMINATION.....................................................................................................27
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS..........................................................................................28
Reinvestment of Dividends and Distributions..............................................................................28
Tax Matters..............................................................................................................28
Qualification as a Regulated Investment Company..........................................................................28
Excise Tax on Regulated Investment Companies.............................................................................30
Fund Distributions.......................................................................................................30
Sale or Redemption of Fund Shares........................................................................................31
Foreign Shareholders.....................................................................................................31
Effect of Future Legislation; Local Tax Considerations...................................................................32
DESCRIPTION OF FUND SHARES........................................................................................................32
</TABLE>
ii
<PAGE> 39
<TABLE>
<S> <C>
MISCELLANEOUS INFORMATION.........................................................................................................32
Audit Reports............................................................................................................32
Legal Matters............................................................................................................33
Custodian and Transfer Agent.............................................................................................33
Principal Holders of Securities..........................................................................................33
FINANCIAL STATEMENTS..............................................................................................................FS
</TABLE>
iii
<PAGE> 40
INTRODUCTION
AIM Investment Securities Funds (the "Trust") is a series mutual fund.
The rules and regulations of the United States Securities and Exchange
Commission (the "SEC") require all mutual funds to furnish prospective investors
with certain information concerning the activities of the fund being considered
for investment. This information is included in a Prospectus, dated November 18,
1998, which relates to the Class A shares of AIM Limited Maturity Treasury Fund
and in another Prospectus (collectively, the "Prospectuses" and each separately
a "Prospectus") dated October 1, 1998, which relates to Class A, Class B and
Class C shares of AIM High Yield Fund II (collectively, the "Funds", and each
separately a "Fund"). Copies of the Prospectuses and additional copies of 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, Texas 77210-4739, or by calling (800)
347-4246. Investors must receive and should read the Prospectus before they
invest in any Fund.
This Statement of Additional Information is intended to furnish
investors with additional information concerning the Funds. Some of the
information set forth in this Statement of Additional Information is also
included in the Prospectuses. Additionally, the Prospectuses and this Statement
of Additional Information omit certain information contained in the Trust's
Registration Statement filed with the SEC. Copies of the Registration Statement
including items omitted from the Prospectuses 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 TRUST
THE TRUST AND ITS SHARES
The Trust was previously incorporated as a Maryland corporation on
November 4, 1988. Pursuant to an Agreement and Plan of Reorganization, AIM
Limited Maturity Treasury Fund ("Limited Maturity") was reorganized on October
15, 1993, as a portfolio of AIM Investment Securities Funds, a Delaware business
trust. A copy of the Trust's Amended and Restated Agreement and Declaration of
Trust dated November 5, 1998, (the "Trust Agreement") is on file with the SEC.
Under the Trust Agreement, the Board of Trustees is authorized to create new
series of shares without the necessity of a vote of shareholders of the Trust.
On October 15, 1993, Limited Maturity succeeded to the assets and
assumed the liabilities of a series with a corresponding name (the "Predecessor
Fund") of Short-Term Investments Co., a Massachusetts business trust ("STIC"),
pursuant to an Agreement and Plan of Reorganization between the Trust and STIC.
All historical financial information and other information contained in this
Statement of Additional Information for periods prior to October 15, 1993
relating to Limited Maturity (or a class thereof) is that of the Predecessor
Fund (or corresponding class thereof). The AIM High Yield II Fund portfolio
("High Yield") was created as of June 9, 1998. Shares of beneficial interest of
the Trust are redeemable at their net asset value at the option of the
shareholder or at the option of the Trust in certain circumstances. For
information concerning the methods of redemption and the rights of share
ownership, investors should consult the Prospectuses under the captions
"Organization of the Trust" and "How to Redeem Shares."
The assets received by the Trust for the issuance or sale of shares of
each Fund, and all income, earnings, profits, losses and proceeds therefrom,
subject only to the rights of creditors, will be allocated to that Fund. They
constitute the underlying assets of a Fund, are required to be segregated on the
Trust's books of account, and are to be charged with the expenses with respect
to the Fund and its respective classes. Any general expenses of the Trust not
readily identifiable as belonging to a particular Fund are allocated by or under
the direction of the Board of Trustees, primarily on the basis of relative net
assets, or other relevant factors.
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<PAGE> 41
Each share of beneficial interest of a Fund represents an equal
proportionate interest in the Fund with each other share and is entitled to such
dividends and distributions out of the income belonging to the Fund as are
declared by the Board of Trustees. The Trust offers two separate Funds with
differing Class structures: Class A shares and the Institutional Class of
Limited Maturity and Class A, Class B and Class C shares of High Yield. As
further described in the Prospectuses, each class is subject to differing sales
charges (if applicable) and expenses, which differences will result in differing
net asset values and dividends and distributions. Upon any liquidation of the
Trust, shareholders of each class of the respective Funds are entitled to share
pro rata in the net assets belonging to each Fund available for distribution.
Under Delaware law, the shareholders of a Delaware business trust shall
be entitled to the same limitations of liability extended to shareholders of
private, for-profit corporations, however, there is a remote possibility that
shareholders could, under certain circumstances, be held liable for the
obligations of the Trust to the extent the courts of another state which does
not recognize such limited liability were to apply the laws of such state to a
controversy involving such 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 the trustees to all parties, and each
party thereto must expressly waive all rights of action directly against
shareholders of the Trust. The Trust Agreement provides for indemnification out
of the property of a Fund for all losses and expenses of any shareholder of such
Fund held liable on account of being or having been a shareholder. Thus, the
risk of a shareholder incurring financial loss is limited to circumstances in
which the Fund would be unable to meet its obligations and wherein the
complaining party was not held to be bound by the disclaimer.
PERFORMANCE INFORMATION
YIELD CALCULATIONS
Yields for each Fund used in advertising are computed as follows: (a)
divide a Fund's income for a given 30 day or one-month period, net of expenses,
by the average number of shares entitled to receive dividends during the period;
(b) divide the figure arrived at in step (a) by the Fund's offering price
(including the maximum sales charge) at the end of the period; and (c) annualize
the result (assuming compounding of income) in order to arrive at an annual
percentage rate. For purposes of yield quotation, income is calculated in
accordance with standardized methods applicable to all stock and bond mutual
funds. In general, interest income is reduced with respect to bonds trading at a
premium over their par value by subtracting a portion of the premium from income
on a daily basis, and is increased with respect to bonds trading at a discount
by adding a portion of the discount to daily income. Capital gains and losses
are excluded from the calculation.
Income calculated for the purpose of calculating a Fund's yield differs
from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding assumed in
yield calculations, the yield quoted for a Fund may differ from the rate of
distributions that Fund paid over the same period or the rate of income reported
in that Fund's financial statements.
Each Fund may also quote its distribution rate, which expresses the
historical amount of income a Fund paid as dividends to its shareholders as a
percentage of the Fund's offering price. The distribution rate for the Class A
shares of Limited Maturity for the thirty day period ended July 31, 1998, was
4.99%. This distribution rate was calculated by dividing dividends declared over
the thirty days ended July 31, 1998, as applicable, by the maximum offering
price of the Class A shares of Limited Maturity at the end of the period and
annualizing the result. High Yield had not commenced operations as of July 31,
1998.
TOTAL RETURN CALCULATIONS
Total returns quoted in advertising reflect all aspects of a Fund's
return, including the effect of reinvesting dividends and capital gain
distributions, and any changes in the Fund's net asset value per share over the
period. Average annual returns are calculated by determining the growth or
decline in value of a
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<PAGE> 42
hypothetical investment in a Fund over a stated period, and then calculating the
annual compounded percentage rate that would have produced the same result if
the rate of growth or decline in value had been constant over the period. While
average annual returns are a convenient means of comparing investment
alternatives, investors should realize that a Fund's performance is not constant
over time, but changes from year to year, and that average annual returns do not
represent the actual year-to-year performance of a Fund.
In addition to average annual total return, a Fund may quote unaveraged
or cumulative total return reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total returns may
be quoted as a percentage or as a dollar amount, and may be calculated for a
single investment, a series of investments, and/or a series of redemptions over
any time period. Total returns may be broken down into their components of
income and capital (including capital gains and changes in share price) in order
to illustrate the relationship of these factors and their contributions to total
return. Total returns, yields and other performance information may be quoted
numerically or in a table, graph or similar illustration. Total returns may be
quoted with or without taking any applicable maximum sales charge or maximum
contingent deferred sales charge into account. If quoted without the sales
charge or contingent deferred sales charge, the performance quotation will be
noted by an asterisk or other conspicuous footnote disclosing this fact.
Excluding a Fund's sales charge or contingent deferred sales charge from a total
return calculation produces a higher total return figure.
HISTORICAL PORTFOLIO RESULTS
A Fund's performance may be compared in advertising to the performance
of other mutual funds in general, or of particular types of mutual funds,
especially those with similar objectives. Such performance data may be prepared
by Lipper Analytical Services, Inc. and other independent services which monitor
the performance of mutual funds. A Fund may also advertise mutual fund
performance rankings which have been assigned to it by such monitoring services.
A Fund's performance may also be compared in advertising and other
materials to the performance of comparative benchmarks such as the Consumer
Price Index, the Standard & Poor's 500 Stock Index, and fixed-price investments
such as bank certificates of deposit and/or savings accounts. In addition, a
Fund's long-term performance may be described in advertising in relation to
historical, political and/or economic events. An investor should be aware that
an investment in a Fund is subject to risks not present in ownership of a
certificate of deposit, due to possible greater risk of loss of capital.
From time to time, a Fund's sales literature and/or advertisements may
discuss generic topics pertaining to the mutual fund industry. These topics
include, but are 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.
From time to time sales literature and/or advertisements may disclose
(i) top holdings included in a Fund's portfolio, (ii) certain selling group
members and/or (iii) certain institutional shareholders.
The following chart shows the total returns for the Class A shares of
Limited Maturity for the one and five year periods ended July 31, 1998, and the
period beginning December 15, 1987 (date operations commenced) through July 31,
1998.
<TABLE>
<CAPTION>
AVERAGE
ANNUAL RETURN CUMULATIVE RETURN
------------- -----------------
<S> <C> <C>
One year ended 07/31/98 5.42% 5.42%
Five year ended 07/31/98 4.73% 26.02%
12/15/87 through 07/31/98 6.52% 83.70%
</TABLE>
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<PAGE> 43
The 30-day yield for the Class A shares as of July 31, 1998, was 5.04%
High Yield had not commenced operations as of July 31, 1998.
During the one-year period ended July 31, 1998, a hypothetical $1,000
investment in the Class A shares of Limited Maturity at the beginning of such
period would have been worth $1,055. During the five-year period ended July 31,
1998, a hypothetical $1,000 investment in the Class A shares of Limited Maturity
at the beginning of such period would have been worth $1,200. For the period
from December 15, 1987 (date operations commenced) through July 31, 1998, a
hypothetical $1,000 investment in the Class A shares of Limited Maturity would
have been worth $1,837. Each of these figures assume the maximum sales charge
was paid and all distributions were reinvested.
PORTFOLIO TRANSACTIONS
GENERAL BROKERAGE POLICY
A I M Advisors, Inc. ("AIM") makes decisions to buy and sell securities
for each Fund, selects broker-dealers, effects the Funds' investment portfolio
transactions, allocates brokerage fees in such transactions, and where
applicable, negotiates commissions and spreads on transactions. Since most
purchases and sales of portfolio securities by the Funds are usually principal
transactions, the Funds incur little or no brokerage commissions. AIM's primary
consideration in effecting a security transaction is to obtain the most
favorable execution of the order, which includes the best price on the security
and a low commission rate. While AIM seeks reasonably competitive commission
rates, the Funds may not pay the lowest commission or spread available. See
"Section 28(e) Standards" below.
In the event a Fund purchases securities traded in the over-the-counter
market, the Fund deals directly with dealers who make markets in the securities
involved, except when better prices are available elsewhere. Portfolio
transactions placed through dealers who are primary market makers are effected
at net prices without commissions, but which include compensation in the form of
a mark up or mark down.
Traditionally, commission rates have not been negotiated on stock
markets outside the United States. Although in recent years many overseas stock
markets have adopted a system of negotiated rates, a number of markets maintain
an established schedule of minimum commission rates.
AIM may determine target levels of commission business with various
brokers on behalf of its clients (including the Funds) over a certain time
period. The target levels will be based upon the following factors, among
others: (1) the execution services provided by the broker; (2) the research
services provided by the broker; and (3) the broker's interest in mutual funds
in general and in the Funds and other mutual funds advised by AIM or A I M
Capital Management, Inc. (collectively, the "AIM Funds") in particular,
including sales of the Funds and of the other AIM Funds. In connection with (3)
above, the Funds' trades may be executed directly by dealers that sell shares of
the AIM Funds or by other broker-dealers with which such dealers have clearing
arrangements. AIM will not use a specific formula in connection with any of
these considerations to determine the target levels.
AIM will seek, whenever possible, to recapture for the benefit of a
Fund any commissions, fees, brokerage or similar payments paid by the Fund on
portfolio transactions. Normally, the only fees which AIM can recapture are the
soliciting dealer fees on the tender of a Fund's portfolio securities in a
tender or exchange offer.
Under the Investment Company Act of 1940, as amended, (the "1940 Act"),
certain persons affiliated with the Trust are prohibited from dealing with the
Funds as principal in any purchase or sale of securities unless an exemptive
order allowing such transactions is obtained from the SEC. The Funds may engage
in certain principal and agency transactions with banks and their affiliates
that own 5% or more of the outstanding
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<PAGE> 44
voting securities of an AIM Fund, provided the conditions of an exemptive order
received by the AIM 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 1940 Act also prohibits the Funds from purchasing a security being
publicly underwritten by a syndicate of which certain persons affiliated with
the Trust are members except in accordance with certain conditions.
ALLOCATION OF PORTFOLIO TRANSACTIONS
AIM and its affiliates manage several other investment accounts. Some
of these accounts may have investment objectives similar to the Funds.
Occasionally, identical securities will be appropriate for investment by one of
the Funds and by another AIM Fund or one or more of these investment accounts.
However, the position of each account in the same securities and the length of
time that each account may hold its investment in the same securities may vary.
The timing and amount of purchase by each account will also be determined by its
cash position. If the purchase or sale of securities is consistent with the
investment policies of the Fund(s) and one or more of these accounts, and is
considered at or about the same time, AIM will fairly allocate transactions in
such securities among the Fund(s) and these accounts. AIM may combine such
transactions, in accordance with applicable laws and regulations, to obtain the
most favorable execution. Simultaneous transactions could, however, adversely
affect a Fund's ability to obtain or dispose of the full amount of a security
which it seeks to purchase or sell.
Sometimes the procedure for allocating portfolio transactions among the
various investment accounts advised by AIM could have an adverse effect on the
price or amount of securities available to a Fund. In making such allocations,
AIM considers the investment objectives and policies of its advisory clients,
the relative size of portfolio holdings of the same or comparable securities,
the availability of cash for investment, the size of investment commitments
generally held, and the judgments of the persons responsible for recommending
the investment.
SECTION 28(e) STANDARDS
Section 28(e) of the Securities Exchange Act of 1934 provides that AIM,
under certain circumstances, lawfully may cause an account to pay a higher
commission than the lowest available. Under Section 28(e), AIM must make a good
faith determination that the commissions paid are "reasonable in relation to the
value of the brokerage and research services provided ... viewed in terms of
either that particular transaction or [AIM's] overall responsibilities with
respect to the accounts as to which it exercises investment discretion." The
services provided by the broker also must lawfully and appropriately assist AIM
in the performance of its investment decision-making responsibilities.
Accordingly, in recognition of research services provided to it, a Fund may pay
a broker higher commissions than those available from another broker.
Research services received from broker-dealers supplement AIM's own
research (and the research of its affiliates), and may include the following
types of information: statistical and background information on the U.S. and
foreign economies, industry groups and individual companies; forecasts and
interpretations with respect to the U.S. and foreign economies, securities,
markets, specific industry groups and individual companies; information on
federal, state, local and foreign political developments; portfolio management
strategies; performance information on securities, indexes and investment
accounts; information concerning prices of securities; and information supplied
by specialized services to AIM and to the Trust's trustees with respect to the
performance, investment activities, and fees and expenses of other mutual funds.
Broker-dealers may communicate such information electronically, orally or in
written form. Research services may also include the providing of custody
services, as well as the providing of equipment used to communicate research
information, the providing of specialized consultations with AIM personnel with
respect to computerized systems and data furnished to AIM as a component of
other research services, the arranging
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<PAGE> 45
of meetings with management of companies, and the providing of access to
consultants who supply research information.
The outside research assistance is useful to AIM since the
broker-dealers used by AIM tend to follow a broader universe of securities and
other matters than AIM's staff can follow. In addition, the research provides
AIM with a diverse perspective on financial markets. Research services provided
to AIM by broker-dealers are available for the benefit of all accounts managed
or advised by AIM or by its affiliates. Some broker-dealers may indicate that
the provision of research services is dependent upon the generation of certain
specified levels of commissions and underwriting concessions by AIM's clients,
including the Funds. However, the Funds are not under any obligation to deal
with any broker-dealer in the execution of transactions in portfolio securities.
In some cases, the research services are available only from the
broker-dealer providing them. In other cases, the research services may be
obtainable from alternative sources in return for cash payments. AIM believes
that the research services are beneficial in supplementing AIM's research and
analysis and that they improve the quality of AIM's investment advice. The
advisory fee paid by the Funds is not reduced because AIM receives such
services. However, to the extent that AIM would have purchased research services
had they not been provided by broker-dealers, the expenses to AIM could be
considered to have been reduced accordingly.
Limited Maturity paid no brokerage commissions to brokers affiliated
with that Fund during the past three fiscal years of the Fund.
PORTFOLIO TURNOVER
High portfolio turnover involves corresponding greater transaction
costs which are borne directly by a Fund, and may increase capital gains which
are taxable as ordinary income when distributed to shareholders.
Changes in the portfolio holdings of a Fund are made without regard to
whether a sale would result in a profit or loss. The turnover rates of Limited
Maturity for the fiscal years ended July 31, 1998, 1997 and 1996, were 133%,
130% and 117%, respectively.
INVESTMENT OBJECTIVES AND POLICIES
The following discussion of investment policies supplements the
discussion of the investment objectives and policies set forth in the
Prospectuses under the headings "Investment Programs" and should be read only in
conjunction with the Prospectuses. There can be no assurance that a Fund will
achieve its investment objective. The values of the securities in which a Fund
invests fluctuate based upon interest rates and market factors.
HIGH YIELD AND LIMITED MATURITY
REPURCHASE AGREEMENTS. A repurchase agreement involves the purchase by
a Fund of an investment contract from a financial institution, such as a
domestic bank or primary dealers in U.S. Government securities or U.S. Treasury
obligations. The agreement provides that the seller will repurchase the
underlying securities at an agreed-upon time and price. The total amount
received on repurchase will exceed the price paid by a Fund, reflecting the
agreed-upon rate of interest for the period from the date of the repurchase
agreement to the settlement date. This rate of return is not related to the
interest rate on the underlying securities. The difference between the total
amount received upon the repurchase of the securities and the price paid by a
Fund upon their acquisition is accrued daily as interest. Investments in
repurchase agreements may involve risks not associated with investments in the
underlying securities. If the seller defaulted on its repurchase obligations, a
Fund would incur a loss to the extent that the proceeds from a sale
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<PAGE> 46
of the underlying securities were less than the repurchase price under the
agreement. A Fund will limit repurchase agreements to transactions with sellers
believed by AIM to present minimal credit risk. Securities subject to repurchase
agreements will be held by a Fund's custodian or in the custodian's account with
the Federal Reserve Treasury Book-Entry System. Although the securities subject
to repurchase agreements might bear maturities in excess of one year, a Fund
will not enter into a repurchase agreement with an agreed-upon repurchase date
in excess of seven (7) calendar days from the date of acquisition by a Fund,
unless the Fund has the right to require the selling institution to repurchase
the underlying securities within seven (7) days of the date of acquisition.
Limited Maturity's investment policies permit it to invest in
repurchase agreements with banks and broker-dealers pertaining to U.S. Treasury
obligations. However, in order to maximize the Fund's dividends which are exempt
from state income taxation, as a matter of operating policy, the Fund does not
currently invest in repurchase agreements.
HIGH YIELD
DELAYED DELIVERY AGREEMENTS. Delayed delivery agreements involve
commitments by the Fund to dealers or issuers to acquire securities or
instruments at a specified future date beyond the customary same-day settlement
for such securities or instruments. These commitments may fix the payment price
and interest rate to be received on the investment. Delayed delivery agreements
will not be used as a speculative or leverage technique. Rather, from time to
time, AIM can anticipate that cash for investment purposes will result from,
among other things, scheduled maturities of existing portfolio instruments or
from net sales of shares of a Fund. To assure that the Fund will be as fully
invested as possible in instruments meeting the Fund's investment objective, the
Fund may enter into delayed delivery agreements, but only to the extent of
anticipated funds available for investment during a period of not more than five
business days. Until the settlement date, the Fund will segregate liquid assets
of a dollar value sufficient at all times to make payment for the delayed
delivery securities. No more than 25% of the Fund's total assets will be
committed to delayed delivery agreements and when-issued securities, as
described below. The delayed delivery securities, which will not begin to accrue
interest or dividends until the settlement date, will be recorded as an asset of
the Fund and will be subject to the risk of market fluctuation. The purchase
price of the delayed delivery securities is a liability of the Fund until
settlement. Absent extraordinary circumstances, the Fund will not sell or
otherwise transfer the delayed delivery securities prior to settlement. If cash
is not available to the Fund at the time of settlement, the Fund may be required
to dispose of portfolio securities that it would otherwise hold to maturity in
order to meet its obligation to accept delivery under a delayed delivery
agreement. The Board of Trustees has determined that entering into delayed
delivery agreements does not present a materially increased risk of loss to
shareholders, but the Board of Trustees may restrict the use of delayed delivery
agreements if the risk of loss is determined to be material.
WHEN-ISSUED SECURITIES. Many new issues of securities are offered on a
"when-issued" basis, that is, the date for delivery of and payment for the
securities is not fixed at the date of purchase, but is set after the securities
are issued (normally within forty-five days after the date of the transaction).
The payment obligation and, if applicable, the interest rate that will be
received on the securities are fixed at the time the buyer enters into the
commitment. The Fund will only make commitments to purchase such securities with
the intention of actually acquiring such securities, but the Fund may sell these
securities before the settlement date if it is deemed advisable. No additional
when-issued commitments will be made if as a result more than 25% of the Fund's
total assets would become committed to purchases of when-issued securities and
delayed delivery agreements.
If the Fund purchases a when-issued security, it will direct its
custodian bank to collateralize the when-issued commitment by segregating liquid
assets in the same fashion as required for a delayed delivery agreement. Such
segregated liquid assets will likewise be marked-to-market, and the amount
segregated will be increased if necessary to maintain adequate coverage of the
when-issued commitments.
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<PAGE> 47
Securities purchased on a when-issued basis and the securities held in
the Fund's portfolio are subject to changes in market value based upon the
public's perception of the creditworthiness of the issuer and, if applicable,
changes in the level of interest rates. Therefore, if the Fund is to remain
substantially fully invested at the same time that it has purchased securities
on a when-issued basis, there will be a possibility that the market value of the
Fund's assets will fluctuate to a greater degree. Furthermore, when the time
comes for the Fund to meet its obligations under when-issued commitments, the
Fund will do so by using then available cash flow, by sale of the segregated
liquid assets, by sale of other securities or, although it would not normally
expect to do so, by directing the sale of the when-issued securities themselves
(which may have a market value greater or less than the Fund's payment
obligation).
A sale of securities to meet such obligations carries with it a greater
potential for the realization of net short-term capital gains, which are not
exempt from federal income taxes. The value of when-issued securities on the
settlement date may be more or less than the purchase price.
FOREIGN EXCHANGE TRANSACTIONS. Purchases and sales of foreign
securities are usually made with foreign currencies, and consequently the Fund
may from time to time hold cash balances in the form of foreign currencies and
multinational currency units. Such foreign currencies and multinational currency
units will usually be acquired on a spot (i.e., cash) basis at the spot rate
prevailing in foreign exchange markets, and will result in currency conversion
costs to the Fund. The Fund attempts to purchase and sell foreign currencies on
as favorable a basis as practicable; however, some price spread on foreign
exchange transactions (to cover service charges) may be incurred, particularly
when the Fund changes investments from one country to another, or when U.S.
dollars are used to purchase foreign securities. Certain countries could adopt
policies which would prevent the Fund from transferring cash out of such
countries, and the Fund may be affected either favorably or unfavorably by
fluctuations in relative exchange rates while they hold foreign currencies.
RULE 144A SECURITIES. The Fund may purchase securities which, while
privately placed, are eligible for purchase and resale pursuant to Rule 144A
under the Securities Act of 1933 (the "1933 Act"). This Rule permits certain
qualified institutional buyers, such as the Fund, to trade in privately placed
securities even though such securities are not registered under the 1933 Act.
AIM, under the supervision of the Trust's Board of Trustees, will consider
whether securities purchased under Rule 144A are illiquid and thus subject to
the Fund's restriction of investing no more than 15% of its net assets in
illiquid securities. Determination of whether a Rule 144A security is liquid or
not is a question of fact. In making this determination AIM will consider the
trading markets for the specific security taking into account the unregistered
nature of a Rule 144A security. In addition, AIM could consider the (i)
frequency of trades and quotes, (ii) number of dealers and potential purchasers,
(iii) dealer undertakings to make a market, and (iv) nature of the security and
of market place trades (for example, the time needed to dispose of the security,
the method of soliciting offers and the mechanics of transfer). The liquidity of
Rule 144A securities will also be monitored by AIM and, if as a result of
changed conditions, it is determined that a Rule 144A security is no longer
liquid, the Fund's holdings of illiquid securities will be reviewed to determine
what, if any, action is required to assure that the Fund does not invest more
than 15% of its net assets in illiquid securities. Investing in Rule 144A
securities could have the effect of increasing the amount of the Fund's
investments in illiquid securities if qualified institutional buyers are
unwilling to purchase such securities.
REVERSE REPURCHASE AGREEMENTS. Reverse Repurchase Agreements involve
the sale of securities held by the Fund, with an agreement that the Fund will
repurchase the securities at an agreed upon price and date. The Fund may employ
reverse repurchase agreements (i) for temporary emergency purposes, such as to
meet unanticipated net redemptions so as to avoid liquidating other portfolio
securities during unfavorable market conditions; (ii) to cover short-term cash
requirements resulting from the timing of trade settlements; or (iii) to take
advantage of market situations where the interest income to be earned from the
investment of the proceeds of the transaction is greater than the interest
expense of the transaction. At the time it enters into a reverse repurchase
agreement, the Fund will segregate liquid assets having a dollar value equal to
the repurchase price. Reverse repurchase agreements are considered borrowings by
the Fund under the 1940 Act.
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<PAGE> 48
LENDING PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities (principally to
broker-dealers) to the extent of one-third of its total assets. Such loans would
be callable at any time and would be continuously secured by collateral equal to
no less than the market value, determined daily, of the loaned securities. Such
collateral will be cash or debt securities issued or guaranteed by the U.S.
Government or any of its agencies. The Fund would continue to receive the income
on loaned securities and would, at the same time, earn interest on the loan
collateral or on the investment of the loan collateral if it were cash. Any cash
collateral pursuant to these loans would be invested in short-term money market
instruments. Where voting or consent rights with respect to loaned securities
pass to the borrower, the Fund will follow the policy of calling the loan, in
whole or in part as may be appropriate, to permit the exercise of such voting or
consent rights if the matters involved are expected to have a material effect on
the Fund's investment in the loaned securities. Lending securities entails a
risk of loss to the Fund if and to the extent that the market value of the
securities loaned were to increase and the lender did not increase the
collateral accordingly.
COVERED CALL OPTIONS. The Fund may write call options, but only on a
covered basis; that is, the Fund will own the underlying security. The exercise
price of a call option may be below, equal to, or above the current market value
of the underlying security at the time the option is written. When a Fund writes
a covered call option, an amount equal to the premium received by the Fund is
recorded 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 written. The current market value of a written option is the last sale
price, or in the absence of a sale, the last offering price. If a written call
option expires on the stipulated expiration date, or if the Fund enters into a
closing purchase transaction, the Fund realizes a gain (or a loss if the closing
purchase transaction exceeds the premium received when the option was written)
without regard to any unrealized gain or loss on the underlying security, and
the liability related to such option is extinguished. If a written option is
exercised, the Fund realizes a gain or a loss from the sale of the underlying
security and the proceeds of the sale are increased by the premium originally
received.
A call option gives the purchaser of such option the right to buy, and
the writer (the Fund) the obligation to sell, the underlying security at the
stated exercise price during the option period. The purchaser of a call option
owns or has the right to acquire the security which is the subject of the call
option at any time during the option period. During the option period, in return
for the premium paid by the purchaser of the option, the Fund has given up the
opportunity for capital appreciation above the exercise price should the market
price of the underlying security increase, but has retained the risk of loss
should the price of the underlying security decline. During the option period,
the Fund may be required at any time to deliver the underlying security against
payment of the exercise price. This obligation is terminated upon the expiration
of the option period or at such earlier time at which the Fund effects a closing
purchase transaction by purchasing (at a price which may be higher than was
received when the call option was written) a call option identical to the one
originally written.
SHORT SALES. The Fund may from time to time make short sales of
securities which it owns or which it has the right to acquire through the
conversion or exchange of other securities it owns. In a short sale, a fund does
not immediately deliver the securities sold and does not receive the proceeds
from the sale. A fund 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. The Fund will neither make short sales of securities nor maintain a
short position unless, at all times when a short position is open, the Fund owns
an equal amount of such securities or securities convertible into or
exchangeable, without payment of any further consideration, for securities of
the same issue as, and equal in amount to, the securities sold short. This is a
technique known as selling short "against the box." To secure its obligation to
deliver the securities sold short, the Fund will segregate with its custodian,
an equal amount of the securities sold short or securities convertible into or
exchangeable for such securities.
Since the Fund ordinarily will want to continue to receive interest and
dividend payments on securities in its portfolio which are convertible into the
securities sold short, the Fund will normally close out a short
9
<PAGE> 49
position by purchasing and delivering an equal amount of the securities sold
short, rather than by delivering securities which it already holds.
The Fund will make a short sale, as a hedge, when it believes that the
price of a security may decline, causing a decline in the value of a security
owned by the Fund or a security convertible into or exchangeable for such
security, or when the Fund does not want to sell the security it owns, because,
among other reasons, it wishes to defer recognition of gain or loss for federal
income tax purposes. 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 are reduced will depend upon the amount of the
security sold short relative to the amount the Fund owns, either directly or
indirectly, and, in the case where the Fund owns convertible securities, changes
in the conversion premium. In determining the number of shares to be sold short
against the Fund's position in a convertible security, the anticipated
fluctuation in the conversion premium is considered. The Fund may also make
short sales to generate additional income from the investment of the cash
proceeds of short sales.
FUTURES CONTRACTS. In cases of purchases of futures contracts, an
amount of liquid assets, equal to the cost of the futures contracts (less any
related margin deposits), will be segregated to collateralize the position and
ensure that the use of such futures contracts is unleveraged. Unlike when the
Fund purchases or sells a security, no price is paid or received by the Fund
upon the purchase or sale of a futures contract. Initially, the Fund will be
required to deposit with its custodian for the account of the broker a stated
amount, as called for by the particular contract, of liquid assets. This amount
is known as "initial margin." The nature of initial margin in futures
transactions is different from that of margin in securities transactions in that
futures contract margin does not involve the borrowing of funds by the customer
to finance the transactions.
Rather, the initial margin is in the nature of a performance bond or
good faith deposit on the contract which is returned to the Fund upon
termination of the futures contract assuming all contractual obligations have
been satisfied. Subsequent payments, called "variation margin," to and from the
broker will be made on a daily basis as the price of the futures contract
fluctuates, making the long and short positions in the futures contract more or
less valuable. This process is known as "marking-to-market." For example, when
the Fund has purchased a stock index futures contract and the price of the
underlying stock index has risen, that position will have increased in value and
the Fund will receive from the broker a variation margin payment with respect to
that increase in value. Conversely, where the Fund has purchased a stock index
futures contract and the price of the underlying stock index has declined, that
position would be less valuable and the Fund would be required to make a
variation margin payment to the broker. Variation margin payments would be made
in a similar fashion when the Fund has purchased an interest rate futures
contract. At any time prior to expiration of the futures contract, the Fund may
elect to close the position by taking an opposite position which will operate to
terminate the Fund's position in the futures contract. A final determination of
variation margin is then made, additional cash is required to be paid by or
released to the Fund and the Fund realizes a loss or a gain.
A description of the various types of futures contracts which may be
utilized by the Fund is as follows:
Interest Rate Futures Contracts - An interest rate futures contract is
an agreement between two parties to buy and sell a debt security for a set price
on a future date. Currently, there are futures contracts based on long-term U.S.
Treasury bonds, U.S. Treasury notes, U.S. Treasury bills, Eurodollars and the
Bond Buyer Municipal Bond Index.
Stock Index Futures Contracts - A stock index assigns relative values
to the common stocks included in the index and the index fluctuates with changes
in the market values of the common stocks so included. A stock index futures
contract is an agreement pursuant to which two parties agree to take or make
delivery of an amount of cash equal to a specified dollar amount times the
difference between the stock index value at the close of the last trading day of
the contract and the price at which the futures contract is originally struck.
No physical delivery of the underlying stocks in the index is made. Currently,
stock index futures contracts can be purchased or sold primarily with respect to
broad based stock indices such as the Standard & Poor's 500
10
<PAGE> 50
Stock Index, the New York Stock Exchange Composite Index, the American Stock
Exchange Major Market Index, the NASDAQ - 100 Stock Index and the Value Line
Stock Index.
Foreign Currency Futures Contracts - Futures contracts may also be used
to hedge the risk of changes in the exchange rates of foreign currencies.
OPTIONS ON FUTURES CONTRACTS. An option on a futures contract gives the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract (a long position if the option is a call and a short position
if the option is a put) at a specified exercise price at any time during the
option exercise period. The writer of the option is required upon exercise to
assume an offsetting futures position (a short position if the option is a call
and a long position if the option is a put) at a specified exercise price at any
time during the period of the option. Upon exercise of the option, the
assumption of offsetting futures positions by the writer and holder of the
option will be accompanied by delivery of the accumulated cash balance in the
writer's futures margin account which represents the amount by which the market
price of the futures contract, at exercise, exceeds, in the case of a call, or
is less than, in the case of a put, the exercise price of the option on the
futures contract. If an option on a futures contract is exercised on the last
trading date prior to the expiration date of the option, the settlement will be
made entirely in cash equal to the difference between the exercise price of the
option and the closing price of the futures contract on the expiration date.
The Fund may purchase and sell put and call options on futures
contracts in order to hedge the value of its portfolio against changes in market
conditions. Depending on the pricing of the option compared to either the price
of the futures contract upon which it is based or the price of the underlying
securities or currency, it may or may not be less risky than ownership of the
futures contract or underlying securities or currency.
RISKS AS TO FUTURES CONTRACTS AND RELATED OPTIONS. The use of futures
contracts and related options as hedging devices presents several risks. One
risk arises because of the imperfect correlation between movements in the price
of hedging instruments and movements in the price of the stock, debt securities
or foreign currency which are the subject of the hedge. If the price of a
hedging instrument moves less than the price of the stocks, debt securities or
foreign currency which are the subject of the hedge, the hedge will not be fully
effective. If the price of a hedging instrument moves more than the price of the
stock, debt securities or foreign currency, the Fund will experience either a
loss or a gain on the hedging instrument which will not be completely offset by
movements in the price of the stock, debt securities or foreign currency which
are the subject of the hedge. The use of options on futures contracts involves
the additional risk that changes in the value of the underlying futures contract
will not be fully reflected in the value of the option.
Successful use of hedging instruments by the Fund is also subject to
AIM's ability to predict correctly movements in the direction of the stock
market, of interest rates or of foreign exchange rates. Because of possible
price distortions in the futures and options markets, and because of the
imperfect correlation between movements in the prices of hedging instruments and
the investments being hedged, even a correct forecast by AIM of general market
trends may not result in a completely successful hedging transaction.
It is also possible that where the Fund has sold futures contracts to
hedge its portfolio against a decline in the market, the market may advance and
the value of stocks or debt securities held in the Fund's portfolio may decline.
If this occurred, the Fund would lose money on the futures contracts and also
experience a decline in the value of its portfolio securities. Similar risks
exist with respect to foreign currency hedges.
Positions in futures contracts or options may be closed out only on an
exchange on which such contracts are traded. Although the Fund intends to
purchase or sell futures contracts or purchase options only on exchanges or
boards of trade where there appears to be an active market, there is no
assurance that a liquid market on an exchange or board of trade will exist for
any particular contract or at any particular time. If there is not a liquid
market at a particular time, it may not be possible to close a futures position
or purchase an option at such time. In the event of adverse price movements
under those circumstances, the Fund would continue to be required to segregate
additional liquid assets for payment of maintenance margin on its futures
11
<PAGE> 51
positions. The extent to which the Fund may engage in futures contracts or
related options will be limited by Internal Revenue Code requirements for
qualification as a regulated investment company and the Fund's intent to
continue to qualify as such. The result of a hedging program cannot be foreseen
and may cause the Fund to suffer losses which it would not otherwise sustain.
INVESTMENT RESTRICTIONS
The most significant investment restrictions applicable to the Funds'
investment programs are set forth in the Prospectuses. The percentage
limitations set forth in such restrictions are calculated by giving effect to
the purchase in question and are based upon values at the time of purchase. The
Funds may, however, retain any security purchased in accordance with such
restrictions irrespective of changes in the values of a Fund's assets occurring
subsequent to the time of purchase.
As a matter of fundamental policy which may not be changed without the
affirmative vote of the holders of a majority of the outstanding shares of
beneficial interest of all classes of Limited Maturity, such Fund will not:
(1) mortgage, pledge or hypothecate any assets except to
secure permitted borrowings of money from banks for temporary or
emergency purposes and then only in amounts not in excess of 33-1/3% of
the value of its total assets at the time of such borrowing;
(2) underwrite securities issued by any other person, except
to the extent that the purchase of securities and the later disposition
of such securities in accordance with the Fund's investment program may
be deemed an underwriting;
(3) invest in real estate;
(4) purchase or sell commodities or commodity futures
contracts, engage in arbitrage transactions, purchase securities on
margin, make short sales or invest in puts or calls;
(5) purchase oil, gas or mineral interests;
(6) invest in any obligation not payable as to principal and
interest in United States currency; or
(7) invest 25% or more of the value of its total assets in
securities of issuers engaged in any one industry (excluding securities
which are a direct obligation of the U.S. Treasury or are repurchase
agreements with respect to a direct obligation of the U.S. Treasury).
The Trust has obtained an opinion of Dechert Price & Rhoads, special
counsel to the Trust, that shares of Limited Maturity are eligible for
investment by a federal credit union. In order to ensure that shares of Limited
Maturity meet the requirements for eligibility for investment by federal credit
unions, the Fund has adopted the following policies:
(1) The Fund will enter into repurchase agreements only with:
(i) banks insured by the Federal Deposit Insurance Corporation (FDIC);
(ii) savings and loan associations insured by the FDIC; or (iii)
registered broker-dealers. The Fund will only enter into repurchase
transactions pursuant to a master repurchase agreement in writing with
the Fund's counterparty. Under the terms of a written agreement with
its custodian, the Fund receives on a daily basis written confirmation
of each purchase of a security subject to a repurchase agreement and a
receipt from the Fund's custodian evidencing each transaction. In
addition, securities subject to a repurchase agreement may be recorded
in the Federal Reserve Book-Entry System on behalf of the Fund by its
custodian. The Fund purchases
12
<PAGE> 52
securities subject to a repurchase agreement only when the purchase
price of the security acquired is equal to or less than its market
price at the time of the purchase;
(2) the Fund will only enter into reverse repurchase
agreements and purchase additional securities with the proceeds when
such proceeds are used to purchase other securities that either mature
on a date simultaneous with or prior to the expiration date of the
reverse repurchase agreement, or are subject to an agreement to resell
such securities within that same time period;
(3) the Fund will only enter into securities lending
transactions that comply with the same counterparty, safekeeping,
maturity and borrowing restrictions that the Fund observes when
participating in repurchase and reverse repurchase transactions; or
(4) the Fund will enter into when-issued and delayed delivery
transactions only when the time period between trade date and
settlement date does not exceed 120 days, and only when settlement is
on a cash basis. When the delivery of securities purchased in such
manner is to occur within 30 days of the trade date, the Fund will
purchase the securities only at their market price as of the trade
date.
As a matter of fundamental policy which may not be changed without the
affirmative vote of the holders of a majority of the outstanding shares of
beneficial interest of all classes of High Yield, such Fund may not:
(1) borrow money or issue senior securities or mortgage,
pledge, or hypothecate its assets, except that the Fund may enter into
financial futures contracts, reverse repurchase agreements, and borrow
from banks to pay for redemptions and for temporary purposes in an
amount not exceeding one-third of the value of its total assets
(including the amount of such borrowings) less its liabilities
(excluding the amount of such borrowings) and may secure such
borrowings by pledging up to one-third of the value of its total
assets. For the purpose of this restriction, collateral arrangements
with respect to margin for a financial futures contract are not deemed
to be a pledge of assets. The Fund will not purchase securities while
borrowings in excess of 5% of its total assets are outstanding;
(2) make short sales of securities or maintain short
positions, unless, at all times when a short position is open, the Fund
owns at least an equal amount of the securities sold short or owns
securities convertible into or exchangeable for at least an equal
amount of such securities sold short, without the payment of further
consideration;
(3) purchase or sell real estate or interests therein, but the
Fund may purchase and sell (a) securities which are secured by real
estate, and (b) the securities of companies which invest or deal in
real estate or interests therein, including real estate investment
trusts;
(4) act as a securities underwriter;
(5) purchase or sell commodities or commodity contracts, other
than financial futures contracts and options thereon;
(6) purchase the securities of any issuer if, as a result, the
Fund would fail to be a diversified company within the meaning of the
1940 Act and the rules and regulations promulgated thereunder, as such
statute, rules and regulations are amended from time to time; provided,
however, that the Fund may purchase securities of other investment
companies to the extent permitted by the 1940 Act and the rules and
regulations promulgated thereunder (as such statute, rules and
regulations are amended from time to time) or to the extent permitted
by exemptive order or other similar relief;
13
<PAGE> 53
(7) concentrate 25% or more of its total assets in the
securities of issuers in a particular industry; provided, however, that
securities guaranteed by banks or subject to financial guaranty
insurance are not subject to this limitation; and provided further,
that securities issued or guaranteed by the U.S. Government, its
agencies and instrumentalities are not included within this
restriction;
(8) make loans, except that the Fund may lend its portfolio
securities provided that the value of the securities loaned does not
exceed 33-1/3% of its total assets, and except that the Fund may enter
into repurchase agreements;
(9) purchase securities on margin, except that the Fund may
obtain such short-term credits as may be necessary for the clearance of
purchases and sales of securities and may make margin payments in
connection with transactions in financial futures contracts and options
thereon; or
(10) invest in puts, calls, or any combinations thereof,
except, however, that the Fund may invest in financial futures
contracts, purchase and sell options on financial futures contracts,
may acquire and hold puts which relate to equity securities acquired by
the Fund, and may sell covered call options.
ADDITIONAL INVESTMENT RESTRICTIONS OF THE FUNDS
The Funds' investment programs are also subject to a number of
investment restrictions which reflect self-imposed standards as well as federal
regulatory limitations. These restrictions are not matters of fundamental policy
and may be changed at any time by the trustees without the approval of
shareholders.
INVESTING FOR CONTROL
The Funds will not invest in companies for purposes of exercising
control or management.
14
<PAGE> 54
MANAGEMENT
TRUSTEES AND OFFICERS
The trustees and officers of the Trust and their principal occupations
during at least the last five years are set forth below. Unless otherwise
indicated, the address of each trustee and officer is 11 Greenway Plaza, Suite
100, Houston, Texas 77046.
<TABLE>
<CAPTION>
==========================================================================================================
Positions Held PRINCIPAL OCCUPATION DURING AT LEAST THE
-------------- ----------------------------------------
NAME, ADDRESS AND AGE with Registrant PAST 5 YEARS
--------------------- --------------- ------------
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
*CHARLES T. BAUER (79) Trustee and Chairman of the Board of Directors,
Chairman A I M Management Group Inc.,
A I M Advisors, Inc., A I M Capital
Management, Inc., A I M Distributors, Inc.,
A I M Fund Services, Inc. and Fund
Management Company; and Vice Chairman
and Director, AMVESCAP PLC.
- ----------------------------------------------------------------------------------------------------------
BRUCE L. CROCKETT (54) Trustee Director, ACE Limited (insurance company).
906 Frome Lane Formerly, Director, President and Chief
McLean, VA 22102 Executive Officer, COMSAT Corporation; and
Chairman, Board of Governors of INTELSAT
(international communications company).
- ----------------------------------------------------------------------------------------------------------
OWEN DALY II (74) Trustee Director, Cortland Trust Inc. (investment
Six Blythewood Road company). Formerly, Director, CF & I Steel
Baltimore, MD 21210 Corp., Monumental Life Insurance Company
and Monumental General Insurance
Company; and Chairman of the Board of
Equitable Bancorporation.
- ----------------------------------------------------------------------------------------------------------
EDWARD K. DUNN, JR. (63) Trustee Chairman of the Board of Directors,
2 Hopkins Plaza, 20th Floor Mercantile Mortgage Corp. Formerly, Vice
Baltimore, MD 21201 Chairman of the Board of Directors and
President, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile Bankshares.
- ----------------------------------------------------------------------------------------------------------
JACK M. FIELDS (46) Trustee Chief Executive Officer, Texana Global, Inc.
8810 Will Clayton Parkway (foreign trading company) and Twenty First
Jetero Plaza, Suite E Century Group, Inc. (a governmental affairs
Humble, TX 77338 company). Formerly, Member of the U.S.
House of Representatives.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
- --------
* A trustee who is an "interested person" of the Trust and AIM
as defined in the 1940 Act.
15
<PAGE> 55
<TABLE>
<CAPTION>
==========================================================================================================
Positions Held PRINCIPAL OCCUPATION DURING AT LEAST THE
-------------- ----------------------------------------
NAME, ADDRESS AND AGE with Registrant PAST 5 YEARS
--------------------- --------------- ------------
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
**CARL FRISCHLING (61) Trustee Partner, Kramer, Levin, Naftalis & Frankel
919 Third Avenue (law firm). Formerly, Partner, Reid & Priest
New York, NY 10022 (law firm).
- ----------------------------------------------------------------------------------------------------------
*ROBERT H. GRAHAM (51) Trustee and Director, President and Chief Executive
President Officer, A I M Management Group Inc.;
Director and President, A I M Advisors,
Inc.; Director and Senior Vice President,
A I M Capital Management, Inc., A I M
Distributors, Inc., A I M Fund Services,
Inc., and Fund Management Company; and
Director, AMVESCAP PLC.
- ----------------------------------------------------------------------------------------------------------
PREMA MATHAI-DAVIS (48) Trustee Chief Executive Officer, YWCA of the U.S.A.;
350 Fifth Avenue, Suite 301 Commissioner, New York City Department for
New York, NY 10118 the Aging; and Member of the Board of
Directors, Metropolitan Transportation
Authority of New York State.
- ----------------------------------------------------------------------------------------------------------
LEWIS F. PENNOCK (56) Trustee Attorney in private practice in Houston,
6363 Woodway, Suite 825 Texas.
Houston, TX 77057
- ----------------------------------------------------------------------------------------------------------
IAN W. ROBINSON (75) Trustee Formerly, Executive Vice President and Chief
183 River Drive Financial Officer, Bell Atlantic Management
Tequesta, FL 33469 Services, Inc. (provider of centralized
management services to telephone companies);
Executive Vice President, Bell Atlantic
Corporation (parent of seven telephone
companies); and Vice President and
Chief Financial Officer, Bell Telephone
Company of Pennsylvania and Diamond
State Telephone Company.
- ----------------------------------------------------------------------------------------------------------
LOUIS S. SKLAR (59) Trustee Executive Vice President, Development and
Transco Tower, 50th Floor Operations, Hines Interests Limited
2800 Post Oak Blvd. Partnership (real estate development).
Houston, TX 77056
- ----------------------------------------------------------------------------------------------------------
</TABLE>
- --------
** A trustee who is an "interested person" of the Trust as
defined in the 1940 Act.
* A trustee who is an "interested person" of the Trust and AIM
as defined in the 1940 Act.
16
<PAGE> 56
<TABLE>
<CAPTION>
==========================================================================================================
Positions Held PRINCIPAL OCCUPATION DURING AT LEAST THE
-------------- ----------------------------------------
NAME, ADDRESS AND AGE with Registrant PAST 5 YEARS
--------------------- --------------- ------------
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
***JOHN J. ARTHUR (54) Senior Vice Director, Senior Vice President and
President and Treasurer, A I M Advisors, Inc.; and Vice
Treasurer President and Treasurer, A I M Management
Group Inc., A I M Capital Management, Inc.,
A I M Distributors, Inc., A I M Fund Services,
Inc. and Fund Management Company.
- ----------------------------------------------------------------------------------------------------------
GARY T. CRUM (51) Senior Vice Director and President, A I M Capital
President Management, Inc.; Director and Senior Vice
President, A I M Management Group Inc. and
A I M Advisors, Inc.; and Director,
A I M Distributors, Inc. and AMVESCAP PLC.
- ----------------------------------------------------------------------------------------------------------
***CAROL F. RELIHAN (44) Senior Vice Director, Senior Vice President, General
President and Counsel and Secretary, A I M Advisors, Inc.;
Secretary Vice President, General Counsel and
Secretary, A I M Management Group Inc.;
Director, Vice President and General
Counsel, Fund Management Company;
General Counsel and Vice President,
A I M Fund Services, Inc.; and Vice President,
A I M Capital Management, Inc. and
A I M Distributors, Inc.
- ----------------------------------------------------------------------------------------------------------
DANA R. SUTTON (39) Vice President and Vice President and Fund Controller,
Assistant Treasurer A I M Advisors, Inc.; and Assistant Vice
President and Assistant Treasurer, Fund
Management Company.
- ----------------------------------------------------------------------------------------------------------
MELVILLE B. COX (55) Vice President Vice President and Chief Compliance Officer,
A I M Advisors, Inc., A I M Capital
Management, Inc., A I M Distributors, Inc.,
A I M Fund Services, Inc. and Fund
Management Company.
- ----------------------------------------------------------------------------------------------------------
KAREN DUNN KELLEY (38) Vice President Senior Vice President, A I M Capital
Management, Inc. and Vice President,
A I M Advisors, Inc.
==========================================================================================================
</TABLE>
- --------
*** Mr. Arthur and Ms. Relihan are married to each other.
17
<PAGE> 57
The standing committees of the Board of Trustees are the Audit
Committee, the Investments Committee, and the Nominating and Compensation
Committee.
The members of the Audit Committee are Messrs. Crockett, Daly, Dunn,
Fields, Frischling, Pennock, Robinson (Chairman), and Sklar. The Audit Committee
is responsible for meeting with the Trust's auditors to review audit procedures
and results and to consider any matters arising from an audit to be brought to
the attention of the trustees as a whole with respect to the Trust's fund
accounting or its internal accounting controls, or for considering such matters
as may from time to time be set forth in a charter adopted by the Board of
Trustees and such committee.
The members of the Investments Committee are Messrs. Bauer, Crockett,
Daly, Dunn, Fields, Frischling, Pennock, Robinson and Sklar (Chairman). The
Investments Committee is responsible for reviewing portfolio compliance,
brokerage allocation, portfolio investment pricing issues, interim dividend and
distribution issues, and considering such matters as may from time to time be
set forth in a charter adopted by the Board of Trustees and such committee.
The members of the Nominating and Compensation Committee are Messrs.
Crockett (Chairman), Daly, Dunn, Fields, Pennock, Robinson and Sklar. The
Nominating and Compensation Committee is responsible for considering and
nominating individuals to stand for election as trustees who are not interested
persons as long as the Trust maintains a distribution plan pursuant to Rule
12b-1 under the 1940 Act, reviewing from time to time the compensation payable
to the disinterested trustees, and considering such matters as may from time to
time be set forth in a charter adopted by the Board of Trustees and such
committee.
All of the trustees of the Trust also serve as directors or trustees of
some or all of the other AIM Funds. Certain of the Trust's executive officers
hold similar offices with some or all of the other AIM Funds.
REMUNERATION OF TRUSTEES
Each trustee is reimbursed for expenses incurred in connection with
each meeting of the Board of Trustees or any committee thereof. Each trustee who
is not also an officer of the Trust is compensated for his or her services
according to a fee schedule which recognizes the fact that such trustee also
serves as a trustee or director of the other AIM Funds. Each such trustee
receives a fee, allocated among the AIM Funds for which he or she serves as a
director or trustee, which consists of an annual retainer component and a
meeting fee component.
18
<PAGE> 58
Set forth below is information regarding compensation paid or accrued
for each trustee of the Trust:
<TABLE>
<CAPTION>
===========================================================================================================
RETIREMENT
AGGREGATE BENEFITS TOTAL
COMPENSATION ACCRUED COMPENSATION
FROM THE BY ALL FROM ALL
DIRECTOR FUNDS(1) AIM FUNDS(2) AIM FUNDS(3)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Charles T. Bauer $ 0 $ 0 $ 0
- -----------------------------------------------------------------------------------------------------------
Bruce L. Crockett 1,172 67,774 84,000
- -----------------------------------------------------------------------------------------------------------
Owen Daly II 1,172 103,542 84,000
- -----------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr.(4) 437 0 0
- -----------------------------------------------------------------------------------------------------------
Jack M. Fields 1,164 0 0
- -----------------------------------------------------------------------------------------------------------
Carl Frischling(5) 1,172 96,520 68,000
- -----------------------------------------------------------------------------------------------------------
Robert H. Graham 0 0 0
- -----------------------------------------------------------------------------------------------------------
John F. Kroeger(6) 1,119 94,132 66,000
- -----------------------------------------------------------------------------------------------------------
Prema Mathai-Davis(4) 0 0 0
- -----------------------------------------------------------------------------------------------------------
Lewis F. Pennock 1,172 55,777 67,000
- -----------------------------------------------------------------------------------------------------------
Ian W. Robinson 1,153 85,912 68,000
- -----------------------------------------------------------------------------------------------------------
Louis S. Sklar 1,165 84,370 66,500
===========================================================================================================
</TABLE>
- ----------
(1) The total amount of compensation deferred by all Trustees of the Trust
during the fiscal year ended July 31, 1998, including interest earned
thereon, was $6,426.
(2) During the fiscal year ended July 31, 1998, the total estimated amount
of expenses allocated to Limited Maturity in respect of such retirement
benefits was $2,778. Data reflects compensation for the calendar year
ended December 31, 1997.
(3) Each Trustee serves as a director or trustee of a total of 12
registered investment companies advised by AIM as of December 31, 1997
(comprised of over 50 portfolios). Data reflect total compensation
earned during the calendar year ended December 31, 1997.
(4) Mr. Dunn and Ms. Mathai-Davis did not serve as Trustees during the
calendar year ended December 31, 1997.
(5) The Trust paid the law firm of Kramer, Levin, Naftalis & Frankel $4,177
in legal fees for services provided to Limited Maturity during the
fiscal year ended July 31, 1998. Mr. Frischling, a trustee of the
Trust, is a partner at such firm.
(6) Mr. Kroeger resigned as a Trustee of the Trust on June 11, 1998, and on
that date became a consultant to the Trust.
19
<PAGE> 59
AIM FUNDS RETIREMENT PLAN FOR ELIGIBLE DIRECTORS/TRUSTEES
Under the terms of the AIM Funds Retirement Plan for Eligible
Directors/Trustees (the "Plan"), each trustee (who is not an employee of any of
the AIM Funds, A I M Management Group Inc. or any of their affiliates) may be
entitled to certain benefits upon retirement from the Board of Trustees.
Pursuant to the Plan, the normal retirement date is the date on which the
eligible trustee has attained age 65 and has completed at least five years of
continuous service with one or more of the regulated investment companies
managed, administered or distributed by AIM or its affiliates (the "Applicable
AIM Funds"). Each eligible trustee is entitled to receive an annual benefit from
the Applicable AIM Funds commencing on the first day of the calendar quarter
coincident with or following his date of retirement equal to 75% of the retainer
paid or accrued by the Applicable AIM Funds for such trustee during the
twelve-month period immediately preceding the trustee's retirement (including
amounts deferred under a separate agreement between the Applicable AIM Funds and
the trustee) for the number of such Trustee's years of service (not in excess of
10 years of service) completed with respect to any of the AIM Funds. Such
benefit is payable to each eligible trustee in quarterly installments. If an
eligible trustee dies after attaining the normal retirement date but before
receipt of any benefits under the Plan commences, the trustee's surviving spouse
(if any) shall receive a quarterly survivor's benefit equal to 50% of the amount
payable to the deceased trustee, for no more than ten years beginning the first
day of the calendar quarter following the date of the trustee's death. Payments
under the Plan are not secured or funded by any AIM Fund.
Set forth below is a table that shows the estimated annual benefits
payable to an eligible trustee upon retirement assuming the retainer amount
reflected below and various years of service. The estimated credited years of
service for Messrs. Crockett, Daly, Dunn, Fields, Frischling, Kroeger, Pennock,
Robinson, Sklar and Mdm. Mathai-Davis are 11, 11, 0, 1, 21, 20, 6, 11, 8 and 0
years, respectively.
ESTIMATED BENEFITS UPON RETIREMENT
<TABLE>
<CAPTION>
=============================================================
Number of Annual Retainer Paid By All AIM Funds
Years of
Service With $80,000
the AIM Funds
=============================================================
<S> <C>
10 $60,000
-------------------------------------------------------------
9 $54,000
-------------------------------------------------------------
8 $48,000
-------------------------------------------------------------
7 $42,000
-------------------------------------------------------------
6 $36,000
-------------------------------------------------------------
5 $30,000
=============================================================
</TABLE>
DEFERRED COMPENSATION AGREEMENTS
Messrs. Daly, Frischling, Kroeger, Robinson and Sklar (for purposes of
this paragraph only, the "deferring trustees") have each executed a Deferred
Compensation Agreement (collectively, the "Agreements"). Pursuant to the
Agreements, the deferring trustees may elect to defer receipt of up to 100% of
their compensation payable by the Funds, and such amounts are placed into a
deferral account. Currently, the deferring trustees may select various AIM Funds
in which all or part of their deferral accounts shall be
20
<PAGE> 60
deemed to be invested. Distributions from the deferring trustees' deferral
accounts will be paid in cash, in generally equal quarterly installments over a
period of five (5) or ten (10) years (depending on the Agreement) beginning on
the date the deferring trustee's retirement benefits commence under the Plan.
The Trust's Board of Trustees, in its sole discretion, may accelerate or extend
the distribution of such deferral accounts after the deferring trustee's
termination of service as a trustee of the Trust. If a deferring trustee dies
prior to the distribution of amounts in his deferral account, the balance of the
deferral account will be distributed to his designated beneficiary in a single
lump sum payment as soon as practicable after such deferring trustee's death.
The Agreements are not funded and, with respect to the payments of amounts held
in the deferral accounts, the deferring trustees have the status of unsecured
creditors of the Funds and of each other AIM Fund from which they are deferring
compensation.
INVESTMENT ADVISORY AND OTHER SERVICES
The Trust, on behalf of the Funds, has entered into a Master Investment
Advisory Agreement (the "Advisory Agreement") and a Master Administrative
Services Agreement (the "Administrative Services Agreement") with AIM. See
"Management" in the Prospectus.
AIM was organized in 1976, and together with its subsidiaries advises
or manages over 90 investment company portfolios encompassing a broad range of
investment objectives. AIM is a wholly owned subsidiary of A I M Management
Group Inc. ("AIM Management"), 11 Greenway Plaza, Suite 100, Houston, Texas
77046- 1173. AIM Management is a holding company that has been engaged in the
financial services business since 1976. AIM Management is an indirect wholly
owned subsidiary of AMVESCAP PLC, 11 Devonshire Square, London EC2M 4YK,
England. AMVESCAP PLC and its subsidiaries are an independent investment
management group engaged in institutional investment management and retail fund
businesses in the Unites States, Europe and the Pacific Region. Certain of the
directors and officers of AIM are also executive officers of the Fund and their
affiliations are shown under "Trustees and Officers". AIM Capital, a wholly
owned subsidiary of AIM, is engaged in the business of providing investment
advisory services to investment companies, corporations, institutions and other
accounts.
AIM and the Trust have adopted a Code of Ethics which requires
investment personnel and certain other employees (a) to pre-clear all personal
securities transactions subject to the Code of Ethics, (b) to file reports or
duplicate confirmations regarding such transactions (c) to refrain from
personally engaging in (i) short-term trading of a security, (ii) transactions
involving a security within seven days of an AIM Fund transaction involving the
same security, and (iii) transactions involving securities being considered for
investment by an AIM Fund and (d) to abide by certain other provisions under the
Code of Ethics. The Code of Ethics also prohibits investment personnel and all
other AIM employees from purchasing securities in an initial public offering.
Personal trading reports are reviewed periodically by AIM, and the Board of
Trustees reviews quarterly and annual reports (including information on any
substantial violations of the Code of Ethics). Violations of the Code of Ethics
may include censure, monetary penalties, suspension or termination of
employment.
The Advisory Agreement provides that each Fund will pay or cause to be
paid all expenses of that Fund not assumed by AIM, including, without
limitation: brokerage commissions; taxes, legal, accounting, auditing or
governmental fees; the cost of preparing share certificates; custodian, transfer
and shareholder service agent costs; expenses of issue, sale, redemption and
repurchase of shares; expenses of registering and qualifying shares for sale;
expenses relating to trustees and shareholder meetings; the cost of preparing
and distributing reports and notices to shareholders; the fees and other
expenses incurred by the Trust on behalf of the Fund in connection with
membership in investment company organizations; the cost of printing copies of
prospectuses and statements of additional information distributed to the Fund's
shareholders; and all other charges and costs of the Fund's operations unless
otherwise explicitly provided.
The Advisory Agreement will continue from year to year only if such
continuance is specifically approved at least annually by the Trust's Board of
Trustees or the vote of a "majority of the outstanding voting securities" of
each Fund (as defined in the 1940 Act) and (ii) the affirmative vote of a
majority of the trustees
21
<PAGE> 61
who are not parties to the Advisory Agreement or "interested persons" of any
such party (the "Non-Interested Trustees") by votes cast in person at a meeting
called for such purpose. A Fund or AIM may terminate the Advisory Agreement with
respect to that Fund on sixty (60) days' written notice without penalty. The
Advisory Agreement terminates automatically in the event of its assignment.
Under the Advisory Agreement, AIM is entitled to receive from Limited
Maturity a fee calculated at the following annual rates, based on the average
daily net assets of the Fund during the year:
<TABLE>
<CAPTION>
Net Assets Annual Rate
---------- -----------
<S> <C>
First $500 million 0.20%
Amount over $500 million 0.175%
</TABLE>
Under the Advisory Agreement, AIM is entitled to receive from High Yield a fee
calculated at the following annual rates, based on the average daily net assets
of the Fund during the year:
<TABLE>
<CAPTION>
Net Assets Annual Rate
---------- -----------
<S> <C>
First $500 million 0.625%
Next $500 million 0.55%
Amount over $1 billion 0.50%
</TABLE>
For the fiscal years ended July 31, 1998, 1997 and 1996, AIM received
advisory fees from Limited Maturity of $855,900, $837,760 and $933,207,
respectively.
In order to increase the return to investors, AIM may from time to time
voluntarily waive or reduce its fee, while retaining its ability to be
reimbursed for such fee prior to the end of each fiscal year. AIM has agreed to
voluntarily waive a portion of its advisory fees payable by High Yield in an
amount sufficient to limit the total annual operating expenses of the Class A
shares to 1.00% of average daily net assets, and of Class B and Class C shares
to 1.75% of average daily net assets until such time as High Yield's total
assets equal or exceed $100 million. Fee waivers or reductions, other than those
set forth in the Advisory Agreement, may be rescinded at any time and without
notice to investors.
The Administrative Services Agreement for the Funds provides that AIM
may provide or arrange for the performance of certain accounting, shareholder
servicing and other administrative services to the Funds which are not required
to be performed by AIM under the Advisory Agreement. For such services, AIM
would be entitled to receive from each Fund reimbursement of AIM's costs or such
reasonable compensation as may be approved by AIM and the Board of Trustees. The
Administrative Services Agreement provides that such agreement will continue in
effect from year to year if such continuance is specifically approved at least
annually by (i) the Trust's Board of Trustees or the vote of a "majority of the
outstanding voting securities" of a Fund (as defined in the 1940 Act) and (ii)
the affirmative vote of a majority of the Non-Interested Trustees, by votes cast
in person at a meeting called for such purpose.
For the fiscal years ended July 31, 1998, 1997 and 1996, Limited
Maturity reimbursed AIM for certain accounting, shareholder servicing and
administrative services in the amounts of $59,396, $66,785 and $60,857,
respectively.
In addition, the Transfer Agency and Service Agreement, which became
effective November 1, 1994, provides that AFS will perform certain shareholder
services for the Funds. The Transfer Agency and Service Agreement provides that
AFS will receive a per account fee plus out-of-pocket expenses to process orders
for purchases, redemptions and exchanges of shares, prepare and transmit
payments for dividends and distributions declared by a Fund, maintain
shareholder accounts and provide shareholders with information regarding the
Fund and other accounts.
22
<PAGE> 62
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 shares of
Limited Maturity and High Yield, and the Class C shares of High Yield (the
"Class A and C Plan"). Such plan provides that the Class A shares of Limited
Maturity and High Yield pay 0.15% and 0.25%, respectively, 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 the
Class A shares. Under the Class A and C Plan, Class C shares of High Yield pay
compensation to AIM Distributors at an annual rate of 1.00% of the average daily
net assets attributable to Class C shares for the purpose of financing any
activity which is primarily intended to result in the sale of Class C shares. Of
such amount payable with respect to Class C shares, High Yield pays a service
fee of 0.25% of the average daily net assets attributable to Class C shares to
selected dealers and other institutions which furnish continuing personal
shareholder services to their customers who purchase and own Class C shares.
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.
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 High
Yield (the "Class B Plan", and collectively with the Class A and C Plan, the
"Plans"). Under the Class B Plan, High Yield 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, the 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 its 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 from time to time 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 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 a Fund and
the Trust; performing sub-accounting; establishing and maintaining
23
<PAGE> 63
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, a 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 will be calculated at the end of each payment period for each
business day of the Funds during such period at the annual rates of 0.15% of the
average daily net asset value of Limited Maturity's Class A shares, and 0.25% of
the average daily net asset value of High Yield'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 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. and NASD Regulation, Inc. (the "NASD"). The Plans conform to rules of the
NASD by limiting payments made to dealers and other financial institutions who
provide continuing personal shareholder services to their customers who purchase
and own shares of the Funds to no more than 0.25% per annum of the average daily
net assets of the Funds attributable to the customers of such dealers or
financial institutions, and by imposing a cap on the total sales charges,
including asset based sales charges, that may be paid by the Funds and their
respective classes.
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.
For the fiscal year ended July 31, 1998, AIM Distributors received fees
under the Class A and C Plan in the amount of $567,049, which constituted 0.15%
of the average daily net assets of the Class A shares of Limited Maturity. An
estimate by category of actual fees paid by the Class A shares of Limited
Maturity during the fiscal year ended July 31, 1998, were allocated as follows:
<TABLE>
<S> <C>
Advertising $ 14,787
Printing and mailing prospectuses, semi-annual reports 986
and annual reports (other than to current shareholders)
Seminars 2,957
Compensation to Underwriters to partially offset other 0
marketing expenses
Compensation to Sales Personnel 0
Compensation to Dealers including finder's fees 548,319
</TABLE>
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 (the "Independent
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 affected class of the
Funds and its respective shareholders.
24
<PAGE> 64
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.
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.
Unless terminated earlier in accordance with their terms, the Plans
continue in effect until June 30, 1999 and thereafter, as long as such
continuance is specifically approved at least annually by the Board of Trustees,
including a majority of the Independent Trustees.
The Plans may be terminated by the vote of a majority of the
Independent 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,
the Plans may be amended by the Trustees, including a majority of the
Independent 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 Independent Trustees is committed to the
discretion of the Independent 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 by holders of Class A shares of High Yield under the
Class A and C Plan, the Class B shares of High Yield will no longer convert into
Class A shares of High Yield 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 High
Yield 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 High Yield 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: The Class A and C Plan allows payment to AIM Distributors or to
dealers or financial institutions of up to 0.15% and 0.25% of the average daily
net assets of Limited Maturity's or High Yield's respective Class A shares, as
compared to 1.00% of such assets of High Yield's Class B and Class C shares;
(ii) the Class B Plan obligates 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, 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 DISTRIBUTION AGREEMENTS
Information concerning AIM Distributors and the continuous offering of
the Funds' shares is set forth in each Prospectus under the caption "How to
Purchase Shares" and "Terms and Conditions of Purchase of the AIM Funds." The
Trust has entered into a Master Distribution Agreement with AIM Distributors
relating to the Class A shares of Limited Maturity and the Class A and Class C
shares of High Yield and a separate Master Distribution Agreement with AIM
Distributors relating to the Class B shares of High Yield. Both 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 prospectuses and
statements of additional information relating to public offerings
25
<PAGE> 65
made by AIM Distributors pursuant to the Distribution Agreements (other than
those prospectuses and statements of additional information distributed to
existing shareholders of the Funds), and any promotional or sales literature
used by AIM Distributors or furnished by AIM Distributors to dealers in
connection with the public offering of the Funds' shares, including expenses of
advertising in connection with such public offerings. AIM Distributors has not
undertaken to sell any specified number of shares of any classes of the Funds.
AIM Distributors expects to pay sales commissions from its own
resources to dealers and institutions who sell Class B and Class C shares 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 requires 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.
AIM Distributors may pay sales commissions to dealers and institutions
who sell Class C shares 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 pay quarterly to
dealers and institutions 1.00% of 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.
The Trust (on behalf of any class of the Funds) or AIM Distributors may
terminate the Distribution Agreements on sixty (60) days' written notice without
penalty. The Distribution Agreements will terminate automatically in the event
of their assignment. In the event the Class B shares Distribution Agreement is
terminated, AIM Distributors would continue to receive payments of asset-based
distribution fees in respect of the outstanding Class B shares attributable to
the distribution efforts of AIM Distributors; provided, however, that a complete
termination of the Class B Plan (as defined in such Plan) would terminate all
payments by the Fund of asset based sales charges and service fees to AIM
Distributors. Termination of the Class B Plan or the Distribution Agreement for
Class B shares would not affect the obligation of the Fund's and its Class B
shareholders to pay contingent deferred sales charges.
For the fiscal years ended July 31, 1998, 1997 and 1996, the total
sales charges paid in connection with the sale of the Class A shares of Limited
Maturity were $219,035 , $340,764 and $540,727, respectively, of which AIM
Distributors retained $56,989, $105,675 and $193,686, respectively.
HOW TO PURCHASE AND REDEEM SHARES
A complete description of the manner in which shares of the Funds may
be purchased appears in the Prospectuses under the caption "How to Purchase
Shares", "Terms and Conditions of Purchase of the AIM Funds" and "Special
Plans."
26
<PAGE> 66
The sales charge normally deducted on purchases of the Class A shares
is used to compensate AIM Distributors and participating dealers for their
expenses incurred in connection with the distribution of Class A 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., due to 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, and certain
other persons whose purchases result in relatively low expenses of distribution,
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 in the Prospectuses under the
caption "Terms and Conditions of Purchase of the AIM Funds."
Complete information concerning the method of exchanging shares of the
Funds for shares of the other mutual funds managed or advised by AIM is set
forth in the Prospectuses under the caption "Exchange Privilege."
Information concerning redemption of the Funds' shares is set forth in
the Prospectuses under the caption "How to Redeem Shares." In addition to the
Funds' obligations 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) 949-4246 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 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 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 New York Stock Exchange (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 the Funds not reasonably practicable.
The Trust agrees to redeem shares of the Funds, or any other future
portfolios of the Trust, solely in cash up to the lesser of $250,000 or 1% of
the Funds' net assets during any 90-day period for any one shareholder. In
consideration of the best interests of the remaining shareholders, the Trust
reserves the right to pay any redemption price exceeding this amount in whole or
in part by a distribution in kind of securities held by the Funds in lieu of
cash. It is highly unlikely that shares would ever be redeemed in kind. If
shares are redeemed in kind, however, the redeeming shareholder should expect to
incur transaction costs upon the disposition of the securities received in the
distribution.
NET ASSET VALUE DETERMINATION
In accordance with the current SEC rules and regulations, the net asset
value of a share of each Fund is normally determined once daily as of the close
of trading of the New York Stock Exchange (the "NYSE"), which is 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. The net
asset value per share is determined by subtracting the liabilities (e.g.,
accrued and dividends payable) of the Fund allocated to the class from the value
of securities, cash and assets (including interest accrued but not collected) of
the Fund allocated to the class; and dividing the result by the total number of
shares outstanding of such class. Determination of the Fund's net asset value
per share is made in accordance with generally accepted accounting principles.
27
<PAGE> 67
Each equity security held by High Yield is valued at its last sales
price on the exchange where the security is principally traded or, lacking any
sales on a particular day, the security is valued at the mean between the
closing bid and asked prices on that day. Each security traded in the
over-the-counter market (but not including securities reported on the NASDAQ
National Market System) is valued at the mean between the last bid and asked
prices based upon quotes furnished by market makers for such securities. Each
security reported on the NASDAQ National Market System is valued at the last
sales price on the valuation date or absent a last sales price, at the mean
between the closing bid and asked prices on that day. Debt securities are valued
on the basis of prices provided by an independent pricing service. Prices
provided by the pricing service may be determined without exclusive reliance on
quoted prices, and may reflect appropriate factors such as institution-size
trading in similar groups of securities, developments related to special
securities, yield, quality, coupon rate, maturity, type of issue, individual
trading characteristics and other market data. Securities for which market
quotations are not readily available 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 a 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.
TAX MATTERS
The following is only a summary of certain additional tax
considerations generally affecting a Fund and its shareholders that are not
described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of a Fund or its shareholders, and the
discussion here and in the Prospectus is not intended as a substitute for
careful tax planning. Investors are urged to consult their tax advisors with
specific reference to their own tax situation.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As a
regulated investment company, a Fund is not subject to federal income tax on the
portion of its net investment income (i.e., its taxable interest, dividends and
other taxable ordinary income, net of expenses) and realized capital gain net
income (i.e., the excess of capital gains over capital losses) that it
distributes to shareholders, provided that it distributes at least 90% of its
investment company taxable income (i.e., net investment income and the excess of
net short-term capital gain over net long-term capital loss) for the taxable
year (the "Distribution Requirement"), and satisfies certain other
28
<PAGE> 68
requirements of the Code that are described below. Distributions by a Fund made
during the taxable year or, under specified circumstances, within 12 months
after the close of the taxable year, will be considered distributions of income
and gains of the taxable year and can therefore satisfy the Distribution
Requirement.
In addition to satisfying the Distribution Requirement, each Fund must
derive at least 90% of its gross income from dividends, interest, certain
payments with respect to securities loans, gains from the sale or other
disposition of stock or securities or foreign currencies (to the extent such
currency gains are ancillary to the Fund's principal business of investing in
stock or securities) and other income (including but not limited to gains from
options, futures or forward contracts) derived with respect to its business of
investing in such stock, securities or currencies (the "Income Requirement").
In general, gain or loss recognized by a Fund on the disposition of an
asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation purchased by a Fund at a market discount
(generally, at a price less than its principal amount) will be treated as
ordinary income to the extent of the portion of the market discount which
accrued during the period of time a Fund held the debt obligation. In addition,
if a Fund purchases a debt obligation that was originally issued at a discount,
the Fund is generally required to include in gross income each year the portion
of the original issue discount which accrues during such year.
Limited Maturity may enter into notional principal contracts, including
interest rate swaps, caps, floors and collars. Under Treasury regulations, in
general, the net income or deduction from a notional principal contract for a
taxable year is included in or deducted from gross income for that taxable year.
The net income or deduction from a notional principal contract for a taxable
year equals the total of all of the periodic payments (generally, payments that
are payable or receivable at fixed periodic intervals of one year or less during
the entire term of the contract) that are recognized from that contract for the
taxable year and all of the non-periodic payments (including premiums for caps,
floors and collars), even if paid in periodic installments, that are recognized
from that contract for the taxable year. A periodic payment is recognized
ratably over the period to which it relates. In general, a non-periodic payment
must be recognized over the term of the notional principal contract in a manner
that reflects the economic substance of the contract. A non-periodic payment
that relates to an interest rate swap, cap, floor or collar shall be recognized
over the term of the contract by allocating it in accordance with the values of
a series of cash-settled forward or option contracts that reflect the specified
index and notional principal amount upon which the notional principal contract
is based (or, in the case of a swap or of a cap or floor that hedges a debt
instrument, under alternative methods contained in the regulations and, in the
case of other notional principal contracts, under alternative methods that the
IRS may provide in a revenue procedure).
Treasury regulations permit a regulated investment company, in
determining its investment company taxable income and net capital gain (i.e.,
the excess of net long-term capital gain over net short-term capital loss) for
any taxable year, to elect (unless it has made a taxable year election for
excise tax purposes as discussed below) to treat all or part of any net capital
loss, any net long-term capital loss or any net foreign currency loss incurred
after October 31 as if it had been incurred in the succeeding year.
In addition to satisfying the requirements described above, a Fund must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of a Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of the Fund's total assets in securities
of such issuer and as to which the Fund does not hold more than 10% of the
outstanding voting securities of such issuer), and no more than 25% of the value
of its total assets may be invested in the securities of any one issuer (other
than U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses.
29
<PAGE> 69
If for any taxable year a Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital gain)
will be subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable as
ordinary dividends to the extent of the Fund's current and accumulated earnings
and profits. Such distributions generally will be eligible for the dividends
received deduction in the case of corporate shareholders.
EXCISE TAX ON REGULATED INVESTMENT COMPANIES
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to distribute in each calendar year an amount equal to 98%
of ordinary taxable income for the calendar year and 98% of capital gain net
income for the one year period ended on October 31 of such calendar year (or, at
the election of a regulated investment company having a taxable year ending
November 30 or December 31, for its taxable year (a "taxable year election")).
The balance of such income must be distributed during the next calendar year.
For the foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall
(1) reduce its capital gain net income (but not below its net capital gain) by
the amount of any net ordinary loss for the calendar year and (2) exclude
Section 988 foreign currency gains and losses incurred after October 31 of any
year (or after the end of its taxable year if it has made a taxable year
election) in determining the amount of ordinary taxable income for the current
calendar year (and, instead, include such gains and losses in determining
ordinary taxable income for the succeeding calendar year).
Each Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income prior
to the end of each calendar year to avoid liability for the excise tax. However,
investors should note that a Fund may in certain circumstances be required to
liquidate portfolio investments to make sufficient distributions to avoid excise
tax liability.
FUND DISTRIBUTIONS
Each Fund anticipates distributing substantially all of its investment
company taxable income and short-term capital gains for each taxable year. Such
distributions will be taxable to shareholders as ordinary income and treated as
dividends for federal income tax purposes, but they are not expected to qualify
for the 70% dividends received deduction for corporations.
Each Fund may either retain or distribute to shareholders its net
long-term capital gain for each taxable year. Each Fund currently intends to
distribute any such amounts. If net capital gain is distributed and designated
as a capital gain dividend, it will be taxable to shareholders as long-term
capital gain (taxable at a maximum rate of 20% for non-corporate shareholders),
regardless of the length of time the shareholder has held his shares or whether
such gain was recognized by the Fund prior to the date on which the shareholder
acquired his shares. Conversely, if a Fund elects to retain its net capital
gain, the Fund will be taxed thereon (except to the extent of any available
capital loss carryovers) at the 35% corporate tax rate. If a Fund elects to
retain net capital gain, it is expected that the Fund also will elect to have
shareholders treated as if each received a distribution of its pro rata share of
such gain, with the result that each shareholder will be required to report its
pro rata share of such gain on its tax return as long-term capital gain, will
receive a refundable tax credit for its pro rata share of tax paid by the Fund
on the gain, and will increase the tax basis for its shares by an amount equal
to the deemed distribution less the tax credit.
Distributions by a Fund that do not constitute ordinary income
dividends or capital gain dividends will be treated as a return of capital to
the extent of (and in reduction of) the shareholder's tax basis in his shares;
any excess will be treated as gain from the sale of his shares, as discussed
below.
Distributions by a Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of a Fund (or any other fund in The AIM Family
30
<PAGE> 70
of Funds--Registered Trademark--). Shareholders receiving a distribution in the
form of additional shares will be treated as receiving a distribution in an
amount equal to the fair market value of the shares received, determined as of
the reinvestment date. In addition, if the net asset value at the time a
shareholder purchases shares of a Fund reflects undistributed net investment
income or recognized capital gain net income, or unrealized appreciation in the
value of the assets of the Fund, distributions of such amounts will be taxable
to the shareholder in the manner described above, although such distributions
economically constitute a return of capital to the shareholder.
Ordinarily, shareholders are required to take distributions by a Fund
into account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made in certain cases)
during the year in accordance with the guidance that has been provided by the
Internal Revenue Service.
Each Fund is required in certain cases to withhold and remit to the
U.S. Treasury 31% of ordinary income dividends and capital gain dividends, and
the proceeds of redemption of shares, paid to any shareholder (1) who has
provided either an incorrect tax identification number or no number at all, (2)
who is subject to backup withholding by the Internal Revenue Service for failure
to report the receipt of interest or dividend income properly, or (3) who has
failed to certify to the Fund that it is not subject to backup withholding or
that it is a corporation or other "exempt recipient."
SALE OR REDEMPTION OF FUND SHARES
A shareholder will recognize gain or loss on the sale or redemption of
shares of a Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
In general, any gain or loss arising from (or treated as arising from) the sale
or redemption of shares of a Fund will be considered capital gain or loss and
will be long-term capital gain or loss if the shares were held for longer than
one year. Except to the extent otherwise provided in future treasury
regulations, any long-term capital gain recognized by a noncorporate shareholder
will be subject to tax at a maximum rate of 20%. However, any capital loss
arising from the sale or redemption of shares held for six months or less will
be treated as a long-term capital loss to the extent of the amount of capital
gain dividends received on such shares. For this purpose, the special holding
period rules of Code Section 246(c)(3) and (4) generally will apply in
determining the holding period of shares. Long-term capital gains of
non-corporate taxpayers are currently taxed at a maximum rate that in some cases
may be 19.6% lower than the maximum rate applicable to ordinary income. Capital
losses in any year are deductible only to the extent of capital gains plus, in
the case of a noncorporate taxpayer, $3,000 of ordinary income.
If a shareholder (i) incurs a sales load in acquiring shares of a Fund,
(ii) disposes of such shares less than 91 days after they are acquired and (iii)
subsequently acquires shares of the same or another fund at a reduced sales load
pursuant to a right to reinvest at such reduced sales load acquired in
connection with the acquisition of the shares disposed of, then the sales load
on the shares disposed of (to the extent of the reduction in the sales load on
the shares subsequently acquired) shall not be taken into account in determining
gain or loss on the shares disposed of but shall be treated as incurred on the
acquisition of the shares subsequently acquired.
FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a
nonresident alien individual, foreign trust or estate, foreign corporation, or
foreign partnership ("foreign shareholder"), depends on whether the income from
the Fund is "effectively connected" with a U.S. trade or business carried on by
such shareholder.
31
<PAGE> 71
If the income from a Fund is not effectively connected with a U.S.
trade or business carried on by a foreign shareholder, ordinary income dividends
and return of capital distributions (other than capital gains dividends) will be
subject to U.S. withholding tax at the rate of 30% (or lower treaty rate) upon
the gross amount of the distribution. Such a foreign shareholder would generally
be exempt from U.S. federal income tax on gains realized on the sale or
redemption of shares of a Fund, capital gain dividends and amounts retained by
the Fund that are designated as undistributed net capital gains.
If the income from a Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends and any gains realized upon the sale or redemption of
shares of the Fund will be subject to U.S. federal income tax at the rates
applicable to U.S. citizens or domestic corporations.
In the case of foreign non-corporate shareholders, a Fund may be
required to withhold U.S. federal income tax at a rate of 31% on distributions
that are otherwise exempt from withholding tax (or taxable at a reduced treaty
rate) unless such shareholders furnish the Fund with proper notification of
their foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisors with
respect to the particular tax consequences to them of an investment in a Fund,
including the applicability of foreign taxes.
EFFECT OF FUTURE LEGISLATION; LOCAL TAX CONSIDERATIONS
The foregoing general discussion of U.S. federal income tax
consequences is based on the Code and regulations issued thereunder as in effect
on the date of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.
Rules of state and local taxation of ordinary income dividends and
capital gain dividends from regulated investment companies often differ from the
rules for U.S. federal income taxation described above. The tax treatment of
foreign investors may also differ from the treatment for U.S. investors
described above. Shareholders are urged to consult their tax advisors as to the
consequences of these and other state and local tax rules affecting investments
in a Fund.
DESCRIPTION OF FUND SHARES
Each share of a Fund is entitled to one vote, to participate equally in
dividends and distributions declared with respect to shares of that Fund and,
upon liquidation of the Fund, to participate in its proportionate share of the
net assets remaining after satisfaction of outstanding liabilities. Shares of
the Funds are fully paid, non-assessable and fully transferable when issued and
have no preemptive, conversion or exchange rights. Fractional shares have
proportionately the same rights, including voting rights, as are provided for a
full share.
MISCELLANEOUS INFORMATION
AUDIT REPORTS
The Board of Trustees will issue to the shareholders at least
semi-annually financial statements for each Fund. Financial statements, audited
by independent auditors, will be issued annually. The firm of KPMG Peat Marwick
LLP, 700 Louisiana, Houston, Texas 77002, currently serves as the auditors of
the Funds.
32
<PAGE> 72
LEGAL MATTERS
Legal matters for the Trust are passed upon by Ballard Spahr Andrews &
Ingersoll, LLP, 1735 Market Street, Philadelphia, Pennsylvania.
CUSTODIAN AND TRANSFER AGENT
The Bank of New York, 90 Washington Street, 11th Floor, New York, New
York 10286, is custodian of all securities and cash of Limited Maturity. State
Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110,
is custodian of all securities and cash of High Yield. The custodians attend to
the collection of principal and income, pay and collect all monies for
securities bought and sold by the respective Funds, and perform certain other
ministerial duties. A I M Fund Services, Inc. (the "Transfer Agent"), P.O. Box
4739, Houston, Texas 77210-4739, is transfer and dividend disbursing agent for
the Funds' shares. These services do not include any supervisory function over
management or provide any protection against any possible depreciation of
assets. The Funds pay the Custodians and the Transfer Agent such compensation as
may be agreed upon from time to time.
Chase Bank of Texas, N.A., 712 Main, Houston, Texas 77002, serves as
Sub-Custodian for retail purchases of the AIM Funds.
PRINCIPAL HOLDERS OF SECURITIES
As of October 26, 1998, the trustees and officers of the Trust as a
group owned less than 1% of the outstanding shares of any class of the Trust.
CLASS A SHARES:
To the best of the Trust's knowledge, the names and addresses of the
holders of 5% or more of the outstanding Class A shares of Limited Maturity, as
of October 26, 1998 and the percent of outstanding shares owned by such
shareholders are as follows:
<TABLE>
<CAPTION>
Percent
Name and Address Owned of
of Record Owner Record*
--------------- -------
<S> <C>
Merrill Lynch Pierce Fenner & Smith 16.60%
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246
</TABLE>
INSTITUTIONAL CLASS:
To the best of the Trust's knowledge, the names and addresses of the
holders of 5% or more of the outstanding shares of the Institutional Class of
Limited Maturity, as of October 26, 1998 and the percent of outstanding shares
owned by such shareholders are as follows:
- --------
* The Trust has no knowledge as to whether all or any portion
of the shares owned of record are also owned beneficially.
33
<PAGE> 73
<TABLE>
<CAPTION>
Percent
Name and Address Owned of
of Record Owner Record*
--------------- -------
<S> <C>
Frost National Bank 87.58%**
Muir & Co.
c/o Frost
P. O. Box 2479
San Antonio, TX 78298-2479
Esor & Co. 6.03%
Attn: Trust Operations
P. O. Box 19006
Green Bay, WI 54307-9006
</TABLE>
CLASS A SHARES:
To the best of the Trust's knowledge, the names and addresses of the
holders of 5% or more of the outstanding Class A shares of AIM High Yield Fund
II, as of October 26, 1998 and the percent of outstanding shares owned by such
shareholders are as follows:
<TABLE>
<CAPTION>
Percent
Name and Address Owned of
of Record Owner Record*
--------------- -------
<S> <C>
Jonathan C. Schoolar 35.69%**
3722 Tartan Lane
Houston, TX 77025
Gary T. Crum 35.69%**
11 Greenway Plaza
Suite 100
Houston, TX 77046
AIM Advisors, Inc. 20.97%**
Attn: David Hessel
11 Greenway Plaza
Suite 100
Houston, TX 77046
</TABLE>
Since Class A and Class C shares of High Yield are not yet available for
sale to the public, AIM, which provided the initial capitalization of High
Yield, currently owns all of the Class B and Class C shares of the Fund. High
Yield expects that the sale of Class B and Class C shares to the public will
promptly reduce the percentage of such classes owned by AIM. However, at this
time, AIM owns more than 25% of the Fund's outstanding shares, and therefore may
be presumed to be in "control" of the Fund, as defined in the 1940 Act.
- --------
* The Trust has no knowledge as to whether all or any portion of
the shares owned of record are also owned beneficially.
** A shareholder who holds more than 25% of the outstanding
shares of a class may be presumed to be in "control" of such
class of shares, as defined in the 1940 Act.
34
<PAGE> 74
FINANCIAL STATEMENTS
FS
<PAGE> 75
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders of
AIM Investment Securities Funds:
We have audited the accompanying statement of assets and liabilities of the AIM
Limited Maturity Treasury Fund (a series of AIM Investment Securities Funds)
including the schedule of investments, as of July 31, 1998, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the years in the two-year period then ended, and the
financial highlights for each of the years in the four-year period then ended,
the eleven months ended July 31, 1994 and the year ended August 31, 1993. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
July 31, 1998, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
AIM Limited Maturity Treasury Fund as of July 31, 1998, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended, and the financial highlights for
each of the years in the four-year period then ended, the eleven months ended
July 31, 1994 and the year ended August 31, 1993, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
September 4, 1998
Houston, Texas
FS-1
<PAGE> 76
SCHEDULE OF INVESTMENTS
JULY 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MARKET
MATURITY (000S) VALUE
<S> <C> <C> <C>
U.S. TREASURY SECURITIES
U.S. TREASURY NOTES-99.00%
5.875% 08/31/99 $32,250 $ 32,384,160
- -------------------------------------------------------------------------------------------------------------
5.75% 09/30/99 32,045 32,143,378
- -------------------------------------------------------------------------------------------------------------
5.625% 10/31/99 32,275 32,324,058
- -------------------------------------------------------------------------------------------------------------
5.625% 11/30/99 33,400 33,456,446
- -------------------------------------------------------------------------------------------------------------
5.625% 12/31/99 33,000 33,059,400
- -------------------------------------------------------------------------------------------------------------
5.375% 01/31/00 33,075 33,022,742
- -------------------------------------------------------------------------------------------------------------
5.50% 02/29/00 33,000 33,006,930
- -------------------------------------------------------------------------------------------------------------
5.50% 03/31/00 32,000 32,008,320
- -------------------------------------------------------------------------------------------------------------
5.625% 04/30/00 32,300 32,367,184
- -------------------------------------------------------------------------------------------------------------
5.50% 05/31/00 32,500 32,501,300
- -------------------------------------------------------------------------------------------------------------
5.375% 06/30/00 32,840 32,783,515
- -------------------------------------------------------------------------------------------------------------
5.375% 07/31/00 33,000 32,936,930
- -------------------------------------------------------------------------------------------------------------
Total U.S. Treasury Securities (Cost $391,293,845) 391,994,363
- -------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS-99.00% 391,994,363
- -------------------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-1.00% 3,970,184
- -------------------------------------------------------------------------------------------------------------
NET ASSETS-100.00% $395,964,547
- -------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
FS-2
<PAGE> 77
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$391,293,845) $ 391,994,363
- --------------------------------------------------------
Cash 58,653
- --------------------------------------------------------
Receivables for:
Fund shares sold 1,240,495
- --------------------------------------------------------
Interest 4,627,571
- --------------------------------------------------------
Investment in deferred compensation plan 24,994
- --------------------------------------------------------
Other assets 73,132
- --------------------------------------------------------
Total assets 398,019,208
- --------------------------------------------------------
LIABILITIES:
Payables for:
Fund shares reacquired 1,023,583
- --------------------------------------------------------
Dividends 599,786
- --------------------------------------------------------
Deferred compensation 24,994
- --------------------------------------------------------
Accrued administrative services fees 5,227
- --------------------------------------------------------
Accrued advisory fees 67,422
- --------------------------------------------------------
Accrued distribution fees 62,503
- --------------------------------------------------------
Accrued transfer agent fees 33,450
- --------------------------------------------------------
Accrued operating expenses 237,696
- --------------------------------------------------------
Total liabilities 2,054,661
- --------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES
OUTSTANDING $ 395,964,547
========================================================
</TABLE>
<TABLE>
<S> <C>
NET ASSETS:
Class A $ 345,355,189
========================================================
Institutional Class $ 50,609,358
========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 34,300,002
========================================================
Institutional Class 5,026,426
========================================================
Class A:
Net asset value and redemption price
per share $ 10.07
- --------------------------------------------------------
Offering price per share:
(Net asset value of $10.07
divided by 99.00%) $ 10.17
========================================================
Institutional Class:
Net asset value and offering price per
share $ 10.07
- --------------------------------------------------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $24,949,619
- -------------------------------------------------------
EXPENSES:
Advisory fees 855,900
- -------------------------------------------------------
Administrative services fees 59,396
- -------------------------------------------------------
Custodian fees 36,726
- -------------------------------------------------------
Transfer agent fees-Class A 307,594
- -------------------------------------------------------
Transfer agent fees-Institutional Class 45,118
- -------------------------------------------------------
Trustees' fees and expenses 24,508
- -------------------------------------------------------
Distribution fees-Class A (See Note 2) 567,049
- -------------------------------------------------------
Other 298,763
- -------------------------------------------------------
Total expenses 2,195,054
- -------------------------------------------------------
Less: Expenses paid indirectly (4,054)
- -------------------------------------------------------
Net expenses 2,191,000
- -------------------------------------------------------
Net investment income 22,758,619
- -------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES:
Net realized gain from investment
securities 1,855,056
- -------------------------------------------------------
Net unrealized appreciation (depreciation)
of investment securities (1,793,413)
- -------------------------------------------------------
Net gain from investment securities 61,643
- -------------------------------------------------------
Net increase in net assets resulting from
operations $22,820,262
=======================================================
</TABLE>
See Notes to Financial Statements.
FS-3
<PAGE> 78
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED JULY 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ --------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 22,758,619 $ 22,525,910
- --------------------------------------------------------------------------------------------
Net realized gain (loss) on sales of investment securities 1,855,056 (328,964)
- --------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities (1,793,413) 4,775,213
- --------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 22,820,262 26,972,159
- --------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A (20,003,878) (19,613,259)
- --------------------------------------------------------------------------------------------
Institutional Class (2,754,741) (2,912,651)
- --------------------------------------------------------------------------------------------
SHARE TRANSACTIONS-NET:
Class A (44,498,315) 27,226,897
- --------------------------------------------------------------------------------------------
Institutional Class 1,723,996 (95,511,728)
- --------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (42,712,676) (63,838,582)
- --------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 438,677,223 502,515,805
- --------------------------------------------------------------------------------------------
End of period $395,964,547 $ 438,677,223
============================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $400,652,004 $ 443,515,589
- --------------------------------------------------------------------------------------------
Undistributed net investment income 88,842 --
- --------------------------------------------------------------------------------------------
Undistributed realized gain (loss) on sales of investment
securities (5,476,817) (7,332,297)
- --------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 700,518 2,493,931
- --------------------------------------------------------------------------------------------
$395,964,547 $ 438,677,223
============================================================================================
</TABLE>
See Notes to Financial Statements.
FS-4
<PAGE> 79
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1998
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Investment Securities Funds (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end series
management investment company. The Trust is organized as a Delaware business
trust consisting of one portfolio, the AIM Limited Maturity Treasury Fund (the
"Fund"). The investment objective of the Fund is to seek liquidity with minimum
fluctuation in principal value and, consistent with this investment objective,
the highest total return achievable. The Fund currently offers two different
classes of shares: the Class A shares and the Institutional Class. Matters
affecting each portfolio or class are voted on exclusively by the shareholders
of such portfolio or class. The assets, liabilities and operations of each
portfolio are accounted for separately. Information presented in these financial
statements pertains only to the Fund.
The 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 at the date of these
financial statements and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the preparation of its financial statements.
A. Security Valuations--Debt obligations that are issued or guaranteed by the
U.S. Treasury are valued on the basis of prices provided by an independent
pricing service. Prices provided by the pricing service may be determined
without exclusive reliance on quoted prices, and may reflect appropriate
factors such as yield, type of issue, coupon rate and maturity date.
Securities for which market prices are not provided by the pricing service
are valued at the mean between last bid and asked prices based upon quotes
furnished by independent sources. Securities for which market quotations are
not readily available or are questionable are valued at fair value as
determined in good faith by or under the supervision of the Trust's officers
in a manner specifically authorized by the Board of Trustees. Securities
with a remaining maturity of 60 days or less are valued at amortized cost
which approximates market value.
B. Securities Transactions and Investment Income--Securities transactions are
accounted for on a trade date basis. Interest income, adjusted for
amortization of discounts on investments, is earned from settlement date and
is recorded on the accrual basis. It is the policy of the Fund not to
amortize bond premiums for financial reporting purposes. Interest income is
allocated to each class daily, based upon each class' pro-rata share of the
total shares of the Fund outstanding. Realized gains and losses from
securities transactions are recorded on the identified cost basis. On
July 31, 1998, undistributed net investment income was increased by $88,842,
undistributed net realized gain (loss) decreased by $424 and paid-in-capital
decreased by $89,266 in order to comply with the requirements of the
American Institute of Certified Public Accountants Statement of Position
93-2. Net assets of the Fund were unaffected by the reclassifications
discussed above.
C. Dividends and Distributions to Shareholders--It is the policy of the Fund to
declare daily dividends from net investment income. Such dividends are paid
monthly. Distributions from net realized capital gains, if any, are recorded
on ex-dividend date and are paid annually.
D. Federal Income Taxes--The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements. The Fund has a capital loss
carryforward (which may be carried forward to offset future taxable capital
gains, if any) of $5,440,638, which expires, if not previously utilized,
through the year 2005.
E. Expenses -- Distribution and transfer agency expenses directly attributable
to a class of shares are charged to that class' operations. All other
expenses which are attributable to more than one class are allocated between
the classes.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM") with respect to the Fund. Under the terms of the master
investment advisory agreement, the Fund pays AIM an advisory fee at the annual
rate of 0.20% of the first $500 million of the Fund's average daily net assets
plus 0.175% of the Fund's average daily net assets in excess of $500 million.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to reimburse AIM for certain administrative costs incurred in providing
accounting services to the Fund. During the year ended July 31, 1998, the Fund
reimbursed AIM $59,396 for such services.
The Fund, pursuant to a transfer agent and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. On September 20, 1997, the Board of Trustees
of the Fund approved the appointment of AFS as transfer agent of the
Institutional Class effective December 29, 1997. During the year ended July 31,
1998, AFS was paid $136,066 with respect to Class A shares, and for the period
December 29, 1997 through July 31, 1998, AFS was paid $26,979 with respect to
the Institutional Class. Prior to the effective date of the agreement with AFS,
the Fund paid A I M Institutional Fund Services, Inc. $18,419 pursuant to a
transfer agency and shareholder services agreement with respect to the
Institutional Class for the period August 1, 1997 through December 28, 1997.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A shares and a master distribution agreement with Fund Management Company
("FMC") to serve as
FS-5
<PAGE> 80
the distributor for the Institutional Class. The Trust has adopted a Plan
pursuant to Rule 12b-1 under the 1940 Act (the "Plan") with respect to the Class
A shares. The Fund pays AIM Distributors compensation at an annual rate of 0.15%
of the average daily net assets attributable to the Class A shares. The Plan is
designed to compensate AIM Distributors for certain promotional and other sales
related costs and provides periodic payments to selected dealers and financial
institutions who furnish continuing personal shareholder services to their
customers who purchase and own Class A shares of the Fund. Any amounts not paid
as a service fee under the Plan would constitute an asset-based sales charge.
The Plan also imposes a cap on the total amount of sales charges, including
asset-based sales charges, that may be paid by the Fund. During the year ended
July 31, 1998, the Fund paid AIM Distributors $567,049 as compensation under the
Plan.
AIM Distributors received commissions of $56,989 during the year ended
July 31, 1998 from sales of Class A shares. Such commissions are not an expense
of the Fund. They are deducted from, and are not included in, proceeds from
sales of Class A shares. Certain officers and trustees of the Trust are officers
and directors of AIM, AIM Distributors, FMC and AFS.
During the year ended July 31, 1998, the Fund paid legal fees of $4,177 for
services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the Board
of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3-INDIRECT EXPENSES
The Fund received reductions in transfer agency fees from AFS (an affiliate of
AIM) of $4,054 under an expense offset arrangement which resulted in a reduction
of the Fund's total expenses of $4,054 during the year ended July 31, 1998.
NOTE 4-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $1,000,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. Interest on
borrowings under the line of credit is payable on maturity or prepayment date.
Prior to an amendment of the line of credit on May 1, 1998, the Fund was limited
to borrowing up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. During the year ended July 31, 1998, the Fund did not
borrow under the line of credit agreement. The funds which are parties to the
line of credit are charged a commitment fee of 0.05% on the unused balance of
the committed line. The commitment fee is allocated among such funds based on
their respective average net assets for the period.
NOTE 5-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended July 31, 1998 was
$569,622,549 and $612,378,696, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of July 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $ 692,739
- ---------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (17,945)
- ---------------------------------------------------------
Net unrealized appreciation of investment
securities $ 674,794
=========================================================
Cost of investments for tax purposes is $391,319,569.
</TABLE>
NOTE 6-TRUSTEES' FEES
Trustees' fees represent remuneration paid or accrued to each trustee who is not
an "interested person" of AIM. The Trust may invest trustees' fees, if so
elected by a trustee, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 7-SHARE INFORMATION
Changes in shares outstanding during the years ended July 31, 1998 and 1997 were
as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Sold:
Class A 22,832,451 $ 229,871,705 22,795,689 $ 228,371,816
- --------------------------------------------------------------------------------
Institutional Class 1,450,340 14,604,304 2,663,678 26,662,958
- --------------------------------------------------------------------------------
Issued as a
reinvestment of
dividends:
Class A 1,671,295 16,825,885 1,600,608 16,029,270
- --------------------------------------------------------------------------------
Institutional Class 4,391 44,205 16,172 161,587
- --------------------------------------------------------------------------------
Reacquired:
Class A (28,922,414) (291,195,905) (21,687,977) (217,174,189)
- --------------------------------------------------------------------------------
Institutional Class (1,281,958) (12,924,513) (12,215,116) (122,336,273)
- --------------------------------------------------------------------------------
(4,245,895) $ (42,774,319) (6,826,946) $ (68,284,831)
================================================================================
</TABLE>
FS-6
<PAGE> 81
NOTE 8-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A shares
outstanding during each of the years in the four-year period ended July 31,
1998, the eleven months ended July 31, 1994 and the year ended August 31, 1993.
<TABLE>
<CAPTION>
JULY 31,
----------------------------------------------------- AUGUST 31,
1998 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.07 $ 9.97 $ 10.03 $ 9.96 $ 10.24 $ 10.21
- ------------------------------------------------------------ -------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.53 0.54 0.55 0.54 0.35 0.42
- ------------------------------------------------------------ -------- -------- -------- -------- -------- --------
Net gains (losses) on securities (both realized and
unrealized) -- 0.10 (0.06) 0.07 (0.20) 0.05
- ------------------------------------------------------------ -------- -------- -------- -------- -------- --------
Total from investment operations 0.53 0.64 0.49 0.61 0.15 0.47
- ------------------------------------------------------------ -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.53) (0.54) (0.55) (0.54) (0.35) (0.42)
- ------------------------------------------------------------ -------- -------- -------- -------- -------- --------
Distributions from net realized gains -- -- -- -- (0.08) (0.02)
- ------------------------------------------------------------ -------- -------- -------- -------- -------- --------
Total distributions (0.53) (0.54) (0.55) (0.54) (0.43) (0.44)
- ------------------------------------------------------------ -------- -------- -------- -------- -------- --------
Net asset value, end of period $ 10.07 $ 10.07 $ 9.97 $ 10.03 $ 9.96 $ 10.24
============================================================ ======== ======== ======== ======== ======== ========
Total return(a) 5.42% 6.55% 4.98% 6.36% 1.52% 4.65%
============================================================ ======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $345,355 $389,812 $359,048 $274,480 $329,942 $348,937
============================================================ ======== ======== ======== ======== ======== ========
Ratio of expenses to average net assets 0.54%(b) 0.54% 0.54% 0.51% 0.47%(c) 0.46%
============================================================ ======== ======== ======== ======== ======== ========
Ratio of net investment income to average net assets 5.29%(b) 5.35% 5.45% 5.44% 3.75%(c) 4.07%
============================================================ ======== ======== ======== ======== ======== ========
Portfolio turnover rate 133% 130% 117% 120% 120% 123%
============================================================ ======== ======== ======== ======== ======== ========
</TABLE>
(a) Does not deduct sales charges and is not annualized for periods less than
one year.
(b) Ratios are based on average net assets of $378,032,807.
(c) Annualized.
FS-7
<PAGE> 82
Prospectus
- --------------------------------------------------------------------------------
The AIM Limited Maturity Treasury Fund (the
"Fund"), a portfolio of AIM Investment Securities Funds
(the "Trust"), is an open-end, series, management
investment company designed for institutions seeking
liquidity with minimum fluctuation in principal value,
and, consistent with this investment objective, the
highest total return achievable. To achieve its
objective, the Fund will invest in an actively managed
portfolio of U.S. Treasury notes and other direct
obligations of the U.S. Treasury.
THERE CAN BE NO ASSURANCE THAT THE FUND WILL
ACHIEVE ITS OBJECTIVE. THE NET ASSET VALUE OF THE FUND
VARIES DEPENDING ON THE MARKET VALUE OF ITS ASSETS. THE
FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK, AND THE FUND'S
SHARES ARE NOT FEDERALLY INSURED OR GUARANTEED BY THE
U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
AGENCY. SHARES OF THE FUND INVOLVE INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This Prospectus sets forth basic information that
investors should know about the Fund prior to investing
and should be read and retained for future reference. A
Statement of Additional Information, dated November 18,
1998, has been filed with the United States Securities
and Exchange Commission (the "SEC") and is hereby
incorporated by reference. For a copy of the Statement
of Additional Information, write to the address below
or call (800) 659-1005. The SEC maintains a web site at
http://www.sec.gov that contains the Statement of
Additional Information, material incorporated by
reference, and other information regarding the Fund.
This Prospectus relates solely to the
Institutional Class of the Fund. Shares of a retail
class of the Fund are offered pursuant to a separate
prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
AIM INVESTMENT
SECURITIES FUNDS
AIM
LIMITED
MATURITY
TREASURY
FUND
INSTITUTIONAL
CLASS
NOVEMBER 18, 1998
[LOGO APPEARS HERE]
Fund Management Company
11 Greenway Plaza
Suite 100
Houston, Texas 77046-1173
(800) 659-1005
<PAGE> 83
SUMMARY
THE FUND AND ITS INVESTMENT OBJECTIVE
AIM Investment Securities Funds (the "Trust") is a Delaware business trust
organized as an open-end, series, management investment company and currently
has two investment portfolios: the AIM Limited Maturity Treasury Fund (the
"Fund") and AIM High Yield Fund II. The Fund consists of two classes: a retail
class (the Class A shares) and the Institutional Class. This Prospectus relates
solely to the Institutional Class.
Class A shares are offered to investors pursuant to a separate prospectus. To
obtain information about the Class A shares, please call (800) 347-4246.
Because the Trust declares dividends for each class of the Fund on a daily
basis, each class of the Fund is expected to have the same net asset value
(proportionate interest in the net assets of the Fund). Moreover, each class
bears equally those expenses, such as the advisory fee, that are allocated to
the Fund as a whole. Both classes of shares of the Fund share a common
investment objective and portfolio of investments. However, each of the classes
of the Fund have different shareholders and are separately allocated certain
class expenses, such as distribution and/or service fees related to their
respective shares. For example, a shareholder servicing fee of up to 0.15% of
the average daily net assets of the Fund attributable to the Class A shares will
be allocated to such class; such fee, however, will not be allocated to the
Institutional Class. Therefore, assuming that the allocations of other
class-related expenses to the Institutional Class and the Class A shares are the
same, the yield of the Institutional Class will be higher than the yield of the
Class A shares in an amount which reflects such shareholder servicing fee.
The investment objective of the Fund is to seek liquidity with minimum
fluctuation in principal value and, consistent with this investment objective,
the highest total return achievable. To achieve its objective, the Fund will
invest in U.S. Treasury notes and other direct obligations of the U.S. Treasury,
and may (but does not currently intend to) engage in repurchase agreement
transactions with respect to such obligations. The Fund will attempt to enhance
its total return through capital appreciation when market factors, such as
economic and market conditions and the prospects for interest rate changes,
indicate that capital appreciation may be available without significant risk to
principal. The Fund will only purchase securities whose remaining maturities,
measured from the date of settlement, do not exceed three (3) years. Under
normal circumstances, the average portfolio maturity of the U.S. Treasury notes
and other direct obligations of the U.S. Treasury owned by the Fund will range
between one-and-one-half (1 1/2) and two (2) years.
INVESTORS IN THE INSTITUTIONAL CLASS
The Institutional Class is designed to be a convenient and economical vehicle
through which institutions ("Institutions"), acting for themselves or on behalf
of clients for whom they exercise investment discretion, can invest in a
portfolio consisting of U.S. Treasury notes and other U.S. Treasury obligations
with remaining maturities of three (3) years or less. Although Shares of the
Institutional Class may not be purchased by individuals directly, Institutions
may purchase such shares for themselves or on a discretionary basis for accounts
they maintain on behalf of their customers. The Institutional Class may be
particularly appropriate for Institutions investing short-term cash reserves for
the benefit of customer accounts with respect to which Institutions exercise
substantial investment discretion. Institutions may charge their customers a
recordkeeping, account maintenance or other fee in connection with their
accounts, and such customers should consult with their Institutions to obtain a
schedule of applicable fees. See "Suitability For Investors."
PURCHASE OF SHARES
Shares of the Institutional Class are sold at net asset value. No purchase or
redemption charges are imposed by the Fund. Institutions may charge fees to
their customers for services provided in connection with the maintenance of
customer accounts with the Institutions, and customers should consult with their
Institutions to obtain a schedule of any applicable fees. The minimum initial
investment in the Institutional Class is $1,000,000. There is no minimum amount
for subsequent investments. Payment for shares purchased must be in federal
funds or other funds immediately available to the Fund. See "Purchase of
Shares."
REDEMPTION OF SHARES
Redemption of shares of the Institutional Class may be made without charge at
net asset value. Payment for redeemed shares for which redemption orders are
received prior to 4:00 p.m. Eastern Time will normally be made in federal funds
on the next business day. See "Redemption of Shares."
2
<PAGE> 84
DIVIDENDS AND DISTRIBUTIONS
The net investment income of the Fund is declared as a dividend daily to
shareholders of record immediately prior to 4:00 p.m. Eastern Time. Dividends
are paid monthly by check or wire transfer unless the shareholder has previously
elected to have such dividends automatically reinvested in additional shares of
the Institutional Class. Distributions of short-term capital gains and long-term
capital gains, if any, generally are made annually. See "Dividends and
Distributions."
INVESTMENT ADVISOR
A I M Advisors, Inc. ("AIM") serves as the Fund's investment advisor pursuant
to a Master Investment Advisory Agreement with the Trust (the "Advisory
Agreement"). AIM, together with its subsidiaries, manages or advises
approximately 90 investment company portfolios encompassing a broad range of
investment objectives. Under the Advisory Agreement, AIM receives a fee for its
services based on the Fund's average daily net assets. Under a separate
administrative services agreement, AIM is permitted to receive reimbursement of
its costs in performing certain accounting and other administrative services for
the Fund. Under a Transfer Agency and Service Agreement, A I M Fund Services,
Inc. ("Transfer Agent" or "AFS"), AIM's wholly owned subsidiary and a registered
transfer agent, receives a fee for its provision of transfer agency, dividend
distribution and disbursement, and shareholder services to the Fund.
DISTRIBUTOR
Fund Management Company ("FMC") acts as the exclusive distributor of the
Institutional Class. FMC does not receive any fee from the Fund. See "Purchase
of Shares" and "Management of the Trust -- Distribution of Shares."
SPECIAL CONSIDERATIONS
The Fund's price per share will fluctuate inversely with changes in interest
rates. However, the price changes in the Fund's shares due to changes in
interest rates should be more moderate than the per share fluctuations of a fund
which invests in longer-term bonds. This is because debt securities with longer
maturities generally tend to produce higher yields but are subject to greater
market fluctuation as a result of changes in interest rates than debt securities
with shorter maturities. The Fund is designed for the investor who seeks a
higher yield and greater stability of income than a money market fund offers,
and less capital fluctuation than a long-term bond fund might provide.
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,
Invest With Discipline, La Familia AIM de Fondos and La Familia AIM de Fondos
and Design are registered service marks and AIM Bank Connection is a service
mark of A I M Management Group Inc.
3
<PAGE> 85
TABLE OF FEES AND EXPENSES
The following table is designed to help an investor understand the various
costs and expenses that an investor in the Institutional Class will bear
directly or indirectly. The fees and expenses set forth in this table are based
on the average net assets of the Institutional Class of the Fund for the fiscal
year ended July 31, 1998.
<TABLE>
<S> <C>
Shareholder Transaction Expenses
Maximum sales load imposed on purchase of shares (as a %
of offering price)..................................... None
Maximum sales load on reinvested dividends (as a % of
offering price)........................................ None
Deferred sales load (as a % of original purchase price or
redemption proceeds,
as applicable)......................................... None
Redemption fees (as a % of amount redeemed, if
applicable)............................................ None
Exchange fee.............................................. None
Annual Fund Operating Expenses
(as a % of average net assets)
Management fees........................................... 0.20%
12b-1 fees................................................ None
Other expenses............................................ 0.12%
----
Total fund operating expenses............................. 0.32%
====
</TABLE>
EXAMPLE
An investor would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return and (2) redemption at the end of each time period.
<TABLE>
<CAPTION>
INSTITUTIONAL
CLASS
-------------
<S> <C>
1 year..................................................... $ 3
3 years.................................................... $10
5 years.................................................... $18
10 years.................................................... $41
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED TO BE REPRESENTATIVE OF THE SHARES
OF THE INSTITUTIONAL CLASS OF THE FUND'S ACTUAL OR FUTURE EXPENSES, WHICH MAY BE
GREATER OR LESS THAN THOSE SHOWN. IN ADDITION, WHILE THE EXAMPLES ASSUME A 5%
ANNUAL RETURN, THE ACTUAL PERFORMANCE OF THE INSTITUTIONAL CLASS WILL VARY AND
MAY RESULT IN AN ACTUAL RETURN THAT IS GREATER OR LESS THAN 5%. THE EXAMPLES
ASSUME REINVESTMENT OF ALL DIVIDENDS AND DISTRIBUTIONS AND THAT THE PERCENTAGE
AMOUNT FOR TOTAL FUND OPERATING EXPENSES REMAINS THE SAME FOR EACH YEAR.
4
<PAGE> 86
FINANCIAL HIGHLIGHTS
Shown below are the financial highlights during each of the fiscal years ended
July 31, 1998, 1997, 1996 and 1995, the eleven months ended July 31, 1994 and
each of the years in the five-year period ended August 31, 1993. All data have
been audited by KPMG Peat Marwick LLP, independent auditors, whose reports on
the financial statements and the related notes appear in the Statement of
Additional Information.
<TABLE>
<CAPTION>
JULY 31, AUGUST 31,
--------------------------------------------------------- --------------------------------
1998 1997 1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period.................. $ 10.07 $ 9.97 $ 10.03 $ 9.96 $ 10.24 $ 10.21 $ 10.01 $ 9.79
Income from investment
operations:
Net investment income...... 0.56 0.56 0.58 0.57 0.37 0.44 0.60 0.73
Net gains (losses) on
securities (both realized
and unrealized).......... -- 0.10 (0.06) 0.07 (0.20) 0.05 0.29 0.22
-------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations............. 0.56 0.66 0.52 0.64 0.17 0.49 0.89 0.95
-------- -------- -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net
investment income........ (0.56) (0.56) (0.58) (0.57) (0.37) (0.44) (0.60) (0.73)
Distributions from net
realized capital gains... -- -- -- -- (0.08) (0.02) (0.09) --
-------- -------- -------- -------- -------- -------- -------- --------
Total distributions...... (0.56) (0.56) (0.58) (0.57) (0.45) (0.46) (0.69) (0.73)
-------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of
period..................... $ 10.07 $ 10.07 $ 9.97 $ 10.03 $ 9.96 $ 10.24 $ 10.21 $ 10.01
======== ======== ======== ======== ======== ======== ======== ========
Total return (a)............ 5.66% 6.79% 5.27% 6.61% 1.72% 4.88% 9.14% 10.08%
======== ======== ======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period
(000s omitted)........... $ 50,609 $ 48,866 $143,468 $129,530 $134,971 $130,690 $ 89,352 $ 25,528
======== ======== ======== ======== ======== ======== ======== ========
Ratio of expenses to
average net assets....... 0.32%(b) 0.31% 0.27% 0.28% 0.25%(c) 0.24% 0.28% 0.41%(d)
======== ======== ======== ======== ======== ======== ======== ========
Ratio of net investment
income to average net
assets................... 5.51%(b) 5.56% 5.72% 5.70% 3.98%(c) 4.30% 5.76% 7.36%(d)
======== ======== ======== ======== ======== ======== ======== ========
Portfolio turnover rate.... 133% 130% 117% 120% 120% 123% 120% 215%
======== ======== ======== ======== ======== ======== ======== ========
Borrowings for the period:
Amount of debt outstanding
at end of period (000s
omitted)................. -- -- -- -- -- -- -- --
Average amount of debt
outstanding during the
period (000s omitted)
(g)...................... -- -- -- -- -- -- -- --
Average number of shares
outstanding during the
period (000s omitted)
(g)...................... 4,958 5,230 13,982 12,540 16,864 9,785 6,097 1,477
Average amount of debt per
share during the
period................... -- -- -- -- -- -- -- --
<CAPTION>
AUGUST 31,
---------------------
1990 1989
---- ----
<S> <C> <C>
Net asset value, beginning
of period.................. $ 9.78 $ 9.80
Income from investment
operations:
Net investment income...... 0.79 0.85
Net gains (losses) on
securities (both realized
and unrealized).......... 0.01 (0.02)
-------- --------
Total from investment
operations............. 0.80 0.83
-------- --------
Less distributions:
Dividends from net
investment income........ (0.79) (0.85)
Distributions from net
realized capital gains... -- --
-------- --------
Total distributions...... (0.79) (0.85)
-------- --------
Net asset value, end of
period..................... $ 9.79 $ 9.78
======== ========
Total return (a)............ 8.52% 8.87%
======== ========
Ratios/supplemental data:
Net assets, end of period
(000s omitted)........... $ 10,378 $ 16,065
======== ========
Ratio of expenses to
average net assets....... 0.31%(e) 0.31%(f)
======== ========
Ratio of net investment
income to average net
assets................... 8.12%(e) 8.69%(f)
======== ========
Portfolio turnover rate.... 192% 220%
======== ========
Borrowings for the period:
Amount of debt outstanding
at end of period (000s
omitted)................. -- $ 2,257
Average amount of debt
outstanding during the
period (000s omitted)
(g)...................... $ 834 3,562
Average number of shares
outstanding during the
period (000s omitted)
(g)...................... 1,208 1,817
Average amount of debt per
share during the
period................... $ 0.69 $ 1.96
</TABLE>
- ---------------
(a) For periods less than one year, total return is not annualized.
(b) Ratios are based on average net assets of $49,917,358.
(c) Annualized.
(d) After expense reimbursements.
(e) After waiver of advisory fees and expense reimbursements.
(f) After waiver of advisory fees.
(g) Averages computed on a daily basis.
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SUITABILITY FOR INVESTORS
The Institutional Class is designed to be a convenient and economical vehicle
through which Institutions can invest in a portfolio consisting of U.S. Treasury
notes and other direct obligations of the U.S. Treasury with remaining
maturities of three (3) years or less. Although shares of Institutional Shares
may not be purchased directly by individuals, Institutions may purchase such
shares for themselves or for accounts they maintain on behalf of their
customers. The Institutional Class may be particularly appropriate for
Institutions investing short-term cash reserves for the benefit of customer
accounts with respect to which Institutions exercise substantial investment
discretion. It is the responsibility of a prospective institutional investor to
determine if an investment in the Institutional Class is consistent with the
objectives of an account and with applicable state and federal laws and
regulations.
Each share of beneficial interest of the Fund, regardless of class, has the
same net asset value (proportionate interest in the net assets of the Fund) and
bears equally those expenses, such as the advisory fee, that are allocated to
the Fund as a whole. All classes of the Fund share a common investment objective
and portfolio of investments. However, each class of the Fund has different
shareholders and is separately allocated certain class expenses.
An investment in the Fund may relieve the Institution of many of the
investment and administrative burdens encountered when investing in a portfolio
of debt instruments directly. These functions include: selection of portfolio
investments; surveying the market for the best price at which to buy and sell;
valuation of portfolio securities; selection and scheduling of maturities;
receipt and delivery and safekeeping of securities; and portfolio recordkeeping.
It is anticipated that most Institutions will perform their own sub-accounting.
The price per share of the Fund's shares will fluctuate inversely with changes
in interest rates. However, the price changes in the Fund's shares due to
changes in interest rates should be more moderate than the per share
fluctuations of a fund which invests in longer-term obligations. The Fund is
designed for the investor who seeks a higher yield and greater stability of
income than a money market fund offers, and less capital fluctuation than a
long-term bond fund might provide.
INVESTMENT PROGRAM
INVESTMENT POLICIES
The investment objective of the Fund is to seek liquidity with minimum
fluctuation in principal value, and, consistent with this investment objective,
the highest total return achievable. There can be no assurance, however, that
the Fund will achieve its objective.
To achieve its objective, the Fund will invest in an actively managed
portfolio of U.S. Treasury notes and other direct obligations of the U.S.
Treasury. The Fund may invest in U.S. Treasury obligations, which are direct
obligations of the U.S. Treasury and which differ only in their interest rates,
maturities, and times of issuance, including U.S. Treasury bills, U.S. Treasury
notes and U.S. Treasury bonds. The Fund will attempt to enhance its total return
through capital appreciation when market factors, such as economic and market
conditions and the prospects for interest rate changes, indicate that capital
appreciation may be available without significant risk to principal. The Fund
will only purchase securities whose maturities do not exceed three (3) years.
Under normal circumstances, the average portfolio maturity of the Fund will
range between one-and-one-half (1 1/2) and two (2) years. Since brokerage
commissions are not normally paid on investments of the type made by the Fund,
the high turnover rate should not adversely affect the net income of the Fund.
Loans of Portfolio Securities. Subject to its investment restrictions (see
"Investment Restrictions") the Fund may from time to time loan securities from
its portfolio to brokers, dealers and financial institutions and receive
collateral in cash or U.S. Treasury obligations which will be maintained at all
times in an amount equal to at least 100% of the current market value of the
loaned securities; provided, however, that such loans are made according to the
guidelines of the SEC and the Trust's Board of Trustees. The Fund will be
entitled to the interest paid upon investment of the cash collateral in its
permitted investments, or to the payment of a premium or fee for the loan. The
Fund may at any time call such loans and obtain the securities loaned. However,
if the borrower of the securities should default on its obligation to return the
securities borrowed, the value of the collateral may be insufficient to permit
the Fund to reestablish its position by making a comparable investment due to
changes in market conditions. The Fund may pay reasonable fees to persons
unaffiliated with the Fund in connection with the arranging of such loans. The
Fund will only engage in securities lending transactions with broker-dealers
registered with the SEC, or with federally supervised banks or savings and loan
associations.
When-Issued or Delayed Delivery Trading. The Fund may purchase U.S. Treasury
obligations on a when-issued basis, and it may purchase or sell such securities
for delayed delivery. These transactions occur when securities are purchased or
sold by the Fund with payment and delivery to take place in the future in order
to secure what is considered an advantageous yield and price to the Fund at the
time of entering into the transaction. The value of the security on the delivery
date may be more or less than its purchase price. The Fund's custodian bank will
segregate cash or short-term U.S. Treasury obligations in an aggregate
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<PAGE> 88
amount equal to the amount of its commitments in connection with such delayed
delivery and when-issued purchase transactions. No delayed delivery or
when-issued commitments will be made if, as a result, more than 25% of the
Fund's net assets would be so committed.
Borrowing. Subject to its investment restrictions (see "Investment
Restrictions"), the Fund may borrow money from banks for temporary or emergency
purposes such as to meet redemption requests which might otherwise require the
untimely disposition of securities. The Fund may not borrow for the purpose of
increasing income. If there are unusually heavy redemptions because of changes
in interest rates or for any other reason, the Fund may have to sell a portion
of its investment portfolio at a time when it may be disadvantageous to do so.
Selling Fund securities under these circumstances may result in a lower net
asset value per share or decreased dividend income, or both. The Fund believes
that, in the event of abnormally heavy redemption requests, its borrowing
provisions would help to mitigate any such effects and could make the forced
sale of its portfolio securities less likely.
Reverse Repurchase Agreements. A reverse repurchase agreement involves the
sale of securities held by the Fund, with an agreement that the Fund will
repurchase such securities at an agreed-upon price, date and interest payment.
It is the current operating policy of the Fund to enter into reverse repurchase
agreements (which are considered to be borrowings under the Investment Company
Act of 1940 (the "1940 Act")) only for temporary or emergency purposes and not
as a means to increase income, even though the Fund's investment restrictions
permit the Fund to engage in reverse repurchase agreements for income
enhancement. The Fund will enter into a reverse repurchase agreement only when
the interest income to be earned from the investment of the proceeds of the
transaction is greater than the interest expense of the transaction. During the
time a reverse repurchase agreement is outstanding, the Fund will maintain a
segregated custodial account containing U.S. Treasury obligations having a value
equal to the repurchase price under such reverse repurchase agreement. Any
investment gains made by the Fund with monies borrowed through reverse
repurchase agreements will cause the net asset value of the Fund's shares to
rise faster than would be the case if the Fund had no such borrowings. On the
other hand, if the investment performance resulting from the investment of
borrowings obtained through reverse repurchase agreements fails to cover the
cost of such borrowings to the Fund, the net asset value of the Fund will
decrease faster than would otherwise be the case.
Illiquid Securities. The Fund will limit its investment in illiquid securities
to no more than 15% of its net assets, including repurchase agreements with
remaining maturities in excess of seven days.
Investment in Other Investment Companies. The Fund is permitted to invest in
other investment companies to the extent permitted by the 1940 Act, and rules
and regulations thereunder, and, if applicable, exemptive orders granted by the
SEC.
The investment policies described above may be changed by the Board of
Trustees without the affirmative vote of a majority of the outstanding shares of
beneficial interest of the Fund.
INVESTMENT RESTRICTIONS
The Fund's investment program is subject to a number of investment
restrictions which reflect self-imposed standards as well as federal regulatory
limitations. These restrictions are designed to minimize certain risks
associated with investing in certain types of securities or engaging in certain
transactions. The most significant of these restrictions provide that the Fund
will not:
(1) purchase any security unless the security is a direct obligation
of the U.S. Treasury or is a repurchase agreement with respect to a direct
obligation of the U.S. Treasury;
(2) issue senior securities in the form of indebtedness, borrow money,
except from banks for temporary or emergency purposes, such as to meet
redemption requests (not for the purpose of increasing income), or borrow
through reverse repurchase agreements (which may be entered into for the
purpose of increasing income) if, as a result of any such borrowings, the
amount borrowed would exceed 33 1/3% of the value of the Fund's assets
(including the proceeds of such senior securities issued or money borrowed)
less its liabilities (not including the liabilities incurred in connection
with such issuance or borrowing);
(3) make loans of money other than (a) through the purchase of debt
securities in accordance with the Fund's investment program, and (b) by
entering into repurchase agreements; or
(4) lend any portfolio securities if the value of the securities
loaned by it would exceed an amount equal to one-third of its total assets.
The foregoing investment restrictions (as well as certain others set forth in
the Statement of Additional Information) are matters of fundamental policy which
may not be changed without the affirmative vote of the holders of a majority of
the outstanding shares of beneficial interest of the Fund.
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<PAGE> 89
PURCHASE OF SHARES
Shares of the Institutional Class are sold to Institutions on a continuing
basis at the net asset value of such shares next determined after an order has
been accepted by the Fund. No purchase or redemption charges are imposed by the
Fund; however, Institutions may charge their customers a recordkeeping, account
maintenance or other fee in connection with their accounts, and such customers
should consult with their Institutions to obtain a schedule of applicable fees.
In order to maximize its income, the Fund attempts to remain as fully invested
as practicable. Accordingly, in order to be accepted for execution, purchase
orders must be submitted to and received by AFS prior to the determination of
net asset value (4:00 p.m. Eastern Time) on a business day of the Fund, which
means any day on which the New York Stock Exchange (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 observed holidays of New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Banks will be required to certify to the Trust that they comply with
applicable state laws regarding registration as broker-dealers, or that they are
exempt from such registration.
To facilitate the investment of the proceeds of purchase orders, the Fund
urges Institutions to place their orders as early in the day as possible.
Subject to the conditions stated above and the Fund's right to reject any
purchase order, purchase orders received by AFS prior to 4:00 p.m. Eastern Time
on any business day will be accepted on that day (a) when payment for the shares
of the class of the Fund purchased is received by The Bank of New York, the
Fund's custodian bank, in the form described below and notice of such order is
provided to AFS or (b) at the time the order is placed, if the Fund is assured
of payment, and will be priced at the net asset value determined as of 4:00 p.m.
Eastern Time on such day. Payment for such shares must be received by The Bank
of New York on the next business day of the Fund following the effective date of
purchase. Dividends begin accruing on the first business day of the Fund
following the day on which a purchase order for the Fund is effective. Purchase
orders received by the Fund after 4:00 p.m. Eastern Time on any business day
will be effective on the next business day of the Fund and will be priced at the
net asset value determined at the end of such day.
Payments for shares purchased must be in the form of federal funds or other
funds immediately available to the Fund. Federal Reserve wires should be sent as
early as possible in order to facilitate crediting to the shareholder's account.
Any funds received with respect to an order which is not accepted by the Fund
and any funds received for which an order has not been received will be returned
to the sending Institution. An order to purchase shares must specify which class
of shares of the Fund is being purchased; otherwise any funds received will be
returned to the sending Institution.
The minimum initial investment for the purchase of shares of the Institutional
Class is $1,000,000. No minimum amount is required for subsequent investments in
the Institutional Class nor are minimum balances required. Prior to the initial
purchase of shares, an Account Application must be completed and sent to AFS at
P.O. Box 4497, Houston, Texas 77210-4497. Account Applications may be obtained
from AFS. Any changes made to the information provided in the Account
Application must be made in writing or by completing a new form and providing it
to AFS. Following the initial purchase of shares, subsequent purchases of shares
of the Institutional Class may be made via AIM LINK--Registered Trademark--
Remote, a personal computer application software product.
In the interest of economy and convenience, certificates representing shares
of the Fund will not be issued except upon written request to the Fund.
Certificates (in full shares only) will be issued without charge and may be
redeposited at any time.
The Trust reserves the right in its sole discretion to withdraw all or any
part of the offering made by this Prospectus or to reject any purchase order.
REDEMPTION OF SHARES
A shareholder may redeem any or all of its shares at the net asset value next
determined after receipt of the redemption request in proper form by the Fund.
There is no charge for redemption. Since shares of the Fund are not maintained
at a constant net asset value, but fluctuate in value with changes in the market
value of securities held by the Fund, the value of the shares of the Fund on
redemption may be more or less than the shareholder's initial cost, depending
upon the value of the Fund's investments at the time of redemption. Redemption
requests with respect to the Institutional Class may also be made via AIM
LINK--Registered Trademark-- Remote. See "Net Asset Value." Redemption requests
with respect to shares for which certificates have not been issued are normally
made by calling AFS at (800) 659-1005.
Payment for redeemed shares is normally made by Federal Reserve wire to the
commercial bank account designated in the shareholder's Account Application. If
a redemption request is received by AFS prior to 4:00 p.m. Eastern Time on a
business day of the Fund, the redemption will be effected at the net asset value
determined as of 4:00 p.m. Eastern Time on such day and the shares to be
redeemed will receive the dividend declared on the day the request is received.
The proceeds of a redemption re-
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<PAGE> 90
quest effected prior to 4:00 p.m. Eastern Time will not be wired to the
redeeming shareholder until the next business day of the Fund. A redemption
request received by AFS after 4:00 p.m. Eastern Time or on other than a business
day of the Fund will be effected at the net asset value of the Fund determined
as of 4:00 p.m. Eastern Time on the next business day of the Fund, and the
proceeds of such redemption will normally be wired on the business day next
following such determination, or two (2) business days after the receipt of the
redemption request.
A shareholder may change the bank account designated to receive redemption
proceeds by written notice to the Fund. The authorized signature on such notice
must be signature guaranteed by a commercial bank or a trust company. Additional
documentation may be required when deemed appropriate by the Fund or AFS.
Shareholders may request a redemption by telephone. Neither the Transfer Agent
nor FMC will 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 account application 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 for
verification of telephone transactions may include recordings of telephone
transactions (maintained for six months), and mailings of confirmation promptly
after the transaction.
Payment for shares redeemed by mail and payment for telephone redemptions in
amounts of under $1,000 will be made by check mailed within seven (7) days after
receipt of the redemption request in proper form. The Fund may make payment for
telephone redemptions in excess of $1,000 by check when it is considered to be
in the Fund's best interest to do so.
The Fund's shares are not redeemable at the option of the Trust unless the
Board of Trustees determines in its sole discretion that failure to so redeem
may have materially adverse consequences to the shareholders of the Fund.
Notwithstanding the foregoing, the Fund is permitted to redeem shares in any
account with a net asset value less than $500.
DIVIDENDS AND DISTRIBUTIONS
Dividends from the net investment income (not including any net short-term
capital gains) earned by the Fund are declared daily and paid monthly.
Distributions from net realized short-term capital gains and long-term capital
gains, if any, generally are paid annually.
The dividends accrued and paid for each class of the Fund's shares will
consist of: (a) interest accrued and discounts earned (including both original
issue and market discount) for the Fund, allocated based upon each class's pro
rata share of the net assets of the Fund, less (b) Trust expenses accrued for
the applicable dividend period attributable to the Fund, such as custodian fees,
trustee's fees, and accounting and legal expenses, allocated based upon each
class's pro rata share of the net assets of the Fund, less (c) expenses directly
attributable to each class which accrued for the applicable dividend period,
such as shareholder servicing plan expenses, if any, or transfer agent fees
unique to each class.
Dividends are declared to shareholders of record immediately prior to the
determination of the net asset value of the Fund. Accordingly, dividends begin
accruing on the first business day of the Fund following the day on which a
purchase order for shares of the Fund is effective, and accrue through the day
on which a redemption order is effective. Thus, if a purchase order is effective
on a Friday, dividends will begin accruing on the following Monday (unless such
day is not a business day of the Fund).
All dividends declared during a month will be paid by check or wire transfer.
(Wire transfers may only be made in amounts of $1,000 or more.) In such case,
payment will normally be made on the first business day of the following month.
A shareholder may elect to have all dividends and distributions automatically
reinvested in additional full and fractional shares of the Fund at the net asset
value of such shares. Such election, or any revocation thereof, must be made in
writing by the institution to AFS at 11 Greenway Plaza, Suite 100, Houston,
Texas 77046-1173 and will become effective with dividends paid after its receipt
by AFS. If a shareholder redeems all the shares in its account at any time
during the month, all dividends declared through the date of redemption are paid
to the shareholder along with the proceeds of the redemption.
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TAXES
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"),
imposes certain requirements that must be met each year for the Fund to qualify
as a regulated investment company. As long as the Fund qualifies for tax
treatment as a regulated investment company, the Fund (but not its shareholders)
will not be subject to income tax on income and capital gains distributed to
shareholders. Consistent with the distribution requirements of the Code, the
Fund's policy is to distribute to its shareholders at least 90% of its
investment company taxable income for each year. The Fund intends to meet the
distribution requirements imposed by the Code in order to avoid the imposition
of a 4% excise tax; to distribute at least 98% of its net investment income for
the calendar year and at least 98% of its net realized capital gains, if any,
for the 12-month period ending on October 31 prior to the end of each calendar
year; and to meet the other requirements of Subchapter M of the Code, including
the requirements with respect to diversification of assets and sources of
income.
Under the Code, dividends paid by the Fund are generally subject to taxation
as of the date of payment, whether received by shareholders in cash or in shares
of the Fund. The Code provides an exception to this general rule; if the Fund
declares a dividend in October, November or December to shareholders of record
and pays the dividend before February 1 of the next year, a shareholder will be
treated for tax purposes as having received the dividend on December 31 of the
year in which it is declared rather than in January of the following year when
it is paid. Dividends paid by the Fund from its net investment income and
realized short term capital gains are taxable to shareholders at ordinary income
tax rates. It is anticipated that no portion of dividends paid by the Fund will
be eligible for the dividends received deduction for corporations. Distributions
of the Fund's long term capital gains (capital gains dividends) will be taxable
to the shareholder as long-term capital gains regardless of the length of time
the shareholder held his shares.
A portfolio of the Trust (a "Portfolio") will be treated as a separate
corporation for purposes of determining taxable income, distribution
requirements and other requirements of Subchapter M. Therefore one Portfolio may
not offset its gains against the other Portfolio's losses and each Portfolio
must specifically comply with all the provisions of the Code.
Distributions and transactions referred to above may be subject to state,
local or foreign taxes, and the treatment thereof may differ from the federal
income tax consequences discussed herein. Shareholders are advised to consult
with their tax advisors concerning the application of state, local or foreign
taxes. Certain states exempt payments of interest by mutual funds with respect
to U.S. Treasury obligations from state income taxes, and investors should
consult with their own tax advisors concerning the availability of such
exemption in their state.
Foreign persons who file a United States tax return after December 31, 1996
for a U.S. tax refund and who are not eligible to obtain a social security
number must apply to the Internal Revenue Service ("IRS") for an individual
taxpayer identification number, using IRS Form W-7. For a copy of the IRS Form
W-7 and accompanying instructions, please contact your tax advisor or AFS.
The foregoing discussion of federal income tax consequences is only a summary
based on tax laws and regulations in effect on the date of this Prospectus,
which laws and regulations are subject to change by legislative or
administrative action. For additional information regarding certain tax
consequences of an investment in the Institutional Class, see the Statement of
Additional Information.
NET ASSET VALUE
The net asset value per share of the Fund is determined once daily as of 4:00
p.m. Eastern Time on each business day of the Fund. Net asset value per share of
the Fund is determined by subtracting the liabilities (e.g., accrued expenses
and dividends payable) of the Fund allocated to the class from the value of
securities, cash and other assets (including interest accrued but not collected)
of the Fund allocated to the class and dividing the result by the total number
of shares outstanding of such class of the Fund. Portfolio securities are valued
using current market values, if available. Securities for which market
quotations are not readily available are valued at fair value as determined in
good faith by or under the supervision of the Trust's officers in accordance
with methods which are specially authorized by the Board of Trustees of the
Trust. Short-term obligations with maturities of sixty (60) days or less are
valued at amortized cost as reflecting fair value.
PERFORMANCE INFORMATION
Performance information for the Institutional Class of the Fund can be
obtained by calling the Fund at (800) 659-1005.
The performance of the Institutional Class may be quoted in advertising in
terms of yield or total return. Both types of performance are based on
historical results and are not intended to indicate future performance. See the
Statement of Additional Information for further details concerning performance
comparisons used in advertisements by the Fund.
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<PAGE> 92
The yield of the Institutional Class is a way of showing the rate of income
the Institutional Class earns on its investments as a percentage of the
Institutional Class' price. In order to calculate yield, the Fund takes the
interest income earned from its portfolio of investments attributable to the
Institutional Class for a 30-day period (net of expenses), divides such interest
by the number of shares of the Institutional Class and expresses the result as
an annualized percentage rate based on the net asset value per share of the
Institutional Class at the end of the 30-day period. Yields are calculated
according to accounting methods that are standardized for all stock and bond
funds. Because yield accounting methods differ from the methods used for other
accounting purposes, the yield of the Institutional Class may not equal the
income paid to an investor's account or the income reported in the financial
statements for the Institutional Class.
The Fund may also quote the distribution rate for the Institutional Class,
which is calculated by dividing dividends declared during a specified period by
the net asset value per share of the Institutional Class at the end of the
period and annualizing the results.
The total return of the Institutional Class shows the overall change in value
of the Institutional Class, including changes in share price assuming all of the
Institutional Class' dividends and capital gain distributions are reinvested. A
cumulative total return reflects the performance of the Institutional Class over
a stated period of time. An average annual total return reflects the
hypothetical annually compounded return that would have produced the same
cumulative total return if the performance of the Institutional Class had been
constant over the entire period. Because average annual returns tend to smooth
out variations in the return of the Institutional Class, investors should
recognize that such returns are not the same as actual year-by-year results. To
illustrate the components of overall performance, the Institutional Class may
separate its cumulative and average annual returns into income results and
capital gain or loss.
From time to time and in its discretion, AIM may waive all or a portion of its
advisory fees and/or assume certain expenses of the Fund. Such a practice will
have the effect of increasing the Fund's yield and total return. The performance
of the Fund will vary from time to time and past results are not necessarily
indicative of future results. The 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. Further
information about the performance of the Fund is contained in the Fund's annual
report to shareholders, a copy of which may be obtained without charge upon
written request to the Trust.
REPORTS TO SHAREHOLDERS
The Fund furnishes shareholders with annual and semi-annual reports containing
information about the Fund and its operations, including a list of the
investments held by the Fund and financial statements. The annual financial
statements are audited by the Fund's independent auditors. A copy of the current
list of the investments of the Fund will be sent to shareholders upon request.
Unless otherwise requested by the shareholder, each shareholder will be
provided with a written confirmation for each transaction. Institutions
establishing sub-accounts will receive a written confirmation for each
transaction in a sub-account. Duplicate confirmations may be transmitted to the
beneficial owner of the sub-account if requested by the Institution. The
Institution will receive a periodic statement setting forth, for each
sub-account, the share balance, income earned for the month, income earned for
the year to date and the total current value of the account.
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES
The overall management of the business and affairs of the Fund is vested in
the Trust's Board of Trustees. The Board of Trustees approves all significant
agreements between the Trust and persons or companies furnishing services to the
Fund, including agreements with the Fund's investment advisor, distributor,
custodian and transfer agent. The day-to-day operations of the Fund are
delegated to the Trust's officers and to AIM, subject always to the objectives
and policies of the Fund and to the general supervision of the Trust's Board of
Trustees. Information concerning the Board of Trustees may be found in the
Statement of Additional Information. Certain trustees and officers of the Trust
are affiliated with AIM and A I M Management Group Inc. ("AIM Management"), the
parent corporation of AIM.
For a discussion of AIM Management's and its subsidiaries' Year 2000
Compliance Project, see "General Information -- Year 2000 Compliance Project."
INVESTMENT ADVISOR
A I M Advisors, Inc., 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173,
acts as the Fund's investment advisor pursuant to a Master Investment Advisory
Agreement. AIM was organized in 1976 and, together with its subsidiaries,
manages or
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<PAGE> 93
advises approximately 90 investment company portfolios encompassing a broad
range of investment objectives. AIM is a wholly owned subsidiary of AIM
Management, a holding company engaged in the financial services business. AIM
Management is an indirect wholly owned subsidiary of AMVESCAP PLC. AMVESCAP PLC
and its subsidiaries are an independent investment management group engaged in
institutional investment management and retail mutual fund businesses in the
United States, Europe and the Pacific Region.
Under the terms of the Advisory Agreement, AIM supervises all aspects of the
Fund's operations and provides investment advisory services to the Fund. The
Advisory Agreement provides that, upon the request of the Trust's Board of
Trustees, AIM may perform or arrange for the performance of certain accounting,
shareholder servicing and other administrative services for the Fund which are
not required to be performed by AIM under the Advisory Agreement. AIM and the
Fund have entered into a Master Administrative Services Agreement (the
"Administrative Services Agreement"), pursuant to which AIM is entitled to
receive from the Fund reimbursement of its costs or such reasonable compensation
as may be approved by the Board of Trustees. Currently, AIM is reimbursed for
the services of the Fund's principal financial officer and his staff, and any
expenses related to such services, as well as the services of staff responding
to various shareholder inquiries. In addition, the Fund and AFS, a wholly owned
subsidiary of AIM and registered transfer agent, have entered into the Transfer
Agency and Service Agreement, pursuant to which AFS provides transfer agency,
dividend distribution and disbursement, and shareholder services to the Fund.
For the fiscal year ended July 31, 1998, the Fund paid 0.20% of its average
daily net assets to AIM for its advisory services, and the Institutional Shares'
total expenses for the same period, stated as a percentage of average daily net
assets of the Institutional Shares was 0.32%.
For the fiscal year ended July 31, 1998 the Fund paid 0.01% of its average
daily net assets to AIM for reimbursement for administrative services.
FEE WAIVERS
In order to increase the yield to investors, AIM may from time to time
voluntarily waive or reduce its fee, while retaining its ability to be
reimbursed for such fee prior to the end of such fiscal year. Fee waivers or
reductions and waivers of expense reimbursements, other than those set forth in
the Advisory Agreement, may be rescinded at any time, without notice to
investors.
PORTFOLIO MANAGEMENT
AIM uses a team approach and disciplined investment strategy in providing
investment advisory services to all its accounts, including the Fund. AIM's
investment staff consists of approximately 125 individuals. While individual
members of AIM's investment staff are assigned primary responsibility for the
day-to-day management of each of AIM's accounts, all accounts are reviewed on a
regular basis by AIM's Investment Policy Committee to ensure that they are being
invested in accordance with the accounts' and AIM's investment policies. The
individuals on the investment team who are primarily responsible for the day-to-
day management of the Fund are Scott W. Johnson, Karen Dunn Kelley and Marcel S.
Theriot. Mr. Johnson is Vice President of A I M Capital Management, Inc. ("AIM
Capital"), a wholly owned subsidiary of AIM, and has been responsible for the
Fund since 1998. He has been associated with AIM since 1994 and has been an
investment professional since 1994. Prior to 1994 he attended Vanderbilt
University. Ms. Kelley is Senior Vice President of A I M Capital; Vice President
of AIM and of the Trust; and has been responsible for the Fund since 1992. Ms.
Kelley has been associated with AIM since 1989 and has a total of 15 years of
experience as an investment professional. Mr. Theriot is an investment officer
of AIM Capital and has been responsible for the Fund since 1998. He has been
associated with AIM and/or its subsidiaries since 1994 and has been an
investment professional since 1994. Prior to 1994 he was a Service Marketing
Representative with Van Kampen American Capital Asset Management, Inc.
DISTRIBUTION OF SHARES
The Trust has entered into a Distribution Agreement relating to the shares of
the Institutional Class (the "Distribution Agreement") with Fund Management
Company, a registered broker-dealer and a wholly owned subsidiary of AIM, to act
as the distributor of shares of the Institutional Class. The address of FMC is
11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. Certain trustees and
officers of the Trust are affiliated with FMC. The Distribution Agreement
provides FMC with the exclusive right to distribute shares of the Institutional
Class either directly or through other broker-dealers.
FMC may, from time to time, at its expense, pay a bonus or other consideration
or incentive to dealers or banks who sell a minimum dollar amount of shares of
the Institutional Class during a specific period of time. In some instances,
these incentives may be offered only to certain dealers or institutions who have
sold or may sell significant amounts of shares. The total amount of such
additional bonus payments or other consideration shall not exceed 0.05% of the
net asset value of the shares of the Institutional Class sold. Any such bonus or
incentive programs will not change the price paid by investors for the purchase
of
12
<PAGE> 94
shares of the Institutional Class or the amount received as proceeds from such
sales. Sales of shares of the Institutional Class may not be used to qualify for
any incentives to the extent that such incentives may be prohibited by the laws
of any jurisdiction.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
AIM is responsible for decisions to buy and sell securities for the Fund,
broker-dealer selection and negotiation of commission rates. Since purchases and
sales of portfolio securities by the Fund are usually principal transactions,
the Fund incurs little or no brokerage commissions. Portfolio securities are
normally purchased directly from the issuer or from a market maker for the
securities. The purchase price paid to dealers serving as market makers may
include a spread between the bid and asked prices. The Fund may also purchase
securities from underwriters at prices which include a concession paid by the
issuer to the underwriter.
AIM's primary consideration in effecting a security transaction is to obtain
the best net price and the most favorable execution of the order. To the extent
that the executions and prices offered by more than one dealer are comparable,
AIM may, in its discretion, effect transactions with dealers that furnish
statistical, research or other information or services which are deemed by AIM
to be beneficial to the Fund's investment program. Certain research services
furnished by dealers may be useful to AIM with clients other than the Fund.
Similarly, any research services received by AIM through placement of portfolio
transactions of other clients may be of value to AIM in fulfilling its
obligations to the Fund. In accordance with policies established by the
trustees, AIM may take into account sales of shares of the Fund and other funds
advised by AIM in selecting broker-dealers to effect portfolio transactions on
behalf of the Fund.
GENERAL INFORMATION
ORGANIZATION OF THE TRUST
The Trust is organized as a Delaware business trust pursuant to an Amended and
Restated Agreement and Declaration of Trust, dated November 5, 1998 (the "Trust
Agreement"). The Trust is an open-end series, management investment company, and
may consist of one or more series portfolios as authorized from time to time by
the Board of Trustees. The Trust was originally organized as a Maryland
corporation on November 4, 1988. Pursuant to an Agreement and Plan of
Reorganization, the Fund was reorganized on October 15, 1993 as a portfolio of
the Delaware business trust.
DESCRIPTION OF SHARES
All shares of the Trust have equal rights with respect to voting, except that
(i) the holders of shares of all classes of a particular Portfolio, voting
together, will have the exclusive right to vote on matters (such as advisory
fees) pertaining solely to that portfolio, and (ii) the holders of shares of a
particular class will have the exclusive right to vote on matters pertaining to
distribution plans or shareholder service plans, if any such plans are adopted,
relating solely to such class. The holders of each class have distinctive rights
with respect to dividends which are more fully described in the Statement of
Additional Information. In the event of dissolution or liquidation, holders of
each portfolio's shares will receive pro rata, subject to the rights of
creditors, (a) the proceeds of the sale of the assets held in the respective
portfolio to which such shares relate, less (b) the liabilities of the Trust
attributable to the respective portfolio or allocated between the portfolios
based on the respective liquidation values of each such portfolio. The Trust
will not normally hold annual shareholders' meetings. Shareholders may remove
trustees from office by votes cast at a meeting of shareholders called for that
purpose or by written consent, and a meeting of shareholders may be called at
the request of the holders of 10% or more of the Trust's outstanding voting
securities.
The Institutional Class and the Class A shares have different shareholders and
are allocated certain differing class expenses, such as distribution and/or
service fees related to their respective shares. To obtain information about the
Class A shares, please call A I M Distributors, Inc. ("AIM Distributors"), a
registered broker-dealer and wholly owned subsidiary of AIM, at (800) 347-4246.
AIM Distributors is the exclusive distributor of the Class A shares.
There are no preemptive or conversion rights applicable to any of the Trust's
shares. The Trust's shares, when issued, will be fully paid and non-assessable.
The Board of Trustees may create additional classes or series of the Trust's
shares without shareholder approval.
TRANSFER AGENT AND CUSTODIAN
AFS acts as transfer agent and dividend disbursing agent for the Institutional
Class. The Bank of New York, 90 Washington Street, 11th Floor, New York, New
York 10286, serves as custodian for the Fund's portfolio securities and cash.
13
<PAGE> 95
LEGAL COUNSEL
The law firm of Ballard Spahr Andrews & Ingersoll, LLP, Philadelphia,
Pennsylvania, serves as counsel to the Trust and passes upon certain legal
matters for the Trust.
SHAREHOLDER INQUIRIES
Shareholder inquiries concerning the status of an account should be directed
to the Fund at 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173, or may
be made by calling (800) 659-1005.
YEAR 2000 COMPLIANCE PROJECT
In providing services to the Trust, AIM Management and its subsidiaries rely
on both internal software systems as well as external software systems provided
by third parties. Many software systems in use today are unable to distinguish
between the year 2000 and the year 1900. This defect if not cured will likely
adversely affect the services that AIM Management, its subsidiaries and other
service providers provide the Trust and its shareholders.
To address this issue, AIM Management and its subsidiaries, together with
independent technology consultants, are undertaking a comprehensive Year 2000
Compliance Project (the "Project"). The Project consists of three phases, namely
(i) inventorying every software application in use at AIM Management and its
subsidiaries, as well as remote, third party software systems on which AIM
Management and its subsidiaries rely, (ii) identifying those applications that
may not function properly after December 31, 1999, and (iii) correcting and
subsequently testing those applications that may not function properly after
December 31, 1999. Phases (i) and (ii) are complete and phase (iii) has
commenced. The Project is scheduled to be completed during the fourth quarter of
1998. Software applications acquired by AIM Management and its subsidiaries
after completion of the Project will be reviewed to confirm Year 2000 compliance
upon installation. No assurance can be given that the Project will be successful
or that the AIM Funds will not otherwise be adversely affected by the year 2000
issue.
OTHER INFORMATION
This Prospectus sets forth basic information that investors should know about
the Fund prior to investing. A Statement of Additional Information has been
filed with the SEC. Copies of the Statement of Additional Information are
available upon request and without charge by writing or calling the Trust or
FMC. This Prospectus omits certain information contained in the registration
statement filed with the SEC. Copies of the registration statement, including
items omitted herein, may be obtained from the SEC by paying the charges
prescribed under its rules and regulations.
14
<PAGE> 96
================================================================================
AIM INVESTMENT SECURITIES FUNDS
AIM LIMITED MATURITY TREASURY FUND
INSTITUTIONAL CLASS
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
(800) 659-1005
INVESTMENT ADVISOR
A I M ADVISORS, INC.
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
(713) 626-1919
DISTRIBUTOR
FUND MANAGEMENT COMPANY
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
(800) 659-1005
AUDITORS
KPMG PEAT MARWICK LLP
700 Louisiana
Houston, Texas 77002
CUSTODIAN
THE BANK OF NEW YORK
90 Washington Street, 11th Floor
New York, New York 10286
TRANSFER AGENT
A I M FUND SERVICES, INC.
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THE PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY
JURISDICTION TO ANY PERSON TO WHOM SUCH OFFERING MAY NOT LAWFULLY BE MADE.
================================================================================
PROSPECTUS
November 18, 1998
AIM
INVESTMENT
SECURITIES FUNDS
---------------------
AIM LIMITED MATURITY
TREASURY FUND
---------------------
INSTITUTIONAL CLASS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Summary.......................................... 2
Table of Fees and Expenses....................... 4
Financial Highlights............................. 5
Suitability For Investors........................ 6
Investment Program............................... 6
Purchase of Shares............................... 8
Redemption of Shares............................. 8
Dividends and Distributions...................... 9
Taxes............................................ 10
Net Asset Value.................................. 10
Performance Information.......................... 10
Reports to Shareholders.......................... 11
Management of the Trust.......................... 11
Portfolio Transactions and Brokerage
Allocation..................................... 13
General Information.............................. 13
</TABLE>
================================================================================
<PAGE> 97
STATEMENT OF
ADDITIONAL INFORMATION
AIM INVESTMENT SECURITIES FUNDS
AIM LIMITED MATURITY TREASURY FUND
INSTITUTIONAL CLASS
11 GREENWAY PLAZA
SUITE 100
HOUSTON, TEXAS 77046-1173
(800) 659-1005
---------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND
IT SHOULD BE READ IN CONJUNCTION WITH A PROSPECTUS OF THE
ABOVE-NAMED FUND, A COPY OF WHICH MAY BE OBTAINED FREE
OF CHARGE FROM AUTHORIZED DEALERS OR BY WRITING
FUND MANAGEMENT COMPANY, 11 GREENWAY PLAZA,
SUITE 100, HOUSTON, TEXAS 77046-1173
OR BY CALLING (800) 659-1005
---------------------
STATEMENT OF ADDITIONAL INFORMATION DATED NOVEMBER 18, 1998
RELATING TO THE PROSPECTUS DATED NOVEMBER 18, 1998
<PAGE> 98
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Introduction................................................ 1
General Information About the Fund.......................... 1
The Fund and Its Shares................................ 1
Trustees and Officers.................................. 2
Remuneration of Trustees............................... 4
AIM Funds Retirement Plan for Eligible
Directors/Trustees.................................... 5
Deferred Compensation Agreements....................... 6
The Investment Advisor................................. 6
Transfer Agent and Custodian........................... 8
Reports................................................ 8
Principal Holders of Securities........................ 8
Purchases and Redemptions................................... 9
Net Asset Value Determination.......................... 9
The Distribution Agreement............................. 10
Suspension of Redemption Rights........................ 10
Investment Program and Restrictions......................... 10
Investment Program..................................... 10
Investment Restrictions................................ 11
Performance Information..................................... 12
Yield Calculations..................................... 12
Total Return Calculations.............................. 12
Historical Portfolio Results........................... 13
Portfolio Transactions...................................... 13
General Brokerage Policy............................... 13
Allocation of Portfolio Transactions................... 14
Section 28(e) Standards................................ 14
Taxes....................................................... 15
Qualification as a Regulated Investment Company........ 15
Excise Tax on Regulated Investment Companies........... 16
Fund Distributions..................................... 16
Sale or Redemption of Fund Shares...................... 17
Foreign Shareholders................................... 17
Effect of Future Legislation; Local Tax
Considerations........................................ 18
Financial Statements........................................ FS-1
</TABLE>
i
<PAGE> 99
INTRODUCTION
AIM Investment Securities Funds (the "Trust") is a series mutual fund
currently offering two investment portfolios: the AIM Limited Maturity Treasury
Fund (the "Fund") and AIM High Yield Fund II. Currently, the Fund has two
classes of shares, consisting of the Institutional Class and the Class A shares.
This Statement of Additional Information relates solely to the Institutional
Class of the Fund.
The rules and regulations of the United States Securities and Exchange
Commission (the "SEC") require all mutual funds to furnish prospective investors
certain information concerning the activities of the fund being considered for
investment. This information is included in a Prospectus for the Institutional
Class (the "Prospectus"), dated November 18, 1998. Copies of the Prospectus and
additional copies of this Statement of Additional Information may be obtained
without charge by writing the principal distributor of the Fund's shares, Fund
Management Company ("FMC"), 11 Greenway Plaza, Suite 100, Houston, Texas
77046-1173 or by calling (800) 659-1005. Investors must receive a Prospectus
before they invest.
This Statement of Additional Information is intended to furnish prospective
investors with additional information concerning the Institutional Class. Some
of the information required to be in this Statement of Additional Information is
also included in the current 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 FUND
THE FUND AND ITS SHARES
The Fund is an open-end, series portfolio of the Trust. The Trust is an
open-end, series, management investment company which was originally organized
as a Maryland corporation on November 4, 1988. On October 15, 1993, the Trust
was reorganized as a Delaware business trust and the Fund, which previously had
been a portfolio of another open-end investment company, was redomesticated as a
portfolio of the Trust. A copy of the Trust's Amended and Restated Agreement and
Declaration of Trust, dated November 5, 1998, (the "Declaration of Trust") is on
file with the SEC.
Shares of beneficial interest of the Fund will be redeemable at the net asset
value thereof at the option of the shareholder, or at the option of the Fund in
certain circumstances.
Shareholders of the Trust do not have cumulative voting rights. Therefore, the
holders of more than 50% of the outstanding shares of all series or classes
voting together for election of trustees may elect all of the members of the
Board of Trustees and in such event, the remaining holders cannot elect any
members of the Board of Trustees.
The Declaration of Trust provides for the perpetual existence of the Trust.
The Trust or any portfolio or class thereof, however, may be terminated at any
time, upon the recommendation of the Board of Trustees, by vote of the holders
of a majority of the outstanding shares of the Trust, such portfolio or such
class, respectively; provided, however, that the Board of Trustees may
terminate, without such shareholder approval, the Trust, any portfolio or any
class thereof with respect to which there are fewer than 100 holders of record.
The Declaration of Trust permits the trustees to issue an unlimited number of
full and fractional shares, $0.01 par value, of each class of shares of
beneficial interest of the Trust. The Board of Trustees may establish additional
series or classes of shares from time to time without shareholder approval.
Additional information concerning the rights of share ownership is set forth in
the prospectus applicable to each such class or series of shares of the Trust.
The assets received by the Trust for the issuance or sale of shares of each
class relating to a portfolio and all income, earnings, profits, losses and
proceeds therefrom, subject only to the rights of creditors, will be allocated
to that portfolio, and constitute the underlying assets of that portfolio. The
underlying assets of each portfolio will be segregated and will be charged with
the expenses with respect to that portfolio and with a share of the general
expenses of the Trust. While certain expenses of the Trust will be allocated to
the separate books of account of each portfolio, certain other expenses may be
legally chargeable against the assets of the entire Trust.
Under Delaware law, shareholders of a Delaware business trust shall be
entitled to the same limitations of liability extended to shareholders of
private for-profit corporations, however, there is a remote possibility that
shareholders could, under certain circumstances, be held liable for the
obligations of the Trust to the extent the courts of another state which does
not recognize such limited liability were to apply the laws of such state to a
controversy involving such 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 the trustees to all parties, and each
party
1
<PAGE> 100
thereto must expressly waive all rights of action directly against shareholders
of the Trust. The Trust Agreement provides for indemnification out of the
property of a Fund for all losses and expenses of any shareholder of such Fund
held liable on account of being or having been a shareholder. Thus, the risk of
a shareholder incurring financial loss due to shareholder liability is limited
to circumstances in which the Fund would be unable to meet its obligations and
wherein the complaining party was held not to be bound by the disclaimer.
The Declaration of Trust further provides that the trustees and officers of
the Trust will not be personally responsible for any act, omission or obligation
of the Trust or any trustee or officer. However, nothing in the Declaration of
Trust protects a trustee against any liability to the Trust or to the
shareholders to which a trustee or officer would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of his office with the Trust. The Declaration
of Trust provides for indemnification by the Trust of the trustees and the
officers, employees or agents of the Trust if it is determined that such person
acted in good faith and reasonably believed: (1) in the case of conduct in his
official care or conduct in his official capacity for the Trust, that his
conduct was in the Trust's best interests, (2) in all of the cases, that his
conduct was at least not opposed to the Trust's best interests and (3) in a
criminal proceeding, that he had no reason to believe that his conduct was
unlawful. Such person may not be indemnified against any liability to the Trust
or to the Trust's 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 his office. The Declaration of Trust also
authorizes the purchase of liability insurance on behalf of trustees and
officers.
As described in the Prospectus, the Trust will not normally hold annual
shareholders' meetings. At such time as less than a majority of the trustees
have been elected by the shareholders, the trustees then in office will call a
shareholders' meeting for the election of trustees. In addition, trustees may be
removed from office by a written instrument signed by at least two-thirds of the
trustees of the Trust or by a vote of the holders of two-thirds of the
outstanding shares present at a meeting of which a quorum is present and which
has been duly called for that purpose, which meeting shall be held upon written
request of the holders of not less than 10% of the outstanding shares of the
Trust.
As used herein and in the Prospectus, the term "majority of the outstanding
shares" of beneficial interest of the Trust or a portfolio means, respectively,
the lesser of (i) 67% or more of the shares of beneficial interest of the Trust
or the portfolio present at a meeting, if the holders of more than 50% of the
outstanding shares of beneficial interest of the Trust or the portfolio are
present or represented by proxy, or (ii) more than 50% of the outstanding shares
of beneficial interest of the Trust or the portfolio.
TRUSTEES AND OFFICERS
The trustees and officers of the Trust and their principal occupations during
at least the last five years are set forth below. Unless otherwise indicated,
the address of each trustee and officer is 11 Greenway Plaza, Suite 100,
Houston, Texas 77046.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
POSITIONS HELD PRINCIPAL OCCUPATION DURING
NAME, ADDRESS AND AGE WITH REGISTRANT AT LEAST THE PAST 5 YEARS
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
**CHARLES T. BAUER (79) Trustee and Chairman of the Board of Directors, A I M
Chairman Management Group Inc., A I M Advisors, Inc.,
A I M Capital Management, Inc., A I M
Distributors, Inc., A I M Fund Services, Inc.
and Fund Management Company; and Vice Chairman
and Director, AMVESCAP PLC.
- ---------------------------------------------------------------------------------------------------------
BRUCE L. CROCKETT (54) Trustee Director, ACE Limited (insurance company).
906 Frome Lane Formerly, Director, President and Chief
McLean, VA 22102 Executive Officer, COMSAT Corporation; and
Chairman, Board of Governors of INTELSAT
(international communications company).
- ---------------------------------------------------------------------------------------------------------
OWEN DALY II (74) Trustee Director, Cortland Trust Inc. (investment
Six Blythewood Road company). Formerly, Director, CF & I Steel
Baltimore, MD 21210 Corp., Monumental Life Insurance Company and
Monumental General Insurance Company; and
Chairman of the Board of Equitable
Bancorporation.
- ---------------------------------------------------------------------------------------------------------
EDWARD K. DUNN, JR.(63) Trustee Chairman of the Board of Directors, Mercantile
2 Hopkins Plaza, 20th Floor Mortgage Corp.; Formerly, Vice Chairman of the
Baltimore, MD 21201 Board of Directors and President,
Mercantile -- Safe Deposit & Trust Co.; and
President, Mercantile Bankshares.
- ---------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
** A trustee who is an "interested person" of the Trust and AIM as defined in
the 1940 Act.
2
<PAGE> 101
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
POSITIONS HELD PRINCIPAL OCCUPATION DURING
NAME, ADDRESS AND AGE WITH REGISTRANT AT LEAST THE PAST 5 YEARS
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
JACK M. FIELDS (46) Trustee Chief Executive Officer, Texana Global, Inc.
8810 Will Clayton Parkway (foreign trading company) and Twenty First
Jetero Plaza, Suite E Century Group, Inc. (a governmental affairs
Humble, TX 77338 company). Formerly, Member of the U.S. House
of Representatives.
- ---------------------------------------------------------------------------------------------------------
*CARL FRISCHLING (61) Trustee Partner, Kramer, Levin, Naftalis & Frankel
919 Third Avenue (law firm). Formerly, Partner, Reid & Priest
New York, NY 10022 (law firm).
- ---------------------------------------------------------------------------------------------------------
**ROBERT H. GRAHAM (51) Trustee and Director, President and Chief Executive
President Officer, A I M Management Group Inc.; Director
and President, A I M Advisors, Inc.; and
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.
- ---------------------------------------------------------------------------------------------------------
PREMA MATHAI-DAVIS(48) Trustee Chief Executive Officer, YWCA of the U.S.A.;
350 Fifth Avenue, Suite 301 Commissioner, New York City Department for the
New York, NY 10118 Aging; and Member of the Board of Directors,
Metropolitan Transportation Authority of New
York State.
- ---------------------------------------------------------------------------------------------------------
LEWIS F. PENNOCK (56) Trustee Attorney in private practice in Houston,
6363 Woodway, Suite 825 Texas.
Houston, TX 77057
- ---------------------------------------------------------------------------------------------------------
IAN W. ROBINSON (75) Trustee Formerly, Executive Vice President and Chief
183 River Drive Financial Officer, Bell Atlantic Management
Tequesta, FL 33469 Services, Inc. (provider of centralized
management services to telephone companies);
Executive Vice President, Bell Atlantic
Corporation (parent of seven telephone
companies); and Vice President and Chief
Financial Officer, Bell Telephone Company of
Pennsylvania and Diamond State Telephone
Company.
- ---------------------------------------------------------------------------------------------------------
LOUIS S. SKLAR (59) Trustee Executive Vice President, Development and
Transco Tower, 50th Floor Operations, Hines Interests Limited
2800 Post Oak Blvd. Partnership (real estate development).
Houston, TX 77056
- ---------------------------------------------------------------------------------------------------------
***JOHN J. ARTHUR (54) Senior Vice Director, Senior Vice President and Treasurer,
President and A I M Advisors, Inc.; and Vice President and
Treasurer Treasurer, A I M Management Group Inc., A I M
Capital Management, Inc., A I M Distributors,
Inc., A I M Fund Services, Inc. and Fund
Management Company.
- ---------------------------------------------------------------------------------------------------------
GARY T. CRUM (51) Senior Vice Director and President, A I M Capital
President Management, Inc.; Director and Senior Vice
President, A I M Management Group Inc., A I M
Advisors, Inc.; and Director, A I M
Distributors, Inc. and AMVESCAP PLC.
- ---------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
* A trustee who is an "interested person" of the Trust as defined in the 1940
Act.
** A trustee who is an "interested person" of the Trust and AIM as defined in
the 1940 Act.
*** Mr. Arthur and Ms. Relihan are married to each other.
3
<PAGE> 102
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
POSITIONS HELD PRINCIPAL OCCUPATION DURING
NAME, ADDRESS AND AGE WITH REGISTRANT AT LEAST THE PAST 5 YEARS
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
***CAROL F. RELIHAN (44) Senior Vice Director, Senior Vice President, Secretary and
President and General Counsel, A I M Advisors, Inc.; Vice
Secretary President, General Counsel and Secretary,
A I M Management Group Inc.; Director, Vice
President and General Counsel, Fund Management
Company; General Counsel and Vice President,
A I M Fund Services, Inc.; and Vice President,
A I M Capital Management, Inc. and A I M
Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------
DANA R. SUTTON (39) Vice President Vice President and Fund Controller, A I M
and Assistant Advisors, Inc.; and Assistant Vice President
Treasurer and Assistant Treasurer, Fund Management
Company.
- ---------------------------------------------------------------------------------------------------------
MELVILLE B. COX (55) Vice President Vice President and Chief Compliance Officer,
A I M Advisors, Inc., A I M Capital
Management, Inc., A I M Fund Services, Inc.,
A I M Distributors, Inc. and Fund Management
Company.
- ---------------------------------------------------------------------------------------------------------
KAREN DUNN KELLEY (38) Vice President Senior Vice President, A I M Capital
Management, Inc.; and Vice President, A I M
Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
*** Mr. Arthur and Ms. Relihan are married to each other.
The standing committees of the Board of Trustees are the Audit Committee, the
Investments Committee and the Nominating and Compensation Committee.
The members of the Audit Committee are Messrs. Crockett, Daly, Dunn, Fields,
Frischling, Pennock, Robinson (Chairman) and Sklar. The Audit Committee is
responsible for meeting with the Trust's auditors to review audit procedures and
results and to consider any matters arising from an audit to be brought to the
attention of the trustees as a whole with respect to the Trust's fund accounting
or its internal accounting controls, or for considering such matters as may from
time to time be set forth in a charter adopted by the Board of Trustees and such
committee.
The members of the Investments Committee are Messrs. Bauer, Crockett, Daly,
Dunn, Fields, Frischling, Pennock, Robinson and Sklar (Chairman). The
Investments Committee is responsible for reviewing portfolio compliance,
brokerage allocation, portfolio investment pricing issues, interim dividend and
distribution issues, or considering such matters as may from time to time be set
forth in a charter adopted by the board and such committee.
The members of the Nominating and Compensation Committee are Messrs. Crockett
(Chairman), Daly, Dunn, Fields, Pennock, Robinson and Sklar. The Nominating and
Compensation Committee is responsible for considering and nominating individuals
to stand for election as trustees who are not interested persons as long as the
Trust maintains a distribution plan pursuant to Rule 12b-1 under the 1940 Act,
reviewing from time to time the compensation payable to the disinterested
trustees, or considering such matters as may from time to time be set forth in a
charter adopted by the board and such committee.
All of the trustees of the Trust also serve as directors or trustees of some
or all of the other investment companies managed or advised by AIM Advisors,
Inc. ("AIM"). Certain of the executive officers of the Trust hold similar
offices with some or all of such investment companies.
REMUNERATION OF TRUSTEES
Each trustee is reimbursed for expenses incurred in connection with each
meeting of the Board of Trustees or any committee thereof. Each trustee who is
not also an officer of the Trust is compensated for his or her services
according to a fee schedule which recognizes the fact that such trustee also
serves as a trustee or director of other funds in The AIM Family of
Funds--Registered Trademark--, AIM Institutional Funds and all other investment
companies managed or advised by AIM (the "AIM Funds"). Each such trustee
receives a fee, allocated among the AIM Funds for which he or she serves as a
director or trustee, which consists of an annual retainer component and a
meeting fee component.
4
<PAGE> 103
Set forth below is information regarding compensation paid or accrued for each
trustee of the Trust:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
RETIREMENT
AGGREGATE BENEFITS TOTAL
COMPENSATION ACCRUED COMPENSATION
FROM THE BY ALL FROM ALL
DIRECTOR FUNDS(1) AIM FUNDS(2) AIM FUNDS(3)
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
Charles T. Bauer $ 0 $ 0 $ 0
- ----------------------------------------------------------------------------------------------------------
Bruce L. Crockett 1,172 67,774 84,000
- ----------------------------------------------------------------------------------------------------------
Owen Daly II 1,172 103,542 84,000
- ----------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr.(4) 437 0 0
- ----------------------------------------------------------------------------------------------------------
Jack M. Fields 1,164 0 0
- ----------------------------------------------------------------------------------------------------------
Carl Frischling(5) 1,172 96,520 68,000
- ----------------------------------------------------------------------------------------------------------
Robert H. Graham 0 0 0
- ----------------------------------------------------------------------------------------------------------
John F. Kroeger(6) 1,119 94,132 66,000
- ----------------------------------------------------------------------------------------------------------
Prema Mathai-Davis(4) 0 0 0
- ----------------------------------------------------------------------------------------------------------
Lewis F. Pennock 1,172 55,777 67,000
- ----------------------------------------------------------------------------------------------------------
Ian W. Robinson 1,153 85,912 68,000
- ----------------------------------------------------------------------------------------------------------
Louis S. Sklar 1,165 84,370 66,500
- ----------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
(1) The total amount of compensation deferred by all Trustees of the Trust
during the fiscal year ended July 31, 1998, including interest earned
thereon, was $6,426.
(2) During the fiscal year ended July 31, 1998, the total estimated amount of
expenses allocated to Limited Maturity in respect of such retirement
benefits was $2,778. Data reflects compensation estimated for the calendar
year ended December 31, 1997.
(3) Each Trustee serves as a director or trustee of a total of 12 registered
investment companies advised by AIM as of December 31, 1997 (comprised of
over 50 portfolios). Data reflect total compensation earned during the
calendar year ended December 31, 1997.
(4) Mr. Dunn and Ms. Mathai-Davis did not serve as Trustees during the calendar
year ended December 31, 1997.
(5) The Trust paid the law firm of Kramer, Levin, Naftalis & Frankel $4,177
legal fees for services provided to Limited Maturity during the fiscal year
ended July 31, 1998. Mr. Frischling, a trustee of the Trust, is a partner
of such firm.
(6) Mr. Kroeger resigned as a Trustee of the Trust on June 11, 1998 and on that
date became a consultant to the Trust.
AIM FUNDS RETIREMENT PLAN FOR ELIGIBLE DIRECTORS/TRUSTEES
Under the terms of the AIM Funds Retirement Plan for Eligible
Directors/Trustees (the "Plan"), each trustee (who is not an employee of any of
the AIM Funds, A I M Management Group Inc. or any of their affiliates) may be
entitled to certain benefits upon retirement from the Board of Trustees.
Pursuant to the Plan, the normal retirement date is the date on which the
eligible trustee has attained age 65 and has completed at least five years of
continuous service with one or more of the regulated investment companies
managed, administered or distributed by AIM or its affiliates (the "Applicable
AIM Funds"). Each eligible trustee is entitled to receive an annual benefit from
the Applicable AIM Funds commencing on the first day of the calendar quarter
coincident with or following his date of retirement equal to 75% of the retainer
paid or accrued by the Applicable AIM Funds for such trustee during the
twelve-month period immediately preceding the trustee's retirement (including
amounts deferred under a separate agreement between the Applicable AIM Funds and
the trustee) for the number of such Trustee's years of service (not in excess of
10 years of service) completed with respect to any of the AIM Funds. Such
benefit is payable to each eligible trustee in quarterly installments. If an
eligible trustee dies after attaining the normal retirement date but before
receipt of any benefits under the Plan commences, the trustee's surviving spouse
(if any) shall receive a quarterly survivor's benefit equal to 50% of the amount
payable to the deceased trustee, for no more than ten years beginning the first
day of the calendar quarter following the date of the trustee's death. Payments
under the Plan are not secured or funded by any AIM Fund.
Set forth below is a table that shows the estimated annual benefits payable to
an eligible trustee upon retirement assuming the retainer amount reflected below
and various years of service classifications. The estimated credited years of
service for
5
<PAGE> 104
Messrs. Crockett, Daly, Dunn, Fields, Frischling, Kroeger, Pennock, Robinson,
Sklar and Mdm. Mathai-Davis are 11, 11, 0, 1, 21, 20, 16, 11, 8, and 0 years,
respectively.
ESTIMATED BENEFITS UPON RETIREMENT
<TABLE>
<CAPTION>
- -----------------------------------------------------------
NUMBER OF
YEARS OF
SERVICE WITH
THE AIM ANNUAL RETAINER PAID BY ALL AIM FUNDS
FUNDS $80,000
<S> <C>
- -----------------------------------------------------------
10 $60,000
- -----------------------------------------------------------
9 $54,000
- -----------------------------------------------------------
8 $48,000
- -----------------------------------------------------------
7 $42,000
- -----------------------------------------------------------
6 $36,000
- -----------------------------------------------------------
5 $30,000
- -----------------------------------------------------------
</TABLE>
DEFERRED COMPENSATION AGREEMENTS
Messrs. Daly, Frischling, Kroeger, Robinson and Sklar (for purposes of this
paragraph only, the "deferring trustees") have each executed a Deferred
Compensation Agreement (collectively, the "Agreements"). Pursuant to the
Agreements, the deferring trustees may elect to defer receipt of up to 100% of
their compensation payable by the Fund, and such amounts are placed into a
deferral account. Currently, the deferring trustees may select various AIM Funds
in which all or part of their deferral accounts shall be deemed to be invested.
Distributions from the deferring trustees' deferral accounts will be paid in
cash, in generally equal quarterly installments over a period of five (5) or ten
(10) years (depending on the Agreement) beginning on the date the deferring
trustee's retirement benefits commence under the Plan. The Fund's Board of
Trustees, in its sole discretion, may accelerate or extend the distribution of
such deferral accounts after the deferring director's termination of service as
a trustee of the Fund. If a deferring trustee dies prior to the distribution of
amounts in his deferral account, the balance of the deferral account will be
distributed to his designated beneficiary in a single lump sum payment as soon
as practicable after such deferring trustee's death. The Agreements are not
funded and, with respect to the payments of amounts held in the deferral
accounts, the deferring trustees have the status of unsecured creditors of the
Fund and of each other AIM Fund from which they are deferring compensation.
THE INVESTMENT ADVISOR
A I M Advisors, Inc. ("AIM"), 11 Greenway Plaza, Suite 100, Houston, Texas
77046-1173, serves as the investment advisor to the Fund pursuant to a Master
Investment Advisory Agreement with the Trust (the "Advisory Agreement"). AIM was
organized in 1976, and together with its subsidiaries, advises or manages over
90 investment company portfolios encompassing a broad range of investment
objectives.
AIM is a wholly owned subsidiary of A I M Management Group Inc. ("AIM
Management"), 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. AIM
Management is a holding company that has been engaged in the financial services
business since 1976. AIM Management is an indirect wholly owned subsidiary of
AMVESCAP PLC, 11 Devonshire Square, London EC2M 4YR, United Kingdom. AMVESCAP
PLC and its subsidiaries are an independent investment management group engaged
in institutional investment management and retail fund businesses in the United
States, Europe and the Pacific Region. Certain of the directors and officers of
AIM are also executive officers of the Fund and their affiliations are shown
under "Trustees and Officers." A I M Capital Management, Inc. ("AIM Capital"), a
wholly owned subsidiary of AIM, is engaged in the business of providing
investment advisory services to investment companies, corporations, institutions
and other accounts.
AIM and the Trust have adopted a Code of Ethics which requires investment
personnel and certain other employees (a) to pre-clear all personal securities
transactions subject to the Code of Ethics, (b) to file reports or duplicate
confirmations regarding such transactions, (c) to refrain from personally
engaging in (i) short-term trading of a security, (ii) transactions involving a
security within seven days of an AIM Fund transaction involving the same
security, and (iii) transactions involving securities being considered for
investment by an AIM Fund and, (d) to abide by certain other provisions under
the Code of Ethics. The Code of Ethics also prohibits investment personnel and
all other AIM employees from purchasing securities in an initial public
offering. Personal trading reports are reviewed periodically by AIM, and the
Board of Trustees reviews quarterly and annual reports (including information on
any substantial violations of the Code of Ethics). Violations of the Code of
Ethics may include censure, monetary penalties, suspension or termination of
employment.
6
<PAGE> 105
The Advisory Agreement will continue from year to year only if such
continuance is specifically approved at least annually by (i) the Trust's Board
of Trustees or the vote of a "majority of the outstanding voting securities" of
the Fund (as defined in the 1940 Act) and (ii) the affirmative vote of a
majority of the trustees who are not parties to the Advisory Agreement or
"interested persons" of any such party (the "Non-Interested Trustees") by votes
cast in person at a meeting called for such purpose. The Trust or AIM may
terminate the Advisory Agreement on sixty (60) days' written notice without
penalty. The Advisory Agreement terminates automatically in the event of its
"assignment," as defined in the 1940 Act.
Pursuant to the terms of the Advisory Agreement, AIM manages the investments
of the Fund and obtains and evaluates economic, statistical and financial
information to formulate and implement investment policies for the Fund. Any
investment program undertaken by AIM will at all times be subject to the
policies and control of the Trust's Board of Trustees. AIM shall not be liable
to the Fund or its shareholders for any act or omission by AIM or for any loss
sustained by the Fund or its shareholders except in the case of willful
misfeasance, bad faith, gross negligence or reckless disregard of duty. Pursuant
to the Advisory Agreement, AIM receives a fee as compensation for its services
with respect to the Fund, calculated daily and paid monthly, at an annual rate
equal to 0.20% of the first $500 million of the Fund's aggregate average daily
net assets, plus 0.175% of the Fund's aggregate average daily net assets in
excess of $500 million.
The Advisory Agreement provides that, upon the request of the Trust's Board of
Trustees, AIM may perform or arrange for the performance of certain accounting,
shareholder servicing and other administrative services for the Fund which are
not required to be performed by AIM under the Advisory Agreement. The Board of
Trustees has made such a request. As a result, AIM and the Fund have entered
into a Master Administrative Services Agreement (the "Administrative Services
Agreement"), pursuant to which AIM is entitled to receive from the Fund
reimbursement of its costs or such reasonable compensation as may be approved by
the Board of Trustees. Currently, AIM is reimbursed for the services of the
Fund's principal financial officer and his staff, and any expenses related to
such services, as well as the services of staff responding to various
shareholder inquiries.
In addition to the fees paid to AIM pursuant to the Advisory Agreement and the
Administrative Services Agreement, the Trust, on behalf of the Fund, also pays
or causes to be paid all other expenses attributable to the Fund, including,
without limitation: the charges and expenses of any registrar, any custodian or
depository appointed by the Trust for the safekeeping of cash, portfolio
securities and other property, and any transfer, dividend or accounting agent or
agents; brokers' commissions in connection with portfolio securities
transactions of the Fund; all taxes, including securities issuance and transfer
taxes, and fees payable to federal, state or other governmental agencies; the
cost and expenses of engraving or printing share certificates; all costs and
expenses in connection with registration and maintenance of registration with
the SEC and various states and other jurisdictions (including filing and legal
fees and disbursements of counsel); the costs and expenses of printing,
including typesetting, and distributing proxy statements, reports to
shareholders, prospectuses and statements of additional information of the Fund
and supplements thereto; expenses of shareholders' and trustees' meetings; fees
and travel expenses of trustees and trustee members of any advisory board or
committee; expenses incident to the payment of any dividend, distribution,
withdrawal or redemption, whether in shares or in cash; charges and expenses of
any outside pricing service; fees and expenses of legal counsel, including
counsel to the Non-Interested Trustees of the Trust or AIM, and of independent
accountants; membership dues of industry associations; interest payable on
borrowings; postage; insurance premiums on property or personnel (including
officers and trustees) of the Trust; and extraordinary expenses (including but
not limited to, legal claims and liabilities and litigation costs and any
indemnification related thereto). FMC bears the expenses of printing and
distributing reports to shareholders, prospectuses and statements of additional
information (other than those reports to shareholders, prospectuses and
statements of additional information distributed to existing shareholders of the
Institutional Shares) and any other promotional or sales literature used by FMC
or furnished by FMC to purchasers or dealers in connection with the public
offering of shares of the Institutional Shares.
Expenses of the Trust which are not directly attributable to the operations of
any class of shares or Portfolio of the Trust are prorated among all classes of
the Trust based upon the relative net assets of each class or Portfolio.
Expenses of the Trust which are not directly attributable to a specific class of
shares but are directly attributable to a specific Portfolio are prorated among
all classes of such Portfolio based upon the relative net assets of each such
class. Expenses of the Trust which are directly attributable to a specified
class of shares are charged against the income available for distribution as
dividends to such shares.
During the fiscal years ended July 31, 1998, 1997 and 1996, AIM received
advisory fees of $855,900, $837,760, and $933,207, respectively, pursuant to the
Advisory Agreement. During the fiscal years ended July 31, 1998, 1997 and 1996,
AIM was reimbursed $59,396, $66,785, and $60,857, respectively, pursuant to the
Administrative Services Agreement.
As described in the Prospectus, AIM may voluntarily waive its fees from time
to time, while retaining the ability to be reimbursed by the Fund for such
amounts prior to the end of the fiscal year.
7
<PAGE> 106
TRANSFER AGENT AND CUSTODIAN
The Bank of New York acts as custodian for the Fund's portfolio securities and
cash. The Bank of New York receives such compensation from the Trust for its
services as is agreed to from time to time by The Bank of New York and the
Trust. The address of The Bank of New York is 90 Washington Street, 11th floor,
New York, New York 10286.
REPORTS
The Trust furnishes holders of the Institutional Class with semi-annual
reports containing information about the Trust and its operations, including a
schedule of investments held by the Fund and its financial statements. The
annual financial statements are audited by the Fund's independent certified
public accountants. The Board of Trustees has selected KPMG Peat Marwick LLP,
700 Louisiana, Houston, Texas 77002, as the independent auditors to audit the
financial statements and review the tax returns of the Fund.
PRINCIPAL HOLDERS OF SECURITIES
To the best of the Trust's knowledge, as of October 26, 1998, the trustees and
officers of the Trust owned less than 1% of the outstanding shares of any class
of the Trust.
INSTITUTIONAL CLASS:
To the best of the Trust's knowledge, the names and addresses of the holders
of 5% or more of the outstanding shares of the Institutional Class, as of
October 26, 1998, and the percent of outstanding shares owned by such
shareholders are as follows:
<TABLE>
<CAPTION>
PERCENT
NAME AND ADDRESS OWNED OF
OF RECORD OWNER RECORD*
--------------- --------
<S> <C>
Frost National Bank 87.58%**
Muir & Co. c/o Frost
P.O. Box 2479
San Antonio, TX 78298-2479
Esor & Co. 6.03%
Attn: Trust Operations
P.O. Box 19006
Green Bay, WI 54307-9006
</TABLE>
CLASS A SHARES:
To the best of the Trust's knowledge, the names and addresses of the holders
of 5% or more of the outstanding shares of the Class A shares, as of October 26,
1998, and the percent of outstanding shares owned by such shareholders are as
follows:
<TABLE>
<CAPTION>
PERCENT
NAME AND ADDRESS OWNED OF
OF RECORD OWNER RECORD*
--------------- --------
<S> <C>
Merrill Lynch Pierce Fenner & Smith 16.60%
FBO the Sole Benefit of Customers
Mutual Fund Operations
Attn: Fund Administration
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246
</TABLE>
- ---------------
* The Trust has no knowledge as to whether all or any portion of the shares
owned of record only are also owned beneficially.
** A shareholder who holds more than 25% of the outstanding shares of a class
may be presumed to be in "control" of such class of shares, as defined in the
1940 Act.
8
<PAGE> 107
CLASS A SHARES:
To the best of the Trust's knowledge, the names and addresses of the holders
of 5% or more of the outstanding Class A shares of AIM High Yield Fund II, as of
October 26, 1998 and the percent of outstanding shares owned by such
shareholders are as follows:
<TABLE>
<CAPTION>
PERCENT
NAME AND ADDRESS OWNED OF
OF RECORD OWNER RECORD*
--------------- --------
<S> <C>
Jonathan C. Schoolar 35.69%**
3722 Tartan Lane
Houston, TX 77025
Gary T. Crum 35.69%**
11 Greenway Plaza
Suite 100
Houston, TX 77046
AIM Advisors, Inc. 20.97%
ATTN: David Hessel
11 Greenway Plaza
Suite 100
Houston, TX 77046
</TABLE>
Since Class A and Class C shares of High Yield are not yet available for sale
to the public, AIM, which provided the initial capitalization of High Yield,
currently owns all the Class B and Class C shares of the Fund. High Yield
expects that the sale of Class B and Class C shares to the public will promptly
reduce the percentage of such classes owned by AIM. However, at this time, AIM
owns more than 25% of the Fund's outstanding shares, and therefore may be
presumed to be in "control" of the Fund, as defined in the 1940 Act.
- ---------------
* The Trust has no knowledge as to whether all or any portion of the shares
owned of record only are also owned beneficially.
** A shareholder who holds more than 25% of the outstanding shares of a class
may be presumed to be in "control" of such class of shares, as defined in the
1940 Act.
PURCHASES AND REDEMPTIONS
NET ASSET VALUE DETERMINATION
A complete description of the manner by which shares of the Institutional
Class may be purchased appears in the Prospectus under the caption "Purchase of
Shares."
Shares of the Institutional Class are sold at the net asset value of such
shares. Shareholders may at any time redeem all or a portion of their shares at
net asset value. The investor's price for purchases and redemptions will be the
net asset value next determined following the receipt of an order to purchase or
a request to redeem shares. The net asset value of the Fund varies depending on
the market value of its assets.
In accordance with the current rules and regulations of the SEC, the net asset
value per share of the Fund is determined once daily as of the close of trading
of the New York Stock Exchange (the "NYSE") which is generally 4:00 p.m. Eastern
Time on each business day of the Fund. In the event the NYSE closes early (i.e.
before 4:00 p.m. Eastern Time) on a particular day, the net asset value of a
Fund share is determined as of the close of the NYSE on such day. Net asset
value per share of the Fund is determined by subtracting the liabilities (e.g.,
accrued expenses and dividends payable) of the Fund allocated to the class from
the value of securities, cash and other assets (including interest accrued but
not collected) of the Fund allocated to the class, and dividing the result by
the total number of shares outstanding of such class of the Fund. Determination
of the Fund's net asset value per share is made in accordance with generally
accepted accounting principles.
Securities will be valued on the basis of prices provided by an independent
pricing service. Prices provided by the pricing services may be determined
without exclusive reliance on quoted prices, and may reflect appropriate factors
such as yield, type of issue, coupon rate, maturity and seasoning differential.
Securities for which prices are not provided by the pricing service are valued
at the mean between the last bid and asked prices based upon quotes furnished by
market makers for such securities. Securities for which market quotations are
not readily available are valued at fair value as determined in good faith by or
under the supervision of the Trust's officers in accordance with methods which
are specifically authorized by the Board of Trustees of
9
<PAGE> 108
the Trust. Short-term obligations having sixty (60) days or less to maturity are
valued at amortized cost, which approximates market value. (See also "Purchase
of Shares," "Redemption of Shares" and "Net Asset Value" in the Prospectus.)
The Trust agrees to redeem shares of the Fund solely in cash up to the lesser
of $250,000 or 1% of the Fund's net assets during any 90-day period for any one
shareholder. In consideration of the best interests of the remaining
shareholders, the Trust reserves the right to pay any redemption price exceeding
this amount in whole or in part by a distribution in kind of securities held by
the Fund in lieu of cash. It is highly unlikely that shares would ever be
redeemed in kind. If shares are redeemed in kind, however, the redeeming
shareholder should expect to incur transaction costs upon the disposition of the
securities received in the distribution.
THE DISTRIBUTION AGREEMENT
The Trust has entered into a Distribution Agreement with FMC (the
"Distribution Agreement"), pursuant to which FMC has agreed to act as the
exclusive distributor of shares of the Institutional Class. The address of FMC
is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The Distribution
Agreement provides that FMC has the exclusive right to distribute shares of the
Institutional Class either directly or through other broker-dealers. The
Distribution Agreement also provides that FMC will pay promotional expenses,
including the incremental costs of printing prospectuses and statements of
additional information, annual reports and other periodic reports for
distribution to persons who are not shareholders of the Institutional Class and
the costs of preparing and distributing any other supplemental sales literature.
FMC has not undertaken to sell any specified number of shares of the
Institutional Class. FMC does not receive any fees from the Fund pursuant to the
Distribution Agreement.
FMC is a registered broker-dealer and is also a wholly owned subsidiary of
AIM.
The Distribution Agreement will continue from year to year only if such
continuation is specifically approved at least annually by (i) the Trust's Board
of Trustees or the vote of a "majority of the outstanding securities" of the
Fund (as defined in the 1940 Act) and (ii) the affirmative vote of a majority of
the Non-Interested Trustees by votes cast in person at a meeting called for such
purpose. The Fund or FMC may terminate the Distribution Agreement on sixty (60)
days' written notice without penalty. The Distribution Agreement will terminate
in the event of its "assignment," as defined in the 1940 Act.
SUSPENSION OF REDEMPTION RIGHTS
The right of redemption may be suspended or the date of payment upon
redemption may be 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 or 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.
INVESTMENT PROGRAM AND RESTRICTIONS
INVESTMENT PROGRAM
Information concerning the Fund's investment objective and fundamental and
operating policies is set forth in the Prospectus. The principal features of the
Fund's investment program and the primary risks associated with that investment
program are also discussed in the Prospectus. There can be no assurance that the
Fund will achieve its objective. The values of the securities in which the Fund
invests fluctuate based upon interest rates and market factors.
Repurchase Agreements. The Fund's investment policies permit the Fund to
invest in repurchase agreements with banks and broker-dealers pertaining to U.S.
Treasury obligations. However, in order to maximize the Fund's dividends which
are exempt from state taxation, as a matter of operating policy, the Fund does
not currently invest in repurchase agreements. A repurchase agreement involves
the purchase by the Fund of an investment contract from a financial institution,
such as a bank or broker-dealer, which contract is secured by U.S. Treasury
obligations of the type described above whose value is equal to or greater than
the value of the repurchase agreement, including the agreed-upon interest. The
agreement provides that the seller will repurchase the underlying securities at
an agreed-upon time and price. The total amount received on repurchase will
exceed the price paid by the Fund, reflecting the agreed-upon rate of interest
for the period from the date of the repurchase agreement to the settlement date.
This rate of return is not related to the interest rate on the underlying
securities. The difference between the total amount received upon the repurchase
of the securities and the price paid by the Fund upon their acquisition is
accrued daily as interest. Investments in repurchase agreements may involve
risks not associated with investments in the underlying securities. If the
seller defaulted on its repurchase obligation, the Fund would incur a loss to
the extent that the proceeds from a sale of the underlying securities were less
than the repurchase price under the agreement. The Fund will limit repurchase
agreements to transactions with sellers believed by AIM to present minimal
credit risk. Securities subject to repurchase agreements will be held by the
Fund's custodian or in the custodian's account with the Federal Reserve Treasury
Book-
10
<PAGE> 109
Entry System. Although the securities subject to repurchase agreements might
bear maturities in excess of one year, the Fund will not enter into a repurchase
agreement with an agreed-upon repurchase date in excess of seven calendar days
from the date of acquisition by the Fund, unless the Fund has the right to
require the selling institution to repurchase the underlying securities within
seven days of the date of acquisition.
INVESTMENT RESTRICTIONS
The most significant investment restrictions applicable to the Fund's
investment program are set forth in the Prospectus under "Investment
Program -- Restrictions." Additionally, as a matter of fundamental policy which
may not be changed without a vote of the holders of a majority of the
outstanding shares of beneficial interest of all classes of the Fund, the Fund
will not:
(1) mortgage, pledge or hypothecate any assets except to secure
permitted borrowings of money from banks for temporary or emergency
purposes and then only in amounts not in excess of 33 1/3% of the value of
its total assets at the time of such borrowing;
(2) underwrite securities issued by any other person, except to the
extent that the purchase of securities and the later disposition of such
securities in accordance with the Fund's investment program may be deemed
an underwriting;
(3) invest in real estate;
(4) purchase or sell commodities or commodity futures contracts,
engage in arbitrage transactions, purchase securities on margin, make short
sales or invest in puts or calls;
(5) purchase oil, gas or mineral interests;
(6) invest in any obligation not payable as to principal and interest
in United States currency; or
(7) invest 25% or more of the value of its total assets in securities
of issuers engaged in any one industry (excluding securities which are a
direct obligation of the U.S. Treasury or are repurchase agreements with
respect to a direct obligation of the U.S. Treasury).
In addition to those policies discussed in the Prospectus and above, the Fund
generally will not invest in any company for the purpose of exercising control
or management, or purchase securities of an issuer if the officers and trustees
of the Trust and the officers and directors of the Fund's investment advisor
collectively own beneficially over 5% of the outstanding voting securities of
such issuer, in each case excluding holdings of any officer, trustee or director
of less than 1/2 of 1% of the outstanding voting securities of such issuer.
These restrictions are not matters of fundamental policy and may be changed at
any time by the trustees without the approval of shareholders.
The percentage limitations set forth in the restrictions noted above are
calculated by giving effect to the purchase in question and are based upon
values at the time of purchase. The Fund may, however, retain any security
purchased in accordance with such restrictions irrespective of changes in the
values of the Fund's assets occurring subsequent to the time of purchase.
The Trust has obtained an opinion of Dechert Price & Rhoads, special counsel
to the Trust, that shares of the Fund are eligible for investment by a federal
credit union. In order to ensure that shares of the Fund meet the requirements
for eligibility for investment by federal credit unions, the Fund has adopted
the following policies:
(1) The Fund will enter into repurchase agreements only with: (a)
banks insured by the Federal Deposit Insurance Corporation (FDIC); (b)
savings and loan associations insured by the FDIC; or (c) registered
broker-dealers. The Fund will only enter into repurchase transactions
pursuant to a master repurchase agreement in writing with the Fund's
counterparty. Under the terms of a written agreement with its custodian,
the Fund receives on a daily basis written confirmation of each purchase of
a security subject to a repurchase agreement and a receipt from the Fund's
custodian evidencing each transaction. In addition, securities subject to a
repurchase agreement may be recorded in the Federal Reserve Book-Entry
System on behalf of the Fund by its custodian. The Fund purchases
securities subject to a repurchase agreement only when the purchase price
of the security acquired is equal to or less than its market price at the
time of the purchase.
(2) The Fund will only enter into reverse repurchase agreements and
purchase additional securities with the proceeds when such proceeds are
used to purchase other securities that either mature on a date simultaneous
with or prior to the expiration date of the reverse repurchase agreement,
or are subject to an agreement to resell such securities within that same
time period.
(3) The Fund will only enter into securities lending transactions that
comply with the same counterparty, safekeeping, maturity and borrowing
restrictions that the Fund observes when participating in repurchase and
reverse repurchase transactions.
11
<PAGE> 110
(4) The Fund will enter into when-issued and delayed delivery
transactions only when the time period between trade date and settlement
date does not exceed 120 days, and only when settlement is on a cash basis.
When the delivery of securities purchased in such manner is to occur within
30 days of the trade date, the Fund will purchase the securities only at
their market price as of the trade date.
In order to permit the sale of the Fund's shares in certain states, the Fund
may from time to time make commitments more restrictive than the restrictions
described herein. These restrictions are not matters of fundamental policy, and
should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the states involved.
To permit the sale of shares of the Fund in Texas, the Fund will limit its
investment in securities which are not readily marketable to 15% of its net
assets.
PERFORMANCE INFORMATION
YIELD CALCULATIONS
Yields for the Institutional Shares used in advertising are computed as
follows: (a) divide the interest and dividend income of the Institutional Class
for a given 30-day or one-month period, net of expenses, by the average number
of shares entitled to receive dividends during the period; (b) divide the figure
arrived at in step (a) by the net asset value of the Institutional Class at the
end of the period; and (c) annualize the result (assuming compounding of income)
in order to arrive at an annual percentage rate. For purposes of yield
quotation, income is calculated in accordance with standardized methods
applicable to all stock and bond mutual funds. In general, interest income is
reduced with respect to bonds trading at a premium over their par value by
subtracting a portion of the premium from income on a daily basis, and is
increased with respect to bonds trading at a discount by adding a portion of the
discount to daily income. Capital gains and losses are excluded from the
calculation.
Income calculated for the purposes of calculating the yield of the
Institutional Class differs from income as determined for other accounting
purposes. Because of the different accounting methods used, and because of the
compounding assumed in yield calculations, the yield quoted for the
Institutional Class may differ from the rate of distributions the Institutional
Class paid over the same period or the rate of income reported in the financial
statements of the Institutional Class.
The Fund may also quote the distribution rate for the Institutional Class,
which expresses the historical amount of income dividends of the Institutional
Class to its shareholders as a percentage of the net asset value per share of
the Institutional Class. The distribution rate for the Institutional Class for
the thirty day period ended July 31, 1998 was 5.26%. This distribution rate was
calculated by dividing dividends declared over the thirty days ended July 31,
1998 by the net asset value per share of the Institutional Class at the end of
that period and annualizing the result.
TOTAL RETURN CALCULATIONS
Total returns quoted in advertising reflect all aspects of the Institutional
Class' return, including the effect of reinvesting dividends and capital gain
distributions, and any change in the net asset value per share of the
Institutional Class over the period. Average annual returns are calculated by
determining the growth or decline in value of a hypothetical investment in the
Institutional Shares over a stated period, and then calculating the annually
compounded percentage rate that would have produced the same result if the rate
of growth or decline in value had been constant over the period. While average
annual returns are a convenient means of comparing investment alternatives,
investors should realize that the performance of the Institutional Shares is not
constant over time, but changes from year to year, and that average annual
returns do not represent the actual year-to-year performance of the
Institutional Class.
In addition to average annual returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Average annual and cumulative total returns may be quoted
as a percentage or as a dollar amount, and may be calculated for a single
investment, a series of investments, and/or a series of redemptions, over any
time period. Total returns may be broken down into their components of income
and capital (including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to total
return. Total returns, yields, and other performance information may be quoted
numerically or in a table, graph, or similar illustration.
12
<PAGE> 111
HISTORICAL PORTFOLIO RESULTS
The following chart shows the total returns for the Institutional Class for
the twelve months and the five and ten year periods ended July 31, 1998.
<TABLE>
<CAPTION>
AVERAGE
ANNUAL CUMULATIVE
RETURN RETURN
------- ----------
<S> <C> <C>
Twelve months ended 7/31/98.............................. 6.79 % 5.66%
Five years ended 7/31/97................................. 5.19 % 28.78%
Ten years ended 7/31/97.................................. 6.82 % 93.38%
</TABLE>
The 30 day yield of the Institutional Class as of July 31, 1998 was 4.79%.
A hypothetical investment of $1,000 in the Institutional Class made at the
beginning of the twelve-month period ended July 31, 1998 would have been worth
$1,067.90. During the five-year period ended July 31, 1998, a hypothetical
$1,000 investment in the Institutional Class at the beginning of such period
would have been worth $1,287.80. A hypothetical investment of $1,000 made at the
beginning of the ten-year period ended July 31, 1998, would have been worth
$1,933.76, assuming in each case that all distributions were reinvested.
The performance of the Institutional Class may be compared in advertising to
the performance of other mutual funds in general or of particular types of
mutual funds, especially those with similar objectives. Such performance data
may be prepared by Lipper Analytical Services, Inc. and other independent
services which monitor the performance of mutual funds. The Institutional Class
may also advertise mutual fund performance rankings which have been assigned to
the Institutional Class by such monitoring services.
PORTFOLIO TRANSACTIONS
GENERAL BROKERAGE POLICY
A I M Advisors, Inc. ("AIM") makes decisions to buy and sell securities for
each Fund, selects broker-dealers, effects the Funds' investment portfolio
transactions, allocates brokerage fees in such transactions, and where
applicable, negotiates commissions and spreads on transactions. Since most
purchases and sales of portfolio securities by the Funds are usually principal
transactions, the Funds incur little or no brokerage commissions. AIM's primary
consideration in effecting a security transaction is to obtain the most
favorable execution of the order, which includes the best price on the security
and a low commission rate. While AIM seeks reasonably competitive commission
rates, the Funds may not pay the lowest commission or spread available. See
"Section 28(e) Standards" below.
In the event a Fund purchases securities traded in the over-the-counter
market, the Fund deals directly with dealers who make markets in the securities
involved, except when better prices are available elsewhere. Portfolio
transactions placed through dealers who are primary market makers are effected
at net prices without commissions, but which include compensation in the form of
a mark up or mark down.
Traditionally, commission rates have not been negotiated on stock markets
outside the United States. Although in recent years many overseas stock markets
have adopted a system of negotiated rates, a number of markets maintain an
established schedule of minimum commission rates.
AIM may determine target levels of commission business with various brokers on
behalf of its clients (including the Funds) over a certain time period. The
target levels will be based upon the following factors, among others: (1) the
execution services provided by the broker; (2) the research services provided by
the broker; and (3) the broker's interest in mutual funds in general and in the
Funds and other mutual funds advised by AIM or A I M Capital Management, Inc.
(collectively, the "AIM Funds") in particular, including sales of the Funds and
of the other AIM Funds. In connection with (3) above, the Funds' trades may be
executed directly by dealers that sell shares of the AIM Funds or by other
broker-dealers with which such dealers have clearing arrangements. AIM will not
use a specific formula in connection with any of these considerations to
determine the target levels.
AIM will seek, whenever possible, to recapture for the benefit of a Fund any
commissions, fees, brokerage or similar payments paid by the Fund on portfolio
transactions. Normally, the only fees which AIM can recapture are the soliciting
dealer fees on the tender of a Fund's portfolio securities in a tender or
exchange offer.
Under the Investment Company Act of 1940, as amended, (the "1940 Act"),
certain persons affiliated with the Trust are prohibited from dealing with the
Funds as principal in any purchase or sale of securities unless an exemptive
order allowing
13
<PAGE> 112
such transactions is obtained from the SEC. 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 an AIM Fund, provided the
conditions of an exemptive order received by the AIM 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 1940 Act also prohibits the Funds from purchasing a security being
publicly underwritten by a syndicate of which certain persons affiliated with
the Trust are members except in accordance with certain conditions.
ALLOCATION OF PORTFOLIO TRANSACTIONS
AIM and its affiliates manage several other investment accounts. Some of these
accounts may have investment objectives similar to the Funds. Occasionally,
identical securities will be appropriate for investment by one of the Funds and
by another AIM Fund or one or more of these investment accounts. However, the
position of each account in the same securities and the length of time that each
account may hold its investment in the same securities may vary. The timing and
amount of purchase by each account will also be determined by its cash position.
If the purchase or sale of securities is consistent with the investment policies
of the Fund(s) and one or more of these accounts, and is considered at or about
the same time, AIM will fairly allocate transactions in such securities among
the Fund(s) and these accounts. AIM may combine such transactions, in accordance
with applicable laws and regulations, to obtain the most favorable execution.
Simultaneous transactions could, however, adversely affect a Fund's ability to
obtain or dispose of the full amount of a security which it seeks to purchase or
sell.
Sometimes the procedure for allocating portfolio transactions among the
various investment accounts advised by AIM could have an adverse effect on the
price or amount of securities available to a Fund. In making such allocations,
AIM considers the investment objectives and policies of its advisory clients,
the relative size of portfolio holdings of the same or comparable securities,
the availability of cash for investment, the size of investment commitments
generally held, and the judgments of the persons responsible for recommending
the investment.
SECTION 28(e) STANDARDS
Section 28(e) of the Securities Exchange Act of 1934 provides that AIM, under
certain circumstances, lawfully may cause an account to pay a higher commission
than the lowest available. Under Section 28(e), AIM must make a good faith
determination that the commissions paid are "reasonable in relation to the value
of the brokerage and research services provided . . . viewed in terms of either
that particular transaction or [AIM's] overall responsibilities with respect to
the accounts as to which it exercises investment discretion." The services
provided by the broker also must lawfully and appropriately assist AIM in the
performance of its investment decision-making responsibilities. Accordingly, in
recognition of research services provided to it, a Fund may pay a broker higher
commissions than those available from another broker.
Research services received from broker-dealers supplement AIM's own research
(and the research of its affiliates), and may include the following types of
information: statistical and background information on the U.S. and foreign
economies, industry groups and individual companies; forecasts and
interpretations with respect to the U.S. and foreign economies, securities,
markets, specific industry groups and individual companies; information on
federal, state, local and foreign political developments; portfolio management
strategies; performance information on securities, indexes and investment
accounts; information concerning prices of securities; and information supplied
by specialized services to AIM and to the Trust's trustees with respect to the
performance, investment activities, and fees and expenses of other mutual funds.
Broker-dealers may communicate such information electronically, orally or in
written form. Research services may also include the providing of custody
services, as well as the providing of equipment used to communicate research
information, the providing of specialized consultations with AIM personnel with
respect to computerized systems and data furnished to AIM as a component of
other research services, the arranging of meetings with management of companies,
and the providing of access to consultants who supply research information.
The outside research assistance is useful to AIM since the broker-dealers used
by AIM tend to follow a broader universe of securities and other matters than
AIM's staff can follow. In addition, the research provides AIM with a diverse
perspective on financial markets. Research services provided to AIM by
broker-dealers are available for the benefit of all accounts managed or advised
by AIM or by its affiliates. Some broker-dealers may indicate that the provision
of research services is dependent upon the generation of certain specified
levels of commissions and underwriting concessions by AIM's clients, including
the Funds. However, the Funds are not under any obligation to deal with any
broker-dealer in the execution of transactions in portfolio securities.
In some cases, the research services are available only from the broker-dealer
providing them. In other cases, the research services may be obtainable from
alternative sources in return for cash payments. AIM believes that the research
services are
14
<PAGE> 113
beneficial in supplementing AIM's research and analysis and that they improve
the quality of AIM's investment advice. The advisory fee paid by the Funds is
not reduced because AIM receives such services. However, to the extent that AIM
would have purchased research services had they not been provided by
broker-dealers, the expenses to AIM could be considered to have been reduced
accordingly.
Limited Maturity paid no brokerage commissions to brokers affiliated with that
Fund during the past three fiscal years of the Fund.
Changes in the portfolio holdings of the Fund are made without regard to
whether a sale would result in a profit or loss. The portfolio turnover rate of
the Fund for the years ended July 31, 1998, 1997 and 1996, were 132.59%,
129.74%, and 117.09%, respectively. High portfolio turnover involves
correspondingly greater transaction costs which are borne directly by the Fund,
and may increase capital gains which are taxable as ordinary income when
distributed to shareholders.
TAXES
The following is only a summary of certain additional tax considerations
generally affecting the Fund and its shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Fund or its shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
The Fund intends to qualify as a regulated investment company under Subchapter
M of the Internal Revenue Code of 1986, as amended (the "Code"). As a regulated
investment company, the Fund is not subject to federal income tax on the portion
of its net investment income (i.e., its taxable interest, dividends and other
taxable ordinary income, net of expenses) and realized capital gain net income
(i.e., the excess of capital gains over capital losses) that it distributes to
shareholders, provided that it distributes at least 90% of its investment
company taxable income (i.e., net investment income and the excess of net
short-term capital gain over net long-term capital loss) for the taxable year
(the "Distribution Requirement"), and satisfies certain other requirements of
the Code that are described below. Distributions by the Fund made during the
taxable year or, under specified circumstances, within 12 months after the close
of the taxable year, will be considered distributions of income and gains of the
taxable year and can therefore satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement, the Fund must derive
at least 90% of its gross income from dividends, interest, certain payments with
respect to securities loans, gains from the sale or other disposition of stock
or securities or foreign currencies (to the extent such currency gains are
ancillary to the Fund's principal business of investing in stock or securities)
and other income (including but not limited to gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies (the "Income Requirement").
In general, gain or loss recognized by the Fund on the disposition of an asset
will be a capital gain or loss. However, gain recognized on the disposition of a
debt obligation purchased by the Fund at a market discount (generally, at a
price less than its principal amount) will be treated as ordinary income to the
extent of the portion of the market discount which accrued during the period of
time the Fund held the debt obligation. In addition, if the Fund purchases a
debt obligation that was originally issued at a discount, the Fund is generally
required to include in gross income each year the portion of the original issue
discount which accrues during such year.
The Fund may enter into notional principal contracts, including interest rate
swaps, caps, floors and collars. Under Treasury regulations, in general, the net
income or deduction from a notional principal contract for a taxable year is
included in or deducted from gross income for that taxable year. The net income
or deduction from a notional principal contract for a taxable year equals the
total of all of the periodic payments (generally, payments that are payable or
receivable at fixed periodic intervals of one year or less during the entire
term of the contract) that are recognized from that contract for the taxable
year and all of the non-periodic payments (including premiums for caps, floors
and collars), even if paid in periodic installments, that are recognized from
that contract for the taxable year. A periodic payment is recognized ratably
over the period to which it relates. In general, a non-periodic payment must be
recognized over the term of the notional principal contract in a manner that
reflects the economic substance of the contract. A non-periodic payment that
relates to an interest rate swap, cap, floor or collar shall be recognized over
the term of the contract by allocating it in accordance with the values of a
series of cash-settled forward or option contracts that reflect the specified
index and notional principal amount upon which the notional principal contract
is based (or, in the case of a swap or of a cap or floor that hedges a debt
instrument, under alternative methods contained in the regulations and, in the
case of other notional principal contracts, under alternative methods that the
IRS may provide in a revenue procedure).
15
<PAGE> 114
Treasury regulations permit a regulated investment company, in determining its
investment company taxable income and net capital gain (i.e., the excess of net
long-term capital gain over net short-term capital loss) for any taxable year,
to elect (unless it has made a taxable year election for excise tax purposes as
discussed below) to treat all or part of any net capital loss, any net long-term
capital loss or any net foreign currency loss incurred after October 31 as if it
had been incurred in the succeeding year.
In addition to satisfying the requirements described above, the Fund must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of the Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of the Fund's total assets in securities
of such issuer and as to which the Fund does not hold more than 10% of the
outstanding voting securities of such issuer), and no more than 25% of the value
of its total assets may be invested in the securities of any one issuer (other
than U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses.
If for any taxable year the Fund does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable as
ordinary dividends to the extent of the Fund's current and accumulated earnings
and profits. Such distributions generally will be eligible for the dividends
received deduction in the case of corporate shareholders.
EXCISE TAX ON REGULATED INVESTMENT COMPANIES
A 4% non-deductible excise tax is imposed on regulated investment companies
that fail to distribute in each calendar year an amount equal to 98% of ordinary
taxable income for the calendar year and 98% of capital gain net income gain or
loss for the one-year period ended on October 31 of such calendar year (or, at
the election of a regulated investment company having a taxable year ending
November 30 or December 31, for its taxable year (a "taxable year election")).
The balance of such income must be distributed during the next calendar year.
For the foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall (1)
reduce its capital gain net income (but not below its net capital gain) by the
amount of any net ordinary loss for the calendar year and (2) exclude Section
988 foreign currency gains and losses incurred after October 31 of any year (or
after the end of its taxable year if it has made a taxable year election) in
determining the amount of ordinary taxable income for the current calendar year
(and, instead, include such gains and losses in determining ordinary taxable
income for the succeeding calendar year).
The Fund intends to make sufficient distributions or deemed distributions of
its ordinary taxable income and capital gain net income prior to the end of each
calendar year to avoid liability for the excise tax. However, investors should
note that the Fund may in certain circumstances be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability.
FUND DISTRIBUTIONS
The Fund anticipates distributing substantially all of its investment company
taxable income and short-term capital gains for each taxable year. Such
distributions will be taxable to shareholders as ordinary income and treated as
dividends for federal income tax purposes, but they will not qualify for the 70%
dividends received deduction for corporations.
The Fund may either retain or distribute to shareholders its net long-term
capital gain for each taxable year. The Fund currently intends to distribute any
such amounts. If net capital gain is distributed and designated as a capital
gain dividend, it will be taxable to shareholders as long-term capital gain
(taxable at a maximum rate of 20%), regardless of the length of time the
shareholder has held his shares or whether such gain was recognized by the Fund
prior to the date on which the shareholder acquired his shares. Conversely, if
the Fund elects to retain its net capital gain, the Fund will be taxed thereon
(except to the extent of any available capital loss carryovers) at the 35%
corporate tax rate. If the Fund elects to retain net capital gain, it is
expected that the Fund also will elect to have shareholders treated as if each
received a distribution of its pro rata share of such gain, with the result that
each shareholder will be required to report its pro rata share of such gain on
its tax return as long-term capital gain, will receive a refundable tax credit
for its pro rata share of tax paid by the Fund on the gain, and will increase
the tax basis for its shares by an amount equal to the deemed distribution less
the tax credit.
Distributions by the Fund that do not constitute ordinary income dividends or
capital gain dividends will be treated as a return of capital to the extent of
(and in reduction of) the shareholder's tax basis in his shares; any excess will
be treated as gain from the sale of his shares, as discussed below.
16
<PAGE> 115
Distributions by the Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or any other fund in the AIM Funds). Shareholders
receiving a distribution in the form of additional shares will be treated as
receiving a distribution in an amount equal to the fair market value of the
shares received, determined as of the reinvestment date. In addition, if the net
asset value at the time a shareholder purchases shares of the Fund reflects
undistributed net investment income or recognized capital gain net income, or
unrealized appreciation in the value of the assets of the Fund, distributions of
such amounts will be taxable to the shareholder in the manner described above,
although such distributions economically constitute a return of capital to the
shareholder.
Ordinarily, shareholders are required to take distributions by the Fund into
account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made in certain cases)
during the year in accordance with the guidance that has been provided by the
Internal Revenue Service.
The Fund is required in certain cases to withhold and remit to the U.S.
Treasury 31% of ordinary income dividends and capital gain dividends, and the
proceeds of redemption of shares, paid to any shareholder (1) who has provided
either an incorrect tax identification number or no number at all, (2) who is
subject to backup withholding by the Internal Revenue Service for failure to
report the receipt of interest or dividend income properly, or (3) who has
failed to certify to the Fund that it is not subject to backup withholding or
that it is a corporation or other "exempt recipient."
SALE OR REDEMPTION OF FUND SHARES
A shareholder will recognize gain or loss on the sale or redemption of shares
of the Fund in an amount equal to the difference between the proceeds of the
sale or redemption and the shareholder's adjusted tax basis in the shares. In
general, any gain or loss arising from (or treated as arising from) the sale or
redemption of shares of the Fund will be considered capital gain or loss and
will be long-term capital gain or loss if the shares were held for longer than
one year. Except to the extent otherwise provided in future Treasury
regulations, any long-term capital gain recognized by a noncorporate shareholder
will be subject to tax at a maximum rate of 20%. However, any capital loss
arising from the sale or redemption of shares held for six months or less will
be treated as a long-term capital loss to the extent of the amount of capital
gain dividends received on such shares. For this purpose, the special holding
period rules of Code Section 246(c)(3) and (4) generally will apply in
determining the holding period of shares. Long-term capital gains of
non-corporate taxpayers are currently taxed at a maximum rate that in some cases
may be 19.6% lower than the maximum rate applicable to ordinary income. Capital
losses in any year are deductible only to the extent of capital gains plus, in
the case of a noncorporate taxpayer, $3,000 of ordinary income.
If a shareholder (i) incurs a sales load in acquiring shares of the Fund, (ii)
disposes of such shares less than 91 days after they are acquired and (iii)
subsequently acquires shares of the same or another fund at a reduced sales load
pursuant to a right to reinvest at such reduced sales load acquired in
connection with the acquisition of the shares disposed of, then the sales load
on the shares disposed of (to the extent of the reduction in the sales load on
the shares subsequently acquired) shall not be taken into account in determining
gain or loss on the shares disposed of but shall be treated as incurred on the
acquisition of the shares subsequently acquired.
FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a nonresident alien
individual, foreign trust or estate, foreign corporation, or foreign partnership
("foreign shareholder"), depends on whether the income from the Fund is
"effectively connected" with a U.S. trade or business carried on by such
shareholder.
If the income from the Fund is not effectively connected with a U.S. trade or
business carried on by a foreign shareholder, ordinary income dividends and
return of capital distributions (other than capital gains dividends) will be
subject to U.S. withholding tax at the rate of 30% (or lower treaty rate) upon
the gross amount of the distribution. Such a foreign shareholder would generally
be exempt from U.S. federal income tax on gains realized on the sale or
redemption of shares of the Fund, capital gain dividends and amounts retained by
the Fund that are designated as undistributed net capital gains.
If the income from the Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends and any gains realized upon the sale or redemption of
shares of the Fund will be subject to U.S. federal income tax at the rates
applicable to U.S. citizens or domestic corporations.
In the case of foreign non-corporate shareholders, the Fund may be required to
withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding tax (or taxable at a reduced treaty rate)
unless such shareholders furnish the Fund with proper notification of their
foreign status.
17
<PAGE> 116
The tax consequences to a foreign shareholder entitled to claim the benefits
of an applicable tax treaty may be different from those described herein.
Foreign shareholders are urged to consult their own tax advisors with respect to
the particular tax consequences to them of an investment in the Fund, including
the applicability of foreign taxes.
EFFECT OF FUTURE LEGISLATION; LOCAL TAX CONSIDERATIONS
The foregoing general discussion of U.S. federal income tax consequences is
based on the Code and regulations issued thereunder as in effect on the date of
this Statement of Additional Information. Future legislative or administrative
changes or court decisions may significantly change the conclusions expressed
herein, and any such changes or decisions may have a retroactive effect with
respect to the transactions contemplated herein.
Rules of state and local taxation of ordinary income dividends and capital
gain dividends from regulated investment companies often differ from the rules
for U.S. federal income taxation described above. The tax treatment of foreign
investors may also differ from the treatment for U.S. investors described above.
Shareholders are urged to consult their tax advisors as to the consequences of
these and other state and local tax rules affecting investments in the Fund.
18
<PAGE> 117
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders of
AIM Investment Securities Funds:
We have audited the accompanying statement of assets and liabilities of the AIM
Limited Maturity Treasury Fund (a portfolio of AIM Investment Securities Funds)
including the schedule of investments, as of July 31, 1998, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the years in the two-year period then ended, and the
financial highlights for each of the years in the four-year period then ended,
the eleven months ended July 31, 1994 and the year ended August 31, 1993. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of July
31, 1998, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
AIM Limited Maturity Treasury Fund as of July 31, 1998, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended, and the financial highlights for
each of the years in the four-year period then ended, the eleven months ended
July 31, 1994 and the year ended August 31, 1993, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
September 4, 1998
Houston, Texas
FS-1
<PAGE> 118
SCHEDULE OF INVESTMENTS
JULY 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MARKET
MATURITY (000S) VALUE
<S> <C> <C> <C>
U.S. TREASURY SECURITIES
U.S. TREASURY NOTES-99.00%
5.875% 08/31/99 $32,250 $ 32,384,160
- -----------------------------------------------------------------------------------------
5.75% 09/30/99 32,045 32,143,378
- -----------------------------------------------------------------------------------------
5.625% 10/31/99 32,275 32,324,058
- -----------------------------------------------------------------------------------------
5.625% 11/30/99 33,400 33,456,446
- -----------------------------------------------------------------------------------------
5.625% 12/31/99 33,000 33,059,400
- -----------------------------------------------------------------------------------------
5.375% 01/31/00 33,075 33,022,742
- -----------------------------------------------------------------------------------------
5.50% 02/29/00 33,000 33,006,930
- -----------------------------------------------------------------------------------------
5.50% 03/31/00 32,000 32,008,320
- -----------------------------------------------------------------------------------------
5.625% 04/30/00 32,300 32,367,184
- -----------------------------------------------------------------------------------------
5.50% 05/31/00 32,500 32,501,300
- -----------------------------------------------------------------------------------------
5.375% 06/30/00 32,840 32,783,515
- -----------------------------------------------------------------------------------------
5.375% 07/31/00 33,000 32,936,930
- -----------------------------------------------------------------------------------------
Total U.S. Treasury Securities (Cost
$391,293,845) 391,994,363
- -----------------------------------------------------------------------------------------
TOTAL INVESTMENTS-99.00% 391,994,363
- -----------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-1.00% 3,970,184
- -----------------------------------------------------------------------------------------
NET ASSETS-100.00% $395,964,547
=========================================================================================
</TABLE>
See Notes to Financial Statements.
FS-2
<PAGE> 119
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $391,293,845) $ 391,994,363
- ----------------------------------------------------------------------------
Cash 58,653
- ----------------------------------------------------------------------------
Receivables for:
Fund shares sold 1,240,495
- ----------------------------------------------------------------------------
Interest 4,627,571
- ----------------------------------------------------------------------------
Investment in deferred compensation plan 24,994
- ----------------------------------------------------------------------------
Other assets 73,132
- ----------------------------------------------------------------------------
Total assets 398,019,208
- ----------------------------------------------------------------------------
LIABILITIES:
Payables for:
Fund shares reacquired 1,023,583
- ----------------------------------------------------------------------------
Dividends 599,786
- ----------------------------------------------------------------------------
Deferred compensation 24,994
- ----------------------------------------------------------------------------
Accrued administrative services fees 5,227
- ----------------------------------------------------------------------------
Accrued advisory fees 67,422
- ----------------------------------------------------------------------------
Accrued distribution fees 62,503
- ----------------------------------------------------------------------------
Accrued transfer agent fees 33,450
- ----------------------------------------------------------------------------
Accrued operating expenses 237,696
- ----------------------------------------------------------------------------
Total liabilities 2,054,661
- ----------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $ 395,964,547
============================================================================
</TABLE>
<TABLE>
<S> <C>
NET ASSETS:
Class A $ 345,355,189
============================================================================
Institutional Class $ 50,609,358
============================================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 34,300,002
- ----------------------------------------------------------------------------
Institutional Class 5,026,426
============================================================================
Class A:
Net asset value and redemption price per share $ 10.07
============================================================================
Offering price per share:
(Net asset value of $10.07 divided by 99.00%) $ 10.17
============================================================================
Institutional Class:
Net asset value and offering price per share $ 10.07
============================================================================
</TABLE>
FS-3
<PAGE> 120
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $24,949,619
- -------------------------------------------------------------------------
EXPENSES:
Advisory fees 855,900
- -------------------------------------------------------------------------
Administrative services fees 59,396
- -------------------------------------------------------------------------
Custodian fees 36,726
- -------------------------------------------------------------------------
Transfer agent fees-Class A 307,594
- -------------------------------------------------------------------------
Transfer agent fees-Institutional Class 45,118
- -------------------------------------------------------------------------
Trustees' fees and expenses 24,508
- -------------------------------------------------------------------------
Distribution fees-Class A (See Note 2) 567,049
- -------------------------------------------------------------------------
Other 298,763
- -------------------------------------------------------------------------
Total expenses 2,195,054
- -------------------------------------------------------------------------
Less: Expenses paid indirectly (4,054)
- -------------------------------------------------------------------------
Net expenses 2,191,000
- -------------------------------------------------------------------------
Net investment income 22,758,619
- -------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES:
Net realized gain from investment securities 1,855,056
- -------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities (1,793,413)
- -------------------------------------------------------------------------
Net gain from investment securities 61,643
- -------------------------------------------------------------------------
Net increase in net assets resulting from operations $22,820,262
=========================================================================
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED JULY 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ --------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 22,758,619 $ 22,525,910
- --------------------------------------------------------------------------------------------
Net realized gain (loss) on sales of investment securities 1,855,056 (328,964)
- --------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities (1,793,413) 4,775,213
- --------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 22,820,262 26,972,159
- --------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A (20,003,878) (19,613,259)
- --------------------------------------------------------------------------------------------
Institutional Class (2,754,741) (2,912,651)
- --------------------------------------------------------------------------------------------
SHARE TRANSACTIONS-NET:
Class A (44,498,315) 27,226,897
- --------------------------------------------------------------------------------------------
Institutional Class 1,723,996 (95,511,728)
- --------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (42,712,676) (63,838,582)
- --------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 438,677,223 502,515,805
- --------------------------------------------------------------------------------------------
End of period $395,964,547 $ 438,677,223
============================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $400,652,004 $ 443,515,589
- --------------------------------------------------------------------------------------------
Undistributed net investment income 88,842 --
- --------------------------------------------------------------------------------------------
Undistributed realized gain (loss) on sales of investment
securities (5,476,817) (7,332,297)
- --------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 700,518 2,493,931
- --------------------------------------------------------------------------------------------
$395,964,547 $ 438,677,223
============================================================================================
</TABLE>
See Notes to Financial Statements.
FS-4
<PAGE> 121
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1998
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Investment Securities Funds (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end series
management investment company. The Trust is organized as a Delaware business
trust consisting of one portfolio, the AIM Limited Maturity Treasury Fund (the
"Fund"). The investment objective of the Fund is to seek liquidity with minimum
fluctuation in principal value and, consistent with this investment objective,
the highest total return achievable. The Fund currently offers two different
classes of shares: the Class A shares and the Institutional Class. Matters
affecting each portfolio or class are voted on exclusively by the shareholders
of such portfolio or class. The assets, liabilities and operations of each
portfolio are accounted for separately. Information presented in these financial
statements pertains only to the Fund.
The 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 at the date of these
financial statements and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the preparation of its financial statements.
A. Security Valuations--Debt obligations that are issued or guaranteed by the
U.S. Treasury are valued on the basis of prices provided by an independent
pricing service. Prices provided by the pricing service may be determined
without exclusive reliance on quoted prices, and may reflect appropriate
factors such as yield, type of issue, coupon rate and maturity date.
Securities for which market prices are not provided by the pricing service
are valued at the mean between last bid and asked prices based upon quotes
furnished by independent sources. Securities for which market quotations are
not readily available or are questionable are valued at fair value as
determined in good faith by or under the supervision of the Trust's officers
in a manner specifically authorized by the Board of Trustees. Securities
with a remaining maturity of 60 days or less are valued at amortized cost
which approximates market value.
B. Securities Transactions and Investment Income--Securities transactions are
accounted for on a trade date basis. Interest income, adjusted for
amortization of discounts on investments, is earned from settlement date and
is recorded on the accrual basis. It is the policy of the Fund not to
amortize bond premiums for financial reporting purposes. Interest income is
allocated to each class daily, based upon each class' pro-rata share of the
total shares of the Fund outstanding. Realized gains and losses from
securities transactions are recorded on the identified cost basis. On July
31, 1998, undistributed net investment income was increased by $88,842,
undistributed net realized gain (loss) decreased by $424 and paid-in-capital
decreased by $89,266 in order to comply with the requirements of the
American Institute of Certified Public Accountants Statement of Position
93-2. Net assets of the Fund were unaffected by the reclassifications
discussed above.
C. Dividends and Distributions to Shareholders--It is the policy of the Fund to
declare daily dividends from net investment income. Such dividends are paid
monthly. Distributions from net realized capital gains, if any, are recorded
on ex-dividend date and are paid annually.
D. Federal Income Taxes--The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements. The Fund has a capital loss
carryforward (which may be carried forward to offset future taxable capital
gains, if any) of $5,440,638, which expires, if not previously utilized,
through the year 2005.
E. Expenses -- Distribution and transfer agency expenses directly attributable
to a class of shares are charged to that class' operations. All other
expenses which are attributable to more than one class are allocated between
the classes.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM") with respect to the Fund. Under the terms of the master
investment advisory agreement, the Fund pays AIM an
FS-5
<PAGE> 122
advisory fee at the annual rate of 0.20% of the first $500 million of the Fund's
average daily net assets plus 0.175% of the Fund's average daily net assets in
excess of $500 million.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to reimburse AIM for certain administrative costs incurred in providing
accounting services to the Fund. During the year ended July 31, 1998, the Fund
reimbursed AIM $59,396 for such services.
The Fund, pursuant to a transfer agent and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. On September 20, 1997, the Board of Trustees
of the Fund approved the appointment of AFS as transfer agent of the
Institutional Class effective December 29, 1997. During the year ended July 31,
1998, AFS was paid $136,066 with respect to Class A shares, and for the period
December 29, 1997 through July 31, 1998, AFS was paid $26,979 with respect to
the Institutional Class. Prior to the effective date of the agreement with AFS,
the Fund paid A I M Institutional Fund Services, Inc. $18,419 pursuant to a
transfer agency and shareholder services agreement with respect to the
Institutional Class for the period August 1, 1997 through December 28, 1997.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A shares and a master distribution agreement with Fund Management Company
("FMC") to serve as the distributor for the Institutional Class. The Trust has
adopted a Plan pursuant to Rule 12b-1 under the 1940 Act (the "Plan") with
respect to the Class A shares. The Fund pays AIM Distributors compensation at an
annual rate of 0.15% of the average daily net assets attributable to the Class A
shares. The Plan is designed to compensate AIM Distributors for certain
promotional and other sales related costs and provides periodic payments to
selected dealers and financial institutions who furnish continuing personal
shareholder services to their customers who purchase and own Class A shares of
the Fund. Any amounts not paid as a service fee under the Plan would constitute
an asset-based sales charge. The Plan also imposes a cap on the total amount of
sales charges, including asset-based sales charges, that may be paid by the
Fund. During the year ended July 31, 1998, the Fund paid AIM Distributors
$567,049 as compensation under the Plan.
AIM Distributors received commissions of $56,989 during the year ended July
31, 1998 from sales of Class A shares. Such commissions are not an expense of
the Fund. They are deducted from, and are not included in, proceeds from sales
of Class A shares. Certain officers and trustees of the Trust are officers and
directors of AIM, AIM Distributors, FMC and AFS.
During the year ended July 31, 1998, the Fund paid legal fees of $4,177 for
services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the Board
of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3-INDIRECT EXPENSES
The Fund received reductions in transfer agency fees from AFS (an affiliate of
AIM) of $4,054 under an expense offset arrangement which resulted in a reduction
of the Fund's total expenses of $4,054 during the year ended July 31, 1998.
NOTE 4-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $1,000,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. Interest on
borrowings under the line of credit is payable on maturity or prepayment date.
Prior to an amendment of the line of credit on May 1, 1998, the Fund was limited
to borrowing up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. During the year ended July 31, 1998, the Fund did not
borrow under the line of credit agreement. The funds which are parties to the
line of credit are charged a commitment fee of 0.05% on the unused balance of
the committed line. The commitment fee is allocated among such funds based on
their respective average net assets for the period.
NOTE 5-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended July 31, 1998 was
$569,622,549 and $612,378,696, respectively.
FS-6
<PAGE> 123
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of July 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $ 692,739
- --------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (17,945)
- --------------------------------------------------------------------------
Net unrealized appreciation of investment securities $ 674,794
==========================================================================
Cost of investments for tax purposes is $391,319,569.
</TABLE>
NOTE 6-TRUSTEES' FEES
Trustees' fees represent remuneration paid or accrued to each trustee who is not
an "interested person" of AIM. The Trust may invest trustees' fees, if so
elected by a trustee, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 7-SHARE INFORMATION
Changes in shares outstanding during the years ended July 31, 1998 and 1997 were
as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------- ----------- -------------
<S> <C> <C> <C> <C>
Sold:
Class A 22,832,451 $ 229,871,705 22,795,689 $ 228,371,816
- -------------------------------------------- ------------ ------------- ---------- -------------
Institutional Class 1,450,340 14,604,304 2,663,678 26,662,958
- -------------------------------------------- ------------ ------------- ---------- -------------
Issued as a reinvestment of dividends:
Class A 1,671,295 16,825,885 1,600,608 16,029,270
- -------------------------------------------- ------------ ------------- ---------- -------------
Institutional Class 4,391 44,205 16,172 161,587
- -------------------------------------------- ------------ ------------- ---------- -------------
Reacquired:
Class A (28,922,414) (291,195,905) (21,687,977) (217,174,189)
- -------------------------------------------- ------------ ------------- ---------- -------------
Institutional Class (1,281,958) (12,924,513) (12,215,116) (122,336,273)
- -------------------------------------------- ------------ ------------- ---------- -------------
(4,245,895) $ (42,774,319) (6,826,946) $ (68,284,831)
============================================ ============ ============= ========== =============
</TABLE>
NOTE 8-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of the Institutional Class
outstanding during each of the years in the four-year period ended July 31,
1998, the eleven months ended July 31, 1994 and the year ended August 31, 1993.
<TABLE>
<CAPTION>
JULY 31,
-------------------------------------------------- AUGUST 31,
1998 1997 1996 1995 1994 1993
------- ------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.07 $ 9.97 $ 10.03 $ 9.96 $ 10.24 $ 10.21
- --------------------------------------------- ------- ------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.56 0.56 0.58 0.57 0.37 0.44
- --------------------------------------------- ------- ------- -------- -------- -------- --------
Net gains (losses) on securities (both
realized and unrealized) -- 0.10 (0.06) 0.07 (0.20) 0.05
- --------------------------------------------- ------- ------- -------- -------- -------- --------
Total from investment operations 0.56 0.66 0.52 0.64 0.17 0.49
- --------------------------------------------- ------- ------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.56) (0.56) (0.58) (0.57) (0.37) (0.44)
- --------------------------------------------- ------- ------- -------- -------- -------- --------
Distributions from net realized gains -- -- -- -- (0.08) (0.02)
- --------------------------------------------- ------- ------- -------- -------- -------- --------
Total distributions (0.56) (0.56) (0.58) (0.57) (0.45) (0.46)
- --------------------------------------------- ------- ------- -------- -------- -------- --------
Net asset value, end of period $ 10.07 $ 10.07 $ 9.97 $ 10.03 $ 9.96 $ 10.24
============================================= ======= ======= ======== ======== ======== ========
Total return(a) 5.66% 6.79% 5.27% 6.61% 1.72% 4.88%
============================================= ======= ======= ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $50,609 $48,866 $143,468 $129,530 $134,971 $130,690
============================================= ======= ======= ======== ======== ======== ========
Ratio of expenses to average net assets 0.32%(b) 0.31% 0.27% 0.28% 0.25%(c) 0.24%
============================================= ======= ======= ======== ======== ======== ========
Ratio of net investment income to average net
assets 5.51%(b) 5.56% 5.72% 5.70% 3.98%(c) 4.30%
============================================= ======= ======= ======== ======== ======== ========
Portfolio turnover rate 133% 130% 117% 120% 120% 123%
============================================= ======= ======= ======== ======== ======== ========
</TABLE>
(a) Total returns are not annualized for the periods less than one year.
(b) Ratios are based on average net assets of $49,917,358.
(c) Annualized.
FS-7
