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[APPLICATION INSIDE]
[AIM LOGO APPEARS HERE]
THE AIM FAMILY OF FUNDS--Registered Trademark--
AIM Investment Securities Funds
AIM HIGH YIELD FUND II
PROSPECTUS
October 1, 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 HIGH YIELD FUND II (the "Fund").
The investment objective of the Fund is to achieve a high level of current
income by investing primarily in publicly traded debt securities of less than
investment grade.
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 October 1, 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, Texas 77210-4739. 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 Trust.
Additional information about the Fund may also be obtained on the Web at
http://www.aimfunds.com.
AIM HIGH YIELD FUND II MAY INVEST UP TO 100% OF ITS NET ASSETS IN NON-INVESTMENT
GRADE DEBT SECURITIES, COMMONLY REFERRED TO AS "JUNK BONDS." JUNK BONDS ARE
CONSIDERED TO BE SPECULATIVE, AND ENTAIL GREATER RISKS, INCLUDING DEFAULT RISKS,
THAN THOSE FOUND IN HIGHER RATED SECURITIES. SEE "INVESTMENT PROGRAM," "CERTAIN
INVESTMENT STRATEGIES AND POLICIES -- RISK FACTORS REGARDING NON-INVESTMENT
GRADE DEBT SECURITIES" AND "APPENDIX B -- DESCRIPTIONS OF RATING CATEGORIES."
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.
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
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PAGE
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SUMMARY................................ 2
THE FUND............................... 4
Table of Fees and Expenses........... 4
Performance.......................... 6
About the Fund....................... 6
Investment Program................... 6
Certain Investment Strategies and
Policies.......................... 7
Management........................... 10
Organization of the Trust............ 13
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-9
Exchange Privilege................... A-11
How to Redeem Shares................. A-13
Determination of Net Asset Value..... A-17
Dividends, Distributions and Tax
Matters........................... A-18
General Information.................. A-20
Appendix A........................... A-22
Appendix B........................... A-23
Application Instructions............... B-1
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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 HIGH YIELD FUND II
(the "Fund") and AIM LIMITED MATURITY TREASURY FUND. This Prospectus relates
solely to the Class A, Class B and Class C shares of the Fund. Shares of the
other portfolio of the Trust are offered to investors pursuant to separate
prospectuses.
The investment objective of the Fund is to achieve a high level of current
income by investing primarily in publicly traded debt securities of less than
investment grade. THERE IS NO ASSURANCE THAT THE INVESTMENT OBJECTIVE 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 of performing, or
arranging for the performance of, certain accounting, shareholder servicing and
other administrative services for the Fund.
MULTIPLE DISTRIBUTION SYSTEM. Investors may select Class A, Class B or Class C
shares of the Fund, all of which are offered by this Prospectus at an offering
price that reflects differing sales charges and expense levels. See "Terms and
Conditions of Purchase of the AIM Funds -- Sales Charges and Dealer
Concessions."
Class A Shares -- Shares are offered at net asset value plus any
applicable initial sales charge.
Class B Shares -- Shares are offered at net asset value, without an
initial sales charge, and are subject to a maximum contingent deferred
sales charge of 5% on certain redemptions made within six years from the
date such shares were purchased. Class B shares automatically convert to
Class A shares of the Fund eight years following the end of the calendar
month in which a purchase was made. Class B shares are subject to higher
expenses than Class A shares.
Class C Shares -- Shares are offered at net asset value, without an
initial sales charge, and are subject to a contingent deferred sales charge
of 1% on certain redemptions made within one year from the date such shares
were purchased.
SUITABILITY FOR INVESTORS. The multiple class structure permits an investor to
choose the method of purchasing shares that is most beneficial given the amount
of the purchase, the length of time the shares are expected to be held, whether
dividends will be paid in cash or reinvested in additional shares of the Fund
and other circumstances. Investors should consider whether, during the
anticipated life of their investment in the Fund, the accumulated distribution
fees and any applicable contingent deferred sales charges on Class B shares
prior to conversion or on Class C shares would be less than the initial sales
charge and accumulated distribution fees on Class A shares purchased at the same
time, and to what extent such differential would be offset by the higher return
on Class A shares. To assist investors in making this determination, the table
under the caption "Table of Fees and Expenses" sets forth examples of the
charges applicable to each class of shares. Class A shares will normally be more
beneficial than Class B or Class C shares to the investor who qualifies for
reduced initial sales charges, as described below. Therefore, A I M
Distributors, Inc. will reject any order for purchase of more than $250,000 for
Class B shares.
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PURCHASING SHARES. Initial investments in any class of shares must be at least
$500 and additional investments must be at least $50. The minimum initial
investment is modified for investments through tax-qualified retirement plans
and accounts initially established with an Automatic Investment Plan. The
distributor of the Funds' 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 a number of mutual funds distributed by
AIM Distributors (collectively, "The AIM Family of Funds"). Class A, Class B and
Class C shares of the Fund may be exchanged for shares of 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. Holders of Class A shares may redeem all or a portion of
their shares at net asset value on any business day, generally without charge. A
contingent deferred sales charge of 1% may apply to certain redemptions of Class
A shares, where purchases of $1 million or more were made at net asset value.
See "How to Redeem Shares -- Contingent Deferred Sales Charge Program for Large
Purchases."
Holders of Class B shares may redeem all or a portion of their shares at net
asset value on any business day, less a contingent deferred sales charge for
redemptions made within six years from the date such shares were purchased.
Class B shares redeemed after six years from the date such shares were purchased
will not be subject to any contingent deferred sales charge. See "How to Redeem
Shares -- Multiple Distribution System."
Holders of Class C shares may redeem all or a portion of their shares at net
asset value on any business day, less a 1% contingent deferred sales charge for
redemptions made within one year from the date such shares were purchased. See
"How to Redeem Shares -- Multiple Distribution System."
DISTRIBUTIONS. The Fund declares dividends from net investment income on a
daily basis and pays such dividends on a monthly basis. The Fund generally makes
distributions of realized capital gains, if any, on an annual basis. Dividends
and distributions paid with respect to Class A shares of the Fund may be paid by
check, reinvested in additional Class A shares of the Fund or reinvested in
shares of another fund in The AIM Family of Funds, subject to certain
conditions. Dividends and distributions paid with respect to Class B shares of
the Fund may be paid by check or reinvested in additional Class B shares of the
Fund or another fund in The AIM Family of Funds at net asset value, subject to
certain conditions. Dividends and distributions paid with respect to Class C
shares of the Fund may be paid by check or reinvested in additional Class C
shares of the Fund or another fund in The AIM Family of Funds at net asset
value, subject to certain conditions. See "Dividends, Distributions and Tax
Matters" and "Special Plans."
RISK FACTORS. The Fund seeks to meet its investment objective by investing in
non-investment grade debt securities, commonly known as "junk bonds."
Investments in junk bonds, while generally providing greater income and
opportunity for gain, may be subject to greater risks than higher rated
securities. Such risks may include: greater market fluctuations and risk of loss
of income and principal, limited liquidity and secondary market support, greater
sensitivity to economic and business downturns, and certain other risks. See
"Certain Investment Strategies and Policies -- Risk Factors Regarding
Non-Investment Grade Debt Securities." The Fund also may invest in foreign
securities. See "Certain Investment Strategies and Policies -- Risk Factors
Regarding Foreign Securities." Investors should carefully consider the relative
risks and rewards of investing in the Fund prior to investing, and should not
consider an investment in the Fund to represent a complete investment program.
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.
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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 Fund understand the
various costs that an investor will bear, both directly and indirectly. The fees
and expenses set forth in the table are based on the estimated average net
assets of the respective classes of the Fund for the first period of operation.
The rules 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."
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CLASS A CLASS B CLASS C
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Shareholder Transaction Expenses
Maximum sales load imposed on purchase of shares (as a %
of offering price)..................................... 4.75% None None
Maximum sales load on reinvested dividends................ None None None
Deferred sales load (as a % of original purchase price or
redemption proceeds, whichever is lower)............... None* 5.00% 1.00%
Redemption fee............................................ None None None
Exchange fee.............................................. None None None
Annual Fund Operating Expenses (as a % of average net
assets)
Management fees........................................... 0.47%(1) 0.47%(1) 0.47%(1)
Rule 12b-1 distribution plan payments..................... 0.25% 1.00% 1.00%
All other expenses........................................ 0.28% 0.28% 0.28%
----- ----- -----
Total fund operating expenses..................... 1.00%(1) 1.75%(1) 1.75%(1)
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(1) After fee waivers. If management fees were not being waived, management fees
for all classes of the Fund would be 0.625%, and total fund operating
expenses would be 1.155% for Class A shares and 1.905% for Class B and Class
C shares.
* Purchases of $1 million or more are not subject to an initial sales charge.
However, a contingent deferred sales charge of 1% applies to certain
redemptions made within 18 months from the date such shares were purchased.
See the Investor's Guide, under the caption "How to Redeem Shares --
Contingent Deferred Sales Charge Program for Large Purchases."
EXAMPLES. You would pay the following expenses on a $1,000 investment in Class
A shares, assuming (1) a 5% annual return and (2) redemption at the end of each
time period:
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1 year...................................................... $57
3 years..................................................... 78
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The above examples assume payment of a sales charge at the time of purchase;
actual expenses may vary for purchases of $1 million or more, which are made at
net asset value and are subject to a contingent deferred sales charge for 18
months from the date such shares were purchased.
You would pay the following expenses on a $1,000 investment in Class B shares,
assuming (1) a 5% annual return and (2) redemption at the end of each time
period:
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1 year...................................................... $68
3 years..................................................... 85
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You would pay the following expenses on the same $1,000 investment in Class B
shares, assuming no redemption at the end of each time period:
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1 year...................................................... $18
3 years..................................................... 55
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You would pay the following expenses on a $1,000 investment in Class C shares,
assuming (1) a 5% annual return and (2) redemption at the end of each time
period:
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1 year...................................................... $20
3 years..................................................... 32
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You would pay the following expenses on the same $1,000 investment in Class C
shares, assuming no redemption at the end of each time period:
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1 year...................................................... $10
3 years..................................................... 32
</TABLE>
As a result of 12b-1 distribution plan payments, a long-term shareholder of
the Fund may pay more than the economic equivalent of the maximum front-end
sales charges permitted by rules of the National Association of Securities
Dealers, Inc. Given the maximum front-end and contingent deferred sales charges
and the 12b-1 distribution plan payments applicable to Class A shares, Class B
shares and Class C shares of the Fund, it is estimated that it would require a
substantial number of years to exceed the maximum permissible front-end sales
charges.
The above examples should not be considered to be representative 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 Fund's actual
performance 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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PERFORMANCE
All advertisements will disclose the maximum sales charge (including deferred
sales charges) imposed on purchases of the Fund's shares. If any advertised
performance data does not reflect the maximum sales charge (if any), such
advertisement will disclose that the sales charge has not been deducted in
computing the performance data, and that, if reflected, the maximum sales charge
would reduce the performance quoted. See the Statement of Additional Information
for further details concerning performance comparisons used in advertisements by
the Fund. Further information regarding the Fund's performance will be contained
in the Fund's first annual report to shareholders, which will be available upon
request and without charge.
The Fund's total return is calculated in accordance with a standardized
formula for computation of annualized total return. Standardized total return
for Class A shares reflects the deduction of the Fund's maximum front-end sales
charge at the time of purchase. Standardized total return for Class B and Class
C shares reflects the deduction of the maximum applicable contingent deferred
sales charge on a redemption of shares held for the period.
The Fund's total return shows its overall change in value, including changes
in share price and assuming all the Fund's dividends and capital gain
distributions are reinvested. A cumulative total return reflects the Fund's
performance over a stated period of time. An average annual total return
reflects the hypothetical compounded annual rate of return that would have
produced the same cumulative total return if the Fund's performance had been
constant over the entire period. BECAUSE AVERAGE ANNUAL RETURNS TEND TO EVEN OUT
VARIATIONS IN THE FUND'S RETURN, INVESTORS SHOULD RECOGNIZE THAT SUCH RETURNS
ARE NOT THE SAME AS ACTUAL YEAR-BY-YEAR RESULTS. To illustrate the components of
overall performance, the Fund may separate its cumulative and average annual
returns into income results and capital gains or losses.
Yield is computed in accordance with standardized formulas described in the
Statement of Additional Information and can be expected to fluctuate from time
to time and is not necessarily indicative of future results. Accordingly, yield
information may not provide a basis for comparison with investments which pay a
fixed rate of interest for a stated period of time. Yield reflects investment
income net of expenses over the relevant period attributable to a Fund share,
expressed as an annualized percentage of the maximum offering price per share
for Class A shares and net asset value per share for Class B shares and Class C
shares.
Yield is a function of the type and quality of the Fund's investments, the
maturity of the securities held in the Fund's portfolio and the operating
expense ratio of the Fund. A shareholder's investment in the Fund is not insured
or guaranteed. These factors should be carefully considered by an investor
before making an investment in the Fund.
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 practices 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. 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 as well as by general market
conditions.
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ABOUT THE FUND
The Fund is a separate series of shares of the Trust, a Delaware business
trust established on May 5, 1993 and registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), as an open-end management investment
company (see "Organization of the Trust"). The Fund has its own investment
objective and policies designed to meet specific investment goals, operates as a
diversified portfolio and intends to be treated as a regulated investment
company for federal income tax purposes.
The Fund invests in securities of different issuers and industry
classifications in an attempt to spread and reduce the risks inherent in all
investing. The Fund continuously offers new shares for sale to the public, and
stands ready to redeem its outstanding shares for cash at net asset value
(subject, in certain circumstances, to a contingent deferred sales charge). See
"How to Redeem Shares." AIM, the investment advisor for the Fund, continuously
reviews and, from time to time, changes the portfolio holdings of the Fund in
pursuit of its objective.
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INVESTMENT PROGRAM
The Fund's investment objective is a fundamental policy, and cannot be changed
without the approval of the holders of a majority of the Fund's outstanding
shares. The Board of Trustees reserves the right to change any of the investment
policies, strategies or practices of the Fund, as described in this Prospectus
or the Statement of Additional Information, without shareholder approval, except
in those instances where shareholder approval is expressly required.
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The Fund's objective is to achieve a high level of current income by investing
primarily in publicly traded non-investment grade debt securities. The Fund will
also consider the possibility of capital growth when it purchases and sells
securities. Debt securities of less than investment grade are considered "high
risk" securities (commonly referred to as junk bonds). Individuals considering
the purchase of shares of the Fund should recognize that there are risks in the
ownership of any security and that no assurance can be given that the Fund will
attain its investment objective.
The Fund seeks high income principally by purchasing securities that are rated
Baa, Ba or B by Moody's Investors Service, Inc. ("Moody's") or BBB, BB or B by
Standard & Poor's Rating Services ("S&P"), or securities of comparable quality
in the opinion of AIM that are either unrated or rated by other nationally
recognized statistical rating organizations ("NRSROs"). The Fund may also hold,
from time to time, securities rated Caa by Moody's or CCC by S&P, or, if unrated
or rated by other NRSROs, securities of comparable quality as determined by AIM.
It should be noted, however, that achieving the Fund's investment objective may
be more dependent on the credit analysis of AIM, and less on that of credit
rating agencies, than may be the case for funds that invest in more highly rated
bonds. At least 80% of the value of the Fund's total assets will be invested in
debt securities, including convertible debt securities, and/or cash and cash
equivalents. At least 80% of the value of the Fund's total assets will be
invested in high yield debt securities. The Fund may also invest up to 15% of
the value of its total assets in equity securities.
While the debt securities held by the Fund are expected to provide greater
income and, possibly, opportunity for greater gain than investments in more
highly rated debt securities, they may be subject to greater risk of loss of
income and principal and are more speculative in nature. The Fund's yield and
the net asset value of its shares may be expected to fluctuate over time.
Therefore, an investment in the Fund may not be appropriate for some investors
and should not constitute a complete investment program for others. See "Certain
Investment Strategies and Policies -- Risk Factors Regarding Non-Investment
Grade Debt Securities."
The Fund may invest in both illiquid securities and securities which are
subject to restrictions on resale because they have not been registered under
the Securities Act of 1933. See "Certain Investment Strategies and
Policies -- Illiquid Securities" for further information regarding such
investments.
The Fund may invest in foreign securities. See "Certain Investment Strategies
and Policies -- Risk Factors Regarding Foreign
Securities."
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CERTAIN INVESTMENT STRATEGIES AND POLICIES
In pursuit of its objective and policies, the Fund may employ one or more of
the following strategies in order to enhance investment results:
CASH MANAGEMENT AND TEMPORARY DEFENSIVE INVESTMENTS. A portion of the Fund's
assets may be held from time to time in cash or money market instruments such as
bankers' acceptances, certificates of deposit, repurchase agreements, master
notes, time deposits, taxable municipal securities and commercial paper
(referred to collectively as "Money Market Instruments"), all of which will be
denominated in U.S. dollars, when such positions are deemed advisable in light
of economic conditions or for daily cash management purposes. Bankers'
acceptances, certificates of deposit and time deposits may be purchased from
U.S. or foreign banks. Certain types of Money Market Instruments are briefly
described in Appendix A to this Prospectus and in the Statement of Additional
Information. In addition, the Fund may invest for temporary defensive purposes
all or a substantial portion of its assets in the foregoing types of
investments. To the extent that the Fund invests in the foregoing types of
investments, its ability to achieve its investment objective may be adversely
affected.
SECURITIES PURCHASED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS. The Fund may
purchase securities on a "when-issued" basis, that is, 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 Fund also may purchase or sell securities on a delayed
delivery basis. The payment obligation and the interest rate that will be
received on the delayed delivery securities are fixed at the time the buyer
enters into the commitment. The Fund will only make commitments to purchase
when-issued or delayed delivery 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.
Investment in securities on a when-issued or delayed delivery basis may
increase the Fund's exposure to market fluctuation and may increase the
possibility that the Fund will incur short-term gains subject to federal
taxation or short-term losses if the Fund must engage in portfolio transactions
in order to honor a when-issued or delayed delivery commitment. In a delayed
delivery transaction, the Fund relies on the other party to complete the
transaction. If the transaction is not completed, the Fund may miss a price or
yield considered to be advantageous. The Fund will employ techniques designed to
reduce such risks. If the Fund purchases a when-issued security, the Fund will
segregate liquid assets in an amount equal to the when-issued commitment. If the
market value of such securities declines, additional liquid assets will be
segregated on a daily basis so that the market value of the segregated assets
will equal the amount of the Fund's when-issued commitments. To the extent
liquid assets are segregated, they will not be available for new invest-
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ments or to meet redemptions. Securities purchased on a delayed delivery basis
may require a similar segregation of liquid assets. For a more complete
description of when-issued securities and delayed delivery transactions see the
Statement of Additional Information.
ILLIQUID SECURITIES. The Fund may invest up to 15% of its net assets in
securities that are illiquid. Illiquid securities include securities that have
no readily available market quotations and cannot be disposed of promptly
(within seven days) in the normal course of business at a price at which they
are valued. Illiquid securities may include securities that are subject to
restrictions on resale because they have not been registered under the
Securities Act of 1933. Restricted securities may, in certain circumstances, be
resold pursuant to Rule 144A, and thus may or may not constitute illiquid
securities. Limitations on the resale of restricted securities may have an
adverse effect on their marketability, which may prevent the Fund from disposing
of them promptly at reasonable prices. The Fund may have to bear the expense of
registering such securities for resale, and the risk of substantial delays in
effecting such registrations. The Trust's Board of Trustees has established
procedures for determining the liquidity of Rule 144A securities held by the
Fund and monitors AIM's liquidity determinations made pursuant to such
procedures.
BORROWING. The Fund may borrow money to a limited extent from banks (including
the Fund's custodian bank) for temporary or emergency purposes subject to the
limitations under the 1940 Act. The Fund will restrict borrowings and reverse
repurchase agreements to an aggregate of 33- 1/3% of its total assets at the
time of the transaction. The Fund will not purchase additional securities when
borrowings exceed 5% of its total assets.
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.
INTEREST RATE FUTURES CONTRACTS AND RELATED OPTIONS. The Fund may purchase and
sell interest rate and stock index futures contracts or purchase and sell
options thereon in order to hedge the value of its portfolio against changes in
market conditions. 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. 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 or
other currency 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. Generally, the Fund may elect to close a position in a
futures contract by taking an opposite position which will operate to terminate
the Fund's position in the futures contract.
There are risks associated with investments in interest rate futures
contracts, stock index futures contracts, and options on such contracts. During
certain market conditions, purchases and sales of futures contracts may not
completely offset a decline or rise in the value of the Fund's portfolio. In the
futures markets, it may not always be possible to execute a buy or sell order at
the desired price, or to close out an open position due to market conditions,
limits on open positions and/or daily price fluctuations. Changes in the market
value of the Fund's portfolio may differ substantially from the changes
anticipated by the Fund when hedged positions were established and unanticipated
price movements in a futures contract may result in a loss substantially greater
than the Fund's initial investment in such contract. Successful use of futures
contracts and related options is dependent upon AIM's ability to predict
correctly movements in the direction of the applicable markets. No assurance can
be given that AIM's judgment in this respect will be correct.
The Fund may not purchase or sell futures contracts or purchase or sell
related options if, immediately thereafter, the sum of the amount of margin
deposits and premiums on open positions with respect to futures contracts and
related options would exceed 5% of the market value of the Fund's total assets.
See the Statement of Additional Information for a description of the Fund's
investments in futures contracts and options on futures contracts, including
certain additional risks.
RISK FACTORS REGARDING NON-INVESTMENT GRADE DEBT SECURITIES. The Fund seeks to
meet its investment objective by investing in non-investment grade debt
securities, commonly known as "junk bonds." While generally providing greater
income and opportunity for gain, non-investment grade debt securities may be
subject to greater risks than higher-rated securities. Economic downturns tend
to disrupt the market for junk bonds and adversely affect their values. Such
economic downturns may be expected to result in increased price volatility for
junk bonds and of the value of shares of the Fund, and increased issuer defaults
on junk bonds.
In addition, many issuers of junk bonds are substantially leveraged, which may
impair their ability to meet their obligations. In some cases, junk bonds are
subordinated to the prior payment of senior indebtedness, which potentially
limits the Fund's ability to fully recover principal or to receive payments when
senior securities are subject to a default.
The credit rating of a junk bond does not necessarily address its market value
risk, and ratings may from time to time change to reflect developments regarding
the issuer's financial condition. Junk bonds have speculative characteristics
which are likely to increase in number and significance with each successive
lower rating category.
When the secondary market for junk bonds becomes more illiquid, or in the
absence of readily available market quotations for such securities, the relative
lack of reliable objective data makes it more difficult for the trustees to
value the Fund's portfolio securities, and
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<PAGE> 9
judgment plays a more important role in determining such valuations. Increased
illiquidity in the junk bond market also may affect the Fund's ability to
dispose of such securities at desirable prices.
In the event the Fund experiences an unexpected level of net redemptions, the
Fund could be forced to sell its junk bonds without regard to their investment
merits, thereby decreasing the asset base upon which the Fund's expenses can be
spread and possibly reducing the Fund's rate of return. Prices of junk bonds
have been found to be less sensitive to fluctuations in interest rates, and more
sensitive to adverse economic changes and individual corporate developments than
those of higher-rated debt securities.
INVESTMENTS IN FOREIGN SECURITIES. The Fund may invest up to 25% of its total
assets in securities of issuers located in foreign countries, including up to
10% of the Fund's total assets which may be invested in securities of issuers
located in emerging markets and developing countries such as Turkey, Poland and
Mexico. A "developing country" is a country in the initial stages of its
industrialization cycle. To the extent it invests in securities denominated in
foreign currencies, the Fund bears the risks of changes in the exchange rates
between U.S. currency and the foreign currency, as well as the availability and
status of foreign securities markets. The Fund may invest in securities of
foreign issuers which are in the form of American Depositary Receipts ("ADRs"),
European Depositary Receipts ("EDRs"), or other securities representing
underlying securities of foreign issuers, and such investments are treated as
foreign securities for purposes of percentage limitations on investments in
foreign securities. For a discussion of the risks pertaining to investments in
foreign securities. See "Risk Factors Regarding Foreign Securities" below.
FOREIGN EXCHANGE TRANSACTIONS. The Fund has authority to deal in foreign
exchange between currencies of the different countries in which it will invest
either for the settlement of transactions or as a hedge against possible
variations in the foreign exchange rates between those currencies. This may be
accomplished through direct purchases or sales of foreign currency, purchases of
futures contracts with respect to foreign currency (and options thereon), and
contractual agreements to purchase or sell a specified currency at a specified
future date (up to one year) at a price set at the time of the contract. Such
contractual commitments may be forward contracts entered into directly with
another party or exchange traded futures contracts.
The Fund may purchase and sell options on futures contracts or forward
contracts which are denominated in a particular foreign currency to hedge the
risk of fluctuations in the value of another currency. The Fund's dealings in
foreign exchange may involve specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of foreign currency with respect to
specific receivables or payables of the Fund accruing in connection with the
purchase or sale of its portfolio securities, the sale and redemption of shares
of the Fund, or the payment of dividends and distributions by the Fund. Position
hedging is the purchase or sale of foreign currency with respect to portfolio
security positions (or underlying portfolio security positions, such as an ADR)
denominated or quoted in a foreign currency. The Fund will not speculate in
foreign exchange, nor commit a larger percentage of its total assets to foreign
exchange hedges than it could invest in foreign securities. Further information
concerning futures contracts and related options is set forth above.
RISK FACTORS REGARDING FOREIGN SECURITIES. Investments by the Fund in foreign
securities, whether denominated in U.S. dollars or foreign currencies, may
entail some or all of the risks set forth below. Investments by the Fund in
ADRs, EDRs or similar securities also may entail some or all of these risks.
Currency Risk. The value of the Fund's foreign investments will be affected by
changes in currency exchange rates. The U.S. dollar value of a foreign security
decreases when the value of the U.S. dollar rises against the foreign currency
in which the security is denominated, and increases when the value of the U.S.
dollar falls against such currency.
Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the
Netherlands, Portugal, and Spain are members of the European Economic and
Monetary Union (the "EEMU"). The EEMU intends to establish a common European
currency for participating countries which will be known as the "euro." It is
anticipated that each participating country will supplement its existing
currency with the euro on January 1, 1999, and will replace its existing
currency with the euro on July 1, 2002. Any other European country which is a
member of the EEMU may elect to participate in the EEMU and may supplement its
existing currency with the euro after January 1, 1999.
The expected introduction of the euro presents unique risks and uncertainties,
including whether the payment and operational systems of banks and other
financial institutions will be ready by January 1, 1999; how outstanding
financial contracts will be treated after January 1, 1999; the establishment of
exchange rates for existing currencies and the euro; and the creation of
suitable clearing and settlement systems for the euro. These and other factors
could cause market disruptions before or after the introduction of the euro and
could adversely affect the value of securities held by the Fund.
Political and Economic Risk. The economies of many of the countries in which
the Fund may invest may not be as developed as the United States' economy and
may be subject to significantly different forces. Political or social
instability, expropriation or confiscatory taxation, and limitations on the
removal of funds or other assets could also adversely affect the value of the
Fund's investments.
Regulatory Risk. Foreign companies are not registered with the SEC and are
generally not subject to the regulatory controls imposed on United States
issuers and, as a consequence, there is generally less publicly available
information about foreign securities than is available about domestic
securities. Foreign companies are not subject to uniform accounting, auditing
and financial reporting
9
<PAGE> 10
standards, practices and requirements comparable to those applicable to
domestic companies. Income from foreign securities owned by the Fund may be
reduced by a withholding tax at the source, which tax would reduce dividend
income payable to the Fund's shareholders.
Market Risk. The securities markets in many of the countries in which the Fund
invests will have substantially less trading volume than the major United States
markets. As a result, the securities of some foreign companies may be less
liquid and experience more price volatility than comparable domestic securities.
Increased custodian costs as well as administrative costs (such as the need to
use foreign custodians) may be associated with the maintenance of assets in
foreign jurisdictions. There is generally less government regulation and
supervision of foreign stock exchanges, brokers and issuers which may make it
difficult to enforce contractual obligations. In addition, transaction costs in
foreign securities markets are likely to be higher, since brokerage commission
rates in foreign countries are likely to be higher than in the United States.
Emerging Markets and Developing Countries. The Fund may invest in companies
located within emerging markets or developing countries. Investments in emerging
markets or developing countries involve exposure to economic structures that are
generally less diverse and mature and to political systems which can be expected
to have less stability than those of more developed countries. Developing
countries may have relatively unstable governments, economies based on only a
few industries, and securities markets which trade only a small number of
securities. Historical experience indicates that emerging markets have been more
volatile than the markets of more mature economies; such markets have also from
time to time provided higher rates of return and greater risks to investors. AIM
believes that these characteristics of emerging markets can be expected to
continue in the future.
REAL ESTATE INVESTMENT TRUSTS ("REITS"). The Fund may invest up to 10% of its
net assets in equity and/or debt securities issued by REITs.
REITs are trusts which sell equity or debt securities to investors and use the
proceeds to invest in real estate or interests therein. A REIT may focus on
particular projects, such as apartment complexes, or geographic regions, such as
the Southeastern United States, or both.
To the extent that the Fund has the ability to invest in REITs, the Fund could
conceivably own real estate directly as a result of a default on the securities
it owns. The Fund, therefore, may be subject to certain risks associated with
the direct ownership of real estate including difficulties in valuing and
trading real estate, declines in the value of real estate, risks related to
general and local economic conditions, adverse changes in the climate for real
estate, increases in property taxes and operating expenses, changes in zoning
laws, casualty or condemnation losses, limitations on rents, changes in
neighborhood values, the appeal of properties to tenants, and increases in
interest rates.
In addition to the risks described above, equity REITs may be affected by any
changes in the value of the underlying property owned by the trusts, while
mortgage REITs may be affected by the quality of any credit extended. Equity and
mortgage REITs are dependent upon management skill, are not diversified, and are
therefore subject to the risk of financing single or a limited number of
projects. Such trusts are also subject to heavy cash flow dependency, defaults
by borrowers, self-liquidation, and the possibility of failing to maintain
exemption from the 1940 Act. Changes in interest rates may also affect the value
of debt securities held by the Fund. By investing in REITs indirectly through
the Fund, a shareholder will bear not only his/her proportionate share of the
expenses of the Fund, but also, indirectly, similar expenses of the REITs.
PORTFOLIO TURNOVER. Any particular security will be sold, and the proceeds
reinvested, whenever such action is deemed prudent from the viewpoint of the
Fund's investment objective, regardless of the holding period of that security.
It is anticipated that the Fund's portfolio turnover rate for its initial fiscal
year will be less than 70%. A higher rate of portfolio turnover may result in
higher transaction costs, including brokerage commissions and other trading
costs. Also, to the extent that higher portfolio turnover results in a higher
rate of net realized capital gains to the Fund, the portion of the Fund's
distributions constituting taxable capital gains may increase. See "Dividends,
Distributions and Tax Matters."
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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 Trust, on behalf of the Fund, and persons or companies
furnishing services to the Fund, including the investment advisory agreement and
administrative services agreement with AIM, the agreements with AIM Distributors
regarding distribution of the Fund's shares, the agreements with State Street
Bank and Trust Company as the custodian and the transfer agency agreement with
A I M Fund Services, Inc. The day-to-day operations of the Fund are delegated to
the officers of the Trust and to AIM, subject always to the objective and
policies of the Fund and to the general supervision of the Board of Trustees.
Certain trustees and officers of the Trust are affiliated with AIM and A I M
Management Group Inc. ("AIM Management"), the parent
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<PAGE> 11
corporation of AIM. AIM Management is 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 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. AIM
obtains and evaluates economic, statistical and financial information to
formulate and implement investment programs for the Fund. The Advisory Agreement
also provides that, upon the request of the Board of Trustees, AIM may perform
or arrange for certain accounting 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 Trust have
entered into a Master Administrative Services Agreement ("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
fund accounting services. In addition, pursuant to the terms of a Transfer
Agency and Service Agreement, A I M Fund Services, Inc. ("AFS"), a wholly owned
subsidiary of AIM and registered transfer agent, receives a fee for its
provision of transfer agency, dividend distribution and disbursement and
shareholder services to the Fund. AFS' principal address is P.O. Box 4739,
Houston, Texas 77210-4739.
For a discussion of AIM's brokerage allocation policies and practices, see
"Portfolio Transactions" 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 of the Fund.
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 135
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 and
their titles, if any, with AIM or its subsidiaries and the Trust, the length of
time they have been responsible for the management of the Fund, their years of
investment experience and prior experience (if they have been with AIM for less
than five years) are described below:
John L. Pessarra 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 and/or its subsidiaries since
1990 and has been an investment professional since 1984. Kevin E. Rogers is Vice
President of AIM Capital and has been responsible for the Fund since 1998. He
has been associated with AIM and/or its subsidiaries since 1991 and has been an
investment professional since 1986.
FEES AND EXPENSES. Pursuant to the Advisory Agreement, AIM is entitled to
receive a fee from the Fund calculated at the annual rate of 0.625% of the first
$500 million of net assets, 0.55% of the next $500 million of net assets and
0.50% of net assets over $1 billion. AIM is also entitled to be reimbursed for
administrative costs incurred on behalf of the Fund. The Advisory Agreement
provides that the Fund will pay or cause to be paid all expenses of the 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.
FEE WAIVERS. 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 the Fund 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 the Fund'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.
DISTRIBUTOR. The Trust has entered into master distribution agreements
relating to the Fund (the "Distribution Agreements"), with AIM Distributors, a
registered broker-dealer and a wholly owned subsidiary of AIM, pursuant to which
AIM Distributors acts as the
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<PAGE> 12
distributor of Class A, Class B and Class C shares of the Fund. 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 Agreements provide AIM Distributors with the exclusive right
to distribute shares of the Fund directly and through institutions with whom AIM
Distributors has entered into selected dealer agreements. Under the Distribution
Agreement for the Class B shares, AIM Distributors sells Class B shares at net
asset value subject to a contingent deferred sales charge established by AIM
Distributors. AIM Distributors is authorized to advance to institutions through
whom Class B shares are sold a sales commission under schedules established by
AIM Distributors. The Distribution Agreement for the Class B shares provides
that AIM Distributors (or its assignee or transferee) will receive 0.75% (of the
total 1.00% payable under the distribution plan applicable to Class B shares) of
the Fund's average daily net assets attributable to Class B shares attributable
to the sales efforts of AIM Distributors. In the event the Class B shares
Distribution Agreement is terminated, AIM Distributors would continue to receive
payments of asset-based sales charges 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 shares master distribution
plan (as defined in the plan) would terminate all payments by the Fund of asset
based sales charges and service fees to AIM Distributors. Termination of the
Class B shares distribution plan or Distribution Agreement does not affect the
obligation of Class B shareholders to pay contingent deferred sales charges.
DISTRIBUTION PLANS. Class A and C Plan. The Trust has adopted a Master
Distribution Plan applicable to Class A and Class C shares of the Fund (the
"Class A and C Plan") pursuant to Rule 12b-1 under the 1940 Act, to compensate
AIM Distributors for the purpose of financing any activity that is intended to
result in the sale of Class A or Class C shares of the Fund.
Under the Class A and C Plan, the Trust may compensate AIM Distributors an
aggregate amount of 0.25% of the average daily net assets of Class A shares of
the Fund on an annualized basis and an aggregate amount of 1.00% of the average
daily net assets of Class C shares of the Fund on an annualized basis.
The Class A and C Plan is designed to compensate AIM Distributors, on a
quarterly basis, for certain promotional and other sales-related costs, and to
implement a dealer incentive program which provides for periodic payments to
selected dealers who furnish continuing personal shareholder services to their
customers who purchase and own Class A or Class C shares of the Fund. Payments
can also be directed by AIM Distributors to selected institutions who have
entered into service agreements with respect to Class A and Class C shares of
the Fund and who provide continuing personal shareholder services to their
customers who own Class A or Class C shares of the Fund. The service fees
payable to selected institutions are calculated at the annual rate of 0.25% of
the average daily net asset value of those Fund shares that are held in such
institution's customers' accounts which were purchased on or after a prescribed
date set forth in the Plan.
Of the aggregate amount payable under the Class A and C Plan, payments to
dealers and other financial institutions that provide continuing personal
shareholder services to their customers who purchase and own shares of the Fund,
in amounts of up to 0.25% of the average daily net assets of the Fund
attributable to the customers of such dealers or financial institutions are
characterized as a service fee, and payments to dealers and other financial
institutions in excess of such amount and payments to AIM Distributors would be
characterized as an asset-based sales charge pursuant to the Class A and C Plan.
The Class A and C Plan also imposes a cap on the total amount of sales charges,
including asset-based sales charges, that may be paid by the Trust with respect
to the Fund. The Class A and C Plan does not obligate the Fund to reimburse AIM
Distributors for the actual expenses AIM Distributors may incur in fulfilling
its obligations under the Class A and C Plan on behalf of the Fund.
Class B Plan. The Trust has also adopted a Master Distribution Plan applicable
to Class B shares of the Fund (the "Class B Plan"). Under the Class B Plan, the
Fund pays distribution expenses at an annual rate of 1.00% of the average daily
net assets attributable to the Fund's Class B shares. Of such amount, the Fund
pays a service fee of 0.25% of the average daily net assets attributable to the
Fund's Class B shares to selected dealers and financial institutions who furnish
continuing personal shareholder services to their customers who purchase and own
Class B shares of the Fund. Any amounts not paid as a service fee would
constitute an asset-based sales charge. Amounts paid in accordance with the
Class B Plan with respect to the Fund may be used to finance any activity
primarily intended to result in the sale of Class B shares of the Fund.
Both Plans. Activities that may be financed under the Class A and C Plan and
the Class B Plan (collectively, the "Plans") include, but are 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, supplemental payments to dealers and
other institutions such as asset-based sales charges or as payments of service
fees under shareholder service arrangements, and the cost of administering the
Plans. These amounts payable by the Fund under the Plans need not be directly
related to the expenses actually incurred by AIM Distributors on behalf of the
Fund. Thus, even if AIM Distributors' actual expenses exceed the fee payable to
AIM Distributors thereunder at any given time, the Trust will not be obligated
to pay more than that fee, and if AIM Distributors' expenses are less than the
fee it receives, AIM Distributors will retain the full amount of the fee.
Payments pursuant to the Plans are subject to any applicable limitations imposed
by the rules of the National Association of Securities Dealers, Inc.
Each of the Plans may be terminated as to a class at any time by a vote of a
majority of those trustees who are not "interested persons" of the Trust or by a
vote of the holders of a majority of the outstanding shares of the applicable
class.
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<PAGE> 13
Under the Plans, certain financial institutions which have entered into
service agreements and which sell shares of the Fund on an agency basis, may
receive payments from the Fund pursuant to the respective Plans. AIM
Distributors does not act as principal, but rather as agent for the Fund, in
making such payments.
For additional information concerning the operation of the Plans see the
Statement of Additional Information.
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ORGANIZATION OF THE TRUST
The Trust is organized as a Delaware business trust pursuant to an Agreement
and Declaration of Trust dated May 5, 1993, as amended (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. The Trust currently consists of two separate Portfolios, and
the Fund represents one Portfolio.
Class A shares, Class B shares and Class C shares of the Fund represent
interests in the Fund's assets and have identical voting, dividend, liquidation
and other rights on the same terms and conditions, except that each class of
shares bears differing class-specific expenses, is subject to differing sales
loads, conversion features and exchange privileges, and has exclusive voting
rights on matters pertaining to that class' distribution plan (although Class A
shareholders and Class B shareholders of the Fund must approve any material
increase in fees payable with respect to the Class A shares of the Fund under
the Class A and C Plan).
The Trust is not required to hold annual or regular meetings of shareholders.
Meetings of shareholders of the Fund 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.
Shareholders of the Fund are entitled to one vote per share (with
proportionate voting for fractional shares), irrespective of the relative net
asset value of the shares of the Fund. However, on matters affecting one
portfolio or one class of shares, a separate vote of shareholders of that
portfolio or class is required. Shareholders of a portfolio or class are not
entitled to vote on any matter which does not affect that portfolio or class but
which requires a separate vote of another portfolio or class. An example of a
matter which would be voted on separately by shareholders of a portfolio is the
approval of the Advisory Agreement, and an example of a matter which would be
voted on separately by shareholders of each class of shares is approval of the
distribution plans. When issued, shares of the Fund are fully paid and
nonassessable, have no preemptive or subscription rights, and are fully
transferable. Other than the automatic conversion of Class B shares to Class A
shares, there are no conversion rights. Shares do not have cumulative voting
rights, which means that in situations in which shareholders elect trustees,
holders of more than 50% of the shares voting for the election of trustees can
elect all of the trustees of the Trust, and the holders of less than 50% of the
shares voting for the election of trustees will not be able to elect any
trustees.
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 the majority 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 Fund and passes upon legal matters.
CONTROL PERSONS.
AIM provided the initial capitalization of the Fund and, accordingly, as of
the date of this Prospectus owned all the outstanding shares of the Fund.
Although the Fund expects the sale of its shares to the public pursuant to this
Prospectus will promptly reduce the percentage of its shares owned by AIM, as
long as AIM owns more than 25% of the Fund's outstanding shares, it may be
presumed to be in "control" of the Fund, as defined in the 1940 Act.
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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 INFRASTRUCTURE FUND
AIM ADVISOR INTERNATIONAL VALUE FUND AIM GLOBAL RESOURCES FUND
AIM ADVISOR LARGE CAP VALUE FUND AIM GLOBAL TELECOMMUNICATIONS FUND
AIM ADVISOR MULTIFLEX FUND AIM GLOBAL TRENDS FUND
AIM ADVISOR REAL ESTATE FUND AIM GLOBAL UTILITIES FUND
AIM AGGRESSIVE GROWTH FUND AIM HIGH INCOME MUNICIPAL FUND
AIM ASIAN GROWTH FUND AIM HIGH YIELD FUND
AIM BALANCED FUND AIM HIGH YIELD FUND II
AIM BASIC VALUE FUND AIM INCOME FUND
AIM BLUE CHIP FUND AIM INTERMEDIATE GOVERNMENT FUND
AIM CAPITAL DEVELOPMENT FUND AIM INTERNATIONAL EQUITY FUND
AIM CHARTER FUND AIM INTERNATIONAL GROWTH FUND
AIM CONSTELLATION FUND AIM JAPAN GROWTH FUND
AIM DEVELOPING MARKETS FUND AIM LATIN AMERICAN GROWTH FUND
AIM DOLLAR FUND(*) AIM LIMITED MATURITY TREASURY FUND
AIM EMERGING MARKETS FUND AIM MID CAP EQUITY FUND
AIM EMERGING MARKETS DEBT FUND AIM MONEY MARKET FUND(*)
AIM EUROPEAN DEVELOPMENT FUND AIM MUNICIPAL BOND FUND
AIM EUROPE GROWTH FUND AIM NEW PACIFIC GROWTH FUND
AIM GLOBAL AGGRESSIVE GROWTH FUND AIM SELECT GROWTH FUND
AIM GLOBAL CONSUMER PRODUCTS AND AIM SMALL CAP GROWTH FUND
SERVICES FUND AIM SMALL CAP OPPORTUNITIES FUND
AIM GLOBAL FINANCIAL SERVICES FUND AIM STRATEGIC INCOME FUND
AIM GLOBAL GOVERNMENT INCOME FUND AIM TAX-EXEMPT BOND FUND OF CONNECTICUT
AIM GLOBAL GROWTH FUND AIM TAX-EXEMPT CASH FUND(*)
AIM GLOBAL GROWTH & INCOME FUND AIM TAX-FREE INTERMEDIATE FUND
AIM GLOBAL HEALTH CARE FUND AIM VALUE FUND
AIM GLOBAL INCOME FUND AIM WEINGARTEN FUND
AIM WORLDWIDE GROWTH 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.
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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-10/98
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<PAGE> 15
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 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
MCF-10/98
A-2
<PAGE> 16
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 BASIC VALUE FUND, AIM ASIAN
GROWTH 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> <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-10/98
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<PAGE> 17
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> <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> <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.
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
MCF-10/98
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<PAGE> 18
a contingent deferred sales charge, for all AIM Funds other than Class A shares
of each of AIM LIMITED MATURITY TREASURY FUND and AIM TAX-FREE INTERMEDIATE FUND
as follows: 1% of the first $2 million of such purchases, plus 0.80% of the next
$1 million of such purchases, plus 0.50% of the next $17 million of such
purchases, plus 0.25% of amounts in excess of $20 million of such purchases. 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.
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."
MCF-10/98
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<PAGE> 19
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 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.
MCF-10/98
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<PAGE> 20
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 increased amount of sales charge as described below. Purchases made
within 90 days before signing an LOI will be applied toward completion of the
LOI. The LOI effective date will be the date of the first purchase 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.
MCF-10/98
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<PAGE> 21
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 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
A-8
MCF-10/98
<PAGE> 22
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."
- --------------------------------------------------------------------------------
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
MCF-10/98
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<PAGE> 23
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 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 predesig-
MCF-10/98
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<PAGE> 24
nate, 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-10/98
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<PAGE> 25
- --------------------------------------------------------------------------------
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
FUND -- CLASS A -- CLASS A
AIM BLUE CHIP FUND -- CLASS A AIM INCOME FUND -- CLASS A
AIM CAPITAL DEVELOPMENT AIM INTERMEDIATE GOVERNMENT
FUND -- CLASS A FUND -- CLASS A
AIM CHARTER FUND -- CLASS A AIM INTERNATIONAL EQUITY
AIM CONSTELLATION FUND -- CLASS A
FUND -- CLASS A AIM INTERNATIONAL GROWTH
AIM DEVELOPING MARKETS FUND -- CLASS A
FUND -- CLASS A AIM JAPAN GROWTH FUND -- CLASS A
AIM EMERGING MARKETS AIM LATIN AMERICAN GROWTH
FUND -- CLASS A FUND -- CLASS A
AIM EMERGING MARKETS DEBT AIM MID CAP EQUITY
FUND -- CLASS A FUND -- CLASS A
AIM EUROPE GROWTH AIM MONEY MARKET
FUND -- CLASS A FUND -- CLASS A
AIM EUROPEAN DEVELOPMENT AIM MUNICIPAL BOND
FUND -- CLASS A FUND -- CLASS A
AIM GLOBAL AGGRESSIVE GROWTH AIM NEW PACIFIC GROWTH
FUND -- CLASS A FUND -- CLASS A
AIM GLOBAL CONSUMER PRODUCTS AIM SELECT GROWTH FUND -- CLASS A
AND SERVICES FUND -- CLASS A AIM SMALL CAP GROWTH
AIM GLOBAL FINANCIAL SERVICES FUND -- CLASS A
FUND -- CLASS A AIM SMALL CAP OPPORTUNITIES
AIM GLOBAL GOVERNMENT INCOME FUND -- CLASS A
FUND -- CLASS A AIM STRATEGIC INCOME
AIM GLOBAL GROWTH FUND -- CLASS A
FUND -- CLASS A AIM TAX-EXEMPT BOND FUND
AIM GLOBAL GROWTH & OF CONNECTICUT -- CLASS A
INCOME FUND -- CLASS A AIM VALUE FUND -- CLASS A
AIM GLOBAL HEALTH CARE AIM WEINGARTEN FUND -- CLASS A
FUND -- CLASS A AIM WORLDWIDE GROWTH
FUND -- CLASS A
</TABLE>
MCF-10/98
A-12
<PAGE> 26
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 busi-
MCF-10/98
A-13
<PAGE> 27
ness 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.
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-10/98
A-14
<PAGE> 28
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
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 the 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.
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;
MCF-10/98
A-15
<PAGE> 29
(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.
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.
MCF-10/98
A-16
<PAGE> 30
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.
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
MCF-10/98
A-17
<PAGE> 31
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-10/98
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<PAGE> 32
- --------------------------------------------------------------------------------
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
AIM GLOBAL CONSUMER PRODUCTS AND SERVICES
FUND.................................... declared and paid annually annually annually
AIM GLOBAL FINANCIAL SERVICES FUND........ declared and paid annually annually annually
</TABLE>
MCF-10/98
A-19
<PAGE> 33
<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 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 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.
MCF-10/98
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<PAGE> 34
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,
regardless of the length of time the shareholder held his shares. Under the
Taxpayer Relief Act of 1997, different maximum tax rates apply to a
non-corporate taxpayer's net capital gain depending on the taxpayer's holding
period and marginal rate of federal income tax -- generally, 28% for gain
recognized on capital assets held for more than one year but not more than 18
months and 20% (10% for taxpayers in the 15% marginal tax bracket) for gain
recognized on capital assets held for more than 18 months. An AIM Fund may
divide each net capital gain distribution into a 28% rate gain distribution and
a 20% rate gain distribution (in accordance with its holding periods for the
securities it sold that generated the distributed gain), in which event its
shareholders must treat those portions accordingly; thus, the relevant holding
period is determined by how long the fund has held the securities on which the
gain was realized, not by how long a shareholder has held fund 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 GROWTH 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. The information regarding capital gain
distributions will designate the portions thereof subject to the different
maximum rates of tax applicable to non-corporate taxpayers' net capital gain
indicated above. 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-10/98
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<PAGE> 35
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-10/98
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<PAGE> 36
- --------------------------------------------------------------------------------
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 viewed 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-10/98
A-23
<PAGE> 37
APPENDIX A
- --------------------------------------------------------------------------------
DESCRIPTION OF MONEY MARKET INSTRUMENTS
The following list does not purport to be an exhaustive list of all Money
Market Instruments, and the Fund reserves the right to invest in Money Market
Instruments other than those listed below:
U.S. GOVERNMENT DIRECT OBLIGATIONS -- Bills, notes and bonds issued by the U.S.
Treasury.
U.S. GOVERNMENT AGENCY SECURITIES -- Certain federal agencies such as the
Government National Mortgage Association have been established as
instrumentalities of the U.S. Government to supervise and finance certain types
of activities. Issues of these agencies, while not direct obligations of the
U.S. Government, are either backed by the full faith and credit of the United
States or are guaranteed by the Treasury or supported by the issuing agency's
right to borrow from the Treasury.
BANKERS' ACCEPTANCES -- A bill of exchange or time draft drawn on and accepted
by a commercial bank. It is used by corporations to finance the shipment and
storage of goods and to furnish dollar exchange. Maturities are generally six
months or less.
CERTIFICATES OF DEPOSIT -- A negotiable interest-bearing instrument with a
specific maturity. Certificates of deposit are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market, prior to maturity.
TIME DEPOSITS -- A non-negotiable receipt issued by a bank in exchange for the
deposit of funds. Like a certificate of deposit, it earns a specified rate of
interest over a definite period of time; however, it cannot be traded in the
secondary market.
COMMERCIAL PAPER -- The term used to designate unsecured short-term promissory
notes issued by corporations and other entities. Maturities on these issues vary
from a few days to nine months.
REPURCHASE AGREEMENTS -- A repurchase agreement is a contractual undertaking
whereby the seller of securities (limited to U.S. Government securities,
including securities issued or guaranteed by the U.S. Treasury or the various
agencies and instrumentalities of the U.S. Government, including mortgage-backed
securities issued by U.S. Government agencies) agrees to repurchase the
securities at a specified price on a future date determined by negotiations.
MASTER NOTES -- Unsecured demand notes that permit investment of fluctuating
amounts of money at varying rates of interest pursuant to arrangements with
issuers who meet the quality criteria of the Fund. The interest rate on a master
note may fluctuate based upon changes in specified interest rates or be reset
periodically according to a prescribed formula or may be a set rate. Although
there is no secondary market in master notes, if such notes have a demand
feature, the payee may demand payment of the principal amount of the note on
relatively short notice.
VARIABLE AND FLOATING RATE INSTRUMENTS -- Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic banks or corporations,
may carry variable or floating rates of interest. Such instruments bear interest
at rates which are not fixed, but which vary with changes in specified market
rates or indices, such as a Federal Reserve composite index.
A-24
<PAGE> 38
APPENDIX B
- --------------------------------------------------------------------------------
DESCRIPTIONS OF RATING CATEGORIES
The following are descriptions of ratings assigned by Moody's Investors
Service, Inc. ("Moody's") and Standard and Poor's Ratings Services ("S&P") to
certain debt securities in which AIM HIGH YIELD FUND II may invest. See the
Statement of Additional Information for descriptions of other Moody's and S&P
rating categories and those of other rating agencies.
MOODY'S: Aaa -- Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high grade bonds. These are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A -- Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements, their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
S&P: AAA -- Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C -- Debt rated BB, B, CCC, CC and C is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. BB indicates the lowest degree of speculation and
C the highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or large exposures
to adverse conditions.
A-25
<PAGE> 39
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>
<S> <C> <C> <C>
</TABLE>
<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-10/98
B-1
<PAGE> 40
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-10/98
B-2
<PAGE> 41
[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
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
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--Registered Trademark--, 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.
HYI2-PRO-1
<PAGE> 42
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: OCTOBER 1, 1998
RELATING TO PROSPECTUS DATED: OCTOBER 1, 1998
<PAGE> 43
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................................................................................3
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..........................................................................7
High Yield...............................................................................................7
INVESTMENT RESTRICTIONS..........................................................................................12
Additional Investment Restrictions of the Funds.........................................................14
Investing for Control...................................................................................14
MANAGEMENT.......................................................................................................14
Trustees and Officers...................................................................................14
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......................................................................................26
HOW TO PURCHASE AND REDEEM SHARES................................................................................27
NET ASSET VALUE DETERMINATION....................................................................................28
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS.........................................................................29
Reinvestment of Dividends and Distributions.............................................................29
Tax Matters.............................................................................................29
Qualification as a Regulated Investment Company.........................................................29
Excise Tax on Regulated Investment Companies............................................................30
Sale or Redemption of Fund Shares.......................................................................31
Foreign Shareholders....................................................................................32
Effect of Future Legislation; Local Tax Considerations..................................................32
DESCRIPTION OF FUND SHARES.......................................................................................32
</TABLE>
i
<PAGE> 44
<TABLE>
<S> <C>
MISCELLANEOUS INFORMATION........................................................................................33
Audit Reports...........................................................................................33
Legal Matters...........................................................................................33
Custodian and Transfer Agent............................................................................33
Principal Holders of Securities.........................................................................33
FINANCIAL STATEMENTS.............................................................................................FS
</TABLE>
ii
<PAGE> 45
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 28,
1997, 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. The SEC maintains a Web site at http://www.sec.gov
that contains this Statement of Additional Information, material incorporated by
reference and other information regarding the Funds. Additional information
about the Funds may also be obtained on the Web at http://www.aimfunds.com.
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 (the "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 Agreement and Declaration of Trust dated
May 5, 1993, as amended (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 Trust Agreement was amended on June
9, 1998 to add the AIM High Yield II Fund portfolio ("High Yield"). 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
1
<PAGE> 46
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.
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 Fund enjoy the same
limitations of liability extended to shareholders of private, for-profit
corporations. There is a remote possibility, however, that under certain
circumstances shareholders of a Fund may be held personally liable for the
Fund's obligations. However, the Trust Agreement disclaims shareholder liability
for acts or obligations of a Fund and requires that notice of such disclaimer be
given in each agreement, obligation or instrument entered into or executed by
the Trust or a trustee. The Trust Agreement provides for indemnification from
Fund property for all losses and expenses of any shareholder held personally
liable for the Fund's obligations. Thus, the risk of a shareholder incurring
financial loss on account of such liability is limited to circumstances in which
the Fund itself would be unable to meet its obligations and where the other
party was held not 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.
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, 1997, was
5.36%. This distribution rate was calculated by dividing dividends declared over
the thirty days ended July 31, 1997, 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,
1997.
Income calculated for the purposes 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.
2
<PAGE> 47
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 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, 1997, and the
period beginning December 15, 1987 (date operations commenced) through July 31,
1997.
3
<PAGE> 48
<TABLE>
<CAPTION>
AVERAGE
ANNUAL RETURN CUMULATIVE RETURN
------------- -----------------
<S> <C> <C>
One year ended 07/31/97 5.49% 5.49%
Five year ended 07/31/97 4.73% 26.02%
12/15/87 through 07/31/97 6.52% 83.70%
</TABLE>
The 30-day yield for the Class A shares as of July 31, 1997, was 5.39%
High Yield had not commenced operations as of July 31, 1997.
During the one-year period ended July 31, 1997, 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,
1997, a hypothetical $1,000 investment in the Class A shares of Limited Maturity
at the beginning of such period would have been worth $1,260. For the period
from December 15, 1987 (date operations commenced) through July 31, 1997, 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.
4
<PAGE> 49
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 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
5
<PAGE> 50
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 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, 1997, 1996, and 1995, were 129.74%,
117.09%, and 120.01%, 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.
6
<PAGE> 51
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 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
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<PAGE> 52
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.
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.
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<PAGE> 53
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.
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.
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<PAGE> 54
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 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.
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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 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
11
<PAGE> 56
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
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 the Fund, Limited Maturity 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
12
<PAGE> 57
(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 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 High Yield all classes of a Fund, High Yield 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;
13
<PAGE> 58
(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;
(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.
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.
14
<PAGE> 59
<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 (73) 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. (62) 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). Formerly,
Jetero Plaza, Suite E Member of the U.S. House of
Humble, TX 77338 Representatives.
- ------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
* A trustee who is an "interested person" of the Trust and AIM as defined
in the 1940 act.
15
<PAGE> 60
<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); and Director, ERD Waste, Inc.
New York, NY 10022 (waste management company), Aegis
Consumer Finance (auto leasing company) and
Lazard Funds, Inc. (investment companies).
Formerly, Partner, Reid & Priest (law firm);
and, prior thereto, Partner, Spengler
Carlson Gubar Brodsky & Frischling (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 (55) Trustee Attorney in private practice in Houston, Texas.
6363 Woodway, Suite 825
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 (58) 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> 61
<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 (53) 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 (50) 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 (43) 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 (54) Vice President Vice President and Chief Compliance Officer,
A I M Advisors, Inc., A I M Capital
Management, Inc., A I M Distributors, Inc.,
A I M Fund Services, Inc. and Fund
Management Company.
- ------------------------------------------------------------------------------------------------------
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> 62
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> 63
Set forth below is information regarding compensation paid or accrued
for each trustee of the Fund:
<TABLE>
<CAPTION>
========================================================================================
RETIREMENT
AGGREGATE BENEFITS TOTAL
COMPENSATION ACCRUED COMPENSATION
FROM THE BY ALL FROM ALL
DIRECTOR FUND(1) AIM FUNDS(2) AIM FUNDS(3)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Charles T. Bauer $ 0 $ 0 $ 0
- ----------------------------------------------------------------------------------------
Bruce L. Crockett 1,236 38,621 68,000
- ----------------------------------------------------------------------------------------
Owen Daly II 1,235 82,607 68,000
- ----------------------------------------------------------------------------------------
Edward K. Dunn, Jr.(4) 0 0 0
- ----------------------------------------------------------------------------------------
Jack M. Fields(4) 530 0 0
- ----------------------------------------------------------------------------------------
Carl Frischling(5) 1,236 56,683 68,000
- ----------------------------------------------------------------------------------------
Robert H. Graham 0 0 0
- ----------------------------------------------------------------------------------------
John F. Kroeger(6) 1,235 83,654 66,000
- ----------------------------------------------------------------------------------------
Prema Mathai-Davis(4) 0 0 0
- ----------------------------------------------------------------------------------------
Lewis F. Pennock 1,235 33,702 67,000
- ----------------------------------------------------------------------------------------
Ian W. Robinson 1,236 64,973 68,000
- ----------------------------------------------------------------------------------------
Louis S. Sklar 1,219 47,593 66,500
========================================================================================
</TABLE>
- ------------------
(1) The total amount of compensation deferred by all Trustees of the Fund
during the fiscal year ended July 31, 1997, including interest earned
thereon, was $5,699.
(2) During the fiscal year ended July 31, 1997, the total estimated amount
of expenses allocated to the Fund in respect of such retirement
benefits was $2,735. Data reflects compensation for the calendar year
ended December 31, 1996.
(3) Each Trustee serves as a director or trustee of a total of 12
registered investment companies advised by AIM (comprised of 47
portfolios). Data reflect total compensation earned during the calendar
year ended December 31, 1996.
(4) Mr. Dunn, Mr. Fields and Ms. Mathai-Davis did not serve as Trustees
during the calendar year ended December 31, 1996.
(5) During the year ended December 31, 1997, AIM Limited Maturity Treasury
Fund paid $5,153 to Kramer, Levin, Naftalis & Frankel, the law firm in
which Mr. Frischling, a trustee of the Trust, is a partner.
(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> 64
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 10, 10, 0, 0, 20, 19, 15, 10, 7 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%
20
<PAGE> 65
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 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
AIM was organized in 1976, and together with its subsidiaries advises
or manages approximately 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 the business of investment management on an
international basis. 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 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.
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.
21
<PAGE> 66
The Advisory Agreement became effective on February 28, 1997 and will
continue in effect until June 30, 1999 and from year to year thereafter 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 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, 1997, 1996 and 1995, AIM received
advisory fees from Limited Maturity of $837,760, $933,207, and $809,449,
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 until June 30, 1999, and shall continue in effect from year to year
thereafter 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. The Administrative Services
Agreement became effective on February 28, 1997.
For the fiscal years ended July 31, 1997, 1996 and 1995, Limited
Maturity reimbursed AIM for certain accounting, shareholder servicing and
administrative services in the amounts of $66,785, $60,857, and $82,199,
respectively.
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<PAGE> 67
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.
For the fiscal years ended July 31, 1997 and 1996, and for the period
November 1, 1994 through July 31, 1995, AFS received transfer agency and
shareholder services fees with respect to the Class A shares of Limited
Maturity, in the amounts of $171,697, $160,400 and $91,753, respectively.
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 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
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<PAGE> 68
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 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 Class A 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. ("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, 1997, AIM Distributors received fees
under the Class A and C Plan in the amount of $549,759, 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, 1997, were allocated as follows:
<TABLE>
<S> <C>
Advertising $ 11,876
Printing and mailing prospectuses, semi-annual reports 990
and annual reports (other than to current shareholders) 2,969
Seminars 0
Compensation to Underwriters to partially offset other
marketing expenses 0
Compensation to Sales Personnel 0
Compensation to Dealers including finder's fees 533,924
</TABLE>
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<PAGE> 69
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.
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,
it 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
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<PAGE> 70
(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." A
Master Distribution Agreement, dated February 28, 1997, with AIM Distributors
relating to the Class A shares of Limited Maturity Treasury Fund was approved by
the Board of Trustees on May 11, 1998. On September 25, 1998 the Board of
Trustees amended and restated this Agreement to cover the Class A and Class C
shares of High Yield. The Board of Trustees also approved a 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 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.
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<PAGE> 71
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, 1997, 1996 and 1995, the total
sales charges paid in connection with the sale of the Class A shares of Limited
Maturity were $340,764, $540,727, and $377,682, respectively, of which AIM
Distributors retained $105,675, $193,686, and $89,885, 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."
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 ("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
27
<PAGE> 72
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.
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.
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<PAGE> 73
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 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
(1) 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").
With respect to its fiscal year ending July 31, 1998, Limited Maturity must
derive less than 30% of its gross income (exclusive of certain gains on
designated hedging transactions that are offset by realized or unrealized losses
on offsetting positions) from the sale or other disposition of stock, securities
or foreign currencies (or options, futures or forward contracts thereon) held
for less than three months (the "Short-Short Gain Test"). However, foreign
currency gains, including those derived from options, futures and forward
contracts, will not be characterized as Short-Short Gain if they are directly
related to a Fund's principal business of investing in stock or securities (or
options or futures thereon). Because of the Short-Short Gain Test, a Fund may
have to limit the sale of appreciated securities that it has held for less than
three months. However, the Short-Short Gain Test will not prevent a Fund from
disposing of investments at a loss, since the recognition of a loss before the
expiration of the three-month holding period is disregarded. Interest (including
original issue discount) received by a Fund at maturity or upon the disposition
of a security held for less than three months will not be treated as gross
income derived from the sale or other disposition of such security within the
meaning of the Short-Short Gain Test. However, income that is attributable to
realized market appreciation will be treated as gross income from the sale or
other disposition of securities for this purpose. For taxable years beginning
after August 5, 1997, the Short-Short Gain Test has been repealed by the
Taxpayer Relief Act of 1997.
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
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<PAGE> 74
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.
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
30
<PAGE> 75
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, 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 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% if the shares sold or redeemed
were held for more than 18 months. 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
31
<PAGE> 76
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 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.
32
<PAGE> 77
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.
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 June 15, 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 June 15, 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 Only*
--------------- ------------
<S> <C>
Merrill Lynch Pierce Fenner & Smith 13.34%
FBO The Sole Benefit of Customers
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 are also owned beneficially.
33
<PAGE> 78
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 June 15, 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 Only*
--------------- ------------
<S> <C>
Frost National Bank 87.49%
Muir & Co.
P. O. Box 1600
San Antonio, TX 78296
Esor & Co. 5.54%
Attn: Trust Operations
P. O. Box 19006
Green Bay, WI 54307-9006
</TABLE>
AIM provided the initial capitalization of High Yield and, accordingly, as
of the date of this Statement of Additional Information owned all the
outstanding shares of the Fund. Although the Fund expects the sale of its shares
to the public will promptly reduce the percentage of its shares owned by AIM, as
long as AIM owns more than 25% of the Fund's outstanding shares, it 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.
34
<PAGE> 79
FINANCIAL STATEMENTS
<PAGE> 80
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 Limited Maturity Treasury Portfolio (a
series of AIM Investment Securities Funds) including the
schedule of investments, as of July 31, 1997, and the related
statement of operations for the year then ended, the statement
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 three-year period then ended, the eleven
months ended July 31, 1994 and each of the years in the
two-year period 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, 1997, 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 Limited Maturity
Treasury Portfolio as of July 31, 1997, 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 three-year period then ended, the eleven months ended July
31, 1994 and each of the years in the two-year period ended
August 31, 1993, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
August 22, 1997
Houston, Texas
FS-1
<PAGE> 81
SCHEDULE OF INVESTMENTS
JULY 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MARKET
MATURITY (000S) VALUE
<S> <C> <C> <C>
U.S. TREASURY SECURITIES
U.S. TREASURY NOTES - 99.03%
6.125% 08/31/98 $36,300 $ 36,511,629
- -------------------------------------------------------------------------------------------------------
6.00% 09/30/98 36,200 36,368,692
- -------------------------------------------------------------------------------------------------------
5.875% 10/31/98 36,200 36,305,704
- -------------------------------------------------------------------------------------------------------
5.625% 11/30/98 35,880 35,878,924
- -------------------------------------------------------------------------------------------------------
5.75% 12/31/98 36,200 36,266,970
- -------------------------------------------------------------------------------------------------------
5.875% 01/31/99 36,200 36,320,184
- -------------------------------------------------------------------------------------------------------
5.875% 02/28/99 36,200 36,319,460
- -------------------------------------------------------------------------------------------------------
6.25% 03/31/99 36,300 36,635,775
- -------------------------------------------------------------------------------------------------------
6.375% 04/30/99 36,300 36,713,457
- -------------------------------------------------------------------------------------------------------
6.25% 05/31/99 36,300 36,646,302
- -------------------------------------------------------------------------------------------------------
6.00% 06/30/99 35,000 35,195,650
- -------------------------------------------------------------------------------------------------------
5.875% 07/31/99 35,150 35,259,668
- -------------------------------------------------------------------------------------------------------
Total U.S. Treasury Securities 434,422,415
- -------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS - 99.03% 434,422,415
- -------------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 0.97% 4,254,808
- -------------------------------------------------------------------------------------------------------
NET ASSETS - 100.00% $438,677,223
=======================================================================================================
</TABLE>
See Notes to Financial Statements.
FS-2
<PAGE> 82
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$431,928,484) $ 434,422,415
- --------------------------------------------------------
Cash 20,611
- --------------------------------------------------------
Receivables for:
Fund shares sold 819,782
- --------------------------------------------------------
Interest 5,523,917
- --------------------------------------------------------
Investment in deferred compensation plan 19,535
- --------------------------------------------------------
Other assets 83,788
- --------------------------------------------------------
Total assets 440,890,048
- --------------------------------------------------------
LIABILITIES:
Payables for:
Fund shares reacquired 1,248,586
- --------------------------------------------------------
Dividends 674,022
- --------------------------------------------------------
Deferred compensation 19,535
- --------------------------------------------------------
Accrued advisory fees 71,077
- --------------------------------------------------------
Accrued distribution fees 47,502
- --------------------------------------------------------
Accrued transfer agent fees 38,977
- --------------------------------------------------------
Accrued operating expenses 113,126
- --------------------------------------------------------
Total liabilities 2,212,825
- --------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES
OUTSTANDING $ 438,677,223
========================================================
</TABLE>
<TABLE>
<CAPTION>
INSTITUTIONAL AIM
SHARES SHARES FUND
<S> <C> <C> <C>
NET ASSETS $48,865,566 $389,811,657 $438,677,223
==================================================================
Shares outstanding,
$0.01 par value per
share 4,853,653 38,718,670 43,572,323
==================================================================
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
==================================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $24,654,293
- -------------------------------------------------------
EXPENSES:
Advisory fees 837,760
- -------------------------------------------------------
Administrative service fees 66,785
- -------------------------------------------------------
Custodian fees 35,063
- -------------------------------------------------------
Transfer agent fees 342,339
- -------------------------------------------------------
Trustees' fees and expenses 10,907
- -------------------------------------------------------
Distribution fees (See Note 2) 549,759
- -------------------------------------------------------
Other 290,933
- -------------------------------------------------------
Total expenses 2,133,546
- -------------------------------------------------------
Less: Expenses paid indirectly (5,163)
- -------------------------------------------------------
Net expenses 2,128,383
- -------------------------------------------------------
Net investment income 22,525,910
- -------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES:
Realized gain (loss) on sales of
investment securities (328,964)
- -------------------------------------------------------
Unrealized appreciation of investment
securities 4,775,213
- -------------------------------------------------------
Net gain on investment securities 4,446,249
- -------------------------------------------------------
Net increase in net assets resulting from
operations $26,972,159
=======================================================
</TABLE>
See Notes to Financial Statements.
FS-3
<PAGE> 83
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED JULY 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ --------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 22,525,910 $ 25,817,371
- --------------------------------------------------------------------------------------------
Net realized gain (loss) on sales of investment securities (328,964) 3,022,827
- --------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities 4,775,213 (6,292,910)
- --------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 26,972,159 22,547,288
- --------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Institutional Shares (2,912,651) (8,084,170)
- --------------------------------------------------------------------------------------------
AIM Shares (19,613,259) (17,733,201)
- --------------------------------------------------------------------------------------------
SHARE TRANSACTIONS-NET:
Institutional Shares (95,511,728) 14,818,211
- --------------------------------------------------------------------------------------------
AIM Shares 27,226,897 86,957,303
- --------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (63,838,582) 98,505,431
- --------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 502,515,805 404,010,374
- --------------------------------------------------------------------------------------------
End of period $438,677,223 $ 502,515,805
============================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $443,515,589 $ 511,800,420
- --------------------------------------------------------------------------------------------
Undistributed realized gain (loss) on sales of investment
securities (7,332,297) (7,003,333)
- --------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities 2,493,931 (2,281,282)
- --------------------------------------------------------------------------------------------
$438,677,223 $ 502,515,805
============================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1997
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 Limited Maturity Treasury Portfolio (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 AIM Limited Maturity Treasury Shares (the "AIM Shares")
and the Institutional Shares. Matters affecting each class are voted on
exclusively by such shareholders.
The following is a summary of the significant accounting policies followed by
the Fund in the preparation of its financial statements. 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.
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.
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
FS-4
<PAGE> 84
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 $7,172,445, 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, 1997, the Fund
reimbursed AIM $66,785 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 holders of the AIM Shares. During the year ended July
31, 1997, AFS was paid $171,697 for such services. During the year ended July
31, 1997, the Fund paid A I M Institutional Fund Services, Inc. ("AIFS") $4,714
pursuant to a transfer agency and shareholder services agreement with respect to
the Institutional Shares.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the AIM
Shares and a master distribution agreement with Fund Management Company ("FMC")
to serve as the distributor for the Institutional Shares. The Trust has adopted
a Plan pursuant to Rule 12b-1 under the 1940 Act (the "Plan") with respect to
the AIM Shares. The Fund pays AIM Distributors compensation at an annual rate of
0.15% of the average daily net assets attributable to the AIM 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 AIM Shares of the Fund. Any amounts not
paid as a service fee under such 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, 1997, the Fund paid AIM Distributors $549,759 as
compensation under the Plan.
AIM Distributors received commissions of $105,675 during the year ended July
31, 1997 from sales of AIM Shares. Such commissions are not an expense of the
Fund. They are deducted from, and are not included in, proceeds from sales of
AIM shares. Certain officers and trustees of the Trust are officers and
directors of AIM, AIM Distributors, FMC, AFS and AIFS.
During the year ended July 31, 1997, the Fund paid legal fees of $5,153 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
AIM has directed certain portfolio trades to brokers who paid a portion of the
Fund's expenses related to pricing services used by the Fund. For the year ended
July 31, 1997 the Fund's expenses were reduced by $471. In addition, the Fund
received reductions in transfer agency fees from AFS (an affiliate of AIM) of
$4,692 under an expense offset arrangement. The effect of the above arrangements
resulted in a reduction of the Fund's total expenses of $5,163 during the year
ended July 31, 1997.
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) $500,000,000 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 July 15, 1997, the Fund was
limited to borrowing up to the lesser of (i) $325,000,000 or (ii) the limits set
by its prospectus for borrowings. During the year ended July 31, 1997, 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, 1997 was
$548,531,112 and $615,465,271, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis as, of July 31, 1997 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $ 2,424,721
- ---------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities --
- ---------------------------------------------------------
Net unrealized appreciation of investment
securities $ 2,424,721
=========================================================
</TABLE>
Cost of investments for tax purposes is $431,997,694.
FS-5
<PAGE> 85
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, 1997 and 1996 were
as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Sold:
AIM shares 22,795,689 $ 228,371,816 25,131,827 $ 252,267,687
- ---------------------------------------------------------------------------------------------------------------------
Institutional shares 2,663,678 26,662,958 5,925,940 59,531,203
- ---------------------------------------------------------------------------------------------------------------------
Issued as a reinvestment of dividends:
AIM shares 1,600,608 16,029,270 1,451,553 14,553,507
- ---------------------------------------------------------------------------------------------------------------------
Institutional shares 16,172 161,587 113,885 1,142,722
- ---------------------------------------------------------------------------------------------------------------------
Reacquired:
AIM shares (21,687,977) (217,174,189) (17,942,356) (179,863,891)
- ---------------------------------------------------------------------------------------------------------------------
Institutional shares (12,215,116) (122,336,273) (4,566,815) (45,855,714)
- ---------------------------------------------------------------------------------------------------------------------
(6,826,946) $ (68,284,831) 10,114,034 $ 101,775,514
=====================================================================================================================
</TABLE>
NOTE 8-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for an AIM Share outstanding during
each of the years in the three-year period ended July 31, 1997, the eleven
months ended July 31, 1994 and each of the years in the two-year period ended
August 31, 1993.
<TABLE>
<CAPTION>
JULY 31, AUGUST 31,
-------------------------------------------- -------------------
1997 1996 1995 1994 1993 1992
----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.97 $ 10.03 $ 9.96 $ 10.24 $ 10.21 $ 10.01
- ------------------------------------------------------------ ---------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.54 0.55 0.54 0.35 0.42 0.58
- ------------------------------------------------------------ ---------- -------- -------- -------- -------- --------
Net gains (losses) on securities (both realized and
unrealized) 0.10 (0.06) 0.07 (0.20) 0.05 0.29
- ------------------------------------------------------------ ---------- -------- -------- -------- -------- --------
Total from investment operations 0.64 0.49 0.61 0.15 0.47 0.87
- ------------------------------------------------------------ ---------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.54) (0.55) (0.54) (0.35) (0.42) (0.58)
- ------------------------------------------------------------ ---------- -------- -------- -------- -------- --------
Distributions from net realized capital gains -- -- -- (0.08) (0.02) (0.09)
- ------------------------------------------------------------ ---------- -------- -------- -------- -------- --------
Total distributions (0.54) (0.55) (0.54) (0.43) (0.44) (0.67)
- ------------------------------------------------------------ ---------- -------- -------- -------- -------- --------
Net asset value, end of period $ 10.07 $ 9.97 $ 10.03 $ 9.96 $ 10.24 $ 10.21
============================================================ ========== ======== ======== ======== ======== ========
Total return(a) 6.55% 4.98% 6.36% 1.52% 4.65% 8.93%
============================================================ ========== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 389,812 $359,048 $274,480 $329,942 $348,937 $260,454
============================================================ ========== ======== ======== ======== ======== ========
Ratio of expenses to average net assets 0.54%(b)(c) 0.54% 0.51% 0.47%(d) 0.46% 0.48%
============================================================ ========== ======== ======== ======== ======== ========
Ratio of net investment income to average net assets 5.35%(b) 5.45% 5.44% 3.75%(d) 4.07% 5.60%
============================================================ ========== ======== ======== ======== ======== ========
Portfolio turnover rate 130% 117% 120% 120% 123% 120%
============================================================ ========== ======== ======== ======== ======== ========
</TABLE>
(a) Does not deduct sales charges and for periods less than one year, total
return is not annualized.
(b) Ratios are based on average net assets of $366,506,207.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have remained the same.
(d) Annualized.
FS-6
<PAGE> 86
SCHEDULE OF INVESTMENTS
January 31, 1998
(unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
MATURITY AMOUNT VALUE
<S> <C> <C> <C>
U.S. TREASURY SECURITIES
U.S. TREASURY NOTES-106.76%
5.875% 1/31/99 $36,400,000 $ 36,618,764
- ---------------------------------------------------------------------------------------------------
5.875% 2/28/99 36,150,000 36,383,529
- ---------------------------------------------------------------------------------------------------
6.25% 3/31/99 35,350,000 35,742,738
- ---------------------------------------------------------------------------------------------------
6.375% 4/30/99 35,300,000 35,764,195
- ---------------------------------------------------------------------------------------------------
6.25% 5/31/99 36,425,000 36,870,478
- ---------------------------------------------------------------------------------------------------
6.00% 6/30/99 35,300,000 35,645,234
- ---------------------------------------------------------------------------------------------------
5.875% 7/31/99 36,200,000 36,497,564
- ---------------------------------------------------------------------------------------------------
5.875% 8/31/99 35,800,000 36,112,534
- ---------------------------------------------------------------------------------------------------
5.75% 9/30/99 36,100,000 36,351,978
- ---------------------------------------------------------------------------------------------------
5.625% 10/31/99 35,750,000 35,923,745
- ---------------------------------------------------------------------------------------------------
5.625% 11/30/99 36,000,000 36,187,560
- ---------------------------------------------------------------------------------------------------
5.625% 12/31/99 36,000,000 36,200,880
- ---------------------------------------------------------------------------------------------------
5.375% 1/31/00 36,500,000 36,551,465
- ---------------------------------------------------------------------------------------------------
Total U.S. Treasury Securities 470,850,664
- ---------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS-106.76% 470,850,664
- ---------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-(6.76)% (29,812,990)
- ---------------------------------------------------------------------------------------------------
NET ASSETS-100.00% $441,037,674
===================================================================================================
</TABLE>
See Notes to Financial Statements.
FS-7
<PAGE> 87
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1998
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$466,934,133) $ 470,850,664
- --------------------------------------------------------
Cash 14,049
- --------------------------------------------------------
Receivables for:
Fund shares sold 2,085,338
- --------------------------------------------------------
Interest 7,606,856
- --------------------------------------------------------
Investment in deferred compensation plan 23,565
- --------------------------------------------------------
Other assets 77,212
- --------------------------------------------------------
Total assets 480,657,684
- --------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 36,461,826
- --------------------------------------------------------
Fund shares reacquired 2,124,029
- --------------------------------------------------------
Dividends 644,191
- --------------------------------------------------------
Deferred compensation 23,565
- --------------------------------------------------------
Accrued administrative service fees 4,757
- --------------------------------------------------------
Accrued advisory fees 75,006
- --------------------------------------------------------
Accrued distribution fees 49,568
- --------------------------------------------------------
Accrued transfer agent fees 31,707
- --------------------------------------------------------
Accrued operating expenses 205,361
- --------------------------------------------------------
Total liabilities 39,620,010
- --------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES
OUTSTANDING $ 441,037,674
========================================================
</TABLE>
<TABLE>
<CAPTION>
INSTITUTIONAL
CLASS A CLASS FUND
<S> <C> <C> <C>
NET ASSETS $388,242,970 $52,794,704 $441,037,674
==================================================================
Shares outstanding,
$0.01 par value per
share 38,398,629 5,221,584 43,620,213
==================================================================
NET ASSET VALUE AND REDEMPTION PRICE PER
SHARE $ 10.11
==================================================================
OFFERING PRICE PER SHARE:
(Net asset value of $10.11 divided by 99.00%) $ 10.21
==================================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998
(UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $12,963,755
- -------------------------------------------------------
EXPENSES:
Advisory fees 437,779
- -------------------------------------------------------
Administrative service fees 28,374
- -------------------------------------------------------
Custodian fees 22,466
- -------------------------------------------------------
Transfer agent fees-Class A 161,679
- -------------------------------------------------------
Transfer agent fees-Institutional Class 2,282
- -------------------------------------------------------
Trustees' fees and expenses 27,476
- -------------------------------------------------------
Distribution fees-Class A 290,305
- -------------------------------------------------------
Other 153,536
- -------------------------------------------------------
Total expenses 1,123,897
- -------------------------------------------------------
Less: Expenses paid indirectly (1,946)
- -------------------------------------------------------
Net expenses 1,121,951
- -------------------------------------------------------
Net investment income 11,841,804
- -------------------------------------------------------
REALIZED AND UNREALIZED GAIN FROM
INVESTMENT SECURITIES:
Net realized gain from investment
securities 462,572
- -------------------------------------------------------
Net unrealized appreciation of investment
securities 1,422,600
- -------------------------------------------------------
Net gain on investment securities 1,885,172
- -------------------------------------------------------
Net increase in net assets resulting from
operations $13,726,976
=======================================================
</TABLE>
See Notes to Financial Statements.
FS-8
<PAGE> 88
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 AND THE YEAR ENDED JULY 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
JANUARY 31, JULY 31,
1998 1997
------------ --------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 11,841,804 $ 22,525,910
- --------------------------------------------------------------------------------------------
Net realized gain (loss) on sales of investment securities 462,572 (328,964)
- --------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities 1,422,600 4,775,213
- --------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 13,726,976 26,972,159
- --------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A (10,419,222) (19,613,259)
- --------------------------------------------------------------------------------------------
Institutional Class (1,422,582) (2,912,651)
- --------------------------------------------------------------------------------------------
SHARE TRANSACTIONS-NET:
Class A (3,227,839) 27,226,897
- --------------------------------------------------------------------------------------------
Institutional Class 3,703,118 (95,511,728)
- --------------------------------------------------------------------------------------------
Net increase (decrease) in net assets 2,360,451 (63,838,582)
- --------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 438,677,223 502,515,805
- --------------------------------------------------------------------------------------------
End of period $441,037,674 $ 438,677,223
============================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $443,990,868 $ 443,515,589
- --------------------------------------------------------------------------------------------
Undistributed realized gain (loss) on sales of investment
securities (6,869,725) (7,332,297)
- --------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 3,916,531 2,493,931
- --------------------------------------------------------------------------------------------
$441,037,674 $ 438,677,223
============================================================================================
</TABLE>
See Notes to Financial Statements.
FS-9
<PAGE> 89
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1998
(UNAUDITED)
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 class are voted on exclusively by such shareholders.
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.
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 $7,172,445, 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 six months ended January 31, 1998,
the Fund reimbursed AIM $28,374 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 six months ended
January 31, 1998, AFS was paid $86,889 with respect to Class A shares, and for
the period December 29, 1997 through January 31, 1998, AFS was paid $440 with
respect to the Institutional Class. Prior to effective date of the agreement
with AFS, the Fund paid A I M Institutional Fund Services, Inc. $1,842 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
FS-10
<PAGE> 90
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 six months ended January 31, 1998, the Fund paid AIM
Distributors $290,305 as compensation under the Plan.
AIM Distributors received commissions of $6,130 during the six months ended
January 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 six months ended January 31, 1998, the Fund paid legal fees of
$2,334 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 $1,946 under an expense offset arrangement. The effect of the above
arrangement resulted in a reduction of the Fund's total expenses of $1,946
during the six months ended January 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) $500,000,000 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.
During the six months ended January 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 six months ended January 31, 1998 was
$278,313,096 and $243,919,088, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis as, of January 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $ 3,865,036
- ---------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities 0
- ---------------------------------------------------------
Net unrealized appreciation of investment
securities $ 3,865,036
=========================================================
</TABLE>
Cost of investments for tax purposes is $466,985,628.
FS-11
<PAGE> 91
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 six months ended January 31, 1998 and
the year ended July 31, 1997 were as follows:
<TABLE>
<CAPTION>
JANUARY 31, 1998 JULY 31, 1997
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Sold:
Class A 11,569,826 $ 116,259,156 22,795,689 $ 228,371,816
- ---------------------------------------------------------------------------------------------------------------------
Institutional Class 876,896 8,825,360 2,663,678 26,662,958
- ---------------------------------------------------------------------------------------------------------------------
Issued as a reinvestment of dividends:
Class A 852,019 8,740,480 1,600,608 16,029,270
- ---------------------------------------------------------------------------------------------------------------------
Institutional Class 2,352 23,670 16,172 161,587
- ---------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (12,741,886) (128,227,475) (21,687,977) (217,174,189)
- ---------------------------------------------------------------------------------------------------------------------
Institutional Class (511,317) (5,145,912) (12,215,116) (122,336,273)
- ---------------------------------------------------------------------------------------------------------------------
47,890 $ 475,279 (6,826,946) $ (68,284,831)
=====================================================================================================================
</TABLE>
NOTE 8-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A shares
outstanding during the six month period ended January 31, 1998, each of the
years in the three-year period ended July 31, 1997, the eleven months ended July
31, 1994 and each of the years in the two-year period ended August 31, 1993.
<TABLE>
<CAPTION>
JULY 31, AUGUST 31,
JANUARY 31, ----------------------------------------- -------------------
1998 1997 1996 1995 1994 1993 1992
----------- -------- -------- -------- -------- -------- --------
<S> <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
- ------------------------------------------------- ---------- -------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.27 0.54 0.55 0.54 0.35 0.42 0.58
- ------------------------------------------------- ---------- -------- -------- -------- -------- -------- --------
Net gains (losses) on securities (both realized
and unrealized) 0.04 0.10 (0.06) 0.07 (0.20) 0.05 0.29
- ------------------------------------------------- ---------- -------- -------- -------- -------- -------- --------
Total from investment operations 0.31 0.64 0.49 0.61 0.15 0.47 0.87
- ------------------------------------------------- ---------- -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.27) (0.54) (0.55) (0.54) (0.35) (0.42) (0.58)
- ------------------------------------------------- ---------- -------- -------- -------- -------- -------- --------
Distributions from net realized gains -- -- -- -- (0.08) (0.02) (0.09)
- ------------------------------------------------- ---------- -------- -------- -------- -------- -------- --------
Total distributions (0.27) (0.54) (0.55) (0.54) (0.43) (0.44) (0.67)
- ------------------------------------------------- ---------- -------- -------- -------- -------- -------- --------
Net asset value, end of period $ 10.11 $ 10.07 $ 9.97 $ 10.03 $ 9.96 $ 10.24 $ 10.21
================================================= ========== ======== ======== ======== ======== ======== ========
Total return(a) 3.15% 6.55% 4.98% 6.36% 1.52% 4.65% 8.93%
================================================= ========== ======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 388,243 $389,812 $359,048 $274,480 $329,942 $348,937 $260,454
================================================= ========== ======== ======== ======== ======== ======== ========
Ratio of expenses to average net assets 0.54%(b)(c) 0.54% 0.54% 0.51% 0.47%(d) 0.46% 0.48%
================================================= ========== ======== ======== ======== ======== ======== ========
Ratio of net investment income to average net
assets 5.36%(b) 5.35% 5.45% 5.44% 3.75%(d) 4.07% 5.60%
================================================= ========== ======== ======== ======== ======== ======== ========
Portfolio turnover rate 53% 130% 117% 120% 120% 123% 120%
================================================= ========== ======== ======== ======== ======== ======== ========
</TABLE>
(a) Does not deduct sales charges and are not annualized for periods less than
one year.
(b) Ratios are annualized and based on average net assets of $383,918,484.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have remained the same.
(d) Annualized.
FS-12
